Release Date: August 09, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- TTEC Holdings Inc (TTEC, Financial) reported revenue of $534 million for Q2 2024, showing resilience despite a challenging macroeconomic environment.
- The digital segment continues to perform well, with recurring managed services growing nearly 8% year-over-year.
- TTEC Holdings Inc (TTEC) has successfully diversified its client base, winning new enterprise clients across various industries such as e-commerce, retail, media, and property and casualty insurance.
- The company has doubled the number of partners in its technology ecosystem, enhancing its capabilities in AI, CRM, and analytics solutions.
- Cost optimization initiatives are expected to deliver approximately $10 million of in-year savings and annualized savings of at least $30 million starting in 2025.
Negative Points
- TTEC Holdings Inc (TTEC) recorded a goodwill impairment charge of $196 million due to a decline in market capitalization, significantly impacting GAAP results.
- The engage segment faced headwinds, with revenue declining 13.5% year-over-year, primarily due to challenges in the healthcare and public sector verticals.
- The company revised its full-year 2024 financial outlook downward, reflecting weaker demand from embedded base clients, especially in the healthcare sector.
- Free cash flow decreased to $35 million in Q2 2024 from $77 million in the prior year, attributed to lower profitability and working capital conversion.
- Net debt increased by $49 million over the prior year, resulting in a net debt-to-EBITDA ratio of 3.8 times, indicating higher leverage.
Q & A Highlights
Q: Ken, I'm wondering how much of this, would you credit to AI in some way, shape or form, in terms of not necessarily AI impacting the inbounds that you're getting yet, but just really a crowding out of the focus for companies moving forward with other initiatives that might have positively impacted your business?
A: To be frank, I think very little to none. Many of our clients are still just trying to get to the cloud and modernize their digital capabilities. The ones working on AI are mostly in the experimentation stage. The macro headwinds affecting our verticals are more due to consumer caution and slowdown.
Q: Your kind of drawing a little bit of a line in the sand, that the second quarter will be the peak of the headwinds in the engage business. Just help us understand the comfort you have in that statement sort of what backs that up.
A: We have good tailwinds around operational rigor and cost-saving actions worth $10 million in-year savings and over $30 million as we exit 2024. We've also brought in industry veterans to drive value. On the revenue side, seasonality and new enterprise clients give us confidence in the trend going forward.
Q: Can you comment a little bit on whether or not you're seeing a competitive pricing environment impacting the engage segment?
A: No doubt it's a competitive environment, especially for companies willing to trade off quality for price. However, we feel good about the work and commercial structure with our new enterprise clients, which we expect to be accretive to our core business.
Q: On those several new enterprise clients, were those competitive wins or competitive displacements? And overall, how do you feel about your positioning in the market and your ability to take market share?
A: Absolutely, they were competitive wins, displacing partners in every case. We feel good about our vertical expertise and expanded geographic footprint. We're serious about diversifying our business and feel good about the breadth of these wins.
Q: In the digital business, you mentioned there were some project delays. Can you just elaborate on that a little bit? What caused that -- what technology are?
A: These delays were specific client situations, not related to any particular technology. These programs are now underway, and the delays were due to clients being ready to start programs.
Q: Can you give us an update on what you're seeing on the vendor consolidation front? Is it still playing out the way you expected?
A: We see vendor consolidation playing out, with some competitive wins coming from companies consolidating their vendor network. We also see opportunities where work is being done in-house, and clients are leveraging our new offshore footprint.
Q: On the softness in the healthcare vertical this year. Is there any way these headwinds could persist next year as well?
A: The healthcare industry is facing increased claims due to post-COVID and changes in federal reimbursements. This is a temporary measure, and we are confident that the industry will work through this.
Q: What's causing the incremental decline relative to like three months ago when you gave the full year guidance?
A: The change in our guidance was based on factors in healthcare and public sector clients. We see growth coming from new clients across verticals and expanding with our embedded base clients.
Q: Can you talk about some of the factors there your ability to protect the bottom line of top line softness, and some of the incremental actions that you're taking?
A: The incremental actions include cost-saving measures worth $10 million in-year savings and over $30 million as we exit 2024. We are optimizing our offshore footprint and focusing on tightening up operations across the board.
Q: The exits of underperforming client programs, is that largely cleaned up?
A: Yes, it has largely played out. Our focus now is on delivering great service for our clients, tightening up operations, and winning new business with existing and new clients.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
