Q2 2021 TTEC Holdings Inc Earnings Call
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Welcome to teach ex second quarter 2021 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 <unk> I would now like to turn the call over to Paul Miller, <unk>, Senior Vice President Treasurer, and Investor really.
And <unk> officer. Thank you Sir you may begin.
Good morning, and thank you for joining us today <unk> is hosting this call to discuss the second quarter earnings results for the period ended June 32021.
For today's call and notice of and I'll be your kind of line operator.
Hi, Great I'm going to keep you on mute and.
Many of anything.
Alright, Thank you and all participating on today's call are Ken Tuchman, our chairman and Chief Executive Officer, and Regina Paolillo, our chief financial and administrative officer yesterday, <unk> issued a press release announcing its financial results. While this call will reflect items discussed within the documents for complete information about our financial performance. We also incur.
Average you to read our second quarter 2021 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 of.
<unk> 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.
A more detailed description of our risk factors. Please review of our 2020 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 ex chairman.
Chairman and Chief Executive Officer.
Thanks, Paul and good morning to everyone I am pleased to report that we delivered record results once again this quarter.
Our exclusive focus on digital customer experience design implementation and execution for a diverse global and iconic client base continues to propel us forward.
Our results over the prior second.
Over the prior year second quarter period are as follows revenue increased 22% to $555 million.
Non-GAAP operating income increased 39% to $79 million adjusted EBITDA increased 35% to $96 million and non-GAAP EPS increased 49% 2 of $1.27.
Bookings for the quarter were 204 million and include 22, new clients. Many of these new deals include <unk>.
And artificial intelligence machine learning and advanced data solutions that are strategic and positioned at the heart of our client's long term digital transformation initiatives.
Our continued velocity and growing our embedded base and adding new clients has set us up for long term growth as our clients leverage of the full breadth of our customer experience offerings.
Based on our strong first half performance and positive forward visibility, we're increasing our top and Bottomline 2021guidance.
Our stellar performance continues to be driven by a coordinated team effort that spans our entire organization from frontline talent, 2 executive leadership and I am proud of our positive trajectory and I'm excited about the immense opportunities ahead.
Customer loyalty is the new currency for growth in the CX driven economy from the boardroom on down.
Companies are realizing that today's breakthrough results demand of redesign of their business, placing customers and the center of their universe.
They have acknowledged that they cannot compete and truly affect net promoter score or customer satisfaction, if theyre not committed to transforming their strategy process technology and operations.
Clients are no longer satisfied with the incremental gains of discrete solution provides.
They won't change that drives and and and fully connected simple seamless and satisfying experience.
Our outcome based holistic CX platform is uniquely positioned to deliver such and experience.
Our go to market momentum continues to accelerate with record revenue retention and bookings, where we are building meaningful relationships with 2 types of clients, who are devoted to winning the hearts and minds and wallet share of their loyal customers. The first category are digital natives these disruptive businesses across the.
Multitude of categories, such as digitally connected home fitness food delivery E. Commerce E gaming online travel health Tech Fin Tech and media streaming are increasingly depending on us to help them deepen their customer engagement.
This category has grown rapidly over the past several years and now represents over $300 million and revenue to <unk> annual growth annually and now growing at 20% per annum.
Let me share a few examples of digital native wins from this quarter.
We signed the significant contract with a marquee sports Wagering brand, who is leading the explosive gaming trends sweeping the country.
In addition, we nearly doubled the run rate of our business with 1 of the largest and fastest growing door to door delivery services based on our success together they've asked us to help them launch their customer first approach enabled by our CX technology as they expand across the globe the.
These widely popular high growth consumer brands represent the fortune 500 of tomorrow.
And they're building their companies, where the customer obsessed mindset that requires CX partner.
With T <unk> proven expertise and comprehensive capabilities to help power of their future success.
The market forces driving our born digital sector.
And at the same factors driving expansion of with our tenured multinational enterprise and public sector clients.
T. Chek has always enjoyed a leading share with these titans within the world of automotive automotive manufacturing health care financial services to cite just a few of these.
These industry bellwethers are all undergoing large scale digital CX transformation. They are rushing to untangle decades of legacy systems debt and processes and disconnected databases, while facing new operating models and changing regulations.
And they have significant work to do the.
These huge organizations have and architected of comprehensive CX strategy across business units geographies and customer segments. They haven't built the data infrastructure they need to anticipate the customer needs with real time data.
And they have yet to benefit from the flexibility and agility of our feature rich and cloud based solution there.
And they lack the CX capabilities to deliver the seamless intuitive cross channel journeys of they're born digital competitors and they are rushing to catch up.
Our scale and expertise puts us in a unique position to help these large companies during the watershed moment ushered in by the pandemic.
The surge and digital demand challenge these well known brands to modernize virtualized and commit to plans to continuously innovate their CX environments.
In many cases after trying to digitally transform their operations themselves. They have realized that it is simply too hard to do it on their own.
Increasingly they are asking us to take a much larger share of their cost of operations, including technology.
For both the digital Disruptors and their large scale multinational predecessors were infusing technology and innovation into everything we do on their behalf. We're building data rich CRM systems, using AI machine learning and automation and implementation implementing advanced real time.
Our approach is to help our clients do more do it faster and do it better.
When you zoom out from the specific technologies data strategies and processes you can begin to see the massive impact digital CX can have on the success of both scaled well established businesses and emerging.
As well as emerging born digital and born digital brands for example.
The future of fast casual dining is all about convenience order online for easy pickup or delivery to help 1 of the largest fastest growing fortune 500 fast casual restaurant chains and capitalize on this trend we built the machine learning AI based data Lake this system identifies customer behavior.
Turns and purchasing cycles, so that the brand can deliver the right message at the right time to stimulate online sales to date. This approach has driven over 170% increase and this client's digital revenue.
My Second example puts a spotlight on the importance of trust when doing business online to protect the safety and security for guest of 1 of the largest global online marketplaces for lodging and vacation rentals, we built the complex detection bots that analyze and detect possible fraudulent records faced with.
Daily additions to millions of records the baht reduces processing time by over 40% and significantly improve the accuracy.
This is the ability to discern and eliminate fraudulent activity makes the experienced trusted and safer for customers and builds brand value for our client.
We're also using digital innovation to stay ahead of the competitive labor market, our ability to attract hire train and retain quality employees enables us to drive better outcomes for our clients..1 example is our proprietary AI based real play of training solution using voice.
Recognition machine learning technology, and responsive game development and data visualization T. Techs real play provides a safe environment for associates to learn before they participate and live interactions with our clients' customers.
1 client has seen this award winning technology reduce their onboarding time by up to 50% and Inc, and increase speed to proficiency by almost 75% truly game changing stuff.
Through T. Chek digital we have successfully created a global CX design implementation and execution powerhouse with unmatched scale breadth and reach today, we manage hundreds of thousands of CX licenses, making tea tech 1 of the largest CX technology solution provider.
<unk> in the marketplace and.
Additionally, we currently employ thousands of of dedicated CX technology professionals, including full stack and application developers data scientists and AI and automation specialist we are viewed as the leading specialized technology partner for the top CX ecosystems and the world highly.
<unk> by Amazon Web services, Genesis, Cisco, Microsoft and sales force to name a few.
Importantly, we have been the Genesis and Microsoft partner of the year for several years. These credentials highlight only a fraction of our deep technology expertise and highly talented team both of which differentiate us and a crowded competitive marketplace.
We fully expect this platform to expand over the quarters to come to take full advantage of this opportunity we are doubling down on our investment and R&D sales and sales and marketing and Regina will share the details and her comments shortly.
There are several factors supporting our conviction regarding the execution of our strategic vision and goals related to our digital business the.
The first is our exposure to thousands of companies and billions of customer interactions provides us with a unique lens for innovation and delivering meaningful outcomes, our CX subject matter expertise across vertical industries clients specific needs and frontline execution enable us to create solutions that deliver.
Unparalleled value and results. The next the speed through our Humana, if I connect platform. We can launch of clients program with some of the most complicated feature rich rich functions.
And a significantly compressed timeline and.
In addition to speed, we have breadth and scale, our agile comprehensive cloud capabilities provide both enterprise clients and fast growing digital natives of secure flexible turnkey solution that can adapt and scale of on demand and finally, our CX technology capabilities are unmatched.
We have a full stack development enterprise across the entire CX ecosystem that enables rapid customization and virtualization across the most important and leading CX technology ecosystem partners worldwide.
We have been purposeful and executing our partner roadmap and creating an ecosystem to enable a framework for enterprise grade public hybrid and multi cloud CX application deployments. The extension of our list of marquee channel partners continues to be a key component of our growth story.
As the world becomes increasingly reliant on technology to work study play communicate and collaborate.
Our ability to help our clients meet their customers' evolving needs and compelling ways becomes paramount.
Through our engage and digital businesses, we're future proofing, our clients see ex strategy technology and operations and in turn and building more strategic long term relationships with our clients are and and customer experience as the service platform is enabling our clients to build customer loyalty by keeping customer.
As intuitive personalized and authentic.
Our longer term strategic initiatives have not changed we are relentless and our pursuit to increase our market share by adding differentiated CX offerings building, new channel partnerships, expanding our delivery footprint growing our embedded client base, adding new brands reliably executing strategic acquisitions.
And continuing to build and develop a best in class leadership team.
This gives us several avenues to deliver of avenues to leverage profitable growth.
And a well capitalized balance sheet to increase shareholder value.
On behalf of our executive team and our board of directors I want to personally. Thank each of our 58000 team members across the globe for their hard work unwavering positivity and passion for client service. We thank all of our shareholders for your continued support and we look forward to updating you on our progress in the months of.
<unk> and Regina will now cover the key financial highlights to the quarter as well as share of stronger growth growth guidance for the full year. Thank you.
Thanks, Ken and good morning, everyone.
We had another exceptional quarter that exceeded our revenue and profit forecast.
Our performance underscores the market differentiation and our tech rich customer experience as a service offering and.
As we capitalize on the growing addressable market with favorable trends.
And the intense need for speed and we are experiencing continued momentum across our business, including our growing revenue backlog and sales pipeline expanding margins and and improve long term growth trajectory.
Turning to our new business signings, we had another strong quarter of $204 million and bookings year to date bookings totaled 373 million up 24% over the prior year period.
And year to date bookings include 42, new clients and 13 distinct bookings that combine the capability and engage and digital with the <unk>.
Total annual contract value of the $79 million.
Year to date digital bookings grew 34% and engaged 22%.
Every region grew with the Americas growing 24% any of 40% and Asia Pac 34%.
The intense vertical focus, including financial services healthcare automotive technology public sector and retail is paying off.
These industry collectively comprise $270 million of our year to date bookings. Additionally of 1 digital hyper growth sector bookings, including some of the most noteworthy clients is up 187% to $81 million year to date.
The strength of our bookings is resulting in the current 2021 revenue backlog of approximately $2.2 billion or <unk> 97 per cent of the midpoint of our updated revenue guidance.
We have a robust $1.5 billion pipeline for the second half supporting continued strong bookings and the third and fourth quarters.
Turning to our second quarter financial results My comments reference revenue on a non-GAAP basis, and EBITDA operating income and earnings per share on a non-GAAP adjusted basis, a full reconciliation of our GAAP and non-GAAP results is included in the tables attached to our earnings.
The press release.
On a consolidated basis and the second quarter of 2021 revenue increased 22, 4% to $554.8 million of which 10, 3% was organic adjusted.
Adjusted EBITDA increased 34, 9% to $95.8 million or 17, 3% of revenue compared to 15, 7% in the prior year.
Operating income increased 38.7.
7% to $78.6 million or 14, 2% of revenue of 170 basis point improvement over the prior year EPS increased 49% to $1.27 compared to 85.
Foreign exchange, primarily from a weaker U S. Dollar had a positive impact of $10.4 million on revenue primarily impacting our engage business FX had a negative $1 million impact on operating income.
Turning now to our second quarter segment results, our digital segment revenue increased 40% to 108 million in the second quarter versus the prior year quarter. The recurring revenue grew 14, 4% and the professional services grew 98%.
Highlights include the growth of our Amazon connect Genesis and Genesis Omni channel platforms, and Microsoft Salesforce live person and peg of practices and our experienced strategy consulting and operating income was $17.1 million of 15, 8% of revenue compared to $16 million or 27% and the prior year.
<unk>.
And the margin was impacted by acquisition related costs investments and sales and marketing and see ex professional talent to fuel continued top line growth.
With $333 million of 2021 revenue backlog and the near 700 million second half sales pipeline were confident and meeting our 2021 and updated revenue guidance.
It's important to note that our 2021guidance has improved despite the negative impact from the change in accounting the can.
Form of Texas Cloud based revenue recognition to Chi tax accounting standard.
This change had a slight impact on our previously forecasted 2020 topline and of negative $8.8 million impact on each of Digital's 2021, EBITDA and operating income.
Comments on 2021, and 2022 estimates fully incorporate this change and accounting, which fully preserves the relevant <unk> cloud revenue, but extends the period over which the revenue will be recognized.
Our engage segment continued to outperform in the second quarter revenue grew 18, 8% to $446.8 million all organic growth compared to $370 not $75.9 million in the prior year operating income grew 51, 3% to 61.5 million per.
<unk> was $40.7 million and the prior year engaged at the operating income margin expanded 300 basis points to 13, 8%.
Highlights include client revenue retention on an LTM basis of 122 percentage points versus the 110% and the prior year.
Year to date revenue growth across all regions with the Americas growing 27% EMEA of 59% and Asia Pac 20 per cent Cigna.
Significant volume increases and our financial services healthcare automotive technology public sector, and retail clients, which collectively grew $195 million or <unk> 35 per cent on a year to date basis continued high growth and are born digital hyper growth sector with a $158 million and revenue to date at 20% growth rate.
And our engaged profit margins, our engage profit margins continue to expand on top line scale increased growth and our higher margin verticals and offerings and continued efficiency and our SG&A and asset utilization with significant positive industry tailwind, our $1.85 billion to.
'twenty, 1 revenue backlog and a second half sales pipeline of approximately $800 million, we're confident and meeting our 2021 updated engage guidance.
I'll now share a handful of other balance sheet and working capital metrics at June 32021, cash was $174.7 million and debt 84, $842.5 million of which $834 million represented borrowings under our recently Upsized credit facility from 900 million.
And 1 billion to the.
The debt increased to $667.8 million from $231.7 million and the prior year, primarily related to the acquisition related investments and capital distributions largely offset by strong cash flow generation.
Second quarter cash flow from operations improved to $63.1 million from $43.1 million of 46, 2% increase over the prior year. The increase is attributable to the improvement of profitability and working capital management DSO improved to 58 days and the second quarter of 2021 down from 71 days and the prior year period.
And relatively flat sequentially.
Capital expenditures were $12 million or 2.2% of revenue for the second quarter 2021, compared to $15.1 million or 3.3% and the prior year the day.
Increase as a percentage of revenue was primarily due to our focus on the improvement and our fixed asset utilization and particular, our facility and technology assets and normalized tax rate was 21, 4% and the second quarter 2021 versus 24, 9% and the prior year. The 350 basis point reduction is.
Merrily due to the jurisdictional mix of our revenue and of our income we anticipate of forward tax rate and the range of 22% to 24%.
And the second quarter, we paid a semi annual dividend and the amount of 43.
Or approximately $20 million, which was paid on April 21, 2021 shareholders record on April 5.2021.
This dividend represents the 26, 5% increase over the semiannual dividend paid in April of 2020.
Turning to our outlook our year to date over performance strong revenue backlog and the underlying momentum and our business fundamentals, which Ken highlighted provides us the visibility and confidence to increase our guidance as follows.
Using the midpoint of our 2021 guidance as outlined in greater detail in our first quarter earnings press release GAAP revenue of 2 to $5.7 billion and increase over the prior year of 15, 8%.
Non-GAAP adjusted EBITDA of $349.8 million and increase of 15% over the prior year and 15, 5% of revenue compared to 15, 6% and the prior year.
Non-GAAP operating income of $283.8 million and increase of 17, 1% over the prior year and 12, 6% of revenue compared to 12, 4% and the prior year non-GAAP earnings per share of $4.43, an increase of 61.
Or 16% over the prior year other relevant guidance metrics include capital expenditures between 2.9% and 3.1% of revenue of full year of text of the tax rate of 22, and 24% and of diluted share count of between $47, 2 and $47.6 million.
Please represent referenced our commentary and the business outlook section to our second quarter 2021 earnings press release to obtain our expectations for the third and fourth quarter of 2021 performance.
Before I close I'd like to provide some directional context on our current view of 2020 twos revenue and EBITDA growth rates Mike.
<unk> assume there were no material changes and the current macroeconomic or pandemic environment.
Based on our 2021 updated revenue forecast of 2 to $5.7 billion and EBITDA forecast of.
$349.8 million at the midpoint of our guidance. We currently expect total company 2022 revenue growth in the range of 9% to 11% and total company 2020, 'twenty, 2 EBITDA growth and the range of 10% to 12%. This includes does.
Little revenue growth between 18% and 22% and the engage revenue growing between 7 and 9%. Additionally, we currently estimate digital 2022, EBITDA to grow between 20, and 22% and engage EBITDA to grow between 8 and 10%. We look forward to finalizing this guidance in conjunction.
And with our year and year end earnings call and closing our business has never been stronger we are executing and innovating with speed and delivering tangible results for our clients our people and our shareholders I will now turn the call back to Paul.
Thanks, Regina as we open the call we ask that you limit your questions to 1 at a time operator, you may open. The line. Thank you. Thank you Sir we will begin to question and answer session. If you would like to ask the question. Please press star 1 on your Touchtone phone over the first question would come from Maggie Nolan of William Blair. Your line is open. Please go ahead.
Thank you.
Good to hear the strong outlook on 2022 can you talk a little bit more about what level of visibility you have into the the year 2022 at this point and what would take you to the high end of the range of guidance that you preliminarily put out there.
Hi, Maggie it's Ken how are you.
Look I think that.
We are very excited by not only the bookings that we've accomplished and the first half of the year, but also by just the pipeline that's in front of us as well as just the.
And.
The conversion rate of our pipeline and the percentage of deals that we're able to convert and then lastly, the compression of the time that it takes to actually close.
Closed the deal all of that all of all of that gives us strong confidence.
With the revenue backlog you know moving forward with the guidance that we've given Regina if you want to add to that feel free to.
Yeah, I think the only other thing I'd add Maggie is.
No.
And I just stress that.
And I think we've honed our ability to estimate our backlog.
And and we certainly continue to grow our pipeline and have.
Healthy conversion range. So I think what Ken said, you know absolutely, but we have a fairly good progress on the backlog and kind of where we are this year.
And our backlog into them.
22 gives us some confidence to actually put those numbers out there.
Thank you know when we think about the high and.
And there are some other things like some of the practice areas and particularly on the Omnichannel era.
Component in digital.
Namely Cisco as we all know right. The company I think it's very important to remember as you look at our growth rates this year.
We did have right.
Completion of the.
And really fine government contract that was near $90 million of revenue last year and that is no longer and our numbers, but yet.
And now talking about of POS 15% growth rate overall for the company.
And our of 30 skilled the albeit with.
Acquisition, you know almost of 33% growth rate and our digital business.
When we look at our digital business, we're seeing just fascinating I would tell you toleration in <unk>.
Microsoft and Genesis and Amazon connect and those platforms alongside <unk> and live person finally coming into their own are allowing us to growth through that government contract. So it's really about now.
Cisco.
We do see some signs, but I would say and the digital business, it's largely about the Cisco practice and.
That.
Coming back to life, and a meaningful way that would get us I think on the digital high I'm, not saying the low but on the digital high and.
And on the on the engage side, we've seen very good progress.
The hearing on the growth rates in EMEA.
And we're starting to focus on Asia Pac and I think that's the other part of the the.
The higher end of.
And gauge is really about those regions continuing to give I will note that.
And you didn't hear me say, it's the continuation of Covid work right, where beyond that we're progressing as expected every quarter that COVID-19 comes down more and more but yet we're showing.
Very strong growth.
Okay. That's great context, Thanks, and then you've seen good performance out of your hyper growth clients as well can you.
The share with us what your expectations are for that group and the medium term and maybe talk about.
Revenue retention and stickiness of client relationships within that group.
Yeah, I mean, we have well in excess of 150 of hyper growth clients right now and we're growing that the.
Sweet of clients at a very rapid rate.
So we are.
We feel highly confident that we're going to continue to keep adding clients.
And that area, but but in addition to that.
The the stickiness is quite good for a multitude of reasons.
1 is they can start out small with our SCR division and they see that they can scale.
The virtually almost unlimited capacity.
With T chek and gauge and to along their journey.
It's obvious that many of these companies need some digital assistance.
And modernizing their platforms, so that they can handle the scale as they go through hyper growth and so that also helps us out quite a bit.
And then lastly.
There.
I think we've demonstrated to these hyper growth companies that we can outperform.
The all of the smaller competitors that just simply don't have our experience of our process.
And our technology. So we feel very good about all of those accounts and.
A high percentage of more of the brands that you hear about on a daily basis on CNBC.
And.
Many of which are growing very rapidly.
Whether it be the hyper growth once of the health care space that you hear about or whether it be the hyper growth ones and the fitness space or the hyper growth ones and the.
And the delivery space.
And as well as just all of the direct to consumer products.
You know from beds, the sheets to underwear to you name it.
We're we're dealing with all of those types of companies. So this is going to be and ongoing.
The significant area for us that we're going to continue to keep.
Expanding on a global basis, and we're excited as I mentioned in my script, we think that many of these are going to become the fortune 500 of tomorrow and.
And there will be the future googles and Facebooks et cetera, just based on there the uniqueness and based on their growth rates that they're experiencing.
Yeah, and the only thing I'd add is you know yet.
Just to remember that we have.
A full group alright.
Alright, with the acquisition of SCR and now T check we have an entire group Nir.
<unk> 3000 people, including a full sales force and leadership that is focused every day on this we do on the <unk> side bring to the table logos as well.
And especially when they get to a certain size you know that I would put in this fall and digital hyper growth category, but.
That group wakes up every morning focused on this sector and if you look at that growth.
In and year to date the.
Bookings grew.
The 84% I talked about the revenue, but also the group of the bookings grew 84%. So I think when you think about that 20% growth rate within our engage sector.
That's not just the 1 time and a little bit of a pullback last year because these are smaller companies, but ultimately that businesses.
Grown more than 20%.
And in prior years of of a smaller base. So we expect it to continue.
Okay, Thanks, Ken and Regina and nice quarter.
Thank you.
Our next question would come from Mike Latimore of Northland Capital markets. Your line is open. Please go ahead.
Alright. Thank you yeah, yeah, great part of their guys.
Just wanted to touch on <unk>, you've owned it for a few months now can you just maybe provide a little bit of and update their on.
The go to market strategies any cross sell opportunities you are seeing just an update on NASDAQ <unk>.
And.
Well, so far it's gone extremely well.
I think 1 of the main reasons is that are there is there is an incredible culture fit.
And I think that that really helps secondly, I think that we're capitalizing off of their genesis and Microsoft expertise and they're capitalizing off of just the overall scale and.
And geographic reach.
And thirdly, a high percentage of our proposals include digital transformation on the engage side and so.
We're just now starting to benefit from reaching out to there.
There are their client base of they.
They have quite a few clients. So it's going to take some time, but that's a good problem to have.
And I'd say.
The other thing that's been very beneficial as we have had for.
I would say almost close to a decade of data sciences practice the.
That has.
<unk> done some very complex work and in combination with their azure.
Cortana.
And I practice of.
That's really added some very significant benefits.
And our ability to.
To.
The scale across the insights aspect of what we're trying to achieve when we're looking at literally billions of of different data points.
For our clients to be able to give them real time information.
The information insights feedback campaign management etcetera, so so far so good obviously.
Obviously early days, but.
But we feel very positive.
The acquisition Regina do would you like to add anything yeah, and I would just say that we spent the fair amount of time and.
The organizational design and execution, so we've executed a whole new organization, where.
We haven't set of practices, where we've integrated the folks as you know.
George now president so that that was the.
Big motion that Ken.
And of settled the teams down and they have there.
Their targets and.
<unk> integrated them into our budget and so all of that.
And you know maybe administrative but critically important.
To set the goals of the expectations of the leadership.
And that by itself is really helping with the cross sell.
And it is happening I mean personally involved and a couple of the spud.
And it's amazing to see.
How that Microsoft business.
And in and around dynamics and other analytics tools.
Really.
The changes the conversation because of the omni channel and 1 thing in terms of the mechanics that it affords us but the applications are so important to <unk>.
Changing the business process and the conversation is changing the other thing that opex does extremely well.
And they don't sell technology based.
And they sell.
Solving problems and closing gaps.
<unk> opportunities.
And the culture is and their language it's in their approach and so that integration has been really important to have.
A number of what I would say thought leaders, who are now getting and rhythm is all over the world with our clients and.
It's really changing the conversation as we change the conversation it draws a broader set of executives.
And when that happens just the speed.
Speed the picks up larger deals happen and so we're really looking forward to exploiting that and if you will.
And.
And given the current mix of digital what percent would you say and recurring revenue and disciplined.
It's 57%.
Okay, Okay, great. Thanks, a lot.
Thank you.
Thank you. Our next question would come from George Sutton of Craig Hallum. Your line is open. Please go ahead.
Thank you Ken I thought you did a great job in your prepared comments talking about the current landscape and sort of the.
The demand for our redesigned for a lot of the <unk>.
Legacy companies out there of legacy customers I'm curious as you're looking at the pipeline is that how it's occurring is that of holistic kind of the change.
That is occurring at that type of a customer or is it still a point solution, where you're broadening out your opportunity overtime.
I think it's both I mean, we have fortune 5 and 10 companies right now that are asking us to work on the complete digital transformation and we have companies and the fortune 50, and 100 that are adding asking us to add and machine learning AI.
Capabilities chat bot capabilities voice bot capabilities.
What we're showing our clients is that incrementalism is not going to ultimately.
And I put them at the top as it relates to <unk>.
Driving a higher net promoter score higher customer satisfaction and better brand loyalty, etc.
And so consequently, what we're finding is is that as we start to interface more and more with chief digital officers, chief marketing officers, Ceos et cetera, they're much more interested and the art of the possible and they're much more interested in what.
The transformation would look like what the impact could be et cetera, and we have so many references of clients, where we've done this for that we're.
We're getting a really high take rate.
We're seeing just on the engage side right now about a third of our deals that we're closing now we're including digital and so look I think the good news about this is if this is this is a this is not of sprint, it's definitely a marathon and.
Clients are going to be going through these major transformations.
Comfortably over the next 5 plus years.
And there's no lack of of opportunity right now in the marketplace.
Got you actually just look up the word instrumentalism and that is indeed the words. So thank you for adding that to my vocabulary and again congrats on a great quarter.
Thanks, so much.
Thank you. Our next question would come from the Jason Kupferberg of Bank of America. Your line is open. Please go ahead.
Hey, guys. This is Kathy on for Jason and Thanks for taking my question I know you guys talked a little bit about increased investments and in the back half of the year with what part of the margins down a little bit of could you just share a little bit more about what type of investments you're looking to make and where is the organic piece of those investments as well just any color there. Thanks.
We're making investments in multiple areas..1 is we're increasing our senior leadership team just because we see substantial growth opportunities.
Head.
And so therefore, we're investing ahead of the.
Kind of of the curve.
Secondly, we're increasing our spend and sales increasing our spend and marketing.
Increasing our of our our investments and research and development and product.
The management Regina would you like to add anything else of that.
No I just wanted to make sure that you understand when we talk about those investments they are all organic and theyre not inorganic right, we're not including I mean.
The only thing we are I would add to it is we will be integrating right we want ex.
The diet the integration of <unk> and we have work to do on that so there is some investment there, but other than that and we say investments in R&D and sales and marketing it's all organic.
Okay Awesome and also saw that you guys know how of the top client that's greater than 10% of of your revenue can you just remind us of that client and is how fast they are growing or is some of that just because you guys have closed and good outlook.
Well first of all of what I'd like to.
We won't give you the name Yeah, we don't provide the name of of clients.
Or just in general it's our clients ask us not to otherwise we would be happy to disclose it but what I would say to you is the following we've been and this business now for almost 40 years and we consistently have a horse race of clients. The temporarily hit the 10 per cent Mark and then as we.
Grow they dropped down below the 10% Mark Theres nothing unusual about that.
And it's not like of client is 20% or anything like that but it's not uncommon for a client to go up to 10 or 11, or even 12% and then a quarter or 2 quarters later it would be at 9%.
Et cetera, as we continue to to to grow through them.
Okay got it that's very helpful. Thank you.
The U.
Thank you next question would come from Joseph <unk> of Canaccord. Your line is open. Please go ahead.
Hey, guys. Good morning, good results.
Was curious if you've looked at.
The new logo wins this quarter versus a year ago, let's say and what is the needs and.
Most of them requirements of the change.
No wonder what's the plan.
And of all of these customers versus the Euro till then all.
No Paul.
Well I would say that.
Starting from what I was saying and the script is that many of the clients now because of the pandemic.
Are in need of technology to help them Virtualized.
Secondly, many of the clients of shifted their plans.
From bricks and mortar in general.
And are looking to have more of a direct to consumer relationship.
And so consequently are asking for help and that area as well.
As the market directly to consumers versus just directly the <unk>.
As a through of distribution point or a retailer etcetera.
I would say there because of the pandemic.
There has been.
Somewhat of some geo shifting.
Of clients that are.
Opting for more.
The sense of security at least on a temporary basis.
Meaning debt.
And they realize that doing at home work and some of the emerging markets is a bit more complicated than it is and a place like North America.
Where.
<unk> conditions households quality of the Internet is dramatically different.
So I think those of the types of things that we're seeing.
And then I would just simply say that day.
Data is becoming a very.
Significant.
Priority of clients and our ability to show them real time data of what's taking place by building data lakes and data platforms that have AI and ml and we're seeing a lot of requests and those in that area right now we're building a ton of them as we speak.
Regina what am I missing, yeah, I think I'll come out of the slightly different angle right.
I think there's another category, where we have built brand and certain areas. So for example, if I look at the list and I kind of look at the names and I categorize and vertically right.
We've made a name and credit unions, we've made a name in Fintech.
We've made a name in the states and especially the states that work together in terms of digitizing and stuff that we did during Covid and then I would say and health care, we're making a name on the care side now and.
And you know that can be planned healthcare payers, who are getting more deep into the care side and wellness, but you know it's more of the same in the sense of that we're now proven and.
And we're proliferating those sectors within an industry and going it's also I would say when that's happening our marketing plan. Our digital marketing platform is so refined at this point that when we make decisions to go deep within an industry and of particular.
Sector.
We're all over it and it's showing its success and that way, it's all of it more of the same.
Things that we're doing and that we talked about but we are proliferating of broader within the industry.
That's great. Thanks, and then just 1 quick follow up on what sounded like there was some nice cross sell wins and the quarter between.
CX and digital.
The comment on tons. Thanks, a lot.
Yeah, you know.
The tickets you know I would say 6 or 7 a quarter at this point that.
Our major transformations are like Ken said right. These are you know.
The pointed areas where clients.
The need help and there are multiple.
You know what.
What I would say cross sell is now very much within the segment and across the segment.
All of those ones that I talked about were across segments, but it's also really good to see the especially on the digital side just the level of cross sell of.
Of the various practice areas that we have and.
And.
And what kind of at a clip now that we've got 6 or 7 a quarter.
And hopefully grow from there.
Thank you. Our next question would come from James Faucette Morgan Stanley You may begin.
Thank you very much I have a couple of questions and they're kind of related we've heard from other companies.
About issues related to.
Hiring and increased churn of the employees et cetera, you seem to be managing through that pretty well, but just wondering overall and what that looks like and if that's having an impact on on your wages right now and how well youre able to it and can you talk a little bit of how youre, well youre able to pass through pricing and it seems like at least.
And your preliminary margin guidance, even for next year you're expecting.
Margins to expand a little bit so it sounds like youre of being able to the pass through any wage inflation and may be saying, but I just wanted to get a little color there and see.
For you to share with us what Youre seeing.
Yes sure Great question. So first of all of its no secret that we have never been viewed as you know.
The second tier or third tier provider, we've always been viewed as kind of the top provider that you go to that not only has the most innovation to offer.
But historically.
And historically hires the higher end of of the frontline on the engage side and consequently to do that we tend to pay more than all of our competitors and have historically done. So I think it's safe to say that we saw.
Saw labor cost, increasing almost 2 and a half years ago and got well ahead of it and if you go back to our older Conference calls we've talked about.
You know very significant price increases when we saw labor going up it took us about a year at the time to readjust all of our pricing and get all of our clients to a price point, where we needed them to be so that we could ultimately pay the labor and what we felt they needed and.
And then with the onset of the pandemic and the onset of the labor shortage, we have been highly communicative with our client base and telling them. What we see is going on with the future of where labor is in America, and the speed at which and North America and and some other markets.
Labor costs are going up and what I would say is for the most part and when I say for the most part I mean of solid.
75% to 85% of our client base and they see it they agree with it they are experiencing experiencing it themselves and they're agreeing to.
Immediate wage increases so that they don't experience a high turnover.
And and up and.
And up with labor shortages, so we feel pretty good about it.
You know not every client is exactly where we want them to be but.
I don't think anyone and any business would ever say that they are when they are and the service business, but but clearly more than the majority are and that's why we're able to maintain the guidance that the that we have.
We are but we feel very good about.
Where we are hiring the ability our fill rates are.
Et cetera, and we I can't stress this enough and this is not meant to sound like a political announcement or pay you know whatever but.
The the we go in upfront and our proposals telling people what we have to pay these people to maintain a proper level of of retention and.
And the.
We are very focused on working only with clients, who are customer obsessed and the ones that arent customer obsessed and that look at this as an expense center. We let those clients go to war competitors as the that we view that business is business that is.
Dot and the sweet spot of what we practice and frankly, it's dilutive to our margin.
The.
That's great sorry, Regina I cut you off go ahead, yeah, I just wanted to.
I had a couple of things 1 is you know scale always each of point on Halloween and why are we comfortable ex.
And a company the EBITDA growth faster next year than the revenue and it is scale is that we do expect debt as we lay in and the second half of this year.
The more investment in and leadership and R&D.
And sales and marketing of these are and investments that take years to return. So we expect the kind of normalize those investments as a percentage of revenue.
Also it's important to note when you think about our first half second half and.
<unk>.
The increase in the EBITDA and how that lays out you have to keep in mind that.
And we booked almost $600 million and the last 3 quarters, I think it's exactly $562 million or something like that.
Q1, Q4 of last year, Q1 and Q2.
And if you think about that on a rolling basis, that's of significant uptick and.
That means that they're across the company and both of these businesses.
A percentage of revenue in ramp that is much higher.
And then we had previously because of those bookings numbers that will normalize right. So you know as the companies gotten from 100 million of quarter of bookings to 125 and so on now.
And we're at.
200 <unk>.
The second quarter.
These are long cycle sales, but they are long cycle ramp some of them.
Our non recurring faster, but our recurring business and so that has.
And impression if you will on the EBITDA and operating income and we expect then and now that we adjusted to that level of <unk>.
And ramp as a percentage of revenue will be able to normalize back to what we feel are.
17% EBITDA rate in in the in the digital business near term and plus 16% in and the engage.
Got it got it and then just quickly.
Obviously, historically acquisitions have been a key part of the value creation and T. Tac just making sure when you talk about 'twenty 2 revenue growth. That's at this point, all organic and I guess.
Really what I'm looking for is any color or commentary on kind of the potential for acquisitions and what that landscape looks like right now yeah.
And I would say, it's all organic with maybe very small amtech systems of fine job in the practice areas of Genesis and.
And Microsoft CRM of picking up very small $789 million. So there may be 1 of those.
And that's in the mix with that but yes generally it's organic.
<unk>.
And then Mark Ken do you want and talk a little bit about M&A.
And what I would say to you is that we are committed to our shareholders to continue to do M&A.
And we have a solid pipeline of.
Of the deals where it's no secret that were rather conservative.
And trying to find deals that are you know that are highly accretive and what I would say is stay tuned.
Great. Thank you very much everybody.
Thanks, so much thank you.
Our next question would come from Bryan Bergin of Cowen. Your line is open. Please go ahead.
Yeah.
Hi, good morning, Thank you.
I wanted to dig and a little bit of on digital segment growth performance and the quarter can you talk about how some of the various components debt, including that organic cloud services ex the government contract impact and I think capex was around 55 million of revenue.
So I think that would be barely better than and expectations on a run rate and I'm curious if that becomes new normal or if some of the accounting changes you mentioned regina caused that to be a bit more lumpy going forward.
Yeah. So.
You know I would say our recurring revenue is up just under 15%.
And our non recurring is up 98%.
Those include that government contract.
Theyre, obviously up a lot more and.
Inside that.
The digital business.
You know the Amazon connect platform is up 75% year over year.
If you look at <unk> on a standalone basis of what I'm, saying is if you look at the Genesis and the Microsoft practices.
We don't have them and our year, but that's up 17, 17%.
So.
You know what if you.
Let me stop there and see kind of where you want to go if you look at the recurring revenue without the <unk>. Let me just give you that data point and we're up 104%.
And so.
We continue to carry.
What is about a 31%.
The negative growth based on the government contract remember that was like 90 million on a business that was 307 million.
And so there's about a 31%.
Decline, but you know as you as we.
As we add these other businesses and <expletive> there certainly.
Helping us earn through that.
Okay, but on aspects of <unk>.
Solid Q4 of them here does that is this the right type of run rate or is there any change I just want to clarify and that of Cowen and here's what I would say right I think it's the right kind of run rate.
We have.
And not to go into too much detail, but we have 2 issues right as we bring them onto our books, we have to conform to our accounting.
And <unk> had of deferred revenue on its balance sheet right that we had to work through how much of a haircut that deferred revenue would get as we bring and onto our books. This is not uncommon right and sevens and in.
All companies, especially those that have the deferred revenue. The second is that in their cloud business right. They took.
The more significant amount of upfront.
And ran a lesson out over time.
And we're conforming them to our contract and we're performing them to our standard of accounting and therefore, you have a bit of of down against the guidance. I. Previously gave you. So it's off the guidance previously at the midpoint was about 393, it's now just under 400 its $400 million. So.
It is up and it is up the site.
And some headwinds from finalizing the purchase accounting and the forward accounting is very important that you understand that other than the deferred revenue haircut, which is natural and when these types of acquisitions are done.
The cloud part is really just the go forward and the backlog and it will be earned on a forward basis, it's going to be earns slower. So it's a 1 time correction.
And our numbers now and I would say that it is neutering of little bit that growth rate.
With a couple of quarters.
Don.
And our view and that's why you see the guidance for next year right the guidance, but at least and indication is 18% to 22%.
Okay, Yes. It makes sense very helpful. Thank you for the color and then just a follow up here on the increased sales and marketing investments are those being directed or concentrated in certain regions more than others. I'm curious of your pressing more aggressively on Europe and APAC, yes. So.
And in 1 respect, yes, regionally and I would say that we are very quickly and tax was not.
The focus outside of the U S too much.
But we are standing up Genesis practices, and Microsoft practices as we speak.
And so that's putting teams in place ahead of the revenue.
Clearly developing pipeline there already so.
So I would say there is a.
The more significant focus in EMEA.
But all of it also say that in North America, we will make sure that in Q3 and Q4, we're standing up the sales organization to execute.
Uh huh.
Getting to a reliable and predictable.
First step Ken would say more but.
The staff will get us to of reliable and predictable kind of $200 million per quarter and bookings right.
And to do that we're going to need to increase sales and marketing and increase.
John.
The.
Yes, Sir.
Inside sales and and.
And and feet on the streets and the other thing I'll say is we're building within the engage business the platform.
The I would say is you know kind of a mature offer management and so we've added of transformation office there and.
A fairly significant piece of that is making sure that we modernized our existing offers constantly refresh them and.
And be able to be expanding into other areas. Now this could include nuanced per vertical.
This could include tech rich platforms within the engaged but we're also building that now again you hear the guidance.
And you hear the guidance of this year and you hear the estimates for next year. This is not a runaway investment we continue to be of the mentality that we need to.
Put the put the investment and the business to make sure that we can continue to grow above that double digit.
Organically and to do that we think the way.
Need to put and mature some pillars and the in the business and that's what we're doing but these are not going to all of a sudden drop our margins 3 or 400 basis points.
We're making sure that we balance.
The profitability with.
Making sure we can grow the top line.
Understood. Thank you.
Thank you our last question comes from Josh Vogel of Sidoti. Your line is open. Please go ahead.
Thank you and good morning, Ken Gina you covered a lot of thank you I just had an accident and extension of an earlier question around employee attrition and retention and I know you have extensive training protocols in place but.
Outside of the offering higher wages and given the complexity and breadth of your offerings and curious if this narrows the pool of qualified candidate and so you had traditionally gone after and as the skill sets needed expands and also.
Which geographies are you seeing the richest pool, but also of the toughest time and finding available talent. Thank you.
Yeah.
Hi, I don't for US I don't we're not I don't think we are feeling per say challenged and that way and.
I think.
Part of that is due to the fact that.
We're hiring at home and.
I don't need to tell you you've read the 100 or so articles 1 that comes out every single day about employees are demanding flexibility employees want at minimum of Highbred employees. Most of the many employees work at home and we're 1 of the largest work at home employers and the United States and in cash.
Canada. So consequently, the pool is of minutes when you think about mothers, who or new mothers, who have decided to potentially you know.
Take a break from from work and then a.
Realizing that they can earn and income by working at home a high percentage of these people are very high percentage of these people are college educated and in many cases, they're actually overqualified and so we're just not experiencing the same thing that you're hearing about in the restaurants and hospitality and physical location.
And where.
The people would rather either draw of unemployment or whether they are concerned about their health and safety because they are in the general public that might be.
The the poses the risk of of.
Of Covid, so I'm not going to suggest that there aren't certain markets that from time of the that arent potentially challenging, but what I would say to you is is that for the most part we're hitting all of our fill rates.
And we.
We are we think that that's going to continue on.
And even if the labor market were to get tighter that said I actually don't think the labor market is going to get tighter I think the labor market with the unemployment.
Money to everybody.
And coming to it and.
I think youre going to start to see the.
People are going to realize that they're going to have to get back to work and I actually think that that's going to open up a significant a lot of significantly larger pool, but we're very satisfied with the the quality and the talent of the people that we're hiring across the globe right now.
Understood I appreciate all of that color. Thank you. Thank.
Thank you.
Thank you for your questions that is all the time, we have today I will now turn the call back to Paul Miller.
Yes, we just wanted to thank everyone for your participation. This concludes our call. Thank you.
<unk>.
Thank you. This concludes the <unk> second quarter 2021 earnings Conference call. You may disconnect at this time.
Yeah.
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