Welcome to TTEC's Second Quarter 2022 Earnings Conference Call. I would like to remind all parties will be 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 second quarter financial results for the period ended June 30, 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, Chief Executive Officer of TTEC Engage. Yesterday, TTEC issued a press release announcing its financial results. While this call will reflect items discussed within this document, for complete information about our financial performance, we also encourage you to read our second 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 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 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.

Thank you, Paul. Good morning, everyone, and thank you for joining us today. Our results for the second quarter exceeded our revenue and profit expectations as we continue to make meaningful progress on several of our key initiatives. For the quarter, bookings were $170 million, revenue was $604 million and adjusted EBITDA was $84 million, reflecting our planned increase in growth-oriented investments. And we signed 26 new clients in our Digital and Engage business units. Shortly, Shelly will provide an update on the business, and Dustin will share financial details. I'll focus my comments today on our progress with our strategic priorities. We understand that the current dynamic macro environment is top of mind for everyone. For our part, we remain highly confident in the enduring strength of our business. Our digitally enabled customer experience solutions continues to deliver the business outcomes, our clients need most. Our ability to help companies and government entities attract, retain, serve and grow profitable customer relationships remains mission critical in any economic cycle. In a strong economy, consumers are bombarded with options. They choose brands that differentiate with personalized, engaging and effortless experiences. In a challenging economy, however, consumers become more selective and discerning. They spend their precious dollars with fewer highly trusted brands that consistently treat them with compassion and respect. We've seen this time and time again, companies that devote resources to strengthening their customer experiences in a challenging economy are in a far better position to retain their customers for the long run. Over the years, we've created a highly differentiated platform that blends best-of-breed customer experience technology with exceptional operational delivery. We built trusted relationships with over 760 global brands and public sector entities, and we've diversified our business across industries, capabilities and geographies. Our strategy remains steadfast. We will…

Thanks, Ken. And good morning, everyone. In my first 90 days here, I have been impressed with our broad range of CX strategy, technology and operational capabilities. And I'm very excited to take them forward. I've spoken with dozens of our clients. And one thing that comes through loud and clear is that they view TTEC as a true partner. Our clients’ trust us with our customers. They appreciate our strategic approach and depend on our high quality delivery and innovative digital CX capabilities. They value our agility, especially during dynamic times like these. With these trusted relationships firmly in place, we're well positioned to help our clients to continue to accelerate growth, drive profitability and also increase customer loyalty. In the second quarter, demand with our embedded base remain strong with a mix of wins across current programs and new lines of business. In our healthcare vertical, we branched out into several new areas with solutions and provider support, licensed pharmacy, clinical trials and consumer-directed health. In our customer growth services division, a global travel brand and international logistics company, and a fast growing enterprise SaaS technology provider, expanded their digital revenue generation contracts with us. And our TTEC Digital go-to-market team continued expansion of their work with a large national healthcare payer and preeminent regional hospital in addition to several other embedded base wins. Now let me share a few highlights from the 26 new clients who signed on with us this quarter as well. We added new logos across industries, including a premium high-end retail brand, a FinTech disruptor, an eHealth innovator, and a national fast casual restaurant chain. In the public sector, we had a very busy quarter. Our team initiated a significant back office contracts with a federal agency. In addition, our integration with the…

Thanks, Shelly. Good morning. I will first address our second quarter results before providing more color on our updated full year 2022 guidance. We are pleased with our second quarter performance achieving many of our key metrics closing on a meaningful strategic asset acquisition, surpassing $600 million in revenue in the second quarter for the first time, representing double-digit top line growth of 10.8% over the same period last year on a constant currency basis. Taking it all together, amid a dynamic rapidly changing macroeconomic environment, we delivered a strong first half of 2022 as we executed against our key growth pillars. Our second quarter 2022 bookings were $170 million compared to $204 million in the prior year period. Our digital segment booking highlights include strong demand across our Genesys, AWS Connect and Microsoft Dynamics Cloud Solutions. In addition to increased sales conversions in our longstanding Cisco practice. In our engaged segment, demand was stronger across our core customer care and customer acquisition services. And from our more resilient public sector and healthcare verticals, travel and hospitality continue to do well given historic levels of pent-up demand in that sector. Our second quarter bookings included 26 new logos representing over $28 million in bookings, as well as six multi segment deals. I will address our second half pipeline and backlog in my outlook remarks. In remaining discussion on the second quarter of our 2022 results reference to revenues on a GAAP basis, while EBITDA, operating income and earnings per share 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. Moving forward, we are using the term like-for-like basis to describe our revenue growth excluding the impact of foreign exchange translation and treating acquisitions as…

Thanks, Dustin. In closing, I’m excited as ever about TTEC’s future. I’m confident working with Shelly and our leadership team that we’ve created a solid plan to drive our vision forward. In the months ahead, we will continue to expand our footprint and offerings, evolve our go-to-market strategy, deploy capital to make organic investments in strategic acquisitions and provide early returns to our shareholders in the form of dividends. While the updated guidance reflects some of our clients’ uncertainty, our past experience tells us that client volumes will recover as their visibility improves. With a strong foundation and a differentiated value proposition in place, we’re well positioned for future growth, and we remain committed to doubling our business within the next five years. On behalf of our executive leadership, our Board and our amazing team across the globe, thank you for your continued support. Thank you, and back to you, Paul.

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

Thank you. [Operator Instructions] Our first question is from the line of George Sutton of Craig-Hallum. You may now ask your question.

Thank you. Ken, you were the first one to confidently and correctly suggest months ago we were in a recession. So I appreciate your view of the future. And in your prepared comments, you mentioned slower decision-making by clients and lower spend by growth clients, what forward-looking indicators might change those dynamics in your view? And if I could add that if CPI came in surprisingly low this morning, would that help?

Good morning, George. Look, my personal opinion, and I’m not an economist, but I’ve been saying this to our team is over the last, call it, 30 days, what we’ve seen is a bit of a deer in the headlights across the whole kind of Global 1000 companies out there. And when I talk to my friends that are CEOs of much larger corporations than TTEC, they all are saying the exact same thing. And so what we find in these periods of time because it’s – obviously, this is not by any stretch of the first recession that I participated in is that it’s very common for companies to correctly and temporarily over-rotate and then once they begin to get visibility and see what their volumes are, they course correct. That creates to be very frank, challenges for us because we do a fair amount of financial service work with licensed employees, fair amount of health care work with licensed employees. We have thousands of them. And as you can imagine, the training cycles on those employees is pretty significant. And so consequently, on many of the verticals, we can, in fact, respond very rapidly and within 72 hours, be increasing staff requirements, et cetera. But on some of the verticals, it’s not so easy due to the fact that there is a lead time in the recruiting and training and onboarding and nesting, et cetera. So what I would just say to you is that it’s my opinion that this kind of what I’ll call cloudy period that we believe all companies are experiencing right now where they’re trying to understand what their volumes are going to be, what their forecasts are going to be, et cetera. They’re naturally going to be conservative, and they’re naturally going to…

They came out very favorable, just so you’re aware, much lower than expected.

Great. Okay. Good. Well, then maybe the Feds aren’t going to raise the rates another 100 bps, and it will be something less. So anyway, I hope I answered your question. I’m sorry if I battled on too long.

Appreciate the perspective.

Thank you, Geroge.

Thank you. Next question is from the line of Maggie Nolan of William Blair. You may now ask your question.

Hi, thank you. Maybe building up on that question a little bit regarding your revised guidance. Is it reflecting just the volume reductions that you’ve seen so far as of today? Or is there an expectation or a buffer built in for potential future reductions?

Hey Maggie, this is Dustin. Right now, today, is our outlook, there is a buffer kind of built in right now for expectations of how the second half will play out. And that’s just due to some degree, going back to the comments we made earlier in the script around some of the uncertainty that we’re experiencing right now and our clients are experiencing about their own second half demand. But just as a reminder, going beyond that, there’s – we’re seeing this in pockets. If you look at some of our other verticals, whether it’s health care, automotive, public sector, there are areas that continue to be strong and they’re resilient right now relative to the macroeconomic backdrop.

That’s helpful. And then have you noticed any level of increase in demand, specifically for your offshore offerings? And how is that kind of performing versus maybe some of the more onshore initial options?

Yes. So a couple of comments I would make there. We are seeing an uptick. If you go back to some of Shelly’s comments in the script, we are pleased to see a number of new clients sign up in some of the new geographies, kind of showing some of the green shoots in our new geographic expansion, particularly within Engage. Then on Digital, Ken mentioned this roughly 60% increase in India year-over-year in terms of head count. And we’re seeing a huge uptick there that’s affecting not only top line, but increasing our demand specifically – excuse me, increasing margins, but specifically within areas like our Genesis practice as well as our Microsoft practice.

Thank you.

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

Thanks, good morning. Maybe, Dustin, can you give a little view into the – how you’re thinking about gross margin here in the second half of the year, and how that might play out with softening – a little softening demand as well as just kind of the tight labor market?

So if you look at our updated guidance overall, what I would tell you is gross margins are right now kind of planned to be expected in the same range they were in Q2, and that will play out in the second half as well. So at this point, as we mentioned beforehand, relative to inflation and wages, we feel pretty good about where we’re at from a contractual perspective and managing that through the back half of 2021 and kind of coming into 2022. So, we feel good about where we are from a contraction perspective and the underlying wage we’ve contracted that and our overall pricing. And so we don’t see that as a crunch per se relative to gross margins.

Got it. And then assuming we are in a little bit of a recessionary environment, does that make it more or less likely that you would pursue acquisitions here?

I think that it goes without saying that we're going to continue to be opportunistic, and we're going to look at acquisitions that drive all of our strategic pillars forward. And you can plan on that any acquisitions that we'll do will be properly accretive and will make sense. So what I would say is that we think that a bit of the reset in the market as far as other companies’ valuations simply creates that much more opportunity for us.

Okay. All right. Thank you.

Thank you.

Thank you. Next question is from the line of Bryan Bergin of Cowen. You may now ask your question.

Hi, it's actually Jared on for Bryan today. So it looks like headcount was down sequentially. What drove this reduction? And are you expecting further headcount reductions over the rest of fiscal 2022?

So this is – so Jared, I appreciate the question. Dustin speaking, a couple comments here. This falls the seasonality kind of in line with our overall business. And what you would typically expect is due to some of the smart seasonal work we have that goes on the back half of Q4 2021, as it comes in, you'd naturally see a down tick in headcount kind of in Q2, and you'll see it ramp back up in Q3. And as a reminder, Q4 is typically our strongest quarter for our ending headcount. And right now we're in the process, if you look at Q3 overall, this is when our health care smart seasonal work will begin to ramp. And we're in the process of doing that right now as we speak.

And this has been a trend for the last probably 15 years, just FYI.

Got it. And then in terms of the pull back and client decision making, is that primarily within Engage or does that also encompass digital as well?

So on the decision-making, we're seeing that candidly across the board. And so what you're seeing – again, it's just – right now, this point is more of a delay, a couple comments I made in the script. If you focus on, if you look at our pipeline overall, it's actually up 21% year-over-year. So as a broader pipeline statement, demand is strong. But it's just a delay in purchase decisions, but it is across the board. And when you see it in digital, I would say it's much more related to kind of short-term professional services work and then Engage is in the verticals that we outlined earlier before.

Yes. The other thing that I would say regarding our pipeline that we're feeling really actually quite good about is that we made the intentional decision the beginning of this year that we were going to ramp up our sales and marketing focus and activity for offshore and nearshore which is why you've seen us announce more offshore markets et cetera. And so our goal is to significantly over a period of time increase the percentage of our business that's offshore to obviously drive higher margins, et cetera. So what I would say to you is that we feel pretty good about the pipeline, not only being up over 21%, but that the mix of the pipeline is reflecting the direct energy that we're putting into increasing our offshore, nearshore capabilities.

And I would just add, in particular, with new logos, right? This is about adding offshore, right. So…

Next question?

Does that answer your question?

Yes. Thank you.

Thank you. Next question is from the line of Anja Soderstrom of Sidoti. Your line is now open.

Hi, and thank you for taking my question. So given the delay, that's sort of softening your outlook for 2022. How should we think about 2023 and beyond?

At this point in time, we made the decision that we're not going to comment on 2023. We think that it's far more responsible for us to continue to execute and get far more visibility so that we can, as we always are, be very transparent and make sure that we're giving proper solid guidance.

Okay. Thank you. That was helpful for me.

Thank you.

Thank you. Next question is from the line of Vincent Colicchio of Barrington Research.. You may now ask your question.

Yes. I'm curious amongst your new economy clients is part of the weakness there due to funding issues with any of them?

Hey, Vincent. It’s Dustin speaking. So absolutely across the board, I would say is you break down hypergrowth clients, you can put them in two different buckets. And as we commented specifically, it's part of the reason we pointed towards early stage venture backed where what we've seen is in the past, these customers are kind of going for growth at all costs, right? And not necessarily being cash flow negative and not being profitable. What you're seeing is this dramatic shift when those particular customers where they are going back now for profitable growth. And so making some of these decisions right now in the short-term they're impacting – they're impacting our overall outlook.

No. But what we're also seeing on the hyper growth side is that the larger, more established and either near cash flow positive or already cash flow positive, they're actually up ticking and they're actually continuing to show really good growth. So it's a bit of a – it's a bit of a tale of two cities, so to speak in that you've got these unicorn highly funded venture back companies. They're the ones that I would say are seeing the most extreme cutbacks and pullbacks and cost cutting et cetera. And then you have the other side of that, which would be the very large hyper growth companies that are actually doubling down and are growing and increasing.

And then on multi-segment deals, I think you said you did six, that was flat, I think with last quarter. Did that meet your plan and do you expect to continue to make progress there in the second half despite the headwinds?

We do? Yes. So again, we continue to call it out. We'll continue to focus on what we call a 1 TTEC go-to-market motion, kind of leveraging best of the capabilities of both of our segments; those stick stills that we did. Again, we'll continue to make progress in the second half, and it continues to be a focus point for us overall.

That's it for me. Thank you.

Thank you.

Thank you.

Thank you. Next question is from the line of James Faucette of Morgan Stanley. You may not ask your question. Excuse me, James. You may now...

I'm sorry. Working my headset here. Wanted to dig in quickly on that comment. Can you talk a little bit about the types of verticals in the hypergrowth segment on those new customers or on those new economy customers? Excuse me.

So is the question...

So James just to clarify, are you talking specifically where we're kind of seeing some pull back in volumes?

Yes. Just give on those hyper growth that are being impacted like what verticals are they in? And like – and are they – do they, any of them fit into what Ken described earlier where they're adjusting pretty quickly there and revising their views and even wanting to come back?

Well, first of all we're not suggesting. None of these, these clients aren't per se going away.

That's right.

They're just dramatically reducing their volume forecast. So whether it be, I really can't use account names, but mattress companies or whether it be prepackaged meals or whether it be some exercise companies et cetera, their investors are let's just say forcing them to tighten their belt and therefore that means they're spending less on advertising, which means they're getting less response, which then reflects directly on the volumes that that we see. So – and there's really, there should be no surprise when you just look at what some of the big companies, again I don't want to mention names that are publicly speaking about their advertising revenues publicly speaking about just where clients' heads are at et cetera, et cetera. And so it's really just a trickledown effect. That said I want to distress that we still feel that the consumer is strong. The job market is obviously still very tight and consequently there's more people entering the labor market as they come off of the free money, whatever you want to call it giveaway and so more people are entering the job market. And so we think this is a very unusual/weird recession in that. On one hand you've got inflation and you have high interest rates and on the other hand, you have extremely low unemployment. I've been through at least five of these cycles. This one is pretty unique, and frankly, it's why we're not all that concerned by it, and we kind of feel internally like this will not be anything like the 2008 recession.

And just to follow on to that point, Ken, a couple of things I would say. One is, just to reiterate what Ken said, look, this is not – it's driven by volumes and not by customer churn. The second point that I would make is despite this reduction even in hypergrowth, we still expect that vertical to grow double digits for full year in 2022. And just as a reminder, and go back to the overall guidance is that even despite the takedown, we're growing roughly 8.5% on a like-for-like basis, excluding the pandemic-related volumes.

Yes, yes. And then I wanted to follow up on another question you were being asked about onshore versus offshore. Just wondering if you can give a little more color or nuance into if that dynamic is impacting your updated outlook at all or to what degree you've taken that into account? Or is that – just wondering like how impactful that really is right now?

It's not tremendously impactful, but it goes without saying that net new clients that we put offshore operate at a smaller revenue base on a per client workstation basis. So from a revenue standpoint, you obviously have to sell more to drive the growth. But from a profit standpoint, you're driving in many cases, close to double the profit.

Got it. That’s great color. Thank you very much guys.

Thank you.

Thank you. Last question is from the line of Jason Kupferberg of Bank of America. Your line is now open.

Hi guys. This is Cathy [ph] on for Jason. First, I just wanted to ask on the quarter itself. It seems like you guys delivered a pretty sizable beat to margins. And it sounds like you're still investing and building up a geographical footprint. So just wanted to know like what drove the upside on adjusted EBITDA margins relative to your expectations that you set in 1Q? Thanks.

Yes. So a couple of things, Cathy first, thank you for the question. And you're right, we did come up at the upper end of our overall range, largely driven by our execution within delivery as well as, as we mentioned earlier, kind of in our outlook in anticipation, we've also been streamlining our cost structure, which drove an overall benefit to the bottom line.

Okay. Got it. And then I also wanted to ask on the 26 new client wins that you called out. Is there any difference in the size or scope of the project versus like previous clients that you had signed before? And I just wanted to ask if that was baked into the 2022 guide, if there's any impact there. Thanks.

So no impact on the 2022 guide, in the sense that all – everything that happened in the quarter, who we saw and our expectation for the second half, from a sales perspective, is kind of baked into that. That's much more of a statement and a positive statement about how that could potentially impact 2023. No difference in terms of overall size relative to average deal size, et cetera. As we mentioned about $28 million of bookings for the overall 26 clients, but it does speak to the strength of our acquisition motion, our ability to attract new clients across both segments, which we're very pleased with.

Got it. Thank you.

Thank you.

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.

Yes. Thank you, operator, and thank you all for your participation. This concludes our second quarter earnings call. Bye-bye.

This concludes TTEC's Second Quarter 2022 Earnings Conference Call. You may disconnect at this time.