TTEC Holdings, Inc. Q2 FY2025 earnings call

• Ken Tuchman withdrew the preliminary proposal to take TTEC private, remaining committed to the company's long-term success.
• In Q2 2025, revenue was $514 million, adjusted EBITDA was $52 million (10.1% margin, 12% y-o-y increase), and free cash flow was $86 million.
• AI and analytics are revolutionizing the industry, with TTEC using AI internally and externally to drive growth, reduce costs, and build customer loyalty. For example, AI is used in talent acquisition, training materials, and performance management.
• TTEC Engage saw growing demand for AI-enabled services, with new client onboarding and existing clients expanding. The segment has secured 15 new large enterprise clients with growth potential, and 9 have expanded their business.
• TTEC Digital is seeing clients layer AI capabilities onto current environments, creating smaller, faster-deploying, but strategic engagements with higher gross margins over time.

For the Engage segment, second quarter revenue decreased 4.3% to $400 million over the prior year period. Operating income was $18 million or 4.6% of revenue, reflecting a 26.3% increase or 110 basis points over the prior year. The Engage segment's revenue is tracking higher than planned due to growth in the embedded base and revenue carryforward from a public sector program extension. The Engage backlog is $1.64 billion or 101% of 2025 revenue guidance. For the Digital segment, second quarter revenue was $114 million, a decrease of 2.3% over the prior year. Operating income was $18 million or 16.1% of revenue, an increase of 22.8% or 330 basis points over the same period last year. Digital's profit improvement was partially due to a one-time sale of IP software, and it continues to navigate a market shift towards AI-led engagements with higher long-term potential.

• Engage revenue guidance increased by $50 million due to growth in the embedded base and foreign exchange impact, with Engage GAAP revenue now $1.62 billion at midpoint. TTEC revenue is $2.09 billion at midpoint, a decrease of 5.4% y-o-y.
• Digital segment guidance reiterated, with second half expecting a downward trend in Q3 due to seasonal health care investments, but expecting significant profitability growth in Q4 leading to overall improvement in 2025 second half compared to 2024.

• Market volatility and economic uncertainty could impact client spending on AI and CX initiatives.
• Foreign exchange fluctuations have a negative impact on Engage EBITDA guidance.
• Timing risks related to the market shift in Digital segment from point solutions to AI-led engagements may affect short-term revenue and profitability.

Q: About the bank discussions on revolver renewal next year?

A: We're in active discussions and feel confident to close in third quarter.

Q: Broader impact of accent neutralization technology?

A: Utilizing the technology opens up more markets by neutralizing accents to make talent sound indigenous, finding talented people in areas previously avoided due to accents.

Q: Inflection point in client spending on AI programs?

A: Clients are reallocating business, we're winning large enterprises, but caution exists due to economic uncertainty and fear of poorly executed AI; AI is being incorporated to make clients more profitable.

Q: Engage offshore performance and investments?

A: Offshore mix improved, focus on South Africa, Egypt, Eastern Europe, Lat Am; go-to-market motion focused on these geographies as customers want them and it's profitable.

Q: Blended pricing and risk of customers shifting work offshore?

A: Prefer blended pricing, don't see it deflationary; regulated work can't move offshore, labor market tight in US, but large TAM offers growth opportunity