Welcome to TTEC's Fourth Quarter and Full Year 2018 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 TTEC.

I would like now to turn the call over to Paul Miller, TTEC's Senior Vice President, Treasurer and Investor Relations officer. Thank you, sir, you may 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, 2018. 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, for complete information about our financial performance in the third quarter, we also encourage you to read our 2018 annual report on Form 10-K.

Before we begin, I want to remind you that matters discussed in 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 developments that may occur.

Forward-looking statements are subject to the various risks, uncertainties and other factors that could cause our actual results to differ materially from those expected or described today. For a more detailed description of our risk factors, please review our 2018 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, who is travelling on business and calling in from a remote TTEC facility..

Thanks, Paul, and good morning, everyone. Thanks for joining. My comments will include certain statements related to our financials which are on a non-GAAP basis. It was without question a year filled with remarkable milestones. In 2018, new business signings reached an unprecedented $600 million, an increase of 36% over the prior year.

Customer Management Services bookings grew 54% and Customer Technology Services grew 69%. Our average deal size also increased driven by noticeable uptick in mega deal wins and an improved mix of cross segment capabilities sold with each deal.

We grew our wallet share in our embedded base by adding new lines of business and selling across segments, booked significant new business and disruptive and hyper growth companies. We yielded positive results from our focus on expanding our client base in Europe and we experienced growing demand for digitizing and automating the customer experience.

This is a market trend for which we have been preparing for, for the past decade. Our investment in innovation is paying off with an increasing number of clients now benefiting from our end-to-end digital transformation offerings. We are excited that we've crossed the $1.5 billion revenue mark in 2018.

We positioned our Customer Management Services business for success in 2019, while gaining noticeable momentum in both our Customer Technology and Customer Growth Services segments. We grew our Customer Technology Services revenue 29%. With its SAS based cloud business growing at 90% and Systems Integration Services growing 29%.

Today, we continue to increase the number of subscriptions base by contacts that are licenses supporting many of the world's most noteworthy enterprises and government agencies. And we're excited about the opportunity in the cloud contact center space.

The trajectory of our digital business overall and we expect the momentum will continue to build over the quarters ahead. We also grew our Customer Growth Services business by approximately 14% and based on our significant bookings and revenue backlog, we anticipate meaningful organic growth in 2019.

We achieved new levels of profitability in our Customer Growth, Customer Technology and Customer Strategy Services segments in 2018. Customer Growth's operating income grew 35% year-over-year, Customer Technology, grew 79% and customer strategy grew 31%.

Although our Customer Management Segment's profitability declined in 2018, we are confident this segment is positioned to expand its profit margin in 2019. We are already seeing profits improve with the increase in volumes from 2018 bookings and the impact from the re-pricing of business that experienced front line wage inflation.

We achieved these milestones by continuously investing in innovation. Innovation has been a priority since our founding 36 years ago. In the last several years, our investments have been our primary focus on positioning the company to excel in today's air of digitization.

Our key technique to identify [ph] assets including strategic consulting, cloud based omni-channel technology and operational delivery have enabled us to uniquely differentiate ourselves in a market where customer experience has never been more important.

Our 2018 bookings an estimated 2019 top line organic growth reflect the market relevance of our strategy, solution portfolio and go-to-market platform. We're proud of the transformation we've accomplished.

We have developed a solution portfolio which is strategically positioned with digital capabilities including omni-channel, AI, machine learning, customer analytics and knowledge management that is positioned for serving our global 1000 customer base.

We've attracted a diverse client portfolio that includes iconic blue chip brands, as well as hyper growth disruptors who share our obsession for customer experience excellence. As these hyper growth clients expand, we are built to scale to meet their needs.

We have an ever expanding global footprint that supports onshore, near shore and offshore capabilities to accommodate each client's unique requirements. We've established long standing trusted advisor relationships with our clients.

Many have partnered with us to become a customer experience leaders renowned for their market share and customer loyalty and are recognized by noteworthy third party organizations including JD Power and Forrester's CX Index.

We've helped these clients achieve leading Net Promoter Scores and CSAT rating, dramatically reduced customer friction and maximized customer acquisition, growth and retention while simplifying and streamlining and automating operations and ensuring safe and reliable customer relationships via leveraging our fraud prevention and detection services.

Our opportunity for a sustainable top line growth is not only bolstered by our reputation as a CX innovator, the transformation we've completed and the client outcomes we've accomplished, it is reinforced by the current market trends.

For example, our addressable market represents now over $400 billion of annual spend giving us ample runway for future growth. Two forces are combining to accelerate the volume interactions between brands and customers. Customer channels are proliferating and the number of brands each of us do with us is multiplying.

In a digital world, interactions will grow to support the expanding number of connections necessary to execute the digital value chain. When engaging in a digital mode, customers have heightened expectations.

TTEC's platform are built to support all modes of engagement, human to human, AI to human, human augmented by AI and many other combinations across channels, including social, in app and web based chat, SMS, email, voice and video.

TTEC provides the omni-channel communication analytics knowledge base and automation platforms, as well as the brand ambassadors and operational processes to enable and enhance every interaction, digital or otherwise.

Emerging business models and new markets like ride sharing, home sharing, meal delivery, streaming services, et cetera are redefining customer expectations and challenging traditional norms.

We serve a growing number of these disruptors while also partnering with more established brands to transform their technology, reinvent their knowledge platforms, modernize their operating processes, recruit, train and manage their customer engagement channel and leverage data rich insights to more effectively compete with companies born digital.

Hyper personalization and digital curation are quickly enabling direct to consumer at scale across industries. As more and more brands look to successfully expand their channels of operations, TTEC is well positioned to provide the strategy, technology and services necessary to advance our clients direct to consumer platform.

Customer optionality is at an all-time high. The more choices the customer has the more journeys a brand must design, implement, and maintain to ensure a consistent, frictionless and satisfying experience. We are increasingly working with our clients to create and orchestrate this proliferation of alternatives and preferences.

It is our history of anticipating and selectively responding to customer experience, trends, opportunities and challenges that have and will continue to enable us to work with the world's most customer obsessed brands.

In closing, I would highlight that it is our strong bookings in 2018 that is driving our expected significant profitable organic growth in 2019. And it's our reputation, history of innovation, customer experience, assets and market trends that should sustain our growth beyond 2019. This year, we are intensely focused on the following.

Achieving our financial targets and ensuring continued healthy organic top line growth in 2019 and beyond, increasing our digital and engage business mix.

Improving customer management services profit margins, expanding our market share in Europe and in the end in disruptive hyper growth categories, rolling our portfolio of technology rich CX solutions.

Expanding our third party reseller channel partnerships and maximizing shareholder value through continuous marketplace differentiation, increased market share, strategic acquisitions, profitable growth and capital distributions.

On behalf of our executive team and all of our 50,000 plus employees, Board of Directors and global employee base, we thank you for the continued support. We look forward to updating you on our progress in the months ahead. And I'll now turn the call over to Regina..

Thanks, Ken. Good morning, everyone. I'll start with some general comments on 2018 focused on our non-GAAP results and excluding assets held for sale as defined in the tables attached to our press release. As Ken indicated, our sales and marketing teams delivered an extraordinary 600 million in bookings in 2018.

While we had a handful of mega deals supporting our 2018 bookings volume, our demand generation and sales execution fundamentals are solid. Market demand is growing as is our pipeline, 18 continued strong bookings. We are well positioned to deliver an estimated total company organic revenue growth rate between 7.5% and 8.6% in 2019.

Revenue generation in CTS and CGS was exceptional with CTS growing, 29% and CGS just under 14%. Profit expansion in 2018 and CSS, CTS and CGS was equally impressive with operating income margins expanding 320 basis points in CSS, 440 basis points in CTS and 140 basis points in CGS.

As previously discussed, CMS was negatively impacted by the timing of booking, US wage pressure and increased mix in onshore volumes, escalated health care costs and the dilutive impact of increased new business rent, all of which have been addressed and are progressing as planned.

The increase in business ramps are the direct result of the growth in bookings and once ramped will be accretive to our current operating income margin. While we achieved the high end of our revenue guidance we missed or profit guidance. This miss was exclusively due to the postponement of a volume commitment fee, which will now be recorded in 2019.

Regarding our progress in mitigating CMSs 2018 headwinds, our fourth quarter CMS bookings reached an unprecedented 115 million. The continued strong new business signing in the fourth quarter resulted in full year bookings growth of 54%.

The highlights of the CMS 2018 bookings includes, six mega deals individually valued at an annual contract value of 20 million, 26 integrated deals, significant expansion in strategic verticals including healthcare, hyper growth disruptors, auto, financial services, and travel and leisure, an important contribution to bookings from our effort to expand our client footprint in Europe and meaningful expansion in our digital interactions.

We continue to make progress in the fourth quarter re-pricing North American based programs with labor rates below market. In total, we re-priced approximately 4200 associate rolls up from 3300 we have highlighted in the third quarter earnings call.

To further expand our profit margin, we have adjusted our new business marketing and sales efforts to drive increased volume in near shore and offshore delivery. We redesigned our North American health care plan, resulting in a plus 4% reduction in 2019's cost per capita.

Having achieved a 54% increase in CMSs bookings, all of which include competitive market labor rate, having completed our North American re-pricing exercise and the redesign of our health care plan, we estimate the non-GAAP CMS revenue to grow between 3% and 4% and the operating income to grow between 14.7% and 8.4%.

When adjusted for one time benefits from the adoption of ASC 606 in 2018, which will not repeat in 2019, 20.8 million in revenue and 11.6 million in operating income, our CMS revenue is estimated to grow between 5% and 5.9% and our CMS operating income is estimated to grow between 44.6% and 49.3% over the prior year period.

While there were headwinds in CMSs profitability in 2018, there were strong tailwinds in bookings overall and in the CSS, CTS and CGS segment performance. Both CTS and CGS had record revenue and operating income.

Having solid CMS headwinds, we are intensely focused on maximizing the tailwinds, which are driving our 2019 total company revenue and operating income guidance. Turning to our fourth quarter 2018 financial results, on a GAAP basis the company reported revenue of 419.1 million, down 1.8% over the prior year quarter.

Operating income was 39 million or 9.3% of revenue compared to 8.6% in the same quarter last year. Diluted earnings per share was $0.44, up from a loss per share of $0.89 in the prior year period. In the fourth quarter 2017, TTEC provided disaster relief services which were non-recurring in nature.

Excluding this program revenue increased 3.8% over the prior year. Fourth quarter of 2018 was impacted by 1.9 million in restructuring charges and 5.1 million in onetime extraordinary items, primarily related to the right off of a contract acquisition cost and trade receivables associated with a client bankruptcy.

Foreign Exchange negatively impacted revenue by 5.4 million and positively impacted operating income by 1.2 million. The adoption of ASC 606 had a positive impact of 4.2 million on revenue and 0.5 million on operating income. Restructuring, FX and ASC 606 primarily impacted our CMS segment. The remainder of my comments are on a non-GAAP basis.

In the fourth quarter 2018, revenue decreased 1% to 418.9 million over the same period last year. Inorganic revenue contributed 120 basis points. Excluding last year's disaster relief program, revenue increased 4.7% over the prior year. Non-GAAP operating income was 46 million or 11% of revenue, slightly down from 11.2%.

Adjusted EBITDA was 64 million in the fourth quarter or 15.3%, a decrease from 16% in the same period last year. Non-GAAP EPS was $0.63 compared to $.69. On a constant currency basis and adjusted for ASC 606, fourth quarter revenue decreased 0.7% and the operating income margin was 10.6%.

Other income and expense was a net expense of 6.3 million in the fourth quarter, which includes a 1.9 million non-cash expense associated with the estimated buy out of the remaining 30% minority interest in Motif, our fraud prevention and detections and content moderation offering. This is in line with Motif's continued over performance.

Our reported tax rate in the fourth quarter 2018 was 36.3%, compared to 243.9% in the prior year period. 2017 higher tax rate is primarily related to a onetime tax provision associated with the new US tax reform legislation. The fourth quarter 2018 normalized tax rate was 27.3% versus 29.2% in the same period last year.

Passive utilization was 80% in the fourth quarter of 2018, down from 83% in the prior year quarter. Our fourth quarter 2018 cash flow from operations was 2.2 million, an increase over the negative 36.5 million reported last year. The cash flow improvement is primarily a function of abduction in DSO to 77 days in the fourth quarter of 2018.

Net that was 226.3 million at December 31, 2018, a reduction of 60.6 million over the prior year periods. Capital expenditures were 11.6 million in the fourth quarter 2018, compared to 8 million in the prior year.

In October 2018, the company paid $0.28 per share or 12.9 million semiannual dividend, a 12% increase over the distribution paid in October of the prior year. In February 2019, the board declared the next semiannual dividend of $0.30 per share payable on April 18, 2019 to shareholders of record on March 28, 2019.

This dividend represents 11% increase over the prior year. I'll now cover our fourth quarter 2018 segment results, which are also on a non-GAAP basis. CSSs revenue was 16.6 million in the fourth quarter 2018, up 7.3% over the prior year. Operating income was 3.2 million or 19% of revenue, up from 11.5% in the prior year period.

We continue to see an improvement in the strategic nature of CSSs bookings mix. Increasingly, the work we do in the CSS is front ending our CTS, CGS and CMS programs. In doing so we are drastically improving CSSs value and its efficiency as demonstrated by the significant improvement in profit margins.

Our CTS segment reported another quarter of record revenue and operating income. Revenue increased 52.8% to 51.2 million year-over-year and operating income increased 121.6% to 9.7 million or 18.9% of revenue compared to 13%. CTS had record bookings in 2018, including a material cloud opportunity that closed in the fourth quarter.

This opportunity is comprised of two year government contracts including designing, building and running and 8000 plus license omni-channel contact center platform. CTSs record bookings in 2018, is driving an estimated plus 40% revenue growth rate in 2019. CGSs revenue increased 22% to 37.7 million in the fourth quarter 2018 over the prior year.

Operating income increased 102% to 4.3 million or 11.4% of revenue compared to 6.9% last year. The improvement is attributable to new client programs, embedded base growth and operating efficiencies. CMSs fourth quarter revenue decreased 8.7% to 313.3 million over the prior year quarter or 2.2% decline excluding last year's disaster relief for.

Inorganic revenue contributed 110 basis points of growth. CMSs operating income was 28.9 million or 9.2% of revenue compared to 39.2 million or 11.4% in the prior year period. CMSs operating income is down for the reasons I shared earlier. Foreign Exchange negatively impacted revenue by 4.7 million and positively impacted operating income by 1 million.

The adoption of ASC 606 had a positive impact of 4.2 million on revenue and 0.5 million on operating income. Adjusted for FX and ASC 606, fourth quarter CMS revenue decreased 8.6% with an operating income margin of 8.7%. For completeness, I'll quickly cover a full year 2018 financial results. On a GAAP basis, revenue increased 2.2% to $1.51 billion.

Operating income was 92.1 million or 6.1% of revenue, down from 100.5 million or 6.8% in the prior year. On a non-GAAP basis, our 2018 revenue was $1.05 billion, 3% increase over the prior year. Inorganic revenue contributed 4.5% or non-GAAP operating income with 106 million or 7.1% of revenue versus 8.4% last year.

Margins were impacted by the CMS challenges I discussed earlier offset by improvements in CSS, CGS and CTS. Other income and expense was a net expense of 35.8 million for the full year, which includes a 9.9 million non-cash expense associated with the estimated buy out of the remaining 30% Motif minority interest.

On a full year basis the normalized tax rate was 25.6% in 2018 versus 24.4% last year. Our non-GAAP normalized EPS was a positive $1.49 per share compared to $1.88 last year. Our full year 2018 cash flow from operations improved significantly from 113.2 million to 168.3 million, a 48.8% increase over the prior year.

The improvement in operating cash flow was attributable to improvements in our cash based income and working capital. Capital expenditures were 43.5 million or 2.9% of revenue for the full year of 2018, compared to 52 million or 3.5% of revenue in the prior year.

The company paid total dividends of 25.3 million in 2018 versus 21.5 million in the prior year, a 17.6% increase. Before I provide our guidance for 2019, I'll share a few important points.

We're well positioned for profitable organic growth in 2019, our pipeline and bookings, our premiums, prior periods demonstrating the effectiveness of our go-to-market platform and demand for our differentiated solutions.

Our revenue backlog is 92% of our 2019 revenue guidance at the midpoint versus 85% in the prior year, which significantly de-risk our top line execution. Our CTS segment has become a prominent technology player in the subscription based contact center market, especially for comprehensive large scale enterprise and government omni-channel solutions.

This is leading to another year of record growth. Our profitability across the segments is estimated to improve at a premium to our revenue growth. Despite including an increase in sales and marketing expense, to ensure we maintain bookings in line with 2018s performance and build revenue backlog to sustain high digit organic growth beyond 2019.

Our bonus and commission programs are directly aligned with financial performance for the de risking operating income performance.

Turning to our estimated 2019 guidance, which excludes impairments and restructuring costs and assets held for sale, our revenue is estimated between 1.614 billion and 1.630 billion, representing an increase of 7.5% to 8.6% over the prior year excluding assets held for sale.

Adjusting for one time ASC 606 impact on 2018, the growth rate is 9.1% to 10.1%. Non-GAAP adjusted EBITDA margin between 12.6% and 12.8%, operating income margin between 7.4% and 7.6%, capital expenditures between 3.8% and 4%, approximately 70% is growth oriented.

Our full year effective tax rate between 25% and 27%, we estimate 47% of the revenue, 43% of our total company adjusted EBITDA and 38% of the operating income will be recognized in the first half of the year.

To obtain our full year 2019 estimated revenue, operating income and adjusted EBITDA outlook by segment, please reference our guidance commentary in the business outlook section to the fourth quarter 2018 earnings press release.

In closing, the global market demand for digital transformation is accelerating as companies realize the urgency and importance that personalized and frictionless customer experience have in building brand loyalty and value. We are well positioned to capitalize on these market dynamics.

Our differentiated solutions of delivering the customer experiences that our clients and their digital savvy customers expect. The current scale and composition of our bookings and revenue demonstrates the markets growing need for digital and analytic rich offerings.

As we move into 2019, we are focused on executing upon our strong 2018 bookings, advancing our market share in the fast growing omni-channel class space, improving CMSs profit margin, expanding our existing client relationships and adding new clients. And I'll turn the call back to Paul..

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

Thank you. We will begin the question-and-answer session. [Operator Instructions] And our first question is from George Sutton of Craig Hallum. Your line is now open..

Thank you. I had a two part question relative to the bookings. Obviously, you're seeing great booking success. I wondered if you could give us a sense of the margin dynamics within that mix of bookings relative to your core - relative to what you had seen in prior bookings.

And secondly, I think the biggest miss read by the market on the stock is some of the things that you do and you specifically called out the hyper growth disruptors, I mean, we know the ride sharing leaders, we know the meal delivery leaders, we know the streaming leaders, I'm curious you can go on a little more detail on the size and scope of that opportunity?.

Hey George, this is Ken. I'll start out with the last part of your question. I think Regina maybe can join in on the first part. I'll try to do as much as I can on giving you some type of background on the disruptors.

Just know that the clients that we work with although they're obvious who they are in many cases, we are not allowed to use their names and so if - I'm not trying to be [indiscernible], but I want to respect their request for that.

So as it relates to the size and scale of these types of disruptors, I would say that it's an ever increasing growing part of our business. And we have many, many thousands of workstations that are committed to the overall on demand marketplace across everything that we described in our script.

So it is sizable and its continuing to grow and we continue to double down in that area. So hopefully that answers your question. I'm not sure that there's a ton more color that I can give you on that without making us a little uncomfortable about talking about clients per se.

Is there anything in particular that you would like to know other than that it is meaningful and its material?.

Well, and I think it's broader than we - obviously, hyper growth disruptors are one area, you've also got technology leaders. I just, I think one of the misperceptions, people don't really understand to use the word sexy, there's a there's a sexy component to what you do and I don't think that's appreciated.

So I was just trying to better understand the skill..

I think it's safe to say that virtually all of the major stocks that are considered the top five stocks, be it Vistra or next genre [ph] and then all the unicorns, a high percentage of them we do business with and our business is growing with them. If that helps, put any more color in that area.

And not only is it growing, but in many cases, it's multinational. So we're not just growing it in the US, we're growing it globally wherever there's an opportunity to do so, because all of these companies are either they already are global or they're going global.

So the travel sector, you can think of major names that are the top kind of fast growing market cap companies, ride sharing, delivery, search engine companies, social media companies, and very large desktop software companies. I think you get the picture..

Absolutely..

So George, I'll answer the first question. I'll take CSS, CTS and CGS, as a group of segments first; I think that's a different story than our CMS. I think you can see from the margins, that it's kind of evident that we have been able to not only sustain, but improve pricing.

And that pricing because of the tech components in these businesses is falling to the bottom line.

So for example, if you look at our gross margin as a company kind of ranging somewhere over time kind of 23% to 27%, if you look at the CSS and you look at the CTS businesses in particular, there are very important parts of those businesses that have gross margins of 45%.

So we're pricing that to that margin as we scale that's part of what's helping, but we continue to increase those prices for targeted margins in line with that 45% to 50%. On CMS slightly different story, I'll tell you that all of those bookings in '18 are priced at a premium to our current margin obviously.

Because they reflect market wages the prices are higher, but they're also allowing us to yield a higher margin overall. And last but not least, we continue to have a very significant discipline about pricing to a target margin and in some cases there's existing business and some cases they're new business that we don't win.

We consider ourselves a premium player and a premium partner and premium player and we expect to get a premium to the market and our margins across the world depending on where the delivery is we have a lot of discipline sticking with those.

So I'll just add that you'll see from a CMS point of view, important improvement in the margin 14% to 18%, but obviously much bigger. Once we take out that important benefit that we had from ASC 606 last year that won't repeat itself, the margins are going to be up somewhere between 45% and 49%. And we're not stopping there.

We continue to have in the first part of the year a bit of a drag on the operating income in CMS, due to the fact that we have significantly more business that we're ramping given those bookings which tends at the beginning of these programs to tug at the OI..

Perfect if I can just sneak one more and the - I really liked the metric he gave of 92% of the midpoint revenue guidance is already represented in bookings versus 85% last year.

Could you give us a historical perspective in terms of prior years, what exactly does that mean in terms of the opportunity?.

So what I would say is, the net out of that is that the execution against, right or guidance of 7.5% to 8.5% growth, which again, when you eliminate the $20 million of top line and almost $12 million of bottom line impact last year that we won't get this year, we're really between 9% and 10%.

And it certainly starts to make a lot more sense when we talk about 600 million of bookings or 36% increase, right. You can really Start let's see that coming in. We're a little bit burdened by the compare in '18 and so what it says is that we are 700 basis points better than business that is booked and already there.

And we have to now obviously deliver it, but our backlog coming into the year is significantly different. And therefore, the risk against the execution of that 7.5 to 8.5 is much, much lower..

Perfect. Thanks, guys..

Thank you, George..

Thank you. The next question is from Frank Atkins of SunTrust. Your line is now open..

Thank you for taking my questions. Appreciate it. Good job on the quarter and nice strong guidance on the revenue side.

Wanted to ask a little bit or specifically in CMS, where are the areas of growth that you're seeing there? Can you talk a little bit about kind of your thoughts for onshore versus offshore and near shore mix and then the visibility with key accounts?.

Which should I start with first here, so onshore versus near shore and offshore, I think it's safe to say that there was a period of time where because of administration changes et cetera, et cetera that there was a slowdown in the migration to offshore work.

I don't want to prematurely predict, but all signs are showing from our bookings that have been recently completed and from our pipeline that there is increased demand in offshore and near shore due to obviously A, labor shortage; B, increase in labor cost in North America and so consequently we feel pretty good that in '19 you will see a geo mix benefit albeit relatively small, only because there's so much ramping going on.

But we think that this will continue through 2020 and it will be significantly more. I'm being somewhat conservative in my statement because obviously, we're working on all kinds of deals right now that could even benefit the geo shifting even more.

So what I would just simply say to you is, is that we feel very comfortable about the trend and that there's definitely a heightened demand for the near shore and the offshore requirements. What was the other part of your question? I'm sorry..

Just kind of key areas of demand on the CMS side, maybe by industry vertical or client?.

I got to tell you, it's pretty - we're seeing it across everything. I think that healthcare was just fine. We're deemphasizing telco, which we have been doing so, so that we're not concentrated on telco. We're seeing very strong demand in the technology area. So we're seeing it across financial services. Travel is obviously become very big.

Regina, you want to chime in on any other areas?.

Yeah. I mean, I'll just give you a couple of facts.

We've got a mature set of industries like healthcare, the bookings were up 61%, government, we were up 35%, financial services, 41% and auto 103% .Ken talked earlier, we have these, what I would say tech based disruptors amongst that group, the bookings grew 86% and travel and leisure, the brands that we're picking up in that space is up 53%.

So, I think that's from a vertical point of view. And that from a percentage point of view then it supports Ken's comments on the Telco's. We still have telco in our mix, but we've been very focused on reducing it as a percentage of our overall portfolio..

I can't stress enough that the types of clients that we're going after are somewhat different than what I think the analyst are seeing maybe with other providers per se. And what I mean by that is that the traditional clients have awakened and realized that they've got to become digital very quickly.

And they're coming to us and asking us for help so that they can do so. And so the conversations that we're having, as well as the services that they are taking down are much more of a set of integrated solutions that are not just about the engage portfolio, but there are about the digital portfolio.

And so there is becoming much more of a focus with the more of the institutional companies that are trying to be like the disruptors and that's creating a really nice opportunity for us. Conversely, the disruptors are looking to rely on us more to provide a myriad of capabilities that go again, beyond the core engage capabilities.

And I think that it's going to become more and more obvious over time via our revenue mix, the success that we're showing CTS and CSS, the fact that CGS now is experiencing a growth spurt et cetera. So we're very pleased with how the mix is starting to shift..

Okay, great. That's very helpful color.

And then real quickly shifting to the CTS segment, can you talk about the kind of areas of demand there, what are you hearing from clients and then how sustainable that growth is going forward in your view?.

Well, I'll start out on that and then I think Regina should add also some color to that question. What I guess we would say is that if you look at the overall - let's just for now call it that CRM market space, about 50% of the market is moved to the cloud on what I'll call desktop CRM.

Only between 20% and 25% of the market has moved to the cloud on contact center omni-channel technology. That 20% to 25% will absolutely equalize and will start to get up to the identical levels of the CRM cloud desktop levels.

And so we think that we're going to see robust growth in the CTS segment for the cloud which is evidenced by the 90% ish growth in our clouds business for years to come. And I think that it's obvious just based on the companies that we compete with and how Wall Street is awarding them from a multiple standpoint in that they're seeing the same thing.

So I don't know if I'm answering your question, but the marketplace is ginormous and we are absolutely the known leader for enterprise scale omni-channel contact center delivery. And I don't want to sound arrogant, but undisputed in that area.

Virtually every client we have is either a major division of government or a fortune 500 company in long-term recurring revenue contracts versus others that are going after the SMBs and medium middle market and so we still feel like there's a ton of business that needs to transition off old metal void switches that are sitting in data centers that realistically no longer need to be in those data centers and frankly, don't have the benefits and the functionality of the cloud solutions that we're offering.

Regina, you want to add anything to that?.

Yeah, I mean, I would definitely echo the runway that we have with omni-channel and all of the transformation that's going to go there. But also this attach rate that we get from systems integration, which also has a plus 40% gross margin.

It's not recurring, but the level at which the SI attaches and that where we get downstream work it's very significant. We're focused very much as a company in Europe. And so I would say that that will continue to be a source of sustaining these growth rates.

Additionally, we're very focused on working with selling partners where we had very good success so far. And we're going to kind of keep that up with the existing and add.

Next I'd say, we have been investing and ensuring that we are government certified and government ready and all of that is coming together for us to add to the relationships that we have in government. We have a great name there.

And so we think that that will proliferate the desire of the market to consume versus capital intensive buy, a SAS intensive buy. That bodes well for us where we're really driving our SAS based subscription there.

And then last but not least, our embedded base, this is an area where while we've made progress we're still not there, there and what we haven't talked a lot about in today's script, that CSS business is really shaping up to be a significant driver of our ability to penetrate our embedded base and to penetrate new logos who may start as CMS clients or prospects.

But as we respond, demonstrating our differentiation and adding or consulting and tech is really again an important driver of our growth..

The last point that I would make is the tailwinds of machine learning and AI, although it's very early days is incredibly exciting future opportunity for us.

And when you think about the fact that we have a long-term embedded base of technology clients remember our technology business we acquired close to eight, nine years ago, they've been in that company that we originally acquired a loyalty has been in business close to 24 years.

A fairly significant amount of clients are legacy clients that continue to use us to update and upgrade their capability. Every one of these clients are going to be on an AI, ML journey and we are far better prepared to provide those types of capabilities with already managing the cloud for them in the hosted contact center space.

And so we feel between that having CTS and having digital and having engage that with us really leaning and heavily on AI and ML and RTA that this is going to create a whole new channel of opportunities and sales streams. So hopefully we've covered your question..

Yes, you did. Thank you very much..

Thank you..

Thank you, Frank. The next question is from Bill Warmington of Wells Fargo. Your line is now open..

Good morning, everyone..

Hi, Bill..

So a question for you on the average deal size, you'd mentioned that it was up significantly.

I was hoping you could share some metrics just to help quantify the progress there, may be talking about how big is the mega deal and how much the deals have grown on average?.

Yeah, we haven't really discussed the details of that. But to just give you some color or commentary, in 2018 we certainly have 10 plus deals over - well, I mean, I said it in the script right.

We've got multiple deals over 20 million at the high end, we've got deals that are 50 million, 60 million, we've got, I think 44 deals in total that are over 2 million. I'm not exactly sure what metrics you want to share, or you want us to share at this point. Our average deal size in CMS was up 81%, CTS 67% and CSS 43%.

Obviously, that's going to change from quarter-to-quarter, but we're definitely seeing an increase overall in that average deal size with - significant mega deals in 2018 and when I say mega deal, I'm talking above the $25 million level..

So if you were to look at year-over-year change in average deal size for the corporation, it will come in at about what?.

Yeah, I don't have that net number off the top my head..

Okay. Typically when you have a big surge and new business like this, you see a lot of startup costs.

Is that part of what's weighing on margins in 2019 and maybe help us understand how much and does that go away or not?.

So first of all, I would say that there's no weighing on margins outside of CMS and again, made a lot of comments in the script about that. If you look at the margin guidance that we gave for CMS, I would suggest that that's probably weighing on the overall margin somewhere between 50 basis points and 75 basis points.

So we don't feel at the company level, right, it's a significant issue. We're going from negative organic growth last year to 7.5% to 8.6% organic growth. Our margins are improving and you'll see them improve aggressively throughout the year, so that we're getting back towards that 8% and onwards from there.

I noted in my script as well that given the mega deals and our view that we need to conservatively plan to do more deals to get to the same volumes of bookings. We have added about a point of margin to sales and marketing to ensure that we drive the bookings this year and next year to continue at the 2018 level..

Got you, so that volume date postponement that you mentioned what was that?.

Yeah, that's a particular client where we have committed guaranteed volume and just not to go into too much detail, but based on the variables we were not able to get that booked in Q4. We had anticipated that in our guidance.

It is there and you'll see it - I don't think you'll see it in our Q1 as you look at the margins of CMS and as you look at our overall margin for the company. So it was just about $5 million and exclusively our guidance mix as well as I think the consensus mix is attributable to that.

It was gross equal net and therefore had a big impact, but you'll see it in Q1 of '19..

So it's attributed for 5 million shortfall in Q4 and have 5 million benefit in Q1?.

That's correct..

Got it and then I wanted to ask about, there's been a lot of talk about digital and I just wanted to ask about how much of your revenue is coming from each of the different channels, if you look at voice, email, chat, social today versus a year ago? How is that mix changing?.

It's changing very rapidly. I can tell you just being here in the Philippines. We are seeing a very significant uptick in the amount of business that we're handling that is digital. It is just as we actually expected that on clients that are serving millennials, the digital channels are in the 40% range to as high as 60% on average.

We're actually starting to work on putting together a white paper on this topic.

So it's premature for me to really start quoting a bunch of numbers, but we do plan on putting out a white paper on kind of what we're seeing of migration to messaging because we really think that that is a big part of our business today, it's going to be a bigger part of our business tomorrow and it's why we've been the pioneers in omni-channel.

So we are fully set to be able to help clients with that transition and transformation moving from all the different chat tech channels to really the ability to handle all forms of messaging.

Obviously, as you go into the older segments like including even the older boomers, they tend to use the messaging less, their adoption is less and they still tend to lean towards voice. But I think that it goes without saying that messaging is here to stay and it's going to be continuing to grow very rapidly..

Well, thank you very much..

Thank you..

Thank you for your questions. That is all the time we have today. And this concludes TTEC's fourth quarter and full year 2018 earnings conference call. You may disconnect at this time..