Thank you for standing by, and welcome to TTEC's First Quarter 2020 Earnings Conference Call. I would like to remind all parties that you will be in a listen-only mode until the question-and-answer session. This call is being recorded at the request of the 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 first quarter financial results for the period ended March 31, 2020. Participating on today's call are Ken Tuchman, our Chairman and Chief Executive Officer; and Regina Paolillo, our Chief Financial and Administrative Officer. Yesterday, TTEC issued a press release announcing its financial results. While this call will reflect items discussed within that document, for complete information about our financial performance, we also encourage you to read our first quarter 2020 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, which 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 2019 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 Tuchman, TTEC's Chairman and Chief Executive Officer.

Thanks Paul, and good morning to everyone. Before I speak to our first quarter 2020 results and near-term outlook, I'd like to provide some broad context on the impact of COVID-19 on our business, as well as outline our proactive response to support our people and the resiliency we're providing for our clients and their valued customers. It is without question that we're living through an extraordinary crisis, one that has an enormous impact on every aspect of our lives. The immediate effect of COVID-19 global pandemic, the loss of lives and the restraint on workforce mobility will have a pervasive lasting impact on how we as individuals and businesses engage with one another. The speed and magnitude of which we are reshaping our focus and ways of working to serve a growing list of client needs as this pandemic has evolved is astounding. Our top priority, as we navigate this pandemic is the health and safety of our people, our clients and our shareholders. Starting in mid-March, government officials around the world implemented drastic measures. In a matter of weeks, all TTEC operating centers were impacted by various restrictions. Our many years of experience in providing advanced at-home capabilities, globally have served us extremely well in our response efforts. At this point, TTEC Engage has migrated 80% of our own employees to productive, secure work-from-home environments. Our TTEC Digital has provided expert level business continuity support, technically enabling nearly 50,000 of our clients' employees with best-in-class, highly reliable at-home technology and resources. Within the first few weeks of April, we were serving an increasing volume of interactions, supporting new and existing financial services, health care and government clients. These organizations are providing essential services to citizens and businesses that are helping change the trajectory of this pandemic, stabilizing the…

Thank you, Ken, and good morning, everyone. I'll start by expressing my empathy for all those who are impacted by this crisis and deep gratitude to the incredible people for supporting TTEC, our clients and the communities in which we operate. Ahead of my comments on our first quarter financial results and outlook, I'll provide a view of the impact of COVID-19 and the actions we are taking to preserve the financial strength and health of our company. The in-hand value of our diverse portfolio of marquee clients, the resilience and agility of our business model, and strength of our balance sheet and cash flow, carries even greater importance during uncertain times. While the near term business environment has changed dramatically, we continue to view the long-term fundamentals of our business and the value proposition we provide as exceptionally durable. COVID-19 presents meaningful short-term and longer-term client opportunities that we are aggressively pursuing, proving our relevance in both prospering and challenging times. In the next few quarters, we see a combination of tailwinds and headwinds. Our tailwinds include a strong first quarter and abundance of COVID-19 surge work and early adjustments to improve our cost structure, working capital and liquidity. The surge work is within our government, healthcare, financial services, e-commerce and food delivery verticals. While short-term in nature, it will help ridge our financial performance. We are closing significant volumes of this work, but are early in ramping and executing, making it difficult to judge its exact scale and duration. Regarding our cost structure, working capital and liquidity, we are taking several meaningful actions to preserve our financial health. First, we identified immediate areas to lower costs; including reducing or eliminating discretionary compensation professional services, temporary workers, travel, real estate facilities and nonessential investment initiatives. Second, we are prepared…

Thanks, Regina. As we open the call, we ask that you limit your questions to one or two at a time. Operator, you may now open the line.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question is from the line of George Sutton of Craig-Hallum. Your line is now open.

Thank you. Guys I know it's been a 24x7 effort for pretty much the entire team for much of the quarter, so congrats on the results. I'm going to limit my question to one, but I'm going to make it somewhat multipart and I'm going to address it to Ken. Ken as you think through the long-term flexibility that is being sort of enabled by all of these changes I wondered if you could speak to geographies, work-at-home options as you see them in the future, staffing levels and how that might change over time? And are you bidding differently on work given some of these changes?

Good morning, George. That's a multipart question for sure. So, I guess what I would say to you is that in the short-term all of the deals that we've been winning, as well as that we will be implementing in the future post-COVID, I'd say for the most part are taking into consideration a significant mix of at-home and then futuristically when we get back to some new normal a higher percentage of bricks-and-mortar. We're not there yet. Frankly, we don't actually know when we'll be there because of different countries have different predictions on when they're going to open up. And when they do open up, it will be more or less probably a 50% opening with significant social distancing. And then for how long that's going to last we don't know. So for now what we've done is, we've prepared our entire business to operate virtually worldwide. And over time we believe that there's going to be more of a geographic dispersion of our clients' requirements, so that they can withstand any form of future set of issues. And, therefore, as we've mentioned in previous calls, we're expanding our global footprint fairly aggressively in the near-term and we'll take advantage of that new footprint once we can get back to a new normal so to speak of life. But for now everything that we're doing is solely focused on having the most advanced at-home infrastructure with the highest standards of quality and protocol. And we've been very fortunate that we've been able to move in excess of 40,000 frontline agents to their home and are processing interactions as though they were operating in a bricks-and-mortar environment. I hope I answered your question. I know that it was multipart.

And maybe good to also hit on George's question on, are we bidding differently.

Are we bidding differently? I mean, I don't -- I would say what's different about our bids is that there's much more digital included in them and that we are adding a fair bit of technology to every single deal so that we can offset some of the incredible surges that we're seeing in certain verticals. So whether it be bidding and providing things like conversational messaging capabilities, using machine learning and AI, whether it be adding robotic process automation to our clients' back-end systems to create more efficiency on the middle and back office, which is why we did the acquisition of Serendebyte, or whether it's overhauling their entire omni-channel set of capabilities. And I would say that a high percentage of our deals, we are incorporating an upfront digital technology component to it as a way to not only deal with the high-demand surge volumes, but also to offer a lower cost to serve. And so I would say that's one of the main differences. Obviously temporarily there's all kinds of differences in how we're having to bid on business and labor costs et cetera. It's a very unique dynamic out there especially temporarily in the United States with the current Cares Act and unemployment act. And, therefore, we need to ensure that we're highly competitive in our pay so that we can attract the best and the brightest people to their positions.

Thank you very much.

Thank you, George.

Thank you. And our next question is from the line of Mike Latimore of Northland Capital Markets. Your line is now open.

Thank you. Congratulations on the strong results there. I just wanted to focus a little bit on the cloud and consulting part of your business. Can you talk a little bit more about what you're seeing in terms of bookings and pipeline there? Are things tracking as expected overall? Are you seeing the puts and takes canceling each other out? So things are tracking as expected? Just a little more color on pipeline and bookings for cloud consulting would be great.

Yeah. I mean what I would say is, I'll just repeat a little bit about what Regina said. We had a lot of very significant deals in the pipeline and those deals are still very active. But I would say that many of them are being pushed due to the fact that these large clients are focusing on their crisis at hand versus very significant transformation projects. That said many of those clients have come to us and asked us to add at-home technology ahead of their major transformation projects as well as embedded base clients have asked us to help them quickly move to at-home. And as we mentioned, in our script we've moved on the Digital side over 50,000 agents from their bricks-and-mortar to at-home. As it relates to the future, what I would say to you is that we think that there is going to be a little bit of a lag as people kind of again assess their business, their priorities and figure this out of the larger deals. That said there is a fair amount of activity focused on automation, focused on what we can do with our robotic process automation and our messaging capabilities. And so we're putting a lot of energy into that. You can imagine that if you’re a large corporation and you have large captives of your own, you’re looking for ways to automate and add new channels of capabilities whether that be messaging capabilities, chat capabilities, self service capabilities, et cetera. And so, we're really putting a huge part of our focus in those areas. Overall, we feel really good about the business. And we feel like we'll – long-term that the business will produce everything that we have consistently stated as it relates to growth rates both top and bottom line. We're going to continue to expand the capabilities of the Digital business, so that we can truly be a one-stop shop for all of our clients' customer experience, customer engagement and customer growth needs.

The only thing I would add to that Mike is that we do have a very healthy Q2, Q3 pipeline. I think collectively, it's just under $250 million. And it is more and more filled with Webex CCE deals as well as some traditional HCS. We actually went into production on a small Webex CCE deal this week. And so we're confident that the deals are there. And that they will be converted. I would also say that the inroads that we've made further into government, not just federal but state and local and the downstream opportunity to be in those organizations in a bigger way and having them see early on the positive impact of not only our omnichannel. But the applications that we bring to the table in terms of messaging and automation that those should be organizations that even add more to that pipeline. The challenge we have given the enterprise-level magnitude that we deal with in the large governments is just the timing in which folks will kind of finalize those decisions and can be focused on those very significant initiatives.

Okay, great. Thanks so much. Good luck.

Thank you. And our next question is from the line of Maggie Nolan of William Blair. Your line is now open.

Good morning. So you're at 80% work from home. I'm curious about the dynamics both in the March quarter. Was that downside there primarily driven by constraints on the supply side as you move towards that 80% work from home and an inability to meet demand, or was the downside primarily due to volume spikes? And then how do you expect that kind of supply and demand dynamic to play out in the coming quarters given that you're at 80% now, and any efforts to move higher than that?

Hi. It's Ken. How are you? So first of all, we feel pretty good about second quarter. And we think that the bookings that we've already done to date in this quarter will make up for last quarter's booking shortfall. So bookings to date are quite strong. And the unique aspect of the bookings to date is that we are executing on them in a much faster pace due to the nature of the bookings themselves. I think the unknown and that we're trying to be very transparent about is what happens post this surge and again whatever the new normal is going to be and when is that going to be. So, right now there is a significant amount of surge opportunity business out there. Frankly, we're drinking from a fire hydrant. And so I don't know if I'm answering your question, but I wouldn't be overly concerned about the first quarter bookings numbers and I think that we'll be just fine with -- in second quarter.

I think the other thing Ken, Maggie, is that please don't read that 80% at-home means we're 80% productive.

Yes.

We still have sites that are open. We have work where our clients for security and other reasons did not feel comfortable having at home. We have appropriately distanced people in those sites. We deep clean. So safety is utmost important, but there are many other associates who are still working but in-site.

Yeah. Let me just add one other thing so that you don't misinterpret the 80%. So when we look across the globe, North America is 95% to 98% operating right now at home. That number might even be slightly higher just because every day that goes by we find new ways to get people who didn't have the ability to come online, come online. Really the area that's been impacted the most from the ability to get to 98% is the Philippines. And there's obvious reasons for as to why that is. Part of it has to do with the infrastructure that is afforded in neighborhoods, part of it is just the nature of housing there, et cetera. But what I want to remind you of is that our business in North America is surging. So for every dollar that we book in North America, that's implemented in the United States or in Canada, it's comfortably more than two for one of dollars that we didn't receive in the Philippines. So please do not take from this call that our revenues are going to be off by 20% because that is not the case at all. Our revenues are intact. And we -- like I said, I want to reiterate we feel good about second quarter.

Got it. Thank you.

Did I answer your question Maggie, or is there...

Yes. That was helpful. Thank you. And then as we think about the full year, can you provide a little granularity about kind of how to think about Engage versus Digital in the context of that higher-level guidance that you put out there both on the revenue side, but also on the margin side and understanding some of the different levers within those businesses to protect the margins in those businesses? Thank you.

Yes. So given -- given the surge as I said right - -given the strong backlog we have and we have not seen our backlog deteriorate. And as I said it deteriorated about $24 million just by virtue of what these foreign currencies have done against the USD. So I think it's important to understand that since we began this year when we gave our guidance right the currencies have moved to the point where it's about a $24 million negative impact. But aside from that right when you consider the surge work that we have, the strong backlog that we have and the acquisitions that we've done very modest relative to Serendebyte more impactful on FCR -- as I said in my comments I think if you look at the consensus model it is directionally I think a fair place relative to where we are likely to be with I would say probably more opportunity on the bottom-line in the sense that we have early taken actions that we will not undo until which time we're highly confident that we're back on track. But that early move will help to protect our EBITDA and our operating income. So happy to go off-line and talk a little more about it. But if you have specific questions -- I also attempted to make some comments on I would say are the strategic components of our Digital business, which is we remain even in 2020 believing as we said that our cloud-based business will grow above 20% -- between 20% and 25% and our systems integration despite being at 4% in the first quarter will end up for the year in that plus 15% that we've guided kind of mid-term.

Thanks, Regina.

Thank you. And the next question is from the line of Bryan Bergin of Cowen. Your line is now open.

Hi. Good morning. Thank you. I wanted to ask on cost flexibility first. Can you give us a sense of the potential cost reductions you can take out of the operations currently? And then maybe longer term is it changing your strategy around cost structure and the operating footprint in Engage too?

First I would say is the plan that we put forward was the ability to take out $100 million of costs right should we need to at an extreme situation. And so we have that plan and we'll act on it as and when we need to. Certainly from a discretionary spend its near $50 million of expense that is tied to financial performance which naturally will adjust. And being in the business we are especially on the heritage business of Engage for 37 years we're very astute at adjusting our costs in line with our top-line volumes. I would say that relative to your question on the longer-term impact of these actions, I think, it's less about longer term. But please remember in our three year plan, in our kind of mid-term guidance as we've talked about getting our margins in the kind of mid to high EBITDA margin percentage and NOI that's above 10% and when you look at both the EBITDA improvement in Q1 in both Engage and Digital you're seeing behind that a number of initiatives that the company has over time to get to that targeted cost structure. So lots of things going on at TTEC beyond COVID-19 to assure that we start to realize that high-teen EBITDA margin -- higher-teen EBITDA margin and double-digit OI margin.

Yes. And then I guess, all I would say to further to Regina you asked the question about is there anything in the model that's going to change going forward that will impact cost. And what I would say to you is that, we have looked at a significantly different more distributed model that blends at-home with bricks-and-mortar in a more fluid and a more seamless way. And what I mean by that is instead of it just being either all bricks-and-mortar or all at-home you're going to see a pretty unique model that we'll be introducing very shortly that actually is a hybrid of both so that when we come back to the new -- this new normal we will be able to provide dramatically more flexibility to our clients, dramatically more agility and even better cost structure. So we are – although, we're dealing with the now, suffice to say, we're not letting grass grow under our feet. We are looking at every aspect of our business. Our Hyderabad operations are off to a great start and we're putting a lot of energy in that area into innovation to help continue to streamline our organization and automate more and more and I'm very confident that we'll be able to have a very cost-effective cost structure and I don't think that Regina nor I have any concerns about our ability to take the cost out that we're focused on a big chunk of which is already well on its way now.

Okay. That's helpful. And then on some of these short-term client agreements understanding the volumes are down in some verticals, I'm curious if you're also seeing notable pricing concession and more favorable payment terms as well. And if so what type of duration are some of these short-term agreements?

The answer is no. We are – we have always been the high-quality provider. We do not play a price gain. We offer a fair price for the highest value delivered and we do not see price concessions. Actually I would say we see the opposite right now because companies right now are looking for companies that can deliver and they were so let down and hurt when this crisis hit by very significant interruptions in service and we had virtually no interruptions. We continued all the way through the crisis, transition from bricks-and-mortar to at-home in a way where we're not leaving any of our clients high and dry. And that consequently created a spike in surge volume where clients were actually adding to our volumes because they felt that we could reliably deliver upon them. So A, we are – to answer your question we are not compromising on price; B, our clients are understanding that the labor markets, even though there is a huge amount of unemployment record proportions the fact of the matter is, is that the CARES Act and the unemployment program that's currently in place is affording employees the ability to earn a very generous short-term income through July. And our clients are cognizant of that and want to ensure that we're not competing with that temporary benefit which incents people in some ways to not go back to work until July. So what I would say to you is we are – we feel very comfortable with the search work that we're doing very comfortable that we'll be able to maintain profitability on the surge work and so that's not an issue at all. As it relates to the length of these search contracts, it's a great question and I don't have a…

Thanks

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

This is Kathy [ph] on for Jason. Thanks for taking my question. First I just wanted to clarify. I know you guys formally withdrew your 2020 guidance. But I think on the last quarter you introduced the three-year guide with the revenue growth in the range of 6% to 8% margins of 10% to 12% EBITDA 14% to 16%. Do you think that's still going to remain intact despite the COVID-19 crisis and everything? Thanks.

I think it's really hard to update our three-year guidance at this point. That said, as we've talked internally if anything it's potentially – it's potentially delayed a – Ken you're on – it's potentially delayed a half years or so, so, again, very strong pipeline for both businesses, very strong opportunity in the TAM. We're seeing very good adoption and if anything, we may be delayed but have two levers, right one these new offerings and the adoption of those we also see that the market is likely to have a want and demand and acceleration of the conversion that was going to be done as we've gone through this pandemic. And then last but not least the – excuse me. And last but not least, the inorganic activity that we can deploy making up for some of the lost time, apologies for the background noise.

Yes no problem. And just one other question, so just thinking about sort of organic revenue growth for 2Q. It sounds like you exited that March quarter – sorry you guys had like modestly positive growth in 1Q. What sort of revenue run rate did you exit that March quarter like coming into that April time? And any of the scenario analysis you guys ran like could this turn negative in the next couple of quarters? I'm just looking back sort of thinking in the 2008, 2009 financial crisis, you guys did see a pretty significant revenue impact. So thinking could we see that this time around as well, and sort of the differences in the business between then and now? Obviously, you have Digital now but. Thank you.

Yes. Look I think if you reflect on my comments about the relevancy of the consensus model to our internal views and then the backlog that I described, we don't necessarily see like incremental level of fall off from that run rate right? But it is – it's not for me to say whether there's going to be a second wave. It's not for me to say right when there is going to be a – when we can be more mobile when we get back to work as normal. If for example, this gets extends or if we have another wave clearly there will be an impact on consumer spend. So I'd rather at this point not project into next year but feel given the reliable backlog, given the search work, given the pipelines that we have that while we believe we'll be down from our original guidance the midpoint was $1.765 billion, where the analysts have us at this point I think is very balanced view.

Thanks for answer my question.

Thank you. And our final question is from the line of Josh Vogel of Sidoti. Your line is now open

Good morning. Thank you. So, in thinking about the opportunity for share gains, could you just share some insight as to whether you think it could come mostly from buying that other vendors handle or maybe even a greater percentage of taking clients in-house volume because they don't necessarily have the flexibility or agility to go remote or virtual?

I really think it's all the above Josh. I really think that there is opportunity. And I think the good news is that there is a significant amount of business just in general out there due to the fact that every major corporation has come to the conclusion that they -- the only way they can survive, the only way they will make it across the river is, if they virtualize their business. And so what we're seeing is that all our e-tailing clients are doing fantastic. All of our clients that are focused on logistics and being able to operate in a virtual environment, they're seeing record volumes of their business and their business is growing incredibly well. The businesses that are challenged are obviously the in-person businesses that are tied to the current lockdowns and shutdowns et cetera. But every one of them is realizing that without a doubt that this new normal that we're entering into has changed our habits forever. Whether it be my wife who never in her wildest dreams ever thought that she would have someone grocery shop for her, now is using grocery shopping services. And so, Uber got everyone realizing what the instant economy was along with Amazon. And now what we're seeing is that more and more people are taking advantage of all the different virtual capabilities. Every time a company adds any form of virtual requirements so that you can do business with them, they need some form of customer-experienced capabilities. And so whether it be banking, insurance, retail health care, government, every one of them are realizing that they have to virtualize. And therefore they get to take advantage of our digital capabilities along with our engage capabilities. And so, we actually believe that as we get through this that medium and longer term that this is actually a really positive opportunity for us to expand our business. So yes, of course we're going to take away some share from competitors that have maybe not had the robustness of their infrastructure and the kind of just the overall scale that we have et cetera. But we're also seeing the opportunity to win net new logos and we're also seeing the opportunity for clients that were solely captive that are realizing that frankly they would have been better off had they had a mix of their captive internal operations with a partner like TTEC.

Thank you for the insight there. And just one last one, one prior comments when you're discussing the potential for the hybrid model in this new normal and I was curious what maybe the margin profile if you could give any thoughts on what the margin profile of the Engage business could look like if we see that structural change with half the workforce working at home or remote and maybe there's less reliance on the brick-and-mortar footprint? And is there an opportunity maybe to pair that the brick-and-mortar footprint down a little bit and maybe given how well things are going in North America maybe move some of that volume back to the U.S.? Thank you.

So I think you're definitely going to see a trend of business moving around just in general in some cases from offshore to nearshore, in some cases from nearshore to onshore. So, I definitely think you're going to see that. I think some clients maybe got a little spooked and felt like they kind of over -- maybe overcompensated with their allocation of business to one particular country or another. As it relates to real estate, it goes without saying we have a lot of real estate. And it goes without saying that we fully intend to rationalize as well as restructure our sites, so that they permanently have better social distancing in place. All of our sites are -- that we've been -- when we were open as well as the ones that still have open have been doing all the necessary things required whether it be social distancing, whether it be real-time temperature monitoring, whether it be fogging the sites every single night with antibacterials et cetera, but I think we're going to also look at our overall reduction in real estate as we have a higher blend or shift to at-home. And obviously again, there's just so much unknown as it relates to what percentage clients are ultimately going to feel comfortable with at-home. And so for now it's premature for us to adjusting significant amounts of our real estate, but we certainly are evaluating all of that across the globe. And there are certain countries where frankly at-home is just not that conducive especially offshore.

All right. Got it. Thank you and hope you both are doing well and stay safe.

Thank you and same to you. We appreciate it.

Thank you for your question. That is all the time we have today. I will now turn the call back to Paul Miller. Thank you.

Yes, we're concluded. You can close the line. Thank you.

Thank you everybody.

Thank you. And this concludes TTEC's first quarter 2020 earnings conference call. You may disconnect at this time.