TTEC Holdings, Inc. Stock

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Until such time, you'll hear music. Thank you and please continue to stand by. Thank you for standing by. The conference will begin momentarily. Until such time, you will hear me. Thank you. Please continue to stand. Welcome to DTEK's second 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 T-TECH. would now like to turn the call over to Bob Belknap, DTECH Group's Vice President, Corporate Finance. Thank you, sir. You may begin.

Good morning and thank you for joining us today. T-TECH is hosting this call to discuss its second quarter 2026 results for the period ended June 30th, 2026. Participating on today's call are Ken Tuchman, Chairman and Chief Executive Officer of T-TECH and Kenny Wagers, Chief Financial Officer. Yesterday, T-TECH 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... of 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, and net debt decreased $36 million. In a typical quarter, I'd spend more time on industry trends, new client wins, innovation, partner growth, and 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 T-TECH Engage and T-TECH Digital, our priorities remain clear. Continue to sharpen our go-to-market approach, reduce structural cost, and restore the business. to our historic goals of growth and profitability. Let me start with our focus areas and 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 win 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 path isn't possible, we're assisting clients with a professional transition. 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 investment, and shifting select support functions to lower-cost delivery locations. While these efforts are still underway, they're strengthening our operating model, contributing to the success of our operations. contributing to better execution, and positioning Engage for improved performance.

Now moving to T-TECH 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, and technology. 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 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 them to be the best they can be. 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 T-TECH Digital on track to hit its revenue and profitability targets. Moving on, you may recall that earlier this year, T-TECH engaged PJT Partners, an independent financial advisor, to assist in the evaluation of various strategic and capital market alternatives. As T-TECH Digital continues to grow and demonstrate the strength of its differentiated platform, our Board of Directors has determined that the T-TECH Digital is a great opportunity to time is right to initiate a review of strategic alternatives for T-TECH Digital. Our objective is to best position T-TECH Digital to realize its full growth potential and maximize shareholder value. During the evaluation process, it is business as usual for T-TECH. 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 T-TECH Digital remaining as part of T-TECH.

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. And now I'll 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 gap basis, while EBITDA, operating income, and earnings are on a gap basis. 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 $525 million $114 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%. And 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 the 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 engaged 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... the 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's second quarter 2026 financial performance aligned with our targets as we execute on the market shift from traditional CCAS engagements to end-to-end CX transformations. Excluding our two legacy CCAS investments, we are now in the second quarter of the year. CAS 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 CCAS practices. Our digital pipeline remains strong, however, the average deal sizes are smaller and take longer to close as customers evaluate their investments in these transformations. As we balance this market shift, we continue to take steps to optimize our onshore-offshore delivery mix and overall utilization to maintain profit margin expectations. Based on our progress thus far, we are reiterating our full year 2026 guidance for the digital segment. Our digital backlog is $364 million, or 85% of our 2026 revenue guidance at the midpoint of the range, up from 83% for the same period last year. Before I address other second quarter financial metrics, I want to provide an update on our credit facility. support from our long-term relationship banks, we obtain covenant flexibility in the second quarter and future periods to align with our performance outlook. In addition to sufficient cash on hand and positive cash flow generation, the credit facility amendment provides adequate liquidity to support our business plan and operations.

We remain focused on continuing to deleverage our balance sheet as evidenced by a $58 million year-to-date net debt reduction. I will now share other second quarter 2026 metrics before discussing our updated outlook. Free cash flow was $39 million in the second quarter of 2026 compared to $86 million in the prior year. The year-over-year decline is partially explained by the collection of an aged VAT receivable of $21 million in the second quarter of 2025 and an increase in capital expenditures of $5 million in the second quarter of 2026 compared to the prior year. The increase in capital expenditures was primarily due to accelerated purchases of computer equipment and accessories to avoid imminent price increases scheduled for the second half of 2026. In the second quarter of 2026, capital expenditures were $13 million or 2.8% of revenue compared to $7 million or 1.4% in the prior year. Approximately 63% of the current quarter spend relates to growth in product development, real estate expansion, and client technology investments.

Our full year capital expenditure forecast remains unchanged but was higher due to the timing in the second quarter per my previous comment. As of June 30, 2026, cash was 94%. million with 861 million of debt, primarily representing borrowings under our credit facility. The net debt position of 767 million represents a year-over-year decrease of 37 million as we continue to focus on cash flow generation and debt reduction. We ended the second quarter of 2026 with a net leverage ratio as defined by under our credit facility of 3.85 times. Our normalized tax rate was 82.8% in the second quarter of 2026 compared to 43.4% in the prior year. The higher tax rate is largely driven by the impact of the valuation allowance against U.S. losses, partially offset by income in foreign tax jurisdictions. The second quarter tax rate is further impacted by the lower overall pre-tax income resulting in each dollar of tax expense having a greater impact on the rate.

As mentioned previously, the higher year-over-year tax rate results in a negative 8 cent impact on our non-GAAP EPS. Turning to our 2026 outlook, I will now provide some context with regards to our updated full-year financial guidance. In our Engage segment, we continue to see a growing pipeline and a diversified number of new enterprise clients and embedded-based growth. However, we are seeing an elongated sales cycle as deals are becoming more complex and evaluating the mix of technology and human interaction. The new business we have closed is producing positive results, but often starts at smaller volumes. to validate outcomes before scaling to significant growth. Due to these factors and our second quarter results, we are revising our Engage full year 2026 outlook. The year over year Engage revenue is now expected to decline from 4.1% to 8% at the midpoint of the updated guidance range, while the adjusted EBITDA margin is moving from 10% 10.6% to 10.1%.

The updated EBITDA margin at the midpoint still reflects a 110 basis point improvement over a full year of 2025. And we expect both sequential quarter over quarter growth for the remainder of the year and second half growth over the prior year. In our digital segment, we continue execute on the market remix through our expanded partnership network, focusing on CX platform transformations through data, AI, observability, and security. Our pipeline has shifted to these new and expanding market opportunities and is growing overall. Given our first half results and our most recent outlook, we remain confident in executing against our original full year 2026 digital guidance. For an update on our 2026 full year guidance at the consolidated and segment level, please refer to our commentary in the business outlook section of our second quarter 2026 earnings press release. In closing, our goal is to deliver profitable growth, cashflow improvement, and debt reduction remain a constant.

Our execution against these objectives remain intact and drives every decision we make. We are confident in our path forward and are grateful to our employees, clients, business partners, banks, and other stakeholders for their support. I'll now turn the call back to Bob. 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.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star followed by the number one. Please unmute your phone and record your name clearly when prompted. Your name is required to introduce your question. And to withdraw your request, you may press star two. One moment, please. Our first question is from Georgia Sutton from Craig and Helen. Thank you. Your line is now open.

Thank you.

Thank you. I wonder if you could walk through the process of going out to these customers who have lower economics from your perspective and you're trying to address it through automation and offshore delivery and then an operating model transition. What's the pushback you get from that? Can you just kind of tell us how far into that process and give us a sense of how many customers are involved?.

Good morning, George. I'm not 100% sure I'm fully understanding your question. When you say lower economics, are you speaking about customers that digital is engaging with or with our engaged? This is an engaged question.

This is an Engage question. I'm assuming... Hey, Ken, this is Kenny. George, this is Kenny. I don't know if Ken heard the question. So what we're doing at Engage and what we always do is look at our customer base and rationalize at a customer level, line of business level, the way that we profitability and what it brings from a contribution margin standpoint. And what we are engaged in right now, we're looking at roughly high single-digit clients that we're talking to about their economics. So much of it is specific to the country they're in, the facility they're in, and the ability to cover those costs outside of just what the hourly wage is and what that markup is. And so what we do is we look at that P&L, we sit down with that customer, we walk through the contract and where we see opportunities for us to improve and where we ask for them to look at adjustments to the engagement we have.

And so it's collaborative. We're an open book when we get to this point with the client because we're looking for a resolution. Again, we do this consistently and constantly and engaged, but we're a little heightened right now because we're looking for flexibility on seats offshore as we continue to grow our offshore mix. And so it does have a short-term impact to our top line as we rationalize with some of these clients. We hope to get to a, you know, a mutual agreement, but if we can't, then we're we move on from them and then open up that capacity to other clients that we have in.

I understand, appreciate it. Sorry for not fully understanding your question. That is exactly right, what Kenny just described. And as you know, because you followed us for so many years, We have always tried to ensure that clients are accretive to our margin goals And right now there's even more of a focus on clients that simply aren't achieving the profit margin that we believe is fair and it's competitive, et cetera. And in the past, what we found is some clients who we could not come to a resolution with, we always do a professional transition. Um, but ironically, uh, in, in multiple cases, they ended up coming back because they find that the price that they were able to achieve with whoever they were negotiating with, that particular party wasn't actually able to deliver, et cetera. So although we're not necessarily expecting that, we've seen that happen multiple times. And the good news is it's just a small portion of our business. that we're focusing on to drive a margin that, like I say, is not dilutive.

Thank you.

Okay, and then just one question relative to digital, you suggested now is the time for looking at strategic alternatives. I'm just curious, why is now the time?.

You know, the business is doing quite well, and people are really excited about all the different partners that we now have and the impact that we're having on helping them with their AI integrations, etc., and with AI valuations being crazy, etc. it seems like it's a good time to just to check and see if there's something that would be in the benefit of all the shareholders. And so that's really our overall approach. The fact of the matter is, is that any deal that we would do would still stay very, very would still have a very tight relationship with the T-TECH Engage business. and we would still go to market together, et cetera. So it's really just a matter of trying to gauge where the market is based on other transactions that we've seen that have taken place. And we wanna see if we can capture some data some good value for the shareholders. And so the board has asked us to explore this and we've We all agree, and so this is the path that we're taking for now to see if there's something that makes good sense to everybody. Got you. Okay. Thanks, Ken and Kenny.

Thanks, George.

Once again, to ask a question over the phone, you may press star followed by the number one. You will be prompted to record your name and to withdraw your request, you may press star two. Our next question is from Maggie Nolan from William Lair. Your line is now open.

Hi, thank you. On the engage segment. There's a couple of clients that have had shortfalls and delays in some of the closings there. Is this concentrated in a specific vertical or client type? Is there some sort of trend that we should be picking up on here? Or do you think it's reflective of broader demand pressure? Sure. And if you could comment maybe on how the pipeline and bookings look in more detail there, too, that would be helpful.

Hey, Maggie, it's Ken. Good morning. I'll answer part of that question. I believe you're speaking about, you what was the key driver of the second half weakness on Engage. And as we said, that is literally time. to two clients, the majority of which is one large public sector client that is having a problem with a third party that we're not affiliated with as it relates to the technology that they're offering and the infrastructure that they're offering. And that is having... Ripple's technology is not performing as they contracted. We're doing everything we can to work it out with the client. Like I say, it's a public sector client, and we hope to have this resolved. very shortly.

Um, and so that had the single biggest impact on the quarter. And, um, Kenny can comment on the overall impact of just that one client, but I think it would have allowed us to basically achieve between that and one other client, which was a smaller portion of the management plan. Kenny, do you want to take it any further? Sure.

Yes, Maggie, I think what's key for us, Ken, can outline the impact to Q2 on those two clients in the PubSec vertical and the Telecom vertical. For us, I think it's key even as we talk about adjusting guidance for Engage, we are still looking at growth and margin expansion both sequentially in Q3 and in Q4, as well as the second half of this year being up to the prior year. So that gets to your second part of your question that we are confident in the pipeline. Our backlog is at 1.5 billion or 98% of our full year. We have line of sight to the net new revenue and the contracts that we have forecasted in the second half. And so we're confident in this new guidance, and we're confident in the year-over-year comps for the balance of the year to show that trajectory going forward because of the strength of the pipeline and the backlog going forward. So we're... But, you know, we talked about Q4 a little bit last quarter.

From a seasonality standpoint, we continue to see the same, you know, again, sequential quarter growth and the same trend line that we see year over year by quarter for the engaged business specifically.

Thank you. And then, so on that, on your margin commentary there, Kenny, it sounds like, well, maybe can you help me understand the balance between how much of the margin and recovery in the back half is going to be driven by converting bookings on the timeline that you're anticipating versus the actions that you're taking on some of the less profitable relationships that you were just talking about in the prior question?.

Yes, I would say heavily weighted towards the beginning of your question. Again, this margin rationalization, which we always do, this is a customer-specific business model tied to facilities and country P&Ls. And so, looking at at high single-digit customers for that margin rationalization that we've identified really doesn't come close to outweighing the margin improvement and profit improvement that we see in our core business and that we see in the net new revenue growth that we've had year to date and will continue to have in the back half of the year. heavily heavily weighted towards the new business the new logos and the core embedded based business that we have those businesses and the improvements that we are we call shop for improvements internally in the company that that build on the AI technology that we're building for our agents internally to use and then the commercial AI that we're also selling to the client so it's that technology is partnered with our agents that's really driving the margin improvement in our embedded base that far is the big driver of our margin improvement in the second half of the year.

Thank you. Our next question is from Vincent Colicchio from Barrington Research. Your line is now open.

Yes, how much additional restructuring expense should investors expect before the cost structure is right-sized?.

Hey Vince, this is Kenny. I would say if you look at it again, we are constantly looking at the cost structure of the company. We are constantly evolving to make sure that our costs align. with the top line of the business and aligned to the gross margins that we're driving. I would tell you that from a forecast standpoint for the balance of the year, it's going to be in line to what we have experienced in the first half, because again, we took cost actions in 2025 annualized into the beginning of this year. So I would tell you it is roughly on the same trajectory that it has been for the previous four to six quarters.

And as the competitive environment changed since last quarter, particularly around pricing? For Engage or digital, do you want to be specific or do you want to talk to me? Oh, yes, for Engage. And just, you know, maybe incorporating that one of your larger competitors is having some financial issues and if that's having an effect.

Yes, look, I would tell you that the pricing environment really hasn't changed in the last four plus quarters, let's call it. I think as I mentioned in my script, and Ken might have mentioned it as well, what we are seeing, and we've seen this for a couple of times, quarters is with new logos specifically, they're starting a little smaller. They're kind of dipping their toe in, because they want to see the technology that we've built. They want to see the use of technology with our agents to see the outcomes that they're looking for and that we are solutioning. with them as we win their business. And so I wouldn't say that the pricing pressure is any different this quarter than it's been for the last four, but definitely deal size is starting off smaller. And it's, you know, we've got to prove ourselves a little more, it seems like, in the first three to six months to then then get the next stage or step function change in winning that and continuing to grow that embedded base once we get the new logo.

Thanks for all that color. Got it. This concludes DTEK's second quarter 2026 earnings conference call. You may disconnect at this time.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

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 Bolno ], Group Vice President, Corporate Finance. Thank you, sir, and you may begin.

Good morning, and thank you for joining us today. TTEC is hosting this call to discuss its first quarter 2026 results for the period ended March 31, 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 managers 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 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.

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. 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 proof of concepts with varied success. Now leaders are taking a much broader view Instead of just plugging in new tech for tech's sake, they're starting with their actual business goals and working backwards to build a road map. 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, robots 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.

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 clients' 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 so our associates can leverage personalized insights to deliver more customized, higher-value customer experiences.

And 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. 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.

Now 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 road map that will unify their tech stack and empower frontline human healthcare advisers with real-time insights. 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. So we understand the complexity and unpredictability that they face every day.

When it was time to level up their CX, they realize 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.

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. 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 31, 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. And third, embedding AI across our associates' life cycle 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 smart hire screening approach, we've increased interview to hire rates by as much as 25%, with early signals showing meaningful improvement in the retention and quality of the hire.

In learning and performance, over 100 Engage 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, and 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.

Now on to TTEC Digital, where we continue to evolve our professional and managed services to align with how clients are approaching digital transformation. 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 3 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, 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 launched 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 time lines from months to weeks. This momentum is extending across all our CX technology solutions, including our modern data state 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. 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 and 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, 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.

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%. Operating income was $32 million or 6.4% of revenue compared to $41 million or 7.8%. And 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.

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 rationalized 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 of the first quarter revenue decline.

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. 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 12-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. 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 CCAS 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 CCAS 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.

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 3 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.

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 nontraditional 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.

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% on 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 31, 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. We ended the first quarter 2026 with a net leverage ratio as defined under our credit facility of 3.77x, 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 pretax income. The impact of the U.S. valuation allowance recorded against the U.S. pretax losses will continue to impact the normalized tax rate with the rate fluctuating based on the total pretax 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 Engage and Digital. 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 2 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 in 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 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.

[Operator Instructions]

[Operator Instructions] Our first question will be coming from Gerd Sutton of Greg Allum.

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.

So I just wanted to make sure I sort of fully understood the pipeline that you're looking at and at the same time, they deliver 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.

George, so I'm not fully understanding the the question. But 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?

Obviously, there is 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. I wouldn't get behind that a little bit and understand it. .

Yes. So first of all, I'm not trying to come across as a contrarian. But up to this point; as it relates to the [ DCX ] Engage business, we're not feeling a reduction in volumes due to AI. We're not suggesting that over time, that won't take place.

But 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.

So 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.

And 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, And 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 partners have to offer.

And 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 efficient [Audio Gap] standpoint as it relates to us applying technology and applying AI. But the fact of the matter is, 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 many, many opportunities.

In the first quarter, I don't -- I actually -- we'll wait until second quarter before we quote the number of net new clients that we've signed. But what I would just simply say to you is that on a new logo standpoint, we're well ahead of last year's first quarter of net new logos. And we're confident with the logos that we are in the process of signing that, that trend is going to continue for sure through second quarter.

So I'm not trying to, in any way 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 for whatever reason, aren't performing. And that unto itself provides very significant amounts of future opportunity for us as well as the space continues to kind of go through an organic and inorganic consolidation.

My other question relative to the concept of avoiding RIP and replacement, 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?

You're speaking about what was in my script. Is that correct that's what you're pointing at? When you say just -- again, I want to make sure that I'm being more precise on answering your question. So we have -- with our AI media gateway, 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 Google's CCAI product offerings. I'm talking about AWS, LAMA offerings, I'm talking about Microsoft's Copilot offerings, et cetera.

And so we're able to demonstrate to clients through our sandbox that we can implement this in a fraction of time that the other -- whether they be GSIs or other companies. And so 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.

Our next question will be coming from Maggie Nolan of William Blair.

I don't know if you can comment on -- 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?

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

So the big misnomer about taking advantage of is that people don't fully appreciate how complex it is for companies to achieve a modern data estate. And that is really 1 of the biggest issues that most of these legacy companies have is that their data is in so many different systems, and those systems don't necessarily even talk to each other. And so then it's our job to bring all of that together.

So what our focus is when we're going into a client is the stuff that we know that we can turn on almost immediately. And so therefore, those are the tools that augment their associates or our associates. So what is it that we can do with AI from a QH 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 -- what is it that we can do with AI from a training, 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. So we view that as Phase 1 across all of our clients, whereas Phase 2 is going into how you can actually create self-service stat bots, voice bots, et cetera, that ultimately keep the human in the loop.

And I think that without getting on my soap box, which I know I'm very guilty of doing -- all I'm going to just simply say to you is as I mentioned in our script, we do our CAP meetings every 6 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 -- and I can say to a tea that virtually every single 1 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 want to 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. And 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 going to always have the ability and the access to a live human being and on interactions that are important to them, whether it be financially or health care wise, et cetera, in more cases than not, those will be augmented humans meaning humans that are taking advantage of AI.

And 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. And so every 1 of our clients is trying to analyze this. They're going through journeys on this. journey mapping on this, et cetera.

And we're -- frankly, we're really excited about it. And 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 focused on building modern data states and providing AI capabilities and AI-based analytics.

And then I'd like to comment on the improvement in the retention and Engage revenues on a year-over-year basis. So could you link those continued efforts and expected improvements there, continued improvements, I would suspect back to kind of the return to growth timeline and trajectory for Engage?

Maggie, this is Kenny. I'll take that one. We are seeing very steady and good improvement in our embedded base growth. We've talked about this quarter-over-quarter I know in our one-on-one discussions, especially with [ John Abo ], it's -- we're improving our quality and service, right? It has been a focus for Engage over the last 2 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 on the floor of our operational centers.

And so embedded base growth, as we continue to, again, bring in the external talent that we have to our leadership team and engage and they bring 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, 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."

And so the embedded base is moving with us they are underpinning the growth that you're going to see in the second half of the year. We've talked about that in the reaffirm that we put out on guidance. We are going to return the top line growth in Engage by the end of the year. That's a big part of it.

And so 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.

Our next question will be coming from Jonathan Lee of Guggenheim Partners.

Kenny, helpful that you broke out the Pub sec seasonal client is 40% plus the decline in age. 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 delivered rationalization? And what's the same client organic growth rate for the portfolio you're choosing to keep?

Yes. Yes, Jonathan, it is definitely a little of both. As we talked about coming into this year, as I talked about in Q4, as we look at our full year guidance, it was going to be a story of 2 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. And so 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 were engaged. And so 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 going to 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.

So we don't -- we'd rather work it out to keep them in the house. But if we can't, that's fine because we have the demand especially offshore, as we've mentioned, our pipeline is up 17% year-over-year with offshore demand. And so -- 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.

I will say, though, that interestingly enough, the public sector pipeline is actually fairly healthy. And what I will say is that with my personal involvement along with [indiscernible] involvement, we are going out of our way in ensuring that the net new public sector accounts or accounts that are profitable day 1 to start.

We inherited multiple public sector clients through an old acquisition that was done many years ago. And that is some of those accounts, a few of them -- a couple of them are ones that Kenny was referring to, et cetera. And -- but 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. A lot of federal spending going on right now and modernization and our goal is to get our piece of that.

Got it. And just as a follow-up on back to margins. Adjusted you're at, call it, 7% for Engage. But you've executed, call it, 400 basis points of offshore shift. Your near full AI deployment, you've exited unprofitable work. And in 3Q of last year, I think you told us we'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 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?

Yes. So I think you had multiple questions there. So no, we're not getting it away. So 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 we -- where management plan forecasted, which I believe was in 9.8% or 9.7%. And so I'm not sure what you were referring as operating income.

[ Lease ] on Q1 -- excuse me. So 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, it's all in the second half of the year. And we've always been rear-end loaded in the 40 years we've been in business. It's always been towards the second half of the year.

You win the business in the first 2 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.

And 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 anything else you want to add to that?

Yes, Jonathan, I think to your specific question on that, again, we are -- as Ken mentioned earlier, we're still not seeing the monetization fall 1 way or the other on AI from a pricing standpoint. The AI that we have deployed around CA 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.

And so 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. 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. And so it is that mix that is giving us the margin -- a big portion of the margin improvement for the Engage business throughout the full year of guidance.

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.

Welcome to TTEC's Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] This call is being recorded at the request of TTEC.

I would now like to turn the call over to Bob Belknapp, TTEC's Group Vice President, Corporate Finance. Thank you, sir, and 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 2025 results for the period ended December 31, 2025. 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 annual report on Form 10-K for the period ended on December 31, 2025.

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 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.

Good morning, and thank you for joining us today. 2025 was a pivotal year for TTEC, one in which we met our financial commitments, improved our balance sheet and fortified our position as the leader in AI-enabled CX. For the full year 2025, revenue was $2,136 million, exceeding the high end of our guidance. Adjusted EBITDA was $214 million, reflecting year-over-year growth of 5.6%. We generated $83 million in cash flow and reduced our credit facility borrowings by $70 million. This reflects our continued focus on strengthening our balance sheet.

Before moving on to our business overview, I'd like to point out that our operating improvements and disciplined budget management were offset by a onetime goodwill noncash impairment on a portion of our TTEC Digital segment in the fourth quarter. This was due to the decline in our market capitalization and the annual fair value assessment. While impactful from an accounting GAAP perspective, the impairment was a noncash expense and has no impact on our broader ability to execute our strategy or the value of our CX Technology solutions.

Now on to some highlights from the year. We deepened our relationships with our largest clients, capturing an increased share of wallet as they expanded their use of our end-to-end consulting, technology and managed services portfolio. Sales of new lines of business launched in 2025 to our base were strong in both our Engage and Digital segments, increasing year-over-year. Across the business, we attracted a substantial number of new clients with our AI forward and vertical solutions approach. Several of these clients are new to having a CX partner, a shift driven by data and AI landscape that has become too complex for clients to navigate alone.

We grew our strategic technology partnerships as we collaborated on new client sales opportunities and innovative solution development. Our professional services with these technology partners grew 16% outside of our legacy CCaaS practices. We continue to increase the penetration of our AI-enabled solutions with our embedded base and are integrating this innovation functionality in every new TTEC Engage and TTEC Digital opportunity. We expect that we will achieve near 100% AI adoption with our current clients by the end of this year. And importantly, we continue to invest in our global team of CX engineers, consultants, data analysts and associates, earning Great Place to Work certification in 15 countries several more countries than last year.

Before we move into the discussion of our segment performance, I'd like to share some thoughts on the current macro environment. Clearly, there is an AI overhang casting a shadow over valuations for CX, IT and SaaS-based business services companies. We are fully cognizant that over time, there will be an impact on lower value interactions, which are part of the current $400 billion TAM. However, the opportunity is sufficiently large to support the company serving the market today, let alone the new solutions that are emerging. Based on our experience, AI isn't eliminating the need for CX. It's making it more effective. By automating routine transactions, it's enabling humans in the loop to focus on the high stakes interactions that define a brand. But even as we navigate the fastest tech adoption curve in history, we must remain mindful that the promise of AI is only as good as its execution. Success lies in balancing this rapid innovation with the operational realities required to deliver a seamless, human-centric experience.

Our point of view is shaped by several market realities. One, transformation requires a long runway. It took almost 30 years from the Internet's debut to achieve total global integration. It demanded decades to build the infrastructure, technology, tools and adoption to achieve worldwide ubiquity. Two, systems sprawl is massive. Today, the average Fortune 1000 company operates hundreds of software applications and technology systems, both in the cloud and on-premise. Although not all of them are required for CX, less than 1/4 of them are integrated. Three, internal cultural adoption creates a bottleneck. According to a recent Bain & Company study, 88% of business transformations fail to achieve their goals because of lack of organizational readiness and employee alignment. Success requires businesses to rethink how they organize and power, train and measure the effectiveness of their people and AI counterparts. And finally, technology is only as valuable as the end consumers' willingness to use and trust it.

Just as the EV mark shifted towards hybrid cars when consumers demanded the security of traditional engines alongside new tech, CX is entering a hybrid air where consumers appreciate the potential convenience and personalization of agentic AI, but demand the trust and authenticity of a human in the loop for high-value complex interactions. In this environment, enterprises are seeking guidance and expertise like never before. They're looking to architect modern data states, integrate disparate systems and redefine workflows. In some cases, rather than struggling to do it themselves in-house. They choose to work with an end-to-end partner like TTEC. This convergence of complexity and urgency is exactly where we excel. We don't just provide the technology of the people. We provide the strategic CX bridge that turns AI potential into operational reality. With 42% of general AI initiatives failing due to lack of depth, companies are shifting budgets to CX specialists like us, who don't just know AI, but have the precious final mile CX experience to move fast, remove risk and deliver brand differentiation.

To achieve the full potential of our unique platform, we continue to build on our strong leadership foundation with new talent. I am pleased to announce several key appointments that will further accelerate our strategic road map. Alfredo Rizo, a long-standing leader with our TTEC Digital organization has moved into the newly created role of Chief Technology Officer of TTEC, reporting directly to me. His deep institutional knowledge, client-centric experience and AI-first approach will be vital as he fast tracks our efforts to deliver next-generation AI solutions at scale.

Joining him is Rocky Desereju, our new Chief Operating Officer at TTEC Digital. His deep domain expertise gained at IBM, among others, will help us further bridge the gap between operational excellence and technology-enabled transformation, ensuring our digital initiatives continue to deliver measurable impact for our clients.

Now I will turn to a discussion of our business segments. Let's start with the Digital CX segment, Engage. As planned, we delivered solid progress this quarter as we continue to advance our transformation agenda with a disciplined focus on profitable and sustainable growth. We're seeing encouraging traction across the business as clients increasingly turn to us for modern, digital-first CX solutions and operational excellence. We are expanding our role by introducing new vertical-specific solutions, increasing cross-sell of digital capabilities and consistently delivering on the priorities that matter most to our clients.

At the same time, our new client pipeline reflects healthy momentum, attracting world-class brands that are seeking AI forward CX solutions that deliver the highest quality interactions. We remain disciplined in our pursuit of operating leverage and margin expansion. Our digital-first strategy is yielding significant efficiencies and our strengthened leadership team has energized our frontline performance as well as continue to optimize our global delivery mix.

We are focused on winning new business that meets our profitability expectations. In parallel, we're working to optimize a few underperforming contracts. While this creates a temporary revenue headwind in 2026, it secures a healthier client portfolio, superior margins and a more resilient growth profile. Ultimately, these deliberate actions ensure we are not just growing, but growing profitably and sustainably.

Turning to TTEC Digital. We continue to evolve our professional and managed services to meet the changing needs and priorities of the market. Clients are looking to us as experts to help them navigate their digital evolution. Because we specialize in building value through the strategic application of data, AI and automation, we're helping ensure that every innovation translates directly into disciplined, measurable business outcomes.

While these engagements may begin smaller than traditional CCaaS migrations, they are highly strategic and sticky. They leverage our expertise in the application of AI, data analytics, consulting, journey orchestration and systems integration. Because of our fluency with all the major CX Technologies, these engagements often benefit from the network effect where they expand into multiphase professional and managed services relationships.

The shift is broadening our addressable market, increasing both our share of wallet and existing clients and attracting new ones. Our technology-agnostic approach combined with our ability to rapidly pilot use cases across all major hyperscalers is positioning us as a trusted partner for complex multi-platform CX transformations. As a result, we're seeing growing demand for adjacent services and strong momentum in professional services pipelines and bookings.

Our partnership with a global travel and hospitality brand is one example of how our ability to combine consulting, technology and analytic insight is driving sustainable growth. Our relationship began when this enterprise was facing a critical end-of-life cliff with their on-premise contact center technology. They brought us in to initially to mitigate risk and assess their path forward. Fast forward 4 years, that tactical engagement has evolved into a complete digital transformation that will persist well into the future. We've modernized their foundation by successfully migrating them to an integrated CCaaS and CRM platform. We've architected a modern data estate with a clean unified data environment required for advanced CX and activated AI by deploying generative AI functionality to personalize guest interactions at scale.

We've fundamentally moved this client from a high-risk, high-cost legacy environment to a high-reward AI-ready CX engine. Their CX operations are no longer a cost center. Today, they are primarily a driver of revenue growth and long-term customer loyalty. This is the blueprint that we're now scaling across multiple clients. Digital first automation handles low complexity task, reserving human expertise empowered with AI for authentic, empathetic white glove moments. It demonstrates what can happen when we change the conversation from managing cost to mastering outcomes. As a global consulting, technology and managed services company, delivering solutions at the intersection of data, AI and customer experience, we are evolving our business to capitalize on the massive opportunity before us, which brings me to our financial resilience.

We expect to continue delivering EBITDA growth, while revenue in each business segment is anticipated to be slightly down this year. As we codify the next generation of the CX playbook, we're proactively remixing our solutions, delivery models and commercial constructs.

Regarding our stock price. It is our view that the current valuation does not reflect the differentiation and value in our business. Obviously, entire sectors have been put under similar pressure and are being treated as though they have no terminal value. Our strategy remains focused on the factors that we control and on building an enduring business for the long term.

While we're collaborating with financial advisers and banking partners on our credit facility, the business performance continues to improve with stronger balance sheet and cash flow. These efforts will enhance our long-term flexibility supporting both our operations and innovation agenda. As we pivot to the year ahead, we remain focused on returning the company to its historic growth and margin profile. We are prioritizing high-yield complex client engagements with ample opportunity for growth, expanding our role as a strategic end-to-end transformation partner, driving differentiation through vertical solutions and proprietary IP, deepening our technology partnerships, continuing to improve efficiency through AI and automation and investing in specialized talent with deep vertical CX operational and technical expertise. These priorities are the critical path for continued success by leveraging our unique end-to-end solutions and investing in our people, platform and strategic partnerships, we will continue to capture the demand for AI-enabled CX solutions well into the future.

I continue to appreciate and value the dedication and support of our Board and talented teams across the globe. I'll now hand it over to Kenny.

Thank you, Ken, and good morning. I will start with a review of our fourth quarter and full year 2025 financial results before providing context into our 2026 full year financial outlook. In my discussion of the fourth quarter and full year 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.

On a consolidated basis for fourth quarter 2025 compared to the prior year period, revenue was $570 million, a slight increase over the prior year period of $567 million. Adjusted EBITDA was $62 million or 10.9% of revenue compared to $51 million or 9%. Operating income was $48 million or 8.4% of revenue compared to $35 million or 6.2%. And earnings per share was $0.47 compared to $0.19. Foreign exchange had a $4 million positive impact on revenue and a $1 million negative impact on operating income in the quarter compared to prior year period, primarily in our Engage segment.

Now turning to our consolidated full year 2025 financial results. Revenue was $2.14 billion compared to the prior year of $2.21 billion, a decrease of 3.2%. Adjusted EBITDA was $214 million or 10% of revenue, an increase of 5.6% or 80 basis points over the prior year of $202 million or 9.2%. Operating income was $155 million or 7.3% of revenue compared to $136 million or 6.2% in the prior year. And earnings per share was $1.10 compared to $0.71 in the prior year period.

Foreign exchange had a $3 million positive impact on revenue and a $4 million positive impact on operating income over the prior year primarily in our Engage segment. At the company and segment level, our full year financial performance was in line with the guidance expectations previously communicated with revenue exceeding the high end of full year guidance range, while profitability came in near the low end of guidance.

Turning to our fourth quarter and full year 2025 segment results. In our Engage segment, fourth quarter revenue decreased 1.8% over the prior year period to $444 million. Operating income was $36 million or 8.1% of revenue, an increase of 62% or 320 basis points compared to $22 million or 4.9% of revenue in the prior year. Engage fourth quarter revenue and operating income were in line with our expectations as health care seasonal volumes delivered $22 million of additional revenue compared to the prior year. As mentioned in our previous earnings, a significant portion of the investments related to the seasonal ramps and certain other growth clients were made in the third quarter, resulting in fourth quarter year-over-year profitability growth and margin expansion.

The health care growth was offset by a decline in the public sector portfolio due to the loss of a large client we had previously communicated, which was at lower margins and thus had a nominal impact on operating income. We are pleased with our Engage segment's fourth quarter financial results and the profitability improvement that not only drove significant growth in the quarter but more than offset the third quarter decline and resulted in overall second half margin improvement compared to the prior year.

On a full year basis, the Engage 2025 revenue was $1.67 billion, a decrease of 4.6% compared to $1.75 billion in the prior year. Operating income was $101 million or 6.1% of revenue compared to $85 million or 4.9% in the prior year period, representing an increase of 18.8% and margin expansion of 120 basis points. The Engage revenue exceeded the high end of our full year guidance. Our focus on increased profitability was reflected in the year-over-year operating income growth and margin expansion delivered despite the decline in revenue. The profitability improvement was a result of our deliberate actions taken over the last 18 months, where we realigned our cost structure, improved operating efficiencies and effectiveness and continue to increase our offshore revenue mix. We also added new leadership, which helped drive these accomplishments.

The Engage backlog for the next 12 months is $1.48 billion or 92% of our 2026 revenue guidance at the midpoint of the range, down from 96% in 2025. The Engage last 12-month revenue retention rate is 95% compared to 82% in the prior year.

Now moving to our Digital segment. Fourth quarter revenue was $125 million, a 9.2% increase over the prior year of $115 million. Operating income was $12 million or 9.4% of revenue compared to $13 million or 11% in the prior year. The Digital fourth quarter revenue increase was driven by product resale, which drove $15 million of additional revenue over the prior year. The overall revenue mix, however, drove a lower operating income and margin as recurring revenue declined 5.6%, and professional services were slightly down 1.6% in the quarter compared to the prior year.

On a full year basis, Digital's 2025 revenue was $469 million compared to $459 million in the prior year period, an increase of 2.2%. Operating income was $54 million or 11.5% of revenue compared to $51 million or 11.2% in the prior year. The full year Digital revenue growth was largely attributable to product resale, which nearly doubled compared to the prior year, increasing $24 million. This increase was due to multiple deals with clients that have yet to migrate to cloud-based CX delivery solutions.

We believe, over time, these product resale opportunities will diminish in the market. This revenue also included the sale of the IP software closed in the second quarter of 2025 for $4 million. Excluding the product resale, Digital revenue declined $14 million or 3.2%. This reflects the ongoing market shift, which is moving away from the traditional CCaaS point solutions to partners that provide end-to-end transformative CX solutions, optimizing clients' existing platforms. As a result of this shift, Digital full year 2025 recurring revenue declined 4% compared to the prior year.

Professional services were slightly down year-over-year by 1.5%. However, professional services related to our expanded partnership network grew 15.8% outside of the traditional CCaaS offerings. Although the revenue mix came in less favorable than forecasted, we are pleased with the full year digital operating income growth and margin expansion over the prior year as cost and utilization management were high priorities.

Our digital backlog for the next 12 months is at $287 million or 67% of our 2026 revenue guidance at the midpoint of the range, up slightly from 66% in the prior year.

Before I discuss other financial metrics, I will address the noncash goodwill impairment charge and the related tax adjustment recorded in the fourth quarter. In ordinary course, we performed goodwill impairment analysis in accordance with GAAP on an annual basis during the fourth quarter, unless a triggering event requires a more frequent analysis.

During the annual goodwill impairment analysis, the company elected to perform a quantitative evaluation of all of its reporting units. Based on this analysis, which reflects upon financial projections and market-based metrics, the fair value of our digital recurring reporting unit decreased below its carrying value and resulted in a $193 million noncash impairment charge. This was primarily due to industry dynamics that are shifting our legacy recurring managed service offerings from point solutions related to contact center technology, to optimizing existing environments through AI-led consulting, journey orchestration and data and analytics services. This type of impairment is a reality in the technology services sector where previously acquired technology-related companies are impacted by changing market conditions.

Our Engage and Digital professional services reporting unit's fair value remains in excess of their respective book values and are not impacted by the impairment. The tax impact of the Digital impairment created a net incremental noncash charge of $12 million, further reducing the carrying value of the reporting unit and bringing the total impairment charge to $205 million. Please refer to our Form 10-K for more details on the impairment and related tax impact.

As Ken mentioned, while impactful from a GAAP reporting perspective, the impairment and the tax valuation allowance were a noncash expense and do not impact our broader strategies and capabilities nor the value of our CX technology solutions. These charges are normalized in our non-GAAP reconciliation calculations.

I will now share other 2025 metrics before discussing our 2026 outlook. Free cash flow was a positive $83 million in 2025 compared to a negative $104 million in the prior year which as previously discussed, was impacted by the discontinuation of the accounts receivable factoring facility. Normalizing for the prior year, the year-over-year improvement was $86 million. This was due to a $79 million increase in cash flow from operations and reduced capital expenditures of $7 million. The significant increase in cash generation reflects our keen focus on improving profitability and working capital management.

Capital expenditures were $38 million or 1.8% of revenue for the full year 2025, of which 60% was growth related. This compares to capital expenditures of $45 million or 2% of revenue in the prior year. The 2025 growth-oriented spend was primarily driven by product development and technology and real estate investments in support of client growth and expansion. As of December 31, 2025, cash was $83 million, with $908 million of debt, primarily representing borrowings under our recently amended $1.05 billion revolving credit facility. The net debt position of $825 million represents a year-over-year decrease of $68 million. We ended 2025 with a net leverage ratio as defined under the credit facility of 3.58x compared to 3.99x at the end of the prior year.

As demonstrated by our improved cash flow generation and reduction in net borrowings, deleveraging and strengthening our balance sheet remain top priorities. We are confident that our 2026 outlook provides the cash flow needed to further reduce our debt and invest in the business to meet our strategic objectives.

Our full year normalized tax rate was 37.1% in 2025 compared to 40.9% in the prior year. The decrease is primarily due to the jurisdictional mix of income and the impact of valuation allowances globally.

Now transitioning to our 2026 outlook. I will now provide some context supporting our full year financial guidance. Related to our Engage segment, we expect a decline in revenue of approximately 4%, primarily due to the rationalization of certain clients and lines of businesses that are underperforming to our target profitability and the ongoing initiative of moving and growing our revenue to offshore locations. We expect the year-over-year revenue declines to be concentrated in the first half of the year while flattening out in the second half of 2026.

Engage profitability is forecasted to continue its growth trajectory, benefiting from the profit initiatives implemented over the last 18 months. Margin expansion will be further driven by the rationalization of certain client programs and lines of business where we have or will wind down on profitable revenue.

We also continue to prioritize our shift of existing and new business to offshore geographies. Although these actions negatively impact our top line growth in the near term, they are essential to further improve profitability and continue our drive towards historical margins. In our Digital segment, we are forecasting a revenue decline of 8.4% and primarily driven by the decrease in product resale as fewer opportunities remain given the number of clients that we are transitioning to cloud-based CX delivery solutions. Although the revenue decline is significant, these lower-margin deals have less of an impact on profitability.

Recurring revenue is expected to decline due to the managed services related to our traditional CCaaS partners. However, this is more than offset by growth in our digital professional service offerings. We continue to drive scale across our expanded partnership network, delivering on the new market demands where clients want more holistic end-to-end transformative CX solutions. This growth represents higher margin work and is more impactful to profitability. However, the revenue growth is less pronounced as a higher volume of this work is being delivered offshore.

Turning to the midpoint of our 2026 guidance, as outlined in greater detail in our fourth quarter and full year 2025 earnings press release. GAAP revenue of $2.03 billion, a decrease over the prior year of 5%; adjusted EBITDA of $230 million, an increase of 7.6% over the prior year and 11.3% of revenue compared to 10% in the prior year.

Non-GAAP operating income of $169 million, an increase of 9% over the prior year and 8.3% of revenue compared to 7.3% in the prior year. Non-GAAP earnings per share of $1.19, an increase of 9% over the prior year. Other relevant guidance metrics include: Capital expenditures between 1.8% and 2% of revenue, of which approximately 60% is growth oriented; a full year effective tax rate between 38% and 42%. We expect the phasing of our profitability to be more weighted in the second half of 2026 with approximately 52% of our revenue coming in the second half of the year based on our historical seasonal trends. Please reference our commentary in the Business Outlook section of the fourth quarter and full year 2025 earnings press release to obtain our expectations for the full year 2026 performance at the consolidated and segment level.

In closing, we are pleased with our full year 2025 financial performance, increasing our profitability and expanding our margins across both segments despite an overall modest decline in revenue. We also significantly increased our free cash flow and reduced our borrowings. This was accomplished against the backdrop of an evolving market in both our Engage and Digital segments. We are committed to continuing this performance in 2026 by further increasing our EBITDA and operating income, expanding our margins and reducing our debt. We remain focused on higher-value transformational engagements across both segments and have the discipline and confidence to deliver on our 2026 full year outlook.

I will now turn the call back to Bob.

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

[Operator Instructions] Our first question comes from the line of George Sutton of Craig-Hallum.

Ken, you said something interesting that you thought nearly 100% AI adoption by your -- the enterprises you're working with by year-end 2026. And I'm just curious if we could look at sitting here at the beginning of '26 versus the beginning of '27, and what kind of ongoing work do we have with those customers relative to helping them deploy the AI?

George, well, first of all, I understand that when we use -- when we make that statement, what we're referring to in general is AI that we are utilizing to enable our associates to do their job, AI that we're utilizing in our talent acquisition and recruiting AI that we're using in quality assurance, AI that we're using overall to empower all of our platforms, AI that we're utilizing internally to make ourselves more efficient, et cetera. So ultimately, our goal is that every single client of ours is taking advantage of everything from accent neutralization technology to our language translation technology where we can translate in real time from any language to any language, et cetera, where I think you're probably going just because the term AI is so ambiguous is AI as we utilize it not just only to assist the associates to be better, faster and more proficient, but also the ability to provide certain aspects of interactions that are self-service. And so we are very diligently working with clients that are open to and interested on helping them with their what we call their low-value transactions versus interactions that add no real value in cross-selling, upselling, building trust, building loyalty, maintaining retention, increasing wallet share, et cetera, and automating those with what we call an agent or a human in the loop that can come in at any point in time to assist should there be a need to assist. Or if it moves to something that's more complex or more higher value, et cetera. And so we're very focused in this area. We've been working with these technologies, as you know, for frankly, before AI was -- there was even a hype cycle on AI. And now it's really just a matter of which clients are actually ready and willing to start to adopt some of the capabilities where we can provide this on the front end from a self-service standpoint, which leads us more to futuristically our goal of outcome-based pricing. So we will achieve 100% by the year-end, which means that at minimum, our clients are taking advantage of all of the internal tools that we utilize to make our people better and to make them -- to drive higher quality, more accuracy, et cetera.

Our next question will be coming from Maggie Nolan of William Blair.

Maybe to ask that a little bit differently. How do you expect the mix of revenue to shift between project-based and recurring revenue over the next couple of years?

That's a really good question, Maggie. I'm not sure that I actually can give you a number with any level of precision. I guess if -- are you asking me, is that another way of saying what percentage of the business will be that we currently classify as Digital versus Engage? Or are you asking me as it relates to the Engage business, what percentage of that business will have a more AI focused. So maybe if you could just give me a little bit more direction on your question.

Yes. The original thought was sort of there's probably a likely a mix shift between Digital and Engage, but the second question is extremely interesting as well. So any thought all of the above.

Look, our focus on Digital is for the business to drive, on average, a 50% recurring revenue, and we're currently achieving that, even a bit more than that. And so if that partially answers your question, that is certainly the focus. As far as -- I'm not -- I just want to make sure that I'm still tracking your question. As it relates to Engage and how we see the future of where that business goes, we absolutely see the future over time where more and more technologies infused in Engage, and where we are pricing our services as much more of a turnkey offering that is tied to solutions and definitive outcomes. .

The reality, Maggie, and I don't -- as you know, I'm guilty of maybe over pontificating. So I apologize. But the reality is, is that what we find because of the size of the clients that we deal with, which tend to be in kind of that Fortune 500 category, is that when you get past all the AI height that it's going to eventually brush your teeth and do everything else, what we -- what our clients are realizing is, is that with the amount of systems that they have and the overall amount of silos that they have and the amount of systems that are not -- that don't actually even talk to each other, that there is only certain things that they can take advantage of with AI in order for it to be impactful. And so what we're doing is we're focusing on what we can provide them with technology that takes advantage of AI right now with their current situation while we're also trying to demonstrate to them how we can help them build a modern data state so that they can ultimately take advantage of far more AI.

And again, I'm not here to give a lecture or whatever, but what the Street is absolutely positively missing is that the time that it's going to take for these large companies to synergize, so to speak, or create synchronicity of their data. It's not going to be measured in months. It's going to be measured in years. And that's not according to Ken Tuchman, that's according to the CIOs of virtually every major client that we have. So that's my way of saying that we're going to attack the parts of their systems that we can and that they will allow us to have access to. But the reality is that the hope that the HAL 9000 is going to take the human out of the loop is, I think, more distant than many people might be estimating. So I'm sorry if I drag that out too much, but hopefully, I'm answering your question.

Our next question will be coming from Jonathan Lee of Guggenheim Partners.

First question for me. You highlighted revenue headwinds from offshore mix shift. Can you help us size how much more of your current onshore revenue might still be at risk from that mix shift dynamic?

Well, first of all, we don't view it necessarily as a negative. We view it as a positive, and it's actually a focus of ours and an imperative to work with our clients and work with our -- especially our new clients in shifting the offshore. So currently, 80% of our entire sales pipeline is all targeted net new offshore. As it relates to the embedded base that we currently have that is onshore, I would say that it's actually a fairly limited number and it's not because we wouldn't like it to be a higher number. But remember, we do a fair amount of public sector and federal work, health care work and financial service work. And a lot of that work requires highly skilled licensed employees, and it is not legal for them to operate outside of the United States. So what I would say is that it's really giving us other lines of business that we can focus on to move offshore. And there certainly are some clients that we currently have that are considering certain aspects of the business to potentially go offshore but it's somewhat limited just due to the nature of the segments that are onshore and the regulatory aspect.

I think we were trying to size the current onshore revenue that might still be at risk.

Well, I'm sorry, I thought I answered that. What I'm saying, you mean at risk to go offshore or...

Yes, risk to go offshore, not necessarily the net new portion of the work that you had highlighted earlier.

Yes. And what I'm saying is that the majority of the revenue that we have onshore, legally, we don't have the ability or the client doesn't have the ability to move offshore under the current regulations, which have existed for many, many years. So I thought -- I'm sorry, I thought I answered that. So the answer is I can't give you an exact number, but what I can tell you is that the health care clients, which were -- that's a significant portion of our business and the federal and public sector business, the part that we do that's regulated cannot and will not be moved offshore, unless the laws were to change. And my guess is that's not happening.

Got it. Ken, just as a follow-up, I understand that you're obviously investing in AI. Can you help us understand how you're defending against enterprise clients that may be pushing you to pass on the AI efficiency savings to them?

Thus far, that's actually not even -- that's not -- that's -- so far, we're not actually encountering that. That's not to say that over time, as AI more or less commoditizes, that we won't feel that. But right now, clients are in such need of advisory work on how to take advantage of AI and how and just our unique ability to integrate to their systems because for over 25 years, we've done deep systems integration into all of our client CCaaS systems, et cetera, that -- that's just not been focus. But I think more importantly, maybe another way of putting it is we absolutely plan as we start to demonstrate to clients how we can take low-value transactions that typically we don't even handle today. It's not part of our focus of our business and how we can help them automate them and how we can get rid of their IVR and install agentic capabilities on the front end to determine the purpose of the call, to gather information, et cetera.

Our goal is absolutely to share some of the upside or the benefit of the cost. And it's, frankly, I would expect the whole industry to be doing that because it's a way for us to garner net new business by us showing the industry or the client base that we can have an impact on their cost to serve. And that is a huge focus of ours is how can we demonstrate to them that we can deliver the highest possible quality at a lower cost to serve. And so if you're asking me, are they pressuring us for that? No.

If you're asking me, are we volunteering that as it relates to when we're showing them aspects of areas that are currently not being handled in an AI way and that we believe can and will not diminish the loyalty or the relationship of the customer? 100%. And what I want to stress, and I know I sound like a broken record on this, but it's really important for people to understand this. This industry is still $400 billion.

Every single analyst report that's come out whether -- technically, I'm not supposed to use the analyst names, but you know who they are, the Gartners and the Forresters and so on and so forth. Every single one of them has said that net human contact center agents over the next 36 months will increase, not decrease.

Now do we think over time, they will decrease? We absolutely do. And frankly, we're okay with that. And the reason why we're okay with that is we're a little $2 billion company. And when there's a $400 billion TAM. The AI could have a significant impact on the human aspect of it. And we, as a company, could still be multiples of the size that we are. At the end of the day, there's really only 5 to 8 players in the marketplace that are consistently being considered for the large deals that are out there. And those 5 to 8 players make up well under $50 billion. So when you do the overall math that there's a $400 billion TAM, the reality is we have a long way to go because right now, where the new business is coming from for the most part, is captives that are letting air out of the tires and they're starting to release business from their captives. And captives right now is a $300 billion total addressable market. That has -- and none of that includes the size of the AI and data analytics market that we're focused on, which we estimate is somewhere in the $500 billion to $600 billion range. So there's so much greenfield opportunity out there that we're embracing AI as absolutely something that's very positive for our business on a go-forward basis.

Our last question is from Vincent Colicchio of Barrington Research.

Ken, to what extent are you benefiting from consolidation? Or do you expect the benefit from consolidation given your expanded footprint and the increasing complexity of technology?

So do you mean consolidation of clients consolidating the number of partners that they have, because if that is currently taking place...

Yes, that's...

Is going on for the last 18 months or 24 months, and we think that, that's going to -- we think that's going to, over time, accelerate as clients realize that the concept of having 10 vendors makes very little sense, especially when of the 10 providers out there, most of them do not have deep technological capabilities, and we believe that the majority of all new business out there is going to require somebody that has the ability to provide various different aspects of technology to help them become more modernized. So if that's your -- if the question is, do I think there's going to be more consolidation? I do. And I think that the marketplace is already really bifurcated to what I would call third-tier type, second-tier type companies out there that can only compete on price, and lack capability and the scale players that have the right geographies that clients are looking for, but also have, more importantly, the right technology to apply.

You did answer the correct question. And I'm assuming that some of the companies that lack scale can't keep pace in terms of their technology capabilities, and I think you answered that.

Is there anything else I can add to that or...

No, no. You answered the question.

All right. Well, thank you.

Thank you for your questions. That is all the time we have today. This concludes TTEC's Fourth Quarter and Full Year 2025 Earnings Conference Call. You may disconnect at this time.

Welcome to TTEC's Third Quarter 2021 Earnings Conference Call. [Operator Instructions]

This call is being recorded at the request of TTEC.

I would now like to turn the call over to Bob Belknapp, TTEC's Group Vice President, Corporate Finance. Thank you, sir, and you may begin.

Good morning, and thank you for joining us today. TTEC is hosting this call to discuss its third quarter results for the period ended September 30, 2025. 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 and [ now gets ] 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 quarterly report on Form 10-Q for the period ended on September 30, 2025.

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 opinions as of the dates 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 2024 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.

Thanks, Bob. Good morning, and thank you for joining us today. This quarter, we continued to strengthen our foundation while also making investments to seed our future growth. In the third quarter of 2025, revenue was $519 million. Adjusted EBITDA was $43 million, and we reduced our net debt by $119 million from the prior year period. .

Across both business segments, we continue to expand our AI-enabled [indiscernible] [ salons ] with a hybrid strategy that blends the best of technology and human cognition empathy while also attracting new clients and new industries were seamless and [indiscernible] CX is driving brand differentiation and growth. We also nurtured our relationships with our existing clients with vertical-specific solutions enabled by data analytics and AI.

And lastly, we deepened our unique collaborative relationships with the leading hyperscalers who partner with us to drive innovation forward with their massive investments in AI and the related infrastructure. Clearly, a significant transformation is underway in the CX industry. [ viewed ] by the remarkable conversational ability of Gen AI, new use cases are emerging every day that have the potential to revolutionize the quality and efficiency of customer interactions. As a company dedicated to simplifying the complex world of CX and AI by providing every capability of business needs to transform we couldn't be more excited.

However, if you open any major business publication today, it's hard to avoid the news stories about early adopters. We're seeing a significant gap between our AI investments and measurable CX business outcomes. In addition to delivering disappointing returns, these initiatives are creating customer experiences that are clumsy, inflexible and impersonal. In many cases, it feels like [ Groundhog ] Day, recreating the decades agony inflicted by the static interactive voice response systems of the past, also known as [ voice Gail ]. Recent data validates this discouraging and costly trend. According to the CX Industry Trade Association, CTW, currently 82% of consumers feel CX experiences are inconvenient and inconsistent.

60% of them report that the quality of interactions has deteriorated, and almost 75% believe AI is making it worse. It goes without saying that these negative experiences are costing businesses, customer loyalty and hurting their bottom line. Our decades of frontline CX experience and fluency across all hyperscalers and CX technology platforms [ to deal ] with simple truth. While technology mastery is table stakes, AI's toughest challenges aren't technical succeeding in the AI age requires an agile, consultative mindset, a willingness to take thoughtful risk and the ability to embrace change.

Here's why. To start, AI isn't simply a new technology to plug into an old stack, it's a fundamental pivot in how organizations operate. Companies that don't shift their mindset will struggle to build AI [indiscernible] workflows and teams. To achieve sustainable and scalable results, companies must have a solid foundation in place, and most are just getting started. Change of this magnitude is a heavy lift and requires a modern data state, processes to clean and curate data reengineered processes and documented best practices, seamless front to back office technology integration and an inspired and rigorous change management protocol.

While this shift won't happen overnight, every initiative needs to be part of a thoughtful, flexible and interconnected strategy. This comprehensive approach mirrors the successful client-focused engagements we're currently implementing with some of our clients. In addition, to make this dramatic pivot and avoid costly mistakes, companies need to work with partners who have deep CX domain expertise, partners like us who have been operating in the CX trenches for [ decades ] and know how to limit risk. While generalists may be proficient in installing features and functions, they don't have the specialized knowledge of how the entire CX ecosystem works together.

Without big picture and practical understanding of all the specific value levers, they aren't able to optimize associate workflows efficiently or architect seamless journeys that support customers where, when and how they want to interact. [indiscernible] we're enabling clients to work and think differently. We're helping them use data, AI and integrated systems to create journeys that effortlessly harmonize automation and human interaction. Is this hybrid balance that underpins every piece of software we write, every journey we orchestrate, every associate we train and most importantly, every client we serve? While early days, let me share how this philosophy beginning to play out across our business. We'll start with TTEC Engage. This quarter, we continued to attract new clients, grow our business with our embedded base and introduce new AI-enabled solutions. Year-to-date, we've added 11 new significant clients to our roster, including 4 this quarter, with an encouraging pipeline moving forward.

We continue to expand our vertical expertise, attracting premium customer-focused brands across all our verticals. Over the last 7 quarters, we've signed 19 new large enterprise clients that are expected to add over $50 million of in-year revenue with substantial growth potential into 2026 and beyond. Our embedded base growth continues to accelerate as many of our key accounts begin to take advantage of the full range of our capabilities, including revenue generation, tech support, back office, trust and safety, to name a few.

Year-to-date, contracted revenues in these areas exceed 150% of what was awarded all of last year. This growth is a result of healthy strategic relationships better performance, innovation, industry thought leadership and reduced client churn. Across TTEC Engage, we continue to evolve using AI tools across every business function. For our associates, this focus translates into desktop automation, knowledge retrieval, simulated learning and AI-assisted coaching to name a few.

We've deployed AI in over 110 programs, with more than 65 clients and almost 100% of our new client pitches include our core AI associate augmentation tools. We're seeing impressive results on the front line with scalable performance improvements and we expect to see even more upside in the future. As expected, our engaged third quarter profitability was down compared to the prior year. This short-term dip was the result of significant investment this quarter to continue to set ourselves up for success in 2026.

In addition to investing ahead of our fourth quarter seasonal ramp, we've made meaningful investments expanding our executive leadership team, growing our prioritized offshore delivery locations and boosting funding for several key innovations and technology initiatives. When we combine these investments, with our ongoing operational improvement programs, we're confident that we'll deliver year-over-year growth in the fourth quarter and for the year overall.

Now let's turn to TTEC Digital, where we continue to remix our professional and managed services to meet the evolving needs and priorities of our clients. Our deep collaborative partnerships with the hyperscalers continue to position us squarely on the front lines of innovation. These industry giants are partnering with us to codevelop the essential features for a modern contact center, turning our shared vision into tomorrow's market reality.

While I mentioned before that AI's toughest challenges aren't technical, an agile, integrated technology stack is nonnegotiable requirement. To that end, this quarter, the TTEC Digital team signed 20 new meaningful clients and expanded our portfolio of services with many of our existing clients.

Clients are tapping into our expertise to help them optimize their current technology infrastructure and design their road map for the future. Instead of replacing core systems, we're helping clients optimize what they have by layering AI capabilities onto existing environments to drive targeted outcomes.

Although these initial engagements in some cases are often smaller at the beginning than our traditional CCaaS implementations, they're highly strategic and play to our strengths in consulting, journey orchestration, analytics and systems integration. These programs frequently expand into multiphase engagements and generate recurring managed service opportunities. Now let me highlight some of the exciting deals from the quarter. For an existing client, a leading multinational bank, we're using AI to optimize both their front and back office operations. We completed their CCaaS migration last year.

We're now layering in AI capabilities to transform voice and chat experiences [ and the ] conversational agents with targeted handoffs to live associates for more complex interactions. This hybrid AI-powered solution improves the experience for both the customer and the associate with real-time transcription and analytics, allowing for direct customer interaction without a traditional IDR. In addition, the platform provides seamless automation of back-office tasks such as client research, fraud analysis and data entry, thus proving efficiency and accuracy.

Our next example, is one of the world's largest airlines. We were selected to partner with their chosen hyperscaler to improve CX and reduce our case handle time by almost 1/3. When complete, we will have redesigned client's customer interaction platform and activated the full suite of AI capabilities. The result will be a dramatically improved customer and associate experience that will also drive increased profitability and operational efficiency for this world-class airline. .

Now I'd like to turn to our progress implementing outcome-based solutions for our clients. For more than a decade, CX technology and service firms have been seeking ways to redefine the commercial delivery model away from FTE and production hours to outcome-based metrics like containment, handle time, first contact resolution and customer satisfaction to name a few.

This approach has been appealing to visionary clients who understand the true value of total costs delivered and are willing to build a strategic partnership required to bring it to life. This quarter, through a unified methodology that [ knit ] strategy, technology, implementation and frontline operations together, we've come closer than ever before to an approach that can [ deliver ] guaranteed outcomes for certain qualified clients.

For example, we're currently working with a financial services client who is seeking an end-to-end customer experience platform that combines technology and highly trained CX professionals. The holistic solution will blend AI agents and human associates with an integrated management and support model. Because we'll be teaming with the client on all facets of the solution, we're able to model improvements in operating efficiency and customer engagement metrics. The team is actively calling the plan based on initial data, and we're confident that working closely with our clients, we will achieve dependable, mutually beneficial results.

In closing, I'd like to take a moment to reflect on our journey over the past few years. Our company has been going through a transition. Over the past 18 months, we've brought in several experienced leaders to help us rebuild our foundation and executed course corrections to set up and take advantage of all that AI has to offer today and into the future. Some might say that it's been a messy process.

But today, we're in a materially better position than we were back in early 2024. While the numbers don't reflect the growing momentum in the business, we're confident that we're well on our way to returning to our historic growth rates and margins. We've developed a valuable portfolio of digital first CX capabilities, pioneered enviable collaborative relationships with the leading CX technology players, nurtured trusted partnerships with [ marquee ] brands across the globe and built a workforce made up of some of the most talented and passionate CX technologists, strategists and operators in the world.

With a strategic approach that is purpose-built for each individual client, we're putting all these assets to work with a clear focus on delivering the outcomes our clients need most. Every organization today faces an immediate mandate to transform and we're well positioned and ready to provide the expertise necessary to lead our clients towards their goals.

On behalf of the Board of Directors and our dedicated and talented teams across the globe, thank you for your continued support.

And now I'll hand the call over to Kenny.

Thank you, Ken, and good morning. I will start with a review of our third quarter 2025 financial results before discussing our full year 2025 financial outlook. In my discussion of the third 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 third quarter of 2025 compared to the prior year period, revenue was $519 million compared to $529 million, a decrease of 1.9%. Adjusted EBITDA was $43 million or 8.4% of revenue compared to $50 million or 9.5%.

Operating income was $29 million or 5.6% of revenue compared to $34 million or 6.4%, and EPS was $0.12 compared to $0.11. Foreign exchange had a positive $2 million impact on revenue in the third 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 third quarter 2025 segment results. In our Engage segment, third quarter revenue decreased 4% over the prior year period to $397 million. Operating income was $17 million or 4.3% of revenue compared to $20 million or 4.8% of revenue in the prior year. The Engage segment's third quarter financial results were in line with our expectations.

As discussed in my second quarter earnings comments, we forecasted lower third quarter Engage profitability compared to the prior year due to upfront expenses related to ramping certain key clients and fourth quarter seasonal health care volumes. These expenses included recruiting and training costs, license fees and technology that are delivering higher revenue and profitability in the fourth quarter and into the first quarter of next year.

Overall, the 2025 Engage revenue continues to track to the high end of our full year guidance due to further expansion into new lines of business within our embedded base and the extension of a large public sector program through the first 3 quarters of 2025. We also continue to focus on profit optimization, including actions taken to further align our cost structure and improved operating efficiencies, driving increased profitability despite the year-over-year revenue decline.

Although this quarter was impacted by the incremental spend that I mentioned, we are confident that the fourth quarter will reflect EBITDA and operating income growth for both the quarter and second half of 2025 compared to the prior year. Over the past year, we have meaningfully repositioned our Engage segment to better serve our new and existing global clientele, while also advancing our operational effectiveness. We have enhanced our AI and analytics capabilities, expanded our geographic delivery footprint and improved our leadership talent. Our embedded base is growing well above the prior year, as Ken mentioned. And our enterprise new logo signings continue to expand with material revenue contributions this year, both of which are anticipated to return the segment to top line growth in 2026.

As a result, we remain confident in our ability to further improve our profitability in both absolute and relative terms. We will prudently continue to focus on our strategic initiatives and investments in the areas mentioned to return the company to its historical revenue growth and margins. The Engage backlog is $1.66 billion or 102% of our 2025 revenue guidance at the midpoint of the range, up from 99% for the same period of 2024.

The Engage last 12-month revenue retention rate is 89%, flat to prior year but reflects a 95% retention rate when adjusted for the revenue related to the financial services and public sector clients discussed in our quarters. While the last 12-month retention rate continues to improve, the third quarter on a stand-alone basis reflects an adjusted revenue retention rate of 98% on top of the 97% for the second quarter, further supporting the return to historical levels of Engage top line growth.

Moving on to our Digital segment. Third quarter revenue was $122 million, an increase of 5.4% over the prior year. Operating income was $12 million or 9.5% of revenue compared to $14 million or 12.5% of revenue for the same period last year. Digital's third quarter 2025 revenue benefited from a $15 million year-over-year increase in product resales related to on-premise clients. This revenue, while generally decreasing as clients migrate to the cloud, delivers lower margins accounting for a portion of the decline in operating income.

Excluding the resales, revenue was $103 million, representing a decrease of 7.9% over the prior year with operating income at 9.9% of revenue. Recurring revenue declined 9.8% in the quarter compared to the prior year, primarily due to the reduction in managed services related to a premise contact center solution that moved to end-of-life status in July of this year.

As Ken stated, our business is rapidly evolving and shifting from point solutions related to contact center technology to fully optimizing existing environments through AI-led consulting, journey orchestration and data and analytics services. With this shift, our recurring revenue that is reliant on [ CenterPoint ] solutions is decreasing while our diversified partnerships with hyperscalers and our other practices reflect revenue growth.

The timing of this remix, however, is putting temporary pressure on revenue. Excluding product resales, recurring managed services represented approximately 67% of Digital's third quarter revenue, which is slightly lower than 68% for the same period last year. The market shift is also impacting professional services as front-end consulting engagements related to migrations of contact center solutions to the cloud have declined.

As a result, professional services revenue decreased 4% in the quarter compared to the prior year. Despite the lower revenue, we proactively manage resource capacity by increasing utilization by approximately 10 basis points over the prior year. This resulted in a 7.6% increase in professional services operating income dollars, representing a 330 basis point margin improvement.

Excluding our 2 legacy CCaaS partners, Professional Services grew 23.3% in the quarter compared to prior year, reflecting the momentum we are seeing with our expanded CX technology partner network. Furthermore, these AI-enabled offerings and solutions that drive enterprise-wide digital transformations are at higher margins with operating income increasing 88% year-over-year, far outpacing the revenue growth.

Although we need to navigate through this market change and scale these dynamic partnerships, we believe the engagements will drive higher client retention and profitability in the long term. Our digital backlog is $444 million or 95% of our 2025 revenue guidance at the midpoint of the range, up from 92% of the same period last year.

Before I discuss other financial metrics, I want to address the term extension of our credit facility. Our improved profitability and cash flow generation over the past year, along with significant year-over-year debt reduction drove this outcome. TTEC's executive leadership team and Board of Directors value the support from our long-standing banking partners. I will now share other third quarter 2025 metrics before discussing our outlook.

Free cash flow was a negative $10 million in the third quarter of 2025 compared to a negative $100 million in the prior year, which as previously stated was impacted by the discontinuation of the accounts receivable factoring facility. If excluded, normalized free cash flow was a negative $18 million. The year-over-year improvement of $8 million after normalizing the prior year is due to an additional $13 million of cash flow from operations less an increase in capital expenditures of $5 million.

Year-to-date, our deliberate actions to improve profitability and working capital management are evident in our cash flow from operations and free cash flow of $119 million and $92 million, respectively. In the third quarter 2025, capital expenditures were $14 million or 2.7% of revenue, compared to $9 million or 1.7% in the prior year.

The higher end quarter spend was primarily due to the timing of real estate expansion and facility maintenance, along with IT spend related to health care seasonal ramps. On a year-to-date basis, capital expenditures totaled $26 million or 1.7% of revenue compared to $36 million or 2.2% of revenue for the prior year.

As of September 30, 2025, cash was $73 million with $886 million of debt, primarily representing borrowings under our recently amended $1.05 billion revolving credit facility. The net debt position of $813 million represents a year-over-year decrease of $119 million as we continue to focus on cash flow generation and deleveraging. We ended the third quarter 2025 with a net leverage ratio as defined under the credit facility of 3.46x compared to 4.49x at the end of the same period last year. Our normalized tax rate was 53.7% in the third quarter of 2025 compared to 58.5% in the prior year.

The tax rate is primarily due to the jurisdictional mix of pretax income where foreign taxable income cannot be offset by U.S. tax losses. The impact of the U.S. valuation allowance recorded against the U.S. pretax losses will continue to impact the normalized tax rate in future quarters.

I will now provide some context with regards to our full year 2025 financial outlook. As discussed, Engage revenue continues to track towards the high end of the guidance range. This is driven by the strong continued growth in our embedded base and our enterprise new logos, which are contributing meaningful revenue this year. Revenue was also positively impacted by foreign exchange movement versus our original 2025 guidance at the beginning of the year.

Relating to the Engage adjusted EBITDA and operating income, we are maintaining our full year guidance but are forecasting results to come in towards the lower end of the guidance range. Contrary to the revenue impact, the foreign exchange movements negatively impacted our profitability, increasing non-U.S. cost when converting them to U.S. dollars, accounting for more than the spread between our mid- and low-end range.

Despite this headwind, I want to reiterate that we expect Engage to deliver solid bottom line growth sequentially and year-over-year in the fourth quarter and overall for the second half of the year. This is driven by the ongoing profit improvements we have demonstrated throughout the first half of the year as well as higher fourth quarter health care business and growth in key clients. In our Digital segment, we are navigating the market dynamics and have positioned ourselves to deliver continued transformational CX technology and service solutions.

We have the partner network, the experienced talent, the in-depth knowledge and the AI-enabled solutions to be the partner of choice in this new demand environment. We are maintaining our full year guidance, however, at the lower end of guidance range due to remix factors discussed. Please reference our commentary in the Business Outlook section of our third quarter 2025 earnings press release to obtain our expectations for our reiterated 2025 full year guidance at the consolidated and segment levels.

In closing, our third quarter and year-to-date results demonstrate our commitment to improve our operating and financial performance. Although we are proud of what we have accomplished over the past year, as Ken stated, we still have more work to do to return to our historical growth rates and profitability metrics.

We will not be satisfied until we get there, but we believe we have set the necessary foundation and are on the right path to achieve this in the near term. We will not [ waver in ] our commitment and every action we take is with this goal in mind.

I will now turn the call back to Bob.

Thanks, Kenny. [Operator Instructions] Operator, you may open the line. .

[Operator Instructions] Our first question comes from George Sutton of Craig-Hallum.

I wanted to better understand the front-loaded expenses you discussed relative to the health care opportunity. We're obviously in the midst of a very disruptive Medicare Advantage [ AEP and ACA, OEP ]. Can you just walk through the significance of your role there? And what these investments bring you? .

George. Look, for us, I can't talk to the larger picture of health care. Maybe Ken can. I'll let him comment after me. I would just tell you that [ John Abu ] and the team and Engage this year has really done a good job with our Healthcare segment, and has really done a good job shoring up that business and growing that business and putting us in a really good position so that we can have this strong fourth quarter that we've alluded to all intents and purposes, the investments that we made in Q3 that I highlighted in my comments are about seeing double-digit growth in our health care seasonal business year-over-year.

And so we're happy with those investments. And the key to those investments is, they shouldn't just last in Q4, right? When we take care of the client in Q4 and when we take care of the health care customers in their peak seasons, it really gives a very good business relationship going forward. And so not only do we see these investments paying off in Q4, but we see that with more steady work and growth from them into Q1 and into the balance of 2026. So that's what it means for TTEC specifically. Ken, I don't know if you want to comment on George's general question in the market.

I would second everything that Kenny just said. The bottom line is, is that not only are we growing the fourth quarter health care business, but more importantly, where we focused is on adding more what we would call long-term recurring business within the health care sector.

So in other words, historically, we've had very significant seasonal ramps and then they start to fall off towards the end of first quarter. We will continue to have those peak ramps, but the difference is that we've negotiated multiple health care contracts where there'll be continuing revenue throughout the year, maintaining the base level of employees to service both front and back office requirements of these large health care payer organizations. I hope that helps to your question.

No, that's great. So Ken, you also mentioned the AI experiences can be pretty negative if they're done just sort of as a sideline. And you mentioned the integration and sort of the broader inclusion of AI into the experiences with clients. Can you talk about what is the net economic scenario look like for you when someone is looking more holistic and adding in AI. Is that that a positive net economic outcome for you as that evolves?

We believe that AI overall is going to be a very positive economic impact on multiple fronts. Number one, our digital business, I would say the majority of projects that they're now winning all include AI development. So from a digital standpoint, we absolutely see growth in that area. From an Engage standpoint, where we see the real opportunity is that by coupling AI with the human factor, we believe that what that allows us to do is to get to much more of a total value delivered solution.

What we mean by that is instead of just simply pricing on a time and materials basis, it gives us the opportunity to actually price on an overall basis. And in doing so, we believe that we will be able to drive significantly better margin over the long term. And the reason for that is because if we can focus on continuing to reduce our labor component and labor cost and couple that with AI, that gives us certainly more margin impact by outcome-based pricing. So we already are starting to enter into some of those contracts as we speak, where we're happy to price on a per transaction basis as well as on a total where we're looking at the clients' total budget and making commitments to the impact that we can have on their budget.

So for us, we're not run away from AI. We're incorporating it with into everything we're doing, whether it be how we operate internally or how we face the customer. The whole point that we -- that I was trying to make in my script and that I can't impress upon enough, is that the technology of AI right now where people have tried to over-rotate and basically replace entirely a customer service associate.

It's just flat out not working for the average customer. Customers when they're dealing with complex medical issues, complex finance issues, they need to speak to a human being. Now where AI comes in is on all the more transactional types of issues. Human [ gain ] really isn't adding a ton of value. And instead of AI is simply answering questions that are not dealing with the problems that they might be incurring with their mortgage or with their checking account, et cetera.

And the last point is -- I'm sorry for waxing on on this point, but I just really want to make a point about this is, we're using AI throughout our operations to make us significantly more efficient. And we believe that in 2026 that we will begin to see far better efficiencies in our quality assurance, in all of our learning and development and how we're using AI to build all of our learnings as well as all other aspects of our operations.

So the goal is not only to streamline our operations and continue to reduce our cost to deliver, but it's also to be able to enhance the agent and the associates' capabilities as far as our ability to be able to make them smarter, to be able to make them deliver more accurate answers and to make them more efficient.

So sorry for waxing on for so long. But we really are very excited by all the various different applications that we've been able to turn on. And our plan in 2026 with our clients' permission is to continue to keep adding more and more of these types of capabilities to become that much more efficacious on each and every interaction that we have.

Our next question will be from Maggie Nolan of William Blair.

Given the shift that you talked about into AI consulting, can you talk about whether you have the sales and delivery head count that you need to make the pivot? Or how are you going to balance the investments that is potentially on the horizon?

Yes. It's Ken. So today, right now, we have approximately -- don't hold me to this exact number post call, we can get you the exact number, but close to 1,700 full-time engineers, all of which are background now in AI, all of which are involved in some aspect of AI within the company.

So to answer your question, we feel very confident that we have the skill sets to do so. And that's proven by the fact of how deep our relationships are with our hyperscalers and the work that they're bringing us into and asking us to perform on their clients' behalf as well as joint selling with them, et cetera. We probably have right now, I feel very confident somewhere in the neighborhood of about 125 AI projects -- paid for projects that are underway as we speak by clients in our digital group. And that does not even count the amount of AI projects that are taking place on the Engage side.

So we're -- AI is definitely in our blood. And I think we've really mastered at this stage of the game with AI, where we can be using it and where it can be reliable and where there's danger in using it and where there is risk of it actually creating a [ poor ] experience. And I think that's one of the main reasons why clients are looking to us because not only do we have the ability to integrate into all their CCaaS systems, which is extremely important, and we believe we have more expertise across the CCaaS channel of all the different various different CCaaS partners that are out there than virtually any other company out there.

And to -- in order for AI to work properly, at minimum, you have to be able to integrate with all of these different CCaaS systems. Obviously, where it gets more complicated than what we really are specializing in is how to then integrate it with all the different client subsystems. We have clients that have anywhere between 85 and 200 systems. And that's what creates long-term opportunity for us is our ability to integrate into all those various different subsystems. So that AI can actually access the data and be able to either assist the agent or assist the customer.

There was 2 parts to your question, and that was the first part. Could you repeat the second part? I'm sorry.

Yes. You've covered a good portion of it. So it was about the shift, how that impacts sales and delivery? And then how you'll be able to balance the investment on the horizon? But it feels as though maybe a lot of that investment has been made. Do you feel like you have the capabilities already intact?

No. Absolutely, 100%, we have the capabilities intact. And any time, Maggie offline, we would be thrilled to actually get into real-life client examples of the types of work that we're being brought into. We're doing right now complex projects in the genomics area, where we're building out modern data states with genomic so that we can create presentation layers to doctors as well as the patients that they can actually understand after doing the genomics test we're doing a myriad of very complex projects in the area of taking advantage of AI.

And like I said, we would be happy to not only take you through some of the projects, but even give you the client names, which I can't do in a public setting like this.

Okay. Maybe one follow-up, one different topic. Can you just expand upon or you or [indiscernible] the ability to further improve free cash flow, particularly given some of the revenue dynamics you're experiencing?

Sure, Kenny, do you want to start with that? .

Yes, Maggie, look, as we talked about over the last couple of quarters, our number one -- One of our number one objective, obviously, on the financial side is debt reduction. And as we look at our free cash flow conversion, and as we look at the use of that cash, that's what we've been doing and that's what we've been executing on.

As a matter of fact, that was one of the big impetuses of us getting the extension that we just announced as well. And so as we look at free cash flow generation into the future, it's a balance of all those things, right? It's a balance of improvement in the net working capital that you've seen over the last couple of quarters.

It's managing our CapEx. And it's also looking at and improving the ultimate gross margins that fall down to the EBITDA dollars that really are the genesis of your free cash flow. And so we've got that outlook. But again, we're balancing especially in this quarter as we alluded to, we're balancing that with investments as well, right? We -- Ken alluded to, there's always this push and pull about build versus buy in AI.

We've got a ton of engineers like Ken talked about on the digital side specifically, but also in the Engage business as we build AI tooling for the BPO customer, right? Some we're building in-house, some were acquiring in a pay-as-you-go right now.

And so we've got to balance that because the market is dynamic right now, and we need to continue to be a leader on the AI side, not just in digital, but also in Engage because every single client, every single interaction is about the ability to leverage AI next to the humans that we have. And so we'll continue to balance the investments going forward, but we're happy with where the free cash flow generation has gotten over the last couple of quarters. And we'll really get into that a little more when we do our 2026 planning that we'll discuss the outcome of in the next quarter.

And Maggie, just one other point I want to add on to Kenny's thought. As we said in our script, in 2025, we made significant investments in building a myriad of AI capabilities and tools, they're built, they're operational. So I want to just stress to you.

For example, we have a real-time translation product. That's our product that we built the code set for overlaid on top of -- that takes advantage of all the language models that are out there, which means that we can compete in language translation at a fraction of the cost of other people that are having to purchase third-party language translation capabilities, which are just now coming to market.

And not to sound like a salesperson, but one of the larger health care companies in the world just did a bake-off of 25 different language translation products, and they scored our #1 in capability over the other products that were available.

We've built agent [indiscernible] tools that listen to interactions, whether they be chat or voice, and instantly are assisting the agent with the next best action. We've built a myriad of analytics tools that give our clients real-time information on exactly what's taking place day to day [ whether ] top inquiries that are taking place about a product offering or about a recall, et cetera.

I could go on and on and on. But that's part of the investments that we've been making and that we'll continue to make, but we feel like we've got a really good head start on the base level of AI capabilities that we can implement immediately on behalf of any of our existing or new clients that are coming on board.

Our next question comes from Vincent Colicchio of Barrington Research. .

Yes, Ken, what verticals aside from at Engage aside from health care, do you feel most optimistic about in the coming quarters?

Well, financial services, we feel really good about a lot of stuff happening in the fintech area. So that certainly is one area. Government or public sector, et cetera, as you can imagine, with the administration and everything that's going on. What I would say is that they are more pro, let's just say, outsourcing than probably they ever have been as they continue to cut people on the payroll.

So we feel good about that. In the automotive sector, especially on the digital side, we're seeing really exciting opportunity in that area as well. Our travel business is growing extremely well right now, which we're excited about. And that's growing on a not just North American basis, but global basis. And then retail, which is an area that, frankly, we have underinvested in from a sales and marketing standpoint, and now we've stepped up that investment and we're seeing some really good results and really strong pipeline in that area as well.

So I'd say those are the primary areas that we're focused on and that we're winning deals and that we see a long-term opportunity.

And are you seeing an increase in prospects that have not outsourced in the past, which would suggest an expanding TAM?

It's a good question. And I want to give you an accurate answer. There's no question that we have recently -- for example, we just won, a deal, I can't really be very specific that has very significant opportunity with a company that's 100% captive in, let's call it, the health care space and in the testing space.

And they are now -- this is their first [ entree ] into outsourcing. And if all goes well, there is a very deep well of additional opportunity. So -- but I don't think that anecdotally is enough for me to give you a definitive answer.

I think that all companies are under intense cost pressure due to tariffs, et cetera. And so I think that, as I've said on previous calls, there is a slow leak of business coming from captives. And I know that there's this wall of worry about how AI is going to replace every human, et cetera. A, we don't buy it; and b, I can't stress enough, there's $300 billion of internal captive spend that has not yet been outsourced.

So regardless of the impact that AI may or may not have, there is still so much business out there that has not yet been outsourced that we feel very confident as does Gartner and as to the other third-party analysts that have recently put out reports saying that over the next 36 months, there will be 1.7 million customer service associates added to the payrolls of whether it be companies or outsourcers due to the demand and the need.

I can't stress enough, as we go more digital, and as more and more people take advantage of digital, that just simply creates more and more customer interactions of interactions that are not taking place in a retail type environment -- a physical retail environment. And instead of that physical retail environment shifts to a digital environment, there is more need for support to be able to resolve issues and how people assisting them with their large capital expenditures, or financial issues, or medical issues, et cetera.

Our last question will be from Jonathan Lee of Guggenheim Securities.

I want to focus on resale here. Is that revenue went off in nature? Or rather -- and if so, does that set up for a sequential decline 4Q for digital revenue? Or do you expect that third-party resale revenue to lead to larger, more profitable engagements near term? .

Yes, Jonathan. Look, our resale volumes are -- those product sales are tough to forecast because by definition, they're one-off. But we always with the customer breadth that we have in digital and with so many engagements on that side, we end up counting on them. They happen every quarter. They'll continue to happen. We've got a couple teed up for Q4. So specifically, we've not -- we don't count on them in the forecasting process as we move forward, but they are a product of the digital business that we have based on our managed services engagements and professional services engagements. And so we take them when they come. But by definition, they aren't recurring.

Yes. And I would just add, Kenny, to that, and that is that the Digital has 1,000 clients, and they have a significant amount of clients that are in the public sector, many states, as an example, as well as federal clients. These clients tend to be slower or let's just say, more behind on the technology curve of fully shifting to the cloud.

And that's the part that's so complicated because they'll reach out to us and say 2025 is the year that we're going to move all of this to the cloud and we need your help with that. And then we'll say, "You know what, our budget just got cut. So we're going to delay moving to the cloud. But now what we need to do is add XYZ of software and hardware to their bare metal solution, et cetera.

And that's Kenny's point, it's just hard for us to predict the folks that are kicking the can, so to speak, on shifting to the cloud, which obviously is a different type of revenue. And so as much as we do not depend upon these sales, the fact of the matter is, I think that they're going to continue to sporadically come in, and they're going to always be chunky. There's just no way around it.

The last point that I would make, which is also very difficult for us to predict is, we're starting to see a little bit of -- it's early days, but a little bit of a trend on clients who actually over-rotated to the cloud and have experienced some significant outages. They've all been in the general public. So I'm not going to name the names of the outages that we're talking about, but I'm sure everyone on this call knows exactly what I'm talking about in 2025.

And so now some of them are questioning whether or not they need to be not only diversified, meaning multi-cloud. But in addition to that, do they also need to maintain x amount of infrastructure internally so that they're not 100% reliant on something that they don't have control over. .

And because we do business with so many Fortune 500 companies, I'm sure you can imagine that there is a wall of worry in this area, whether it be cyber worry, whether it be just flat out outage worry technical, et cetera, that are causing these various different outages. Some of which I'm sure you're aware of, took place just in the last couple of weeks.

So I'm sorry that I'm not giving you a precise answer, but there isn't really a way for us to give you a precise answer. I think what matters the most is the following. We are 100% focused on the cloud, on AI and on analytics. And therefore, all of our energy from a sales standpoint is not in the product area and is in this shift to the cloud. That said, we have a very large embedded base. And when they call us up and say, we're delaying x part of our move to the cloud, and therefore, we have to renew all these licenses or whatever, we're not going to say no to them. I hope that's helpful.

Got it. So then how do you think about the path to Digital ex third-party pivoting to growth?

I'm sorry -- I'm not sure maybe you could phrase your question differently. I'm not sure I fully understand the question. I'm sorry.

Is there a path to the digital business ex the third-party resale revenue actually growing year-on-year organically from here?

Oh, 100%. Yes. It's all about our remix. It's all about the remix that we're doing right now in professional services. It's all about the types of business that we're winning right now. And our goal is that in the second half of 2026, we are -- our goal is to get the digital business back to a net positive growth because of the remix. But the part that's been hard for us to predict is really just the percentage of decline of what I'll just call the legacy old versus all the new and the projects that are ramping up on the actual remix.

So yes, there is -- I can't stress enough with this AI revolution that's out there, there is going to be no exaggeration, a 10-year tailwind of opportunity with clients. And I also can't stress enough that there is way too much type of people believing that all you have to do is add water and AI, you can turn on AI. This is not like mixing a cup of cocoa with boiling water, this requires a lot of groundwork before you can get to the supposed AI [indiscernible].

And I'd say that a high percentage of the Fortune 1000, and I don't think this is even a slight exaggeration, their systems are nowhere near ready to be able to take advantage of what AI can actually do. They don't have a modern data state. They need help there that unto itself is a very significant lift and a big project. In many cases, most of their applications are not yet in the cloud. And if they are, they're still integrated, that requires a heavy lift and a lot of work. And so the AI part in many ways is the easy part. It's all of their current infrastructure and legacy software, et cetera, that is just not ready for AI to be able to seamlessly integrate with, et cetera.

And so I think what you're going to see is, exactly what we're seeing is that clients are dipping their toe in the water with AI. They're not dipping their leg or their whole body into the water. And they're basically starting to experiment with different pieces of it to see what impact it can have on helping them drive more efficiency, et cetera. And so this is a process that we're we're confident that we can capitalize off of.

Thank you for your questions. That is all the time we have today. This concludes TTEC's Third Quarter 2025 Earnings Conference Call. You may disconnect at this time.