Paul Miller – Senior Vice President, Treasurer, and Head of Investor Relations Ken Tuchman – Chairman and Chief Executive Officer Regina Paolillo – Chief Financial and Administrative Officer..

Mike Malouf – Craig-Hallum Capital Group Steve McManus – Sidoti & Company LLC Frank Atkins – SunTrust.

Welcome to TeleTech’s First Quarter 2016 Earnings Conference Call. I would like to remind all parties that you will be in a listen-only mode until the question and answer of today’s conference call. This call is being recorded at the request of TeleTech.

I would like to turn the call over to Paul Miller, TeleTech Senior Vice President, Treasurer, and Head of Investor Relations. Thank you sir, you may begin..

Good morning and thank you for joining us today. TeleTech is hosting this call to discuss its first quarter 2016 results ended March 31. 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 first quarter 2016. While this call will reflect items discussed within those documents we encourage all listener’s to read our first quarter report on Form 10-Q.

Before we begin I want to remind you that matters discussed today on this 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 associate with lower profitability from or the loss of one or more significant clients, execution risks associated with ramping new business 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 fluctuations.

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’ll now turn the call over to Ken Tuchman, our Chairman and Chief Executive Officer..

Thank you, Paul and good morning everyone. While we had a decline in our first quarter 2016 results relative to the prior year quarter, it should not be interpreted as an indicator of the year ahead.

We remain confident in our strategy, we are on target with our internal plan, and we expect to achieve our full year guidance communicated earlier in the year. In a few moments, Regina will provide greater detail into our performance as well as outline the key factors that will bridge our first quarter results to the full year guidance.

In the meantime, I want to provide some context around our transformational journey and share some positive indicators of our progress.

When we set out to revolutionize our business several years ago, we created a bold strategy, and designed a road map to move our business from a labor intensive commodity to a technology enabled managed services company.

Today, we have diversified well beyond our heritage customer care competencies to include more integrated outcome based capabilities, inclusive of consulting, technology, data analytics and digital solutions. In the midst of an economic and technological revolution.

We have been building a strategically relevant value proposition that will enable our company to thrive for decades to come. While our first quarter results bring to light some anticipated headwinds which Regina will describe shortly, we remain resolute in the path forward.

Over the years, we have intentionally invested in our business by diversifying our product and service mix. Today, we have built strong foundation and an ample flexible to work through variability in the businesses while achieving our medium and long term goals. Here are the trends we are experiencing that give us continues confidence.

Our integrated value proposition is a competitive differentiator. Over the past year, we have added 40 new significant client relationships the majority of which are global 1000 companies with deep wells of opportunity across our suite of offerings.

These companies have identified customer experience as their competitive differentiator and are looking to us for thought leadership and operational excellence to help them achieve their goals. During this period, we also saw a 38% increases in the number of existing clients taking more than one service across our segments.

This progress is a direct result of our ability to demonstrate our solutions, reduce customer effort, increases customer loyalty, and improve operational effectiveness. Our customer growth services offering with its unique outcomes based model is an essential new approach to drive revenue for our clients.

With over 30 percent year-over-year revenue growth this quarter and a strong pipeline, we have cracked the code on how to drive growth in a digital buying journey, more consistently delivering results that exceed client expectations, by using our proprietary data analytics and digital tools to deliver a positive outcomes.

Demand is growing for our omni-channel cloud contact centers solutions offered by our customer technology services group. Given the ease, speed, and reliability of deploying a sass model we are seeing increased market activity to move from on premise to cloud based solutions.

This quarter, we signed a partnership agreement with Verizon to white label and product ties our Cisco solution at their unified CX offering. This opens up an entirely new sales channel and pipeline for our business. Through this partnership, we are enabling the Verizon sales force to offer our solution to their enterprise customers.

We have a strong revenue backlog, and new business pipeline, that gives us confidence in the year. We are moving client conversations out of procurement and into the board room, and our message is resonating. Today we expect the sequential increase in bookings into the second quarter.

Including continued performance in new clients and an uptick from signings in our imbedded base we are estimating bookings in the second quarter at a level that will deliver the first half 2016 versus first half 2015 growth rate of approximately 10%.

Looking ahead, in this increasingly mobile and rapidly changing world, a new play book is required, successful brands are evolving in real time, but struggling to orchestrate more seamless and personalized experiences across every channel.

Our integrated technology enabled manages services platform will continue to drive brand distinction and value by providing technology that simplifies and personalizes customer interaction and experiences.

Services that deliver higher net promoter scores improved customer loyalty, and increase wallet sharing profitability, and last, solutions that provide high value, measurable outcomes as a lower overall cost to serve.

Before I turn the call over to Regina, I want to take a moment to acknowledge the passing of our dear friend and trusted advice sort Jim Barlett, who served as the Director and Vice President of TeleTech for over 15 years.

Over the course of his successful career as an executive officer he made an indelible mark on many business and the lives of tens of thousands of people. He was a consummate gentleman, a patriot, a visionary, and an incredibly generous and caring friend to all, thank you, Jim, you will be truly missed. I will now move on to Regina..

Thank you Ken, and good morning everyone. Let me start with some context on the first quarter year-over-year comparison as it relates to bookings revenue and operating income. I will then provide details on each of our segments and conclude by bridging our first quarter results to our full year guidance.

Our bookings were $100 million down 16.7%, after record quarterly bookings in 2015, CGS grew bookings another 10% year-over-year, exceeding $20 million, a good indicator that CGS is 30% revenue growth remains intact.

Our CSS business has record bookings in the quarter at $29 million, supporting the quarterly sequential growth expected throughout 2016.

While the CMS bookings were lower than expected in the first quarter, early signings in the second quarter and a growing pipeline support the revenue ramp required to return to quarterly year-over-year growth, which we estimate will begin in the third quarter.

TTS bookings were also lower than expected due to avia’s product refresh, including delays in their enterprise cloud platform. The CTS, Cisco platform continues to deliver bookings that support our double-digit Cisco revenue growth expectations.

While our contract signings temporarily dipped in the first quarter of 2016, and were lower than we anticipated, we saw solid growth in CJS and CSS and had over $30 million in bookings with new client relationships. The decline in bookings and the first quarter is simply a matter of timing.

As Ken articulated earlier we expect a sequential increase in bookings into the second quarter and approximately 10% year-over-year growth at the half. Moving on to our financial performance, our GAAP revenue was $312.4 million on a constant currency basis it was $322.4 million, a 1% decline from the same period last year.

Our GAAP operating income was $17.8 million, and $16.7 million on a constant currency basis or 5.2% down from $26.9 million or 8.3% in the prior year. Let me provide some context on declining performance in the first quarter 2016 versus our first quarter 2015.

First of all it is important to most that both or first and second quarters will be down year-over-year, followed by accelerating growth in the second half with full year results estimates to be in line with our guidance. This is supported by our revenue backlog, new business ramps, and new business pipeline.

When we provided our 2016 guidance, we anticipated and communicated a change in the quarterly layout of revenue and operating income.

Based on the composition of revenue backlog, and an early deployment of the plan sales marketing and R&D spend to support our growing top line, we expected less revenue and operating income in the first half versus the second half.

In comparing our first quarter performance to our internal expectations, we would not consider our performance to be off plan. We acknowledge the potential concern regarding our first quarter year-over-year decline in revenue and operating income. But it is not out of sync with our original projections.

What is causing the year-over-year decline? With regard to the year-over-year $13.1 million decline in revenue, $10 million is related to foreign exchange rates, and $3.1 million is related to lower volumes.

While CGS grew 12% to 32.3% as anticipated CMS healthcare volumes were lighter on lower healthcare exchange activity, CTS volumes were flat due to delays in avia’s product refresh, and CSS Middle East consulting business was down due to economic pressure in the region.

With regard to the $8.4 million decline in our operating income, the lion’s share of the decline is related to lower capacity utilization in CMS, and the volume headwinds in the Middle East business. Offset in part by improvements in our CGS and CTS operating income.

As we forecasted our 2016 quarterly revenue and operating income, we planned in the challenges we are facing with regard to our CMS capacity utilization, CTS avia platform, and CSF Middle East business.

Looking at the big picture, we are encouraged by the rapidly growing market awareness in demand but providing innovative frictionless customer experience. We have no reservation on the value of our integrated solutions, nor our ability to achieve profitable growth in 2016. Some additional details on our financial performance in the first quarter.

Our effective tax rate was 27.6%, versus 18% in the prior year due to an adjustment in the tax provision for changes in our Saudi income taxes. The normalized tax rate increased to 22.3% from 21% in the prior year, primarily due to the geographic mix of pre-tax income.

Our GAAP based earns per share in the first quarter 2016 was $0.23 versus $0.38 in the year ago period, and our non-GAAP based EPS was $0.25 versus $0.38. The decline in EPS is primarily due to the lower operating income as previously discussed.

Cash flow from operations was $11.5 million in the first quarter of 2016, compared to $3.8 million in the year ago period. The year so [ph] was 83 days versus 82 days in the year ago quarter.

CapEx was $14.9 million in the quarter up from $13 million over the prior year, we continue to expect 2016 CapEx to approximate 4.5% of revenue, versus 5.3% in 2015. Capacity utilization in the first quarter of 2016 was 73% compared to 80.3% in the prior year.

Lower than anticipated seasonal volume in combination with the timing of program launches to back-fill vacated capacity, from recent program relocations continued into the first quarter. Including our current and future estimated CMS and CGS backlog we expect utilization to reach the high 70’s by the end of the year.

In the first quarter, we repurchased approximately 332,000 shares, for approximately $8.7 million, as of March 31, 2016, it was $35.9 million authorized by the Board for future repurchases. The Board of Directors also declared a $0.185 per share semi-annual dividend in the first quarter of 2016 which was paid in April.

Cash and debt at quarter end was $75.4 million and $141.7 million, respectively, resulting in a net debt position of $66.3 million, a modest decrease over the same period last year. Moving now to a review of our segments. My comments will reference the non-GAAP constant currency results.

CMS revenue was $236.8 million down 2.6% over the prior year period. While the segment had solid performance across the majority of accounts the net reduction in revenue was primarily due to lower seasonal work that carried over from the fourth quarter for reasons we previously discussed.

CMS’s operating income in the first quarter of 2016 was $14.5 million or 6.1% compared to 9.3% in the year-ago quarter. The operating margin decline is tied to the lower utilization and to a lesser extent, increases in depreciation expense in non-recurring severance expenses from work relocated back to the U.S.

We are experiencing a strong pick up – uptick in the CMS second quarter bookings pipeline across existing clients and new clients with solid progress on signings already in the second quarter. With the new business signings contracted to-date, we have a significant increase in CMS revenue backlog.

A particular note is the increase in full time healthcare work, which will result in a reduction in the percentage of seasonal work improving our cap – capacity utilization, leading to improved operating margin.

Tracking previous years CMS second quarter revenue and operating income are expected to sequentially decline into the second quarter followed by sequential growth in each of the third and fourth quarters. With strong top line improvement in the second half alongside increased utilization, and improved overhead absorption.

We expect CMS’s revenue to grow approximately 1% before FX adjustment at 3% on a constant currency basis. We expect operating margin on a full year basis to improve versus 2015 by approximately 50 to 70 basis points. Customer growth services first quarter 2016 revenue was $34.3 million, up 32.3% over the year-ago period.

Operating income was $686,000 or 2%, compared to a profit of $26,000 or 0.1% in the prior year. Strong market demand for outcome based analytics rich digital campaign management capabilities is fueling CGS’s continued top line growth. In the first quart ever we had seven programs and ramps continuing four new clients and three expanding clients.

With the first quarter plus $20 million in bookings, we have good visibility into CGS’s continued growth.

While CGS’s the first quarter 2016, 2% operating margin is lower than our targeted double-digit margins for this business, it was a function of the number of program ramps in conjunction with an increase in the operating overheads early in the year to maintain our high standards of delivery and continued growth.

Based on our current and estimated backlog, we expect full year growth rate at approximately 30%, and a full year operating margin that hits double digits and important milestone for CGS in 2016.

Customer technology services first quarter 2016 revenue was $35.3 million, down 1.2% from $35.7 million or 7.6% of revenue in the first quarter, up from 5.6% or $2 million in the same period last year.

We are seeing a widening separation in CTS’s revenue mix with growth for modernizing customer experienced technology coming from Cisco based infrastructure and solutions offset by lower demand from avia, we attribute the lower avia volumes to both product and decision making as mentioned earlier.

Excluding the avia platform the balance of CTS Cisco business is solid. Revenue grew 9.1% in the first quarter of 2016 over the prior year period. The operating income grew 82%. And the operating margin crossed the double-digit level at 11.2%.

Further peeling back the onion, with CTS Cisco business, the recurring revenue solutions including managed services and cloud, grew 25%, the related operating income grew 48.3% and the operating margin grew to 33.7%. Customer strategy services first quarter revenue was $16 million, down 23.3% from $20.8 million in the year-ago period.

The segment’s operating loss was $1.2 million in the first quarter of 2016 versus the profit of $2.4 million in the prior year period. The operating income margin was a negative 7.6% in the first quarter compared to a positive 11.6% last year.

The year-over-year decline in revenue and operating income with a function of lower volumes in our CSS Middle East business as well as the timing of certain client projects in some of our practice areas.

CSS had a banner first quarter bookings of just under $30 million, increasingly under the CSS leadership of Robert Jimenez, we are involved in C-suite conversations that are resulting in TeleTech wide integrated and transformational programs. Our consulting teams are also pulling through more CTS, CGS and CMS opportunities.

That said, we acknowledge that the Middle East headwind may take a number of quarters to resolve.

As we complete the build out of geographic practice area and industry leadership in tandem with transforming the Middle East business, our margins will temporarily decline, we expect CFS to be flat on revenue and slightly down on margins, on a full year basis but with a sequential improvement leading to year-on-year revenue and operating income growth by the fourth quarter.

I want to touch briefly on our progress in remedying the outstanding material weaknesses in our internal control system.

We are making headway on the actions we outlined in our 2015 10-K, including expanding and upgrading our accounting talent, optimizing our organization structure, implementing the control design recommendations of our third party independent experts and conducting training, our current plan is to have all material weaknesses remediated by the filing of our 2016 10-K.

In closing, we are reiterating our guidance with revenue in the $1.335 billion to $1.345 billion and operating income margin between 8.1% to 8.3% and capital expenditures at 4.5% percent of revenue.

We estimate 46%, and 54% of our revenue in the first and second half respectively, and we estimate 35% and 65% of operating income in the first and second half respectively. Bridging our first quarter results to full year guidance, I’d offer the following.

At the end of the first quarter, our revenue backlog in our CMS and CGS businesses covers 93% of our full year revenue guidance for these two segments. In CTS our backlog covers 62% of our full year revenue guidance. And in CSS, we had 44% coverage on the full year or 4.2 months of revenue.

These backlog levels are a good indication of achievability of our revenue guidance.

Our bookings to date and new business pipeline including client logos wild expansion, and our embedded base, CSS pull through and third party channel opportunities, amply support the additional booking find we need to close out the remaining net new revenue required to meet our revenue guidance.

There are significant client ramps occurring in CMS, CTS, and especially CGS, as these programs reach steady states they will add significant revenue and gross margin.

As our backlog and new business pipeline convert to revenue, we will improve our capacity utilization on its current 73% to approximately 78%, further advancing our operating income in both CMS, and CGS. We have made significant investment in our sales and marketing platform, increasing the spend over the last several years.

On a forward basis including 2016, we expect these expenses to increase only modestly, and at a discount to our revenue growth. As our volume fills throughout the year on relatively flat SG&A, we will realize an accelerated improvement in our operating income.

The nature of our conversations with our clients and prospects is increasingly more strategic and urgent.

As companies view customer experience and essential cornerstone to creating long-term brand value, our years in investment have transformed the business by assembling a unique, integrated suite of offerings all centered around customer experience, engagement, and growth outcome.

In 2016, we expect to see an increasingly greater alignment between our financial and our market success. I will now turn the call back to Paul..

Thanks, Regina. As we open the call we ask that you limit your questions to one or two at a time, operator, you may now open the line..

Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Mike Malouf with Craig-Hallum Capital Group. Please go ahead with your question..

Great, thank you for taking my questions..

Hi, Mike..

Hi, if we can just start with the CGS side.

I know you are ramping up a lot of as you said seven programs right now, and obviously showing really great growth on the topline, but I am just wondering if you can give us a little bit of color on the bottom line, and how that would ramp up to the double-digit operating margins from pretty low operating margins, of about 2%, in the last quarter, because on a outcomes basis, I am just wondering how you actually get the leverage there that you weren’t getting in the first quarter..

Yes, so number one, I would further – kind of highlight the fact that seven accounts combination of existing and new, represent about 45% of the client basis. So it is a bit of a tug on the operating income of those other clients.

The second thing is that if this business is going to get to that 30% growth, which means it is $165 million, $166 million for the full year, you can see that it needs to ramp up another $11 million, and I would say it’s very simply the fact that as I go back to the number of ramps, we have in many of our clients we have a fixed cost for a period of time.

We then convert to variables. That fix cost protects our operating income to some extent during the ramp, but it is the step up in the variable component when we go to 100% outcome that gives us that premium operating income margin off the premium results.

But the second thing, back to my point on getting the $11 million of additional revenue, that $11 million is essentially SG&A free. It is not only SG&A free, there are overheads within the business in terms of the leadership RVPs, RSVPs and so on.

So it is simply a matter of getting those clients to their outcome based pricing which gives us premium, and secondly, the fact that for the balance of the year we have layered into Q1 the step up in any of that SG&A that will happen in this year, and we get those – that ramp revenue what I would say overhead free..

Okay, so the cost to provide the revenue really on the gross margin side for CGS is not running ahead of your expectations sort of..

Not at all..

Okay..

No, simply the volume of ramp verses the percentage of ramp verses the existing business..

Got it, and then just as a follow-up, with regards to CSS, do you need a rebound in the Middle East business to sort of reach your goals in the second half? You said that you’d hoped that would get behind you, can you give us..

No, so I want to – what I would say is I will reiterate the fact that the avia headwind, the Middle East headwind, and the capacity utilization headwind, are in our guidance. They always have been.

We don’t give quarterly guidance, part of what happened here is we don’t give quarterly guidance, and so while a little bit challenging to potentially help our analyst get to a point where we would have understood the degree of the down in the first half, but also the degree of confidence in the second half.

Largely because of those backlogs, those backlogs are exactly where we need them to be. And we consider the balance of what we need to book and convert to revenue in year, very doable and reasonable based on the talent we have, based on the pipeline that we have, and based on the historical bookings that we have been able to deliver..

Okay, thanks a lot..

So on the CSS, it is in there and you know the guidance in terms of where we think CSS will be which is kind of flat to last year, with the margins slightly down, and getting back in Q4 reasonable quarter-over-quarter growth, we are confident that we have got the ability to do that..

Okay, great, thanks..

Thank you. Our next question comes from Steve McManus with Sidoti & Company LLC. Please go ahead with your question..

Hey, guys and thank you for taking my questions..

Pleasure..

So first question I wanted to get a little bit more detail as to the time line for capacity utilization recovery.

I know you mentioned by the end of the year 78%, should we expect somewhat of a gradual recovery, or a real big improvement in third and fourth quarter how should we look at that moving forward?.

So as always, history will repeat itself in CMS and we will have a tick down in the revenue as we move through all of our seasonal work. So you will see a slight decline into Q2, and then you will see a very nice ramp, pretty even ramp, going from slight decline from the 73% and then pretty even ramp up to 78% between Q3 and Q4..

Okay, great, thanks a lot.

And then it looks like you guys took on some debt during the quarter, I just wanted to see what you guys are using that for, and any plans to pay that down over the year? Are you comfortable with the levels right now?.

Yes, you are correct in the second quarter, we amended our credit agreement, and expanded the line of credit to $1 billion with an accordion beyond that. And we – look, we continue to expect to deploy our capital for organic growth for executing against our committed dividends, and for buybacks as well as acquisitions.

While we haven’t had an acquisition in over a year, other than a minority interest we made, we are still working hard every day working with our team, to identify and move forward those opportunities and for a variety of reasons, whether it’s price, or ultimately wasn’t a strategic priority, we haven’t closed anything.

But we have high hopes of continuing our acquisition strategy into the future..

Okay, great, thank as lot guys I appreciate it..

Thank you, and our next question comes from Frank Atkins with SunTrust. Please go ahead with your question..

Thanks for taking my question.

I wanted to ask about the pipeline, has it changed relative to your expectations going into last quarter? Is that allowed you to maintain guidance on the revenue side, in terms of maybe it’s coming up better than expected?.

Yes. Our pipeline continues to get better for a myriad of reasons. One, we’re frankly getting better at selling across all the different divisions, and two, what we are seeing is better conversions than what we were seeing previously.

And so we feel very good about the pipeline, and we feel very good about the conversions and the prospects that we have. And obviously, when we look at where we are in the year, it matters greatly to us what we have already closed in second quarter, that gives us confidence that we can bridge the gap.

Sometimes there’s timing issues where deals get pushed by a day, or five days, and we have very, very strict rules on how we account for closed bookings. And so if they miss it by a day, they get pushed into the next quarter, that is all a there is to it. And so we did have some of that happen in first quarter.

But that said, we feel really good about the types of deals that we are working on, and the complexity of how they are working across multiple groups. And then the other thing I would tell you is we are seeing a much higher mix of new logos coming in. So historically, a high percentage of our business typically has only come from our embedded base.

Or majority of which has come from our embedded base, and now we are getting the benefit of seeing both, the embedded base is growing and we adding a lot of very significant new logos. And that’s really important to us. It is all part of our diversification strategy.

It is all part of making sure that we have coverage across all the various different verticals. Since being in this business as long as we have been in it, we realize that these different industries go through periods of very, very strong positive growth, and then they hit pockets where they are hitting headwinds so to speak.

Just as we experienced as an example in our healthcare exchange business, where it was growing at just breakneck speed, and then all of a sudden the healthcare payers have come to realize that exchanges are not all that profitable of a business and so consequently that put pressure on that particular area of our healthcare business.

So we are able to overcompensate with all the other industries and verticals that we are focusing on and all the new logos we are bringing in..

Okay, great that’s helpful.

And could you just update on where you stand in terms of your capacity, and comfort level with the sales team that you have?.

Well, we – fortunately and unfortunately, we are not lacking capacity. So the good news on that is that will give office little bit of relief going forward on CapEx as we infill to the capacity that we have.

So we – and that said, the business that we have already closed and that we have slated for closing we think will do a pretty good job of soaking up some of that capacity. The other thing is that our segments are doing a real good job of feeding opportunities to the various different business units which is great.

Because we want to have that constant push pull across all of our segments. Our GMI is out hunting new logos, and our third party channels which is something that we are putting more energy into is definitively yielding new opportunities many of which we have closed and are going back and working with these channel partners to close more deals.

And then our pull through from CSS, is also working as well, and we – we think that over time as we get more mature in all these different business units we are going to see even better yield than what we are currently seeing..

Great, thank you very much..

Thank you..

Thank you for your questions. That is all the time we have today. This concludes the TeleTech first quarter 2016 earnings conference call. You may disconnect at this time..