Welcome to TTEC’s First Quarter 2022 Earnings Conference Call. I’d like to remind all parties that you’ll 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 first quarter financial results for the period ended March 31, 2022. Participating on today’s call are Ken Tuchman, TTEC’s Chairman and Chief Executive Officer; Dustin Semach, TTEC’s Chief Financial Officer; and Shelly Swanback, our newly appointed Chief Executive Officer of TTEC Engage. Yesterday, TTEC issued a press release announcing its financial results. While this call will reflect the items discussed within that document, for complete information about our financial performance, we also encourage you to read our first quarter 2022 quarterly report on Form 10-Q. Before we begin, I want to remind you that matters discussed on today’s call, may include forward-looking statements related to our operating performance, financial goals, and business outlook, which are based on management’s current beliefs and assumptions. Please note that these forward-looking statements reflect our opinions as of the date of this call, and we undertake no obligation to revise this information as a result of new developments which may occur. Forward-looking statements are subject to various risks, uncertainties, and other factors that could cause our actual results to differ materially from those expected and described today. For a more detailed description of our risk factors, please review our 2021 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 thanks, everyone, for joining us this morning. Before I discuss the highlights of our first quarter performance, I'd like to share details on the exciting announcement yesterday that we've named Shelly Swanback as our New Chief Executive Officer of TTEC Engage. With a proven track record driving significant growth in a dynamic digital environment, Shelly is both a market maker and a strong cultural leader, with over 30 years of experience in digital transformation, strategic consulting, technology, services, analytics, and M&A. Many of you may know Shelly from her time at Accenture, where she launched and built Accenture Digital into a global transformation powerhouse, with more than $20 billion in annual revenue. Skilled at driving innovation globally and at scale, Shelly brings vertical industry knowledge, customer experience domain expertise, and strength in digital product development to TTEC. Shelly loves to win, and is completely aligned with our ambition to double our business in the next five years. A seasoned market-facing leader who excels at creating strategic value for clients, partners, employees, and shareholders. Shelly has the energy, intellect, and expertise to take TTEC to the next level. At the helm of our Engage business, she will be responsible for driving growth, digital innovation, and global expansion. In finding the right leader for TTEC Engage, character and cultural fit were extremely important to us. Shelly's authentic, empathetic leadership style emerged immediately in our discussions, and her passion for developing and bringing out the best in every employee, aligns perfectly with our value-driven culture. At this time of explosive growth in the digital experience economy, Shelly will amplify and accelerate our progress, as we further capitalize on the immense opportunity for TTEC on the horizon. Now, let's turn to the first quarter. 2022 is off to a solid start.…

Thanks, Ken, and good morning, everyone. As Ken mentioned, we had a solid start to the year as we execute on our strategic priorities. The demand side remains strong, as evidenced by record first quarter revenue results and meaningful new business signings. We are capitalizing on a large growing addressable market, characterized by a heightened level of urgency and the growing importance for brands to distinguish themselves, with exceptional customer experiences and outcomes. Now, I’ll move to our first quarter results. First quarter bookings increased 15% to $195 million over the prior year period, resulting in $776 million of bookings over the last 12 months. In our Digital segment, bookings increased 137% in the first quarter, over the prior period, and 97% over the last 12 months versus the prior period. Strong demand continues for our Genesys, Amazon Connect, and Microsoft CX Solutions, including larger CX technology transformational engagements like the public sector client example Ken shared earlier. Our Engage segment also saw healthy demand across our core customer acquisition, hypergrowth in care services. Our first quarter bookings included six multi-segment deals, approximating $17 million, and 60 new logos with cumulative bookings exceeding $23 million, many of which were hypergrowth clients. We exited the first quarter with 2022 revenue backlog of $2.3 billion or 91% of the midpoint of our guidance. Our current end year sales pipeline is $1.8 billion, up 12% over the prior year period. We are well positioned for strong profitable growth in 2022. My discussion on the first quarter of 2022 results reference to revenue is on a GAAP basis, while EBITDA, operating income, and earnings per share, are on a non-GAAP adjusted basis. A full reconciliation of our GAAP to non-GAAP results is included in the tables attached to our earnings press release. On a…

Thank you, Dustin. I'm excited to announce that Shelly is here with us on the call today, and I'm happy to formally introduce you to our new Chief Executive Officer of Engage, Shelly Swanback.

Thank you, Ken, and good morning, everyone. It's so great to be here and to be joining TTEC. It's such an exciting time. The market opportunity is just tremendous, as every business, regardless of their sector, knows that to win in an experienced economy, they must deliver customer experiences that are both effortless and also engaging. I just love the CX space, and I joined TTEC for a couple of reasons. First, I believe our customer experience as a service platform is unique. We can bring together technology, customer insights, and talent to help clients design, build, and also operate experiences at scale like no one else can. And second, I'm inspired by the company's vision and values-driven culture. I'm passionate about partnering with clients, passionate about driving growth, and also building high performing teams, and that's what makes this a perfect fit. I'm really looking forward to taking TTEC to the next level, and also looking forward to spending more time with all of you in the future, as we work toward our goal and ambition of doubling our business. Thank you, and back to you, Paul.

Thanks, Shelly. 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. [Operator Instructions] our first question comes from George Sutton of Craig-Hallum. Your line is open.

Thank you. And first, Shelly, welcome to TTEC. We certainly understand how big a deal it is that you've come on. I would tell you that when I want to feel good about myself or the market, I pull up the 10 and 20-year ACN chart, and it just makes me feel good. So, what I am aware of for Accenture, and this is really a question for Ken, is, it's normally BPO-style growth. And I'm just curious if this gives us a message that you're going to be moving TTEC in that direction a little bit.

What I would say to you is, we're already doing a fair bit of back-office services. As I mentioned, even in my script today, as it relates to public service area and some other areas that we're focused on providing back-office and claims area, et cetera. What I would just simply say to you is, is that we're going to stay very, very focused on anything and everything that drives overall a better client relationship for our customers. And in many cases, our clients' back offices are broken. They need new technology, because if the back office isn't working properly, then the front office gets the complaints and vice versa. So, that's my way of saying to you that it's one of many areas that we see as a growth area, but the reality is, is that there's so much growth just in our core business of what we currently do today, that I think you're going to see that Shelly is really going to be doubling down in that area and expanding us on multiple fronts there, as well as internationally as well. So, I hope that answers your question.

No, that's great. Just a follow-up on the government. Congratulations on Indiana and getting the Faneuil deal closed as well. Can you just talk about how broad the government opportunities are? I sense that you're seeing a bit of an increase in demand there, and I just want to be clear how significant that could be.

Yes. So, as all of you know, we've had a couple of administrations that have decided to put out trillions of dollars, something that none of us have ever experienced in our lifetime, those trillions of dollars, the majority of which flows down to state and public sector. And so, we're a big believer in following the money, and that's really all we're doing. And so, consequently, what the pandemic did is, it made it brutally honest to each and every one of these states that they're not equipped to provide virtual capabilities, and that when there's a pandemic and you can't get your driver's license renewed, you can't pay a ticket, you can't pay your franchise tax or, or get a building permit, et cetera. And so, our focus is going to be in the area of helping these governments provide e-government services so that we have the ability to assist them in having a more digital interface to the public. They need it. They want it for a myriad of reasons, and frankly, selfishly for them, not the least of which is political. And so, we all saw what happened to Department of Labor. We did a ton of work for many states in that area, and basically all their systems crashed. They had no real ability to deal with people because they're used to people standing in line to get their checks, et cetera. We saw the same thing across a myriad of other government entities. So, I think what you're going to see is that there's going to be massive investment across the United States and other countries, where they're going to want to modernize their platforms on the technology side, as well as take advantage of our CX capabilities with our citizen ambassadors. And that's part of what Faneuil helps us do. Today, we're covering, just in the health exchange area alone, I don't want to give out a wrong stat, but I believe that 40% of the health exchanges we're now interfaced to and providing services. And the same thing, our tolling business is growing very rapidly. Our roads are falling apart. We all know that. And so, the solution to solve this, since they don't want to raise the federal gas tax, is to start converting roads to tollways. And so, we're very excited about what we can bring to the table in this area of tollway management, not just the classic way that people pay tolls, but also taking advantage of new IoT services that we plan on being very involved with in the future. So, sorry for the long-winded answer, but the bottom line is, is that we see a lot of potential.

That's great detail. Thank you very much.

Our next question comes from Vincent Colicchio from Barrington Research. Your line is open.

Yes. a nice quarter. I'm curious if there's any thoughts on the overall economic outlook and if you're seeing any signs of weakness in any of your GOs or verticals, Ken.

I think it's a little premature for us to really give you an accurate answer. What I would say to you is, we're not seeing volumes coming down. What we'll start looking for as we slide into a higher interest rate environment is, are people going to start downgrading various different services, which doesn't necessarily affect us. It just simply means that they go from a premium something in cable or canceling HBO or whatever. I'm using that as an example. I don't think we're yet seeing that, but I won't be surprised if in fact over time, we do begin to see that. We're somewhat insulated because we have very consciously built our business around healthcare. And we have a very significant amount of healthcare business. And healthcare is really not affected by recessions. Companies issue benefits and consumers sign up for those benefits, regardless of what's happening to their paycheck or their mortgage, et cetera. So, we think that we have multiple segments and verticals that we're focused on that really don't get hugely impacted or impacted at all by the recession. The same thing with public sector, and we were very conscious about that. That money is going to be spent, regardless of what is going on in the economy. So, but what I would say is, it's a good question, Vincent, and I think that on the next call, I'm going to be able to give you a much better read than I can today. I just think it's premature because the Fed is really just now starting to tighten things up.

And one for Dustin. What percentage of bookings were deals that combined Engage and Digital? And how does that compare to the prior quarter?

You're looking at about, Vincent, I want to say about $10 million. I mean, excuse me, about 10% of the overall bookings, slightly down from the prior quarter. I want to say six deals overall.

Thanks for asking my - answering my questions

Our next question comes from Bryan Bergin of Cowen. Your line is open.

Hi. This is actually Jared Levine on for Brian. First, in terms of the fiscal year 2022 guidance, can you discuss what went into the thought process to reiterate the guide, despite the 1Q beat, healthy bookings commentary?

Dustin, you want to handle that?

Yes, absolutely. So, there are a couple of things I would say. First off, we're still - it's Q1, right? So, we're early part of the year. And as I mentioned earlier, so part of it just reiterating from that basis, we feel good about the pipeline. We feel good about our overall backlog. We talked about both are increasing and growing, and we had a really strong bookings beat. Part of it, we mentioned that there is some - some of the deals, if you think about some of the more transformational deals that we did, larger ramp times, et cetera, leading to revenue kind of from Q2 shifting to the second half. And that's what led us to kind of reiterate guidance at this point. But we're very confident about the second quarter and feel good about where we're at from a bookings momentum and a pipeline perspective, and we'll come out in August and have a further discussion about it.

Okay, great. And then, what was the scale of those incremental $50 million of growth investments in 1Q? And was that in line with your expectations, and are you expecting any change in the pace of that expected spend?

I mean, as we mentioned before, even in Q4, right, we're always evaluating our overall investments and how we're deploying it, making sure we're getting the right return on investment. And it is on pace in Q1. It will ramp throughout the year though, right? Just kind of, if you think about it, relative to our overall SG&A profile, our revenue profile as well, and then ramping more in the second half, and it's evidenced by the - even the announcement today of Shelly and some investments we're making in leadership. And so, in Q1, we're on pace.

Can I sneak in one more real quickly? What was that organic revenue growth rate in 1Q?

Organic revenue growth rate was roughly flat.

All right. Thank you.

And it goes back to the discussion that we had, again, as we guided, this relates to - a difficult compare as it relates to pandemic-related volumes in Q1. Excluding that, you're looking at roughly eight points of growth for the total company organically.

Got you. Thanks.

Our next question comes from Joseph Vafi of Canaccord. Your line is open.

Hey, guys. Good morning. Good quarter, and welcome on board, Shelly. Dustin, I just want to go back to your comment. I think you said something about EMEA growth of 20% in the quarter. Just given the macro backdrop in Europe, I was wondering if we could get a little more color on that.

Sure. Yes. So, keep in mind, our EMEA business is still relatively small to the broader portfolio. That’s number one. Number two is, as we mentioned, you go back to exposure, we only have businesses within Poland and Bulgaria, and a lot of that growth is coming from other areas. Keeping my contracts that may be in the UK as an example, or in Western Europe, but being delivered out of the Philippines or being delivered out of another location, which is part of the reason. So, we haven't seen- to kind of answer directly your question, we haven't seen a slowdown in that particular space, or impacting our ability to deliver or impacting our ability to win in the market.

Got it. And any kind of change of pace in kind of your fast growth internet native clients this quarter?

We talked about - I highlighted that as well. So, hypergrowth grew 21%. A couple of different clients drove that, particularly in the travel space where we have a couple of hypergrowth customers that did very well. That’s part of the reason we called out travel more broadly, that has hypergrowth embedded in that number. So, it's still - the business is still very strong and continue to accelerate, and we feel really good about that. We talked about some of the new logos we want as well. And even in that, the new logo space, we're still doing very well in terms of being able to acquire customers with that kind of profile.

Great. Thanks, guys.

Our next question comes from Maggie Nolan of William Blair. Your line is open.

Hi. This is Jesse Fink on for Maggie. Congrats on the quarter. I wanted to touch on talent. So, how many employees do you have in the Philippines, and what steps are you taking to mitigate attrition there?

Ken, do you want me to take that, or do you want to take the?

Yes, go ahead. I mean, you know the stats as well.

Yes. So, you're looking at roughly 25,000 within the Philippines. And keep in mind too, that you're going back now, since the pandemic started, we shifted broadly speaking, that entire employee base to work from home, right? And we did that, I would say, in a much more differentiated way relative to our competitors. And that led to a lot of the growth that we were able to secure during that period of time as well. As it relates to attrition, a lot of it - there's a number of things that we're doing in terms of being able to improve that, but we haven't seen, and I can go into those in a second, but we haven't seen a notable uptick in attrition. And while it's still - I would say labor markets across other geos are difficult, it's - I would say the most difficult labor market that we're dealing with is still the US. In the Philippines, we haven't seen a notable change. And I do think that part of the flexibility that we're offering in this work from home type environment, is driving some of that benefit. In terms of broader initiatives that we have, we talked about before, unified neighborhood. And so, as we - think of it as a broader statement about going into a work from home environment and making sure that you're keeping our overall employee base engaged and connected. And so, a lot of our initiatives are around those aspects. Other pieces would be improving our overall work from home kind of training and virtualized training, aspects like that that we continue to work on, that not only do we do for our internal customers, and - but we also do externally within our Digital segment. So, we're applying a lot of those technologies to improve the overall experience when they're onboarding, coming on board, and reducing attrition in that way. And then, Ken, I'll turn it to you and see if you have any other color that you want to add.

No, I don't think so. I mean, I think that we feel very comfortable with what our attrition is running right now. And I guess all I would add is that we've never been in a situation in our entire history of being in business, where clients are more understandable about wage increases, et cetera, because they're experiencing such significant shortages with their internal operations. And so, they're working with us when we see the need to adjust wages up and obviously pass that on. And so, we feel really good about this. I mean, at the end of the day, the services that we provide are mission-critical. And I mean, we - just yesterday evening, as an example, I was speaking to our Chief Revenue Officer, and she was telling me about a particular client that is 4,000 associates deficit, and is desperately trying to get back, add back 4,000 associates. So, we're seeing this across the board and that creates opportunity for us. We're very good at talent acquisition. We've got quite the machine for that, and we're very good at onboarding and training and good at showing the love to our employees for retention. So, I would say that right now, we feel quite good about where we stand with our labor at this point in time.

That's great to hear. And then one follow-up for me on IP. How are connector sales progressing? I know we're approaching almost halfway through the year. So, yes, I'll hop back in the queue. Thanks.

You want me to take that, Ken?

Yes. I think he's referring to the marketplace sales of the APIs and connectors, is that correct?

Just broad - I would say broadly speaking, our connector business. And to answer that question directly, one of the comments that Ken referenced in terms of the past 12 months, that business is growing at 65%, and we feel very good about how sales are progressing. And we expect a number of new product releases further this year to continue to accelerate and ignite that overall business. And it continues to be a primary focus.

Thanks.

Our next question comes from Mike Latimore of Northland Capital Markets. Your line is open.

Hi. It’s (indiscernible) on behalf of Mike Latimore of Northland Securities. Am I audible?

I'm sorry. You’re coming across very difficult to hear.

Yes. I have a couple of questions. So, the first one is, is inflation slowing customer interaction volumes in any verticals?

I'm sorry. You're still a little difficult to hear. You're saying something about customer interaction volumes in different verticals maybe?

Yes. I was asking if inflation is slowing down customer interaction volumes in any verticals.

Yes. I think Ken kind of hit that on the head a little bit earlier, which was that right now at this point in time, it's a little early to call it. And broadly speaking, the comment was that we don't see any reduction in volume at this point in time, and we can give a broader update on kind of how inflation is affecting different areas in Q2. But again, I think the point he made earlier in his own comments, which I think is important to reference, is that we do have a highly defensible model and a very diversified set of businesses. that can weather any type of challenge like that.

All right. My second question - okay, great. And my second question is, is Cisco contact center demand improving?

Yes.

Yes, definitely. The pipeline is far better than we've seen it in a year and a half. And people are really starting to now resonate to their new offerings, et cetera. So, time will tell if it becomes a major force in the marketplace, but definitely we are seeing a much more significant pipeline and more deals coming through, and more clients that want to transfer their premise licenses to WebEx CC, et cetera. So, right now, we definitely are feeling - seeing and feeling it. As a matter of fact, I just spoke to the gentleman that's running that unit yesterday, and he ran me through the pipeline and I was pretty surprised.

To the positive.

Yes. To the positive. Thank you.

That's brilliant. Thanks. That's it from my side. Have a nice day. Bye.

The next question comes from James Faucette of Morgan Stanley.

Hey, it's Jonathan on for James. Thanks for taking my questions. Can you help decompose growth in hypergrowth? I want to better understand how much of that growth is driven by share gains versus new clients versus volume growth, if possible.

Yes. We typically - so, Jonathan, I like to say in a couple different ways. So, right now, if you look at the business more broadly, if you go back to last year, we probably had two or three significant customers that have ramped on the back half of 2021 that are ramping across 2022. So, that is driving - they're performing very well and driving - if you think about it, it's very similar or comparable to kind of what we talk about as our overall embedded base versus new logos, where you're looking at roughly 80% of the business is driven by our embedded base. And I would say the same for hypergrowth, and then roughly 20% is driven by new logos. And - but we did have a couple last year that ramped, and they continue to drive significant growth in 2022.

Got it. That's helpful.

I think that one thing that’s important to note in that segment, it is a very diverse segment in terms of sizes of clients, et cetera. So, in a lot of ways, if you think about the size of the customer, the end customer, then that speaks to a lot of it. So, it's a highly diversified hypergrowth sector, which I do think differentiates us relative to our competitive set.

Yes, I appreciate that clarity. And a follow-up if I may on headcount, it looks like headcount declined sequentially, at least based on your filings. And I fully recognize that the delta there may be because of seasonal temp workers. Can you talk about the rate of headcount additions that you expect this year and what you need achieve your outlook?

So, you're talking about for the full year?

Yes.

Yes. So, there's two things I would tell you. So, one is, as we go back to our guidance when we talked about that we are looking to shift, what's a little bit different about our business, I think relative to using that metric, which candidly, we typically don't always use as a leading indicator to growth, and for a simple reason, that we're in the process of rotating our overall headcount and business. We talked about this focus on offshore delivery. We're going to continue to focus there. But we have a very strong kind of US domestic business, and as a result of that, our headcount metrics are different, I would say, in a lot of ways relative to peers. This year - and so - but with that said, to answer your question directly, you're looking at roughly 10,000 kind of in total headcount year-over-year. But from a seasonal perspective, in sense of like - same like for like end of quarter comparison.

Got it. Really helpful color. Thanks, guys.

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

Yes. Thank you all for participation and have a great day. This concludes our call.

Thank you.

This concludes TTEC’s first quarter 2022 earnings conference call. You may disconnect at this time.