Q3 2021 TTEC Holdings Inc Earnings Call

November 10, 2021

Yeah.

Yes.

Okay.

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Thank you for standing by the conference will begin momentarily until such time, you will hear music. Thank you and please continue to hold.

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We can hear you Ken.

Right.

Welcome to <unk> third 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'd now like to turn the call over to Paul Miller, <unk> Senior Vice President Treasurer, and Investor Relations Officer. Thank you Sir you may begin.

Good morning, and thank you for joining us today <unk> is hosting this call to discuss its third quarter earnings results for the period ended September 32021 participating in today's call are Ken Tuchman, Our chairman and Chief Executive Officer, and Regina Paolillo, Our global Chief operating Officer yesterday, <unk> issued a press release announcing its financial results.

Before we begin I want to remind you that matters discussed in today's call may include forward looking statements related to our operating performance financial goals and business outlook.

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 recently filed Form 10-Q, and our 2020 annual report on Form 10-K, a replay of this conference.

This call will be available on our website under the Investor Relations section I will now turn the call over to Ken.

Thanks, Paul and good morning to everyone. Our performance. This quarter was the salt was solid once again as demand for end to end CX technology and service platform continues to grow.

Revenue over the prior year quarter increased 15% to $566 million and bookings for the quarter were $171 million, including 19, new clients. Our current pipeline is comprised of a healthy mix of our CX technology and service offerings with both new and existing.

Listing clients.

Our booking volumes backlog, an existing pipeline are setting us up for a continued long term growth.

Our client base is well diversified across verticals and geographies with accelerated demand in the digital hyper growth segment.

We now serve 100 clients in this category with an annualized revenue run rate of $400 million and a 38% growth rate in the third quarter versus the same period last year.

These wildly successful hyper growth companies spanned connected in home fitness food delivery E Commerce E gaming online travel health Tech Fintech streaming media and more.

These digital natives are thriving based on their commitment to deliver amazing personalized and effortless customer experiences.

As they scale and evolve there depending on our CX technology and operational leadership to ensure that their experiences continue to set them apart.

Whether they are born digital unicorn or blue chip industry giant companies are recognizing that and the experienced economy customer obsession is the key to their success.

They acknowledge that to acquire retain and grow customers in this competitive marketplace. They must rapidly modernized their CX capabilities.

When they move to implementation a massive challenge awaits helping clients solve these complex CX problems is our singular focus.

The roadblocks or numerous complicated and costly to navigate many brands lack of clear CX transformation roadmap. They suffer from an antiquated legacy mindset and operate rigid processes that detract from the customer experience.

They have disconnected data because they are unable to harness the full value of their CRM platforms. In addition, the disjointed mix of point solution technology vendors makes it impossible to deliver fully seamless and connected customer journey.

As a trusted and end CX technology technology partner.

We solved for these transformational outcomes at scale.

Our comprehensive end to end CX technology services platform was built to solve these tough challenges for our clients across the globe ever.

Everyday clients are utilizing our proprietary technology to help them orchestrate disparate systems simplify complex processes and enable seamless journeys that our fluid effortless and engaging for their customers.

Now, let me share some examples of how we're helping clients achieve meaningful outcomes as they improve their customer experience I'll start with <unk> digital.

Yes.

Okay.

We have been deliberate.

We've been deliberate and aggressive in building, a holistic digital platform with breadth and scale and flexibility.

Working alongside our valued clients, we have developed our own IP to deliver breakthrough results and earned stellar credentials through our extensive delivery of value driven outcomes for our clients.

Others May say, they have digital CX technology capabilities, but none can match our track record with successful CX transformations, managing hundreds of thousands of SaaS licenses right now one of the largest cloud contact center providers in the world, we bring unique domain expertise and deep operate.

Knowledge to every phase of digital transformation from design to deployment and ongoing operations.

Our multi disciplinary digital team is comprised of CX designers full stack engineers technologists and data scientist, who design build and manage CX technology to deepen customer loyalty, while increasing revenue profitability and wallet share for our clients, we take a vertical focus.

Customer centric approach to transforming our clients' CX environments by combining thoughtful planning that's fit technology and our proprietary IP to deliver modern technology solutions from the ground up.

For example, in our automotive vertical we're helping several of the largest global automotive brands reinvent their automotive customer lifecycle <unk>.

Advances in connected cars self aware vehicles always on sensors and new business models are moving so quickly that our clients are alert are leaning on us for our CX in automotive domain expertise to future proof their customer experience.

<unk> CX architects and engineers are building transformation are building transformation plans that include the technology processes and people requirements to enable insight driven interactions that will dramatically improve the customer experience and increase frontline employee productivity. These agile solutions are built around the vision of <unk>.

With customer journey that touches every aspect of the dealer experience and the supply chain.

In the healthcare space, we're driving initiatives to deliver a better patient experience for providers and improving operating efficiencies for payers.

For a national health care provider, we developed a mobile behavioral health assessment that reduced bad admittance by over 40%.

In another health care example, for a large payer we recently architected, a data and AI capability to ingest internal and external data feeds to gain insight into population health management. This information will enable our clients to improve chronic disease treatment and create targeted proactive prevention campaigns.

Are impacting this vertical continues to grow as patient experience becomes increasingly digital.

With our aspirations of growing our digital business to $1 billion.

We continue to make significant investments in our differentiated platform.

This quarter, we brought on several strategic leadership hires to further advance our go to market, we're expanding our product portfolio with new capabilities and we continue to invest in strengthening our relationships with our CX technology partners.

Our focus on bringing T Tech IP to market is another example of how we're differentiating our offerings and increasing our market share based on our deep expertise working with industry, leading CX technology partners. We've developed turnkey cloud solutions that enable systems to seamlessly work together with <unk>.

The pain of lengthy and costly integrations.

Available through direct and indirect technology marketplace channels. These apps enable rapid deployment and integration of workforce management agent productivity and analytic solutions.

This month we.

We added a new suite of CX applications to our IP portfolio with the launch of our proprietary smart apps cloud designed initially for our financial service clients focused focused on eliminating CX pain points for customers and employees our solution streamlines customer identification processes.

With safe and secure protocols, while reducing the administrative burden of frontline subject matter experts. These proprietary apps are doing a vital need in the marketplace and are providing us with exciting new platform for growth.

Now, let me turn to our digitally enabled engage segment, where we continue to drive vertical differentiation to help our clients go to market faster and stay ahead of industry trends and outperform their competition.

Like are approaching did in our digital business unit, we're building and delivering industry specific solutions with a combination of our own purpose built technology and specially trained subject matter expert.

For example for a global online vacation marketplace. We're building an operating an AI enabled trust and safety governance Center of excellence, where our fraud investigators are using our own advanced data modeling.

To detect and eliminate online fraud.

For our fast growing Fintech Unicorn, we created our own AI based training platform to accelerate speed to proficiency for our financial service advisors.

For our next Gen digital health insurer, we created a membership growth engine by arming our health care advocates with proprietary sentiment analysis models and intent mapping to inform next best actions and accelerate sales.

And for a crypto currency trading platform.

We're using natural language processing and our own predictive analytics to help our Fintech advisors proactively manage highly complex interactions.

We continue to expand and optimize our global delivery footprint by providing clients the mix of onshore near shore and offshore and work from home options.

Our expansion strategy includes a diverse set of delivery models locations and languages I am pleased to announce that we're now open for business in Colombia, and we will continue to expand our global delivery footprint in the months ahead.

Now I'd like to take a moment to provide a brief update on the September.

2021 cyber incident.

Unfortunately, it is no surprise that companies and governments across the globe are operating in a heightened threat environment with cyber incidents occurring daily.

Since we began our business nearly four decades ago security has been at the forefront of everything we do our operations have been rock solid and we have been diligent in securing and protecting our environment for our clients their customers and our people.

The cyber incident occurred on September <unk>, and we moved quickly and decisively to identify contain and resolve the event our ability to respond rapidly is a testament to the resiliency of our organization and the enduring Trust, we've earned with our loyal client base.

We view this as an isolated incident that had a temporary impact on a portion of our operations in a short period, we were fully operational and do not expect any future impact on the business or our financial performance Regina will provide additional details.

And now to wrap up.

Across the globe, we're helping our clients radically re imagine how to build authentic lapsing and profitable customer relationships.

In a digital landscape that is constantly changing we're building automation AI and omnichannel capabilities into everything we do these technologies are either natively built in our engage business or they're being leveraged from the offerings engineered in our digital business.

To our to our clients it doesn't matter, where they come from they simply want one trusted partner to manage and optimize all elements. So that they can move quickly reliably and with confidence.

Our ability to offer clients a full spectrum of digital capabilities combined with decades of operational frontline CX experience distinctively positions us in a category all of our own.

As we embark on the next decade of growth our longer term strategic initiatives have not changed we are relentless in our pursuit to increase our market share by adding differentiated CX offerings building, new channel partnerships, expanding our delivery footprint growing our client base and executing.

<unk> and accretive acquisitions.

Our strategy gives us several attractive avenues to leverage profitable growth to increase shareholder value, including strong cash flow, a well capitalized balance sheet and ongoing dividends.

Our continued progress would not be possible without the 60000, plus incredible employees across the growth flow.

Through our ESG initiatives, we continue to make progress on commitments to build a future that is diverse inclusive equitable and sustainable.

As the CX company. These efforts are hard wired into the core and a meaningful part of our culture of our of Karen.

We strive to be the employer partner and investment of choice by consciously making decisions that benefit our people clients shareholders and communities, where we operate it's a true honor that earlier this year Forbes magazine named <unk>, one of the best large employers of 2021.

And just last week Forbes named US one of the top 25 female friendly companies in the world.

Finally.

I have some exciting news that I want to share yesterday, we announced that Regina paolillo as <unk> Global Chief operating officer.

A newly created role and dusted Dustin simak to succeed Regina as <unk> Chief Financial Officer.

With <unk> digital and <unk> engage we've created a winning CX technology and services platform that is prepared to take us to a dynamic new level of performance to unlock its full potential we've been deliberate in developing an experienced and tenured executive bench with Regina and Dustin in their new roles were.

Fortifying our leadership team to enable me to fully focused on the key drivers of client and shareholder value creation.

These include strategy development growth technology innovation and execution of strategic and accretive M&A.

Gina's diverse and tenured experience as our chief financial and administrative officer for the past decade at T Tech combined with the strategic financial and operational roles to be held at trade Zito General Lentic partners, Genpact and Gartner positioned well to execute this newly created global Chief operating officer.

Her role.

Dustin was recruited to <unk> in 2020 with the intent to become our CFO over the past 12 months. He has demonstrated strength and building and executing our finance functions to drive revenue growth expand margins and increase cash flow alongside his <unk> experience.

<unk> has had a relevant and noteworthy career in the technology services and business process outsourcing industries, including Rackspace technologies, Dfc CSC and IBM.

Before I close I want to thank our global <unk> team for their continued and loyal commitment to serving our clients and thank our shareholders for your continued support I'll now hand, it off to Regina.

Thanks, Ken and good morning, everyone.

One of the first three emphasize kent's comments regarding the overall fundamental strength of the business.

Our diverse and integrated offering portfolio go to market execution delivery platform and global footprint have never been more relevant.

Strategy is resonating in the market and it shows in our year to date bookings expanding revenue backlog and increasing sales pipeline.

Turning to our new business signings, we had 171 million in bookings in the third quarter of 2021, I'll share a handful of highlights.

The bookings growth, excluding pandemic related work was 47% with digital growing 57% and engage increasing by 42%.

We signed 10 multi segment deals totaling $55 million or $5 5 million for deal well above our overall average deal size we.

Acquired 19, new client relationships the recurring revenue bookings increased 250 basis points to 57, 6% of total bookings in the quarter.

From a vertical perspective, we had significant bookings in healthcare financial services technology auto.

And telecom media.

With our third quarter year to date bookings of $545 million.

And were 112% LTM revenue retention.

A 98, 8% in year revenue backlog coverage in the next six months pipeline of over $1 4 billion.

We're confident in executing our full year 2021 guidance and delivering on our previously articulated 2022 revenue growth rates.

Before jumping into our third quarter and year to date financial performance I'll take a few minutes to address the September cyber security incident.

It's important to note that the incident only affected the engage segment and only a portion of the engage clients.

From the beginning our top priority was to safeguard our clients people partners and shareholders by ensuring that we execute a swift return to service and minimize any data exposure.

Our risk management incident response, and business continuity protocols or immediately activated the teams worked tirelessly to restore the systems that were affected by the third day, we at 95% of our client services operators and within five days of 100%.

Yes.

The incident had a relatively modest one time impact on the engage third quarter results revenue was negatively impacted by approximately $15 2 million.

And adjusted EBITDA and operating income were negatively impacted by approximately $24 million, including the profit on the lost revenue and expenses related to system restoration and remediation. The investigation, we completed and compliance activities, we expect to recuperate the lion's share of the law.

Loss profits and incident expense through our various insurance programs over the upcoming quarters.

I am pleased to share with you that beyond this five day period post the incident, we have not experienced nor do we expect to experience any further client impact from this event.

Want to personally acknowledge our employees clients and partners for their understanding.

Just patience dedication and support as we navigate through this type of event.

Turning to our third quarter financial results on a consolidated basis in the third quarter of 2021 revenue increased 15% to $566 7 million.

Taking into consideration the $15 2 million of revenue loss from the cyber security attack the revenue growth would have been 18%.

Hitting the high end of our guidance further adjusting for the large short term government contract in the 2020 results revenue increased 23, 5%.

The organic revenue growth was four 3% and adjusted for the government contract and one time.

$1 2 million engage revenue loss from the cyber security incident.

Organic revenue growth rate.

Would have been 12, 3%.

Adjusted EBITDA increased 2% to $78 7 million or 13, 9% of revenue compared to 15.7% in the prior year exceeding the high end of our guidance.

Non-GAAP operating income decreased five 9% to $59 4 million or 10, 5% of revenue versus 12.

8% in the prior year period exceeding the high end of our guidance.

The decline in our adjusted EBITDA and non-GAAP operating income was driven by ramps and engage the deferred revenue purchase accounting adjustment and digital associated with the <unk> acquisition loss profit on the one time revenue loss from the cyber security incident.

And a step up in investment in R&D sales marketing NGL expansion all of which were planned.

Non-GAAP EPS was $1, one relatively unchanged over the prior year and well above the high end of our guidance predominantly due to our operating income performance.

A lower tax rate.

Foreign exchange had that had a positive impact of $3 1 million on revenue.

And $1 $3 million on operating income.

Merrily impacting our engage business.

Turning now to our third quarter segment results.

Our digital segment revenue increased 62, 1% to $124 1 million in the third quarter compared to the prior year period in line with the high end of our guidance the recurring revenue from our subscription based CX cloud and managed services grew 18, 6% and our highly reoccurring professional services.

<unk> primarily systems integration was 84, 2%, we are particularly pleased with the growth in our Genesis and Amazon connect Omnichannel platforms, our Microsoft Salesforce practices.

Digital IP offerings.

Client product purchases from our tier one omnichannel technology partners.

Were also higher than usual in the quarter, primarily from a large existing healthcare clients investments in its CX delivery platform, which we are in the process of implementing.

Non-GAAP operating income was $15 6 million or 12, 5% of revenue compared to $15 4 million or 21% in the prior year period in line with our guidance. The margin was primarily impacted by a combination of the <unk> deferred revenue purchase accounting adjustment and the quarter's offering mix, which had a higher.

Than usual amount of lower margin product sales, excluding the deferred revenue adjustment the operating income margin will be approximately 14%.

With approximately $377 million of 2021 revenue backlog, representing 90 93, 6% of our revenue guidance. We are highly confident in meeting our 2021 digital revenue guidance.

Our engage segment reported third quarter revenue of $442 6 million, an increase of six 3% over the prior year period.

All organic.

Adding back the estimated loss of the revenue from the cyber event revenue growth would have been approximately 10% year over year exceeding the high end of our guidance.

Our engage segments organic growth highlights include new and expanded lines of business in our embedded base significant growth in our healthcare travel auto and technology verticals.

Growth contributions from all regions, with Canada, and EMEA growing 146%, 43% respectively.

Hyper growth born digital sector, growing 38% and an LTM revenue retention rate of 118, 9% versus 105, 6% previously.

Our engage segment non-GAAP operating income declined to eight 2% to $43 8 million compared to $47 7 million in the prior year period and significantly over performed our guidance. The margin was nine 9% in the third quarter of 2021 compared to 11, 5% in the prior year period.

The margin decline is primarily related to the higher margin COVID-19 programs in the prior year period now being replaced with longer term programs. The higher Covid margins were a function of the intense supply chain challenges and reduce time to ramp enabling us to premium price as we continue to scale improve our offshore.

Mix maximize our delivery and increase the percentage of revenue derived from higher margin offerings, we expect to restore engage non-GAAP operating margin in the range of 12% to 13%.

I'll now share select balance sheet and working capital metrics.

Third quarter cash flow from operations decreased to $42 2 million from $81 5 billion.

The decline is primarily due to changes in working capital related to the timing of payroll funding and insurance proceeds DSO improved to 57 days in the third quarter of 2021 down from 63 days in the prior year period, and 58 days sequentially.

At September 32021, cash was $148 9 million and that was $811 8 million of which $805 million represented borrowings under our credit facility.

Net debt increased to $662 9 million from $203 million in the prior year, primarily related to acquisition related investments and capital distributions partially offset.

By cash flow generation.

Capital expenditures were $17 2 million or 3% of revenue for the third quarter 2021, compared to $15 9 million or three 2% in the prior year. The decrease as a percentage of revenue is primarily due to our continued focus on the improvement in our fixed asset utilization in particular our facility in technology.

Assets, our normalized tax rate was 19, 6% this quarter.

2021 versus 26% in the prior year.

The 100 basis point reduction is primarily due to the jurisdictional mix of our income we anticipate a for a tax rate of approximately 22%.

In the third quarter, we paid a semiannual dividend in the amount of 47.

Were $22 1 million.

Which was paid on October 22021 to shareholders of record on October eight.

This dividend represents a 17, 5% increase over the semiannual dividend paid in October of 2020.

Before I transition to our guidance I want to emphasize that we remain highly encouraged on our near and longer term prospects and an intense and in patient customer experience market. We are winning by leading with our differentiated outcome based end to end customer experience as a service solutions.

It shows in our bookings revenue growth revenue backlog and pipeline importantly, we are making and will continue to make the investments necessary to execute on our strategy, including advancing our topline growth rate and scaling our operating platforms.

Taking into account the third quarter impact of the cyber security incident, which is offset by the underlying strength in our business. We estimate full year results in line with the guidance range. We previously provided.

Accordingly, we estimate GAAP revenue of 2.2 hundred $2.255 billion, an increase over the prior year of 15, 7% adjusted EBITDA of $352 4 million, an increase of 15, 9% over the prior year and 15, 6% of revenue compared to <unk>.

56% in the prior year non.

Non-GAAP income from operations of $285 2 million, an increase of 17, 7% over the prior year and 12, 6% of revenue compared to 12, 4% in the prior year.

Non-GAAP earnings per share of $4 57, and.

An increase of 75 or.

Or 19, 7% over the prior year other.

Other relevant guidance metrics include capital expenditures of approximately two 9% of revenue our full year effective tax rate of approximately 22% and a diluted share count of approximately $47 4 million.

Please also reference our commentary on the business outlook section of our third quarter 2021 earnings press release.

Before I close I want to reiterate our directional 2022 revenue and EBITDA growth take.

<unk>, which I first shared last quarter. We currently expect <unk> full 2022 revenue growth in the 9% to 11% range in 2022 EBITDA growth in the 10% to 12% range. This includes digital revenue growing between 18% and 22% and the engage revenue growing between 79%.

Additionally, we currently estimate Digital's 2022, EBITDA to grow between 20, and 22% and engage EBITDA to grow between eight and 10%. We look forward to finalizing this guidance in conjunction with our year end earnings call I'll now turn the call back to Paul.

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.

Thank you.

We will now begin the question and answer session. If you would like to ask a question. Please press Star then one Lisa mute your phone and record your name clearly you and prompted your name is required to introduce your question to cancel your request press Star and then.

One moment. Please for the first question. Our first question is from the line of Maggie Nolan of William Blair. Your line is now open.

Hi, Thank you.

Good good growth excluding that.

Cyber incident.

I did have a question about kind of where the incident impacted.

Did it impact any of your top five clients or can you talk about the dynamics within that bucket and then just general comments on the health and growth prospects within those top clients.

Hi, Maggie it's Ken how are you.

I would say to you is is that.

It had.

Clients had different impacted it really only impacted a relatively small group of clients.

And the <unk>.

Most of the impact really had more to do with us not with our systems not operating it actually had more to do with just simply us being cautious and them being cautious while we gave them an all clear.

What I would say to you is im not im clearly not going to disclose names or companies et cetera, but we feel like we're in very good shape right now and our clients were extremely appreciative of the speed at which we responded.

How are you.

How well we were able to maintain stable systems pretty much throughout the entire event.

Got it that's helpful. And then just in general dynamics amongst your top five clients and growth prospects.

What I would say is is that in.

Almost every case I'm thinking right now of the top three there is there is growth coming.

Coming from them and expansion coming from them.

And in multiple cases on not just the engage front, but also the digital front.

So we are seeing.

People, taking advantage of our capabilities on both sides.

Regina do you want to add anything or Dustin.

I would just add that we continue to have anywhere from 88% to 90% of our bookings and our embedded base.

Good majority of that ends up and being in our top.

25, including kind of the top 10, so I would say no change there.

You can also.

If you if you look at our LTM revenue retention, so going back 12 months in looking at clients that were in place.

In 12.

12 months ago versus where they've grown to today that growth rate overall is 111%.

And engage where I think you were talking about in particular.

In particular.

<unk> is 100, almost 119% and again a lot of that coming from our largest clients also I think you can take from the reiteration of next year's guidance that where we're very comfortable that the machine that we have relative to our go to market and the operational.

<unk> is there and we had a bit of a blip with the cyber event, but.

It was one time and contained to less than a weeks time and we feel good that our relationships are in place.

But above and beyond going above and beyond and making sure from a trust point of view.

That brand that we have.

<unk> intact into the future and we are making the right investments go through these things without.

Same things that can be improved and we're taking every opportunity to improve them and work very closely with the compliance and CSO groups within our client base.

Okay, Thanks, Regina and congrats to you and duston.

Thank you Maggie thank you.

Thank you next question is from the line of George Sutton of Craig Hallum. You May now ask your question.

Thank you. This is Adam on for George Thanks for taking my questions great to hear about pipeline backlog and bookings all pointing in the right direction. Ken I was curious if there's any new or evolving drivers of that recent pipeline activity worth highlighting.

Boy I, almost don't even know where to start I mean.

There is a myriad of things as I was saying in my script.

Goes without saying that there is no longer.

Any question from any major company, where the competitive battleground is and as products continue to commoditize and services look more like other services. The true differentiating platform is his experience and so consequently, we no longer have to pound that into our clients' heads they are now coming to us.

And saying, we've got to up our game.

Many of them have just been historically, either taking advantage of their internal captives along with their traditional partners and they are realizing that what they've been offering really isn't differentiated enough until consequently, we're winning a substantial amount of business from people who are basically asking.

US to help them reinvent reinvent their experience on the digital side as well as on the technical side as well as on the engage side.

Other thing that we're seeing is that the labor markets are getting very very tight it's no secret.

And many of our clients are really experiencing.

Experiencing difficulty with many of their providers as well as their own captives and being able to properly maintain and staff.

Their environments, we tend to be the high quality provider that tends to pay our frontline a more competitive wage et cetera, and we're not experiencing some of the difficulties that others are experiencing as it relates to hiring and so therefore, we're seeing an increased amount of business coming to us because.

<unk> of our ability to meet our staffs.

Staffing requirements that clients are asking us to staff two and consequently, they have been asking us to increase.

The amount of business that they already.

Awarded to us.

I would say that the.

Third area is that there is a huge push to get to the cloud.

As fast as possible and that more and more clients are looking to.

Basically transform.

How they're currently not only the technology that they're using but but.

Moving away from hosting their own environment, a premise based technology and moving to the cloud and with us being the.

The world's largest partner of companies like Amazon and <unk>.

And.

Genesis and Cisco et cetera, It goes without saying that we're pretty much always included.

And the opportunities that are out there to take advantage of helping these clients move to the cloud. So we're seeing a myriad of drivers.

We feel like things are accelerating right now.

And then you add on top of that that the economy and.

In many areas is booming.

In the travel sector for example.

We are seeing all travel clients right now dramatically try to expand to deal with the increased.

Demand for travel not only from the standpoint of increased within the U S. But now that the U S. Borders are open you've got estimated would be another 30% increase in travel so that's another opportunity.

And we're just seeing it across all areas of our Fintech area is growing very rapidly with all the different fintech companies and startups as well as large commercial banks that are that are adding fintech to their arsenal to compete with the startups.

Go on and on and on but the bottom line is is that we're seeing strength in virtually every single vertical.

Right now at this point.

And if I could just add a couple of demonstration points that I think are important in terms of thinking about.

The reliability of that future growth rate.

Year to date, we have 52 logos.

New logos, new logos, sometimes come in.

Small, but having that level of new logo bodes well for the future.

As we grow a good percentage of them.

Our multi segment deals.

Our.

<unk>.

10 in the quarter, but as I said in the script. If you think about the average deal size.

It was $5 5 million, which is almost two times, our overall company deal size. So it just demonstrates the strength of the magnitude of the deal when we're combining all of our capability.

I want to make a comment on the Covid replacement, we had a lot of angst in the second half of last year and the beginning of this year will be really replace that.

If you think about our year to date in our overall 400 $545 million of bookings we have around 40 of what we would call pandemic related primarily vaccination.

Related to $216 million last year. So the team has done a very good job of executing that replacement that was so important and then last but not least which really speaks to margin.

If you look at our year to date bookings, we've got about $113 million in the engage business that's offshore and that's about three times, what we were last year, so nice getting back to the balance between onshore and offshore which will bode well for us.

Our operating margins.

Great detail thanks, guys.

Thank you next question is from the line of Mike Latimore of Northland Capital markets. You May now ask your question.

Great. Thanks, Yeah, nice quarter, Congratulations Regina and.

Sure.

Thank you.

On the.

I think you gave a revenue retention number on engage 118, 9% up a significant amount year over year.

Can you just put a little more color on that is that more seats handling voice calls as that.

Messaging like just a little bit more color on what's driving the revenue retention number and what is the kind of healthy solid number for that.

So I would I would start by saying that.

It's a function first and foremost of retention rate just base retention of the existing revenue. So we have less turn in volatility.

In our base volumes.

It's a sign that the bookings right that we talked about were 88% to 90% is in the embedded base.

Our yielding.

Second I would say that I guess next I would say that.

No.

In digital it's Ben.

It's been I would say early on easier go to find new clients for the digital business that we're very interested in transforming their technology it's taken.

More time to go back to our embedded base and execute more digitization of that Digitization can come in the form of what you were talking about being able to handle non voice types of calls so that's a part of it but it's also doing the transition.

Of.

The technology, and we're finding where we leverage outcome based in our.

Embedded base.

Wherein we make a commitment that.

The number of associates or the volume that an associate can handle with better technology.

We put skin in the game on them. So those are a couple of things I'd mentioned, Ken you want to add.

While we are the only part I would elaborate on is that we're definitely seeing more opportunities in the.

And the textual based area the messaging area.

Which is something that we've been pushing for et cetera. So that we start to really increase our mix.

<unk>.

Voice and then across all the different channels and so obviously as we help clients.

With their digital capabilities and add Omnichannel and then when they choose to use us for engage that feeds more messaging business to us more textural business to us.

At cetera, and gives us more opportunity to.

Handle that business in other markets near shore offshore et cetera that are potentially better margin as well. So that's really all that I would add it.

And then just I guess on the acquisition front what would be the.

Top kind of category Youre thinking about in terms of additional acquisitions.

Well as you heard US say our goal is to get our digital business to $1 billion.

So.

To do that through a combination of organic and through M&A.

And so clearly we are we have our eyes out for opportunities that we think would be.

Strategic and accretive.

Two our digital business.

And then secondly.

We're we're very rapidly expanding the geography of our engage business.

And so we're open to opportunities in that area as well, but what I would say to you is is that.

We are very actively out there looking and at the same time.

There is we're.

We're not going to do anything stupid as it relates to that.

We need to pay.

Our market competitive fair price and not.

And not overpay for something so to speak.

It's.

Problematic in the future.

Yep Yep.

Alright, thanks. Thank.

Thank you.

Thank you. Your next question is from the line of Joseph <unk> of Canaccord. Your line is now open.

Hey, guys good morning.

Congrats to Regina.

Well deserved promotions.

Maybe.

I might've missed it.

What percentage of the business now is hyper growth clients Ken.

No no that percentage, we said $400 million of our revenue is now coming from growth and growing very rapidly.

15% to 17%.

Got it and is there when you look at those hyper growth clients to date book New business differently then.

So kind of a traditional or a blue chip company.

Company are they are they are the bookings numbers kind of smaller and then grow with them or is it kind of the same type of.

Bookings from.

Those.

Thanks, Hi, guys. That's a very good question I would say that they definitely are smaller bookings upfront, but then what happens is that when they catch fire.

The speed of zero to 60 is nothing like with the traditional Fortune 500 company and so.

I mentioned the categories that were winning business from.

You can imagine who some of those companies are and so.

So they may come on us.

Im, making it up but $1 million client and in six months or 12 months, they become dramatically larger than that many fold. The size and then just continue to keep on growing.

So.

I hope that helps but that's that's not uncommon and we're signing between three and four of those.

The types of deals a month right now.

I mean, I think we also gave the number right.

It's going to be a run rate of $400 million.

And we have about 100 clients. So it's an average of four <unk>.

You can have clients in there that have $30 million to $40 million because.

And we're not going to name the brands, but they are the ones that you are using every day.

That just tells over last couple of years, we've been focused on this for probably four years now very focused in.

I would.

I think Lisa.

We've.

<unk> done a great job of growing in and at this point there is clients that are 500, K or a million.

But there is lots of lots of clients that are both the $10 million Mark.

That's great.

What is the appetite for those types of clients on the on the <unk>.

Digital side versus engage are there are they mostly engage customers in.

I'm, just trying to get a feel for where they are buying and what they're buying.

Truly truly all over the board one of the reasons why it tends to be less digital for now is because we've made the conscious decision to really focus on large enterprise Mega Enterprise and then with the <unk> acquisition have now gone too.

Kind of enterprise.

I think that what youll see in the very near future is some announcements that will.

Provide capabilities too.

More of that.

Entry level startup phase set of clients and that will open up a whole new market segment for us. So what I would just simply say to you is that what we want to make sure is that when some of these companies start out and they only let's say hypothetically start out with 25.

<unk> workstations typically the offerings that we've had historically and what would the energy that we put in them really wouldn't justify our energy in those areas and what I would say to you is in the very near future. We will have offerings that will make tons of sense for those for those types of clients. So that they can start.

Out with Us and then grow into large enterprise platforms.

That's great.

That makes a lot of sense, Ken that's exciting and then just I know you.

I know you commented a little bit on the labor front, saying that.

<unk> got more capacity than others.

Environment.

Your updated latest thoughts on when.

Pricing being able to.

Pass on labor cost increases too.

And it.

It sounds Regina.

Under control crude oil given that.

Margin guidance, but just some more thoughts on the supply side. Thanks.

Look there's no doubt that theres been true wage inflation on the frontline workers and we have we pride ourselves that we have been ahead of this for now going on at least three years.

Where we saw.

Not necessarily what we're seeing today, but where we knew that we needed to do something very proactively with our clients. We were very successful in the 2000 I want to say.

<unk> timeframe of getting pretty significant price increases.

I might be off if its about 18 to 19 Regina can correct me.

And then.

When we when we entered into the pandemic and we saw frontline wages going up substantially we proactively went to all of our clients. We showed them. The data we showed how competitive the marketplace was getting as far as.

What other <unk>.

Companies were paying et cetera.

And we got in front of it and the bottom line is is that for I would say the most part the majority of the clients.

Were very fast to react to our need to increase the labor wages and increase our pricing and we.

We now have a very open dialogue with all of our clients and what we're basically showing them as that.

A week.

We have multiple avenues of resolving this issue.

One of the avenues is that we just simply pay what the market requires so that we can hire the best quality people and have the lowest attrition in the marketplace.

The other is that we blend.

<unk> with some near shore environments to ease some of the pain the others that we blend it with some offshore and then obviously the other where we're really taking advantage of is offering digital solutions that reduce some of their labor costs. So that ultimately they can afford to pay.

The higher rates, but that we can offset it through a lot of the of hyper automation that we're introducing to the accounts. So what I would say to you is in some ways. This tight labor market is actually benefiting us.

Helping us not only just with our engage business and driving the top line number up but it's also getting more clients, who would never consider near shore offshore now absolutely are taking advantage of it and considering it as well as clients that are saying how can you help us digitally.

So that we can.

Afford these these new cost that we werent budgeted for so.

So we feel for the most part.

Pretty good but there's no denying this is a very tight labor market and it's not just in the U S. It's in many many markets as you know.

Thank you.

Next question is from the line of Bryan Bergin of Cowen. Your line is now open.

Hi, good morning, Thank you.

Question I'm curious around the <unk> or the combined digital and engaged contracting is there a common type of clients or client profile, that's engaging this way.

When you are signing these combined engagements.

Who you're competing against I imagine its a smaller list than typical.

On the combine side, we're really not we're really.

Not competing with anybody for the most part it's either it's really them deciding to go with a pure digital provider.

To do the work.

Pam and in global.

<unk> and Accenture et cetera, or do they go with somebody that handle billions of interactions understands their vertical the industry.

Almost as well as they do understands what there.

What their customer advocates need on their desktop et cetera and.

Talking to our existing embedded base clients that are saying that we're implementing at a dramatically faster pace and scaling.

With.

With the best of breed technologies. So what I would say is is that when it's a <unk>.

We're not.

We truthfully or not.

<unk> with a company that is providing.

Kind of an end to end one stop shop, it's really them deciding.

Going to go with.

A separate engage partner and a separate digital partner.

Okay.

And then I appreciate the update on the mix of the digital natives can you also give us a sense on how much has been in the higher value areas within engage in areas like customer acquisition and fraud support versus some of the traditional customer support areas.

I don't know that I can give you a number just because I don't actually have the top my head, but I'd be happy to make sure that.

Paul and dust and get to you offline once they I'm not sure I'm not sure I understand the question, you're saying Hello.

In our engage business what is the digital mix mix of CGS well.

Areas like the fraud support customer acquisition, just trying to understand some of the higher margin streams within engage what the mix of that business has evolved to be.

Yes, I would say if you kind of take the CGS and you take the lines of business.

That are within the care.

You, probably got 30% to 40% of the business depending on the quarter.

For example.

License seasonal work in healthcare is very significant.

Peak in the fourth quarter, let's say out of that.

Out of the entire base that stuff that is.

Multiple in terms of its growth in a multiple in terms of its margin it's.

Probably around 40% of the portfolio at this point.

Okay. Thank you very much.

Thank you. Our last question is from the line of James Faucette of Morgan Stanley You May now ask your question.

Hey, guys. This is Jonathan on for James Thanks for taking my questions. It looks like at least based on your filings.

<unk> head count sequentially by about six 5% quarter. How are you thinking about the mix of that between digital and engage from a net head count perspective, and how you're thinking about the.

Preet or sustainable level of head count additions going forward.

Yes, So I think you have to remember that when we go from Q3.

To Q4.

We have a huge.

Bump up in the business for our seasonal work.

What happens is that in order to prepare for that season, which hits trying time October one.

For healthcare and not too long after four.

Retail and business services.

We're hiring up for that.

If you if you look at our.

Q4 at five.

At five $5 67, and if you look at our guidance.

More or less.

Going too.

595% or so you see like a $30 million pickup and to serve that $30 million, which is predominantly coming from engage seasonal business.

Those folks are in place so youll see that come back down in.

The beginning of the year.

I would say not as much as traditionally because the business has got a lot of strength than we had a strong Q4 bookings and we expect a strong.

Excuse me strong Q3 visit bookings and we expect a strong Q4.

I appreciate that color and you had mentioned some of the pricing dynamics earlier are you seeing some of your competitors come in.

Aggressive pricing despite the wage inflation in the market.

What I would just simply say is that we're winning more than our fair share or our typical percentage of business our conversion rates are definitely higher.

And so I can't really comment just because I don't I don't actually know I think you really the market has.

Has definitively.

Kind of consolidated for lack of a better term and rather than calling out names I would say that there is a percentage of the marketplace that frankly, we don't compete with at all and if a client is even considering using those particular companies, we're probably not even bothering.

With that client because that means that they're not customer obsessed or not customer centric they don't care about quality et cetera.

And so I would just say that there is.

You can count them on your.

Left hand, and its fewer than five that we bump into so to speak.

On a regular basis.

And that's good for us.

<unk>.

I think it's where the industry is going these many of these smaller companies just don't have the balance sheet. They don't have the scale. They don't have the track record they.

They don't have the systems, the processes et cetera, and so the kinds of businesses that we're targeting.

We tend to be creating the opportunities we're not waiting for rfps to come in the ones that are coming in via Rfps those tend to be you know.

End of <unk>.

Commodity type based deals that we're just not focused on we're focused on deals where we're very much involved in providing transformational capabilities, which means we're there is some level of consulting.

And that requires journey mapping that requires technology assessment et cetera, and then ultimately then converts to.

A deal that we're providing.

Multiple capabilities to the clients yes.

Yes.

We are a premium price. So we know that from the feedback from our clients. We know it from the third party surveys that we do.

The wins and losses.

What we.

Doing better and better is turning that pricing discussion.

Not until we will drop our dropout rate, but let us come in and execute some of the assets and capabilities that we have on the digital side and they are in get your overall costs. So of course, an issue how do we have more offshore mix or how do we automate or how do we.

Augment so the yield out of a particular associate.

And the quality of the engagement is better so for us we see it as an opportunity to point towards our other capabilities.

<unk>.

When.

The cost conversation that way as opposed to dropping rate.

Because it's ultimately about the total value delivered it's ultimately about the us.

Creating solutions that deliver defined outcomes and that those defined outcomes can be variable life to a cost that is CFO can relate to chief Digital officer, Chief customer officer et cetera, and most of our <unk>.

So called competitors they don't have to.

That's just not how they are.

They're approaching it more from a labor augmentation point of view.

And.

That's just a different market than we're focused on.

Sure.

Thanks for the color guys and congrats Regina and duston on the new roles.

Thank you.

Sure.

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

Thank you. This concludes our earnings call. Thank you for your participation and have a great day.

This concludes <unk> third quarter 2021 earnings.

At this time.

[music].

I would now like to turn the call over to Paul Miller P Tech Senior Vice President Treasurer, and Investor Relations Officer. Thank you Sir you may begin.

Good morning, and thank you for joining us today <unk> is hosting this call to discuss its third quarter earnings results for the period ended September 32021 participating in todays call are Ken Tuchman, our chairman and Chief Executive Officer, and Regina Paolillo, Our global Chief operating Officer yesterday, <unk> 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 third quarter 2021 quarterly report on Form 10-Q, before we begin I want to remind you that matters discussed in today's call may include forward looking statements related to our operating performance financial goals and business.

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 recently filed Form 10-Q, and our 2020 annual report on Form 10-K.

Play at this conference call will be available on our website under the Investor Relations section I will now turn the call over to Ken Tuchman.

Thanks, Paul and good morning to everyone. Our performance this quarter was a solid solid once again as demand for end to end CX technology and service platform continues to grow revenue over the prior year quarter increased 15% to $566 million.

And bookings for the quarter were $171 million, including 19, new clients. Our current pipeline is comprised of a healthy mix of our CX technology and service offerings with both new and existing clients.

Our booking volumes backlogs and existing pipeline are setting us up for continued long term growth.

Our client base is well diversified across verticals and geographies with accelerated demand in the digital hyper growth segment.

We now serve 100 clients in this category with an annualized revenue run rate of $400 million and a 38% growth rate in the third quarter versus the same period last year.

These wildly successful hyper growth companies spanned connected in home fitness.

Food delivery E Commerce E gaming online travel health Tech Fintech streaming media and more.

These digital natives are thriving based on their commitment to deliver amazing personalized and effortless customer experiences.

As they scale and evolve there depending on our CX technology and operational leadership to ensure that their experiences continue to set them apart.

Whether they are born digital unicorn or blue chip industry giant companies are recognizing that and the experienced economy customer obsession is the key to their success.

They acknowledge that to acquire retain and grow customers in this competitive marketplace. They must rapidly modernized their CX capabilities.

However, when they move to implementation a massive challenge awaits helping clients solve these complex CX problems is our singular focus.

Roadblocks or numerous complicated and costly to navigate many brands lack of clear CX transformation roadmap. They suffer from an antiquated legacy mindset and operate rigid processes that detract from the customer experience.

As a trusted end to end CX technology technology partner.

We solve for these transformational outcomes at scale.

Our comprehensive end to end CX technology services platform was built to solve these tough challenges for our clients across the globe ever.

Now, let me share some examples of how we're helping clients achieve meaningful outcomes as they improve their customer experience I'll start with T Tech digital.

Sure.

Okay.

We have been deliberate.

We've been deliberate and aggressive in building, a holistic digital platform with depth breadth and scale and flexibility.

Others May say, they have digital CX technology capabilities, but none can match our track record was successful CX transformations, managing hundreds of thousands of SaaS licenses right now one of the largest cloud contact center providers in the world, we bring unique domain expertise and deep operate.

Knowledge to every phase of digital transformation from design to deployment and ongoing operations.

For example, in our automotive vertical we're helping several of the largest global automotive brands reinvent their automotive customer lifecycle <unk>.

Ms customer journey that touches every aspect of the dealer experience and the supply chain.

In the healthcare space, we're driving initiatives to deliver a better patient experience for providers and improving operating efficiencies for payers.

For a national health care provider, we developed a mobile behavioral health assessment that reduced bad admittance by over 40%.

Are impacting this vertical continues to grow as patient experience becomes increasingly digital.

With our aspirations of growing our digital business to $1 billion.

We continue to make significant investments in our differentiated platform.

This quarter we.

Brought on several strategic leadership hires to further advance our go to market.

We're expanding our product portfolio with new capabilities, and we continue to invest in strengthening our relationships with our CX technology partners.

The pain of lengthy and costly integrations.

Variable through direct and indirect technology marketplace channels. These apps enable rapid deployment and integration of workforce management agent productivity and analytic solutions.

This month, we added a new suite of CX applications to our IP portfolio with the launch of our proprietary smart apps cloud designed initially for our financial service clients focused focused on eliminating CX pain points for customers and employees our solution streamlines customer identification.

<unk> processes with safe and secure protocols, while reducing the administrative burden of frontline subject matter experts. These proprietary apps are filling a vital need in the marketplace and are providing us with exciting new platform for growth.

Now, let me turn to our digitally enabled engage segment, where we continue to drive vertical differentiation to help our clients go to market faster stay ahead of industry trends and outperform their competition.

<unk> are approaching did in our digital business unit, we're building and delivering industry specific solutions with a combination of our own purpose built technology and specially trained subject matter expert for.

To detect and eliminate online fraud.

For our fast growing Fintech Unicorn, we created our own AI based training platform to accelerate speed to proficiency for our financial service advisors.

For our next Gen digital health insurer, we created a membership growth engine by arming our health care advocates with proprietary sentiment analysis model and intent mapping to inform next best actions and accelerate sales and for our crypto currency trading platform.

Or using natural language processing and our own predictive analytics to help our fintech advisors proactively manage highly complex interactions.

We continue.

To expand and optimize our global delivery footprint by providing clients the mix of onshore near shore and offshore and work from home options. Our expansion strategy includes a diverse set of delivery models locations and languages I am pleased to announce that we're now open for business in Colombia, and we will.

To expand our global delivery footprint in the months ahead.

Now I'd like to take a moment to provide a brief update on the September.

2021 cyber incident.

Unfortunately, it's no surprise that companies and governments across the globe are operating in a heightened threat environment with cyber incidents occurring daily.

The cyber incident occurred on September 12, and we moved quickly and decisively to identify contain and resolve the event our ability to respond rapidly is a testament to the resiliency of our organization and the enduring Trust, we've earned with our loyal client base.

And now to wrap up.

Across the globe, we're helping our clients radically re imagine how to build authentic lasting and profitable customer relationships.

To our to our clients it doesn't matter, where they come from they simply want one trusted partner to manage and optimize all elements. So that they can move quickly reliably and with confidence.

Our ability to offer clients a full spectrum of digital capabilities combined with decades of operational frontline CX experience distinctively positions us in a category all of our own.

As we embark on the next decade of growth our longer term strategic initiatives have not changed we are relentless in our pursuit to increase our market share by adding fuel perenchio CX offerings building, new channel partnerships, expanding our delivery footprint growing our client base and executing.

<unk> and accretive acquisitions.

Our strategy gives us several attractive avenues to leverage profitable growth to increase shareholder value, including strong cash flow, a well capitalized balance sheet and ongoing dividends.

Our continued progress would not be possible without the 60000, plus incredible employees across the growth flow.

Through our ESG initiatives, we continue to make progress on commitments to build a future that is diverse inclusive equitable and sustainable.

As the CX company. These efforts are hard wired into the core and a meaningful part of our culture of our of Karen.

And just last week Forbes named US one of the top 25 female friendly companies in the world.

Finally.

I have some exciting news that I want to share yesterday, we announced that Regina paolillo as <unk> Global Chief operating officer.

Our newly created role and dusted Dustin simak to succeed Regina as <unk> Chief Financial Officer.

Fortifying our leadership team to enable me to fully focused on the key drivers of client and shareholder value creation.

These include strategy development growth technology innovation and execution of strategic and accretive M&A.

Regina is diverse and tenured experience as our chief financial and administrative officer for the past decade at T Tech combined with the strategic financial and operational roles. She held that trade Zito General Lentic partners, Genpact and Gartner positioned well to execute this newly created global chief operating.

Officer role.

Justin was recruited to <unk> in 2020 with the intent to become our CFO over the past 12 months. He has demonstrated strength and building and executing our finance functions to drive revenue growth expand margins and increase cash flow alongside as T Tech experience.

Dustin has had a relevant and noteworthy career in the technology services and business process outsourcing industries, including Rackspace technologies DXP.

<unk> and IBM.

Thanks, Ken and good morning, everyone.

First reemphasize Ken's comments regarding the overall fundamental strength of the business.

Our diverse and integrated offering portfolio go to market execution delivery platform and global footprint have never been more relevant.

Strategy is resonating in the market and it shows in our year to date bookings expanding revenue backlog and increasing sales pipeline.

Turning to our new business signings, we had $171 million in bookings in the third quarter of 2021, I'll share a handful of highlights.

The bookings growth, excluding pandemic related work was 47% with digital growing 57% and engage increasing by 42%.

We signed 10 multi segment deals totaling $55 million or <unk>.

$5 5 million for deal well above our overall average deal size.

We acquired 19, new client relationships the recurring revenue bookings increased 250 basis points to 57, 6% of total bookings in the quarter.

From a vertical perspective, we had significant bookings in healthcare financial services technology auto.

And telecom media.

With our third quarter year to date bookings of $545 million.

And were 112% LTM revenue retention.

A 98, 8% in year revenue backlog coverage in the next six months pipeline of over one 4 billion.

We're confident in executing on our full year 2021 guidance and delivering on our previously articulated 2022 revenue growth rates.

Before jumping into our third quarter and year to date financial performance I'll take a few minutes to address the September cyber security incident.

It's important to note that the incident only affected the engage segment and only a portion of the engage clients.

From the beginning our top priority was to safeguard our clients people partners and shareholders by ensuring that we execute a swift return to service and minimizing any data exposure.

Our risk management incident response, and this is Curt annuity protocols or immediately activated the teams worked tirelessly to restore the systems that were affected by the third day, we at 95% of our client services operators and within five days of 100%.

Yes.

The incident had a relatively modest one time impact on the engage third quarter results revenue was negatively impacted by approximately $15 2 million.

Loss profits and incident expense through our various insurance programs over the upcoming quarters.

I am pleased to share with you that beyond this five day period post the incident, we have not experienced nor do we expect to experience any further client impact from this event.

Want to personally acknowledge our employees clients and partners for their understanding.

Just patience dedication and support as we navigate through this type of event.

Turning to our third quarter financial results on a consolidated basis in the third quarter of 2021 revenue increased 15% to $566 7 million.

Taking into consideration the $15 2 million of revenue loss from the cyber security attack. The revenue growth would have been 18% exceeding the high end of our guidance further adjusting for the large short term government contract in the 2020 results revenue increased 23, 5%.

The organic revenue growth was four 3% and adjusted for the government contract and one time $15 2 million engage radiological and cyber security incident.

<unk> revenue growth rate.

There have been 12, 3% adjusted.

Adjusted EBITDA increased 2% to $78 7 million or 13, 9% of revenue compared to 15.7% in the prior year exceeding the high end of our guidance.

Non-GAAP operating income decreased five 9% to $59 4 million or 10, 5% of revenue versus 12, 8% in the prior year period exceeding the high end of our guidance.

The decline in our adjusted EBITDA and non-GAAP operating income was driven by ramps and engage the deferred revenue purchase accounting adjustment and digital.

<unk> added with the <unk> acquisition loss profit on the one time revenue loss from the cyber security incident.

And a step up in investment in R&D sales marketing NGL expansion all of which were planned.

Non-GAAP EPS was $1, one relatively unchanged over the prior year and well above the high end of our guidance predominantly due to our operating income performance and a.

A lower tax rate.

Foreign exchange had a had a positive impact of $3 1 million on revenue.

And $1 3 million on operating income.

Primarily impacting our engage business.

Turning now to our third quarter segment results.

Our digital segment revenue increased 62, 1% to $124 1 million in the third quarter compared to the prior year period in line with the high end of our guidance for recurring revenue from our subscription based CX cloud and managed services grew 18, 6% and our highly reoccurring professional services.

<unk> primarily systems integration was 84, 2%, we are particularly pleased with the growth in our Genesis and Amazon connect Omnichannel platforms, our Microsoft Salesforce practices.

Digital IP offerings.

Client product purchases from our tier one omnichannel technology partners.

Were also higher than usual in the quarter, primarily from a large existing healthcare clients investments in its CX delivery platform, which we are in the process of implementing.

Non-GAAP operating income was $15 6 million or 12, 5% of revenue compared to $15 4 million or 21% in the prior year period in line with our guidance and our margin was primarily impacted by a combination of the <unk> deferred revenue purchase accounting adjustment and the quarter's offering mix, which had a higher.

Than usual amount of lower margin product sales, excluding the deferred revenue adjustment the operating income margin will be approximately 14%.

With approximately $377 million of 2021 revenue backlog, representing 90 93, 6% of our revenue guidance. We are highly confident in meeting our 2021 digital revenue guidance.

Our engage segment reported third quarter revenue of $442 6 million, an increase of six 3% over the prior year period.

All organic.

Adding back the estimated loss of the revenue from the cyber event revenue growth would have been approximately 10% year over year exceeding the high end of our guidance.

Our engage segments organic growth highlights include new and expanded lines of business in our embedded base significant growth in our healthcare travel auto and technology verticals.

Revenue growth contributions from all regions, with Canada, and EMEA growing 146%, 43% respectively.

Hyper growth point digital sector, growing 38% and an LTM revenue retention rate of 118, 9% versus 105, 6% previously.

Our engage segment non-GAAP operating income declined eight 2% to $43 8 million compared to $47 7 million in the prior year period and significantly over performed our guidance. The margin was nine 9% in the third quarter of 2021 compared to 11, 5% in the prior year period.

The margin decline is primarily related to the higher margin COVID-19 programs in the prior year period now being replaced with longer term programs. The higher Covid margins are a function of the intense supply chain challenges and reduced time to ramp enabling us to premium price as we continue to scale improve our offer.

Sure mix maximize our delivery stream.

And increase the percentage of revenue derived from higher margin offerings, we expect to restore our engage non-GAAP operating margin in the range of 12% to 13%.

I'll now share select balance sheet and working capital metrics.

Third quarter cash flow from operations decreased to $42 2 million from $81 5 million.

At September 32021, cash was $148 9 million and that was $811 8 million of which $805 million represented borrowings under our credit facility.

Net debt increased to $662 9 million from $203 million in the prior year, primarily related to acquisition related investments and capital distributions partially offset.

By cash flow generation.

Assets, our normalized tax rate was 19, 6% in the quarter.

2021 versus 26% in the prior year.

The 100 basis point reduction is primarily due to the jurisdictional mix of our income we anticipate a for a tax rate of approximately 22%.

In the third quarter, we paid a semiannual dividend in the amount of 47.

R $22 1 million.

Which was paid on October 22021 to shareholders of record on October eight.

This dividend represents a 17, 5% increase over the semiannual dividend paid in October of 2020.

Before I transition to our guidance I want to emphasize that we remain highly encouraged on our near and longer term prospects and intense and in patient customer experience market. We are winning by leading with our differentiated outcome based end to end customer experience as a service solutions.

Accordingly, we estimate GAAP revenue of 2.2 hundred $2.255 billion, an increase over the prior year of 15, 7%.

Adjusted EBITDA of $352 4 million, an increase of 15, 9% over the prior year and 15, 6% of revenue compared to 15, 6% in the prior year non.

Non-GAAP income from operations of $285 2 million, an increase of 17, 7% over the prior year and 12, 6% of revenue compared to 12, 4% in the prior year.

Non-GAAP earnings per share of $4 57.

An increase of 75.

Or 19, 7% over the prior year.

Please also reference our commentary in the business outlook section of our third quarter 2021 earnings press release.

Before I close I want to reiterate our directional 2022 revenue and EBITDA growth take rates, which I first shared last quarter. We currently expect <unk> for 2022 revenue growth in the 9% to 11% range in 2022 EBITDA growth in the 10% to 12% range. This includes digital revenue growing between 18% and 22.

2% in the engage revenue growing between 79%.

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.

Thank you.

We will now begin the question and answer session. If you would like to ask a question. Please press Star then one please mute your phone and record your name clearly you and prompted your name is required to introduce your question to cancel your request press Star and then one moment. Please for the first question our first question.

<unk> is from the line of Maggie Nolan of William Blair. Your line is now open.

Hi, Thank you.

Good good growth excluding that.

Cyber incident.

I did have a question about kind of where the incident impacted.

Did it impact any of your top five clients or can you talk about the dynamics within that bucket and then just general comments on the health and growth prospects within those top clients.

Hi, Maggie it's Ken how are you.

I would say to you is is that.

It had.

Clients had different impacted it really only impacted a relatively small group of clients.

And the <unk>.

Most of the impact really had more to do with us not with with our systems not operating it actually had more to do with just simply us being cautious and them being cautious while we gave them an all clear.

What I would say to you is I'm not I'm, clearly not going to disclose names or companies et cetera, but we feel like we're in very good shape right now and our clients were extremely appreciative of the speed at which we responded.

How are you.

How well we were able to maintain stable systems pretty much throughout the entire event.

Got it that's helpful. And then just in general dynamic amongst your top five clients and growth prospects.

What I would say is is that in.

Almost every case I'm thinking right now of the top three there is there is growth coming.

Coming from them and expansion coming from them.

And in multiple cases on not just the engage front, but also the digital front.

So we're seeing.

People, taking advantage of our capabilities on both sides.

Regina do you want to add anything or Dustin.

I would just add that we continue to have anywhere from 88% to 90% of our bookings and our embedded base.

Good majority of that ends up and being in our top.

<unk> 25, including kind of the top 10, so I would say no change there.

You can also.

If you if you look at our LTM revenue retention, so going back 12 months in looking at clients that were in place.

In.

12 months ago versus where they've grown to today that growth rate overall is 111%.

And engage where I think you were talking about in particular.

In particular is 100, almost 119% and again a lot of that coming from our largest clients also I think you can take from the reiteration of next year's guidance.

We're we're very comfortable.

Comfortable that the machine that we have relative to our go to market and the operational excellence is there we had a bit of a blip with the cyber event.

But.

It was one time and contained to less than a weeks time and we feel good that our relationships are in place.

But above and beyond going above and beyond and making sure from a trust point of view.

That brand that we have.

<unk> intact into the future and we are making the right investments go through these things without.

Same things that can be improved and we're taking every opportunity to improve them and work very closely with the compliance and CSO groups within our client base.

Okay, Thanks, Regina and congrats to you and Dustin.

Thank you Maggie.

Thank you. Your next question is from the line of George Sutton of Craig Hallum. You May now ask your question.

Boy I, almost don't even know where to start I mean.

There is a myriad of things as I was saying in my script.

Goes without saying that there is no longer.

And saying, we've got to up our game.

US to help them reinvent reinvent their experience on the digital side as well as on the technical side as well as on the engage side.

Other thing that we're seeing is that the labor markets are getting very very tight it's no secret.

And many of our clients are really experiencing.

Experiencing difficulty with many of their providers as well as their own captives and being able to properly maintain and staff.

Their environments, we tend to be the high quality provider that tends to pay our frontline are more competitive wage et cetera, and we're not experiencing some of the difficulties that others are experiencing as it relates to hiring and so therefore, we're seeing an increased amount of business coming to us because.

Of our ability to meet our staffs.

Staffing requirements that clients are asking us to staff two and consequently, they have been asking us to increase the amount of business that they already.

<unk>.

Awarded to us.

I'd say that the.

Third area is that there is a huge push to get to the cloud.

As fast as possible and that more and more clients are looking to.

Basically transform.

How they're currently not only the technology that they're using but.

Moving away from hosting their own environment, a premise based technology and moving to the cloud and with us being.

The world's largest partner of companies like Amazon and <unk>.

Genesis and Cisco et cetera, It goes without saying that we're pretty much always included.

And the opportunities that are out there to take advantage of helping these clients move to the cloud. So we're seeing a myriad of drivers.

We feel like things are accelerating right now.

And then you add on top of that that the economy in.

In many areas is booming.

In the travel sector for example.

We are seeing all travel clients right now dramatically.

Hi to expand to deal with the increased.

I could go on and on and on but the bottom line is is that we're seeing strength in virtually every single vertical.

Right now at this point.

And if I could just add a couple of demonstration points that I think are important in terms of thinking about.

The reliability of that future growth rate.

Year to date, we have 52 logos.

New logos these new logos, sometimes come in.

Small, but having that level of new logo bodes well for the future.

As we grow a good percentage of them are.

Multi segment deals.

Our.

10 in the quarter, but as I said in the script. If you think about the average deal size.

It was $5 5 million, which is almost two times, our overall company deal size. So it just demonstrates.

Strength of the magnitude of the deal when we're combining all of our capability.

I want to make a comment on the Covid replacement, we had a lot of angst in the second half of last year and the beginning of this year will be really replace that.

If you think about our year to date in our overall 400 $545 million of bookings we have around 40 of what we would call pandemic related primarily vaccination.

Related to $216 million last year. So the team has done a very good job of executing that replacement that was so important and then last but not least which really speaks to margin.

You look at our year to date bookings, we've got about 113 million in the engage business, that's offshore and Thats about three times, what we were last year, so nice getting back to the balance between onshore and offshore which will bode well for us.

Our operating margins.

Great detail thanks, guys.

Thank you next question is from the line of Mike Latimore of Northland Capital markets. You May now ask your question.

Great. Thanks, Yeah, nice quarter, congratulations Regina and NASA.

Thank you.

On the.

I think you gave a revenue retention number and engage 118, 9% up a significant amount year over year.

Can you just put a little more color on that.

More seats handling voice calls as that.

Messaging like just a little bit more color on what's driving the revenue retention number.

Does that kind of healthy solid number for that.

So I would I would start by saying that.

It's a function first and foremost of retention rate just base retention of the existing revenue. So we have less churn in volatility.

In our base volumes second.

Sign that the bookings right that we talked about were 88% to 90% is in the embedded base.

Yielding.

Second I would say that I guess next I would say.

That.

Yeah.

In digital.

Ben.

It's been I would say early on easier go to find new clients for the digital business that we're very interested in transforming their technology it's taken.

Of the technology, and we're finding where we leverage outcome based in our.

Embedded base.

Wherein we make a commitment that.

The number of associates or the volume that an associate can handle with better technology.

Put skin in the game on so those are a couple of things I'd mentioned, Ken you want to add.

The only part I would elaborate on is that we're definitely seeing more opportunities in the.

And the textual based area the messaging area.

Which is something that we've been pushing for et cetera. So that we start to really increase our mix.

Of voice and then across all the different channels and so obviously as we help clients.

With their digital capabilities and add Omnichannel and then when they choose to use us for engage that feeds more messaging business to us more textural business to us.

And gives us more opportunity to.

Handle that business in other markets near shore offshore et cetera that are potentially better margin as well. So that's really all that I would add it.

And then just I guess on the acquisition front what would be the.

Top kind of category Youre thinking about it in terms of additional acquisitions.

Well as you've heard US say our goal is to get our digital business to $1 billion. So.

We're going to do that through a combination of organic and through M&A.

And so clearly we are we have our eyes out for opportunities that we think would be.

Strategic and accretive.

Two our digital business.

And then secondly.

We're we're very rapidly expanding the geography of our engage business and so we're open to opportunities in that area as well, but what I would say to you is is that.

We are very actively out there looking and at the same time.

<unk>.

There is.

We're not going to do anything stupid as it relates to that.

We need to pay.

Our market competitive fair price and not.

And not overpay for something so to speak so that it's.

Problematic in the future.

Yes.

Alright, thanks. Thank.

Thank you.

Thank you. Your next question is from the line of Joseph <unk> of Canaccord. Your line is now open.

Hey, guys good morning.

Congrats to Regina.

Well deserved promotions.

Maybe.

I might've missed it.

What percentage of the business now is hyper growth clients Ken.

No no that percentage, we said $400 million of our revenue is now coming growth and growing very rapidly.

<unk>.

17%, yes.

Got it and is there when you look at those hyper growth clients to book new business differently than.

So kind of traditional or a blue chip company.

Company are they are they are the bookings numbers kind of smaller and then grow with them or is it kind of the same type of.

Bookings.

With those.

Thanks, guys.

That's a very good question I would say that they definitely are smaller bookings upfront, but then what happens is that when they catch fire.

The speed of zero to 60 is nothing like with the traditional Fortune 500 company and so.

I mentioned the categories that were winning business from.

You can imagine who some of those companies are and so they may come on as I'm, making it up but $1 million client and in six months or 12 months, they become dramatically larger than that many fold.

Size and then just continue to keep on growing.

No.

I hope that helps but that's that's not uncommon and we're signing between three and four of those.

Types of deals a month right now.

I mean, I think we also gave the number right.

Going to be a run rate of $400 million.

And we have about 100 clients. So it's an average of four.

You can have clients in there that have $30 million to $40 million because they.

We're not going to name the brands, but they are the ones that you are using every day.

That just tells over last couple of years, we've been focused on this for probably four years now very focused and.

Yeah.

I would.

I think Lisa.

<unk> done.

<unk> done a great job of growing in and at this point there is clients that are 500, K or a million.

But there is lots of lots of clients that are both the $10 million Mark.

That's great.

What is the appetite for those types of clients on the on the <unk>.

Digital side versus engage are there are they mostly engage customers in.

I'm, just trying to get a feel for where they are buying and what they're buying.

You know kind of enterprise.

I think that what youll see in the very near future is some announcements that will.

Provide capabilities too.

More of that.

Entry level startup phase set of clients.

And that will open up a whole new market segment for us. So what I would just simply say to you is that what we want to make sure is that when some of these companies start out and they only let's say hypothetically start out with 25 workstations typically the offerings that we've had historically.

And what would the energy that we've put in them really wouldn't justify our energy in those areas and what I would say to you is in the very near future. We'll have offerings that will make tons of sense for those for those types of clients. So that they can start out with us and then grow into large enterprise platforms.

That's great.

That makes a lot of sense, so exciting and then just I know you.

I know you.

Come in at a little bit on the labor front, saying that.

You've got more capacity than others in this environment.

Just.

Your updated latest thoughts on <unk>.

Pricing being a little bit.

Pass on.

Labor cost increases to climb.

Clients and.

It sounds like you have it under control crude oil given that.

Margin guidance, but just some more thoughts on the supply side. Thanks.

Look there's no doubt that theres been true wage inflation on the frontline workers and we have we pride ourselves that we have been ahead of this for now going on at least three years.

Where we saw.

Not necessarily what we're seeing today, but where we knew that we needed to do something very proactively with our clients. We were very successful in the 2000 I want to say 18 timeframe of getting pretty significant price increases.

I might be off if its about 18 to 19 Regina can correct me.

And then.

What other <unk>.

Companies were paying et cetera.

And we got in front of it and the bottom line is is that for I would say the most part the majority of the clients.

Were very fast to react to our need to increase the labor wages and increase our pricing and we.

We now have a very open dialogue with all of our clients and what we're basically showing them as that.

A we.

We have multiple avenues of resolving this issue.

One of the avenues is that we just simply pay what the market requires so that we can hire the best quality people and have the lowest attrition in the marketplace.

The other is is that we blend them.

The higher rates, but that we can offset it through a lot of the of hyper automation that we're introducing to the account. So what I would say to you is in some ways. This tight labor market is actually benefiting us.

Helping us not only just with our engage business and driving the topline number up but it's also getting more clients, who would never consider near shore offshore now absolutely are taking advantage of it and considering it as well as clients that are saying how can you help us digitally.

So that we can.

Afford these these new cost that we werent budgeted for.

So we feel for the most part.

Pretty good but there's no denying this is a very tight labor market and it's not just in the U S. It's in many many markets as you know.

Thank you.

Next question is from the line of Bryan Bergin of Cowen. Your line is now open.

Hi, good morning, Thank you.

Question I'm curious around the <unk> or the combined digital and engaged contracting is there a common type of clients or client profile, that's engaging this way.

When you are signing these combined engagements.

Who you're competing against I imagine its a smaller list than typical.

On the combine side, we're really not we're really.

Not competing with anybody for the most part it's either it's really them deciding to go with a pure digital provider.

To do the work on <unk>, and <unk> globally, and Accenture et cetera, or do they go with somebody that is handled billions of interactions understands their vertical industry.

Almost as well as they do understand what there.

What their customer advocates need on their desktop et cetera, and all.

Talking to our existing embedded base clients that are saying that we're implementing at a dramatically faster pace and scaling.

With.

With the best of breed technologies. So what I would say is is that when it's a <unk> tec.

We're not.

We truthfully are not.

Competing with a company that is providing.

Kind of an end to end one stop shop, it's really them deciding where we're going to go with <unk>.

Separate engage partner and a separate digital partner.

Okay.

I don't know that I can give you a number just because I don't actually have the top my head, but I would be happy to make sure that.

Paul and dust and get to you offline once they I'm not sure I'm not sure I understand the question you're saying.

In our engage business what is the digital mix mix of CGS well aerie.

Areas like the fraud support customer acquisition, and just trying to understand some of the higher margin streams within engage what the mix of that business has evolved to be.

Yes, I would say if you kind of take the CGS and you take the lines of business.

Yes.

That are within the care.

You, probably got 30% to 40% of the business depending on the quarter.

For example.

Our license seasonal work in health care is very significant.

Peak in the fourth quarter, let's say out of.

And out of the entire base that stuff that is <unk>.

Multiple in terms of its growth in a multiple in terms of its margin.

It was probably around 40% of the portfolio at this point.

Okay. Thank you very much.

Thank you. Our last question is from the line of James Faucette of Morgan Stanley You May now ask your question.

Hey, guys. This is Jonathan on for James Thanks for taking my questions. It looks like at least based on your filings that you grew headcount sequentially by about six 5% quarter. How are you thinking about the mix of that between digital and engage from a net head count perspective, and how you're thinking about the appropriate or sustainable level.

Can't additions going forward.

Yes, So I think you have to remember that when we go from Q3.

To Q4.

We have a huge.

The bump up in the business for our seasonal work.

What happens is that in order to prepare for that season, which hit Prime time October one.

For healthcare and not too long after four.

Retail and business services.

We're hiring up for that.

If you if you look at our.

Q4 at five.

At five $5 67, and if you look at our guidance.

More or less.

Going to five.

595% or so you see like a $30 million pickup and to serve that $30 million, which is predominantly coming from engage seasonal business.

Those folks are in place so youll see that come back down in.

The beginning of the year.

I'd say not as much as traditionally because the business has got a lot of strength and we had a strong Q4 bookings and we expect a strong.

Excuse me strong Q3 visit bookings and we expect a strong Q4.

I appreciate that color and you had mentioned some of the pricing dynamics earlier are you seeing some of your competitors come in with aggressive pricing despite the wage inflation in the market.

What I would just simply say is that we're winning more than our fair share or our typical percentage of business our conversion rates are definitely higher.

And so I can't really comment just because I don't I don't actually know I think you really the market has.

Has definitively.

<unk>.

With that client because that means that they're not customer obsessed or not customer centric they don't care about quality et cetera.

And so I would just say that there is.

You can count them on your.

The left hand, and its fewer than five that we bump into so to speak.

On a on a regular basis.

And that's good for us.

I think it's where the industry is going these many of these smaller companies just don't have the balance sheet. They don't have the scale. They don't have the track record they.

They don't have the systems, the processes et cetera, and so the kinds of businesses that were targeting.

We tend to be creating the opportunities we're not waiting for rfps to come in the ones that are coming in via Rfps those tend to be.

End of <unk>.

Commodity type based deals that were just not focused on we're focused on deals where we're very much involved in providing transformational capabilities, which means we're there is some level of consulting.

That requires journey mapping that requires technology assessment et cetera, and then ultimately then converts to.

A deal that we're providing.

Multiple capabilities to the client.

Yes.

We are a premium price or we know that from the feedback from our clients. We know it from the third party surveys that we do.

On wins and losses.

What we.

<unk> are doing better and better is turning a pricing discussion.

Not until we will drop our dropout rate.

But let us come in and execute some of the assets and capabilities that we have on the digital side and they are in get your overall costs. So of course, an issue how do we have more offshore mix or how do we automate or how do we augment.

So the yield out of a particular associate.

And the quality of the engagement is better so for us we see it as an opportunity.

Two point towards our other capabilities.

<unk>.

When.

The cost conversation that way as opposed to dropping rate.

Because it's ultimately about the total value delivered it's ultimately about the.

That's creating solutions that deliver defined outcomes and that those defined outcomes can be variable lies to a cost that is CFO can relate to a chief digital officer, Chief customer officer et cetera, and most of our <unk>.

So called competitors, they don't need to.

That's just not how they are.

They are approaching it more from a labor augmentation point of view.

And.

That's just a different market than we're focused on.

Sure.

Thanks for the color guys and congrats Regina and duston on the new roles.

Thank you.

Sure.

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

Thank you. This concludes our earnings call. Thank you for your participation and have a great day.

This concludes <unk> third quarter 2021 earnings.

At this time.

Q3 2021 TTEC Holdings Inc Earnings Call

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