Welcome to TTEC’s Second Quarter 2018 Earnings Conference Call. I would like to remind all parties that you will be on listen-only mode until the question-and-answer session. This call is being recorded at the request of TTEC. I would now like to turn the call over to Paul Miller, TTEC’s Senior Vice President, Treasurer and Investor Relations Officer. Thank you, sir. You may begin.

Good morning and thank you for joining us today. TTEC is hosting this call to discuss its second quarter financial results for the period ended June 30, 2018. Participating on today’s call are Ken Tuchman, our Chairman and Chief Executive Officer; and Regina Paolillo, our Chief Financial and Administrative Officer. Yesterday, TTEC issued a press release announcing its financial results. While this call will reflect items discussed within that document, for complete information about our financial performance in the second quarter, we also encourage you to read our quarterly report on Form 10-Q. Before we begin, I want to remind you that matters discussed on today’s call may include forward-looking statements related to our operating performance, financial goals and business outlook, which are based on management’s current beliefs and assumptions. Please note that these forward-looking statements reflect our opinions as of the date of this call, and we undertake no obligation to revise this information as a result of new developments that may occur. Forward-looking statements are subject to various risks, uncertainties and other factors that could cause the actual results to differ materially from those expected and described today. For a complete detailed description of our risk factors, please review our annual report on Form 10-K. A replay of this conference call will be available on our website under the Investor Relations section. I will now turn the call over to Ken Tuchman, TTEC’s Chairman and Chief Executive Officer.

Thanks, Paul, and good morning, everyone. Thank you for participating on today’s call. Our strategy has always been to take the long view with our business. We’ve been deliberate and transparent as we’ve evolved our company. We’ve worked hard to transform TTEC from its legacy is a first-class provider of care services to a modern strategic customer experience partner offering consulting, technology, data analytics and operational services for digital transformation. As the world becomes more digital and the volume of customer interactions increases, we are experiencing unprecedented demand for our customer engagement technology and services. This is evidenced by our growing pipeline, which is up 40% over the last year and well-diversified across industries and geographies and business segments, and the momentum is accelerating. Our solutions are attracting blue chip brands, urgently navigating their customer experience transformation, as well as exciting high-growth digital disruptors seeking actual partners to help them keep up with their surging growth. Our robust pipeline is rapid rapidly converting into bookings. In the second quarter we booked 140 million, 131% increase over the same period last year and a 40% sequentially. This milestone represents the highest quarterly bookings achieved in over 10 years. We expect the trend to continue with full year 2018 bookings growth in excess of 20% over 2017. In addition, we are experiencing strong performance in our customer growth, technology and strategy businesses, which are expected to meet or exceed our full year 2018 performance plans. In particular, our Customer Technology business is expected to outperform significantly on the top and bottomline, specific to our SaaS cloud offering. We project on a full year basis revenue to grow approximately 72%, with gross margins approaching 45%. Through CTS, our -- we currently manage over 200,000 cloud licenses globally, as this business continues to scale,…

Thanks, Ken. Good morning. Before I jump into our first quarter results, I would like to provide some contexts regarding certain short-term items affecting our 2018 results. These items relate exclusively to our CMS segment, are temporary in nature and are expected to be remediated by the end of 2018. Our second quarter performance and full year guidance is a tale of two extremes. On one hand we have a noteworthy over performance in our bookings across the business and the CSS, CTS and CA -- CGS business segments are outperforming both revenue and operating margin guidance. At the same time, the CMS segment is faced with a short list of temporary challenges, most of which have to do with timing. The numbers included in the following comments are on a non-GAAP basis, excluding assets held for sale, restructuring and impairment charges. On the positive side, our digital cloud offering grew 59% in the first half of 2018 and it’s estimated to grow approximately 72% on a full year basis. The gross margin percentage in this offering is estimated to expand 645 basis points in 2018, reaching 45% versus the total company gross margin percentage of approximately 24%. Our digital systems integration offering grew 29% in the first half of 2018, and it’s estimated to grow approximately 30% on a full year basis. The gross margin of this business is estimated to expand 530 basis points in 2018, reaching approximately 40%. Our Digital Customer Acquisition business after declining in 2017 grew 6% in the first half of 2018 and it’s estimated to grow approximately 25% in the second half and 15% on a full year basic. Operating margin is estimated to expand 200 basis points in 2018, reaching approximately 9%. Our Digitally Focused Consulting business after declining in both 2016…

Thanks, Regina. As we open the call, we ask that you limit your questions to one or two at a time. Operator, you may now open the lines.

Thank you. Our first question comes from George Sutton from Craig-Hallum. Your line is now open.

I promise I will limit myself to one question. Unfortunately it’s a whopping four-part question. I wondered if you could discuss the bookings in the pipeline both -- and which were obviously strong, but in the context of the following. Number one, the CMS versus non-CMS, number two, how much is Western Europe impacting those numbers, number three, what are the win rate numbers looking like relative to a traditional, and lastly, can you just talk about the length of deal cycles?

Hi, George. It’s Ken. How are you? Real quickly, the last part of your question, could you be a little more explicit?

In terms of length of deal cycles?

I thought there was a question -- a point after that?

No, no. Just -- book -- you obviously had great bookings and you have a…

Yeah.

… very solid pipeline?

Yeah. So…

I am just trying to understand it in the context?

So I will start with the last one and make it first and then, I’m sure Regina will weigh in. As far as the cycle time on deal cycles, we are definitively seeing a compression of deal cycle time, which is very exciting to us, and therefore, overall, deals are across all segments are going from contact to contract in a shorter period of time. Each segment is different for obvious reasons. So in the Technology Solutions segment, for example, if it’s a mega enterprise deal that 5,000, 10,000 SaaS cloud seats, those deals historically used to take when they were premise deals a year and a half in length and sometimes even longer. They are now probably taking anywhere from eight months to 12 months. On the smaller size deals still very significant and opportunity in the CTS and the cloud area. They are taking well under six months. So, again, it really depends that it’s a multi-country, multi-national deal, where there’s lots of organizations within the company and divisions, et cetera, obviously, it takes longer to win those deals, as well as to implement them. Our implementation time also on our large cloud deal has come down dramatically. As we’ve really learned how to take advantage of the cloud and so we are seeing implementation times on small deals go live, in some cases in 30 days or less, very large deals where it’s 10, 15 countries we are completing the entire process from all the upfront consulting that’s necessary, all the engineering et cetera to the implementation and going live and training required in about a five months period of time. I don’t know if that’s helpful on that segment. On the -- on the -- if we just kind of keep going through, consulting deals contact…

Yeah. I will just go back to -- on the bookings, on a year-to-date basis, CMS is about 56% of bookings, it’s up maybe 200 basis points from a mix point last year. Overall, as we said, the CMS bookings is up 24% and the overall bookings are up 20%. So the good news is, is not that CMS is growing in a percentage, because the others are not, all of the segments are having a really good success in terms of momentum in the topline and that’s through the year-to-date. We have made some comments especially relative to the changing guidance. We have made comments to help folks understand that already in the third quarter we have significant bookings that are kind of expected to be in line or better than Q2. And what I would say, on that quarter we have some exceptional bookings that we will be closing relative to CMS and I would expect the mix there to be slightly higher. What -- if there were other things that you were trying to get out in terms of more contexts on the bookings from the metric point of view, I think, Ken, covered a lot of qualitative things in terms of time. But is there anything else that we can.

Well, Western Europe is obviously a new focus and I’m curious how much impact that is having? And then, finally, I was just curious about in general how are your win rates?

Yeah. I mean, I would say, relatively speaking, overall, it is relatively small, but there’s a tremendous momentum. We are talking shy of $15 million of bookings. Again, remember our bookings are annual contract value. They are not total contract value. We don’t report that. So but what I would say is, that is an area that we have historically not put a lot of energy and a lot of focus in. We are now focusing very much so on that area and we are very confident that we are going to see some significant acceleration across these -- across a myriad of Western European countries that are looking for our capabilities.

And let me just add some context. I will rattle off in terms of the bookings. In Q2 we did have 19 bookings that are over a $1 million. More than half of them has multiple elements.

Multiple segments.

Multiple segments.

That took advantage of multiple…

Multiple segments -- multiple elements from across our segments. We had two very noteworthy new logos. One, our retail pharma and we have extended our relationship to the government in a noteworthy department. Our average size of the deal -- of -- our average deal size is up 50% over the prior year. We are seeing the bulk of our growth continues to be in our embedded base with interesting new logos and we are making good headway from an industry point of view seeing continued significant volumes in healthcare, penetrating online retailers, our offshoring mix is up, which bodes well for our future…

Margins.

… margins with more business, Philippines will start to grow faster than the U.S. And I think it’s important given some of the things that happen in the quarter to again note that we are having success from a pricing point of view in the U.S. on all of our new bookings and have for a number of quarters, getting the right U.S. wage rates in those markets that are more and more competitive.

Okay. Great details. Sorry for the lengthy question.

No worries. Thank you.

[Operator Instructions] Our next question comes from Frank Atkins from SunTrust. Your line is now open.

Thank you for taking my questions. First, can I get an update on total headcount and you could -- could you give a little bit of color on kind of the mix of headcount by geography or onshore offshore mix?

One second, I want to kind of go.

So at the end of the quarter we are around 48,000 people and I would say that the bulk of that is in the Philippines and U.S., with U.S. up slightly and the Philippines starting to grow.

Okay. That’s helpful. And then, in the CMS segment, can you give an update on industry exposure and are there any areas of strength or weakness by industry?

Well, let see, from a -- what I would say to you is, is that, all the verticals right now are actually showing a lot of activity. Specifically, tech, healthcare, business services, financial services, online retail is definitely doing very well as well. So I would say that those of the areas that we are seeing, I guess, the other area that I should mention is travel, travel is really doing extremely well and there’s a lot of activity, just because so many people are traveling right now, with the economy being where it is on a global basis. As far as, weakness, I don’t actually feel like we’re too concerned about any particular industry or vertical. So I don’t know if that’s answering your question?

Yeah. I mean, I think, we do know, obviously that there is challenge in our industry relative to telco. We have dramatically brought our telco mix down over the last number of years and we actually are starting to, I would say, the positive for us in telco is that, that -- those companies in telco have had some challenges relative to the quality of service and there is lots of movement in that industry across company. They are consolidating. And we’re getting some of the tailend of that relative to volumes price at the level…

That will assess…

… that we will easy get to the financial profile that we want CMS to have. I would also say and maybe, Ken, will talk a little bit about is that. For us I think the theme is less about the verticals. We are focused on these verticals. These high growth verticals, right, that we have identified in terms of healthcare, in terms of online retail. But I think the theme for us that we are seeing a success in what we would call a hyper growth digital disruptors. And Ken, I don’t know you want to talk a little bit about that?

Yeah. I mean, I think, it’s -- because we are not allowed to discuss the clients that we do business with. What I would just simply say is, suffice to say that, all the major apps that are on your phone, a high percentage of those apps that you would use on it hourly basis to a daily basis, we have something to do with, whether it be providing service, providing technology, providing back office capabilities, et cetera. And we are growing in that area very nicely and are very focused on that. The other thing that I would say is that the clients were focused on -- or tend to be much more focused on outcomes and much less focused on more of the old style commoditization of the business. And so we are leaving the companies that are -- that really are treating customer care as a transaction to others that are interested in that type of business and we are focusing on what we believe is a much higher value business that requires significantly more experienced human capital and more technology. A good example is, some of the contracts that we are signing today, the base labor wage is starting at $19 an hour, which I think is pretty different than what a lot of people are focused on in the marketplace. We are seeing the complexity of the interactions going up pretty dramatically and the good news of that is it makes it very sticky. I would say this, the short-term negative of is it means that you’re having to hire people that are significantly more capable and talented, and the training period tend to be longer and that can have short-term impact on profitability as we are ramping these higher-priced or higher cost associates along with the investments that are being made in training, educating and then part of our nesting and simulation process. So hope that’s helpful.

Yeah. That’s helpful. Thank you very much.

Thank you.

Our next question comes from Bill Warmington from Wells Fargo. Your line is now open.

Good morning, everyone.

Good morning.

So, I am just going to do my questions one at a time. That’s all I can handle. So the first one is, could you give us a sense for what your exposure is as a percentage of revenue, in terms of what’s coming from telecom?

It is probably right now about 24%-ish, somewhere around there. And what I would say is that the telecom work that we are doing is with companies that are very focused on having a very high Net Promoter Score and that are achieving the highest Net Promoter Scores across the globe. They are well-known companies. They are not necessarily all based here in the United States. And so, what I would just simply say to you is, is that, they’re very focused on the customer journey and the experience of the customer is receiving.

The bookings number was very impressive and the trend that’s going to get you to 20% plus growth for 2018 sounds very strong. And so it seems like the bookings number is half of the equation, meaning, that’s kind of the gross revenue? And then, there must be some offsets there that are taking the growth down and I’m just trying to understand that better. I mean is it attrition and is it the move offshore, is it lower volume at clients. What is it that’s offsetting such a strong bookings number?

Yeah. I think your question is with the bookings at that level, why isn’t it materializing in the revenue growth? Is that your question?

Yes. And may be is the question towards 2019 revenue growth then? You talked about the timing for…

And I am -- and so, again, right, there are a couple of things going on, right. One, we did anticipate, right. As we entered Q2 it looked like we were very close to some pricing increases with certain clients, I laid that out in script, I won’t go through that again. But what’s happening in ‘18, right, is different, right, then what I would say, the overall theme is, right. We do expect and you can expect of us that the growth rates that we predict for that CMS business will be different than the growth rate we are going to have this year which overall is going to be 1% in CMS. So that’s for sure, right. That’s one layer that is important to know that that growth rate that we are having in CMS that the kind of increase and the bookings of 134 and the bookings that we can see already in Q3 and expect will drive greater volumes in CMS. Unfortunately, in year, depressing at are delay in some prices that we are negotiating with clients, which we believe we will get relative to wages that are not appropriate, right. In order for us to operate at the level we want to operate. The second thing is that the bookings are later. So even in Q2, we came off of Q1, right. We had a level of bookings in CMS. We left a number of bookings on the table that didn’t get signed in time for Q1. In fact, right, just through extended MSA negotiation, those got delayed in the quarter by a couple of months and we can see also for reasons that, Ken, pointed to, the bookings that will close in Q3, right, that the bookings are more complex, there are new lines of businesses, they are more complicated work, in some instances, right, the license work and these have elements of negotiation that don’t threaten to close but take longer. And so longer time to get these bookings done and then the pricing increases are the two primary challenges. The other one, don’t forget, a $12 million is coming from a change in FX rates that we anticipate based on the strengthening of the dollar. So those collectively are what our -- putting some pressure on revenue for CMS this year and we expect to be towards what we have kind of noted as our kind of strategic growth rate for this company into ‘19.

Well, if you can remind again, what are you thinking about for strategic growth rate for 2019, what is that?

That over the midterm it’s 3% to 5% in that business.

On CMS.

On CMS, that’s the business we are talking about.

Yeah. As far as not on the other side.

Right.

Yeah. The other businesses are very different in terms of that growth rates.

Then in terms of the U.S. labor market challenges that you mentioned. We have been hearing that from other customer support companies as well, higher wages, higher attrition, a couple of recruitment. What’s that doing to the client behavior? We have been hearing that, you talked about getting some price increases, we have been hearing that that’s been also driving some higher level of offshoring. I am trying to get a sense for, specifically, how you guys are reacting to it and maybe as a corollary to that is, what percentage of your revenue is actually being handled out of the U.S.?

Look, so, first of all, I would like to say that, all contracts that were negotiated and signed of new clients over realistically the last three quarters are all priced on new labor pricing and we feel very good about all the new businesses that’s been won that has all then priced at very competitive wages in the marketplace, competitive meaning that we feel very comfortable that we will have an advantage of hiring high quality people with those new contracts. Many, if not the -- a high percentage of the embedded base contracts, we’ve been working for quite some time have also been renegotiated and clients have agreed to pay a fairly significantly higher rate due to base wage increases in the U.S. As it relates to all other markets outside of the U.S., we are not experiencing pricing pressure that is anything other than what just normal cost of living that we see have seen over the years, et cetera, and have no concerns whatsoever whether it would be nearshore, offshore markets, European markets, et cetera. So this is for us right now a U.S. phenomenon that we are focused on. And what I would say to answer your question about how our clients reacting is the following. I would say that for the most part, clients -- I would -- are much more understanding than I’ve ever seen them be in the past, because they are experiencing the exact same thing in their internal captives where they have a much higher attrition than they have ever experienced and in many cases where they are not actually meeting their staffing requirements. So they have been internally on their captives been increasing the payroll and naturally us being quote unquote a third-party provider we tend to get dealt with…

Well, I guess, the one question I had outstanding there was, what percentage of total revenue is being supported by U.S. labor?

Yeah. I don’t have that by -- I don’t have that right now. I don’t want to just throw out a number. But I will tell you is that 25% from the CMS point of view, 25% of the resource is U.S. based. I mean, you can’t -- and you can’t just look at revenue, you have got to look at by…

Okay. By headcount.

Yeah.

25% of headcount in CMS.

So I am just saying, I don’t have the -- I don’t have a precise number for you on that. I don’t want to throw out a number, but I can tell you that 20 -- around 25% of our headcount in CMS is U.S.

Got it. All right. That’s helpful. All right. Well, thank you very much for the insight.

Thank for your questions. That is all the time we have today.

Thank you.

And this concludes today’s TTEC second quarter 2018 earnings conference call. You may now disconnect at this time.