Welcome to TTEC's Fourth Quarter and Full Year 2018 Earnings Conference Call. I would like to remind all parties that you will be in a listen only mode until the question-and-answer session. This call is being recorded at the request of TTEC. I would like now 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 fourth quarter and full year financial results for the period ended December 31, 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 third quarter, we also encourage you to read our 2018 annual report on Form 10-K. Before we begin, I want to remind you that matters discussed in 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 the various risks, uncertainties and other factors that could cause our actual results to differ materially from those expected or described today. For a more detailed description of our risk factors, please review our 2018 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, who is travelling on business and calling in from a remote TTEC facility.

Thanks, Paul, and good morning, everyone. Thanks for joining. My comments will include certain statements related to our financials which are on a non-GAAP basis. It was without question a year filled with remarkable milestones. In 2018, new business signings reached an unprecedented $600 million, an increase of 36% over the prior year. Customer Management Services bookings grew 54% and Customer Technology Services grew 69%. Our average deal size also increased driven by noticeable uptick in mega deal wins and an improved mix of cross segment capabilities sold with each deal. We grew our wallet share in our embedded base by adding new lines of business and selling across segments, booked significant new business and disruptive and hyper growth companies. We yielded positive results from our focus on expanding our client base in Europe and we experienced growing demand for digitizing and automating the customer experience. This is a market trend for which we have been preparing for, for the past decade. Our investment in innovation is paying off with an increasing number of clients now benefiting from our end-to-end digital transformation offerings. We are excited that we've crossed the $1.5 billion revenue mark in 2018. We positioned our Customer Management Services business for success in 2019, while gaining noticeable momentum in both our Customer Technology and Customer Growth Services segments. We grew our Customer Technology Services revenue 29%. With its SAS based cloud business growing at 90% and Systems Integration Services growing 29%. Today, we continue to increase the number of subscriptions base by contacts that are licenses supporting many of the world's most noteworthy enterprises and government agencies. And we're excited about the opportunity in the cloud contact center space. The trajectory of our digital business overall and we expect the momentum will continue to build over the…

Thanks, Ken. Good morning, everyone. I'll start with some general comments on 2018 focused on our non-GAAP results and excluding assets held for sale as defined in the tables attached to our press release. As Ken indicated, our sales and marketing teams delivered an extraordinary 600 million in bookings in 2018. While we had a handful of mega deals supporting our 2018 bookings volume, our demand generation and sales execution fundamentals are solid. Market demand is growing as is our pipeline, 18 continued strong bookings. We are well positioned to deliver an estimated total company organic revenue growth rate between 7.5% and 8.6% in 2019. Revenue generation in CTS and CGS was exceptional with CTS growing, 29% and CGS just under 14%. Profit expansion in 2018 and CSS, CTS and CGS was equally impressive with operating income margins expanding 320 basis points in CSS, 440 basis points in CTS and 140 basis points in CGS. As previously discussed, CMS was negatively impacted by the timing of booking, US wage pressure and increased mix in onshore volumes, escalated health care costs and the dilutive impact of increased new business rent, all of which have been addressed and are progressing as planned. The increase in business ramps are the direct result of the growth in bookings and once ramped will be accretive to our current operating income margin. While we achieved the high end of our revenue guidance we missed or profit guidance. This miss was exclusively due to the postponement of a volume commitment fee, which will now be recorded in 2019. Regarding our progress in mitigating CMSs 2018 headwinds, our fourth quarter CMS bookings reached an unprecedented 115 million. The continued strong new business signing in the fourth quarter resulted in full year bookings growth of 54%. The highlights of…

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

Thank you. We will begin the question-and-answer session. [Operator Instructions] And our first question is from George Sutton of Craig Hallum. Your line is now open.

Thank you. I had a two part question relative to the bookings. Obviously, you're seeing great booking success. I wondered if you could give us a sense of the margin dynamics within that mix of bookings relative to your core - relative to what you had seen in prior bookings. And secondly, I think the biggest miss read by the market on the stock is some of the things that you do and you specifically called out the hyper growth disruptors, I mean, we know the ride sharing leaders, we know the meal delivery leaders, we know the streaming leaders, I'm curious you can go on a little more detail on the size and scope of that opportunity?

Hey George, this is Ken. I'll start out with the last part of your question. I think Regina maybe can join in on the first part. I'll try to do as much as I can on giving you some type of background on the disruptors. Just know that the clients that we work with although they're obvious who they are in many cases, we are not allowed to use their names and so if - I'm not trying to be [indiscernible], but I want to respect their request for that. So as it relates to the size and scale of these types of disruptors, I would say that it's an ever increasing growing part of our business. And we have many, many thousands of workstations that are committed to the overall on demand marketplace across everything that we described in our script. So it is sizable and its continuing to grow and we continue to double down in that area. So hopefully that answers your question. I'm not sure that there's a ton more color that I can give you on that without making us a little uncomfortable about talking about clients per se. Is there anything in particular that you would like to know other than that it is meaningful and its material?

Well, and I think it's broader than we - obviously, hyper growth disruptors are one area, you've also got technology leaders. I just, I think one of the misperceptions, people don't really understand to use the word sexy, there's a there's a sexy component to what you do and I don't think that's appreciated. So I was just trying to better understand the skill.

I think it's safe to say that virtually all of the major stocks that are considered the top five stocks, be it Vistra or next genre [ph] and then all the unicorns, a high percentage of them we do business with and our business is growing with them. If that helps, put any more color in that area. And not only is it growing, but in many cases, it's multinational. So we're not just growing it in the US, we're growing it globally wherever there's an opportunity to do so, because all of these companies are either they already are global or they're going global. So the travel sector, you can think of major names that are the top kind of fast growing market cap companies, ride sharing, delivery, search engine companies, social media companies, and very large desktop software companies. I think you get the picture.

Absolutely.

So George, I'll answer the first question. I'll take CSS, CTS and CGS, as a group of segments first; I think that's a different story than our CMS. I think you can see from the margins, that it's kind of evident that we have been able to not only sustain, but improve pricing. And that pricing because of the tech components in these businesses is falling to the bottom line. So for example, if you look at our gross margin as a company kind of ranging somewhere over time kind of 23% to 27%, if you look at the CSS and you look at the CTS businesses in particular, there are very important parts of those businesses that have gross margins of 45%. So we're pricing that to that margin as we scale that's part of what's helping, but we continue to increase those prices for targeted margins in line with that 45% to 50%. On CMS slightly different story, I'll tell you that all of those bookings in '18 are priced at a premium to our current margin obviously. Because they reflect market wages the prices are higher, but they're also allowing us to yield a higher margin overall. And last but not least, we continue to have a very significant discipline about pricing to a target margin and in some cases there's existing business and some cases they're new business that we don't win. We consider ourselves a premium player and a premium partner and premium player and we expect to get a premium to the market and our margins across the world depending on where the delivery is we have a lot of discipline sticking with those. So I'll just add that you'll see from a CMS point of view, important improvement in the margin 14% to 18%, but obviously much bigger. Once we take out that important benefit that we had from ASC 606 last year that won't repeat itself, the margins are going to be up somewhere between 45% and 49%. And we're not stopping there. We continue to have in the first part of the year a bit of a drag on the operating income in CMS, due to the fact that we have significantly more business that we're ramping given those bookings which tends at the beginning of these programs to tug at the OI.

Perfect if I can just sneak one more and the - I really liked the metric he gave of 92% of the midpoint revenue guidance is already represented in bookings versus 85% last year. Could you give us a historical perspective in terms of prior years, what exactly does that mean in terms of the opportunity?

So what I would say is, the net out of that is that the execution against, right or guidance of 7.5% to 8.5% growth, which again, when you eliminate the $20 million of top line and almost $12 million of bottom line impact last year that we won't get this year, we're really between 9% and 10%. And it certainly starts to make a lot more sense when we talk about 600 million of bookings or 36% increase, right. You can really Start let's see that coming in. We're a little bit burdened by the compare in '18 and so what it says is that we are 700 basis points better than business that is booked and already there. And we have to now obviously deliver it, but our backlog coming into the year is significantly different. And therefore, the risk against the execution of that 7.5 to 8.5 is much, much lower.

Perfect. Thanks, guys.

Thank you, George.

Thank you. The next question is from Frank Atkins of SunTrust. Your line is now open.

Thank you for taking my questions. Appreciate it. Good job on the quarter and nice strong guidance on the revenue side. Wanted to ask a little bit or specifically in CMS, where are the areas of growth that you're seeing there? Can you talk a little bit about kind of your thoughts for onshore versus offshore and near shore mix and then the visibility with key accounts?

Which should I start with first here, so onshore versus near shore and offshore, I think it's safe to say that there was a period of time where because of administration changes et cetera, et cetera that there was a slowdown in the migration to offshore work. I don't want to prematurely predict, but all signs are showing from our bookings that have been recently completed and from our pipeline that there is increased demand in offshore and near shore due to obviously A, labor shortage; B, increase in labor cost in North America and so consequently we feel pretty good that in '19 you will see a geo mix benefit albeit relatively small, only because there's so much ramping going on. But we think that this will continue through 2020 and it will be significantly more. I'm being somewhat conservative in my statement because obviously, we're working on all kinds of deals right now that could even benefit the geo shifting even more. So what I would just simply say to you is, is that we feel very comfortable about the trend and that there's definitely a heightened demand for the near shore and the offshore requirements. What was the other part of your question? I'm sorry.

Just kind of key areas of demand on the CMS side, maybe by industry vertical or client?

I got to tell you, it's pretty - we're seeing it across everything. I think that healthcare was just fine. We're deemphasizing telco, which we have been doing so, so that we're not concentrated on telco. We're seeing very strong demand in the technology area. So we're seeing it across financial services. Travel is obviously become very big. Regina, you want to chime in on any other areas?

Yeah. I mean, I'll just give you a couple of facts. We've got a mature set of industries like healthcare, the bookings were up 61%, government, we were up 35%, financial services, 41% and auto 103% .Ken talked earlier, we have these, what I would say tech based disruptors amongst that group, the bookings grew 86% and travel and leisure, the brands that we're picking up in that space is up 53%. So, I think that's from a vertical point of view. And that from a percentage point of view then it supports Ken's comments on the Telco's. We still have telco in our mix, but we've been very focused on reducing it as a percentage of our overall portfolio.

I can't stress enough that the types of clients that we're going after are somewhat different than what I think the analyst are seeing maybe with other providers per se. And what I mean by that is that the traditional clients have awakened and realized that they've got to become digital very quickly. And they're coming to us and asking us for help so that they can do so. And so the conversations that we're having, as well as the services that they are taking down are much more of a set of integrated solutions that are not just about the engage portfolio, but there are about the digital portfolio. And so there is becoming much more of a focus with the more of the institutional companies that are trying to be like the disruptors and that's creating a really nice opportunity for us. Conversely, the disruptors are looking to rely on us more to provide a myriad of capabilities that go again, beyond the core engage capabilities. And I think that it's going to become more and more obvious over time via our revenue mix, the success that we're showing CTS and CSS, the fact that CGS now is experiencing a growth spurt et cetera. So we're very pleased with how the mix is starting to shift.

Okay, great. That's very helpful color. And then real quickly shifting to the CTS segment, can you talk about the kind of areas of demand there, what are you hearing from clients and then how sustainable that growth is going forward in your view?

Well, I'll start out on that and then I think Regina should add also some color to that question. What I guess we would say is that if you look at the overall - let's just for now call it that CRM market space, about 50% of the market is moved to the cloud on what I'll call desktop CRM. Only between 20% and 25% of the market has moved to the cloud on contact center omni-channel technology. That 20% to 25% will absolutely equalize and will start to get up to the identical levels of the CRM cloud desktop levels. And so we think that we're going to see robust growth in the CTS segment for the cloud which is evidenced by the 90% ish growth in our clouds business for years to come. And I think that it's obvious just based on the companies that we compete with and how Wall Street is awarding them from a multiple standpoint in that they're seeing the same thing. So I don't know if I'm answering your question, but the marketplace is ginormous and we are absolutely the known leader for enterprise scale omni-channel contact center delivery. And I don't want to sound arrogant, but undisputed in that area. Virtually every client we have is either a major division of government or a fortune 500 company in long-term recurring revenue contracts versus others that are going after the SMBs and medium middle market and so we still feel like there's a ton of business that needs to transition off old metal void switches that are sitting in data centers that realistically no longer need to be in those data centers and frankly, don't have the benefits and the functionality of the cloud solutions that we're offering. Regina, you want to add anything to that?

Yeah, I mean, I would definitely echo the runway that we have with omni-channel and all of the transformation that's going to go there. But also this attach rate that we get from systems integration, which also has a plus 40% gross margin. It's not recurring, but the level at which the SI attaches and that where we get downstream work it's very significant. We're focused very much as a company in Europe. And so I would say that that will continue to be a source of sustaining these growth rates. Additionally, we're very focused on working with selling partners where we had very good success so far. And we're going to kind of keep that up with the existing and add. Next I'd say, we have been investing and ensuring that we are government certified and government ready and all of that is coming together for us to add to the relationships that we have in government. We have a great name there. And so we think that that will proliferate the desire of the market to consume versus capital intensive buy, a SAS intensive buy. That bodes well for us where we're really driving our SAS based subscription there. And then last but not least, our embedded base, this is an area where while we've made progress we're still not there, there and what we haven't talked a lot about in today's script, that CSS business is really shaping up to be a significant driver of our ability to penetrate our embedded base and to penetrate new logos who may start as CMS clients or prospects. But as we respond, demonstrating our differentiation and adding or consulting and tech is really again an important driver of our growth.

The last point that I would make is the tailwinds of machine learning and AI, although it's very early days is incredibly exciting future opportunity for us. And when you think about the fact that we have a long-term embedded base of technology clients remember our technology business we acquired close to eight, nine years ago, they've been in that company that we originally acquired a loyalty has been in business close to 24 years. A fairly significant amount of clients are legacy clients that continue to use us to update and upgrade their capability. Every one of these clients are going to be on an AI, ML journey and we are far better prepared to provide those types of capabilities with already managing the cloud for them in the hosted contact center space. And so we feel between that having CTS and having digital and having engage that with us really leaning and heavily on AI and ML and RTA that this is going to create a whole new channel of opportunities and sales streams. So hopefully we've covered your question.

Yes, you did. Thank you very much.

Thank you.

Thank you, Frank. The next question is from Bill Warmington of Wells Fargo. Your line is now open.

Good morning, everyone.

Hi, Bill.

So a question for you on the average deal size, you'd mentioned that it was up significantly. I was hoping you could share some metrics just to help quantify the progress there, may be talking about how big is the mega deal and how much the deals have grown on average?

Yeah, we haven't really discussed the details of that. But to just give you some color or commentary, in 2018 we certainly have 10 plus deals over - well, I mean, I said it in the script right. We've got multiple deals over 20 million at the high end, we've got deals that are 50 million, 60 million, we've got, I think 44 deals in total that are over 2 million. I'm not exactly sure what metrics you want to share, or you want us to share at this point. Our average deal size in CMS was up 81%, CTS 67% and CSS 43%. Obviously, that's going to change from quarter-to-quarter, but we're definitely seeing an increase overall in that average deal size with - significant mega deals in 2018 and when I say mega deal, I'm talking above the $25 million level.

So if you were to look at year-over-year change in average deal size for the corporation, it will come in at about what?

Yeah, I don't have that net number off the top my head.

Okay. Typically when you have a big surge and new business like this, you see a lot of startup costs. Is that part of what's weighing on margins in 2019 and maybe help us understand how much and does that go away or not?

So first of all, I would say that there's no weighing on margins outside of CMS and again, made a lot of comments in the script about that. If you look at the margin guidance that we gave for CMS, I would suggest that that's probably weighing on the overall margin somewhere between 50 basis points and 75 basis points. So we don't feel at the company level, right, it's a significant issue. We're going from negative organic growth last year to 7.5% to 8.6% organic growth. Our margins are improving and you'll see them improve aggressively throughout the year, so that we're getting back towards that 8% and onwards from there. I noted in my script as well that given the mega deals and our view that we need to conservatively plan to do more deals to get to the same volumes of bookings. We have added about a point of margin to sales and marketing to ensure that we drive the bookings this year and next year to continue at the 2018 level.

Got you, so that volume date postponement that you mentioned what was that?

Yeah, that's a particular client where we have committed guaranteed volume and just not to go into too much detail, but based on the variables we were not able to get that booked in Q4. We had anticipated that in our guidance. It is there and you'll see it - I don't think you'll see it in our Q1 as you look at the margins of CMS and as you look at our overall margin for the company. So it was just about $5 million and exclusively our guidance mix as well as I think the consensus mix is attributable to that. It was gross equal net and therefore had a big impact, but you'll see it in Q1 of '19.

So it's attributed for 5 million shortfall in Q4 and have 5 million benefit in Q1?

That's correct.

Got it and then I wanted to ask about, there's been a lot of talk about digital and I just wanted to ask about how much of your revenue is coming from each of the different channels, if you look at voice, email, chat, social today versus a year ago? How is that mix changing?

It's changing very rapidly. I can tell you just being here in the Philippines. We are seeing a very significant uptick in the amount of business that we're handling that is digital. It is just as we actually expected that on clients that are serving millennials, the digital channels are in the 40% range to as high as 60% on average. We're actually starting to work on putting together a white paper on this topic. So it's premature for me to really start quoting a bunch of numbers, but we do plan on putting out a white paper on kind of what we're seeing of migration to messaging because we really think that that is a big part of our business today, it's going to be a bigger part of our business tomorrow and it's why we've been the pioneers in omni-channel. So we are fully set to be able to help clients with that transition and transformation moving from all the different chat tech channels to really the ability to handle all forms of messaging. Obviously, as you go into the older segments like including even the older boomers, they tend to use the messaging less, their adoption is less and they still tend to lean towards voice. But I think that it goes without saying that messaging is here to stay and it's going to be continuing to grow very rapidly.

Well, thank you very much.

Thank you.

Thank you for your questions. That is all the time we have today. And this concludes TTEC's fourth quarter and full year 2018 earnings conference call. You may disconnect at this time.