TTEC Holdings, Inc. (TTEC) Q1 2021 Earnings Report, Transcript and Summary

Welcome to TTEC's First Quarter 2021 Earnings Conference Call. [Operator Instructions] 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 first quarter earnings results for the period ended March 31, 2021. Participating in 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 those documents for complete information about our financial performance, we also encourage you to read our first quarter 2021 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 opinion 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 our actual results to differ materially from those expected and described today. For a more detailed description of our risk factors, please review our 2020 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. Ken, are you able to hear us?

Excuse me. I was on mute. Thanks Paul, and good morning. Our focus on digital innovation and operational excellence continues to deliver differentiated outcomes for our clients, engaging career for our employees and increasing value for our shareholders. I am pleased to report that our broad-based financial momentum continues, and for the fourth consecutive quarter we have delivered record results. In the first quarter of 2021 over the prior year period, bookings increased 95% to $170 million. The new business is diversified across our existing embedded base and net new clients. These new wins are healthy mix of Digital and Engage capabilities. We added 25 new client relationships across several industry focus areas with nearly half coming from our rapidly growing healthcare and public sector verticals. Revenue increased 25% to $539 million. Adjusted EBITDA increased 51% to $96 million. Non-GAAP operating income increased 64% to $80 million. Non-GAAP EPS increased 70% to a $1.26 and free cash flow increased 28% to $58 million. Over the last four quarters, we have booked $742 million of new business, up 68% over the comparable 12-month period. Based on our sustained momentum our record first quarter performance, solid pipeline and backlog we are raising our 2021 guidance. Our financial momentum has not only continued but it is accelerating. The convergence of the experience economy, increased virtualization and the thriving direct to consumer marketplace has put customer experience at the epicenter of modern commerce. Experience has become the new competitive battleground among all brands, and our turnkey customer experience as a service platform delivers all the mission critical technologies and services companies need to win today. Across our focused industries in geographies, improving the customer experience has never been more urgent. The experience economy has created an explosion of interaction volumes across a myriad of channels. The result is a dizzying array of challenges for companies and government entities alike. Their brand equity and their financial success now depends on their ability to rapidly modernize their technology, operations and processes to deliver a frictionless personalized experience. The demand for our end-to-end approach continues to mount. Enterprises that have tried to improve their CX by stitching together dozens of point solutions, service providers and technology platforms are falling short. Disconnected systems are creating disconnected experiences when customers are demanding seamless and intuitive interactions. Our customer experience as a service platform takes the burden off our client shoulders, as a single integrated source, we serve as the CX orchestrator, administrator and journey partner with established best practices and priority. And excuse me - and best practices and proprietary pre-built technology connectors. We synchronize strategy, analytics, technology and operational execution to produce personalized experiences that consistently deliver superior results. It has been proven, time and again, that companies with the highest net promoter scores continually outperform the laggards. Companies that invest in customer experience, as a strategic differentiator win with customers who stay longer, spend more and are passionate advocates for brands that they love. Now, let me share our perspective on several mega trends that have gained momentum over the past 12 months. These factors will continue to provide strong tailwinds for TTEC. Virtualization is changing everything. Consumer habits have changed for good. The convenience of everything from home has forced traditional brick-and-mortar operations and industries like retail, dining, healthcare, fitness, entertainment and others to reconfigure and rethink how they deliver their services and their products. For many, it has opened up new digital sales channels and growth opportunities. These new ways of living and working have increased interaction volumes exponentially and have accelerated the demand for high-quality virtual support and connectivity that we at TTEC provide. The direct-to-consumer model is driving. Native digital businesses continue to flourish over the past year, as consumers embrace the ease of buying direct. They rejected third-party intermediaries that slowed down the process and provided little to no value. From the start, these born digital companies launched their business with virtual support from CX partners. Now, as their brands mature and grow, they're investing even more with customer experience technology and delivery partners like us. The migration to the cloud is accelerating, and creating new opportunities for companies to reimagine their customer experience. Companies are recognizing that the move to the cloud offers innovative features and functions to dramatically improve their customer experiences. They see the promise of increased agility, scalability and a ubiquitous experience, but they need an experienced partner to help them envision and unlock the meaningful benefits of migrating to the cloud. Many lack the CX design in technology expertise, they're actively looking for proven thought leaders and implementation partners who can help them design and build the transformation road map and then bring it to life. They're coming to TTEC because of our singular focus on customer experience. There are very few partners in the world that have the size, scale, reputation, technology and IP to deliver the speed and value the market demands today. As volumes of interactions increase exponentially, the ability to balance efficiency with humanity requires the intelligent use of automation. Consumers continue to demand convenience and ease with every interaction and are welcoming automation to accomplish simple task. When they reach the point-of-escalation, however, they expect to interact with a trained knowledgeable and compassionate human expert. AI-enabled intelligent automation plays an essential role in empowering these frontline experts. It's streamlines repetitive desktop task, so that they have the time, resources and empathy to solve higher value, more complex customer challenges. This careful blending of competency of tech and the warmth of humanity is becoming the face of their brands. Done poorly, it destroys customer value. Done well, it unlocks unlimited potential. Companies need experts to help them get this careful balance right. Real-time data, is informing all key decisions. Gone are the days of batch reporting and historical analysis. Today, decisions are cognitive, pre-emptive and are happening instantaneously. Companies are building massive data legs to compile zettabytes of customer data and are using pre-built connectors to use - to put this priceless insight to work at scale. They're creating a common data model with embedded AI to help shape the journey for customers. Data has become the nucleus of successful CX strategies. It enables companies to proactively respond to their customers' needs in real-time. Data helps pinpoint the optimal moment for a social push, identifying specific product preferences and anticipates the path of an omnichannel journey. Making data actionable in real-time is hard to do. It requires harmonious integration into the front-end CX technology and back-end operations. Few, if any of our competitors have the industry specific knowledge CX design, technology integration and orchestration capabilities that we deliver. Companies are realizing the need to shift from captive in-house models to specialized customer experience innovators. We see a large-scale structural shift happening in the marketplace right now. Managing CX is getting more complex every day and tight labor markets are making it harder than ever for companies and government agencies to successfully manage their customer experience operations themselves. The ability to stay ahead of technology innovation and complex analytical models require specialized expertise that is difficult to find and maintain in-house. They are realizing that they are stuck with legacy operating models. It's simply too hard and too costly to reinvent how they interact with their customers. In response, they're shedding a portion of their captive operations to a select set of strategic partners that they know and trust. These mega trends are converging to create a total addressable market of over $640 billion and growing. This massive opportunity includes customer experienced consulting, technology and operations. With the combination of Avtex, we now have over 700 brands in our client portfolio. Many of these clients have just begun their digital transformation journey and need our help architecting and planning their CX road map. Many are reimagining their CX and need analytics in cloud technology to enable richer, more meaningful customer experiences, and many others are growing so rapidly, they need our operational capabilities to help them scale overnight. For every one of these clients, we have just scratched the surface. The opportunity within our embedded base is immense. Now, let me demonstrate how these trends are playing out in the market by sharing some recent work with a few clients. It is important to note that each of these solutions was architect - architected with an outcome first mindset. These initiatives were viewed as high value investments, not cost cutting commodities. Our clients had specific business objectives and we use design thinking to collaborate on holistic solutions that weaved strategy, technology, analytics and operations together to deliver specific and measurable outcomes. The first example, is with a very large healthcare client. We've been a strategic partners for years and most recently they faced a time-sensitive challenge and asked us to help. As part of the national vaccine rollout, they needed to educate and motivate an underserved population. They had to move quickly and they didn't have the tools or the expertise to do so. So in less than 10 days, we stood up and delivered a turnkey program to identify, contact, schedule, promine and remind patients to get their vaccine. Our solution was virtual, cloud-based and combined automation and specially trained frontline healthcare experts. Our ability to meet their press indeed has expanded our client relationship, and has opened the door into other therapeutic and geographic areas of their operations. Our next example comes from one of the largest consumer electronics retailers in the world. This industry has been under intense pressure to innovate and stay relevant and survive. Our client had a best-of-breed CX platform already in place, but needed guidance on how to optimize the technology, innovate ahead of competitors and drive a better overall experience on an ongoing basis. We reimagined the use of their existing tools, migrated them to the cloud and integrated them using our own IP. The result was a single ubiquitous CX technology platform aligned to an overarching strategy that achieved their desired experience outcomes. The solution is just one example of how our ability to manage and integrate disparate CX technologies helps organizations minimize fragmented CX and drive the cost of complexity out of the organization. As these key studies demonstrate modern digital technologies and essential component to delivering effortless customer experiences, we've spent the last decade building our TTEC Digital business to meet this growing need in the marketplace through organic innovation and tuck-in acquisitions. Today, we provide a future ready, comprehensive data-driven technology platform. As a single source, we are unique in our ability to offer clients across the globe every function, feature and outcome they need to deliver a cognitive seamless experience across every touch point in the customer journey at scale. Our most recent acquisition of CX technology leader Avtex is the latest step in this strategy. This transformation move delivers on our goal of becoming one of the world's largest pure play end-to-end CX technology companies. We have essentially doubled our addressable market and can now meet the needs of clients from mid-market to the mega enterprise. As part of the integration, I am delighted to announce that the President and CEO of Avtex, George Demou, has taken the role of President of TTEC Digital. With over 25 years at the helm of successful CX technology companies, George is a proven leader, innovator and customer experience evangelists, and perhaps most importantly, George shares and lives TTEC core values. Avtex has achieved Genesis Partner of the Year recognition for several consecutive years, and is part of the coveted Microsoft Inner Circle for its industry leading IP, cloud, analytics and AI solutions. In addition, they have built a set of proprietary built-in connectors that seamlessly knit disparate systems together to facilitate the flow of information across platforms. Avtex complements the strategic go-to-market partnerships we have already forged with Amazon Connect, Cisco, Salesforce, Pegasystems, among others. When we combine this ecosystem with our own proprietary machine learning AI, practice that includes conversational messaging, chat bots and data analytics we have an unbeatable SaaS customer experience portfolio. Clients are choosing our technology platform because it delivers the best outcomes. We stand out as a go-to partner for CX transformation for three reasons. First, speed to value. Our deployment platform brings together entrenched legacy systems and advanced SaaS applications and empowers customer experience teams to enable contextual and personalized customer engagements. The result is increased customer satisfaction. Implementations are typically three to five times faster than point-to-point integration alternatives. Second, reliability. As a global operator, we manage the CX ecosystem across hundreds of thousands of users. We are one of the largest CX technology players in the world. We know what works, what doesn't and what will deliver the best outcomes for our clients. Third, global scalability. Our Humanify Cloud enables the largest most complex organizations in the world to obtain and operate all the cloud technologies they'll ever need to interface seamlessly with their customers. It routinely serves with hundreds of millions of end customers and has the ability to scale within moments versus months. Now, I'd like to move onto our TTEC Engage business. We continue to complement our accelerating organic growth with M&A to bolster our total addressable markets to cover all company sizes across all geographies. Increasingly, clients are coming to us, because they need a robust technology infrastructure and technology-enabled frontline talent. We use best-of-breed tools throughout the employee lifecycle to find, train, nurture and support our knowledgeable associates. In addition, we have worked hard to build an engaging culture that draws passionate dedicated employees to our company. Our transparent and inclusive culture is the connective tissue that energizes our teams. We are extremely proud that in the midst of the pandemic we were named one of the best large employers to work for by Forbes Magazine. Our values driven culture guide everything we do. We remain deeply committed to delivering on our promises to our clients, employees, shareholders and partners. For our clients, we're driven to generate sustainable, valuable outcomes that strengthen brand affinity and financial results our industry-leading client metrics are a testament to our position, as a trusted long-term strategic partner. For our employees, we're committed to nurturing their health and well-being. At the start of the pandemic, we've prioritized their safety above all. As we emerge, our employee base is as engaged and motivated and productive as ever. In addition, through ongoing investments in our ESG programs we're helping to improve the quality of life in the communities where we operate and the world in which we live. Most recently, we dedicated additional resources to support our employees in countries that are most challenged and continuing the spread of the coronavirus and treating an overwhelming number of cases. For our investors, we have set financial goals and consistently have achieved them. In our most recent three-year plan, we targeted a $500 million in Digital revenue. We're on track to reach that goal ahead of schedule. We committed to a 9% growth in Engage, and as you will hear from Regina, we're increasing our Engage revenue guidance. We said we'd supplement our growth through acquisitions and have successfully closed and integrated over a dozen acquisitions over the past decade. We promise to return significant capital to our shareholders. As a result, we repurchased approximately half of our outstanding shares over the years and commenced a semi-annual dividend in 2015 and we have increased that payout every six months since 2016. In closing, we remain extremely excited about our future. The experienced economy has created an unprecedented opportunities for our innovative CX company like ours. We've built an exceptional management team, a highly coveted client base of industry leaders and digital disruptors and a proven set of valuable technology-enabled assets. With our unique ability to enable new interaction channels, unlock operational agility and stimulate substantial revenue growth, we've become a powerful force and fueling modern commerce today and for many years to come. On behalf of our executive team, our Board of Directors, we thank our clients, employees and our shareholders for your continued support. And we look forward to updating you on our progress in the months ahead. Regina will now cover the key financial highlights of the quarter and share our stronger growth guidance for the full year. Thank you.

Thanks, Ken, and good morning everyone. I'll start with a review of our first quarter 2021 results, and then provide some context regarding our full year 2021 guidance, which we are raising to reflect our improved outlook. 2021 is off to a strong start. We overperformed in the first quarter with record financial results, and are now positioned to exceed our original guidance given improved first quarter bookings, current revenue backlog and in-year pipeline. Turning to our new business signings, we had another strong bookings quarter with $170 million, up 95% over the prior year period with meaningful contribution from both our Digital and Engage segments. Our bookings included eight multi-segment deals totaling $41 million and 25 new logos with cumulative bookings exceeding $32 million. Our banking, financial services and insurance, healthcare, technology and public sector verticals each added over $20 million in bookings. Our direct-to-consumer Hypergrowth offerings new signings grew 243% and we begin adding volumes in our travel and leisure vertical, which surpassed $10 million. The average deal size expanded near 100% and bookings related to the pandemic were less than 15%. We continue to see good migration of pandemic volumes into permanent lines of business and currently estimate that our fourth quarter 2021 will be comprised of volumes that are nearly 100% longer-term permanent business. We exited the first quarter of 2021 with revenue backlog of $2.04 billion or 92.3% of the midpoint of our revised guidance a 25% increase over the prior year. Our current in-year sales pipeline is $1.36 billion a 22% increase over the prior year. My comments regarding our first quarter results referenced revenue on a GAAP basis and EBITDA, operating income and earnings per share on a non-GAAP basis. I want to reemphasize that starting last quarter, our non-GAAP operating income and EPS are now adjusted for stock-based compensation and acquisition-related amortization expense. A full reconciliation of our GAAP to non-GAAP results is included in the tables attached to our earnings press release. On a consolidated basis in the first quarter of 2021, revenue increased 24.8% to $539.2 million, of which 22.5% was organic growth. Adjusted EBITDA increased 50.7% to $95.9 million or 17.8% of revenue compared to 14.7% in the prior year. Operating income increased 63.8% to $79.9 million or 14.8% of revenue a 350 basis point improvement over the prior year. EPS increased 69.5% to $1.26 compared to $0.74, up 70% versus the prior year. Foreign exchange, primarily from a weaker dollar, U.S. dollar had a positive impact of $7.1 million on revenue and a positive impact of $1 million on operating income, the majority of which is in our Engage segment. Our revenue growth is enabled by an expanding total addressable market or expanded sales and marketing platform a growing portfolio of offerings, continued momentum in our multi-segment deals, geographic expansion into EMEA and a vertical focus on higher growth sectors. Our improved profitability is a function of top line scale in combination with value and outcome-based pricing and a persistent focus on optimizing and innovating our cost structure, offset by an increased investment in R&D, sales and marketing and acquisition-related expenses. Our Digital segment revenue was $63.6 million in the first quarter compared to $77.6 million in the prior year. Operating income was $6.7 million or 10.5% of revenue compared to $12.6 million or 16.2% in the prior year period. Digital revenue excluding the large government contract and exited consulting practices was 23.3% higher in the first quarter with cloud and managed service revenue growing 14.4% and the professional services revenue inclusive of our CX consulting systems integration plus product growing 36.1%. Our Engage segment continues to significantly outperform in the first quarter. Revenue grew 34.1% to $475.6 million compared to $354.7 million in the prior year, all of which was organic. Operating income grew 102.4% to $73.2 million versus $36.2 million in the prior year. Engage's operating income margin expanded 520 basis points to 15.4%. The majority of growth is non-pandemic related work from our longer-term embedded base and new client contracts including significant volume increases from our financial services, healthcare, automotive, technology and retail clients. A growing demand for our virtual and digital delivery capabilities, existing client program expansions and new lines of business both within and across our Engage customer care and born digital sector, growing contributions from our EMEA client acquisition platform and increase client engagements to modernize their end-to-end CX strategies. Our significant profit margin expansion in the Engage segment is due to top line scale, an increased percentage of revenue in our higher margin verticals and offerings and continued efficiency in our SG&A and asset utilization, leading to lower depreciation and amortization expense, as a percentage of revenue. I will now share a few other first quarter 2020 measures before discussing our outlook. At March 31, 2021 cash was $144.2 million and debt $348.7 million of which $339 million represented borrowings under our recently upsized credit facility from $900 million to $1.2 billion. Net debt increased by $9.3 million to $204.5 million year-over-year, primarily related to acquisition-related investments and capital distributions largely offset by strong cash flow generation. First quarter cash flow from operations improved $69.8 million from $62 million - $62.2 million, a 12.3% increase over the prior year. The increase is attributable to improvement in our profitability and working capital management. DSO reached a record low of 59 days in the first quarter of 2021, down from 66 days in the prior year period and 61 days sequentially. Capital expenditures were $11.6 million or 2.1% of revenue for the first quarter 2021 compared to $16.8 million or 3.9% in the prior year. The notable decrease as a percentage of revenue was primarily due to our focus on improvement in our fixed asset utilization in particular our facility and technology asset. Our normalized tax rate was 23.7% in the first quarter of 2021 versus 24.1% in the prior year. The slight reduction is primarily due to jurisdictional mix of income. We anticipate a forward tax rate in the range of 22% to 24%. In the first quarter, our Board announced the next semiannual dividend in the amount of $0.43 or approximately $20 million, which is paid on April 21, 2021 to shareholders' record on April 5, 2021. This dividend represents a 26.5% increase over to semi-annual dividend paid in April 2020. Turning to our 2021 outlook, we are well positioned for meaningful profitable growth in 2021. We are experiencing an elevated level of bookings, pipeline and revenue backlog across both Digital and Engage. Our go-to-market platform continue to deliver a differentiated set of CX solutions and we continue to augment our organic growth with meaningful accretive strategic acquisitions. Our improved top and bottom-line outlook is a function of the aforementioned items in addition to the marketplace dynamics and industry trends that Ken mentioned. Turning to the midpoint of our 2021 guidance has outlined in greater detail in our first quarter earnings press release, GAAP revenue of $2.206 billion, an increase over the prior year of 13.2% excluding the large government contract and consulting practices exited the growth rate is 18.6% of which a $133 million or 7.2 percentage points is Avtex. The backlog supporting the revenue growth is $2.04 billion or 92.3% with Engage at 97.3% and Digital at 70%. You will note a decline in the revenue growth rate in the Engage segment first half to second half. This is related to the 2020 COVID volumes. Excluding COVID-related volumes the Engage revenue at the midpoint of our guidance is estimated to grow 9% in the second half of 2021 versus 2020. Non-GAAP adjusted EBITDA of $334 million an increase of 9.9% over the prior year and 15.2% of revenue compared to 15.6% in the prior year. Excluding the large government contract and consulting practices, the EBITDA growth rate is 26.2% of which 8.7 percentage points is Avtex. Non-GAAP operating income of $269 million an increase of 10.9% over the prior year and 12.2% of revenue compared to 12.4% in the prior year. Excluding the large government contract and consulting practices, the growth rate is 31.4% of which 10.7 percentage points is Avtex. Non-GAAP earnings per share of $4.23, an increase of $0.41 or 10.8% over the prior year. Excluding the large government contract and consulting practices, the growth rate is approximately 32.6%. At the midpoint of our 2021 guidance, we estimate Avtex will contribute a $133 million of revenue, $23 million of adjusted EBITDA and $22 million of non-GAAP operating income. These estimates are subject to finalization of the purchase accounting related to the acquisition of Avtex, which will be completed during the second quarter. Other relevant guidance metrics include capital expenditures between 3.1% and 3.3% of revenue, of which approximately 60% is growth oriented. A full effective tax rate between 22% and 24% and a diluted share count between $47.2 million and $47.6 million. Please reference to our commentary in the Business Outlook section to our first quarter 2020 earnings press release to obtain our expectations for first and second half 2021 performance at the consolidated and segment level. In closing, we are executing on numerous fronts across the business and realizing tangible results from our strategy differentiated CX solutions portfolio and improve go-to-market platform. Undeniably the investments we have made, the client relationships we have built and the talented team we have attracted has transformed our company, increased our value proposition in the marketplace and changed the financial profile and trajectory of the business. We have a high degree of confidence in delivering against our raised 2021 outlook. Thank you for your continued interest and support in TTEC. I'll now turn the call back to Paul.

Thanks, Regina. As we open the call, I'd ask that you limit your questions to one at a time. Operator, you may open the line.

[Operator Instructions] Our first question is coming from the line of George Sutton of Craig-Hallum. Please proceed.

Thank you. Super job guys. Ken, I would note, I was not on mute. I wanted to bring together a couple of things, and I may be conflating two items. But you mentioned earlier in the call that you are becoming increasingly the single source for your customers in the orchestrator of all the things they need to do. Separately, you said that you have 700 brands you work with and you've just scratched the surface for most of those. So I just want to bring those two thoughts together. If you could kind of help me.

Yeah. Well, first of all, our goal I want to stress, is to be the single source from a CX technology standpoint to our clients. I know why was I suggesting that, we are currently the single source of CX technology to all of our clients. So that is clearly our goal, and that's what we're focused on. And I might add that we're making really good progress, not only with net new logos of providing this - all the CX technology that's required or at least a portion of the CX technology required, but we're also now starting to focus on our embedded base. So is - as that might be surprising to hear the reality is, is that we've been very busy and have been very successful in winning net new business. And with the recent tuck-in acquisitions it's added a significant amount of new additional logos. And so now we are in the process of building our account plans for each and every client, so that we can offer them our full suite of capabilities. That help?

That does. If I could just follow-on relative to the Hypergrowth vertical, which you mentioned grew 243%. I know you've had a market focus there from a selling perspective. Can you talk about your solution to how it's addressing the needs of those types of customers? I found that number particularly encouraging.

So when you look at the companies that are basically born digital, a couple of things. One, those companies really day one, out of the shoot are looking for people to partner with. In no way, am I suggesting that the born digital companies are more enlightened. But what I would say is that they're much more focused on getting off to a strong start, and so consequently, those born digital companies tend to want to outsource everything. Their technology, as well as their entire operation and execution of their customer interface. And so what we are very focused on is working with those types of companies because their mindset is already in place and they're not looking to have a large captive, whereas, the legacy companies tend to have very large captives. And what we've - what I mentioned in our script is that they are actually beginning to now realize that this is not really their strength. And that originally emotionally they felt that there was a need for them to manage their own customers because logically that just feels - sounds right. But the reality is, when they compare themselves to how we're performing, we're performing significantly better and at a lower overall cost to serve. So consequently, we're seeing this entire captive marketplace, kind of beginning to realize on the legacy side or the institutional side, that it no longer makes sense to have 70% of their business in-house. Versus when you contrast that with the Hypergrowth accounts, day one, they want it all partnered with somebody.

Got you. Perfect. That's it for me. Thanks guys.

Thank you.

Thank you. Next one is from the line of Mike Latimore from Northland Capital Markets. Please proceed.

Thank you. Yeah, spectacular results there. I just wanted to clarify. I think you said maybe it was new bookings. The average selling price is up about a 100% or something like that. Maybe can you just kind of clarify that is in fact correct? And maybe provide a little detail on kind of what's growing these average deal sizes? A little more clarity there would be great.

Yeah. I mean, some of that's mix in the quarter. But I would say that it has to do with a number of very large deal. So that will always be an indication of larger deals. It's also an indication, as I said, that we had eight multi-segment deals that comprised $41 million. And so it's really a function of larger deals, the integration of both, Digital and Engage, driving those larger deals. And in not some cases, particularly in public sector, in healthcare and financial services it's just the evidence of the comments that Ken has made time and again that the level of outsourcing is not even about - it's not about taking market, it's also about the fact that there is a tremendous amount of volume out there that is moving from captive to working with a partner. And so all of those themes, all of those trends are playing into a higher average deal size.

Okay. And then another comment was you're seeing exponential interaction volume growth. I guess, is there any quantification of that? And maybe some segmentation between voice and messaging there?

I think that if you look at the Gartner reports and the various different reports that have come out recently, I think that it's suffice to say that with what I would call persistent communication where every company is messaging you and are attempting to interact with you on almost a daily basis that's driving a significant amount of net new interactions. Additionally, as retail has been shut down, and as people are beginning to realize that buying direct is dramatically more convenient in order for them to make these large capital purchases, whether it be with automotive, appliances, high-end consumer electronics, etc., they need somebody to support them in making that decision as well as support them not only through the buying process, but the actual ownership process. And so consequently, people are not getting in their car and driving to X, Y, Z whether it'd be a dealership auto appliance store, etc., and they're interacting more and more through chat channel, through voice channels, etc. It allows them to continue on with their life and not have to interrupt their entire Saturday to purchase a car, etc. So we're seeing this across really every vertical, but we're also seeing that just the overall explosion of brands that I have discussed over the last two, three years is also really impacting the interaction volumes, as well as you can see just a number of net new logos that we're winning. So you couple this significant amount of new clients that are coming on board, the entirely new way that we as society are interacting with companies versus how we used to interact with companies and that basically equals an increase in the need to interact. And we're obviously at the center of that.

Thanks. Good luck this year.

And I'm happy. By the way, I will make sure that Paul gets you some of the reports that talk about interaction volumes and increase in interaction volumes by third parties as well. So thanks for your question.

Next question is coming from the line of Maggie Nolan of William Blair. Your line is now open.

Thank you. Good morning.

Good morning, Maggie.

Your total number of clients has increased substantially with the addition of Avtex. So, I'm wondering if there are any changes to your client-facing teams or how you're stratifying these accounts? And then how many of them do you view, as kind of high potential or are receiving enhanced level of resources in terms of those client-facing team?

Maggie, that's an excellent question. And yes, it is changing how we're interfacing with our accounts. I'm not necessarily comfortable just for proprietary reasons of getting into all of the nitty-gritty details of what we're doing, but suffice to say that A, there is far more verticalization focus and B, there is - there will be significantly more account management focus. And that has - that is something that we started on earlier at the very beginning of this year, and are definitely investing in for obvious reasons because there is more opportunity within each one of these clients, and our goal is to be able to maximize the opportunities. And what we're demonstrating to our clients is, is that the more areas that they allow us to get involved with technology wise the more we can actually impact not only their net promoter score, their customer satisfaction score, but their retention rates and their overall cost to serve. So to do that requires much more intense focus on the clients than we've historically had. And what I would just say is, we see this as a very positive opportunity.

Okay, thanks, Ken. And then can you give a little more color on the puts and takes of the 520 basis points of margin expansion within Engage? Because it seems like the drivers that Regina listed are in my mind, is largely sustainable going forward. So I'm wondering what is kind of that range that you're expecting for Engage margin over a longer period of time.

Sure.

Yeah.

Regina, you want to handle that?

Yeah, sure. So I would say that when we gave guidance at the beginning of the year, I think we're about for the first half 15.8% EBITDA. Our new guidance at the midpoint brings us to 16%. And what you're seeing in Q1 is, kind of hyper EBITDA, it's about a 170 basis points - excuse me, 270 basis points of that coming from gross margin, and about 100 - well in Engage. I'm talking about Engage, is about a 180 basis points from SG&A. And so also, we have to remember is the last quarter in which we are building into an LTM our COVID volumes. So as we - as those COVID volumes come down, we're certainly replacing them with other, but we will see between a 15% and 16% EBITDA on a go-forward basis. So some of that I would say is mix of business and pricing, and some of that is real and is going to stay, for example facilities. Just from a scale point of view, we continue to express that scale means an awful a lot to this business and in both of the businesses. So as we get through the year at the midpoint, that overall EBITDA margin with Avtex is about 15.2% and for Engage just under 15%.

Thanks, Regina.

Thank you. Our next question is from Bryan Bergin of Cowen. Your line is now open.

Hi, good morning. Thank you. Can you comment on the mix within Engage of the higher growth, higher margin businesses like the Hypergrowth, the customer acquisition and fraud detection services versus the traditional base work? Just curious where the share stands now between those groups. And then also, how that looks in your pipeline for Engage?

Yes, so on an annual basis that Hypergrowth segment is just under, let's say $400 million. So from an Engage perspective, again, if you look at the midpoint of the guidance, it's about $1.8 billion. Okay, I'm sorry. Can you repeat the other pieces?

Yeah, just how it looks in the pipeline as well?

Yeah. I would say that, it's pretty-the correlation is about the same. We probably see about 25% of that pipeline in that Hypergrowth segment that Hypergrowth segment is a combination of start-ups, but it is also right, the growth will be in these born digital direct-to-consumer some of them who are now having $20 million to $30 million of revenue with us.

Okay, that's helpful. And then it looks like the performance from your largest customer was notable here. Can you comment on the outlook in that relationship for '21? I'm just curious how we should think about the composition of surge versus regular or what permanent Engage activity?

Yeah. So that business is on an annual basis probably $0.25 million in 2020, and $0.25 million in 2021. We are in the process, it's a mix of BAU and COVID. And our view is that at this point, and we certainly got three quarters to go that business converts to about $170 million of longer-term permanent business, that's the status. We've done some really good work in ensuring that those agents, given the quality of work and the reliability we are now moving those associates to other work like broader fraud, like retail banking. So we feel pretty good that-we feel very good that the benefit of those volumes have strengthened the relationship, allowed that client to see the broader capability of TTEC and that, that business continues to grow, but as others grow with it comes below the 10%. But over the next couple of years, probably $200 million or so piece of business for TTEC. And again I'll just stress that if you look to Q3 and Q4 and Q1, and we're in the middle of Q2 now. And I would add the comments for Q2, the level of permanent long-term business in our bookings in conjunction with reflecting on the fact that we're a longer pole business in the sense that takes time to close, and it takes time to build that we will see kind of going into the second half, start a peak of the volumes that we've booked in these previous quarters that very nicely replaces the work that we were-the surge work that we've got with COVID. So we feel very comfortable that 7% to 9% mid-term growth that we talked about at the beginning of the year and last year for Engage is there. And certainly even beyond the surge that we get from the acquisition of Avtex in Digital that were strong 15% to 25% grower on that business.

Okay, thanks for all the detail.

Thank you. Our next question is from Joseph Vafi of Canaccord. Your line is now open.

Hey guys, good morning. Great results. Just maybe if you could focus on the supply side a second. I know you were mentioning it just here a second ago, Regina. But with the strong business growth dynamics of the captives perhaps giving up some share, is there opportunity to pick up captive employees? And just how are you seeing the supply side right now, as we perhaps start to exit COVID a little bit?

So. Hey, Joe, it's. Ken, how are you?

Morning, Ken.

When you say supply side, are you asking is there rebadge opportunities. Is that your question? Because the answer is yes, we are receiving request to rebadge certain clients captives. But I'm not sure whether your-where are your questions going. And I want to make sure I answer it thoroughly.

Yeah, sure. Just in general, with the acceleration in the business. And if you look at some of the newer clients and perhaps pretty, perhaps maybe a little bit to more intense capability requirements. How are you just looking at supply side in general? And the ability to continue to keep pace with I guess, with the accelerated pace of revenue growth you're seeing in Engage?

Yeah. So as-so that sounds to me like it's almost like a labor market question?

More or less. Yeah.

Yeah. So right now, we are very fortunate that we've been able to so successfully operate in a virtual at-home environment. We are confident that as long as we continue to stay, as heavily at-home that there will be ample supply because there are so many people that have decided that they want to kind of change their work life balance for a lack of a better term. So we are seeing no issue in meeting our recruitment needs whatsoever. Know that we are a premium provider and that means that we're also a premium payer. And so it's one of the benefits that we enjoy is that in virtually every market we operate in, we tend to pay in the higher percentile, which helps attract not only better people but keep done. So our whole focus is on building a workforce that we can retain, but also a workforce that is highly capable. So right now we are really benefiting from the work-at-home. And what I would say is, is that a very significant portion of our clients are realizing the benefits that we're achieving by not only paying the associates more, but also by keeping them at-home versus bringing them back to bricks and mortar. And so we're not yet prepared to announce what percentage we think will come back to bricks and mortar, other than that, we've always said that we think it will be no less than 30% to 35%. I think, we think it's now quite a bit more than that, that's going to stay at-home based on what our clients are now saying that they want to do long-term. So for now we feel really, we feel really positive about the labor markets and what we're able to achieve, especially in light of the fact that so many companies are having difficulty. I actually think it's feeding our net new clients. I was on a call yesterday with a large financial client that has 2,000 captive and they are not able to fill all their positions and they've made the decision that they want to partner with somebody. And so I think that more and more of these companies are just realizing that they just don't have the talent acquisition capabilities and the automation to attract into to really cast a very wide net. And so consequently, I think that this is going to play into more captives wanting to convert to a partner-based solution.

I would just add that when we look at our wins and the reasons that we win many of our wins on the Engage side would indicate on the top three reasons TTEC, our ability to be in the market, attract the talent and keep the talent. But I also say that, there is pressure there, and that pressure ultimately just as it did during COVID, will help us to work with our clients to drive more automation, to augment the human labor. And the second is that, I do think that, it will open up a greater opportunity for North America to leverage offshore. And that increased offshore mixed alongside our onshore is a piece that will continue to help us maintain and grow Engage EBITDA margins.

Sure. That's great. Thanks, Regina and Ken. And then just one quick follow-up. I know you mentioned a lot of the new logos came in through healthcare and government. Perhaps maybe a little less underpenetrated, but some commentary there might be helpful on why there are so many new logos there? And then maybe, just update on Europe. Thanks a lot.

Well, first of all, I think on the government side, it goes without saying that government is going to increasingly partner for - just because they got caught with in a very awkward situation. Whether it'd be with Department of Labor, Department of Health Human Services, and I could go on and on and on. And so consequently I think there has been quite a real epiphany within state, local and federal government that there is a need to partner with experts. And then doing this work internally, frankly makes no sense whatsoever. So we're very focused in that area. We have some very unique technology, as far as our status with the government of certifications, etc., with our technology, etc. that certainly helps us, and we're pretty unique in that area. And so we're going to continue to keep focusing in that area. It's good long-term reoccurring business, and we see huge opportunities for our technology, digital technology group to be able to help create e-Gov across a myriad of areas. As it relates to healthcare look, healthcare is what, a $3 trillion a year industry in the United States. We - the truth of the matter is, even though we have many of the major healthcare payers, we're now picking up providers, and we still only have a small percentage of the amount of business that they have to offer. A, a ton of their business is captive. I'd say easily 70% of their business is captive. And frankly they are running into issues, whether it'd be dealing with their staffing, their surge and we're showing them new modern ways to be able to handle their volumes by introducing technologies like conversational messaging, chat bots, voice bots, etc. So we are very focused on that area. What I would also say is that in healthcare historically, we've only focused on the mega operators, the largest payers and in cases the largest providers. With the Avtex acquisition, it's really allowing us to drop down a little bit and go after still large healthcare providers, but they're not the mega providers, they're more the regional providers and that's also creating opportunity for us. So overall, we just think it's a very robust space and there is - frankly, there is more volume in healthcare than we could probably ever even handled just as a single company.

Great. And then Europe.

I'm sorry, then what? I didn't hear you.

Europe.

Yeah, look, Europe is an area that we have really doubled down on our - on investing in and expanding. We are definitely very focused on the Digital side right now and again bringing Avtex' capabilities into Europe. Genesis is pretty much the number 1, almost a de facto provider or a capability that most European companies have gone with. That was one of our - one of the many reasons why we decided to double down on Genesis. And so we're partnering with them to help them expand in Europe. As well as, on the Engage side, we see significant opportunity because none of our actual competitors in Europe really have a technology solution, they're more of a labor augmentation solution. And so, we're increasing our efforts in that area as well. So we think Europe is a pretty much an untapped market. That said, it goes without saying that in North America we're extremely busy.

Great, thanks, Ken.

Thank you.

Next is from Jason Kupferberg of Bank of America. Your line is now open.

Hey, good morning, Ken and Regina. This is Kathy on for Jason. I wanted to dig a little bit deeper on the Engage revenue guide. So I know you guys delivered 34% for the quarter, but the outlook obviously implies a pretty material deceleration for the remainder of the year. I understand that comps get tougher, COVID-related volumes are rolling off, but it still feels quite low especially given the momentum you've seen in Engage, and the conversion to sort of longer-term engagements. Could you share a little bit more about those dynamics? And maybe quantify those COVID-related volumes like when is that rolling off, and by how much?

Well, first before Regina answers that question, I want to just stress something that she said that I want to make sure that everyone hears. Our pipeline is so strong, and the conversion of our pipeline and the bookings that we've already booked from fourth quarter of last year and first quarter of this year that we're very confident that any of the surge work that we have that we've won in the past, that we feel very confident that we are doing a very good job of filling in for that. And really as you heard Regina say, we're not concerned. So let's don't make a big deal about the COVID surge work that we've won when our - when we're showing 95% bookings growth as an example. So, I just want to stress that, that should not be in any anyone's worry as to - as the COVID bookings over time potentially reduce. The fact of the matter is in the majority of cases we have converted the COVID work to long - either longer term or long-term relationships. And so it's been really a very positive situation for us. And we believe will continue to be so. Regina, why don't you take it from there.

Yeah. I do not have much else to say than what I said earlier. You have $75 million or so of COVID stuff in Q1, and you have none in Q4, and that comes down over time. So if you look at the underlying growth without those surge volumes here in the 9% to 10%, slightly higher on the high end of our range. So it's just a matter of that conversion is happening. And it's happening directly within certain accounts and then it's replaced just by virtue of the volumes we have in our bookings.

Okay, got it. And as a follow-up, I mean it looks like in this quarter you were able to beat EPS estimates pretty significantly by almost $0.25, at least relative to estimates. But the guidance raise is only for around $0.09. Could you just help us reconcile that? Is it just an element of conservatism or are there some other factors in play there?

Yeah. So again, what happens at the revenue level happens at that kind of the EBITDA, NOI level and EPS. And so as you go through the quarters the growth year-over-year is very different. So you have a significant performance, you have a significant over performance, but you have a significant just in general that's where our guidance was performance in Q1, and it gets a little bit more to our normalized growth in the ensuing quarters. Still showing quarter - year-over-year growth but not as spectacular as in Q1. And again, I think the important thing here is that our views on revenue without COVID or we're now at 7% to 9% organic growth grower in Engage. And if you strip out acquisition stuff, we're ultimately a 15% to 20% grower in Digital. But the growth rates are pretty spectacular when you include the acquisitions, which are very much a part of our strategy.

Okay, thanks. Very helpful.

Thank you.

Next question is from James Faucette of Morgan Stanley, your line is now open.

Thank you very much, and thanks for all the great details and color and entertaining all the questions thus far. I just had a couple of quick follow-ups. First, you've talked a lot about the, obviously the drivers that are shifting both customer engagement processes, as well as how companies are looking at outsourcing or partnering with people like TTEC. But I'm wondering, how much of your growth, if any, is also being helped by competitive wins? Is that much of a dynamic in the current market for you? Or is it really just the real change in views and plans by your partners and customers?

Hi, James. I think it's both, to tell you the truth. I mean, I think that there is a definite mind shift change in the marketplace, as it relates to clients, realizing how absolutely critical it is that they are fully digital and that they have increased their touch points across every aspect of how they do business, whether it be physical and bricks and mortar, whether it be in app, whether it be in the web on the website or virtually through a con - just with voice. And so I think that everybody is scrambling to become omnichannel, everybody is scrambling to be 24/7, everybody is scrambling to address every culture meaning speak multiple languages. And I would say-and a high percentage, if not most of our clients are trying to figure out how to be more direct to the consumer. Even if their model historically was not direct-to-consumer they are now trying to figure out how to go direct-to-consumer. I mean we represent in the United States over 75% of the automotive industry. Without getting into brands, I'll just tell you that many of the major luxury brands, major sport cars, etc., although, they absolutely are going to sell their cars to dealers, they're realizing that customers don't have patience with the existing process. And therefore, they're going to do everything they can to more or less help the dealers sell cars online for lack of a better way of getting into a longer conversation. That creates immense opportunity for us. And so we're involved across many, many different opportunities in the automotive space where we're helping them. In addition to that a high percentage of automotive industry is getting ready to go subscription-based. And so there is - I won't mention brands, but we have multiple clients that you can now pay a subscription fee and pick out the car you want and trade it over the weekend and change it to a convertible car, and pay a subscription fee and everything's included. That requires a lot of support and interaction and coordination etc. So, and then on the competitive side. Look, I think that high tides raise all boats. I would be surprised if the competitors on the Engage side aren't also seeing increased opportunities. It goes without saying that we are definitively winning many opportunities on the competitive side and-but that truthfully is not our focus. Our focus is really to have a mindset where we're working with chief digital officers, chief customer officer, chief marketing officers, and CIOs to help them and business unit leaders transform their business. And in doing so, that is not typically working via an RFP, etc. Instead, we're proactively reaching out to these companies. And the beauty is, that we have so many clients with-that have gone through similar experiences as the clients that we're approaching that it's very comfortable to do peer-to-peer selling meaning where they can contact other companies in their space and say, hey, how did these guys do etc. And we're very comfortable with the references that our clients will provide perspective clients. So I hope that helps.

Yeah, that's really helpful, Ken. And great color and nuance there. My second follow-up question or just a clarification is that Ken, you talked a lot about the obvious the traction to for employees and now your partners are starting to see the benefit of at least for some people work from home, etc. I'm just wondering how you're doing on things like employee retention and turnover and recruiting? And what that environment looks like right now? Particularly, as you said there does seem to be a rising tide.

I think, well, first of all on management. Our employee retention is phenomenal. It's rare that we lose anybody in management. People are very energized, very excited, they love what they're doing, and so there is no issue there whatsoever. On the front line, which I'm assuming is where your focus of your question is, I'd say that we're seeing attrition, significantly lower than pre-COVID times meaning than 2019. We attribute that to work-at-home and that, that is a more desirable place for these types of jobs to be able to operate when they can avoid driving in traffic and spending money on gas and in some cases, having to find a parking space etc., and they can do it from the convenience of their home when they can have a more flexible schedule, it just simply works for their lifestyle. And so I think that's been very beneficial to the retention of our employees and to lowering the attrition from what we were seeing in 2019. As it relates to our current ability to hire, I must say, and I know it's counter intuitive, we're very comfortable with our ability to hire right. And I only say it's counter intuitive because I have so many friends in so many other businesses right now, especially in the restaurant space that leisure - where they're having difficulty hiring, but those jobs require people to get in their car and drive somewhere etc., and our jobs are paying as well or better than those types of jobs. So I think that for now, we're in great shape. Obviously, I don't have a crystal ball. And I don't know what is going to take place with the stimulus package going forward, but my guess is, that the labor market is going to open up quite a bit more in that September, October timeframe when the money stops flowing, so to speak, from some of these stimulus plans, and people will that many - that much larger the workforce needs to actually get a job.

Yes, that makes sense. Thanks for that, Ken.

Thank you.

Next question is from Josh Vogel of Sidoti. Your line is now open.

Thank you. Good morning, Regina and Ken. Best of results for sure. And you've filled in a lot of my questions already, so just a quick one here. Looking at the pipeline. I'm curious if you're seeing any notable difference in the sales cycle and conversions when engaging with let's say a hypergrowth company versus one of those traditional larger enterprises that are looking to shed a portion of their captive in-house operations?

So first of all, I would just simply say on, as it relates to pipeline and conversion, and Regina, please feel free to add anything to this. But I would say, that the pipeline has definitively - conversion is compressed. And the reason for the compression is, there is a much higher sense of urgency on the areas that we're focused on. Whether it be on digital or whether it be on Engage. So across the board, the pipe-the conversion - the time to sale I think is compressed significantly. And frankly, I'd be happy to try to do some more research and get back to you offline or have Regina get back to you offline or Paul, as to how much more it's compressed the time itself, but I think it's pretty significant. There is like I said, a much higher sense of urgency. And then on the Hypergrowth I would - normally, I would say that they are 50% faster in wanting to make a decision, but I think with the overall sense of urgency in the marketplace maybe now they're are only 25% faster. And I'm really just guessing from that. But we're - it's rare that we're seeing deals that we're pursuing for 14 months or 12 months, etc. I'd say that - the other thing is that because we have so many POCs that we're capable of doing proof of concepts, where we will create capabilities for our client and launch those capabilities in a very short period of time, 30 days, 60 days, something that they may be working on internally for a year and couldn't accomplish that, that really also helps us in our ability to demonstrate what we can do. And in many cases, we're willing to do certain amount of that work on our dime to create the proof point and to prove to them the ability and the efficacy of whatever it is that we're creating on the technology side. So I think that A, the market has a much higher sense of urgency than it did before overall regardless of whether TTEC is involved or not be. B, I think that we have some pretty incredible tools and demonstration capabilities that get people to want to move faster on what we're showing them and they have a higher sense of urgency and need for those capabilities. And I think that's playing across all the accounts from government, which is typically very slow moving, healthcare, which is typically very slow moving, to more facile, more agile clients like Hypergrowth.

Really good insights there. Thank you, Ken.

Thank you.

And operator, this does conclude our call. The line is closed.

Thank you everybody.