Welcome everyone to TTEC's Second Quarter 2024 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 Paul Miller, TTEC's Senior Vice President, Treasurer and Investor Relations Officer. Thank you, sir, and you may begin.

Good morning and thank you for joining us today. TTEC is hosting this call to discuss its second quarter results for the period ended June 30, 2024. Participating on today's call are Ken Tuchman, Chairman and Chief Executive Officer of TTEC, and Shelly Swanback, President of TTEC and Chief Executive Officer; Kenny Wagers, Chief Financial Officer of TTEC. Yesterday, TTEC issued a press release announcing its financial results. While this call will reflect items discussed within that document, for complete information of our financial performance, we also encourage you to read our second quarter 2024 orderly reports on Form 10-Q. Before we begin, I want to remind you that matters discussed in today's call may include forward-looking statements related to our operating performance, financial goals, and business outlook which are based on management's current beliefs and assumptions. Please note that these forward-looking statements reflect our opinion 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 2023 Annual Report on Form 10-K. A replay of this conference call will be available on our website in the Investor Relations section. I will now turn the call over to Ken.

Good morning and thank you for joining us today. On our earnings call earlier this year, we shared that 2024 would be a year of transition and evolution for TTEC. As we scale our diversification strategy and our cost optimization initiatives, the macroeconomic environment continues to create headwinds for our Engage business, while our digital business continues to deliver solid results. Let me start with our second quarter results. Revenue was $534 million and on a non-GAAP basis, our adjusted EBITDA was $46 million. It's important to note that this quarter, we recorded a goodwill impairment on the Engage business, triggered by a decline in our market capitalization. This non-cash charge materially impacts our GAAP results, as detailed in our press release, and Kenny will discuss shortly. Now let me share an update on the Engage business. Despite the current dynamic macroeconomic environment, we're encouraged by our continued momentum with new large enterprise client wins. These new clients are core to our strategy to diversify our Engage client portfolio across industries where we're currently underpenetrated and where we see solid opportunities for growth. As with all new clients, our recent wins in e-commerce, retail, media, and property and casualty insurance will take the customary time to scale. These new enterprise clients have the potential to grow into top clients in the near term based on their historical spend in the CX outsourcing industry. However, as we look to the second half of the year, due to the weaker economic outlook, the demand from our embedded base is not shaping up as originally forecasted. This is especially pronounced in our largest sector, healthcare. For almost two decades, we've had reliable forecasts and consistent seasonal growth with our healthcare payer clients. This year, the healthcare industry is facing extreme cost increases, which are creating significant budget pressures. As a result, while some clients are still finalizing their seasonal ramps, we expect significantly lower volumes this year than we have previously experienced. Given the overall environment, we've taken additional and significant actions to improve our cost structure without impacting our ability to continue to deliver quality outcomes for our clients and their customers. Due to these headwinds in Engage, we have updated our financial outlook for the full year 2024 to better reflect the current balance of the challenges and opportunities. Kenny will share the specific details shortly. Now on to TTEC Digital. As we've diversified our CX Technology segment, we've evolved from being a leading expert dedicated exclusively to CXaaS to a multidimensional CX transformation partner with a broad portfolio of contact center, CRM, AI and analytics solutions. We've doubled the number of our partners and our technology ecosystem this year and now have the full stack of CX capabilities to propel our business ahead into 2025 and beyond. Today, our core advantage in TTEC Digital is the depth of our expertise in every aspect of the CX technology stack and our ability to integrate the disparate platforms into a cohesive, seamless CX operating system, including the latest in AI. Our teams are executing on more than 100 AI-enabled projects, with specific business cases around increased efficiencies, revenue growth, and improved customer experience. Looking ahead, the CX marketplace continues to be compelling, and we remain excited about our position as a leading and trusted partner for AI-enabled CX technology and services. We continue to attract new clients, be recognized as the Best Place to Work, and acknowledged as the industry innovator by trade analysts and media. Despite our progress, it goes without saying that I'm disappointed with our financial results and our revised outlook for the remainder of the year. As we move into 2025, I'm confident that our diversification initiatives will yield stronger financial performance with a broader client base, more offshore revenue, and expanded client solutions alongside a deeper partner ecosystem. And now, I'll turn the call over to Shelly.

Good morning, everyone. As Ken mentioned, we're in the midst of a transition year, navigating headwinds in the macroeconomic environment and making progress as we execute on our overall diversification strategy. I'll start by discussing the current factors impacting the performance of the Engage business. First, some of our embedded base clients have revised their volume forecast for the second half of the year. The decline is especially prominent in our biggest vertical, healthcare. Several of our healthcare payer clients are reacting to increased budget pressure and have made recent decisions which are impacting our seasonal volumes. In addition, one of our healthcare clients decided to delay a large growth initiative. Second, challenges in a large public sector program caused by external factors, including a delay in the client system conversion, will create a short-term drag on our profitability and delay the full program ramp. We're working with our clients through these issues and expect to get back to the anticipated financial profile entering next year. And third, we exited some underperforming client programs that will impact the top line in the short term but will ultimately improve our profitability. Moving on to progress updates, diversifying our Engage business. While the market remains competitive, we're winning new enterprise clients and expanding with new solutions for our embedded base. As we continue to diversify our client portfolio, our primary focus is on opportunities where we can successfully deliver a quality solution and programs that have the potential to scale and grow profitably. This quarter, our strategic wins with enterprise clients include a large financial services institution and a multinational home improvement manufacturer and retailer. We're on track this year to add a dozen new enterprise clients, diversified across our core verticals as well as emerging verticals like retail, e-commerce, media, and technology. While these programs initially start small, they provide the opportunity for scale in the future. We expect several of our new clients to become top clients in the future. We continue to see strong demand in our new geographies with anchor clients driving growth in several regions. This quarter, we began ramping a major healthcare client in South Africa and a financial services brand in Egypt. With strong client demand and more than half of our pipeline comprised of offshore opportunities, we continue to expand in these regions. Our banking, financial services, and insurance practice is healthy and performing well. We're diversifying with our embedded base and have recently won new lines of business that will ramp up later this year with two of our largest clients. For example, with one of these clients, we're expanding our work to include back-office services. Regarding new enterprise BFSI clients, we have recently launched two and we'll launch two more in Q3. We're focused on scaling these new programs as well as pursuing expansion opportunities. For example, with the new offshore client we launched late Q4 last year, we have added five new solutions, including care, workforce management, tech support, knowledge management, and quality assurance. In our healthcare vertical, we have some early momentum, diversifying our solutions and expanding our reach from member experience to patient experience, targeting the provider landscape. We have several late-stage opportunities with provider organizations to support them with our offshore footprint, spanning a wide range of solutions, including patient credentialing, claims, and clinical nurse support. Across industries, we continue to make progress in a number of areas tied to the practical use of AI. Through a combination of technology partnerships and our own internal engineering teams, we're applying AI across the entire employee life cycle. For example, we're seeing good results, leveraging AI to accelerate curriculum design and increase training effectiveness which helps to reduce ramp times and increase speed to proficiency. Our private LOM called Let Me Know, which is built on Google technology, is now being deployed in several client environments, including our travel and public sector verticals. In addition, we're using AI-enhanced voice translation to extend the reach of our optimized geographic footprint as we create digital multilingual hubs. Moving on to an update on our cost optimization initiatives. We recently executed on several programs that will deliver approximately $10 million of in-year savings and annualized savings of at least $30 million starting in 2025. With the guiding principle of maintaining our high-quality delivery standards, we're implementing new ways of working using technology and improved processes to transform our delivery cost structure across the enterprise. We have also recently strengthened our leadership team with tenured industry hires to accelerate our efforts and advance our performance in key areas. Now, I'll switch gears to TTEC Digital. While the demand environment is somewhat tempered, our value proposition continues to resonate with clients. As Ken mentioned, our expansion of solutions and partnerships beyond CXaaS to adjacencies like CRM, AI, and analytics, enabling us to broaden our impact with new and existing clients and will fuel the momentum in our professional services growth. As we continue to expand our partner ecosystem, we expect several of our new emerging partnerships to play a more meaningful role starting in 2025. Our pipeline remains strong and we're on pace to close 60 new clients this year. Additionally, close to 80% of digital bookings this past quarter were with existing clients, and the number of clients to whom we bill more than $1 million annually is continuing to grow. Let me share a couple of client examples. After helping a global mobility company optimize its CXaaS platform, we're now unlocking actionable insights from AI-based conversational intelligence to clarify and act on drivers of content, volume spikes, and the effectiveness of their automations. For a healthcare payer, we're building on their cloud migration to integrate AI-enabled knowledge assist and call summarization to improve the effectiveness of their clinical care support advocates. And for a luxury retail brand, we're creating a unified desktop leveraging AI that combines interaction history and profile data, so their customer concierge team can proactively provide personalized white-glove support. These are just three examples of more than 100 AI technology implementations with clients that are underway. Our clients are looking to us for practical applications of AI and we're currently building solutions for more than 40% of our top 100 clients. The hyperscalers and leading CX technology providers play a key role in our CX ecosystem working as strategic partners, and we're helping them optimize their development road maps, build pipeline, and deliver complex implementations. Because of our deep CX technology and operational expertise, clients are depending on us to help them eliminate silos within their organization. We bridged the gap between technology partners, business functions, and operating groups in order to simplify the associate and customer experience. In the same way we connect the dots for our clients, we're facilitating collaboration with tech partners to deliver the best outcomes for our shared clients. In conclusion, while we're disappointed in our financial results, we continue to make progress on our diversification strategy. We're growing our geographic footprint, winning new business, expanding our solutions and partnerships. In addition, we're taking the necessary cost and margin improvement actions to strengthen our financial profile, in order to return to overall revenue growth and a normalized EBITDA run rate. As a management team, we're confident in our path forward and resolute in executing on our strategy and improvement initiatives. On behalf of our Board, leadership, and our employees around the world, we look forward to continuing to show our progress in the quarters to come. Kenny, over to you to share our second quarter financial results and updated full-year outlook.

Thank you, Shelly, and good morning. I will start with a review of our second quarter financial results before providing context in our updated full-year 2024 financial outlook. In my discussion on the second quarter financial results, reference to revenue is on a GAAP basis, while EBITDA, operating income, and earnings per share are on a non-GAAP adjusted basis. A full reconciliation of our GAAP to non-GAAP results is included in the tables attached to our earnings press release. Turning to our second quarter 2024 financial results. On a consolidated basis for the second quarter of 2024 compared to the prior year period, revenue was $534 million compared to $600 million, a decrease of 11%. Adjusted EBITDA was $46 million or 8.7% of revenue compared to $67 million or 11.2%. Operating income was $30 million or 5.5% of revenue compared to $51 million or 8.4%. And EPS was $0.14 compared to $0.55. Foreign exchange had a negative $1.8 million impact on revenue in the second quarter over the prior year period while positively impacting operating income by $0.8 million, primarily in our Engage segment. In our Digital business, we delivered upon our second-quarter plan supported by CX demand from clients across multiple industries. In our TTEC Engage business, our performance was at the low end of our range of expectations due to the challenges in the public sector program already discussed by Shelly, and lower bookings due to the factors already covered by Ken. Turning to our second quarter 2024 segment results. Our Digital segment second quarter 2024 revenue was $116 million. While it represents a decrease of 1% over the prior year period, digital revenue grew quarter-over-quarter by approximately 4%, reflecting the backlog conversion of our strong bookings. Recurring managed services, which represents 60% of Digital's revenue, continues to deliver solid growth, increasing nearly 8% year-over-year and 6% sequentially. The strongest contribution continues to come from our CXaaS practices. Due to the tale of softer bookings in 2023, professional services revenue declined from the prior year but is up 11% from the first quarter of 2024, driven by the recent quarter's improved bookings. As previously communicated, the one-time on-premise related revenue is declining as demand is shifting to cloud migration, resulting in an 8% year-over-year revenue decline in the first half of 2024. Operating income was $15 million or 12.8% of revenue in the second quarter of 2024, relatively unchanged over the prior year in both absolute and relative terms. The temporary lower revenue contribution was offset by reduced SG&A from the prior year. Digital's backlog for the full year is $450 million or 85% of our 2024 revenue guidance at the midpoint, in line with the prior year. The strong backlog and pipeline continue to demonstrate the importance of TTEC Digital CX technology and service solutions to our clients. Our Engage segment revenue decreased 13.5% to $418 million in the second quarter of 2024 over the prior year period. Operating income was $15 million or 3.5% of revenue compared to $36 million or 7.4% of revenue in the prior year. Our second-quarter performance was at the low end of the range of our expectations due to the challenges with the public sector program mentioned earlier and softer revenue. I will address the impact of the public sector program for the balance of the year in the segment's outlook in my closing remarks. Regarding Engage's pipeline, the quality of opportunities remains strong. And while we see encouraging signs based on clients' discussions around CX delivery strategies, near term, clients continue to prioritize initiatives that will yield cost savings in-year and postpone new investments or more meaningful CX transformations to 2025. Engage's last twelve-month revenue retention rate was 89% compared to 96% in the prior year. The decline is primarily explained by the prior year revenue reduction in our hypergrowth portfolio and the impact from one large client in financial services exiting one of their lines of business supported by TTEC as previously mentioned. We are doubling down our efforts with measurable actions to strengthen our foundation and increase the company’s profitability. This includes initiatives to improve our operating efficiencies at the client program level, in addition to broader actions to align our corporate cost structure with forecasted revenue to become more agile and efficient by changing the way we work. The related restructuring charge in the second quarter is associated with this plan, largely completed in the third quarter. These actions are anticipated to reduce our operating costs by approximately $30 million on an annualized end-of-year exit rate, benefiting both gross and operating margins. Before I discuss other financial metrics, I will address the non-cash goodwill impairment charge and the related tax adjustment recorded in the second quarter. In ordinary course, we performed goodwill impairment analyses, in accordance with GAAP on an annual basis or more frequently if indicators of impairment exist. During our second quarter, we performed a quantitative goodwill impairment analysis triggered by the decline in our market capitalization. Based on this analysis, which reflects on financial projections and market-based metrics, the fair value of our Engage reporting unit decreased below its carrying value and resulted in a $196 million non-cash pre-tax impairment charge. Our digital reporting unit's fair value remains in excess of the respective book values and is not impacted by the impairment. The Engage impairment resulted in a deferred tax asset of $38 million which was subsequently included in a valuation allowance recorded for tax assets, creating a net incremental $46 million income tax charge recorded during the second quarter. Please refer to our Form 10-Q for more details on the impairment and related tax impact. While impactful from a GAAP reporting perspective, the impairment and the tax valuation allowance were a non-cash expense and do not impact our strategy and capabilities or the value of our CX solutions. These charges are normalized in our non-GAAP reconciliation calculations. I will now share other second quarter 2024 metrics before discussing our outlook. Free cash flow was $35 million in the second quarter of 2024 compared to $77 million in the prior year. The year-over-year variance is the result of lower profitability and working capital conversion. Capital expenditures were $14 million or 2.7% of revenue for the second quarter of 2024 compared to $19 million or 3.2% in the prior year, with most expenses related to our geographic expansion. Our normalized tax rate was 33.7% in the second quarter of 2024 compared to 22.3% in the prior year. The increase is primarily a function of lower pre-tax income and jurisdiction mix. As of June 30, 2024, cash was $80 million with $933 million of debt, of which $930 million represented borrowings under our amended $1.2 billion credit facility. Net debt increased $49 million over the prior year to $853 million, primarily associated with geographic expansion investments, higher interest expense, and capital distributions, partially offset by positive cash flow from operations. We ended the quarter with a net debt-to-EBITDA ratio of 3.8x. As discussed last quarter, beyond returning the company to sustainable long-term organic growth, Shelly and I are taking prudent actions to improve our cash flow and strengthen our balance sheet. These actions start with continuous cost improvement initiatives, reprioritization of our capital allocation strategy, and optimization of our working capital. We also took additional measures to increase our financial flexibility under our current credit facility. Turning to our updated outlook in my closing remarks. You may recall that we moved to providing guidance on an annual basis during this transition period with directional commentary for each quarter as viewed appropriate. Last quarter's commentary pertaining to the second quarter outlook remains accurate. We still see the second quarter as the transition of our engaged performance in 2024 as we: one, worked through the peak of our previously mentioned headwinds in our business; and two, further execute upon meaningful cost optimization initiatives which are well underway in the third quarter. However, the lower demand environment continues to have a larger impact on our Engage revenue trend for the remainder of the year. The Engage revenue is now expected to decline from 8% to 12% at the midpoint of the updated guidance range. As a result, we revisiting the company's full-year guidance on both the top and bottom line due to the revised engaged outlook. That said, we continue to build a healthier 2024 exit rate to the Engage business as operations in the public sector program normalize, guidance for digital is minimal with delays to launch some projects impacting the top line, offset by stronger execution that increases our profitability expectations from an EBITDA margin of 14.5% to 15% at the midpoint of our guidance. Please reference our commentary in the Business Outlook section of our second quarter 2024 earnings press release to obtain our expectations for our updated 2024 full-year guidance at the consolidated and segment level. In closing, we met many of our transitional year objectives in the first half of 2024 while continuing to navigate a dynamic demand environment. In TTEC Digital, the acceleration of new partnerships continues to strengthen and diversify an already strong foundation and is noticeable with our sequential growth quarter-over-quarter. In TTEC Engage, we are ramping new enterprise client programs across our CX technology-enabled solutions and expanded geographic footprint while working through select near-term headwinds and executing upon our profit optimization initiatives. We remain committed to returning the Engage segment and TTEC as a whole to long-term organic growth and increased profitability. I will now turn the call back to Paul.

Thanks, Ken. 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.

Our first question comes from George Sutton of Craig-Hallum.

Kenny, I'm wondering how much of this you would credit to AI in some way, shape, or form, in terms of not necessarily AI impacting the inbounds that you're getting yet but just really a crowding out of the focus for companies moving forward with other initiatives that might have positively impacted your business?

To be frank, I think very little to none. We talk to our clients almost daily and are aware of the initiatives they are focused on. Many are still just trying to transition to the cloud, let alone modernize their overall digital capabilities. For those working on AI, it's primarily in an experimentation stage in most cases. So no, I do not think that's the case. Overall, the sectors we have served for many years are unfortunately facing some macro headwinds as consumers become cautious and slow down. This will likely become more evident as large enterprises begin to report in their upcoming quarters.

One question for Kenny. You're kind of drawing a little bit of a line in the sand, that the second quarter will be the peak of the headwinds in the Engage business. Just help us understand the comfort you have in that statement sort of what backs that up.

Yes, George. I would say Shelly covered a lot of that in her script. We've just got a lot of good tailwinds around operational rigor. A lot of the actions that we took in Q3, that I mentioned that are worth $10 million in-year savings. And as we exit 2024 into '25, north of $30 million. Those are in play. And so from an operational, from a margin expansion, from an operating leverage standpoint, we feel really good with what we've accomplished and we're not done yet. Shelly also mentioned, we brought in some industry veterans on the delivery and operational side, and they continue to drive value as they onboard at TTEC. So from a cost, from an operational, from a leverage standpoint, we just got a lot of tailwinds that we feel confident in. On the revenue side, a little more choppy. We discussed that, but as seasonality throughout 2024 picks up into Q3 and Q4 and as our bookings and backlog and what we see with the new enterprise clients that we've signed this year, we feel relatively confident in that trend going forward.

Our next question comes from the line of Maggie Nolan from William Blair.

Can you comment a little bit on whether or not you're seeing a competitive pricing environment impacting the Engage segment?

Maggie, it's clear that we are in a competitive environment. I would say this is especially true for companies that may prioritize price over quality. We approach these situations on a case-by-case basis as necessary. Regarding our new enterprise clients, we are confident about the services we will provide, the commercial arrangements we have in place, and we anticipate that this new business will contribute positively to our core operations. So, we feel optimistic in that regard. However, it is important to acknowledge the competitive pricing landscape, particularly for companies facing budget constraints that may choose to compromise on quality.

And then on those several new enterprise clients, it's great to hear you say that those have potential to become top clients in the future. Were those competitive wins or competitive displacements? And overall, how do you feel about your positioning in the market and your ability to take market share?

Yes, absolutely. They were competitive wins, right and displacing partners, I think, in every single case. So we feel really good about that. It's a combination of what were our vertical expertise and also, our expanded geographic footprint that we've been talking about for the last many quarters. And let me just maybe emphasize again. Some of these wins are in what we call our core verticals, things that we've got good vertical expertise: healthcare, BFSI, some of our biggest practices. But also excitingly, new verticals. A large e-commerce platform, a couple of new clients in the retail sector. We've got some good work that we're doing with some of the luxury brands as an example in retail, a new win in media, new opportunities in our pipeline in the tech vertical. And so we're really serious about diversifying our business, and I think we feel good about the breadth of these wins. And absolutely, they were competitive.

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

In the Digital business, you mentioned there were some project delays. Can you elaborate on what caused those delays and what technology is involved?

No particular technology. Mike, these weren't delayed because of us per se. These are just delays in the client being ready to start programs. Deals that we had won in previous quarters and just delay in getting them started. And therefore, there's a slight delay in revenue recognition. But these programs are all underway at this point.

Was it macro-related? They just needed to find the budget to move forward or?

I'm sorry. Say your question again.

Yes, it was macro-related.

No, I think these were just specific client situations.

Okay. Got it. And then I know you don't give quarterly guidance, but on the digital side, does the guidance imply kind of exiting the year at 10% or so growth there?

Yes. Obviously, we don't give the quarterly guidance. But I would say that we are exiting 2024. Again, we're still working on 2025, and we're not going to comment on 2025 yet, but you're in the range.

And then on Engage, were new logo bookings as expected? Or were they a little late as well?

No, this is about the new enterprise clients that we are acquiring, and we're very excited about it. As expected, we're winning new clients. However, I want to emphasize that these programs typically begin on a smaller scale. We're enthusiastic about the new client wins, and it's important to note that this is not a new trend; these programs require time to grow. Clients usually start small with a limited number of agents in Engage, and then we gradually expand from there. We have launched several initiatives in Q2, a number more in Q3, and additional ones in Q4. This is part of our outlook that we expect these efforts to make a more significant contribution to the top line in 2025.

Mike, this is Ken. I want to point out something that may not have been made clear. We are strategically focused on acquiring a significant number of new clients. There are several reasons for this. First, we are not satisfied with our diversification across the various verticals we serve and believe we need more business in each area. While many others aren't winning new clients, we are making progress. Our concern, which relates to revenue, is that several of our existing clients are not providing the growth they typically have in the past. This emphasizes our focus on acquiring new clients across different verticals, including those less affected by macroeconomic trends. I want to highlight that while our existing clients remain stable, they are not experiencing the same momentum, particularly as we approach their seasonal push in the fourth quarter. As a result, we've decided to aggressively pursue new clients. I'm pleased to report that we have won new clients; however, it usually takes between 12 to 18 months to fully ramp these clients up. Some have just launched in the past two weeks, so we expect to see the benefits from these new clients in future quarters.

Our next question comes from the line of Joe Vafi of Canaccord.

This is Pallav Saini on for Joe. First, can you give us an update on what you're seeing on the vendor consolidation front? Is it still playing out the way you expected? Or is it not much of a factor going forward, do you think?

I assume your question is really more related to the Engage business. Vendor consolidation, is that what you were asking about?

Yes.

Sure. I would say a couple of things. Some of our competitive wins have stemmed from situations where companies are consolidating their vendor networks and exploring new partnerships, based on their needs for quality and delivery capabilities. We are seeing this happen. On the flip side, we also have clients where work is being handled in-house, creating new opportunities for us. It’s important to highlight the dozen new enterprise clients we've gained. We emphasize these clients because we believe they have the potential to scale and become part of our top 20, with just one exception. All of them are utilizing our new offshore capabilities.

Got it. And on the softness in the healthcare vertical this year, is there any way these headwinds could persist next year as well? Or are you very confident in this being largely limited to this year?

This is Ken. So as it relates to the payer market, all I can simply say is the following. It's common knowledge that all the healthcare payers are experiencing increased claims due to post-COVID. And those, as you can imagine, there was a two-year period where people didn't actually go to the hospital, didn't get cancer treatment, etc. Consequently, when they did ultimately go, their situation was more extreme, and therefore, the claims have come in at much higher rates, etc. Consequently, the entire healthcare industry right now is very budget-constrained and is very focused on getting through this, what I'd call this claim cycle, so to speak. Additionally, there's been some changes in reimbursements from the federal government, and I think that's another challenge that they're facing. I'm very confident that they'll work through this. These are some of the largest companies in the world, and they are extremely well run. And I think that this is just a temporary measure on their behalf. But obviously, I can't speak for the whole industry, other than to just simply say that I think this is a moment in time. We've been doing business in this sector now for over 20 years. This is the first time that we've ever experienced anything to this extent with this particular vertical.

Our next question comes from Cassie Chan of Bank of America.

I just wanted to follow up on that question. So I guess, just to be really clear, what's causing the incremental decline relative to like three months ago when you gave the full-year guidance? It sounds like it's healthcare, public sector as well, continues to have some delays, financial services. I guess, collectively, how much are you expecting those verticals to decline in 2024? And on the flip side, are there any verticals that you're expecting to grow maybe a little faster or in line as expected?

Yes. Well, for your first question, Cassie, the change in our guidance was based on the two factors that we talked about: healthcare and the public sector clients that we mentioned. So yes, that's exactly what we're saying in terms of what's changed since our last earnings call. With regards to areas that we see growth coming. Again, it's these new clients that we're adding across verticals, a couple of financial services, as I mentioned; a new win in healthcare and a couple of new clients in e-commerce in retail; one in media; and a number of opportunities that we have in our pipeline right now for those verticals as well as the tech vertical. And so that's where we're going to continue to focus is with bringing on new clients in these areas that we think can grow. And then secondly, of course, we're also expanding with our embedded base clients. Two of our largest financial services clients, we just recently signed new work, new lines of business, as we like to say, new work types with those clients, and those will be launching at the later part of this year.

Okay, that's helpful. And I guess as a follow-up. So it looks like you're cutting your full-year EPS guidance a lot more than your revenue and margin guide. Can you just talk about some of the factors there in your ability to protect the bottom line of top-line softness and some of the incremental actions that you're taking? Because you guys have continuously been doing cost optimization actions and initiatives. So just anything incremental that you're taking there would be helpful.

Cassie, this is Kenny. The additional steps we took earlier this year after the fourth quarter of 2023 are significant. Shelly and I highlighted these in our earlier comments. By analyzing our margins, operational efficiency, and global delivery operations, we identified the measures implemented at the end of the second quarter through the third quarter. These actions resulted in $10 million in savings for this year, with an ongoing savings rate of over $30 million for next year. We're building leverage in the Engage business to restore appropriate ratios and optimal operating structure. As we've expanded geographically over the last two years, we are working to optimize our footprint, particularly with the new business opportunities Shelly mentioned. Nearly all of our enterprise clients are now in our offshore locations, and it takes a few cycles to align revenue with expenses as we continue to grow. While it's a nice challenge to have with our expansion, we are dedicated to optimizing these areas as the year progresses, which is why we're seeing positive leverage and margin improvements on the bottom line.

And we'll continue to have a lot of focus on just tightening up operations across the board. Client program by client program, obviously, stay focused on good quality delivery for our clients. And I mentioned that we've brought on a few new leaders recently in various parts of our business that we are really confident are going to help accelerate our efforts.

Our next question comes from Vincent Colicchio of Barrington Research.

Yes. I'm curious, Shelly, have the exits of underperforming client programs been largely addressed, or should we expect to see more of that in the second half of the year?

Largely played out. There were a few specific client situations where their needs and what they wanted from our services, as well as what they were willing to pay, did not align with what we could provide. Collectively, we decided that it wasn't a match. Those programs will conclude over the second half of the year. Currently, our focus is on delivering excellent service for our clients, improving our operations, implementing profit improvement measures that Kenny and I have discussed, winning new business with existing clients, and onboarding new clients that we are excited about.

And could you give us a sense for your offshore investment program in '25? Will you potentially accelerate the program given the demand dynamic?

I'm sorry, could you clarify what we will expand?

Offshore next year.

Oh, absolutely. Absolutely. The scale of our offshore and geographic expansion, absolutely. One of the things that I mentioned earlier is we're going to continue to expand in the locations that we've recently entered in the last couple of years, simply for one reason. We see a lot of client demands. Right? South Africa is probably one of the biggest highlights in terms of launching some really large clients that we expect to scale there. So that's first up in terms of expansion. And again, we continue to see really good client demand for our new geographic footprint. So we're leaning into that.

Our last question is from Jonathan Lee of Guggenheim Securities.

Can you provide any incremental detail around what unfolded in the public sector over the course of the quarter?

Jonathan, can you up just a little bit? We can't hear you, sorry.

Is this any better?

That's much better. Appreciate it.

Can you provide any incremental detail around what unfolded in public sector over the course of the quarter? And what's contemplated there in your outlook for the remainder of the year?

We don't share many specific client details, but I can tell you that this is a significant public sector program. It's a multiyear contract, and we're offering several services to the client. There are also other vendors involved who are providing some technology. Unfortunately, there have been some delays beyond our control that are affecting our operations in the short term, and we're currently addressing these issues with the client. Given the current challenges, reaching a full program launch and dealing with some initial technology conversion difficulties has been impacted, but it's not something we're responsible for this year. However, I'm confident we will overcome these challenges. We anticipate that we'll achieve the program economics as initially expected by the end of the year and be in a stronger position for 2025. This issue is limited to one specific client program and does not affect our broader public sector business.

Got it. And as a follow-up, you talked about wanting to win new logos, but you've also highlighted the competitive pricing environment. How are you looking to protect contract profitability there? And can you help us unpack the margin dynamics with new clients, especially as those relationships mature?

We're clearly experiencing competitive wins, and we're taking advantage of our expanded offshore footprint. I'm optimistic about the work we will provide for these clients, and the margin profile positively contributes to our core business. We're achieving success and are excited about the value these clients will bring to us. These wins span multiple industries, not just one client type, and involve large enterprises that we believe could become some of our top clients in the years ahead.

Yes, as I mentioned in previous calls, many clients are rebalancing their business. In some cases, this isn't out of dissatisfaction; it's a result of the consolidation that has occurred. They prefer not to rely on just one or two partners for everything. Initially, they may have worked with several partners but have narrowed it down through consolidation. Now, they are seeking additional reliable partners to help them maintain a balanced portfolio. I believe there is still a significant amount of business available for everyone. Despite the competitive environment, we are focusing on specific types of business, deliberately avoiding others that we believe competitors might handle better. The total addressable market is quite large, allowing us to be targeted in pursuing the kinds of business we know we can excel in and consistently maintain our position as the leading provider in the partner network.

Thank you for the questions. That is all the time we have today. This concludes TTEC's second quarter 2024 earnings conference call. You may disconnect at this time.