TTEC Holdings, Inc. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Transitional Year Focus: 2024 is a transitional year for TTEC with focus on winning new clients, enhancing AI-enabled CX solutions, improving operational agility, and strengthening financial performance.
• TTEC Engage: On track to meet goal of a dozen new meaningful client relationships by year-end, diversified across industries. Made progress selling new work types into embedded base, with offshore growth and new geographies contributing to scaling.
• TTEC Digital: Recurring managed service offerings saw double-digit growth, but professional services revenue was impacted by delayed larger deals. Built SandcastleCX and SurroundCX to help clients test AI solutions. Approximately 45% of top 100 clients deployed well-defined AI projects, yielding positive results.

Segment Performance

• Digital Segment: Q3 2024 revenue was $116 million, down 13.2% year-over-year. Recurring managed services offerings grew double-digit, but professional services revenue was negatively impacted by delayed larger deals. Managed services represented approximately 65% of Digital's total revenue in Q3 2024. Operating income was $14 million or 12.5% of revenue.
• Engage Segment: Q3 2024 revenue was $414 million, down 11.9% year-over-year. Topline performance met expectations, and operating income was $20 million or 4.8% of revenue. Headcounts in new geographies scaled 43% from Q2 to Q3, and over 60% of annual contract value of new client wins were delivered offshore.

Guidance

• Reiterating full-year 2024 guidance but expecting revenue and profitability towards the lower end of ranges provided last quarter.
• Consolidated: Midpoint of revenue guidance unchanged at $2.235 billion, EBITDA at $209 million or 9.3%.
• Digital: Forecasts revenue and EBITDA of $483 million and $66 million or 13.8% at midpoint, down from prior guidance due to professional services revenue moderation.
• Engage: Forecasts revenue and EBITDA of $1.752 billion and $142 million or 8.1% at midpoint, slightly above prior guidance.

Risks

• Macro Factors: Client delays in decision-making due to macroeconomic environment, election uncertainties, and Fed monetary policies.
• AI Readiness: Clients face data and organizational readiness concerns before full-scale AI rollouts, impacting project timelines.

Question and Answer

• Q: All right. Great. I just had a couple of questions on the Digital business. Your guidance seems to imply a nice acceleration in the fourth quarter here. So I guess -- and potentially even like getting to double-digit growth year-over-year. What kind of gives you confidence that could occur? Is there -- are some of these deals that didn't close going to close? Like what's driving that? A: Mike, it's Kenny. Yes. Look, we are bullish, obviously, on Digital. We've been bullish all year from an outlook perspective. Our Q3 -- when you get closer towards the end of the year, obviously, when we have our Q3 results, we have Q4 sitting in front of us. We did have some deals slide from 3, and Dave is very confident in those deals closing in Q4 or Q1. It gets a little tricky at the end of the year with these big consulting engagements on whether or not they close to the magic date of December 31 versus January 1. So the trajectory, as you alluded to, we do feel confident in over the longer next 2 to 3 quarters based on where we're at with bookings and where we're at with our backlog.
• Q: I had a question about healthcare payer clients that were a weak spot last quarter. Can you touch a little bit on what you're seeing in this client cohort this quarter? A: Yes. Well, last quarter, we talked about a lot of our payer clients just making some decisions relative to saving money, right, the cost pressures that they have and staffing differently for our seasonal ramp, which is Q4 and into Q1 a bit. And so I'd say no change there. I mean, things have played out this quarter, and we see Q4 similar to what we talked about last quarter. I mean, they're continuing to face a lot of cost pressure in the healthcare industry. And so they're making choices in terms of cutting costs. And now the good news is there's lots of conversations that we're having about starting to think about using offshore talent, offshore resources, some technology, things that have typically been a little bit off limits, if you will, from a healthcare payer perspective. And so those are early conversations. But I expect that we'll continue to have those conversations here through the end of the year and into next year and see some proof of concepts underway in the next couple of quarters.
• Q: Are you also expecting a longer ramp-up period for these as well even after they closed in fourth quarter or first quarter of next year? And you mentioned some macro issues that they're concerned about. So what are those? Are you hearing those in other client conversations as well? A: Okay. Well, so let me just take it in each business segment. On the Engage side, as we've been talking about for some time, in the last couple of quarters, very pleased with being on target to bring on a dozen or so new meaningful client relationships. They are starting small in terms of the ramp. And part of that is also because many of them are leveraging our new offshore geographies. And so I'd say no change really there. It's just kind of more of the same in terms of getting those client launches right and then scaling as we go. Some of -- a couple of those new clients that we've brought in on the Engage side, we're already expanding the services that we're providing for them. So I'd say that's pretty much the same as what we've described over the last couple of quarters. On the Digital side, Ken's comments and Kenny's comments were really around some delays in some of those projects going forward. And so that's not necessarily meant to be a delay in terms of ramping and doing the projects, just a delay in getting them started. And so again, we're really focused on getting those deals closed here in Q4 so that we can start them here at the latter half of this year and early into next year.
• Q: Tremendous to see the uptick in offshore here, and thanks for the color there so far. But to clarify, are further investments needed to ramp offshore revenue? And are you seeing any existing onshore customers maybe think about moving some of their volumes offshore? A: Yes, I'll take the investments first, and then, I'll let Shelly take the second half of your question. What I would say is the footprint has been laid, right? We are in the countries, and in the Tier 1, Tier 2 cities that we are very happy with, right? The customers want to be in the cities that we expanded into over the last 2 years. And so from an investment standpoint, I would tell you at this point, now that the foundation is laid, the facilities are there, the human capital, infrastructure is in those companies, if you will, to support growth and scale, any investment would be specific to new revenue and growth on a customer-by-customer basis, i.e., internally, Jonathan, I would say we can go across the parking lot in South Africa or Rwanda because we're expanding beyond the building that we currently have. So I would say it's a good matching of revenue and expense from an investment standpoint, all based on new clients growing with us in the footprint that we have.