Welcome to TTEC's Fourth Quarter and Full Year 2020 Earnings Conference Call. I’d 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 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 now begin.

Good morning and thank you for joining us today. TTEC is hosting this call to discuss its fourth quarter and full year financial results for the period ending December 31, 2020. Participating in 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 the press release, for additional information about our financial performance, we also encourage you to read our 2020 annual report on Form 10-K. 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 opinion as of the date of this call, and we undertake no obligation to revise 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. For a more detailed description of our risk factors, please review our 2020 annual report on Form 10-K. Our comments today will also include certain statements related to our financials, which are on a non-GAAP basis. 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. Ken?

Thanks, Paul, and good morning to everyone. 2020 was a breakthrough year for TTEC. We set aggressive, operational and financial objective and dramatically exceeded them all. Like every business across the globe, we faced a once-in-a-century challenge, as the world lost mobility, consumers shifted to virtual interactions and workers shifted to virtual productivity. Across the globe, people quickly accepted virtual as their new reality and embrace the new way of life, most of which is here to stay. In the midst of this massive digital migration, our clients depended on us for the technology and digitally-enabled services. They need to meet their rising customer demands. We digested what we felt like 10 years of digital transformation in 10 months. Our systems and operations were tested and succeeded. Our teams worked around the clock and went above and beyond. We responded from a solid foundation, weathered the 100-year storm and emerged stronger than ever. We're at the dawn of a second wave of digital transformation and virtualization that is sweeping the world and we perform a mission-critical role in pioneering it for our clients. This new digital layer will demand increased virtual capabilities for years to come and we are ready. We have achieved the highest annual revenue growth rate in well over a decade and expect our momentum to drive a higher normalized rate of revenue growth in the years to come. Recapping the last year, bookings increased 35% to a record $659 million. Revenue increased 19% to a record $1.95 billion. Adjusted EBITDA increased 45% to a record $304 million. Non-GAAP EPS increased 70% to a record $3.82 per share. Cash flow from operations increased 14% to a record $272 million. We closed two key acquisitions and established several new high profile go-to-market partnerships. We moved 80% of our…

Thanks, Ken and good morning everyone. I'll start with a review of our fourth quarter and full year 2020 results and then provide some context on our 2021 guidance. Our sales, marketing and client executive teams delivered record new business signings in 2020. Our fourth quarter bookings were $188 million and full-year bookings were $659 million, up 57% and 35% respectively over the prior year period. In the fourth quarter, we signed a meaningful volume of new business within our existing client base and added 13 new client relationships. Bookings were most noteworthy in our financial services, technology, health care and public sector verticals. Offering highlights included our customer acquisition services, hypergrowth borne digital platform, Amazon Connect messaging and automation collectively contributing $53 million in bookings. Further, we closed nine multi-segment engagements totaling $96 million and signed 25 multimillion dollar deals. We entered 2021 with pipeline of approximately $1.8 billion, including Avtex, up 50% over the same period last year with Engage up 52% and Digital up 44%. Additionally, our revenue backlog coming into 2021 is approximately $1.9 billion, including Avtex of 20% over the prior year, excluding the large government contract and exited consulting practices. In my discussion on the fourth quarter and full year 2020 results, reference to revenue is on a GAAP basis, while EBITDA, operating income and earnings per share are on a non-GAAP basis. Please note that our non-GAAP operating income and EPS are now adjusted for stock-based compensation and acquisition related amortization expense, consistent with the definition of adjusted EBITDA and aligned with industry practice. A full reconciliation of our GAAP to non-GAAP results is included in the tables attached to our earnings press release. On a consolidated basis in the fourth quarter of 2020, revenue increased 23.8% to $571 million, of which 20.3%…

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

Thank you so much. We will now begin the question-and-answer session. [Operator Instructions] First, we have our first questioner, first question comes from the line of George Sutton of Craig-Hallum. One moment sir. Your line is now open. You may proceed.

Great. Super results, kind of eye opening results, frankly. So Ken, I'm curious in the press release, there is a discussion about and you mentioned this on the call, a doubling of your TAM with this acquisition, I wondered if you can go into a little more detail on that and then relative to that Avtex being in Minneapolis, where I live, it's noted a very high quality organization and I'm just curious how competitive was this deal?

Great. Well, good morning, George and thank you for the kind words. What this does for us TAM wise is pretty incredible. As you know, for the last, call it 10 or 11 years in the digital space, TTEC is really only focused on what we call the mega enterprise, so a very large governments as well as corporations in multinationals. Our sweet spot has historically been 5,000 seats, all the way up to 25,000 workstations on our cloud platform. What Avtex does for us is it opens up large enterprise, but more importantly opens up the mid-market and we pick up a 1,000 net new accounts, which for us is huge, when you look at the fact that we have about 360 active accounts are so today across both business units. So it dramatically increases our TAM, because the mid market is more than double the size of the mega-to-large enterprise size. Additionally, because they are focused on a couple of different platforms, it basically ensures that we are at the table on any major deal that comes across the globe, as it relates to CX transformation, because if you look at the market share that AWS Connect has, which is growing very rapidly that Cisco already has is an embedded base and that Genesis has, which is growing very rapidly right now. It's suffice to say that that's where the majority of all the large enterprise business is going – it is also – they're also now benefiting from the higher end of the mid-market. So this really opens up the aperture for us, where it's not only excited about that aspect of it. But we've always wanted to be a Microsoft partner, we think that the dynamics platform is one of the most popular platforms out there next to sales force and these guys have built some incredible applications, not only on the dynamics platform, but on Microsoft's analytics platform using machine learning and AI and were building a very significant machine learning AI practice across everything we do, whether it be conversational messaging, whether it be chatbots, whether it be data analytics, whether it be agent assist, et cetera. So it's a welcome opportunity for us to pick up all these very talented engineers that span across these incredibly successful partners.

I know Ken, I was limited to one question, but my most important question is actually for you, I'm curious what kind of wine do you drink to celebrate those kinds of results?

Well, so far – the last – right now, what I drink is whatever helps me go to sleep, because we have all been up around the clock. So lately, it's been more a little bit of tequila than wine. But certainly, we will be – we will be celebrating. We need to take a bit of a 30-second breath before we move on. You asked a question about whether the process was competitive. The answer is, it was very competitive and truthfully, you'll have access to the management of Avtex, I think what won the deal was not only that we were competitive in our price, but more importantly, they loved our culture and they did their homework and they checked us out and they love the management and just kind of how we treat people et cetera and I think they felt more comfortable with our culture than any of the other opportunities.

Super. Thanks guys.

Thank you for that. The next question comes from Mike Latimore of Northland Capital Markets.

Great. Yes, thanks. I think that's a spectacular year, great execution there. I guess just on Avtex, just to be clear, how many months of revenue are you including the 10 months here and then second, this company historically has been a lot more I guess technology oriented than your typical consulting firm or SI. So I guess, yes. One, how many months of revenue? And two, what does their revenue model look like, how much is recurring versus professional services that sort of thing.

Yes. So we've assumed that we clear anti-trust and we operate together as of the beginning of May and then they have about 60% recurring revenue and that will – should grow as they too are focused on cloud-based, predominantly cloud-based subscription-oriented services.

Great. And then, Regina, you mentioned that, you said 15% of revenue I believe in the fourth quarter was COVID related, I guess you've done a great job of converting prior deals like that to long-term, I guess, how should we think about those customers and longer-term visibility there?

Yes. So, kind of as we indicated off of our Q3 earnings call, most of that business has been converted to longer-term business and so what we would probably see and I think you figured this out, when you look at the press release and look at what revenue is in our first half, second half is we probably have a dip towards Q4. Well, we have a dip towards Q4 in our estimates right now, but we continue to see whether it's the states or the banks, we continue to see a re-up of those contracts that I personally don't have any concern that COVID volumes are a challenge in 2021 and given our pipeline and the lion's share of that pipeline that I've been talking about is non-COVID. We feel that momentum we have in 2021 allows us then to move through, earn through if you will any COVID business in 2021.

Okay. Excellent. Good luck this year.

Thank you.

Thank you so much. The next question comes from Maggie Nolan of William Blair. Your line is now open. You may proceed.

Thank you. If I could just build up on that last question there, it seems like you're getting great traction, the more permanent volumes are coming. So what is the normalized long-term growth rate for the Engage segment and is it structurally higher than it was in the past?

Yes, when – In Q3, we talked about moving it from – we moved it from 3% to 5% to 5% to 7%. Our view now in 7% to 9% and our hope as we leveraged both organic and inorganic investment is that Engage is on its way to a double-digit organic growth rate.

That's really helpful. Thanks. And then, you've talked about various partnerships, exciting to bring Microsoft on, can you give us a little bit of an update on your progress with some of these other partnerships, Cisco how some of the transition of those customers to your cloud solution is tracking versus your expectations, anything on LivePerson or any other partnerships of note?

Yes. We're very happy with the partnerships and how they're moving forward and we're really kind of double-down – doubling down and putting a lot of energy into all of them. What I would say is that depending upon the partnership and what – where we are actually focusing, whether it was a massive transformation which, some of which gotten a bit delayed by COVID and people just said let's deal with you helping us get our agents at home or helping us with all this onslaught of volume by automating some of the volume with conversational messaging, et cetera. So it's what I would say is that we feel very good about all the partners that we've selected and we feel really good about the momentum and the leads that are coming from those partners. But I would also say that we are adding so many partners and there'll be more announcements to come of additional partners that we really have just kind of made the decision that we are not going to get into the specifics, because the dilemma that we are facing is that some of these companies – so many of these companies are now public or about to go public and we have every analyst calling us up, trying to do channel checks on them and we basically agreed with the CEOs of these companies that we are going to not go there, just to make it easier for them as well. So I apologize if I'm not giving you all the information that we would like, but I'm sure you can respect the situation that we're in with so many of these companies being public right now. We're excited about a lot of the energy that's being invested by our partners into adding new…

Got it. Thanks, Ken. Thanks, Regina. Congrats on the quarter.

Thank you very much.

Thank you.

Thank you so much. The next question comes from Bryan Bergin of Cowen. Your line is now open. You may proceed.

Hi, good morning, hope you're all doing well. I wanted to start on the margin, so looks like Engage exited much stronger here in 4Q, the Digital did tick down versus the run rate you had over the first three quarters. So you can you first talk about the drivers in each of the segments there? And then for 2021, is the absence of the large federal contract a reason for the step down in digital EBITDA margin or is it Avtex, just any color you could provide there?

Yes. Great. So just from a Q4 point of view really for Engage, it relates directly to volumes. We continue to say on another $75 million to $100 million of revenue, we are going to get another $75 to $100 basis points of margin expansion. And so, it's just a function of the leverage that we have in volumes. On Digital, what you're seeing is the large government contract step down in the fourth quarter and ended by the end of the year. And so, it's really those volumes out of our top line that affected the bottom line. However, and this is a segue into 2020. We did not hesitate in the fourth quarter to begin to execute incremental marketing activity as well as to start to build greater number of sales people. In particular, in areas like global accounts, health care, public sector, financial services, and TTEC as well as we continue to invest in EMEA in CDAP as an important contributor to our top line growth in 2021 and on. So the – what you're seeing in digital in terms of the step-down is a couple of things. One, we do have significant acquisition. We have significant external fees that are in our numbers, we have cost of integration, we want good pace and speed of that integration. And then last but not least, as I mentioned in my comments, we've invested on the core side, I'm sorry a little bit of it is Avtex, but we've invested another $25 million in sales and marketing with the intent of ensuring that to Maggie's question earlier, we are getting, not only in Digital, but Engage as well that organic growth rate reliably to the high, high-single digits, low double-digits.

Okay. Thank you. That's helpful. And then just on Avtex, can you give us a sense on what the average client size in seats that they are serving, I'm just curious where that cut off is on the mid-market level, and as you expand further into the mid-market, how does that impact your strategy around the CCAS technology platforms that are generally serving that SMB segment.

I'm not sure I'm fully understanding your question, you're asking what the cut out – where, how do we define mid-market?

Yes.

And where is our target focus going to be?

For that mid-market, so versus the high enterprise that you've traditionally served, but where is that the average size for Avtex, and then does this also opening you up to other technologies, too?

That's a great question. I'm actually really glad that you're asking it, because I think there is so much confusion with the smaller OEMs that call enterprise, small-medium business, what we classify as small medium business. So I would say there's a sweet spot of where Avtex has done just tons and tons and tons of deals, kind of is in that 250 to 750 workstation range of cloud SaaS-based range. That said, they've also done many installations that are well above that. But they're really hunting in that very kind of significant space that's 250 to 750. They are not interested in really going below that. They are going to leave that for the others that want to do kind of a – that don't really require all the complexities that go into a company that has 250 to 750 workstations. So, does that help you as far as their sweet spot? And then if you then look at traditionally, where core – our TTEC core digital has been, it really has been focusing on a minimum of 750 and going up. And so we see this is just an really a perfect fit, they've got a brilliant sales organization, they've got fantastic organic growth, and so we take their organic growth and their sales organization, coupled with our large enterprise organization and we really think that we've got far, far better coverage in the marketplace than we historically had.

Okay. Thank you. Just a quick clarification I don't know if that you had in the script, did you say the size of Avtex, the cost and the funding plan?

We did not, but it will be an all-cash transaction.

Thank you.

Thank you so much. The next question comes from the line of Joseph Vafi of Canaccord. Your line is now open. You may proceed.

Hey guys, good morning. Terrific results. Just I was wondering if you could maybe further park the growth in Q4, maybe any call outs there if it's by vertical, by geo, anything there would be pretty interesting. And then a follow-up.

Yes. So from a vertical perspective can afford the quarter and the year, its financial services, healthcare, public sector, tech and e-tail, so retail, but E part of that primarily. We continue to see significant growth in our hypergrowth kind of borne digital sector. EMEA is as I just said making an important contribution and I would say these – so for example in Q4, we had that nine multi-segment deals that we closed, representing $105 million of the $180 million that we closed in Q4. So the other theme, right, that is not just in the bookings for Q4, but is within TTEC is a larger number of combined TTEC Digital and Engage with our clients.

Okay. That's helpful. And then I know you've made some good traction in EMEA in 2020. I know you've mentioned a few times here on the call. Are there any specific call-outs in terms of wins in Q4 or is it just more of a building pipeline in EMEA right now, still?

Yes, I mean, it's a building pipeline kind of across verticals. Fortunately, over the last couple of years, we've made an investment there and we got to build EMEA with a digital-first strategy. So given our size and the kind of recency in which we're in the market for customer client acquisition, we got to form that business in as OneTTEC. And so I would say, the thing that's noteworthy is our advantage there is to lead with digital. And now that we have Genesys, which has got huge market share in Europe, we see that further propelling not only digital, but our ability to win – improve our win rate on the Engage side.

Okay. And then just a couple on Avtex, I'm not sure if you mentioned their margin structure versus the rest of your digital business and how is their footprint ex-U.S. And how does that look as an opportunity for you kind of, maybe more in that mid-market?

So we – I would say that digital on both sides, the core digital and then Avtex share, what I call, 18% to 22% EBITDA margin – adjusted EBITDA margin. Obviously on the TTEC side, a little bit of a shift down, given that large government contract and the exiting practices took as I named in the script about $91 million of revenue in 2020 that is not there in 2021. And so, again, any time, volumes drop at that level, the margin job drops, but in particular, because we didn't reduce the sales and marketing of our SG&A. We actually are invested more. So while we have a dip a bit this year, we expect that by the fourth quarter to be back in that 18% to 22% range, depending on the component of digital.

Great, and does Avtex have an EMEA footprint at this point?

So, on the footprint, today they have a North America footprint, U.S. and Canada. And as I said, we have early plans to ensure that we leverage that in the regions that we're in already, EMEA and Asia-Pac, to be able to light up that offering there as well in short-term.

Right. And then maybe just one final high level question on Engage, we're sitting here in early March and large enterprises are getting their plans together for 2021. Any change in their views of in-source versus outsource, clearly 2020 was transformational and moving a lot more TAM to the outsource bucket. Is there any shift versus 2020 that you're seeing either positive or negative there? Thanks a lot.

I think if you refer back to some of my comments, I kind of inferred that, that what we're seeing is, there's close to – according to third-party analyst, not us, $300 billion worth of captive in-sourced Engage. And then there's still a significant amount of in-sourced technology. We are definitely seeing more and more of the large companies, for lack of a better term, wave the white flag and start shifting volumes, very large volumes of their captives for multiple reasons. One, they didn't know how to do @home, two, they didn't have – they don't really have the right technology platform. And three and I don't want this to sound like we're bragging, but we typically well outperform our clients internal sites on all metrics on CSAT, on Net Promoter Score and on cost to serve. And so they can only do it so long and have this variance until if they're not willing to move it, their senior leadership is saying, why are we doing this? So we are definitely feeling like the trend going forward is going to be more and more of these captives that are going to be outsourcing far more business. So if you look at the overall amount of business that's been outsourced, if you look at the pie, it's really only about 30% that's been outsourced. I think you're going to very comfortably see that move to 50% over the next few years, not five years, but few years. And I think that's going to be great for us. And I think it'll also be great for others who benefit from it. And the other thing that I just want to stress that I think the Wall Street, maybe isn't fully paying attention is, as all these companies become more customer-centric,…

Thank you so much. The next question comes from the line of James Faucette of Morgan Stanley. Your line is now open. You may proceed.

Hey, this is Jonathan on for James. Congrats on the quarter and the acquisition, Ken and Regina. What's your appetite for existing acquisitions over the course of the year, and what would those acquisitions be focused on?

The question is for you, Regina. I'm happy to answer, but go ahead.

The acquisitions?

Yes, he said, what's our appetite, I mean, we clearly have an appetite for additional acquisitions.

Yes. I mean, it continues to be a part of our strategy, to grow the business. And it's balanced between digital and Engage and from a digital perspective, it's continuing to make sure that we have the best and most relevant technologies, from a CX point of view. And as well as scale, the practice areas that we have to do – we have today and extend that scale, not just in the U.S. but outside of the U.S. So acquisitions that kind of hit those three points, are on top of our list from an Engage point of view, we continue to look primarily, I would say at offering based, client-based and regional based acquisitions, to continue to fill out our offering, as well as, build locations like Europe to significant scale.

Helpful. Thank you.

Thank you so much. The next question comes from the line of Josh Vogel of Sidoti. Your line is now open. You may proceed.

Thank you. Good morning, Ken and Regina, certainly impressive results in light of everything going on out there. I had a question around the Humanify Cloud @home offering. What is the target number of users that you have for this year and longer term, and understanding it's an ongoing and fluid situation, but just thinking about the cost structure of the business, how are you thinking about the real estate strategy today and as the year progresses?

So I apologize, Josh, I'm a little confused when you mentioned real estate, but then I thought you said number of users. So can you help me with that a little bit?

Sure. First, with the Humanify @home offering, you had an announcement that you had enabled 100,000 users that was back in November. I'm just curious what your targets are for this year and longer term. And then I was just thinking about the virtual versus brick-and-mortar footprint.

All right. So why don't we start with that? First of all, we are constantly sampling our customers and asking them where they would like to be in whatever is going to be this post-pandemic year, which frankly I think is difficult to predict right now. But what I would say is, we believe that somewhere in the 35% to 40% of our Engage workforce will more likely than not be asked to continue to work from home. We also believe that on a go-forward basis, those who potentially work in our bricks-and-mortar will be working in more of a hybrid environment. Additionally, we have from a real estate standpoint, been very proactive. We frankly saw this pandemic coming in January. We didn't wait till March, which is why we were able to so quickly transition our employees and our management was ready for it. And we have already shedded thousands of workstations – of bricks-and-mortar workstations, so that we can ensure that we're not carrying too much excess real estate since there's so much demand for our @home capability. Does that help you answer your question?

Yes, definitely. Thank you. And just going back to a comment that Regina had, or the prior question around M&A activity and the appetite there. Understanding that, with digital, you still want to look for the best and most relevant technologies from a CX point of view. But Ken, in your comments, you mentioned that you had all the ingredients in place. So as things stand today, do you feel that your digital portfolio, your CX platform is where you want it to be? Or are there any small gaps that you still are looking to fill?

Well, I'm kind of known to be constructively discontent, so it will never be where I want it to be, no matter how good it is. So what I would say to you is the following. We're going to – we will – so I'm a big believer that when we tell The Street, we're going to do something that we actually execute on it instead of, just simply saying it. And whether it be that we said we were going to purchase our stock back and we purchased almost half the float, whether it be that we said we were going to pay a dividend and we've consistently increased the dividend, or whether it be that we said that we were going to do acquisitions and we've done many acquisitions. And our goal is to maximize shareholder value. So what we see is the opportunity. We made a commitment to The Street over the last 12 months. We said our goal was to get to $0.5 billion in digital, in a three-year period of time. I think The Street as of today now knows that we're beyond dead serious and that we're well on our way to the $0.5 billion, because we're really almost already there for digital. So at some point, we'll be updating that guidance of what our future goals are of where we'll be taking digital, but suffice to say, we think digital over time can become $1 billion business, based on the organic growth rate and potential acquisitions as to where we do acquisitions. I think that we want to get stronger in other geographies with what it is that we do. And we want to continue to keep building out our AI, machine learning and RPA practice. And we want to be recognized across…

Thank you for your question. That is all the time we have today. I'll now turn the call back to Paul Miller. Sir, you may proceed.

Yes. Thank you everyone for your participation. This concludes our call today.

Thank you.

This concludes TTEC's fourth quarter and full year 2020 earnings conference call. You may disconnect at this time.