Welcome to TTEC's Third Quarter 2020 Earnings Conference Call. This call is being recorded at the request of TTEC. I would like to turn the call over to Paul Miller, TTEC's Senior Vice President, Treasurer, and Investor Relations Officer. Thank you, sir. You may begin.

Thank you, operator, and good morning, everyone. Thank you for joining. TTEC is hosting this call to discuss its third quarter earnings results for the period ended September 30, 2020. Participating on today's call are Ken Tuchman, our Chairman and Chief Executive Officer and Regina Paolillo, our Chief Financial and Administrative Officer. Yesterday, TTEC issued a press release announcing its financial results. While this call will reflect items discussed within those documents for complete information about our financial performance, we also encourage you to read our third quarter 2020 quarterly report on Form 10-Q. Before we begin, I want to remind you that matters discussed on today's call may include forward-looking statements related to our operating performance, financial goals and business outlook, which are based on management's current beliefs and assumptions. Please note that these forward-looking statements reflect our opinions as of the date of this call, and we undertake no obligation to revise this information as a result of new developments that may occur. Forward-looking statements are subject to 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 2019 annual report on Form 10-K and our third quarter 2020 quarterly report on Form 10-Q. A replay of this conference call will be available on our website under the Investor Relations section. I will now turn the call over to Ken Tuchman, TTEC's Chairman and Chief Executive Officer. Ken?

Thanks, Paul, and welcome to our growing base of global investors. It's been a hectic week here in the US, given the elections, I'm pleased that you could join us today. I'm happy to share with you that we have once again delivered record results in the third quarter. We are increasing our market share by adding differentiated customer experience as a service offerings, expanding our channel partnerships and completing strategic and accretive acquisitions. We continue to execute against our growth strategy. The significant investments we have made in our CX-as-a-Service platform have served us as a growth multiplier. The market is requiring large brands to make a rapid shift to digital-first and fully-virtualized customer experience. TTEC has emerged as a global partner of choice in this historic transformation. Our third quarter revenue growth rate accelerated to nearly 25% over the prior year period with adjusted operating income growing 112% to $56 million. Our adjusted EBITDA also improved to $77 million, up 67% year-over-year. Based on our strong year-to-date performance and revenue visibility, we are once again raising our 2020 guidance. There are multiple factors driving our record performance, and my comments will cover three main areas: first, I'll discuss how companies must adjust to rapidly changing consumer behaviors; second, I'll illustrate how our track record of delivering digital transformation is enabling us to win a meaningful share of on-demand work-from-home opportunities; and third, I'll highlight how the record size of our pipeline feeds growth, further capitalizing on these sustainable trends. This underscores our continued momentum going into the fourth quarter and beyond. Our world was already rapidly transforming to a more digitized and virtualized and direct-to-consumer future. The current environment has only accelerated this transformation, exposing a significant gap in the virtual delivery of customer experience for the majority of large Global 2000 organizations. Their frontline operations and customer support infrastructures are still far too brick-and-mortar focused. They are simply not nearly digitized or agile enough to master the last mile and on-demand experience that customers now require. This massive technical deficit has led to a mad dash to remediate what has become a global digital virtual divide. Organizations are being forced to meet a sudden and permanent shift in consumer behavior. Those who are truly digital-first are thriving, others must get there quickly or risk obsolescence. This step change is creating a groundswell of demand for TTEC. We are benefiting from our well-honed capabilities and expertise in optimizing and automating the customer journey for large-scale organizations. This is accomplished by rapidly deploying our pre-integrated best-of-breed CX technology ecosystem alongside delivering operational excellence. Our delivery of customer engagement is serving as the foundation to our record third quarter financial results. Our ongoing momentum has been underscored by this rapid paradigm shift. We are delighted with the continued diversity and high-quality nature of our bookings across new and existing commercial and government clients. We're seeing larger average deal sizes and compressed sales cycles that have been contributing to our outperformance. Another important contributing factor is that consumers are waking up to the inherent constraints and inconveniences of doing business in person. Customer mobility has been dramatically curtailed by the current environment, further highlighting the advantages of virtual engagement. Our cloud-based digital-first platform is essential for large-scale consumer and public sector brands seeking unique, differentiated on-demand customer experience. For example, we're making it easier for physical retailers to rapidly shift to e-commerce and click-to-home or curbside delivery. Banks are becoming more automated and branchless. Dine-in restaurants are delivering dining experiences to the home. Health care providers are adopting virtual patient treatment models at scale. Automotive companies are converting to virtual selling models. Governments are adopting virtualized citizen engagement programs. Everything else that has moved to at-home from exercise to streaming, the list goes on. As the consumer experience transforms and transcends to a digital virtual model, the millions of employees who serve them must also transform to a digital virtual model. TTEC is at the epicenter of this transition. While the overall complexity of work rises, the need for platforms that accommodate channel diversity, intelligent automation, just-in-time analytics, fraud detection and prevention and a highly skilled and engaged workforce is escalating. TTEC provides the best-of-breed end-to-end technology and operational execution. This is absolutely required for large corporations and governments to seamlessly engage with their consumers and citizens at scale. Here are a few recent examples of competitive wins illustrating why clients are choosing TTEC to execute the most progressive industry-leading customer and employee experiences. A multinational financial services client was faced with sudden volume spikes attributed to fulfilling unemployment benefits through its prepaid card division. Our client needed a highly secure and scalable technology and citizens' engagement platform. We swiftly designed and implemented TTEC's omnichannel Humanify Cloud at-home solution, taking their 400 brick-and-mortar employee base to 3,000 virtual workers in a matter of weeks. They selected us based on our tenured and demonstrated partnership as well as the ability to provide turnkey technology and operational execution via our CX-as-a-Service platform. Importantly, what began as a surge-based unemployment benefits program has now been extended into a multiyear engagement. The scope of our work with this client has further extended into an additional line of business optimizing claims investigation. The next example illustrates how TTEC supports the enormous consumer shift to home delivery. We partnered with a nationwide digital consumer food delivery service. Consumer demand for contactless food delivery continues to grow rapidly. We implemented our Humanify Connect omni-channel platform complemented with our best-of-breed CX application stack that includes a knowledge management system, voice of customer platform and intelligent routing capabilities. In less than two weeks, we rolled out over 100 flexible at-home Humanify associates in an optimal mix that created employee efficiencies and prepared the client for volume spikes. After just 90 days, we have doubled the capacity across chat and voice channels, and now have entered into a multiyear partnership. We also recently partnered with Citizens Bank to enable a cloud-based omnichannel conversational messaging solution. Sales and service banking conversations will be available via asynchronous SMS messaging, Facebook Messenger, Apple Business Chat, Google Business Message and live video chat in real-time. Our cloud solution senses customer intent, then analyzes and routes customers to the appropriate digital or human associate. We also manage associate workload, understand the conversational sentiment, and via our machine learning uncover trending topics. The solution has improved capacity utilization and optimized interactions by rapidly deploying AI-enabled conversational messaging. Furthermore, it has allowed customer service associates to triple the number of customers handled concurrently. The solution dramatically reduces voice volumes, routing lower complexity voice interactions to messaging. The clincher to all of this is that we continue to see improved customer satisfaction scores. The current crisis has created a structural shift that is the latest in a long line of catalyst adding to an already large and growing CX technology and services addressable market. When the dust finally settles, we expect a third or more of the global customer engagement workforce who historically interacted with customers face-to-face or in brick-and-mortar engagement centers to have permanently shifted to virtual work-from-home environments. To capitalize on this momentum, our three main focuses are to continue growing within our embedded base of iconic clients, to further penetrate higher growth geographies like EMEA, and to increase our success within our key growth verticals. Our CX-as-a-Service platform is the key enabler that underpins all these main growth vectors. We have a tremendous pipeline related to enabling our embedded client base to digitize and virtualize. We have a whole new opportunity set in assisting our long-term clients to build out digital channels beyond physical retail and voice. We are capturing opportunities by helping clients create contextually connected and digital-first customer journeys. We are expanding customer engagement to diversify channels such as SMS, texting, chat, co-browsing, live video and all other forms of intelligent automation, leveraging AI, machine learning and RPA. We are also seeing meaningful traction in EMEA as our CX-as-a-Service platform continues to accelerate there. Our expanded EMEA resources are increasing their focus on the full complement of both digital and engagement as one TTEC, which delivers on the promise of true end-to-end CX-as-a-Service. Our success here with large clients like VW and others are serving as a foundation in the building of EMEA's business, growing organically at approximately 40% on an annualized basis. We have a focused growth strategy that is yielding significant results within our health care, financial services, public sector and technology verticals. These verticals have huge runway related to heightened client demand for our at-home services platform that enable the remote worker with a suite of hyper-automation tools and other high-margin, high-growth offerings, such as fraud detection and prevention. We will continue to further enhance our direct go-to-market motion with our technology-enabled strategic channel partnerships and high-growth platform acquisitions. Our channel partnerships are an exciting and evolving part of our strategy, creating tremendous synergy by adding industry-leading CX applications into TTEC's Humanify Cloud platform. Our recent acquisition of VoiceFoundry positions TTEC at the center of Amazon's leading AWS ecosystem. The acquisition of Serendebyte and strategic partnership with Pega Systems expands our intelligent automation capabilities while opening new market opportunities via the Pega ecosystem. Our strategic partnership with LivePerson creates a compelling growth channel for conversational commerce. With these strategy alliances, TTEC remains at the forefront of intelligently automating our clients' customer journeys with best-in-class CX technology and services, enabling solutions with defined outcomes. This is delivered through a dedicated team of 2,500 engineers and CX professionals. You can expect much more to come on this front. Combining this with our continued innovation and significant investments we've made in the Humanify Cloud at-home platform differentiates TTEC. It shows in our record financial performance year-to-date. In closing, we are uniquely positioned as the global end-to-end CX technology and services provider focused exclusively on groundbreaking customer experience and engagement. Our approach to designing, building and operating customer experience as a service is resonating with clients. Consequently, we're handling increasingly complex, high-end and mission-critical customer experience needs. The large commercial enterprise and government landscape is demanding the integration of technology and digital-rich solutions into their customer experience operations at an accelerated pace and scale. TTEC has the turnkey technology and services platform to uniquely accommodate these requirements. I've never been more proud of our 50,000-plus TTEC team members for their hard work and dedication during this unprecedented and incredibly challenging time. This has allowed us to successfully serve our clients, execute on our vision and deliver record third quarter financial results despite the headwinds related to the pandemic and social unrest. We're also grateful for the continued support of our shareholders. Regina will now cover the key financial highlights of the quarter as well as share our updated guidance for the full year. Thank you.

Thanks, Ken. Good morning, everyone. I hope you and your families and colleagues are in good health. This has been an incredibly intense year with a unique set of challenges and yet extraordinary opportunity. Opportunity that goes well beyond the calendar year's performance, impacting the essence of who we are as a team and who we are to our clients and their customers or people in their neighborhoods and our investors. We have experienced a new level of performance, and in so doing, have executed unprecedented volumes across the company. The immobility of our talent has led to extreme virtualization. The magnitude of our customer and citizen engagement has given rise to a heightened mix of digitization. The distributed nature of our resource base has demanded an acute focus on the total well-being of our people. And last but not least, the current environment alongside an acute need for bringing deep consciousness and action to reverse layers and layers of social-related bias has TTEC continuing to put diversity and belonging in everything we do. I can say with honesty and authenticity that we are not the same company we were a year ago, the crisis-like nature of surviving the headwinds and maximizing the tailwinds of 2020 has changed us. It has made us even more ready to take market share at an accelerated rate, and it shows in our numbers. Turning to our third quarter results. New business signings increased nearly 50% to $170 million in the third quarter of 2020 over the prior year period. With TTEC Digital increasing 11.1% and TTEC Engage increasing 69.4%. Year-to-date bookings grew 28% to $471 million over the prior year period, positioning us to exceed $600 million in 2020, and setting the stage for anticipated continued organic growth in 2021. In the third quarter, we added 14 new client relationships, closed 12 multi-segment engagements and continued to see larger average size transactions. Across the business, we saw a favorable shift towards renewed longer-term business as usual activity, representing over 92% of our bookings. We earn meaningful business from new and existing clients, given our demonstrated agility and effectiveness to rapidly deploy our technology and service offerings. We had nearly 30 multi-million dollar bookings across our key verticals, including financial services, health care, government, technology and automotive. We experienced early success from our VoiceFoundry acquisition, including a large U.S. financial services engagement, the focus of which is to migrate its mortgage operations to Amazon Connect. We ended the quarter with a 2020 revenue backlog equal to 100% of the midpoint of our revised guidance, and a next six-month pipeline of approximately $1.4 billion. On a GAAP basis, we recorded a 24.6% year-over-year increase in revenue to $493 million. GAAP operating income was $53.4 million or 10.8% of revenue compared to 6.6% in the prior year period. GAAP earnings per share was $0.45 in the third quarter, up from $0.39 in the prior year. Our GAAP EPS was adversely impacted by a $17.4 million or $0.32 one-time non-cash expense recorded in other income expense. This expense relates to the write-off of accumulated other comprehensive income balances from the planned dissolution of a foreign subsidiary. Our reported tax rate in the third quarter of 2020, was 25.9% compared to 20.6% in the prior year. The increase is primarily due to a combination of jurisdictional mix, with a higher portion of U.S.-based taxable income and the recording of a tax contingency reserve. Our normalized tax rate was 18.3%, a reduction compared to the prior year's 21.1%, primarily related to Federal tax credits. We now estimate our normalized tax rate in the range of 21% to 24%, down from our previous range of 24% to 27%. The remainder of my comments are on a non-GAAP basis, which exclude restructuring and impairment expenses. A full reconciliation of our GAAP to non-GAAP numbers is included in the tables attached to our press release. On a consolidated basis, revenue increased 24.6%, of which 17.2% was organic. Adjusted EBITDA increased 67.2% to $77.2 million or 15.7% of revenue compared to 11.7% in the prior year. Operating income increased 112.4% to $55.6 million, representing an 11.3% margin, up significantly from 6.6% in the year ago quarter. Earnings per share increased 125% to $0.90 in the third quarter, more than doubling from $0.40 in the prior year. Foreign exchange had a positive impact of $2 million and $830,000 on revenue and operating income, respectively, primarily impacting our Engage segment. Our strong top-line growth is primarily attributable to increased volumes across our expanding commercial and Government clientele, increased contribution from our higher growth, higher-margin offerings and the acquisitions of SCR Serendebyte and VoiceFoundry. In the third quarter, our higher growth, higher-margin offerings, which consist of our digital cloud and systems integration and Engage customer growth at-home, fraud detection and prevention and automotive and hypergrowth sector solutions, collectively grew 32% versus the third quarter of 2019. Our improved profitability is benefiting from increased top line scale, an increased mix of higher-margin verticals and increased mix of higher-margin offerings and improved SG&A and depreciation expense to revenue ratios. This was partially offset by higher acquisition-related amortization expense and increased operational leadership and sales and marketing resources as we invest to support continued growth in the business. At the end of the third quarter, total cash was $135.3 million, with $338.3 million of debt, of which $325 million represents borrowings under our revolving credit facility. Net debt was $203 million compared to $133.5 million in the prior year quarter, and down from $231.8 million sequentially. The year-over-year increase in debt is primarily related to acquisitions. Cash flow from operations significantly increased in the third quarter of 2020 to $81.5 million compared to $63.1 million in the prior year, a 29% increase. The improvement is attributable to increased profitability and tightly managed working capital. DSO was 63 days in the third quarter of 2020 compared to 73 days in the prior year quarter and 71 days sequentially. Capital expenditures were $15.9 million or 3.2% of revenue compared to $16 million or 4.1% of revenue in the prior year. We continue to focus on the improvement in our fixed asset utilization, and in particular, our facility and technology assets, leading to a 90 basis point improvement in our capital expenditure as a percentage of revenue. In the third quarter, the Board of Directors approved a $0.40 semiannual dividend per share, or $18.7 million, which was paid on October 29, 2020. The dividend represents a 25% increase over the October 2009 dividend. Turning to our third quarter 2020 segment results, which are presented on a non-GAAP basis. Digital revenue was $76.6 million in the third quarter compared to $78.6 million in the prior year. Adjusted EBITDA increased 20% to $18.2 million or 23.7% of revenue versus 19.2% in the prior year. Operating income increased 14.2% to $13.5 million or 17.6% of revenue, a 260 basis point improvement over the prior year. Digital revenue grew 8.3% when you normalize for the planned exit of two non-core consulting practices, anticipated declines in our on-premise revenue as we convert clients to our cloud-based services and the removal of the large shorter-term Government contract. Our cloud offering, net of the large Government contract grew 23.6%. Our Digital pipeline across our omnichannel platforms and discrete intelligent automation offerings is robust, and we continue to build out our partner platform, extending our offering portfolio and go-to-market reach. Digital's strong EBITDA and operating income continue to benefit from increased volume in the higher-margin cloud business services, increasing to 53.1% from 41% in the prior year quarter. The removal of dilutive margins related to the exited consulting practices and a more efficient SG&A. We continue to estimate our recurring cloud and professional services platforms, inclusive of our systems integration practices, net of the large Government contract and exited businesses to grow in the 15% to 25% range into 2021. In our Engage segment, revenue was $416.4 million in the third quarter 2020, an impressive increase of 31.4% over the prior year period, for the reasons previously highlighted. The Engage growth involved a noteworthy level of longer-term contracts, including significant increases in our financial services and government sectors, heightened volumes from industries serving the intense at-home consumer trends. As Ken mentioned, increased work-from-home volumes from existing and new clients, partnering to achieve virtualization and digitization of their engagement centers and new client relationships in both our digitally native client sector, new lines of business and existing clients and new clients seeking a transformational partner with solutions that include our best-of-breed technology and operational capabilities. Adjusted EBITDA increased 90.2% to $59 million or 14.2% of revenue versus 9.8% in the prior year. Operating income increased 193.1% to $42.1 million or 10.1% of revenue, over 2 times the 4.5% operating income margin in the same period last year. The expansion of our Engage profit is attributable to top line scale an increased percentage of revenue in our high-margin verticals and increased mix of high-margin offerings, now comprising 42% of Engage revenue and continued efficiency on our SG&A and asset utilization, leading to a better depreciation and amortization expense-to-revenue ratio. Turning to our full year 2020 guidance. Given our overperformance for the third quarter and continuing momentum, we expect to see sequential top line improvement in the fourth quarter, resulting in full year revenue growth of approximately 15%, with adjusted EBITDA and operating income margins of 14.9% and 10.2%, respectively, at the midpoint. This represents an EBITDA margin improvement of 220 basis points over 2019, an O/I margin improvement of 230 basis points. The midpoint of our raised 2020 guidance has laid out in our earnings press release, which excludes restructuring impairment charges and includes the acquisitions of Serendebyte, FCR and VoiceFoundry is as follows: revenue of $1.887 billion, an increase of 14.8%; operating income of $192.4 million, an increase of 48.9%; adjusted EBITDA of $282.1 million, an increase of 34.9%; and adjusted earnings per share of $2.96, an increase of 56.7%. To obtain our fourth quarter 2020 mix of revenue, operating income, adjusted EBITDA and EPS at the consolidated and segment level, please refer to our commentary in the business outlook section of the third quarter 2020 earnings press release. We will formally provide detailed 2021 guidance in conjunction with our year-end earnings call. Given our full year 2020 bookings are estimated at over $600 million, and a high percentage of our third and fourth quarter bookings are multiyear in nature. We estimate our Engage business will grow in the 5% to 7% range and our Digital business, excluding the large government contract and exited offerings to grow in the 15% to 25% range. While we are mindful of the continued uncertainty that persists in the global economy, we are increasingly optimistic on the ability of our business to capitalize on the near and long-term CX market demand. In closing, we remain intensely focused on our long-term growth drivers, accelerating the volume of large TTEC client programs, continuing to innovate with disruptive Digital CX solutions, leveraging our cloud offerings to modernize the customer experience through our Digital and Engage capabilities, expanding our client base in EMEA and pursuing strategic acquisitions and channel partnerships. I'll now turn the call back to Paul.

Thanks, Regina. Operator, you may now open the line.

Thank you, speakers. We will now begin the question-and-answer session. Our first question is from George Sutton of Craig-Hallum. Sir, you may begin.

So Ken, you walked through some of your key partnerships, Amazon, Pega, LivePerson as examples, and you mentioned that there's much more to come on this front. I'm just curious if you can give us a picture of what the future profile of additional partners might look like? And you also mentioned that it was a big differentiator for you relative to competitors. Can you just talk through that in terms of that differentiator?

Yeah. I mean, I think to start off with the first part of your question. Number one, we want to make sure that we are focused on all of the Tier 1 key CX technologies and that we leverage those technologies not only to provide the best-of-breed capabilities for the ultimate kind of outcomes-based solution but also that we can lean on them from a channel partnership standpoint and where we can go-to-market together. And so we've done that very successfully with Cisco, very successfully now with Pega. We're doing it successfully with LivePerson, and our VoiceFoundry Group is working very successfully with Amazon. And we plan on continuing down that path. So although I'm not going to mention the active partnerships that are under discussion, what I would just simply say is that these are partnerships that are based on the fact that we've been doing this longer than anybody else, based on the fact that these companies believe that we understand the customer better than other companies that simply provide systems integration. And that they're interested in access to our embedded customer base; we're interested in access to their embedded customer base, and so consequently, we can create a symbiotic relationship. To the second part of your question, why does this differentiate us or help us? It's really very simple. We have always believed that our business is about customer experience, driving deeper engagement with our clients, helping our clients grow and find net new customers and helping keep their customers safe via fraud prevention and detection. And so everything that we do in order to enable that to take place really requires technology and that technology. And that we put together is there to serve two purposes: one is to enable our associates so that they can be more intelligent, more agile, faster so that they can support the customer in a better, more frictionless way; and the other is to support our clients' customers so that they can interface in a much more modern way. We think that, that is the future of our overall business. And it's why we're leaning so heavily on the tech side of our business. It's critical that we have brand ambassadors and live humans that can interact with customers, but it's also equally critical that we have a way of helping our clients' journey map the best possible journeys and making these interactions that their clients, that their customers have as seamless and as frictionless as possible. We cannot do that if we're only providing the infrastructure and the labor component. We believe that it's got to be an end-to-end set of solutions, and we think that's highly disruptive in the marketplace.

One other thing, if I could. A quarter ago, I sensed the concern despite a large pipeline of opportunities that you felt like some of those opportunities were temporary in nature. And my sense today is you've got a larger pipeline, and you've got a much better sense of a longer duration set of opportunities coming from that. And I believe Regina pointed to 92% of those bookings as an example. Am I hearing that correctly? To me, that's the significant change we've seen in the last quarter.

Yes. I would say that we have stabilized our entire client base as it relates to not only shifting them at home, but helping them with their surge volumes, etc. And we've added multiple new logos, some of which came on with the concept of 'Can you help us out temporarily?' Our concept was very simple: Of course, we're going to help you temporarily, but we're also going to provide technology, and that technology is hopefully going to become a hook to turn it into a long-term recurring relationship. We have successfully done that with major banks and government institutions, etc. And so consequently, our third quarter bookings have really a pretty small percentage of surge work, whereas the second quarter bookings were up to 40%. Additionally, what we've said in our, as you heard in our script, is that a high percentage of those surge volumes have now converted to long-term recurring revenue contracts. So going forward, my guess is that in the fourth quarter, we'll have very little COVID-type related bookings that are on the temporary side. And whatever we end up booking in that area will obviously be transparent, and we will let all of our investors know what that is. But our focus is on long-term recurring revenue, and we feel comfortable that we can continue to win them even in this environment right now. I want to stress that all of our clients, virtually every single one of them, has a whole new reality. And the reality is that they have to figure out how to virtualize their entire interface to the customer and their business. And that is what we've been doing for decades. And so consequently, we kind of feel like we're the longest startup in history that we're finally at the right place at the right time.

Our next question is from Mike Latimore of Northland Capital Markets.

Definitely, it feels like a historic period here. In terms of your Engage business, can you sort of distinguish how much of the demand is coming from big companies that have internal contact center agents that just can't handle the work-from-home and new technologies versus just growing demand industry-wide for more agents and brand ambassadors, as companies seek to do more remote interactions as opposed to in-store?

I want to make sure I understand your question. So is the question, are you asking, are we seeing a shift of brick-and-mortar employees kind of moving out to more of virtual sales associates and customer assist associates? Is that the question? I'm not, I want to just make sure I've got the question right.

Yes. So it seems like, obviously really strong demand for your Engage business. And just wondering if it's big customers that are outsourcing more to you, versus just broader industry demand for kind of agents as opposed to in-store retail?

So I think it's both. I don't think I know it's both. So it's a combination of large corporations; virtually every one of our clients has large captives. So let's start out with that. And they're spending, in many cases, billions, multiple billions of dollars per year on their captives. We actually have a thesis that, at some point, we'll get more discussion with our investors about. But we believe that when you look at the global TAM, there's about $300 billion right now that is tied up in our clients' captives. We think that our clients are coming to the conclusion that they're not as good at this as we are. And we think that over time, more and more of that captive marketplace is going to peel off and be partnered with somebody like TTEC. We're only approximately a $2 billion company, and with $300 billion of business, not including the $200 billion or whatever that's already been outsourced, or $100 billion that's already been outsourced. There's a very, very large pool of business to be had just from the captives alone. So, A, we're seeing that where they're choosing to basically outsource more of what they had in-source. B, we're seeing that many of them didn't have the appropriate technology internally. They weren't in the right geographies. They weren't able to get enough of their employees to work in a proper at-home environment, etc. And so they needed us to help them there. And then what we're just seeing is we're bringing on a lot of new logos of new clients that have historically either outsourced with other partners or have never outsourced at all. So it's really coming from a multitude of places. And then lastly, I think it goes without saying in-store retail traffic is very down to a bare, bare minimum due to the pandemic. I think what is really important for all of us to acknowledge is that although we think in-store traffic when the pandemic goes away, one year plus from now, we think that traffic will increase. We don't actually think it's ever going to get fully back to where it was in certain industries like supermarkets, like restaurants, etc. We think that people are beginning to realize that there's a new way to do things, and more and more people are going to continue to get food to go and dine in their own home. More and more people are going to have their groceries served to their curbside. More and more people are not going to visit their doctor, but they're going to do it with Teledoc-type experience. I could go on and on and on. All that feeds more opportunity for us.

And then just in terms of the topic of digitization, that can be a lot of different things. But in terms of kind of messaging volumes, and demand for messaging technology. I guess, can you talk a little bit about what you're seeing there? How many of your brand ambassadors are increasingly focused on messaging, and just kind of demand among the base for kind of interacting with customers using messaging?

I would describe the situation as somewhat mixed. We are making a strong effort to encourage our clients to adopt an omnichannel approach, which involves educating them on the advantages of messaging. There are certain practices we have that messaging clients may not embrace. However, we are encouraging them to start small with basic interactions that yield clear results and automate them completely. For other interactions, we are employing live agents to provide real-time messaging support. Although it’s still early in this process, we believe that over time, this area will represent a substantial segment of our business. We aim for it to become a significant part of our operations, but it will likely take a few years—around three to four—before it reaches that level. Eventually, we hope to see volumes in the 40% or 50% range of our Engage business, but we aren’t there just yet. I am optimistic that we will achieve this goal.

Our next question is from Bhavan Suri of William Blair. Sir, you may begin.

Thank you for allowing me to ask a question. It was a fantastic quarter with strong bookings, so congratulations. I want to follow up on George's questions regarding the partnerships, Ken. I'm interested in understanding how you view the revenue benefits of the next partnership and your go-to-market strategy for these partnerships. I would like to hear more about the details. Also, are any of them incentivized to sell TTEC?

So they're definitely incentivized to sell our TTEC Digital, and we're really, in many of these cases, we're the key partner for CX transformation to these companies. So we're working proactively with these companies on deals where we can bring significant insight and capabilities to that particular deal that maybe was not sourced by our sales force, but in fact, was sourced by their sales force. And I think that's the crux of what we're really trying to get at is that this is opening up doors into relationships that maybe would have taken us much longer to get to or maybe we never even would have had the opportunity to get to at all. We have successfully done this for many, many years with our deep partnership with Cisco. It's been very beneficial. And we are basically replicating that set of capabilities with all the appropriate Chinese walls, etc., with other partners. So what I would say to you is these are not press release relationships. We have active channel partner managers that are working with these companies. Our sales force is working with these companies. Their sales force is working with our company and we have one common goal, and that is to win the deal. And so that is, it's pure and simple. That is what we're focused on doing. We're only going with technologies that we actually believe in and that we know can provide the best possible solution, and that can help our clients lower their overall cost to serve while simultaneously driving a better Net Promoter Score. And at the end of the day, that's what our clients care about. They want the most, they want really three things: right? One is they want the best experience for their customer; two is they want it to be the most efficient as possible and at the lowest overall cost to serve. And that's what we're really driving for with these relationships. We're still very early days. I want to just stress that. I mean we've been building Digital over the last, call it, decade with spending hundreds of millions of dollars in acquisitions, etc., but we're really at very early days on our journey, and we're going to continue to keep focusing on not only channel partnerships but on future acquisitions that are, that make sense and are tuck-ins that are additive to our overall strategy.

One more sort of maybe strategic question for you is, today, there's obviously a really nice flywheel between Digital and Engage and serial drives Engage and then Engage can get optimized by Digital. But there's a part where there is, let's say, usage cannibalization, especially with the messaging of the AI. So today, you may have a number of people supporting a call center function, and then that's going to get reduced because you're going to go to a chat, message, bot, AI optimizes all the rest of it. As you think about that and you think about the levers there, one, obviously, is a higher gross margin. But do you think you have the ability to kind of raise price in the Digital side as you go through that sort of potential transition? And I'm talking five, 10 years down the road because it's so early now, it doesn't matter. But in maturity, sort of how do we think about that? I'd love to get some thoughts on how you're thinking about that.

So two things, that's a great question. First of all, believe it or not, we hope that it creates cannibalization that has been our focus. Regina will tell you that when she came on over 10 years ago, I told her, that was one of our main goals was to create cannibalization of the Engage business. But here is the thing that is maybe a little counterintuitive. Every time we go to a Fortune 500 Company and we show them a more efficient way of serving their volumes, even though it might take 20% or 30% of their volumes out or their cost down, etc., as fast as we take those volumes out, they level them back off by giving us more business because if you were them, wouldn't you want your business to go to wherever it's the most efficient and cost-effective? So we have zero fear of our Engage business being cannibalized by technology. I want to stress that. Zero fear. There is so much business out there as far as how big the total addressable market is that if every single client, we were able to show them a 30% cost benefit, etc., they can easily give us 30% more business without even blinking an eye. A high percentage of our clients, maybe we have 10%, maybe we have 20%, in some cases, we might have 40%, but it's rare that we have 100% of their volume. So I want to just put that if there's a fear there, I want to put that to rest. Now let's get to your bigger question about margins. There's no question that over time as we get better and better at using these AI tools, these machine learning tools, these hyper-automation tools, etc., we're building our own internal confidence of what we can achieve. And based on that confidence, we're getting to the point where, over time, our goal will be to change our pricing model in a pretty significant way. And that would allow us to lean in more and start to instead of Engage being, for example, a time and material shop, it could become more of almost a subscription-type capability where we're charging on a per-customer basis and where we're partnered, more deeply partnered with the customer. That's going to take time. That's going to require very significant data analytics and actuarial tables, etc., which we're starting to build all of that, etc. But the point is, is that absolutely, we believe that there's an opportunity to drive more margin, not only on the technology side, but also on the Engage side. But right now, what we're focused on is getting all these core practices built, making sure that we have the geographic diversity, meaning that we're able to provide these capabilities across the globe and then we can start to really shift our pricing model.

Our next question is from James Faucette of Morgan Stanley.

Ken, I wanted to touch on really quickly on your comments around success and converting surge customers and contracts to longer-term engagements. I guess my question is, as we transition that work to the longer-term nature of the agreements, etc., how do you think about the relative revenue potential versus what you're getting from them and the surges? Does it go up? Does it go down? Is it the same? Just wondering how we should think about the revenue contribution from those customers.

Yes, the main point is that our confidence stems from signed agreements with various governments, particularly states, and financial service clients that extend into the next year. These agreements were established in the third quarter and continue to shape our current backlog. While some activities remain significant due to the pandemic, we have also initiated new business lines for the states and banks that will now take precedence. This includes outsourcing captive tasks due to challenges in achieving the necessary level of virtualization and digitization, with many commitments leaning towards more permanent remote solutions. Additionally, as Ken mentioned, consumer behavior has changed permanently across various sectors, and we have secured agreements for increased volumes similar to typical three, four, or five-year contracts. Food delivery is a prime example, and we are consistently adding new clients in that area.

And then when you look at your overall margins and margin structure is like clearly, like this quarter was really, really good. You're talking about some additional points of leverage there. How are you thinking about like the margin trajectory? Is that I guess increasing along with kind of your revenue and engagement and bookings outlook? Or how should we think about that on a go-forward basis?

I'll reiterate a point I've made before, but let me provide some context first. Our revenue has grown by about $196 million year-to-date, and we increased our EBITDA margin by 300 basis points, or 3 percentage points. This means we improve one point for every $65 million in revenue. I've mentioned several times that for every $50 million to $75 million increase in revenue, we generally see nearly one point of margin improvement. Currently, we are at the midpoint of that range with $63 million in revenue, which aligns with our expectations. Our management team has considerable experience and has navigated various market conditions. We've observed significant fixed costs in our cost of goods sold and selling, general, and administrative expenses, which allows for greater leverage as we increase revenue, reducing those fixed costs as a percentage. However, I must note that travel, typically accounting for 1.5 points of our revenue, has declined. This contributes to our midpoint of $65 million in incremental revenue, allowing us for another point of improvement. We believe there are no factors that will alter this trajectory given our current volumes. Additionally, as we approach year-end, we are focusing on investments to accelerate growth. I've mentioned our goals for 15% to 25% growth in Digital and 5% to 7% in Engage. We are exploring the possibility of capturing organic market share of 10% in Engage, which will necessitate investments in sales and marketing. We are making good progress in Europe, which is performing well, but we are also considering whether to expand into other regions sooner. We are currently evaluating these strategic decisions, and you can trust that we will distinguish between these investments and our core margins. Overall, our model encourages opportunistic growth through increased volume.

And last quick question. How should we think about capital allocation, particularly given what you would, you may be seeing from an M&A opportunity perspective versus capital returns?

Well, yes. So that hasn't changed as well. Obviously, we have a dividend, and we're going to continue to drive early returns for our shareholders, but aside from that. It's a balance between organic and inorganic investment in expanding the business. And so you have heard Ken say this a couple of times. We, internal to TTEC, the way we think about this now is that M&A is not a nice to have. It's a have to have. I would actually say, let's say, corporate development investments is a have to have in the sense that we will continue to think about the investment in partnerships versus the investment in M&A. But you should continue to expect us to be very aggressive. We're not going to do a deal just to do a deal. But we've got a good track record now over 10 years of acquisitions, and we've honed our internal disciplines around that in terms of front-end integration and middle and back, and we're going to continue to prioritize. I'm glad to see the cash flow, the free cash flow, the operating cash flow, which are only going to help us to fund those in a very efficient way.

Let me just add on to that real quickly. I think the other thing that I want to stress is that the partnerships and the acquisitions that we will be doing or have already done as well as the internal R&D work that we're doing, it's all about platforming ahead of time so that when clients look to us as providing a solution, a technology-based solution, a digital solution, etc., that we can demonstrate to them that we can basically launch them in the shortest possible period of time with the least amount of risk at scale. We believe that is absolutely critical to our success. And so the reason why we tend to win these very kind of transformative deals like we did with, have done with the Government over and over and over again, etc., is because we are able to demonstrate to them what we can do in a matter of weeks, the largest systems integrators in the world need a year plus to do. And so I can't stress to you that, that is absolutely a big part of our investment thesis, not only from an acquisition standpoint, but investing capital internally to pre-build out platforms so that we can show our clients that we can turn them on quickly and get them into the marketplace with these new set of capabilities that they're looking for. Right now, clients are focused on what's urgent, not what's important. And consequently, they need solutions that are going to have an impact on their business in weeks or in less than 90 days. They're not focused right now on solutions that are going to take them three years or five years, which is what the traditional systems integrators are focused on. How do they do a year's worth of consulting and then a year's worth of preparation and then two to three years' worth of implementation, etc.? Our goal is to get to a recurring revenue ability with the client off of our technology, off of our SaaS capabilities and off of our Engage capabilities as fast as humanly possible. So I just want to stress that; it's all going to make more and more sense as we roll out more capabilities on the technology side to the marketplace.

Our next question is from Joseph Vafi of Canaccord.

Great results. Just a couple of quick ones. First, on the bookings numbers. Maybe drill down a little bit into Digital bookings. And what you're seeing in that market segment now? Obviously, I think the Engage segment, there's maybe a bit of sense of urgency there by clients to have capability. I'm wondering if you're seeing that in the Digital side as well or kind of compare and contrast the demand environment there. And then just a follow-up maybe for Regina on work-from-home moving forward and implications for CapEx.

So what we're seeing on the Digital side is our pipeline is really growing quite nicely on what I would call transformative type deals. But what we're also seeing at the same time is that on the larger, more transformative deals we're also seeing clients saying that they want to get more focused on that when they have more visibility to COVID, to the pandemic. And so I'm sure you're hearing this through a lot of others. But on the very large clients, I'm talking about, let's just call it, the Fortune 100-type clients, they're all very focused on us building plans for them, etc., that really can transform their business. And in some cases, their start times have been delayed due to the fact that their focus has been on more tactical things like getting them up and running on at-home, etc. So on one hand, the pipeline is building nicely, and we're very excited about it. I would say that on some of the deals, the actual start of the execution is a bit delayed, and the can has been kicked a little bit, which is understandable. When we do channel checks with many of the others on the large deal front, they're seeing the exact same thing. So instead, what our clients are focused on and what many of the new deals are focused on is more of the incremental things that instantaneously allow them to get at-home tools for their at-home agents and so on and so forth. Regina, do you want to add to that?

I want to emphasize that our Digital bookings exceeded $42 million, reflecting an over 11% growth this quarter. A significant portion of these bookings contributes to increasing our market share among large companies. We are collaborating with major corporations either divisionally or in specific areas and countries, which presents great opportunities for further business growth. As we enhance our offerings in intelligent automation, it will become a crucial part of our operations, a process that will take a couple of years. Approximately $20 million to $22 million comes from existing clients who are continually adding licenses and expanding their omnichannel presence globally across their entire operations. Moreover, it's important to recognize that one of the key factors behind our success in Engage is our ability to manage remote work and address growing volumes effectively. The initial pilots of our deals may not currently generate significant economic returns for Digital, but once we understand the outcomes, they are poised to contribute meaningfully to our pipeline. Timing plays a role here, but we are leveraging our capability to hire, train, and scale quickly. Additionally, we are assuring our clients that during the duration of three- and five-year contracts, we will continue to improve the environments that support their customer experience. Regarding our work-from-home strategy, I acknowledge that it is a daily challenge that affects our entire 56,000-employee workforce. Since the end of February, we have been implementing a phased approach to restructure our real estate facilities. Currently, our capacity utilization reflects a reduction in real estate costs from about 7.8% of our revenue to 5.3%. We are actively addressing this challenge in collaboration with our clients. As previously mentioned, when all is said and done, we anticipate that up to 50% of our Engage business could be conducted remotely. The focus now is on determining which Phase 3 sites to potentially remove from our portfolio or expand, as we continue discussions with clients and observe competitor activities.

Our next question is from Bryan Bergin of Cowen.

I wanted to ask here about some of the moving pieces in Digital. And really, how we should be thinking about the timing and the level of trough revenue in the Digital segment? I understand that the large Government contract is still expected to contribute, I think, moderately here in 4Q and then end. I know you've got some of the other factors with planned consulting exits and the product declines. Curious, if you could give us a little bit of clarity on where you get to that base level? And then are there sizable opportunities here in that pipeline that can backfill at a faster rate some of these declines?

So first of all, you should know that a few years ago, we had very little cross-selling going on between Engage and Digital. And today, we're roughly seeing almost 30% of the deals, so to speak, that are taking advantage now of both. Our goal, obviously, is to get that 30% to 60%. So I just want to point that out that we are making really good progress on providing what we call a one TTEC approach to our embedded base as well as to new prospects. And we think that, that's going to have a significant impact in the future to come. What I would just simply tell you is, is that we are working, firing on all cylinders and we've been highly focused on selling as many big deals as we can to replace some of the Government work that we had for 2 years, and it's come to an end with the census coming to an end. And I feel very confident that we will hit our growth targets. And that ultimately, it will, all this will be behind us. Because the majority of all the new business that we're winning on the Digital side is all long-term recurring revenue. Long-term beyond two years, meaning it's three year, five-year contracts, etc. Regina, you want to add to that?

Yes. I mean, I think we're coming into that trough, right? That's, there's two troughs going on: one is we're going to exit this short-term Government contract; the other is that we're, we have a disruptive model. We're moving from what has been an on-prem delivery model, which has a different revenue kind of an expense profile, at least in terms of recognition into a cloud. And so I think we're coming into those quarters. And that is why we've really tried to help to continue to talk about the underlying base business, which is somewhere around $200 million, $210 million coming off of this year will be the base revenue, and we continue to believe that we can grow that base 15% to 25%. We had 11% increase year-over-year in Q3 bookings. We have significant pipeline for kind of Q4 and Q1 at around $400 million. We see an increasingly and very impressive healthy pipeline from the Amazon Connect acquisition we did. A good part of that $400 million is a pipeline for Cisco Webex CCE. It remains healthy. And I just, I want to point out that probably the most compelling data point is that we've got $110 million of Digital bookings in the period ended September 30th, $52 million of which is an annual contract value for multiyear recurring revenue agreements. So if you take that $52 million on our $200 million base because that's what it relates to, right? That is a 25% growth rate. So this business has a combination of recurring and nonrecurring. Our professional services are nonrecurring; our cloud services are recurring, three to five year take-or-pay. And so $52 million of that $110 million is recurring revenue. It's the annual contract, right, for that. And by itself, it's 25% of the base. So we are going to have a couple of quarters here whereas but from a top line point of view, it may appear that we're not getting the momentum that we are. And again, you can count on us to bring the transparency to that not just this year, but as we go forward. And so 2021 is a challenging year from the tip of the iceberg, looking at our overall revenue versus the prior year. But when you look at the underlying business, the go-forward business, the business that we're very excited to and that Ken talks about getting to $500 million in the next couple of years through a combination of organic and inorganic growth, we're still feeling pretty good about that.

And then you called out here that, obviously, the pandemic has changed the company materially from one year ago. Does this change the way you're thinking about medium-term growth and margin potential in the aggregate?

Yes. I mean, again, I made the comments, I'd really like to get through the year. Our fourth quarter bookings are very important to the next year. Understand where our backlog is and a couple of other things and be able to give formal guidance. But I do think that for the next year or so, that 15% to 25% in Digital is right. I'll get to the margins in the same. You'll note in the script, I said 5% to 7% on Engage, which is already different from the kind of 3% to 5% that we've been saying, and we'll be able to share more. From a margin point of view, there's a, yes, we feel, we've always felt like getting in that, let's say, EBITDA of 14% to 16% was kind of midterm, meaning in the next 18 to kind of 24 months. We got there a lot sooner because of the volumes that we got to. And in that, there are some things that we have not been doing. We've been not traveling. I would say while in Q2, we pulled back discretionary spend, we never, right? We never had any layoffs, right? We're going to always keep our headcount in line with our backlog and pipeline. But it wasn't like TTEC had any material level of exiting people at all. And so what you're seeing in Q3 and Q4 are what I would say, normalized expenses with the exception of some travel. And as I said earlier, travel is about 1.5 points of our top line, and we're probably about 33 basis points of cost on revenue right now. So we will, over time, have to put that back in. But we are not without our optimization of our corporate services, inclusive of IT. And so we feel that we have, within a point or so of margin, very good opportunity to continue to see, into next year, profit margins at or about this level, before which, right, we make any decisions to further invest in additional sales and marketing go to market, right? So again, we'll pull these pieces out and share with you when in early next March, we give guidance. But we're not thinking that we're hitting a 14% to 15% EBITDA this year, and we're going back to 12.5% to 13%, I promise you that.

Our last question is from Jason Kupferberg of Bank of America. Sir, you may begin.

This is Kathy on for Jason. Thanks for squeezing me guys. So I guess I wanted to shift back to talk a little bit about Engage. Obviously, based on your guidance, you expect it to remain pretty elevated in 4Q. Just when do you expect it to slow in or potentially return to pre-COVID levels? And like what do you think is sort of the maybe medium-term sustainable growth rate in the Engage piece?

Sure, go ahead, Ken, please.

No, I just want to say no, I don't see it slowing. I think this is not about COVID anymore. But go ahead, Regina.

Yes, I was just going to mention the same point. To reiterate what I mentioned earlier, 92% of our Q4 bookings were business-as-usual bookings. The agreements related to our previous COVID work now reflect the core aspects of our unemployment services, prepaid cards, and fraud detection and prevention, as well as contact tracing. These have been established as long-term contracts. We're experiencing some churn in our base, likely between 8% and 12%. Out of the $460 million in bookings we've achieved year-to-date, approximately $30 million relates to the pandemic and is not expected to continue. However, this is a minor figure compared to our $1.6 billion Engage business, particularly given our planning for an 8% to 12% churn of existing revenue for various reasons.

And you talked a little bit before about like the broad geographic reach you guys had. You guys are doing a little bit more work in looking at that a little closer. I mean is there anything you can share about which geographies maybe you're trying to penetrate deeper in? Or are you pretty happy with your mix now?

Again, I'll just repeat what I said earlier, right? I mean we've got a huge presence in the US, North America. A couple of years ago, we started to see Europe. Europe is now really growing. And so we expect to go deeper there, make more investment there. And we do have a small team in Asia Pac and in Latin America. But those would be ones that, depending on how the cards we play into next year, we could or could not accelerate. But really, our focus right now is to go long in Europe. We're having success. We're going to build on that success. And when I say Europe, I'm really talking about client acquisition, although obviously, we will provide delivery throughout Europe to make sure that we accommodate all the languages.

Operator, you may close the line. Thank you.

Thank you for participation. This concludes the TTEC's Third Quarter 2020 Earnings Conference Call. You may disconnect at this time. Thank you.