Welcome to TTEC's Second Quarter 2019 Earnings Conference Call. [Operator Instructions] 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, 2019. 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, we also encourage you to read our second quarter 2019 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, which may occur. Forward-looking statements are subject to 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.

Thank you, Paul, and thanks, everyone, for joining us today. We had a standout first half of the year, including record top line growth and profit. Year-to-date versus the prior year, our bookings grew 5.5% to $254 million. Revenue increased 8.5% to $787 million. Adjusted operating income increased 44.6% to $60 million, and operating cash flow increased 16% to $121 million. We continue to progress our strategic priorities, including growing our digital cloud revenue 188%, increasing our born-digital hypergrowth client revenue 80% and expanding our European bookings by 50%. The consolidation of our segments into Digital and Engage is complete, simplifying our reporting and enabling visibility into the distinct value creation opportunities within TTEC. Lastly, our first half performance in combination with a strong revenue backlog has led us to raise our full year guidance. Let me highlight some of the market trends driving our results. The direct-to-consumer or DTC revolution is upon us. It's created a new generation of disruptive brands, brands that are void of the traditional barriers to entry and thrive on emotional connection and authentic relationships. These brands are led by passionate influencers. They rely heavily on personalized service to win the hearts and the minds of a growing consumer base, one that requires an on-demand, curated buying experience. Fortunately for us, direct-to-consumer is a force multiplier for customer experience. This movement has had a dramatic impact on consumer behavior. Yesterday's consumer retail experience is being replaced by today's best-of-brand direct experience where each brand delivers a personalized end-to-end journey. TTEC is the enabler in this DTC revolution. Customer-centric, digital-first companies are hyperfocused on customer experience and rely on emerging tech such as AI, cloud, data analytics and real-time messaging to reduce friction and improve outcomes. They enhance their technology with human experts who deliver an…

Thanks, Ken, and good morning. I'm delighted to share additional context on the details of our second quarter performance. There are many areas of the business that are exceeding our 2019 plans. We're seeing growing demand for our CX technology suite of offerings, inclusive of our rapidly growing subscription-based cloud offering and increased volumes across our digitally enabled customer care and acquisition services. We are positioned to deliver significant organic growth alongside anticipated improved profitability and cash flow generation. As Ken mentioned, our first half results and improved visibility into the second half have led us to raise our full year guidance. Ahead of my financial remarks, I want to comment on two items. First, we started reporting our business in two versus four segments this quarter to better align our financial reporting with our internal management structure, business operations model and go-to-market strategy. The two segments include TTEC Digital, previously our customer strategy and technology segments which design, build and operate tech-enabled insight-driven CX solutions in the cloud. And TTEC Engage, previously our customer management and growth segments, which provide digitally enabled turnkey customer care, acquisition and fraud detection services. The second item includes our decision to deprioritize our learning facilitation consulting practice and focus our resources on higher-value strategy, analytics and digital transformation solutions. This realignment resulted in a $2 million noncash impairment charge in the second quarter of 2019, which impacted our TTEC Digital segment on a GAAP basis. We continue to view our management consulting competencies as critical to our integrated solutions portfolio, especially as market demand grows for additional omnichannel solutions. Turning to our bookings; in the second quarter 2019, new business signings were $122 million. On a year-to-date basis, bookings grew 5.5% with TTEC Digital growing 22.6% and Engage declining 3.3%. The decline in…

Thanks, Regina. Operator, you may now open the line for questions.

[Operator Instructions] The first question comes from George Sutton from Craig-Hallum.

Super results, guys. So Ken, given that this is the first time you've broken out the Digital piece of the business, I wondered if you could walk through a little bit more of a description for folks relative to the target market for that offering, who you view as the comps, possibly the orchestration layer and how that works? But I think that would be helpful.

Sure, George. So really the focus of Digital is really in what I would call the enterprise and mega enterprise marketplace. We're tend to really be focusing primarily on the -- what I would call the Global 1000 and the Fortune 500. That's really been the legacy of the group for many, many years. And as more and more of these large enterprises are adopting the cloud and coming off of their premise-based systems, they are looking to us to be able to put them in the cloud and connect them to other cloud offerings. So our clients are major health care providers, governments, banks. Kind of just across the board, I would say the majority of our verticals that the Engage group focuses on are very similar verticals that the Digital group focuses on as well. The offering right now is serving our clients and their customers across 5 continents. We have -- excuse me, I believe, 11 of our own data centers where we've created our own private cloud. And then from there obviously, we would be connected to the classic third-party clouds like Amazon and Azure and Google Cloud. Let's see what else can I tell you. I want to make sure I'm answering your question fully. In the stack itself is a -- obviously a routing capability that's omnichannel that allows us to route everything from SMS text to chat to e-mail to all forms of third-party messaging to voice. And then that is connected to everything from voice analytics, auto quality assurance, workforce management, CRM systems, third-party CRM systems, the likes of the Salesforces and the Microsoft Dynamics and Zendesk, etcetera. We have spent a great deal of energy over the years in pre-integrating to the majority of what I'd call kind of the top…

You may not bump into them, but the -- I think as the world looks it both your size and growth rate in that segment, I think they will obviously compare you to them. And that's what's so compelling when we look at the numbers. I wanted to move on to NPS scores, which I you know you have a lot of customers with very high NPS scores. We certainly appreciate how important that is to customers. Have you done anything relative to marketing, your ability to drive these very high NPS scores? Does that make its way into your sales process?

So it makes its way into our sales process as it relates to the references that we give to prospective customers where they can contact our references and see the impact that we've had on their Net Promoter Score. What really hasn't been done and at some point in time probably needs to be done is SAT metrics, which invented the Net Promoter Score with Bain really needs to start running the Net Promoter Score on the industry itself so that people can look at what our score is and compare it to other scores. We do independently have a Net Promoter Score taken of our client base every 6 months. We also do the same thing with our employees because we think there is a golden thread to employee satisfaction and customer satisfaction. We've been doing that now for close to, I'd say, almost 10 years, maybe even a bit longer than that. And the good news is that our management team is very focused on all the dials and all the levers of what it takes to try to drive that score higher and higher each quarter. But we're very pleased with where we are. Obviously, we're never satisfied. We always think we can do better. But more importantly, what we think is the ultimate measure is what our clients' Net Promoter Scores where we're representing all of their customers.

Last question for me. If I look at your bookings which remain very strong. And to get a sense of your pipeline, which I believe remains very strong. Are there sizable deals within there that we should be aware of both either in what you have booked or in what you see in your pipeline?

Well, I mean, we're always working on sizable deals. As to whether or not we're going to win them is another story. So what I would simply say to you is, yes, we have a really good pipeline on both aspects of our business. But it's no secret that -- and it's one of the reasons why we give annual guidance versus quarterly guidance that bookings can be chunky. And sometimes they get pushed into the next quarter, sometimes they get delayed even another quarter. And so what I would just simply say to you is that we feel very good about our prospects and about our pipeline, and we feel that success begets success. And so we're excited by many large deal opportunities and now it's up on us to be able to try to get these deals closed and on-boarded. And so I guess the answer to your question we feel pretty good about the pipeline.

The next question comes from Bill Warmington from Wells Fargo.

Congratulations on a strong quarter. So I just wanted to ask about capacity utilization and maybe you could talk a little bit about how trends are going with new seats being added? You're adding a lot of business. You're adding a lot of seats. How is capacity utilization trending today? And does that create an opportunity to increase margin further as that new business ramps?

Yes, this is Regina. So what I would just say, as you saw, the utilization is down year-over-year. The driver of that is primarily the build-out of new sites, some domestically. But as we expand Europe, we're needing to standup space. European bookings increased 50% in the first 6 months versus last year. And so as we get ahead of fitting out of the space, we do -- it has a bit of a burden on the utilization. From a go-forward point our view, we see a nice uptick into Q3 as we continue to onboard permanent business as well as start to train and higher train and get into production agents for the seasonal work, and then you'll further see it peak at its max into Q4. So we would say that during our peak quarters of Q4 and Q1, we will continue to see that utilization in the 80s. And continue to refine the portfolio both bringing on space as well as exiting space with a view of being able to maximize that metric. I will say though, it's important to look at many things relative to the real estate and the seat costs. And we have seen from an empty seat costs. So when the seats are empty, the cost to the OI of that has pretty much halved at the half of this year. So while utilization is one metric, I think it's also very important to look at what is the cost related to that, and we see those coming down year-over-year.

Thank you for your questions. That is all the time we have today. This concludes TTEC's second quarter 2019 earnings conference call. You may disconnect at this time.