Paul Miller - Head of Investor Relations, Senior Vice President and Treasurer Kenneth D. Tuchman - Chairman and Chief Executive Officer Regina M. Paolillo - Chief Administrative & Financial Officer, Executive Vice President and Secretary.

Ross Licero - Craig-Hallum Capital Group LLC, Research Division Josh Vogel - Sidoti & Company, LLC.

Welcome to TeleTech's Second Quarter 2014 Earnings Conference Call. [Operator Instructions] This call is being recorded at the request of TeleTech. I would like to now turn the call over to Paul Miller, TeleTech's Senior Vice President and Corporate Treasurer. Thank you, sir. You may begin..

Good morning, and thank you for joining us today. TeleTech is hosting this call to discuss its second quarter 2014 results ended June 30. Participating on today's call are Ken Tuchman, our Chairman and Chief Executive Officer; and Regina Paolillo, our Chief Financial and Administrative Officer.

Yesterday, TeleTech issued a press release announcing its financial results for the second quarter 2014 and also filed its quarterly report on Form 10-Q with the SEC. While this call will reflect items discussed within those documents, we encourage all listeners to read our Form 10-Q.

Before we begin, I want to remind you that matters discussed on today's call may include forward-looking statements related to our operating performance, financial goals and business outlook, which are based on management's current beliefs and assumptions.

Please note that these forward-looking statements reflect our opinions as of the date of this call, and we undertake no obligation to revise this information as a result of new information that may become available.

Forward-looking statements are subject to various risks, uncertainties and other factors that could cause our actual results to differ materially from those described.

Such factors include, but are not limited to, reliance on several large clients, the risks associated with lower profitability from or the loss of one or more significant clients, execution risks associated with ramping new businesses or integrating acquired businesses, the possibility of asset impairment and/or restructuring charges and the potential impact to the financial results due to foreign exchange rate fluctuation.

For a more detailed description of our risk factors, please review our most recent annual report on Form 10-K. A replay of this conference call will be available on our website under the Investor Relations section. I will now turn the call over to Ken Tuchman, our Chairman and Chief Executive Officer..

making a positive impact on the customer experience at every point of the contact. As the economy continues its recovery and expansion, customer experience will remain at the forefront. As we partner with our clients to ensure their brands deliver an exceptional experience, they will be the long-lasting beneficiaries of increased consumer spend.

As our clients gain increased wallet share, so, too, will we. We continue to believe that the investments we're making in the transformation of our business are well aligned with the needs of the market and will drive continued returns for our shareholders. I'll now turn the call over to Regina..

one with a State Attorney General Office and the other with a federal government agency. These multiyear multimillion-dollar contracts are a strong testament that our cloud-based infrastructure, security standards and ability to customize solutions to meet a wide range of business needs and requirements. Our cloud-based pipeline continues to grow.

The execution miss on CTS is a disappointing one, but it is also one in which the rich contact center technology market opportunity, our extended selling platform, global reach and relevant solution portfolio will allow for a relatively quick turnaround.

Regarding our outlook, we are raising the lower end of our full year 2014 revenue guidance to $1.245 billion from $1.240 billion. To summarize our full year 2014 guidance, we now estimate revenue to range from $1.245 billion to $1.260 billion, reflecting an expected 2% adverse impact from foreign exchange translation.

The estimated operating margin range between 8.75% and 9% remains unchanged. However, we now anticipate approximately $10 million in incremental investment in sales, marketing and research and development versus a range of $12 million to $14 million.

Capital expenditures are unchanged, ranging between $55 million and $65 million, of which 70% is expected through growth initiatives. Appreciating the current focus around our CTS segment, I want to reflect more broadly on the overall performance of our business.

In the first half of 2014, we executed across each of our key priorities and growth drivers.

We grew revenue organically and inorganically, expanded our capabilities into more value-driven businesses, increased our vertical and geographic market share, introduced new integrated products and services and executed on strategic and accretive acquisitions.

Including the significant investments we are deploying to expand our sales channel and innovate our solution portfolio, we continue to improve our gross margin, EBITDA, operating income, EPS and return on invested capital.

We see our strategy resonating in the marketplace and hear the voice of our clients echoing the benefits of our diversified lines of business. We will continue to execute our investment roadmap, pacing the expense in line with our top line progress. With that, I'll turn the call back to Paul..

Thanks, Regina. [Operator Instructions] Operator, you may now open the line..

[Operator Instructions] The first question comes from Mike Malouf with Craig-Hallum Capital Group..

This is Ross Licero on for Mike. I just had a question about the CTS.

Could you give us a little bit more color on the timing of the turnaround? You said it would happen quickly, but is that a 2014 or are we looking more towards 2015?.

Yes. I think you'll see a different second half to the first half. I would suggest that our CTS business will remain fairly flat 2014 to 2013, but that requires a significant uptick in the revenue in the second half, and taking what, at the half, is about 2.9% OI to about 11% in the second half.

So with our current bookings, with the pipeline and importantly, with now the rise -- the kind of -- a faster pace in the rise of our cloud business, which was around $9 million in total for last year, around $4.5 million at the half and will be about $11.5 million for the full year, we expect that to be an important contribution.

This business has just over 50% of it in recurring business. So in terms of the backlog, the bookings in Q2 and our expected bookings in Q3, we believe that we can bring this business back to the 2014 level and then see an important growth rate in double-digit into '15..

The next question comes from Josh Vogel with Sidoti..

I was curious. Of the -- and I may have missed it, but of the $10 million that you're investing in sales and R&D, how much of that was already incurred in the first half of the year? And as we look at your operating margin guidance, it basically implies about an adjusted 10% margin over the back half of the year.

And could you just talk to us how you would get there? Is it going to be utilization improvement? Is it going to be the scale-down of the investment in sales and R&D?.

Yes. So the -- so you're right. The back half of the year will be somewhere between 10% and 10.5%, depending on where the revenue was. I think if you take a look at -- there's a couple of things to consider when you think about that. One is we have an increasingly growing fourth quarter relative to our CMS business.

This is largely a function of the significant health care and retail business that we have. And so you'll see -- you'll continue to see a similar rise that you did in that business last year. We also have a hockey stick relative to Q3 and Q4 on our CTS and our CSS business.

We have the expense of the GMI, the Global Markets and Industries, that started in the second half of this year, continued to grow in -- the second half of last year, continued to grow in the first half of this year. We are now starting to see the yield in the revenue against that investment.

So you'll see a fairly significant rise in the revenue first half to second half. A lot of that is in the backlog in businesses like CTS and CSS. You'll also see a significant rise in CMS, given the seasonal business. And with that, as you did last year, you'll see an impressive incremental margin on that uptick in the revenue.

On your first question, on the investments, at the half, we have about $5.7 million of that $10 million laid in. So you'll see an approximate $4.3 million add to that getting to the full $10 million, with probably about 80% of that in sales and marketing and 20% of that in R&D..

[Operator Instructions].

Yes. Operator, if there are no other questions, you may close the call. Thank you..

You're welcome. There are no other questions. This concludes the TeleTech Second Quarter 2014 Earnings Conference Call. You may disconnect at this time..