TTEC Holdings, Inc. Common Stock 2026 Q2 Earnings Call

Good morning, and thank you for joining us today. TTEC is hosting this call to discuss its second quarter 2026 results for the period ended June 30, 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 Form 10-Q for the period ended on June 30, 2026, and the latest 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 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.

Good morning and thank you for joining us today. Q2 was a challenging quarter with performance that fell short of our plan. While we're disappointed in our results, we remain confident in our path forward. We continue to execute a focused strategy to deliver measurable gains in revenue, cost efficiency, and profitability. With that operational context in mind, let me turn to our second quarter financial results. Revenue was $455 million. EBITDA was $39 million. Free cash flow was $39 million. Net debt decreased $36 million. In a typical quarter, I'd spend more time on industry trends, new client wins, innovation, partner growth, and strategy. While we have progress to report in all those areas, I want to focus today on the actions underway to fortify the resilience of our business.

Across both TTEC Engage and TTEC Digital, our priorities remain clear: continue to sharpen our go-to-market approach, reduce structural cost, and restore the business to our historic levels of growth and profitability. Let me start with our focus areas in Engage. First, we continue to improve pipeline quality and sales execution. While there is more work to do, we're seeing positive momentum with new strategic enterprise opportunities, higher growth digital services, and client wins across automotive, healthcare, retail, and travel. Second, we're partnering with clients to address financially underperforming programs through automation, offshore delivery, and operating model redesign while maintaining a high level of service quality. In the event, however, a mutually beneficial path isn't possible, we're assisting clients with a professional transition. Third, on the front lines, we're successfully deploying AI and automation in focused, practical ways to improve productivity, simplify workflows, and expand capacity across our operations.

In parallel, we're simplifying our cost structure by streamlining operations, improving the return on vendor and partner investments, and shifting select support functions to lower-cost delivery locations. While these efforts are still underway, they're strengthening our operating model, contributing to better execution, and positioning Engage for improved performance. Now moving to TTEC Digital, where we continue to successfully shift our CX technology and services mix towards the areas of highest client demand: designing, building, and operating CX solutions rooted in data, AI, observability, and security. We're executing this shift with four priorities, deepening our relationships with CX technology partners that are growing quickly with us, expanding strategically in EMEA and APAC regions, increasing sales coverage to better address the large number of opportunities in the market, and continuing to focus on operating the business efficiently with strong utilization and a model optimized for the best shore.

Increasingly, enterprise clients are facing a set of complex technical and operational hurdles but are lacking the specialized talent to successfully address them securely and at scale. By combining our deep technology expertise with strategic relationships across all the leading CX technology partners, we're helping clients bridge this capability gap and accelerate their transformation efforts. As a result, demand for our specialized CX technology expertise continues to accelerate. This increasing market traction, paired with our disciplined execution and robust pipeline, reinforces our full-year outlook and keeps TTEC Digital on track to hit its revenue and profitability targets. Moving on. You may recall that earlier this year, TTEC engaged PJT Partners, an independent financial advisor to assist in the evaluation of various strategic and capital market alternatives.

As TTEC Digital continues to grow and demonstrate the strength of its differentiated platform, our board of directors has determined that the time is right to initiate a review of strategic alternatives for TTEC Digital. Our objective is to best position TTEC Digital to realize its full growth potential and maximize shareholder value. During the evaluation process, it is business as usual for TTEC. An essential consideration in this assessment is that over the long term, there will continue to be commercial collaboration and innovation between our Engage and Digital businesses. Our board has not set a definitive timeline for the completion of this review, and the outcome may take many forms, including TTEC Digital remaining as part of TTEC. In conclusion, I want you to know that I remain fully committed to this business. We know our progress will be measured by results, not words.

I continue to be grateful to our clients, employees, partners, and shareholders for their continued support and commitment. Now I will hand the call over to Kenny.

Thank you, Ken, and good morning. I will start with a review of our second quarter 2026 financial results before providing context into our updated full-year 2026 financial outlook. In my discussion of second 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 second quarter of 2026 compared to the prior year period, revenue was $455 million compared to $514 million, a decrease of 11.3%. Adjusted EBITDA was $39 million, or 8.7% of revenue, compared to $52 million or 10.1%. Operating income was $26 million, or 5.7% of revenue, compared to $37 million or 7.2%. EPS was $0.03 compared to $0.22.

Note that the higher normalized tax rate in the second quarter of 2026 compared to the prior year had a negative impact on EPS of $0.08, which I will address later in my comments. Foreign exchange had a nominal impact on revenue, adjusted EBITDA, and operating income in the second quarter over the prior year period. Turning to our second quarter 2026 segment results. In our Engage segment, second quarter revenue decreased 12.1% over the prior year period to $351 million. Operating income was $14 million, or 3.8% of revenue, compared to $18 million, or 4.6% of revenue in the prior year. As stated in our first quarter commentary, we forecasted lower first half revenue for Engage compared to the prior year.

This was primarily driven by planned revenue declines associated with our rationalization of a small number of underperforming clients, as well as a seasonal Public Sector client engagement that accounted for approximately 24% of the year-over-year revenue reduction. While these factors were anticipated and reflected in our outlook, our second quarter results were impacted by additional pressures concentrated within a small number of clients in our Public Sector and technology, media, and communications portfolio. We are working closely with these clients and taking appropriate actions to improve performance in the third quarter and beyond. The balance of the Engage business performed in line with our second quarter expectations. As the business returns to anticipated sequential revenue growth in the third and fourth quarters, we also remain keenly focused on preserving our profitability and cash flow generation through further operational efficiencies and cost management initiatives.

Actions are already underway to drive impactful savings in the second half of this year and into 2027, which I will address further in the segment's updated outlook during my closing remarks. The Engage backlog is $1.5 billion, or 98% of our full year 2026 updated revenue guidance at the midpoint of the range, down from 101% for the same period in 2025. The Engage last 12-month revenue retention rate is 93%, an improvement over the 88% for the same period last year. In our Digital segment, second quarter revenue was $104 million, a decrease of 8.5% over the prior year. As previously mentioned, the second quarter 2025 results included a one-time sale of IP software, which generated $4 million of revenue at 100% profit margin. Adjusting for this, the second quarter 2026 revenue decline was 4.6%.

Operating income was $12 million, or 11.7% of revenue, compared to $18 million or 16.1% of revenue for the same period last year. Adjusting for the 2025 IP software sale, the 2025 operating income was $14 million or 13% of revenue. Digital second quarter 2026 financial performance aligned with our targets as we execute on the market shift from traditional CCaaS engagements to end-to-end CX transformations. Excluding our two legacy CCaaS practices, professional services grew 13% year-over-year, adding to the 15.3% growth we communicated in our first quarter results. This growth reflects the ongoing momentum we are seeing in our expanded CX technology partnership network that now includes more than a dozen strategic partners. We are pleased with the double-digit growth in these practices but need to scale more rapidly to offset the year-over-year revenue pressure in our traditional CCaaS practices. Our digital pipeline remains strong.