Welcome to TTEC's Second Quarter 2025 Earnings Conference Call. [Operator Instructions] This call is being recorded at the request of TTEC. I would now like to turn the call over to Bob Belknapp, TTEC's Group Vice President, Corporate Finance. Thank you, sir, and you may begin.

Good morning, and thank you for joining us today. TTEC is hosting this call to discuss its second quarter results for the period ended June 30, 2025. Participating on today's call are Ken Tuchman, Chairman and Chief Executive Officer of TTEC; and Kenny Wagers, Chief Financial Officer of TTEC. Yesterday, TTEC issued a press release announcing its financial results. While this call will reflect items discussed in that document, for complete information about our financial performance, we also encourage you to read our quarterly report on Form 10-Q for the period ended on June 30, 2025. 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 update 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. I would also like to mention that before the discussions about our results of operations for the second quarter of 2025. Mr. Tuchman will make a brief statement about his decision to withdraw the preliminary proposal to take TTEC private. Other than that statement, which Mr. Tuchman is making in his individual capacity, the company will not be commenting on the take private proposal, nor will we take any questions about it. For a more detailed description of our risk factors, please review our 2024 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.

Good morning and thank you for joining us today. Before we turn to our results, I wanted to say a word about the preliminary proposal I made to take the company private, and the decision announced last week to withdraw that proposal. I think it's clear to everyone on this call that I'm fully committed to TTEC and its long-term success. I founded the company. I'm its largest shareholder, and I've dedicated my entire career to TTEC. While I had hoped to be able to achieve the transaction, this turned out not to be possible on acceptable terms in current market conditions. Please note that I remain fully committed to our company, employees, customers, partners and, of course, to our investors. I look forward to great things from TTEC in the future. And as I think you'll see from the results we're announcing today, the business is headed in a positive direction. As I'm sure you will appreciate, we are solely focused on the execution of TTEC's go-forward strategy. As the discussions regarding the take private have now formally ceased, I won't have anything else to say on this topic. Now on to our results. In the second quarter of 2025, revenue was $514 million. Adjusted EBITDA was $52 million, a 12% year- over-year increase and a 140 basis point margin improvement to 10.1%. And free cash flow was $86 million, further contributing to a meaningful reduction in our borrowings. In partnership with my seasoned CX leadership team, we're making good progress on our strategic plan to return our business to its historic growth rates and overall financial strength. Across both TTEC business units, we will continue to expand our AI and analytics capabilities, diversify our CX technology partner network and attract high-quality talent, and deepen our role as the…

Thank you, Ken, and good morning. I will start with a review of our second quarter 2025 financial results before providing context into our updated 2025 financial outlook. In my discussion of the second quarter financial 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. Turning to our consolidated financial results. We ended the first half of the year on a positive note with solid performance continuing in the second quarter. While our revenue declined over the prior year as forecasted, it exceeded our plan primarily due to higher-than- expected embedded base growth in our Engage segment. Our second quarter adjusted EBITDA and operating income margins were also slightly above plan in both our Engage and Digital segments. We delivered profitability improvements year-over-year, both in terms of absolute dollars and margin percentages in the second quarter and first half of the year. These results reflect the actions we have taken and continue to implement to improve our operating efficiencies and overall cost structure. Turning to our results. On a consolidated basis for the second quarter of 2025 compared to the prior year period, revenue was $514 million compared to $534 million, a decrease of 3.8%. Adjusted EBITDA was $52 million or 10.1% of revenue compared to $46 million or 8.7%. Operating income was $37 million or 7.2% of revenue compared to $30 million or 5.5%. And earnings per share was $0.22 compared to $0.14. Turning to our second quarter 2025 segment results. In our Engage segment, second quarter revenue decreased 4.3% as forecasted to $400 million over the prior year period. Operating income was $18 million…

Thanks, Kenny. [Operator Instructions] Operator, you may open the line.

[Operator Instructions] Our first question comes from the line of George Sutton of Craig-Hallum.

As instructed, I won't ask any of the 150 questions I had about the take-private process. Instead, I will ask about the bank discussions that I believe you had started last quarter relative to the renewal that will come next year on your revolver?

Thank you for that question. We're in active discussions as we speak, and we feel confident that we will bring this to closure in third quarter. And all is well.

Super. Ken, you gave an interesting accent neutralization example of one of the customers that have expanded with you. And it brings to bear the opportunity as you have really tried to move towards a bigger offshore model, it would suggest an ability to intensify that effort given a more broader effort on accent neutralization. Can you tell us how broad can that be?

So we're utilizing the technology quite a bit. We only gave one example, but we have multiple clients taking advantage of it. And really where it benefits us is in areas where we see very, very deep pockets of highly educated talent but that also have what some Americans, Australians, Brits, et cetera, would consider to be an accent that's a bit thicker to them. And so we can neutralize that accent, and we can literally get the accent to be much more almost indigenous sounding to the country that we're serving. So we're very excited by the technology. It's fully operational. Because it's AI-based, it gets -- the more we use it, the better that it gets. And it certainly opens up more markets for us and gives us -- what we care about is where do we find the most talented people with the deepest skill set capabilities with the highest aptitude. And now we can go into markets where we know that talent exists, but where historically, we would get pushed back from clients because of lack of accent neutralization.

Our next question will be from Maggie Nolan of William Blair.

I was encouraged by some of the stats that you shared on projects or rather engagement -- sorry, excuse me, agent's growth in the industry and the comment that you had made also on the caliber of the new logo signings. And I'm wondering if you feel like clients are starting to recognize the need to move forward with some of these programs. If we've reached a bit of an inflection point here? Or is there still largely a pause in spending as they're assessing maybe how they would want to incorporate AI?

I would say there's -- it's a great question. And so we're seeing multiple things. Number one, it's no secret that there's been a significant amount of consolidation in the space. And through that consolidation, it's not uncommon for large clients who have historically had their business distributed amongst, let's say, 4 providers to feel maybe a bit vulnerable when through the mergers, et cetera, that now they're down to 2. And so consequently, we're continuing to see a reallocation of business that we believe we're going to continue to benefit from. So that's one point. The second point is that we're able to demonstrate technology capabilities that we're confident our competitors talk about, but don't have anywhere near the credentials or the thousands upon thousands of implementations that we've done. And so we're capitalizing off of that and winning some really exciting large enterprises. That said, those large enterprises, as we -- as I stated in my script, in many cases, they're putting their foot in the water before they put their entire leg in the water, and we're very comfortable with that. And we're highly used to what we call champion challenger models. And so what I would just simply say is that the logos that we're winning have deep, deep wells of opportunity that can expand into very large clients. And so we are happy to bring these clients, onboard them, build out some technology capabilities that they're not getting from others and then through performance and execution win market share or more market share from them. To answer your question about our clients hesitating because of AI, I don't necessarily think that's what is -- what they're doing. Do I think that the overall marketplace is cautious because there is so much economic uncertainty as it…

No, that does help. And then it sounds like maybe you expect an increase in managed services as a percentage of revenue over time. Can you give a sense of the magnitude for that and the impact to the business?

I mean what I would just simply say is that we've dramatically -- and that's not an exaggeration when I say dramatically increased our partner network. And therefore, we are in deep stead with realistically probably fivefold of partners today than we were a year ago. And consequently, the services that those companies afford us to be able to implement and integrate come with it managed service opportunities. So whether it be the work that we do with AWS, the work that we do with Azure and Microsoft, the work that we do with Google and GCP, along with a myriad of other partners that I won't bore you with all the names, all create much more opportunity for managed services. We have significantly shifted our capabilities to go far beyond providing CCaaS capabilities and all of the accoutrements that one would attach to CCaaS as more and more clients are asking us to do work that is related to their customer experience but is not necessarily tied to contact center routing of interactions, et cetera.

Our next question will be from Vincent Colicchio of Barrington Research.

Yes, Ken, how did your Engage offshore side of the business perform in the quarter? And should we expect more investments there?

Well, I'll just -- I'll answer part of it, and then I'll let Kenny answer the other part. We are absolutely pushing hard on moving more and more business. And when I say moving, it's not the embedded base that's already onshore. It's acquiring net new business and installing that business offshore. But Kenny, do you want to answer that from a...

Yes. Vince, as we talked in prior quarters, Q2 is no different. First half of the year is no different. The majority of the pipeline, the majority of our sales motion is on offshoring. It's where the clients want to be. back to the earlier question on the call with our accent neutralization with ADDI and what we're doing the opportunity for us to continue to expand offshore is square into our diversification strategy. And again, from a capital -- CapEx standpoint, from the geographies that we've laid down over the last 24 months, we're seeing very good expansion in South Africa, in Egypt, Eastern Europe, and Lat Am. And so it is John Abou and the Engage team, I don't know how much is push versus pull, but the customers want to go there. We're set up to go there, and that's where we are seeing our growth. Now again, going into Q3 and Q4, we're going to have our normal seasonality with all of our U.S.-based health care clients. But for sure, the go-to-market motion is focused on those geographies because back to Ken's point, it's where we're seeing the best agent talent. It's where we're seeing the best opportunity to grow the business profitably, and it's also where the customers want to be. So our offshore mix did improve quarter-over-quarter as we are still trending towards 37% to 39% for the year, and we're going to continue to execute on that strategy going forward.

And second question, what verticals at Engage are you feeling best about for the second half?

That's a great question. I mean I think we're seeing opportunity for sure, across financial services, health care, technology, travel. I would say that those are the ones that immediately come to mind, I'm sure that I'm leaving out some of the others that were -- excuse me, streaming, media content. We're seeing real opportunity in that area as well as gaining traction. That's a great question. You caught me a little flat-footed. I should have had a pre answer to that, so I apologize.

No, look, Ken, to the point, it's back to diversification, right? This is what we talk about, customer diversification, geo diversification. And then this is what John Abou, and again, a lot of our new leaders on the portfolio side that we brought in over the last year have expertise in these areas. And so to Ken's point, travel, streaming, media, those are some of the big logo wins with these great brands that we've had over the last 6 to 12 months. They're bringing not only diversification into those industries, but also, they're the ones with the geo diversification for us as well. So we're very happy with the diversification into these fastest, faster-growing verticals for our business in Engage for sure. And that's a big part of what John and the go-to-market team were focused on.

One of the reasons why I hesitated to give you an answer is because on the Digital side, it's all over the board. It's everywhere. We're doing genomics projects now. We're doing projects on the payer side, the provider side, the pharmaceutical side, et cetera. And so since Engage is a higher percentage of the revenue, that's what I was responding to. But as it relates to Digital, we're seeing opportunity literally in every single sector because they're just -- frankly, there's so many companies that are trying to modernize right now whether it be getting to the cloud or taking advantage of what you can do in the cloud, especially in the area of AI and analytics.

Our last question will be from Jonathan Lee of Guggenheim Securities.

How should we think about blended pricing in the rate cards you're seeing across your new wins, particularly as clients adopt new technologies that may be deflationary in nature?

Well, I sort of see that as 2 questions. But -- so first of all, we like blended pricing. That said, not every client is willing to do blended pricing, and therefore, they want it broken out separately from a Digital action as well as an Engage action. But we don't necessarily see it deflationary. As a matter of fact, kind of see the opposite. We see that the more technology that we apply, the more business that they allocate, these are very large companies, Fortune 500, Fortune 1000 companies. And so the fact of the matter is, in almost all cases, we have a fraction of the business that they have. So it doesn't take much for them to move the needle as we perform and for them to allocate more and more business, whether it be allocating Digital business from the GSIs that they've historically used or whether it be allocating Engage business from whoever they're currently with or from their captives. And we're still seeing a very nice amount of business coming from companies that traditionally have not outsourced whatsoever, which are some of our favorite types of clients to work on because they have so much business that they are looking to ultimately move outside of their captive. So at least at this point in time, we don't see it deflationary unless I'm misunderstanding what you mean by deflationary.

The comment around deflationary was more on a rate card perspective and blended pricing, in our view, is a function of onshore versus offshore blended mix as opposed to Digital and Engage. But I appreciate that color, Ken. As a follow-up, look, it's good to hear about the progress around accent neutralization. Outside of regulated industries, can you help potentially size in the risk around customers shifting work offshore in an effort to use accent neutralization capabilities?

I really can't. I mean, I think that's -- for me, that's almost like asking how high is high. What I would just simply say is that the labor market in the United States continues to be tight. And more and more clients are realizing that they can obtain quality that is as good or better and achieve the quantities that they need by being in nearshore and offshore environments. The regulated work without a doubt, cannot move and is not going to move offshore. And as you know, we do a fair amount in the public sector space, the federal space, et cetera. But at the end of the day, unfortunately, I don't have a way of saying that. Look, I want to just -- once again, I want to put this in perspective. This is a very large TAM on both the Digital side and the Engage side. We're a few billion-dollar company. We don't need very much of that TAM to be a much larger company than we are today. So the fact of the matter is, is that there is hundreds of billions of dollars' worth of business out there, and we're simply chipping away at the overall scale of the marketplace which is why we feel very, very confident that we can get this business back to the historical growth rates that we've achieved in the past, if not higher, as well as back to our historical margins. And that's what our focus is right now is basically recreating what we had in the past. And we feel like we're on the right path and the right track right now.

Thank you for your questions. That is all the time we have today. This concludes TTEC's Second Quarter 2025 Earnings Conference Call. You may disconnect at this time.