TeleTech Q1 2026 Earnings Call Transcript

Quartr
Provided by Quartr
May 8, 2026

Key Takeaways

  • Negative Sentiment: Q1 revenue of $496M was down 7.1% YoY, adjusted EBITDA fell to $46M (9.2% of revenue) and EPS declined to $0.15, with a ~$3M receivable timing issue that depressed results.
  • Positive Sentiment: Management reiterated full‑year guidance while generating $21M of free cash flow and reducing net debt by $79M, which strengthens the company’s balance sheet.
  • Positive Sentiment: TTEC emphasized an AI‑driven strategy and product momentum — including the launch of the AI Gateway — citing growing pipeline, larger average deal sizes, and an increase in net new logos versus last year.
  • Positive Sentiment: Engage is being reshaped to improve margins via offshore expansion (mix up to 38% with >40% targeted by year‑end), deliberate exits of lower‑margin clients, and a $1.51B Engage backlog (~94% of guidance midpoint) with LTM retention improving to 94%.
AI Generated. May Contain Errors.
Earnings Conference Call
TeleTech Q1 2026
00:00 / 00:00

Transcript Sections

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Operator

Welcome to TTEC's first quarter 2026 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 now like to turn the call over to Bob Belknapp, TTEC's Group Vice President, Corporate Finance. Thank you, sir. You may begin.

Bob Belknapp
Group VP and Corporate Finance at TTEC

Good morning, and thank you for joining us today. TTEC is hosting this call to discuss its 1st quarter 2026 results for the period ending March 31st, 2026. Participating on today's call are Ken Tuchman, Chairman and Chief Executive Officer of TTEC, and Kenny Wagers, Chief Financial Officer of TTEC. Yesterday, TTEC issued a press release announcing its financial results. While this call will reflect items discussed in that document, for complete information about our financial performance, we also encourage you to read our Q1 2026 quarterly report on Form 10-Q. Before we begin, I want to remind you that matters discussed on today's call may include forward-looking statements related to our operating performance, financial goals, and business outlook, which are based on management's current beliefs and assumptions.

Bob Belknapp
Group VP and Corporate Finance at TTEC

Please note that these forward-looking statements reflect our opinions as of the date of this call, and we undertake no obligation to update 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. For a more detailed description of our risk factors, please review our 2025 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.

Ken Tuchman
Chairman and CEO at TTEC

Good morning, and thank you for joining us today. This quarter, we maintained our focus on strengthening our foundation while continuing to invest in AI-enabled innovations across our business. For the first quarter of 2026, revenue was $496 million. EBITDA was $46 million, and we generated $21 million in free cash flow this quarter, which contributed to our reduction of $79 million in our credit facility borrowings since the first quarter of 2025. This reflects our continued focus on strengthening our balance sheet. I also want to call out that our first quarter EBITDA was impacted by a delayed receivable on one of our large public sector projects, for which a portion has already been approved. This receivable would have resulted in first quarter EBITDA of $49 million or 9.7% of revenue.

Ken Tuchman
Chairman and CEO at TTEC

We expect the $3 million of EBITDA to be reflected in our Q2 financials. Regarding our outlook, we're reiterating our full-year guidance. While our year-over-year results reflect our offshore expansion in Engage, a changing market remix in Digital, and the deliberate rationalization of a handful of underperforming clients, we expect these dynamics to improve our year-over-year profitability as the year progresses. With that context as a backdrop, I'd like to turn to market insights from our recent client advisory meeting. Twice a year, we sit down with several of our largest and most strategic clients to understand what's shaping their priorities. It was no surprise AI and security were at the center of our conversations. We're seeing a real shift in how companies approach AI. Early adoption was limited to siloed proofs of concept with varied success. Now, leaders are taking a much broader view.

Ken Tuchman
Chairman and CEO at TTEC

Instead of just plugging in new tech for tech's sake, they're starting with their actual business goals and working backward to build a roadmap. They've realized that real transformation isn't just about the software. It's about rethinking processes, culture, and how the work actually gets done. We also heard from our CAB members that their internal bandwidth-constrained IT teams are realizing they can't go it alone in such a fast-moving environment. They're looking for agile outside partners that have deep experience in CX, as well as expertise in specialized security and fraud prevention. Facing risk of potential AI hallucinations, rogue bots, and ballooning unplanned token compute expenses, business and IT leaders are seeking more than just technical help. They're looking for a partner that can turn these AI-specific technologies and financial challenges into a sustainable competitive advantage.

Ken Tuchman
Chairman and CEO at TTEC

This environment plays directly into our AI strategy, which has three pillars of value. One, client transformation. Because we live exclusively in the CX space, we know exactly where technology succeeds and where it can be improved. We combine premier tech partnerships with our own custom-built software to optimize our client's tech stack, turning AI into a tool to augment associates, remove costly friction, and deliver insight-driven growth. Two, human augmentation. True augmentation isn't just about giving an agent a bot. It's about knowing the technology so deeply that we can fundamentally reshape the frontline experience. We optimize the human-to-tech interface, automating the mundane. Our associates can leverage personalized insights to deliver more customized, higher-value customer experiences. Three, operational excellence. To strengthen our go-to-market as well as our internal operations, we're leaning into our deep technology and process expertise.

Ken Tuchman
Chairman and CEO at TTEC

We're automating internal redundant tasks and using analytics to gain insight into key value drivers to accelerate our growth and reduce cost. Our AI strategy is woven throughout our end-to-end approach, spanning consulting, technology, and managed services. I'll share two quick stories that highlight how AI is helping us bring people, processes, and technology together, not just to talk about innovation and positive business outcomes, but to deliver them. First, let's look at a new client of ours, a fast-growing telehealth provider. They needed to optimize a complex ecosystem of payers, providers, and patients with disparate systems, customer needs, and industry regulations. They chose us to design, build, and operate an AI-driven roadmap that will unify their tech stack and empower frontline human healthcare advisors with real-time insights.

Ken Tuchman
Chairman and CEO at TTEC

With our solution in place, our client will be able to improve health outcomes at scale by balancing high-touch service with high-speed efficiency. The second example is a longtime partner of ours, a global travel brand. They were struggling with fragmented AI adoption and inconsistent results across dozens of different partners. We've been helping them move millions of their travelers around the world for over a decade. We understand the complexity and unpredictability that they face every day. When it was time to level up their CX, they realized that their outside consultants, systems integrators, and even their own internal IT teams didn't have the AI experience or operational depth to meet their needs. They chose us because we knew their systems, processes, business, and most importantly, their customers almost as well as they did.

Ken Tuchman
Chairman and CEO at TTEC

Together, these examples highlight the strength of our AI-enabled end-to-end value proposition and why it's so important for our long-term growth. By integrating strategy, technology, and operations into a single delivery engine, we address a core challenge in our industry, the execution gap. Because we deliver a continuously improving CX ecosystem with clear accountability, we're enabling solutions that are not only innovative, but durable and future-proof. We're encouraged that our strategy is beginning to take form, even if it hasn't hit the numbers column yet. Our pipeline is growing. We're closing new deals, and the level of engagement from our clients tells us we're on the right path for long-term growth. Now I'll turn to our segments. We'll start with our digital customer experience business, TTEC Engage. We're continuing to focus our efforts on three specific areas of the business.

Ken Tuchman
Chairman and CEO at TTEC

First, our continued offshore expansion is supporting both cost efficiency and scale. Our offshore revenue mix has increased from 34% to 38% for the 12 months ended March 31st, 2026, compared to the prior year period. We expect by the end of the year, we will be delivering over 40% offshore. Second, we're actively refining our client mix by intentionally exiting a few lower-margin accounts and prioritizing higher value, more complex engagements. Third, embedding AI across our associates' lifecycle, from recruitment to learning and performance management. While these capabilities are just beginning to scale, results to date are encouraging. For example, through AI-aided hiring using our SmartHire screening approach, we've increased interview-to-hire rates by as much as 25%, with early signals showing meaningful improvements in the retention and quality of the hire.

Ken Tuchman
Chairman and CEO at TTEC

In learning and performance, over 100 engaged clients and over 25,000 associates now operate on our TTEC Perform platform. In select programs, we're seeing improvements in NPS and higher quality scores tied to AI-enabled coaching and support. We're seeing strong results with our accent softening and language translation platforms. These AI-supported tools are enabling offshore deployment that delivers premium voice experiences without compromising scale. Our TTEC Engage pipeline is healthy as customer-centric brands seek partners that can move quickly and demonstrate results. Our vertical-focused go-to-market platform is yielding year-over-year pipeline growth with larger average deal sizes. While some of these opportunities involve more complex commercial models and therefore take longer to close, we remain confident in both the pipeline and our outcome-focused strategy. On to TTEC Digital, where we continue to evolve our professional and managed services to align with how clients are approaching digital transformation.

Ken Tuchman
Chairman and CEO at TTEC

As a data, AI, and security partner for our CX solutions, we're helping our clients optimize the tech they already have while making sure their CCaaS, CRM, and AI investments are disciplined, secure, and built to scale. Q1 results were largely impacted by the short cycle nature of our professional services business. Although we achieved nearly 90% of our bookings target and a 96% book-to-bill ratio, 50% of our bookings closed in the final three weeks of the quarter. While this concentration led to a shortfall against our initial targets, the increase in late-quarter demand and pipeline strength is encouraging. With new leadership in place, we're confident in our ability to manage through these timing delays as we build a more consistent and resilient foundation for growth. Our progress is driven by a clear market evolution.

Ken Tuchman
Chairman and CEO at TTEC

Clients want to navigate the AI landscape without abandoning their existing investments. Our CX and technical expertise allows us to optimize their current platforms, whether hyperscalers or best-in-breed tools. Where we see gaps in the market, we're building proprietary software to stitch the CX ecosystem together. By infusing these tools with AI, we can deliver secure, rapid results without forcing our clients into those costly and disruptive rip-and-replace projects that everybody wants to avoid. Our AI Gateway launch this quarter highlights our fit-for-purpose software strategy. As a proprietary integration platform, it bridges existing CCaaS systems with leading AI platforms, shrinking deployment timelines from months to weeks.

Ken Tuchman
Chairman and CEO at TTEC

This momentum is extending across all our CX technology solutions, including our modern data estate and our AI observability platforms currently in beta. These new software solutions are meeting growing demand as we address urgent client needs for data readiness and systems transparency and accuracy.

Ken Tuchman
Chairman and CEO at TTEC

These platforms, combined with our tenured relationships with the leading CX technology titans, positions TTEC as a partner designed to accelerate scalable growth. Working side by side with our clients, we're unlocking faster insight to action cycles, strengthening trust in AI-driven decisions, and expanding long-term value creation through more intelligent, differentiated customer experiences. In closing, across both business segments, we recognize that our financial results are still catching up to our go-to-market and operational progress. The shift, however, towards our historic growth and margin profile is well underway. We remain disciplined and focused on our fundamentals that include strengthening our differentiated position as an end-to-end CX transformation partner through our vertical specific solutions, strategic technology partnerships, and proprietary software.

Ken Tuchman
Chairman and CEO at TTEC

Winning higher value technology and services opportunities with our existing client base and new clients, and continuing to improve our profitability by strategically rebalancing our client portfolio, driving operational efficiencies, and capitalizing on global talent pools. We have the right team, platform, and strategy in place to capture the significant long-term opportunities ahead. By applying an agile approach to innovation and doubling down on AI-driven efficiency, we're doing far more than just navigating a changing market. We're positioning TTEC to own it in the future. On behalf of our board, leadership, and teams around the world, thank you for your continued support, and I'll now hand the call over to Kenny.

Kenny Wagers
CFO at TTEC

Thank you, Ken, and good morning. I will start with a review of our first quarter 2026 financial results before discussing our reiterated full year 2026 financial outlook. In my discussion of the first quarter financial results, reference to revenue is on a GAAP basis, while EBITDA, operating income, and earnings per share are on a non-GAAP adjusted basis. A full reconciliation of our GAAP to non-GAAP results is included in the tables attached to our earnings press release. Turning to our results on a consolidated basis for the first quarter of 2026 compared to the prior year period, revenue was $496 million compared to $534 million, a decrease of 7.1%. Adjusted EBITDA was $46 million or 9.2% of revenue compared to $56 million or 10.6%.

Kenny Wagers
CFO at TTEC

Operating income was $32 million or 6.4% of revenue compared to $41 million or 7.8%. EPS was $0.15 compared to $0.28. Foreign exchange had a positive $8 million impact on revenue in the first quarter over the prior year period, primarily in our Engage segment, while having a nominal impact on adjusted EBITDA and operating income. Turning to our first quarter 2026 segment results. In our Engage segment, first quarter revenue decreased 7.5% over the prior year period to $394 million. Operating income was $25 million or 6.3% of revenue compared to $29 million or 6.9% of revenue in the prior year. The Engage segment's first quarter revenue was in line with our expectations.

Kenny Wagers
CFO at TTEC

As discussed in my fourth quarter 2025 earnings comments, and as Ken mentioned, we forecasted lower first half revenue for Engage compared to the prior year as we rationalize a small number of underperforming clients and continue to expand our offshore mix. These actions are deliberate as we continue to focus on profitability despite near-term pressure on revenue. Based on embedded base expansion and new client launches, we are still on track to return to top line growth in the second half of the year at higher profit margins. It is also important to note that the year-over-year revenue variance was impacted by a Public Sector seasonal client, which accounted for over 40% of the first quarter revenue decline.

Kenny Wagers
CFO at TTEC

First quarter 2026 Engage profitability was slightly below our plan, primarily related to a receivable generated from one of our largest public sector clients that Ken referenced in his comments. This impact was timing related and resulted in approximately $3 million of lower revenue and profitability in the quarter. Adjusting for this impact, Engage first quarter revenue was $397 million, with operating income of $28 million or 7% of revenue, a slight margin increase over the prior year. We expect this positive adjustment to be recorded in our second quarter results as a portion of this receivable has already been resolved. We remain confident in the actions we have taken and continue to implement to drive higher profitability in our Engage segment. That said, these decisions do not necessarily result in straight line improvements.

Kenny Wagers
CFO at TTEC

While our first quarter Engage operating income declined versus the prior year, we anticipate this trajectory to positively change in the second quarter, with margins further expanding throughout the second half of the year. The Engage backlog is $1.51 billion or 94% of our 2026 revenue guidance at the midpoint of the range, down from 101% for the same period of 2025. The Engage last twelve-month revenue retention rate is 94%, an improvement over the 88% for the same period last year. In our Digital segment, first quarter revenue was $102 million, a decrease of 5.7% over the prior year.

Kenny Wagers
CFO at TTEC

Operating income was $7 million or 6.6% of revenue compared to $12 million or 11.2% of revenue for the same period last year. Digital's first quarter 2026 revenue was slightly below expectations, with revenue mix impacting profitability. Recurring revenue declined 7.3% primarily within one of our traditional CCaaS practices due to the ongoing market shift away from legacy contact center point solutions. This decline was expected, and we continue to structure our managed services resources to align with forecasted revenue. Excluding our two legacy CCaaS practices, professional services grew 15.3% year-over-year. This growth reflects the momentum we are seeing in our expanded CX technology partnership network as we optimize clients' existing platforms through end-to-end transformative solutions.

Kenny Wagers
CFO at TTEC

We are pleased with the first quarter double-digit growth in these practices and expect them to scale more rapidly throughout the year. Digital's total first quarter professional services revenue decreased 4.8% compared to the prior year, as front-end consulting engagements related to cloud migrations declined. The professional services revenue was also impacted by new contracted business signed during the quarter with approximately 50% closed during the last three weeks. This pushed revenue out to the second quarter and beyond, negatively impacting first quarter profitability. Although these deals are not reflected in our current quarter results, we are pleased with the sales momentum. First quarter revenue benefited from product resale, which represented 2.5% of Digital's total first quarter revenue compared to 1.7% in the prior year.

Kenny Wagers
CFO at TTEC

Although we still expect these product resales to decline on a full year basis, as discussed in our fourth quarter commentary, we will participate in intermittent opportunities as they arise. However, we remain focused on our core growth strategies across professional services and recurring revenue in our non-traditional CCaaS practices. Our digital backlog is $325 million or 76% of our 2026 revenue guidance at the midpoint of the range, essentially flat to the 77% for the same period last year. I will now share other first quarter 2026 metrics before discussing our outlook. Free cash flow was $21 million in the first quarter of 2026 compared to $16 million in the prior year. The year-over-year improvement of $5 million is due to an additional $6 million of cash flow from operations, less an increase in capital expenditures of $1 million.

Kenny Wagers
CFO at TTEC

The increase in cash generation reflects our continued focus on cash management and working capital improvements. In the first quarter of 2026, capital expenditures were $6 million or 1.3% of revenue compared to $5 million or 1% in the prior year. Approximately 60% of the current quarter spend relates to growth in product development, real estate expansion, and client technology investments. As of March 31st, 2026, cash was $89 million with $892 million of debt, primarily representing borrowings under our recently amended $1.05 billion revolving credit facility. The net debt position of $803 million represents a year-over-year decrease of $79 million as we continue to focus on cash flow generation and debt reduction.

Kenny Wagers
CFO at TTEC

We ended the first quarter 2026 with a net leverage ratio as defined under our credit facility of 3.77 times, relatively unchanged over the prior year period. Our normalized tax rate was 52.9% in the first quarter of 2026 compared to 37.9% in the prior year. The tax rate is primarily due to the jurisdictional mix of pre-tax income. The impact of the U.S. valuation allowance recorded against the U.S. pre-tax losses will continue to impact the normalized tax rate, with the rate fluctuating based on the total pre-tax income and the mix between foreign and U.S. jurisdictions. Turning to our 2026 outlook, I will now provide some context supporting our full year financial guidance. Overall, our first quarter results were in line with expectations, taking into account the timing considerations mentioned for both TTEC Engage and TTEC Digital.

Kenny Wagers
CFO at TTEC

Our Engage segment is expected to return to improved profitable year-over-year growth starting in the second quarter, primarily driven by the operating and cost management actions implemented over the past two years to return to historical margins. We continue to build on this foundation through the rationalization of certain clients' underperforming business and the growth of offshore revenue mix. These actions don't always translate to growth over the prior year and every quarter but are important contributors to delivering to our full year improvements and keeping us on course for longer term margin expansion. In our Digital segment, we are executing on the shifting market demands through new partnerships for AI, data, and security. These factors, combined with our in-depth knowledge and years of experience working with end-to-end CX platforms, position us to profitably scale these practices in 2026.

Kenny Wagers
CFO at TTEC

As with any market shift, the timing of revenue and related margins are not necessarily aligned to reflect consistent quarterly improvements. However, we remain confident in our ability to deliver on our full year 2026 guidance. Please reference our commentary in the business outlook section of our first quarter 2026 earnings press release to obtain our expectations for our reiterated 2026 full year guidance at the consolidated and segment level. In closing, we remain committed to our goals of continued profitable growth, cash flow improvement, and debt reduction. These objectives are at the forefront of every decision we make and require continued focus and operational execution across the business. We are appreciative of the dedication of our leadership and employees around the globe and for the support from all our stakeholders. I will now turn the call back to Bob.

Bob Belknapp
Group VP and Corporate Finance at TTEC

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

Operator

Thank you, sir. We will now begin the question and answer session. If you would like to ask a question, please press star and then 1. Please unmute your phone and record your name and company name clearly when prompted. These are required to introduce your question. To cancel your request, please press star and then 2. Our first question will be coming from George Sutton of Craig-Hallum. Sir, your line is open.

George Sutton
George Sutton
Analyst at Craig-Hallum

Thank you. Obviously, a little noise in the quarter, so I wanted to kind of think about the industry narrative around the whole space. On one hand, your Q4 would sort of play into the narrative, but I'd say on the other hand, your larger pipeline for Engage with higher average deal sizes would play against it. I just wanted to make sure I sort of fully understood the pipeline that you're looking at and at the same time, the deliberate rationalization you're having with some other clients. I assume the new clients you bring in come in at much higher margins than the clients that you are rationalizing.

Ken Tuchman
Chairman and CEO at TTEC

Hi, George. How you doing? Good morning. I'm not fully understanding the question. Maybe what I'll do is just give a bit of a narrative on the health of the pipeline and of the business. Is that what you're asking of me?

George Sutton
George Sutton
Analyst at Craig-Hallum

Obviously, there's a narrative in the market about AI's impact, and your pipeline would suggest when you're seeing larger average deal sizes in that space, that's very intriguing.

Ken Tuchman
Chairman and CEO at TTEC

Yeah.

George Sutton
George Sutton
Analyst at Craig-Hallum

I wanted to get behind that a little bit and understand it.

Ken Tuchman
Chairman and CEO at TTEC

Yeah. First of all, I'm not trying to come across as a contrarian, up to this point, as it relates to the DCX Engage business, we're not feeling reduction in volumes due to AI. We're not suggesting that over time that won't take place, at this point in time, that is not something we're seeing. As a matter of fact, what we're actually seeing right now is a significant amount of activity with net new clients that are expanding, as well as our embedded base that is now coming to us and expanding on many of our larger accounts.

Ken Tuchman
Chairman and CEO at TTEC

That coupled with the fact that on the DCX, the actual amount of deals that have already been closed in first quarter and the deals that we expect to close in the second quarter is what gives us confidence to maintain our guidance. Frankly, we're really feeling good right now about what we're seeing coming at us, the deals that we're closing, the mix of the deals that are now starting to take advantage of our digital capabilities. We feel like that's giving us a very significant edge because we can demonstrate to clients that not only do we have the right partnerships, but we have such a deep understanding technologically of what our clients are dealing with, as well as what our, what our partners have to offer.

Ken Tuchman
Chairman and CEO at TTEC

Therefore, it's giving us an edge to be able to demonstrate to our clients that we can have an impact on their business from an efficiency standpoint as it relates to us applying, technology and applying, AI. The fact of the matter is that the pot is still so large, and we're so relatively small to the overall size of that TAM, that we're still seeing and feeling and winning, you know, many, many opportunities. In the 1st quarter, I actually we'll wait till 2nd quarter before we quote, the number of net new clients that we've signed. What I would just simply say to you is that on a new logo standpoint, we're well ahead of last year's 1st quarter of net new logos.

Ken Tuchman
Chairman and CEO at TTEC

We're confident with the logos that we are in the process of signing that that trend is gonna continue for sure through second quarter. I'm not trying to in any way, you know, over emphasize the potential in the market other than to just simply say that we feel that the marketplace is healthy. The providers that are providing high quality service are winning consolidated business from other providers who, you know, for whatever reason, aren't performing. That unto itself provides very significant amounts of future opportunity for us as well as the space, you know, continues to kind of go through an organic and inorganic consolidation.

George Sutton
George Sutton
Analyst at Craig-Hallum

My other question relative to the concept of avoiding rip and replace, and you mentioned you can actually bridge the existing CX with AI. Can you just give sort of a tangible example of what you're referring to there?

Ken Tuchman
Chairman and CEO at TTEC

You're speaking about what was in my script? Is that?

George Sutton
George Sutton
Analyst at Craig-Hallum

Correct.

Ken Tuchman
Chairman and CEO at TTEC

That's what you're pointing at? When you say tang-

George Sutton
George Sutton
Analyst at Craig-Hallum

Yes.

Ken Tuchman
Chairman and CEO at TTEC

I just, again, I wanna make sure that I'm being more precise on answering your question. We have, you know, with our AI media Gateway, if that's what you're, if that's what you're speaking about, we have multiple clients, and Digital is working on not only multiple clients, but actually working with multiple hyperscalers, where they're taking advantage of our AI Gateway, which allows us to very quickly integrate to our client CCaaS systems, virtually all the major AI product offerings that are out there that people are focused on. I'm talking about primarily the hyperscalers, which would be, you know, Google's CCAI product offerings. I'm talking about AWS's Llama offerings. I'm talking about Microsoft's Copilot offerings, et cetera.

Ken Tuchman
Chairman and CEO at TTEC

We're able to demonstrate to clients through our sandbox that we can implement this in a fraction of the time that the other whether they be GSIs or other companies. This has allowed us to really attract a very significant lead flow from our partners, and that lead flow is what we're focused on and what we're converting.

George Sutton
George Sutton
Analyst at Craig-Hallum

Got it. Makes sense. Thanks for the clarity.

Ken Tuchman
Chairman and CEO at TTEC

Thanks, George.

Operator

Thank you. Our next question will be coming from Maggie Nolan of William Blair. Your line is open.

Maggie Nolan
Maggie Nolan
Analyst at William Blair

Thank you. Good morning.

Ken Tuchman
Chairman and CEO at TTEC

Good morning.

Maggie Nolan
Maggie Nolan
Analyst at William Blair

I'm hoping you can comment on, you know, you made a comment that new proposals, most of the new proposals now incorporate AI, and I'm hoping you can give us some insight into kind of the average deal size and implementation timeline for some of these AI-enabled digital engagements as they compare to legacy contracts.

Ken Tuchman
Chairman and CEO at TTEC

That's a great question. It's not an easy one to answer only because it's so dependent upon our clients' data estates and how much data that we can actually gain access to. What I mean by that is that if it's a company that was relatively born natively digital, then our ability to provide a much more AI-intensive capability as it relates to voice bots and chatbots can be done in a very reasonable period of time, measured in 3 months or so. In some cases, if it's just the basic front end, even less.

Ken Tuchman
Chairman and CEO at TTEC

With many of our clients that are in the Fortune 500 category that have very large legacy systems with a myriad of siloed systems. To give you an example, a client that we recently completed a large project for, they have 235 separate systems that we had to actually connect to real time. That project took 24 months, in order for us to be able to write all the APIs, tap all the different systems, et cetera, and then get synchronization out of them. The, you know, the big misnomer about taking advantage of AI is that people don't fully appreciate how complex it is for companies to achieve a modern data estate.

Ken Tuchman
Chairman and CEO at TTEC

That is really one of the biggest issues that most of these legacy companies have, is that their data is in so many different systems. Those systems don't necessarily even talk to each other. It's our job to bring all of that together. What our focus is when we're going into a client is the stuff that we know that we can turn on almost immediately. Those are the tools that augment their associates or our associates. What is it that we can do with AI from a QA standpoint? What is it that we can do with AI from a real-time language translation standpoint? What is it that we can do with AI from a scheduling and forecasting standpoint?

Ken Tuchman
Chairman and CEO at TTEC

What is it that we can do with AI from a training, a learning and development standpoint of building new curriculum, new capabilities? These are all things that are designed to augment the associate to get more proficiency, more accuracy, more quality out of the associate, and to allow them to focus more on the customer and less on the actual systems. We view that as phase 1 across all of our clients, whereas phase 2 is going into how you can actually create self-service chatbots, voice bots, et cetera, that ultimately keep the human in the loop.

Ken Tuchman
Chairman and CEO at TTEC

I think that without getting on my soapbox, which I know I'm very guilty of doing, all I'm gonna just simply say to you is that as I mentioned in our script, we do our CAB meetings every six months, where some of the largest companies in the world come in and discuss what their strategies are and what they're trying to achieve. I can say to a T that virtually every single one of them are focused on keeping the human in the loop. They're realizing that as much as AI is capable of replacing, in certain cases, certain interactions, the fact of the matter is they don't wanna lose the connective tissue to the customer, and therefore, they want to have us help them pick the points of intersection of where technology is touching the customer and where a human is touching the customer.

Ken Tuchman
Chairman and CEO at TTEC

That's where we see this whole industry going. We see this industry going into where this is going to become a set of hybrid capabilities, where customers are gonna always have the ability and the access to a live human being. On interactions that are important to them, whether it be financially or healthcare-wise, et cetera, in more cases than not, those will be augmented humans, meaning humans that are taking advantage of AI. In cases where it's low-hanging fruit, it's transactional, it provides no additional ability to build trust or loyalty, that is where we will provide self-service type capabilities, so to speak. Every one of our clients is trying to analyze this. They're going through journeys on this, journey mapping on this, et cetera.

Ken Tuchman
Chairman and CEO at TTEC

Frankly, we're really excited about it. This is why we feel like our digital business has so much potential as we go through this transition of less focus on the CCaaS capabilities that we've historically had, and much more focus on building modern data estates and providing AI capabilities and AI based analytics.

Maggie Nolan
Maggie Nolan
Analyst at William Blair

Thanks, Ken.

Ken Tuchman
Chairman and CEO at TTEC

Thank you.

Maggie Nolan
Maggie Nolan
Analyst at William Blair

I liked the comment on the improvement in the retention and Engage revenues on a year-over-year basis. Could you link those continued efforts and, you know, expected improvements there, continued improvements, I would suspect, back to kind of the return to growth timeline and trajectory for Engage?

Kenny Wagers
CFO at TTEC

Hey, hey, Maggie. Good morning. This is Kenny. I'll take that one. We are seeing very steady and good improvement in our embedded base growth. You know, we've talked about this quarter-over-quarter, I know in our one-on-one discussions, especially with John Abou. We're improving our quality and service, right? It has been a focus for Engage over the last two years to get back to the historical margins that we're committed to on the Engage business. There's a direct correlation to providing outstanding service, you know, on the floor of our operational centers.

Kenny Wagers
CFO at TTEC

Embedded base growth, as we continue to, again, bring in the external talent that we have to our leadership team in Engage, and they bring, you know, expanded ideas around lines of business that we can get into that we haven't traditionally been in that are underpinning our offshore growth in Engage, that gives us the breadth of offering to go back to our embedded base and say, "Hey, you know, we're investing in AI," and all the things that Ken talked about earlier from our performance to our training to our QA. That with the footprint that we have, now we can go sell many, many different lines of business that we couldn't in the past. The embedded base is moving with us.

Kenny Wagers
CFO at TTEC

They are underpinning the growth that you're going to see in the second half of the year. We talked about that with the reaffirm that we put out on guidance. We are gonna return to top line growth in Engage by the end of the year. That's a big part of it. We're happy with where we're at with that. We're happy with, again, the service that we're providing the embedded base business and their desire to come back to us and grow in different lines of business in the different geographies.

Maggie Nolan
Maggie Nolan
Analyst at William Blair

Thanks, Kenny.

Operator

Thank you. Our next question will be coming from Jonathan Lee of Guggenheim Partners. Your line is open.

Jonathan Lee
Analyst at Guggenheim Partners

Great. Thanks. Taking my questions. Kenny, helpful that you broke out the PubSec seasonal client is, you know, 40% plus the decline in Engage. Of the remaining, call it $19 million of Engage revenue decline, was any of that unplanned volume loss on retained clients, or was it entirely deliberate rationalization? What's the same client organic growth rate for the portfolio you're choosing to keep?

Kenny Wagers
CFO at TTEC

Yeah. Yeah, Jonathan, it is definitely a little of both. As we talked about, coming into this year, as I talked about in Q4, as we looked at our full year guidance, it was gonna be a story of two halves. We are rationalizing, as Ken mentioned, clients to make sure that we have the profit profile that we need for this business moving forward. I don't have the exact number for you, but it is definitely a portion of both. That with the timing of the bookings and the pipeline and the momentum that Ken talked about earlier leads to a stronger second half than a first half for TTEC Engage.

Kenny Wagers
CFO at TTEC

We're happy with where we're at, absolutely with the bookings that we have, with the new logos that we have, and how those are going to realize the revenue that's gonna be realized out of that in the second half of the year. Rationalizations with clients is a little bit of a push and take, right? We're going back to them, we're showing them, we're having a discussion about what we need from them and what they need from us in order to try to keep that business and make it profitable for us as well as a good quality service for them. We don't, you know, we'd rather work it out to keep them in the house. If we can't, that's fine because we have the demand, especially offshore, as we've mentioned.

Kenny Wagers
CFO at TTEC

Our pipeline is up 17% year-over-year with offshore demand. We are, again, very focused on the diversification of the Engage business from a geographic standpoint. From a line of business standpoint and from a vertical standpoint.

Ken Tuchman
Chairman and CEO at TTEC

I will say though that, interestingly enough, the public sector pipeline is actually fairly healthy. What I will say is that, with my personal involvement along with John Abou's involvement, we are going out of our way in ensuring that the net new public sector accounts are accounts that are profitable day one to start. We inherited multiple public sector clients through an old acquisition that was done many years ago, that is some of those accounts, a few of them, you know, a couple of them, are ones that Kenny was referring to, et cetera.

Ken Tuchman
Chairman and CEO at TTEC

What I would just simply say is that the government sector is still a very healthy sector, not only for Engage, but also for Digital. Especially Digital, actually. Lot of federal spending going on right now, and modernization, and our goal is to get our piece of that.

Jonathan Lee
Analyst at Guggenheim Partners

Got it. Just as a follow-up, wanna tie it back to margins. You know, adjusted, you're up, you're at, call it 7% for Engage. You've executed, call it 40 basis points of offshore shift. You're near full AI deployment. You've exited unprofitable work. In 3Q of last year, I think you told us you'd see far better efficiencies in 2026 than last quarter. Ken, I believe you said you're 100% volunteering AI savings on new pitches to win new business. Is that the answer? That the tailwinds are real, but you're giving them back on new deals, and if so, when does volume from those wins overcome the rate concession?

Ken Tuchman
Chairman and CEO at TTEC

I think you had multiple questions there. No, we're not, we're not giving it away. If that's your question. I'd rather Kenny answer the financial side, but only to say the following, in the script, I think you probably heard that our Engage number, but for a receivable that's being pushed into second quarter, was pretty much dead on the money of where management plan forecasted, which I believe was 9.8% or 9.7%. I'm not sure what you were referring to.

Jonathan Lee
Analyst at Guggenheim Partners

It's operating income.

Ken Tuchman
Chairman and CEO at TTEC

Oh, Okay. It was on OI. Excuse me.

Jonathan Lee
Analyst at Guggenheim Partners

Yeah.

Ken Tuchman
Chairman and CEO at TTEC

My point is that we always anticipated that our EBITDA number was going to be at that number for first quarter. To answer your question, you know, it's all in the second half of the year. We've always been rear-end loaded in the 40 years we've been in business, it's always been, you know, towards the second half of the year. You win the business in the first two quarters. You continue to hopefully keep winning business in the third and fourth quarter, but meanwhile, you're ramping a big chunk of that business first and second quarter, and you realize the benefits of that business in third and fourth quarter. It's just the nature of the business as you're ramping.

Ken Tuchman
Chairman and CEO at TTEC

Because we are so focused on client diversification right now, there is a fair amount of ramps that are taking place, let alone embedded base that's ramping. Kenny, is there any else you wanna add to that?

Kenny Wagers
CFO at TTEC

Jonathan, I think the-- to your specific question on that, it-- again, we are-- as Ken mentioned earlier, we're still not seeing, the monetization fall one way or the other on AI from a pricing standpoint. The AI that we have deployed, around TA, quality, performance, those aren't hard negotiations around where does the pricing fall between client and us on that. What we're really seeing is, again, the normalization of the offshore growth, which has near-term pressure on the top line revenue, but ultimately, as you know very well, is a better EBITDA margin profile for us. As we move through the new business, the new logos, the embedded base growth that we have this year towards year-over-year top line revenue growth, that revenue is fortified on the offshore portion of the business.

Kenny Wagers
CFO at TTEC

Again, I think last quarter, we committed to being over 40% by the end of the year, and we're well on target to do that. It is that mix that is giving us a big portion of the margin improvement for the Engage business, throughout the full year of guidance.

Jonathan Lee
Analyst at Guggenheim Partners

Appreciate that. Thanks.

Operator

Thank you for your questions. That is all the time we have today. This concludes TTEC's first quarter 2026 earnings conference call. You may disconnect at this time.

Analysts
    • Bob Belknapp
      Group VP and Corporate Finance at TTEC
    • George Sutton
      Analyst at Craig-Hallum
    • Jonathan Lee
      Analyst at Guggenheim Partners
    • Ken Tuchman
      Chairman and CEO at TTEC
    • Kenny Wagers
      CFO at TTEC
    • Maggie Nolan
      Analyst at William Blair
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