Paul Miller - Head of IR, Senior VP & Treasurer Kenneth Tuchman - Chairman & CEO Regina Paolillo - Executive VP and Chief Financial & Administrative Officer.

Analysts:.

Thank you all for standing by, and welcome to the TTEC's Fourth Quarter and Full Year 2017 Earnings Conference Call. [Operator Instructions] This call is being recorded at the request of TTEC. I would now like to turn the call over to Mr. Paul Miller, TeleTech's Senior Vice President, Treasurer and Investor Relations Officer. Thank you, sir.

You may now begin..

Good morning. And thank you for joining us today. TTEC is hosting this call to discuss its fourth quarter and full year financial results for the period ended December 31, 2017. Participating on today's call are Ken Tuchman, our Chairman and Chief Executive Officer; and Regina Paolillo, our Chief Financial and Administrative Officer.

Yesterday, TTEC issued a press release announcing its financial results. While this call will reflect items discussed within that document, we encourage all listeners to read our 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 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.

Such factors include, but are not limited to, reliance on several large clients, the risks associated with large - low 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 impairments or restructuring charges, as well as the potential impact to the financial results due to foreign exchange re-fluctuations or other legislative developments in the United States or other countries where we do business.

For a more detailed description of our risk factors, please review our 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, TTEC's Chairman and Chief Executive Officer..

TTEC Digital and TTEC Engage, the map - that map to our client-specific business challenges and their customer needs. TTEC Digital unites our consulting and our technology services into a true digital platform, while TTEC Engage operates and delivers best-in-class frontline customer interactions globally, working side-by-side with TTEC Digital.

TTEC digital combines customer experience, consulting, analytics, systems integration and ongoing technology operations.

Through TTEC Digital, we're designing context-aware, insight-driven, omnichannel customer journeys, and then bringing them to life with enabling systems on our own cloud-based technology platforms, leveraging knowledge management and machine learning and artificial intelligence.

TTEC Engage houses TTEC's global delivery center of excellence that operates managed services to help clients acquire, retain, grow and serve and protect their customers across every touch point across the globe at scale.

Through TTEC Engage, we're enabling clients to increase revenue, reduce cost and build customer lifetime value and affinity by combining the compassion and creative - creativity of human talent with the convenience and efficiency of technology. After 35 years, TTEC is a very different company, operating on a very different plain field.

Our solutions portfolio is strategically enriched with relevant digital capabilities, including omnichannel, AI, machine learning, analytics and IoT, to name a few. Our diverse client portfolio includes blue-chip brands and dynamic and well-known industry disruptors who share our obsession with customer experience excellence.

Our deep and talented employee population across the globe of over 50,000 customer experience professionals includes CX strategies [ph], process experts, knowledge-based curators, user experience designers, technologists, engineers, analytic PhDs, fraud investigators and frontline brand ambassadors.

In a world where every touch point is an opportunity to build an engagement and brand advocacy or potential point of failure, our customer-focused approach is more relevant than ever. Today, customers expect simple, convenient and trustworthy interactions.

They expect to be valued and treated like individuals who can effortlessly interact over the touch points of choice and seamlessly move between channels without loss of information. They want their issues resolved on their terms and in context to their particular situation.

They want the company to have an understanding of the interactions and transaction history and treat them with empathy, compassion and respect.

As the lines blur between digital and physical interactions, modern omnichannel interaction hubs have become the focal point for customer acquisition, retention and customer loyalty and the central source for customer insights. They've become the nerve center for customer centricity and have continued to rise in strategic importance.

Companies are realizing that the old way of managing customer interaction no longer works. They're seeking guidance from experts like us who understand how to link the needs of increasingly demanding, fickle, hyper-connected customers with the technology and data-rich capabilities of a high-performing modern interaction hub.

Synchronizing the complex match of crisscrossing channels and real-time information takes a combination of strategy, technology, process excellence and well-trained compassionate people. Most companies have some of the pieces but very few have them all.

Many companies are operating pilot projects but very few are managing operationalized programs that cut across an enterprise at scale. It is no surprise that these one-off disconnected strategies that happen inside a company turn into frustrating and disjointed customer experiences. You know those bad experiences, each of us has from time to time.

Being stuck in the agony of IVR voice trail [ph] or being asked to verify your information repeatedly as you're transferred from associate to associate, only to have to start from scratch when a new person finally arrives on the other end of the line. Come on. This is 2018 for God sakes. Customers deserve better, and that's where TTEC can help.

The good news is that there are some strong examples of amazing customer experience in the market, and we're proud to be supporting several of them. These CX leaders are the companies that we all love and look forward to doing business with.

They are digital, seamless and fun to engage with, and are going faster and retaining customers at a much higher rate than their laggards. These leaders have set a high bar, and are forcing brands across the globe to do far more than rethink their operations.

Companies are beginning to re-imagine their business to take advantage of the new technologies and capabilities that enable them to put their customers up front and center. And that is where we come in. Companies can't fix the experience in isolation.

They need well-orchestrated end-to-end solutions that deliver comprehensive journey maps, advanced analytics, omnichannel platforms, dynamic learning engines and a culture that is ready to embrace change.

With TTEC Digital and TTEC Engage, we're providing clients with a modern, modular platform designed to help them navigate their digital trail of information journey.

From the day our company was founded, we are focused on only one thing, helping the world's most respected and iconic brand, build unbreakable bonds with their customers by delivering amazing customer experiences. While the touch points, technologies and methods may have evolved, the customer experience has always been our true north [ph].

Because of this singular focus on the customer experience and our continued investment in innovation, today, we are uniquely positioned to be the partner of choice in customer experience transformation, and the market is ripe with opportunity.

We have the momentum, global scale and unified offering to continue leading the market as the only true end-to-end customer engagement service partner in the world. Every year, we grow stronger in our resolve, and we are seeing leading indicators of progress.

Our clients are flocking to our innovation labs and participating in our innovation days to envision and map their transformational journey. Our conversations with buyers are focused on total value delivered and partnerships for future growth.

We are designing solutions alongside clients to share risk and rewards, they are viewing as their customer experience architects and trusting us as their strategic partners. And we're seeing past clients return to us with a deeper appreciation for quality of the customer experience, balanced with traditional metrics like efficiency and cost.

With fortitude and conviction, we’ve been delivered in our strategy to invest in innovation and have refused to cut corners that would impact our quality. We have sculpted our business carefully, and we are truly proud of where we are positioned today. Our prestigious client base is expanding.

Our balance sheet remained strong, our platform is proven and continues to evolve, and our talented team of 50,000 employees are excited and energized about our new brand and integrated capabilities.

Further, we continue to utilize our capital to balance organic investment in the business, as well as acquisitions, dividends and share repurchases to maximize shareholder value. As we move into 2018, our momentum is accelerating. We are growing and we're excited as ever about our future.

On behalf of our executive team, Board of Directors and our employees across the globe, thank you for your continued support, and I will now turn the call over to Regina..

Thanks, Ken, and good morning, everyone. As Ken mentioned, we had a strong finish to the year with results exceeding our full year expectations and guidance. We are particularly pleased with fourth quarter execution in our healthcare, retail and government verticals.

We exceeded the returns we anticipated from the investments made in the third quarter to prepare for record seasonal volumes. Turning to our fourth quarter 2017 results on a GAAP basis.

In the fourth quarter of 2017, we reported revenue of $426.6 million compared to $404 million - $344.9 million in the prior year, and $36.6 million of operating income compared to $6.2 million in 2016.

The operating income in the fourth quarter of 2017 and '16 included two point - $10.2 million and $27 million of restructuring, integration and impairment charges, respectively. Including a one-time $62.4 million deemed mandatory repatriation tax related to the enactment of the 2017 U.S.

Tax Cuts and Jobs Act, our GAAP loss per share was $0.89 in the fourth quarter 2017. This compared to a loss of $0.01 in the prior year quarter. Normalized, which also adjusts for restructure, integration, impairment and other one-time items, our earnings per share was a positive $0.67 compared to a positive $0.42 in the prior year quarter.

Consistent with prior quarters, the remainder of my financial comments are on a non-GAAP basis, which exclude restructure, integration and impairment charges and the assets that we are exiting.

Additionally, and given we are accounting for the minority share buyout under the liability method, any changes to the fair market value of the buyout will be accounted for in other income expense and excluded in the computation of our non-GAAP-based EPS.

In the fourth quarter and full year 2017, we recorded $1.2 million of expense related to the buyout liability. A reconciliation of our GAAP to non-GAAP numbers is included in the tables attached to our press release. Related to the assets we are exiting. We made significant progress in 2017.

We sold our underperforming Avaya business within our CTS segment in the second quarter and digital marketing business within our CGS segment in the fourth quarter. We continue to evaluate alternatives for exiting the CSS Middle East consulting business. Now turning to our fourth quarter 2017 non-GAAP results.

Revenue increased 25.4% to $423.2 million over the same period last year, of which 7.5% was organic. Operating income increased 39.4% to $47.5 million over the prior year period, or 11.2% of revenue versus 10.1% last year. Foreign exchange have positive $2.5 million impact on revenue and a $1.4 million positive impact on operating income.

The over-performance in the fourth quarter 2017 in part is due to approximately 23 [ph] million of CMS volumes related to U.S. disaster recovery work we executed on behalf of FEMA [ph]. New business signings in the fourth quarter of 2017 were a solid $119 million compared to $122 million in the prior year quarter.

We are pleased with our fourth quarter and full year bookings results.

The results of the sales restructure we executed in the second half of 2016, which simplified our go to market, improved our sales talent and cost their -- more predictability as resulted in more pursuits, improved win-loss ratios, a growing average deal size and a significant improvement in the individual selling performance of our sales executives, client partners and operational leaders.

Our reported tax rate in the fourth quarter of 2017 was 243.9%, reflecting the previously mentioned onetime tax provision related to the new U.S. tax reform legislation. This compares to a 94.8% tax rate in the fourth quarter of last year, which was impacted by large restructuring and impairment charges.

The normalized tax rate was 29.2% in the fourth quarter of 2017 versus 38.6% in the prior year quarter. Capacity utilization was 83% in the fourth quarter of 2017, representing a 300 basis improvement year-over-year. Capital expenditures were $8 million in the fourth quarter 2017, down from $12 million in the prior year.

For the full year of 2017, CapEx was $52 million or 3.5% of revenue compared to $50.8 million or 4% of revenue in the prior period. Regarding capital distribution. The company paid a $0.25 per share or $11.5 million semi-annual dividend on October of 2017, a 25% increase over the distribution paid in October of last year.

In late February 2018, the Board declared the next semi-annual dividend of $0.27 per share payable on April 12, 2018, to shareholders of record on March 30, 2018. In 2017, we deployed approximately $217 million of capital across acquisitions and other strategic investments, dividends, share repurchases and capital expenditures.

As Ken mentioned in his closing remarks, we plan to continue deploying capital to maximize shareholder value. Our fourth quarter 2017 cash flow from operations was a negative $36.5 million compared to a positive $1 million in the prior year.

The decline relates to an increase in working capital tied to $82 million of incremental revenue and the Connextions and Motif acquisition. Fourth quarter DSO was 85 days, higher than the 79 days reported last year due to significant revenue increase in several large client payments that moved into the new year.

We anticipate DSO to improve in the first quarter of 2018 given strong year-to-date collection activity. Turning to our fourth quarter 2017 segment results, which are presented on a non-GAAP basis. CMS as revenue grew 34.1% to $343.3 million over the prior year quarter, which included 8.8% organic growth.

As mentioned earlier, CMS's revenue included approximately $23 million of FEMA disaster recovery work and a positive $2 million foreign exchange impact. CMS's operating income was $39.2 million or 11.4% of revenue versus $27 million or 10.4% in the prior year period.

In the fourth quarter, the operating income grew 45.4% or 32.1% of revenue growth, demonstrating the significant opportunity for margin expansion as we scale CMS's top line, and benefit from both optimization and our cost of goods sold and SG&A cost.

We anticipate the continuation of our traditional seasonal cycles with a sequential top and bottom line improvement in CMS's segment throughout 2018. Our recent acquisitions are also delivering as expected and are positioned for meaningful, profitable growth in 2018.

CGS's revenue was $30.9 million in the fourth quarter of 2017, down 9% over the prior year period. Operating income was $2.1 million or 6.9% of revenue compared to 8.5%. 2017 was a turnaround year for our CGS segment.

While taking more time than anticipated, we made progress on several fronts, including our focus on those markets, clients and solutions with the greatest opportunity for growth and profitability, improving our delivery cost, rationalizing underperforming programs and enhancing our go-to-market approach.

We are particularly encouraged by the fourth quarter significant bookings, driving a noteworthy increase in CGS's revenue backlog, as well as a growing pipeline as we head into 2018. Given the strong backlog, we anticipate improved revenue and operating income performance in 2018.

CGS's revenue increased to 21.6% to $33.5 million in the fourth quarter of 2017, and operating income doubled to $4.4 million, representing 13% of revenue compared to 7.9% in the prior year period.

As Ken highlighted, we are seeing favorable trends in our CTS segment, with another quarter of strong bookings and strong demand for our highly profitable cloud platform and related services.

We're also seeing favorable developments in our pipeline both from direct sales and our channel partners, with a growing average deal size and broader industry diversification. Our CTS segment reported four consecutive quarters of operating income and margin improvement on full year revenue growth of 8.5%.

We anticipate further margin improvement in 2018 from higher revenue - revenue mix and realized efficiencies as we further prioritize our focus on delivering cloud-based technology, architecture and services. CSS's revenue was $15.5 million in the fourth quarter of 2017, down 2.7% over the prior year period.

Operating income was $1.8 million or 11.5% of revenue compared to 12.7%. While revenue was slightly down year-over-year, revenue increased 7.3%sequentially.

This is primarily due to the streamlining of our customer experience solution [ph] portfolio to better align the CSS's strategy and talent with those practices that create synergies with our Engage and Digital technology centers of excellence.

We continue to view CSS's consulting competencies across customer strategy, analytics, service optimization, sales transformation and content development and curation as essential capabilities in our integrated offering and differentiated approach to customer experience and engagement.

We are seeing higher market demand for customer experience transformation, as our clients seek brand differentiation through a more personalized and frictionless customer interaction. Driven by a significant improvement in backlog, our unified go-to-market strategy and new segment integrated solutions, we expect CSS to grow in 2018.

With increased volumes, we expect to see improve utilization and continued expansion of CSS's operating income margin. Turning to our full year 2017 financial results. On a GAAP basis, revenue increased 15.8% to a record $1.48 billion. Operating income increased from $52.8 million or 4.1% of revenue to $100.5 million or 6.8% of revenue.

The 270 basis point improvement in the operating margin is attributable to improvements in our SG&A and D&A [ph] as a percentage of revenue and significant reduction in the restructuring, impairment and integration cost, offset by higher cost of goods sold as a percentage of revenue associated with significant growth in our U.S.-based healthcare business.

On a non-GAAP basis, our 2017 revenue was a 146 [ph], a 17.3% increase over the prior year, inclusive of the FEMA disaster recovery work mentioned earlier. Organic revenue accounted for 4.3%. We realized noteworthy growth in CMS and, in particular, in our healthcare government [ph] and travel and transport verticals.

CTS's business advanced its growth rate and increased demand for on-premise and cloud-based solutions. This was partially offset by revenue declines in our CGS and CSS segment for the reasons previously shared. On a GAAP operating - on a non-GAAP operating income, it was $222.5 million, up 29% over the prior year.

Our operating income margin was 8.4% of revenue versus 7.6% last year.

Margins were favorably impacted by improved utilization of our facilities, technology and fixed human capital expenses and foreign exchange, offset by a 90 basis point reduction in the operating margin from the restoration of our performance-based variable compensation tools, which were significantly lower in 2016.

We expect the variable compensation tools to be fully restored in 2018. On a full year basis, the normalized tax rate was 24.4% in 2017 versus 23.3% last year. Our non-GAAP normalized EPS was a positive $1.80 compared to $1.32 last year. I want to make a quick comment regarding our material weaknesses.

I am pleased to report that in conjunction with our 2017 year-end testing, we have cleared the final two material weaknesses, allowing us to represent a system of effective controls over our financial reporting.

We appreciate the hard work of our finance and accounting teams in not only re-mediating the material weaknesses, but in establishing enhanced financial reporting processes, procedures and controls. Before I share our 2018 guidance, I want to comment on the recently enacted U.S. tax reform legislation.

While certain tax regulatory language has not been finalized, we can't believe - currently believe that the legislation will have two important impacts on TTEC. The first item relates to the potential to repatriate cash to the United States.

The onetime mandatory repatriation tax on cumulated foreign earnings accrued in the fourth quarter of 2017 was payable over the next 8 years will increase our flexibility to consider the permanent transfer of a portion of our existing offshore cash to the U.S. on a more tax-efficient basis.

Going forward, under the territorial tax system, we may further consider the repatriation of additional non-U.S. excess cash. We view this change as having a positive impact on TTEC, affording us improved mobility and utilization of a worldwide cash resources. The second item relates to our estimated effective tax rate. While the U.S.

federal corporate income tax rate will decline as a multinational corporation, TTEC may be impacted by incremental taxes, primarily associated with the alternative base erosion and anti-abuse taxes. While the full impact is not clear, given pending guidance, we estimate our 2018 effective tax rates in the range of 24% to 26%.

This compares to our normalized full year effective tax rate of 24.4% in 2017. With regard to ASC 606. We deem the adoption of this accounting standards update on revenue from contracts with customers, which we will implement using the modified retrospective basis, to have a minimal impact on the company's financial performance.

We will implement the updated guidance as of January 1, 2018, and expect to recognize a cumulative effect adjustment in the range of $9 million to $12 million related to the net income associated with certain revenue and expenses that will be deferred from periods prior to December 31, 2017.

We estimate the annual future benefit of this deferral to be offset by deferrals related to new contracts. We are pleased with our 2017 performance, which exceeded our expectations and guidance.

In addition to our unwavering strategic focus to differentiate our solution portfolio and improve our go-to-market platform, it is clear that the sales execution and profit optimization initiatives that we executed in 2016 were a noteworthy catalyst to our record 2017 performance. We are well positioned for further profitable growth in 2018.

Our revenue backlog is a premium to prior years. Our cost structure is streamlined and our sales and operating teams are aligned to deliver our full suite of unified capabilities across TTEC Digital and TTEC Engage.

As I comment on guidance, it is important to remember that our outlook excludes impairment, restructuring and integration charges and the CSS Middle East business, which we are exiting. At this point, we expect the impact of foreign exchange rates on our financial results to be immaterial in 2018.

We estimate full year 2018 guidance as follows, revenue between a $1505 [ph] billion and a $1525 [ph] billion, representing a year-over-year increase between 3.3% and 4.7%. Excluding 2017's FEMA disaster recovery volumes, which we have conservatively eliminated from our 2018 estimates, the growth rate is estimated to be between 5.1% and 6.5%.

EBITDA margin between 13% and 13.3%, including a 25 basis points adverse impact from onetime cost related to our name change and a 30 basis point impact from the restoration of variable compensation tools. Excluding these amounts, the EBITDA margin would be between 13.6% and 13.9%.

Operating margin in the range of 8.7% to 8.9%, excluding the cost related to the name change and restoration of the variable compensation tools, the operating margin will be between 9.3% and 9.5%. Capital expenditures, up 3.8% of revenue, and a full year effective tax rate between 24% and 26%.

On a full year basis, and using the midpoint of our guidance, we expect 2018 segment performance as follows. CMS revenue growth of approximately 2.2% and operating income growth of 4.8%. Excluding FEMA, CMS's revenue growth rate is approximately 4.6%. CGS's revenue growth of approximately 7.1% and operating income growth of 24%.

CTS’s revenue growth of approximately 15.8% and operating income growth of 26%. And CSS's revenue and operating income growth of approximately 4.5% each. We expect approximately 47% of our revenue and 38% of our operating income in the first half of 2018. I’ll now turn the call back to Paul..

Thanks, Regina. As we open the call, we asked that you limit your questions to one or two at a time. Operator, you may in our open the line..

Operator:.