Welcome to TTEC's Third Quarter 2021 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 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 third quarter earnings results for the period ended September 30, 2021. Participating in today's call are Ken Tuchman, our Chairman and Chief Executive Officer; and Regina Paolillo, our Global Chief Operating Officer. Yesterday, TTEC issued a press release announcing its financial results. While this call will reflect items discussed within that document for a complete information about our financial performance, we also encourage you to read our third 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 opinions as of the date of this call and we undertake no obligation to revise this information as a result of newer 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 and described today. For a more detailed description of our risk factors, please review our recently filed Form 10-Q and 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.

Thanks Paul and good morning to everyone. Our performance this quarter was solid once again as demand for end-to-end CX technology and service platform continues to grow. Revenue over the prior year quarter increased 15% to 566 million and bookings for the quarter were 171 million including 19 new clients. Our current pipeline is comprised of a healthy mix of our CX technology and service offerings with both new and existing clients. Our booking volumes, backlog, and existing pipeline are setting us up for a continued long-term growth. Our client base is well diversified across verticals and geographies with accelerated demand in the digital hyper growth segment. We now serve 100 clients in this category with an annualized revenue run rate of $400 million and a 38% growth rate in the third quarter versus the same period last year. These wildly successful hyper growth companies stand connected in home fitness, food delivery, e-commerce, e-gaming, online travel, health tech, fintech, streaming media, and more. These digital natives are thriving based on their commitment to deliver amazing, personalized, and effortless customer experiences. As they scale and evolve, they are depending on our CX technology and operational leadership to ensure that their experiences continue to set them apart. Whether they are born digital unicorn or blue chip industry giants, companies are recognizing that in the experienced economy customer obsession is the key to their success. They acknowledge that to acquire, retain, and grow customers in this competitive market place they must rapidly modernize their CX capabilities. However, when they moved to implementation, a massive challenge awaits. Helping clients solve these complex CX problems is our singular focus. The roadblocks are numerous, complicated, and costly to navigate. Many brands lack a clear CX transformation road map. They suffer from an antiquated legacy mindset and…

Thanks Ken and good morning everyone. I want to first reemphasize Ken’s comments regarding the overall fundamental strength of the business. Our diverse and integrated offering portfolio, go to market execution, delivery platform, and global footprint have never been more relevant. Our strategy is resonating in the market and it shows in our unity of bookings, expanding revenue backlog, and increasing sales pipeline. Turning to our new business signings, we had 171 million in bookings in the third quarter of 2021. I will share a handful of highlights. The bookings growth excluding pandemic related work was 47% with digital growing 57% and Engage increasing by 42%. We signed 10 multi segment deals totaling $55 million or 5.5 million per deal well above or overall average deal size. We acquired 19 new client relationships. The recurring revenue bookings increased 250 basis points to 57.6% of total bookings in the quarter. From a vertical perspective we had significant bookings in healthcare, financial services, technology, auto, and telecom media. With our third quarter year-to-date bookings of 545 million our 112% LTM revenue retention, a 98.8% in your revenue backlog coverage, and the next six months pipeline of over 1.4 billion, we're confident executing our full year 2021 guidance and delivering our previously articulated 2022 revenue growth rates. Before jumping into our third quarter and year-to-date financial performance, I'll take a few minutes to address the September cyber security incident. It's important to note that the incident only affected the Engage segment and only a portion of the Engage clients. From the beginning our top priority was to safeguard our clients, people, partners, and shareholders by ensuring that we execute a swift return to service and minimize any data exposure. Our risk management incident response and business continuity protocols were immediately activated. The teams…

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

Thank you. [Operator Instructions]. Our first question is from the line of Maggie Nolan of William Blair. Your line is now open.

Hi, thank you. Good growth excluding that cyber incident. I did have a question about kind of where the incident impacted, did it impact any of your top five clients or can you talk about the dynamics within that bucket? And then just general comments on the health and growth prospects within those top clients?

Hi Maggie, it is Ken, how are you? What I would say to you is, is that, it had -- different clients had different impact. It really only impacted a relatively small group of clients. And the most of the impact really had more to do with us. Not with our systems not operating, it actually had more to do with just simply us being cautious and them being cautious while we gave them an all clear. So, what I would say to you is I'm clearly not going to disclose names or companies, etc. but we feel like we're in a very good shape right now and our clients were extremely appreciative of the speed at which we responded, and how well we were able to maintain stable systems pretty much throughout the entire event.

Got it, that's helpful. And then just in general dynamics amongst your top five clients and grudge prospects?

What I would say is that in almost every case, I'm thinking right now of the top three, there is growth coming from them and expansion coming from them. And in multiple cases on not just the Engage front, but also the digital front. So we're seeing people taking advantage of our capabilities on both sides. Regina, do you want to add anything or Dustin?

I would just add that, we continue to have anywhere from 88% to 90% of our bookings in our embedded base, and a good majority of that ends up in being in our top 25, including kind of the top 10. So, I would say no change there. You can also, if you look at our LTM revenue retention, so going back 12 months and looking at clients that were in place, in 12 months ago versus where they've grown to today, that growth rate overall is 111%. In Engage where I think you were talking about, in particular, almost 119%. And again, a lot of that coming from our largest clients. Also, I think you can take from the reiteration of next year's guidance, that we're very comfortable that the machine that we have relative to a go to market, and the operational excellence is there. We had a bit of a blip with this cyber event but, it was one time and contained to less than a week's time. And we feel good that our relationships are in place. But above and we are going above and beyond and making sure from a trust point of view, that brand that we have stays intact into the future. And we are making the right investments so you know go through these things without seeing things that can be improved. And we're taking every opportunity to improve them and work very closely with the compliance and CECL groups within our client base.

Okay, thanks Regina, and congrats to you and Dustin.

Thank you, Maggie.

Thank you. Next question is from the line of George Sutton of Craig-Hallum. You may now ask your question.

Thank you. This is Adam on for George, thanks for taking my questions. Great to hear about pipeline backlog and bookings all pointing in the right direction. Ken I was curious if there's any new or evolving drivers of that recent pipeline and activity worth highlighting?

Boy, I almost don't even know where to start. I mean, I think there's a myriad of things. As I was saying in my script it goes without saying that there's no longer any question from any major company where the competitive battleground is. And as products continue to commoditize and services look more like other services, the true differentiating platform is experience. And so consequently, we no longer have to pound that into our client’s heads. They're now coming to us and saying we've got to up our game. Many of them have just been historically either taking advantage of their internal captives along with their traditional partners, and they're realizing that what they've been offering really isn't differentiated enough until consequently, we're winning a substantial amount of business from people who are basically asking us to help them reinvent their experience on the digital side, as well as on the technical side -- as well as on the Engage side. The other thing that we're seeing is that the labor markets are getting very, very tight it's no secret. And many of our clients are really experiencing difficulty with many of their providers as well as their own captives in being able to properly maintain and staff their environments. We tend to be the high quality provider that tends to pay our frontline a more competitive wage, etc. And we're not experiencing some of the difficulties that others are experiencing as it relates to hiring. And so therefore, we're seeing an increased amount of business coming to us because of our ability to meet our staffing requirements that clients are asking us to staff to and consequently, they're then asking us to increase the amount of business that they already awarded to us. I'd say that the third…

And if I could just add a couple of demonstration points that I think are important in terms of thinking about the reliability of that future growth rate, year-to-date we have 52 logos, new logos. These new logos sometimes come in small, but having that level of new logo bodes well for the future as we grow a good percentage of them. Our multi segment deals are 10 in the quarter but as I said in the script, if you think about the average deal size, it was 5.5 million, which is almost two times our overall company deal size. So it just demonstrates the strength of the magnitude of the deal when we're combining all of our capability. I want to make the comment on the COVID replacement. You know, we had a lot of angst in the second half of last year and the beginning of this year, where we really replace that. If you think about our year-to-date, in our overall 545 million of bookings, we have around 40 of what we would call pandemic related primarily vaccination related to 216 million last year. So the team has done a very good job of executing that replacement that was so important. And then last but not least, which really speaks to margin, if you look at our year-to-date bookings, we've got about 113 million in the Engage business that's offshore and that's about three times what we were last year. So nice getting back to the balance between onshore and offshore, which will bode well for our operating margins.

Great detail. Thanks guys.

Thank you. Next question is from the line of Mike Latimore of Northland Capital Markets. You may now ask your question.

Great, thanks. Yeah, nice quarter and congratulations, Regina and Dustin. On the -- I think you gave a revenue retention number 118.9% up, a significant amount year-over-year. Can you just put a little more color on that, is that more seats handling the voice calls, is it messaging, just a little bit more color on what's driving the revenue retention number and what is the kind of healthy solid number for that?

So I would start by saying that, it's a function, first and foremost of retention, right, just base retention of the existing revenue. So we have less turn and volatility in our base volumes. Second, it's a sign that the bookings, right, that we talked about were 88% to 90%, is in the embedded base or yielding. Second, I would say that, I guess next, I would say that in digital it's been I would say, early on easier go to find new clients for the digital business that were very interested in transforming their technology. It's taken more time to go back to our embedded base, and execute more digitization. Now that digitization can come in the form of what you're talking about being able to handle non voice types of calls. So that's a part of it. But it's also doing the transition of the technology and we're finding where we leverage outcome based in our embedded base wherein we make a commitment that the number of associates or the volume that an associate can handle with better technology, we put skin in the game on. So those are a couple of things I'd mentioned. Ken you want to add?

The only part I would elaborate on is that we're definitely seeing a more opportunities in the textual based area, the messaging area, which is something that we've been pushing for, etc. so that we start to really increase our mix of voice and then across all the different channels. And so obviously, as we help clients with their digital capabilities and add omni-channel, and then when they choose to use this for Engage, that feeds more messaging business to us, more textual business to us, etc. and gives us more opportunity to handle that business in other markets near shore, offshore, etc. that are potentially better margin as well. So that's really all that I would add.

And then just I guess, on the acquisition front, what would be the top kind of category you're thinking about in terms of additional acquisitions?

Well, as you heard us say, our goal is to get our digital business to a billion dollars. So we're going to do that through a combination of organic and through M&A. And so clearly, we have our eyes out for opportunities that we think would be strategic and accretive to our digital business. And then secondly, we're very rapidly expanding the geography of our Engage business and so we're open to opportunities in that area as well. But what I would say to you is that, we are very actively out there looking and at the same time, there is -- we're not going to do anything stupid as it relates to that we need to pay a market competitive fair price and not overpay for something, so to speak so that it's problematic in the future.

Yeah, alright. Thanks.

Thank you.

Thank you. Next question is from the line of Joseph Vafi of Canaccord. Your line is now open.

Hey guys, good morning and congrats to Regina and Dustin on well-deserved promotions. Maybe I might have missed it but did you say what percentage of the business now is hyper growth clients Ken?

No, no the percentage we said 400 million of our revenue is now coming to growth and growing very rapidly.

15% to 17%, yes.

Got it. And is there -- when you look at those hyper growth clients, do they book new business differently than, say, a kind of a traditional or a blue chip company, are they -- are the bookings numbers kind of smaller and grow with them or is it kind of the same type of bookings upfront with those hyper growth guys?

That's a very good question. I'd say that they definitely are smaller bookings up front. But then what happens is that when they catch fire, the speed of 0 to 60 is nothing like with a traditional Fortune 500 company. And so, I mentioned the categories that we are winning business from. You can imagine who some of those companies are. And so they may come on as I'm making it up, but a million dollar client, and in six months or 12 months they become dramatically larger than that many fold the size, and then just continue to keep on growing. So I hope that helps but that's not uncommon. And, we're signing between three and four of those types of deals a month right now.

I mean, I think we also gave the number, right, so it's going to be a run rate of 400 million. And we have about 100 clients so it's an average of four. But you can have clients in there that have 30 million to 40 million, because they -- and we're not going to name the brands, but they're the ones that you're using every day, that just held over last couple of years. We've been focused on this for already four years now, very focused. And, I would -- I think we've done a great job of growing and at this point there's clients that are 500k or 1 million, but there's lots of clients that are both the $10 million mark.

That's great. And what is the appetite for those types of clients on the digital side versus Engage, are they mostly Engage customers, and just trying to get a feel for where they're buying and what they're buying?

Truly, it's really all over the board. One of the reasons why it tends to be less digital for now is because we've made the conscious decision to really focus on large enterprise, mega enterprise, and then with the Avtex acquisition have now gone to kind of enterprise. I think that what you'll see in the very near future is some announcements that will provide capabilities to more of that entry level startup phase set of clients and that will open up a whole new market segment for us. So what I would just simply say to you is that what we want to make sure is that when some of these companies start out, and they only let's say, hypothetically, start out with 25 workstations, typically the offerings that we've had historically, and what would the energy that we put in them really wouldn't justify our energy in those areas. And what I would say to you is, in the very near future we'll have offerings that will make tons of sense for those types of clients so that they can start out with us and then grow into large enterprise platforms.

That's great. That makes a lot of sense and that's exciting. And then just I know you COMMENTED a little bit on the labor front saying that you've got more capacity than others in this environment. Just, your updated latest thoughts on pricing being able to pass on labor cost increases to clients, and it sounds Regina, like you have it under control pretty well, given the margin guidance, but just some more updated thoughts on the supply side? Thanks.

Look, there's no doubt that there's been true wage inflation on the frontline workers and we have -- we pride ourselves that we've been ahead of this for now going on at least three years where we saw, not necessarily what we're seeing today, but where we knew that we needed to do something very proactively with our clients. We were very successful in the 2000, I want to say, 2018 timeframe of getting pretty significant price increases. I might be off, if it's not 2018, it's 2019, Regina can correct me. And then when we entered into the pandemic and we saw frontline wages going up substantially, we proactively went to all of our clients, we showed them the data, we showed how competitive the marketplace was getting as far as what other companies were paying, etc. And we got in front of it and the bottom line is, is that for, I would say the most part, the majority of the clients were very fast to react to our need to increase the labor wages and increase our pricing. And we now have a very open dialogue with all of our clients. And what we're basically showing them is that, A) we have multiple avenues of resolving this issue. One of the avenues is that we just simply pay what the market requires, so that we can hire the best quality people and have the lowest attrition in the marketplace. The other is that we blend them, blend that with some nearshore environment to ease some of the pain. The other is that we blend it with some offshore. And then obviously the other where we're really taking advantage of is offering digital solutions that reduce some of their labor costs so that ultimately they can afford to pay the higher rates, but that we can offset it through a lot of the hyper automation that we're introducing to the account. So what I would say to you is, in some ways, this tight labor market is actually benefiting us, it is helping us not only just with our Engage business, and driving the top line number up, but it's also getting more clients who would never consider nearshore or offshore, they're now absolutely taking advantage of it and considering it, as well as clients that are saying, how can you help us digitally so that we can afford these new costs that we weren't budgeted for. So we feel for the most part pretty good. But there's no denying this is a very tight labor market and it's not just in the U.S., it's in many, many markets as you know.

Thank you. Next question is from the line of Bryan Bergin of Cowen. Your line is now open.

Hi, good morning. Thank you. Question, I'm curious around the one TTEC or the combined Digital and Engage contracting. Is there a common type of client or client profile that's engaging this way and when you're signing these combined engagements who you're competing against, I imagine it's a smaller list than typical?

On the combined sides, we're really not competing with anybody for the most part. It's either -- it's really them deciding to go with a pure digital provider to do the work, EPAM and in DAVA, Globe Int [ph] and Accenture, etc. or do they go with somebody that's handled billions of interactions, understands their vertical industry almost as well as they do, understands what their customer advocates need on their desktop, etc. And are talking to our existing embedded base clients that are saying that we're implementing at a dramatically faster pace and scaling with the best of breed technologies. So what I would say is, is that when it's a one TTEC, we're not -- we truthfully are not competing with a company that's providing kind of an end-to-end one stop shop. It's really them deciding, we're going to go with a separate Engage partner and a separate Digital partner.

Okay, and then appreciate the update on the mix of the digital natives, can you also give us a sense on how much has been in the higher value areas within Engage, areas like customer acquisition and fraud support versus some of the traditional customer support areas?

I don't know that I can give you a number just because I don't actually have it top my head but I'd be happy to make sure that Paul and Dustin get to you offline once.

I'm not sure I understand the question, are you saying in our Engage business what is the digital mix?

Well, areas like the fraud support, customer acquisition, just trying to understand some of the higher margin streams within Engage, what the mix of that businesses evolve to be?

Yeah, I mean, I would say if you're going to take the CGS then you take the lines of business that are within the care. You probably got 30% to 40% of the business depending on the quarter. For example, our licensed seasonal work in healthcare is very significant. That's our peak in the fourth quarter. But say out of the entire base that stuff that is a multiple in terms of its growth and a multiple in terms of its margin, it's probably around 40% of the portfolio at this point.

Okay, thank you very much.

Thank you. Our last question is from the line James Faucette of Morgan Stanley. You may now ask your question.

Hey guys, this is Jonathan on for James. Thanks for taking my questions. Looks like at least based on your filings that you grew head consequentially by about 6.5% in the quarter. How do you think about the mix of that between Digital and Engage from a net headcount perspective and how you think about the appropriate or sustainable level of headcount additions going forward?

Yes, so I think you have to remember that when we go from Q3 to Q4 we have a bump up in the business for a seasonal work. So, what happens is that in order to prepare for that season which hit prime time October 1st for healthcare and not too long after for retail and business services we're hiring up for that. If you look at our Q4 at 567 and if you look at our guidance more or less going to 595 or so, you see like a $30 million pick up and to serve that 30 million which is predominantly coming from Engage seasonal business those folks are in place. So you see that come back down in the beginning of the year. I would say not as much as traditionally because the business has got a lot of strength and we had a strong Q4 bookings and we expect a strong, excuse me, strong Q3 bookings and we expect a strong Q4.

Appreciate that color. And you had mentioned some of the pricing dynamics earlier, are you seeing some of your competitors come in with aggressive pricing despite the wage inflation of the market?

What I would just simply say that we're winning more than our fair share or a typical percentage of business. Our conversion rates are definitely higher and so I can't really comment just because I don't actually know. I think you really, the market has definitively kind of consolidated for lack of a better term and rather than calling out names I would say that there is a percentage of the marketplace that frankly we don't compete with at all. And if a client is even considering using those particular companies we're probably not even bothering with that client. That means that they're not customer obsessed or not customer centric, they don't care about quality, etc. And so I would just say that there is -- if you could count them on your left hand and it's fewer than five then we pump into so to speak on a regular basis and that's good for us. And it's I think, it is where the industry is going. Many of these smaller companies just don't have the balance sheet, they don't have the scale, they don't have the track record, they don't have the system, the processes, etc. And so the kinds of businesses that we are targeting, we tend to be creating the opportunities. We are not waiting for RFPs to come in. The ones that are coming in via RFPs those tend to be kind of commodity type based deals that we are just not focused on. We're focused on deals where we are very much involved in providing transformational capabilities which means there is some level of consulting that requires journey mapping, that requires technology assessments, etc. And then ultimately then converts to a deal that we are providing multiple capabilities to the client.

Yeah, I mean we are premium price, so we know that from the feedback from our clients, we know it from the third party surveys that we do on wins and losses. What we are doing better and better is churning that pricing discussion not into we will drop our rate, but let us come in and execute some of the assets and capabilities that we have on the digital side and therein get your overall costs. So if cost is an issue how do we have more offshore mix, or how do we automate, or do we augment so the yield out of a particular associate and the quality of the engagement is better. So for us we see it as an opportunity to point towards our other capabilities and win the cost compensation that way as opposed to dropping rate.

So, it is ultimately about the total value delivered. It's ultimately about the -- us creating solutions that deliver defined outcomes and if those defined outcomes can be variablized or cost that a CFO can relate to, a Chief Digital Officer, Chief Customer Officer, etc. And most of our so called competitors they don't even look -- they don't -- that's just not how they're -- they're approaching it more from a labor augmentation point of view. And that's just a different market that we are focused on.

Thanks for the color guys and congrats Regina and Dustin on the new roles.

Thank you.

Thank you for your questions. That is all the time we have today. I will now turn the call back to Paul Miller.

Yeah, thank you. This concludes our earnings call. Thank you for your participation. Have a great day.

This concludes TTEC’s third quarter 2021 earnings conference call. You may disconnect at this time.