TTEC Holdings, Inc. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• 2024 was a transitional year with priorities on diversification (geographic and client portfolio), expanded digital CX value proposition, and achieving growth/margins.
• Won new clients across solutions, core industries (financial services, healthcare), and emerging verticals (retail, travel, streaming).
• Strengthened TTEC Engage management team with strategic hires, saw sales momentum improve with 15 new enterprise client wins. Leveraged technology in Engage for frontline teams, using AI-enabled solutions and data-driven insights.
• TTEC Digital closed 55 new clients, expanded total addressable market as clients shift to enterprise-wide digital transformation. Examples include healthcare provider CRM system implementation and modernization of infrastructure for a global healthcare solutions company.

Segment Performance

• TTEC Engage: Fourth quarter 2024 revenue was $452 million, a decrease of 10.8% year-over-year but an increase of 9.4% sequentially. Full-year 2024 revenue was $1.75 billion compared to $1.98 billion in the prior year. Operating income in Q4 was $22 million (4.9% of revenue) vs. $24 million (4.8%) y/y. Full-year operating income was $85 million (4.9% of revenue) vs. $138 million (7%) y/y. The segment was impacted by a public sector client and financial services client discontinuing lines of business, but had strong quality opportunities and new logos.
• TTEC Digital: Fourth quarter 2024 revenue was $115 million, relatively unchanged year-over-year. Excluding one-time on-premise product sales, revenue grew 3.8% q/q. Recurring managed services in Q4 increased 10.2% y/y and represented ~64% of Digital's Q4 revenue. Full-year 2024 revenue was $459 million vs. $487 million y/y. Recurring managed services grew 9.1% full-year and represented 64% of Digital's full-year revenue. The segment was impacted by one-time on-premise product sales declining as clients move to cloud-based solutions.

Guidance

• 2025 Outlook:
  • Engage expected to decline ~10% primarily due to a public sector client and financial services client discontinuing lines of business, plus FX translation headwinds and rationalization of underperforming client engagements.
  • Digital expected to return to year-over-year revenue growth through professional services and recurring managed services, forecasted to grow ~5% in 2025, offsetting decline in one-time on-premise product revenue (~45%).
  • Midpoint of 2025 guidance: GAAP revenue $2.04 billion, adjusted EBITDA $225 million (increase of 11.2% y/y), non-GAAP operating income $164 million, non-GAAP EPS $1.08. Capital expenditures expected to be 2.2%-2.4% of revenue, effective tax rate 38%-42%. Phasing of profitability improvement more pronounced in second half.

Risks

• Forward-looking statements are subject to various risks, uncertainties, and factors that could cause actual results to differ materially from expectations. Detailed risk factors are in the 2024 annual report on Form 10-K.
• The special committee of the board evaluating Mr. Tuchman's proposal is ongoing, and the company cannot comment on the process.

Question and Answer

Q: George Sutton asked about how AI is working and its impact on win rates and deal structures.

A: Ken Tuchman responded that there are over 150 projects underway on the digital side implementing AI, over three-quarters of Engage associates have AI tools, and AI is used in agent desktop, quality assurance, training, recruiting, etc., to enhance service quality and associate productivity.

Q: Maggie Nolan inquired about 2025 revenue guidance, including revenues from delayed large projects in 2024 and seasonal revenue assumptions.

A: Kenny Wagers stated that 2025 guidance is based on sequential quarters, with second half expected to be higher. Tailwinds from new enterprise clients won in 2024, which were delayed in 2024, are driving growth in the second half.

Q: Cassie Chan asked about margins in 2025, investments, and vertical growth.

A: Kenny Wagers mentioned focus on operational discipline, AI infusion in quality and training driving operating leverage. Ken Tuchman added focus on expanding partner network, strong operating leadership, and new products in language translation and accent neutralization. Vertical growth includes retail, public sector, etc., with new clients providing runway.

Q: Jonathan Lee asked about margin uplift from offshore delivery vs cost takeout initiatives, and back half visibility.

A: Kenny Wagers said offshore mix grew ~300 basis points in 2024 and expected to grow further in 2025, but margin improvements are more from AI and operational discipline. Back half visibility is strong due to understanding of client onboarding cycles in new geographies, leading to high confidence in sequential quarter forecasts.