Q4 2024 TTEC Holdings Inc Earnings Call
Thank you.
Speaker Change: Thank you for standing by. The conference will begin momentarily. Until such time, you will hear music. Thank you and please continue to stand by.
["Silent Night"]
Speaker Change: Thank you for standing by. The conference will begin momentarily. Until such time, you will hear music. Thank you and please continue to stand by.
Speaker Change: Welcome to TTAC's fourth quarter and full year 2024 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 TTAC. I would now like to turn it over to Bob Belknap, TTAC's Group Vice President, Corporate Finance. Thank you, sir. You may begin.
Speaker Change: Good morning and thank you for joining us today. T-TEC is hosting this call to discuss its fourth quarter and full year results for the period ended December 31st, 2024.
Speaker Change: Participating on today's call are Ken Tuchman, Chairman and Chief Executive Officer of T-TEC, and Kenny Wagers, Chief Financial Officer of T-TEC. Yesterday, T-TEC issued a press release announcing its financial results.
Speaker Change: While this call will reflect items discussed within that document, for complete information about our financial performance, we also encourage you to read our full year 2024 annual report on Form 10-K.
Speaker Change: Before we begin, I want to remind you that matters discussed on today's call may include forward-looking statements related to our operating performance, financial goals, and business outlook, which are based on management's current beliefs and assumptions.
Speaker Change: Please note that these forward-looking statements reflect our opinion as of the date of this call and we undertake no obligation to revise this information as a result of new developments that may occur. Forward-looking statements are subject to various risks, uncertainties, and other factors that could cause our actual results to differ materially from those expected and described today.
Speaker Change: The Special Committee of the board formed to evaluate that proposal together with its independent legal and financial advisers continue to engage with Mr. <unk> and the proposal evaluation is ongoing.
Speaker Change: The company cannot comment on that process and will not be responding to any questions about it.
Speaker Change: A replay of this conference call will be available on our website under the Investor Relations section I will now turn the call over to Ken.
Ken Tuchman: Good morning, and thank you for joining us today and as previously shared 2024 was a transitional year for <unk> across the company. We continue to advance on three major priorities.
Ken Tuchman: Our diversification strategy with a broadened geographic delivery footprint and client portfolio our.
Ken Tuchman: Our expanded digital CX value proposition with differentiated technology enabled solutions and our overall goal of achieving and exceeding our historical growth and run rate margins in the near term.
Ken Tuchman: For the full year 2020 for revenue and non-GAAP adjusted EBITDA were in line with the guidance commentary that we provided last quarter, representing $2 $2 billion and $202 million or nine 2% respectively.
Ken Tuchman: With a disciplined focus on these priorities we made progress on many fronts in 2024.
Ken Tuchman: We continued our success winning new clients. These deals are diversified across our solutions and core industries of financial services, and healthcare as well as emerging verticals, including retail travel and streaming services.
Ken Tuchman: We established and strengthened additional relationships with over a dozen CX technology partners through collaborative product development joint engineering efforts and shared go to market strategies.
Ken Tuchman: We advanced AI adoption internally for our own associates and with our embedded base clients in both business segments and have accelerated the infusion of AI capabilities into every new sales opportunity.
Ken Tuchman: And for the second consecutive year, we were recognized as a great place to work in 15 geographies, where we operate.
Ken Tuchman: Although we are pleased with our improvements in key areas of our business in 2024, we were constructively dissatisfied with our overall financial results for the year.
Ken Tuchman: While our forecasted margin improvements reflect our progress topline revenue was impacted by two client business decisions unrelated to our performance.
Ken Tuchman: The relationships with both clients remains strong with ample opportunity for growth. Additionally, our topline was also being impacted by a muted open enrollment health care season.
Ken Tuchman: And our continued focused on rationalizing client engagements that don't meet our target financial profile.
Ken Tuchman: We will share details on those topics in his comments shortly.
Ken Tuchman: Moving on to the discussion about the industry. The AI Revolution is creating exciting opportunities for us innovative technologies are flooding the market with entirely new ways to advance the customer journey.
Ken Tuchman: And the associate experience.
Ken Tuchman: In this environment the needs of clients Chief operating officers and Chief information officers are converging.
Ken Tuchman: They are working together to find approaches that go far beyond labor augmentation endpoint solutions. They are looking for the integration of CX technology and services that seamlessly work together and to and to increase operating efficiencies improved customer experiences and strengthen the top and bottom line.
Ken Tuchman: This capability is right in our sweet spot and remains a differentiator for <unk> Tec.
Ken Tuchman: With our heritage of digital innovation woven into everything we do we're uniquely prepared to take advantage of this moment.
Ken Tuchman: It took us many years to build the capabilities and protective solutions that are resonating with clients today.
Ken Tuchman: We believe these capabilities and solutions if carefully inspected our highly differentiated relative to what our competitors claimed to have we have done the hard work to complete thousands of technology implementations for leading brands across the globe developed collaborative partnerships with all the dominant CX technology leader.
Ken Tuchman: <unk> and build a deep and enviable bench of full stack, TX technologist data scientist and customer journey strategist.
Ken Tuchman: As the digital customer experience transformation company clients are looking to us as they navigate the complex CX ecosystem across our two business segments, <unk> engage and <unk> digital we offer the breadth and depth of CX expertise unmatched in the industry at this pivotal time in the <unk>.
Ken Tuchman: Market, we're helping clients create experiences that feels seamless and intuitive and even if they are being delivered by a combination of human interaction and modern technology now.
Ken Tuchman: Now, let's move on to an update on our two business segments, starting with T Tech engage over the past six months, we've strengthened our T. Chek engaged management team with several strategic hires to capitalize on numerous opportunities in the market. We brought an experienced client focused professionals worldwide, including our new President <unk>.
Ken Tuchman: Vertical industry executives and operational leaders in the Americas and EMEA. Each of these leaders blend strategic thinking with a focus on performance and are accelerating our momentum while also delivering measurable client value in <unk> engage our.
Ken Tuchman: Our sales momentum is beginning to improve in 2024 with 15, new enterprise client wins, our go to market engine exceeded its new client acquisition goal.
Ken Tuchman: Though many of these new relationships start with a single line of business they offer significant potential for future expansion with new solutions and additional business units.
Ken Tuchman: Increasingly these deals are being delivered offshore as evidenced by our growth in our new geographies year over year, we continue to leverage technology at scale and T. Chek engage to amplify the skills and the talent of our frontline teams internally, we're using AI enabled solutions and data driven insight occur.
Ken Tuchman: The entire associate lifecycle to recruit train and engage and empower our people.
Ken Tuchman: In addition, we are implementing solutions that directly improve the customer journey, including self service knowledge management accent neutralization capabilities and our proprietary voice translation applications.
Ken Tuchman: While it is still early days, we're encouraged by the potential of these technologies to increase quality efficiencies and customer satisfaction.
Ken Tuchman: Several wins this quarter underlying the value of our digital first expertise for example, our recent success with a popular travel platform stemmed from their dissatisfaction with their CX partners lack of innovation. They chose us for our proven ability to enhance quality and operational efficiency through human enabled.
Ken Tuchman: High powered solutions. This new program will utilize the full extent of our operating model, including learning knowledge optimization voice translation and conversational analytics.
Ken Tuchman: Now on to <unk> digital this year, we closed 55, new clients, including many larger enterprise sized companies that provide significant runway for future expansion as clients technology need shift from cloud migration services to more complex enterprise wide digital transformation, we are dramatically expanding.
Ken Tuchman: Our total addressable market.
Ken Tuchman: These multifaceted engagement typically start with shorter cycle professional services and grow into longer term recurring managed service engagements.
Ken Tuchman: Let me share a few examples we started our relationship with a regional health care provider by implementing their new CRM system. During the project, we recognize the need for a customized modern <unk> platform by utilizing our proprietary software we collected the two systems and now provide ongoing holistic <unk>.
Ken Tuchman: Port through our surround CX managed services methodology, we've streamlined various systems to enhance connectivity for our clients patients and caregivers throughout this process. We've established a long term trusted partnership that will continue to grow in.
Ken Tuchman: In another health Care example, we're partnering with a fortune 10 global healthcare solutions company to modernize their infrastructure for enhanced voice and digital interactions. Our collaboration began nearly a decade ago with the Cisco deployment. Following a major acquisition in 2024, they recognize the need to centralize and <unk>.
Ken Tuchman: <unk>, they're critical CX interactions together, we developed a robust technology roadmap that will transition them from a rigid legacy <unk> system to an intuitive conversational AI platform.
Ken Tuchman: Simplifying interactions streamlining routing reducing cost, while improving healthcare outcomes across their network with several client engagements like this in development and I look forward to sharing both the customer experience in the business impact of these initiatives in the months to come.
Ken Tuchman: In closing our goal remains the same to be the undisputed leader in the future of CX, where human expertise integrates seamlessly with advanced technologies as the digital customer experience transformation company. We will continue to deliver an end to end portfolio of outcome based CX technology and services.
Ken Tuchman: As we move into 2025, we remained focused on growing our business by diversifying our client base solutions and geographic footprint, improving our operating leverage and profitability and continuing to strengthen the intensity of our performance based culture.
Ken Tuchman: We are confident that our priorities will drive our vision forward and position the company for success in 2025 and beyond.
Kenny Wagers: On behalf of our global team Board of Directors and leadership. Thank you for your continued support now ill hand, it over to Kenny.
Kenny Wagers: Thank you Ken and good morning, I'll start with a review of our full year and fourth quarter 2024 results before providing context into our 2025 full year financial outlook.
Kenny Wagers: In my discussion on the fourth quarter and full year financial results referenced to revenue is on a GAAP basis, while EBITDA operating income and earnings per share are on a non-GAAP adjusted basis, a full reconciliation of our GAAP to non-GAAP results is included in the tables attached to our earnings press release on.
Kenny Wagers: On a consolidated basis for full year 2024 compared to the prior year period revenue was $2 two 1 billion compared to $2 $4 6 billion. A decrease of 10, 4% adjusted EBITDA was $202 million or nine 2% of revenue compared to $272 million or 11% operating.
Kenny Wagers: <unk> was $136 million or six 2% of revenue compared to 200 million or eight 1% and EPS was <unk> 71 compared to $2 18.
Kenny Wagers: Foreign exchange had a $3 million negative impact on revenue, while positively impacting operating income by $7 million, primarily in our engage segment.
Kenny Wagers: Turning to our consolidated fourth quarter 2024 financial results revenue was $567 million a decrease of nine 4% over the prior year period, and an increase of seven 2% over the prior quarter.
Kenny Wagers: Adjusted EBITDA was $51 million or 9% of revenue compared to $58 million or nine 2% of revenue in the prior year sequentially. Adjusted EBITDA was relatively unchanged, but declined by 50 basis points as a percentage of revenue operating.
Kenny Wagers: Operating income was $35 million or six 2% of revenue compared to $42 million or six 7% in the prior year operating income increased two 5% over the prior quarter, but declined by 20 basis points as a percentage of revenue and EPS was <unk> 19, compared to 37 and the <unk>.
Kenny Wagers: Prior year period, and 11 in the prior quarter Foreign exchange had a $2 million negative impact on revenue in the fourth quarter over the prior year, while positively impacting operating income by $4 million, primarily in our engage segment at the company level, our fourth quarter financial performance was in line with the guidance expectations communicated.
Kenny Wagers: Last quarter at the lower end of the guidance range now turning to our fourth quarter and full year 2024 segment results in our digital segment fourth quarter revenue was $115 million compared to $119 million in the prior year and relatively unchanged sequentially.
Kenny Wagers: The year over year compare continues to be impacted by one time on premise product sales, which are decreasing as clients migrate to cloud based CX delivery solutions. Excluding these one time product sales digital's revenue grew three 8% in the quarter compared to the prior year weakened.
Kenny Wagers: We continue to deliver growth in our recurring managed services offerings, increasing 10, 2% compared to prior year and representing approximately 64% of Digital's total fourth quarter revenue compared to 56% in the prior year.
Kenny Wagers: In our CX professional services offerings revenue declined eight 5% year over year.
Kenny Wagers: As shared previously select clients have delayed the timing of investing in larger engagements, which impacted the fourth quarter revenue as communicated with our most recent guidance.
Kenny Wagers: We continue to view this as a temporary pause and expect to return to growth in 2025 supported by our strong pipeline activity.
Kenny Wagers: Digital's fourth quarter 2024, operating income was $13 million or 11% of revenue compared to $18 million or 14, 8% in the prior year and $14 million or 12, 5% in the prior quarter on a full year basis Digital's 2024 revenue was $459 million compared to 400.
Kenny Wagers: $87 million in the prior year period.
Kenny Wagers: Operating income was $51 million or 11, 2% of revenue compared to $62 million or 12, 8% in the prior year excluding.
Kenny Wagers: Excluding the one time on premise product sales digital revenue grew slightly at 1%.
Kenny Wagers: Recurring managed services grew nine 1% and represented 64% of Digital's full year revenue compared to 55% in the prior year.
Kenny Wagers: The year over year decline in the professional services offerings of 12% combined with investments in leadership and talent resulted in lower profitability.
Kenny Wagers: Despite the second half headwinds in 2024, we are confident that digital will return to growth in 2025, our ability to solution enterprise wide digital transformation with our professional services engagements will result in long term recurring revenue our digital backlog for the next 12 months is at $308 million.
Kenny Wagers: 66% of our 2025 revenue guidance at the midpoint of the range slightly down from 69% in the prior year.
Kenny Wagers: Moving onto our engage segment fourth quarter seasonal volumes came in above our most recent guidance, but were down compared to prior year as expected revenue decreased 10, 8% to $452 million in the fourth quarter of 2024.
Kenny Wagers: Period.
Kenny Wagers: Compared to the prior quarter revenue increased $39 million or nine 4%.
Kenny Wagers: Operating income was $22 million or four 9% of revenue compared to $24 million or four 8% of revenue in the prior year sequentially operating income increased 13, 3% with an approximate 20 basis points improvement as a percentage of revenue.
Kenny Wagers: Engage fourth quarter revenue and operating income exceeded our low end of guidance coming in closer to the mid range provided the overage was primarily driven by upside related to two specific clients in our public sector vertical we are pleased with our engaged segments fourth quarter financial results and the profitability improvement in the <unk>.
Kenny Wagers: Half of the year the actions, we have taken and communicated throughout the second half of 2024 in terms of our profit optimization efforts are evident over the last two quarters and will be more impactful in 2025.
Kenny Wagers: On a full year basis. The engage 2024 revenue was $1 75 billion compared to $1 98 billion in the prior year operating income was $85 million or four 9% of revenue compared to $138 million or 7% in the prior year period.
Kenny Wagers: Approximately half of the full year revenue decline was due to the previously mentioned large client in our financial services vertical the discontinued a line of business early in 2024, we continue to service was client across other programs, which are anticipated to grow in 2025.
Kenny Wagers: The remaining revenue impact is primarily attributable to a decrease in health care volumes, including the reduction in seasonal work previously mentioned, partially offset by volume increases in our public sector vertical despite.
Kenny Wagers: Despite the top line growth headwinds the quality of engage opportunities remained strong and our unique solutions continue to resonate in the market. This is evidenced by the 20, new logo signed in 2024 of which 15 are large enterprise clients with significant growth potential as previously mentioned by Ken.
The engage backlog for the next 12 months is $1 $5 1 billion or 96% of our 2025 revenue guidance at the midpoint of the range up from 94% in 2024.
Kenny Wagers: We engaged last 12 month revenue retention rate is 82% compared to 95% in the prior year.
Kenny Wagers: Adjusted for the revenue decline related to the large financial services client engages last 12 month revenue retention rate is at 87%.
Kenny Wagers: I will now share other 2024 metrics before discussing our outlook.
Kenny Wagers: Cash flow from operations was a negative $59 million in 2024 compared to a positive $145 million in the prior year.
Kenny Wagers: As discussed last quarter, the discontinuation of the accounts receivable factoring facility impacted our cash flow by approximately $100 million during the year, excluding the effect of the factoring facility 2024 cash flow from operations was a positive $42 million. The remaining impacts are a result of the lower profitability compared.
Kenny Wagers: To the prior year and a decrease in other working capital.
Kenny Wagers: Free cash flow for 2024 was a negative $104 million compared to a positive $77 million in the prior year, excluding the effect of the accounts receivable factoring facility and including the proceeds from the sale of a significant real estate asset of $46 million 2020 for free cash flow was a positive $43 million.
Kenny Wagers: As of December 31, 2024, cash was $85 million with $978 million of debt, primarily represented borrowings under our $1 2 billion revolving credit facility.
Kenny Wagers: Net debt increased year over year by 66 million to $893 million impacted by the factoring facility discontinuation.
Kenny Wagers: The net leverage ratio as defined under the credit facility was 399 times at year and a half turn reduction from the prior quarter.
Kenny Wagers: Capital expenditures were $45 million or 2% of revenue for the full year 2024, compared to $68 million or two 8% in the prior year again with the majority of the spend related to our engaged geographic expansion.
Kenny Wagers: Our full year normalized tax rate was 49% in 2024 compared to 22, 7% in the prior year. This increase was primarily due to the impact of the U S valuation allowance recorded against the U S pre tax losses, and profitable foreign jurisdictions, which drove a higher tax expense.
Kenny Wagers: Transitioning to our 2025 outlook I will now provide some context supporting our full year financial guidance.
Kenny Wagers: Relating to engage we expected decline in revenue of approximately 10% primarily due to the impact of a public sector client and the previously mentioned financial services client discontinuing certain lines of business.
Kenny Wagers: This combined with the anticipated foreign exchange translation headwinds.
Kenny Wagers: Our focus on expanding our offshore revenue and the rationalization of client engagements that are consistently performing below our targeted financial profile is putting pressure on the top line as.
Kenny Wagers: As Ken mentioned and as we communicated last year, we have put tremendous focus on our profit optimization efforts within the engage segment. These include.
Kenny Wagers: Expanding our geographic delivery footprint to meet clients' needs for lower cost delivery and solutions.
Kenny Wagers: Cost optimization initiatives, driving efficiency, and our operational delivery and aligning our corporate costs to our revenue.
Kenny Wagers: Improving our operational agility and margin performance through detailed operational metrics and recruiting new talent in key leadership roles that combined with our tenured leadership, we will execute on our 2025 objectives.
Kenny Wagers: These actions have laid a strong foundation for the profitability improvements in 2025 and as evidenced by the early pull through of increased margin since the second quarter of 2024, we emphasized that last year was a transitional year with these actions being our priority and we have confidence that they will deliver the bottom line benefits in 2020.
Kenny Wagers: Five and.
Kenny Wagers: In our digital business, we expect to return to year over year revenue growth through our professional services and recurring managed services together forecasted to grow by approximately 5%. In 2025. This is driven by our end to end digital CX value proposition with differentiated technology enabled solutions delivered through.
Kenny Wagers: Our growing diversified offerings.
Kenny Wagers: This growth offsets the decline in our one time on premise product revenue of approximately 45% turning to the midpoint of our 2025 guidance as outlined in greater detail in our fourth quarter and full year 2024 earnings press release <unk>.
Kenny Wagers: GAAP revenue of $2 4 billion a decrease over the prior year of seven 6% adjusted EBITDA of $225 million, an increase of 11, 2% over the prior year and 11% of revenue compared to nine 2% in the prior year.
Kenny Wagers: non-GAAP operating income of $164 million, an increase of 20% over the prior year and 8% of revenue compared to six 2% in the prior year non-GAAP earnings per share of $1 <unk>, an increase of 52, 5% over the prior year.
Kenny Wagers: Other relevant guidance metrics include capital expenditures between two 2% and two 4% of revenue of which approximately 51% as growth oriented a.
Kenny Wagers: A full year effective tax rate between 38% and 42% we expect the phasing of our profitability improvement to be more pronounced in the second half of 2025 on slightly higher revenue. Please reference our commentary on the business outlook section of our fourth quarter and full year 2024 earnings press release to obtain our XP.
Kenny Wagers: Patients for full year 2025 performance at the consolidated and segment level.
Kenny Wagers: In closing we are confident in the actions we took in 2024 and continue to execute on in the new year. These combined with our demonstrated 40 plus years of delivering value driven CX technology and service solutions positioned the company well for improved operational efficiency and profitability in 2025 as always.
Bob Belknap: We remain focused on executing against our top business priorities and serving the best interest of all stakeholders I will now turn the call back to Bob.
Bob Belknap: Thanks, Kenny as we open the call we ask that you limit your questions to one at a time operator, you may open the line.
Bob Belknap: Thank you we will now begin the question and answer session. If you would like to ask a question. Please press star followed by the number one please on mute your phone on a regular journey.
Bob Belknap: His name and company name clearly been prompted your name and company name already quietly introduce your question Scott. Your request you May Press Star two.
Bob Belknap: Our first question comes from the.
Speaker Change: The line of George Sutton of Craig Hallum. Your line is now open Sir.
Speaker Change: Thank you Ken you mentioned that all of your deals are being infused with AI.
Speaker Change: Curious if you can give us a sense of.
Speaker Change: How exactly that is working.
Speaker Change: What sort of impacts that might have on your on your win rates in your deal structures.
Speaker Change: Good morning, George how are you.
George Sutton: It's going great to tell you the truth, we are we've got Jim.
On the digital side alone over 150 ish 140, 555 projects that are underway.
George Sutton: Yes.
George Sutton: We're implementing AI on behalf of.
George Sutton: A bevy of clients.
George Sutton: Additionally, on the engage side.
George Sutton: More than I would say more than three quarters of our associates now have various different tools that are taking advantage of AI we have.
George Sutton: Significant amount of additional technology that will be coming on in the second quarter that were hitting will be hitting the majority of the desktops, if not all of the desktops on the engage side.
George Sutton: And as we've stated in the past we view is our friend, we believe that AI.
George Sutton: Gives us the ability to provide a better overall quality of service.
George Sutton: <unk>.
George Sutton: Youre going to see that.
George Sutton: Once you get past this hype cycle.
George Sutton: AI is going to be something that truly can enhance the associate experience make their job easier make their jobs allow for the information to be fine.
George Sutton: <unk> faster and more nimble available.
George Sutton: And drive overall.
George Sutton: Better compliance better fraud detection.
George Sutton: Acura, So we're utilizing AI in.
George Sutton: In the areas of the agent desktop and how we can make our associates more productive we're using AI.
George Sutton: Our operations.
George Sutton: Everything from quality assurance to training.
George Sutton: Training.
George Sutton: Look at our whole learning organization.
George Sutton: We're using it in recruiting et cetera, so long winded answer but.
George Sutton: I would say that we are well on track with our goals of how to take advantage of AI and more to come.
George Sutton: And the next and the next whats the next conference call, where we'll be able to share.
George Sutton: Many many different examples as well as the outcomes and the impact that its having.
George Sutton: So I hope that answered your question.
George Sutton: Okay. Thank you and just a comment.
George Sutton: The <unk>.
George Sutton: Encourage the take private process continues but.
Speaker Change: On behalf of many many shareholders I spoke unless theres, a big frustration on the timing.
Speaker Change: And kind of the same nothing new nothing strategy from this committee.
Speaker Change: We'd really like to hear an update so just wanted to make sure I Express that.
Speaker Change: I appreciate that.
Speaker Change: I absolutely appreciate appreciate that will.
Speaker Change: I Hope the committee will take that into consideration.
Speaker Change: Alright. Thank you next question comes from the line of Maggie Nolan of William Blair. Your line is now open.
Thank you.
Maggie Nolan: Wanted to make sure that I.
Maggie Nolan: Fully understand that 2025 revenue guidance can you comment on.
Maggie Nolan: Are there any revenues related to the clients that had previously delayed large projects that impacted 2024 as well as your assumptions for seasonal revenue versus 2024 for the 2025 revenue guidance.
Maggie Nolan: Hey, Maggie and good morning.
Maggie Nolan: Absolutely.
Maggie Nolan: I'd say is.
Maggie Nolan: 2024, the way we're looking at the midpoint of guidance for 2025 is it's all about the sequential quarters for 2025, we see slightly higher revenue in the second half of the year. We're looking at a peak season in 2025 that is.
Maggie Nolan: Tivoli equivalent to the peak season that we saw in 2024 from a healthcare standpoint.
Maggie Nolan: The underlying.
Maggie Nolan: <unk>.
Maggie Nolan: Trend in the sequential quarters.
Maggie Nolan: It is going to follow our normal seasonality that you've seen in 24% and 23. However.
Maggie Nolan: The second curve there is the tailwind that we do have to your question about the new logos. The enterprise logos that we talked about that we won in the second half, but focus on the second half of 2024 as a matter of fact, those specific enterprise logos are forecasted to grow over 200.
Maggie Nolan: 25% year over year.
Maggie Nolan: So it's with that tailwind of those new clients.
Maggie Nolan: That delayed in 2024 that are now underway in the second half of 2024 and the beginning of 2025.
Maggie Nolan: That will provide the underlying growth for the second half.
Maggie Nolan: In our guidance.
Maggie Nolan: Thank you.
Speaker Change: Thank you. Our next question comes from the line of Cathy Chan of Bank of America. Your line is now open.
Cathy Chan: Hey, guys. Thanks for taking my question I guess just to ask on the margin for 2025, obviously, you're continuing to make reinvestments. There. So where is the offset that you're getting from operating leverage and just talk a little bit more about the investments youre, making in 'twenty five and how those are Jeffrey <unk> from 24, and what kind of.
Speaker Change: ROI, you're expecting from that.
Alright. Thanks.
Speaker Change: Yes, good question.
Speaker Change: We talked a lot last year about the actions that we took in Q2 Q3 and Q4 around.
Speaker Change: Adjusting the cost structure of the company to meet.
Speaker Change: Where our revenue was that for 2025, it's more of the same Ken talked a lot about.
Speaker Change: New industry experience and the leaders that we brought in specifically on the engage side of the business.
Speaker Change: John and his team are doubling down on those operational metrics and operational.
Speaker Change: Yes.
Speaker Change: Cost drivers, if you will to improve to continue to improve the gross margin.
Speaker Change: Year over year and quarter over quarter, and so what we're really excited about how the desktop AI Ken mentioned, we've got AI now infused in quality, we've got it in training and so.
That AI is creating the operating leverage for our agents to be more efficient.
Speaker Change: To give a better service and to give them a better quality and were starting to see that come through for us in our gross margin attainment in.
Speaker Change: The details of how engaged works around bonus and penalties in the structures of the contracts and so it's more of the same but it is the operational discipline.
Speaker Change: Delivering the quality service for the customer, but then also accrete to us from a profitability and margin and in operating leverage expansion standpoint, and again I think the key for 25 is the sequential improvement.
Speaker Change: Youre going to see at the gross margin line and at the EBITDA line.
Speaker Change: I think the other area that we.
Speaker Change: Worth noting that we've been investing is in is on the digital side, we have significantly expanded our partner network and have brought in some phenomenal leadership, that's leading in various different with the various different partners et cetera, So that we're picking up traction.
Speaker Change: Across the entire CX continuum.
Speaker Change: Not just the fee caps.
Speaker Change: Area, but all the desktop solutions that people are focused on all the core AI partnerships.
Speaker Change: Et cetera, So there is definitely a focus.
Speaker Change: Investing in those practices and growing them those are the practices on a percentage basis that are actually growing at the fastest rate, albeit on a small number. So you would expect it to grow you would expect the percentage to be higher.
Speaker Change: Higher.
Speaker Change: And then there's been a fair amount of injection of really strong operating leadership, that's been added throughout the globe.
Speaker Change: That we've been investing in to really get dramatically better efficiencies.
Speaker Change: And Thats, we believe that that will pay.
Dividends in the future as well.
Speaker Change: But thats really where the focus is and then I guess I would say the last thing is is that we have some exciting.
Speaker Change: Products that are coming out in the language translation area that I mentioned in my script.
Speaker Change: As well as in the <unk>.
Speaker Change: Asset neutralization area.
Speaker Change: At cetera that we are in beta testing now with clients and are excited to be rolling out in the near future, which will open up other areas for us as well.
Speaker Change: Got it that's really helpful. And then I guess just a follow up on your revenue growth guidance assumptions for 2025 are you guys, assuming a stable macro fan current level anything from AI related services et cetera that you guys had talked about and I guess.
Speaker Change: In terms of vertical you guys had talked previously sometimes about hyper growth or health care financial services public sector, I guess anything in terms of how we should think about growth from those verticals that are embedded in your 2025 guidance. Thank you.
Speaker Change: Yes, yes.
I would.
Speaker Change: Everything I read what GDP last year 24 is about two 3% I think GDP is supposed to be 109 or 10% so from a macro standpoint.
Speaker Change: We feel that 25 is going to be relatively similar to 2024, we think from a <unk> in a micro standpoint that we're obviously going to outperform that based on everything that Ken just said, what we said in our prepared remarks.
Speaker Change: We think we have some very good tailwind both in the digital and then the engage business and so for US that's kind of our macro view right. Now is 25, a little better than 20 for especially the back half of 'twenty five.
Speaker Change: Then I would tell you from a from a vertical standpoint again, John and a lot of the sales leadership that Ken was just mentioning that we brought into the organization in the last 18 months.
Speaker Change: There are really experts in the verticals that we brought them in and so we really like the technology the retail.
Speaker Change: Vertical.
Speaker Change: Those are performing well for us we talked about pub SEC performed well for us in Q4, as well and so for US. It's again that divert overall strategy of diversification of geography diversification of customer base and diversification of the lines of businesses inside of those verticals. So we're somewhat.
Speaker Change: Bullish on most of our verticals.
Speaker Change: That we're going after and have won again those big clients that we won last year from an enterprise standpoint that I just mentioned a few minutes ago.
Speaker Change: Have a very good forecasted growth rate for us in the second half of the year.
Speaker Change: Yes.
Speaker Change: I think the only thing I would just point out is that.
Speaker Change: I don't want.
Speaker Change: Not in any way trying to hype.
Speaker Change: The future.
Speaker Change: I just think that from a realistic standpoint, what makes me have more confidence on a go forward basis is just the amount of net new clients that we're bringing on most of our major competitors have acquired their clients through acquisitions.
Speaker Change: We have.
Speaker Change: <unk> been quite successful we believe in 'twenty two.
Speaker Change: For with the 15, new enterprise clients on engage and the large amount of new clients on digital and we're seeing that trend continue into 'twenty five and that's one of my top priorities because.
Speaker Change: Obviously, we would like to have less concentration of revenue amongst any one particular client.
Speaker Change: And the best way to do that is by having more diversification with our client base and that is exactly what we're focused on and what we're doing obviously be the one thing that.
Speaker Change: The good news is winning new clients and what that creates for the future.
Speaker Change: But that said the part to get sometimes a little frustrating as the patients that's required as you ramp. These clients. We previously said over the years that typically clients take 12 to 18 months to get to full ramp.
Speaker Change: And so we.
Speaker Change: Even though we're winning a lot of net new logos, we don't necessarily immediately received the benefit that we would like to receive from the from the wind, but ultimately we do.
Speaker Change: That's helpful. Thank you.
Speaker Change: Thank you. Our last question is from Jonathan Lee of Guggenheim Securities. Your line is now open Hey.
Johnson: This is johnson on behalf of Jonathan and thanks for taking our question.
Speaker Change: So a very quick one how do we think about the type of margin uplift you're getting from increased offshore delivery versus let's say your cost takeout initiatives and how did this that your margins relative to the perceived need to kind of pause on some of these benefits to your customers.
Jonathan Lee: Hey, Jonathan.
Jonathan Lee: Offshore again back to what I just commented on a minute ago for sure our diversification strategy.
Customers verticals on the engage side of the business and then geography onshore offshore.
Jonathan Lee: Is what we are executing on in 'twenty four and in 25 I would tell you that we improve the onshore offshore mix our offshore grew about 300 basis points in 2024.
Jonathan Lee: Our forecast is to continue to grow that offshore mix, another 300 plus basis points in 2025.
Jonathan Lee: But again back to Ken's comments as that revenue grows.
Jonathan Lee: It's still it takes time to onboard the majority of our pipeline right now and engage is offshore as we again utilize the assets that we put in place in those expanded geographies over the last 18 months again to create good leverage against that investment that we've made to diversify.
Jonathan Lee: And so we're very happy with that but I would I would answer to your question that you should think more the expansion of the margin the.
Jonathan Lee: The expansion of the profitability of the double digit growth that youre seeing in 2025, EBITDA specifically for engage.
Jonathan Lee: <unk> is more heavily weighted towards the.
Jonathan Lee: The improvements that we're making in our operation up and down with AI with just pure good discipline in our operational groups and so I would heavily weighted more towards that.
Jonathan Lee: <unk> necessarily just the onshore offshore mix changes just yet.
Speaker Change: And thanks for that maybe the last one is how do we get comfortable with your back half loaded.
Speaker Change: Relative to your typical visibility you have going out to let's say 30 to 90 days as it relates to client volumes.
Speaker Change: Yes, again, it comes down and engage it comes down to the cycle right. It comes down to the on boarding cycle and so as we look at our pipeline as we look at our closed one and as we forecast out.
Speaker Change: All of these client wins that we've talked about we have pretty good precision with that forecasting.
Speaker Change: Understanding of when those clients are going to start.
Speaker Change: Again, a lot of this is in the new buildings in new geographies, South Africa, Egypt, Europe, and Latam and so we know when they're starting and so the ability to forecast that in the sequential quarters.
Speaker Change: Is <unk>.
Speaker Change: A relatively high confidence level.
Speaker Change: And so we feel again back to my earlier comment that the second half revenue is going to be slightly higher than the first half revenue, but the profitability pull through.
Speaker Change: All of that revenue and on the base business is.
Speaker Change: Is definitely going to be back half weighted.
Speaker Change: Digital obviously is more of a closer in target.
Speaker Change: And where Dave and the team sits on the digital side as book to Bill.
Speaker Change: As new revenue and what he is looking at the confidence level that we have in the pipeline at the start of the year compared to prior years, we feel very good about that forecasted topline revenue in the digital business.
Speaker Change: Got you and thanks for taking my questions again.
Speaker Change: Thank you.
Speaker Change: Thank you for your questions and that is all the time, we have today and this concludes <unk> fourth quarter and full year two management before earnings Conference call. You may disconnect now.
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Bob Belknap: Welcome to <unk> fourth quarter, and full year 2024 earnings conference call I would like to remind all parties that youll be in a listen only mode until the question and answer session. This call is being recorded at the request of <unk> I would now like to turn to Bob <unk> T tax group Vice President corporate finance. Thank you Sir you may begin.
Speaker Change: Good morning, and thank you for joining us today <unk>.
Speaker Change: <unk> is hosting this call to discuss its fourth quarter and full year results for the period ended December 31 2024.
Kenny Wagers: Participating on today's call are Ken Tuchman, <unk>, Chairman and Chief Executive Officer of <unk>, Tec, and Kenny Wagers, Chief Financial Officer of GTECH 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 full year.
Kenny Wagers: <unk> 2024 annual report on Form 10-K, before we begin I want to remind you that matters discussed on today's call may include forward looking statements related to our operating performance financial goals and business outlook, which are based on management's current beliefs and assumptions. Please note that these forward looking statements reflect our opinion.
Kenny Wagers: As of the date of this call and we undertake no obligation to revise this information as a result of new developments that may occur forward looking statements are subject to various risks uncertainties and other factors that could cause our actual results to differ materially from those expected and described today.
Kenny Wagers: For a more detailed description of our risk factors. Please review our 2024 annual report on Form 10-K before we proceed I would like to state that our call today will not be addressing Mr. <unk> proposal to take T Tech private.
Speaker Change: The Special Committee of the board formed to evaluate the proposal together with its independent legal and financial advisers continue to engage with Mr. Tuchman and that proposal evaluation is ongoing.
Speaker Change: The company cannot comment on that process and will not be responding to any questions about it.
Speaker Change: A replay of this conference call will be available on our website under the Investor Relations section I will now turn the call over to Ken.