TTEC Holdings, Inc. Q1 FY2025 Earnings Call

Welcome to TTEC's First Quarter 2025 Earnings Conference Call. I would like to remind all parties that you will be in a listen-only mode until the question-and-answer session. This call is being recorded at the request of TTEC. I would now like to turn the call over to Bob Belknapp, TTEC's Group Vice President, Corporate Finance. Thank you, sir. You may begin.

Good morning and thank you for joining us today. TTEC is hosting this call to discuss its first quarter results for the period ended March 31, 2025. Participating on today's call are Ken Tuchman, Chairman and Chief Executive Officer of TTEC, and Kenny Wagers, Chief Financial Officer of TTEC. Yesterday, TTEC issued a press release announcing its financial results. While this call will reflect items discussed in that document, for complete information about our financial performance, we also encourage you to read our quarterly report on Form 10-Q for the period ended on March 31, 2025. Before we begin, I want to remind you that matters discussed on today's call may include forward-looking statements related to our operating performance, financial goals, and business outlook, which are based on management's current beliefs and assumptions. Please note that these forward-looking statements reflect our opinions as of the date of this call and we undertake no obligation to update this information as a result of new developments that may occur. Forward-looking statements are subject to various risks, uncertainties, and other factors that could cause our actual results to differ materially from those expected and described today. For a more detailed description of our risk factors, please review our 2024 Annual Report on Form 10-K. Before we proceed, I would like to state that our call today will not be discussing or addressing Mr. Tuchman's non-binding proposal to take TTEC private. The Special Committee of the Board formed to evaluate that proposal issued a press release on April 1st to update interested parties on its evaluation of the proposal. We refer you to that press release as neither the company nor Mr. Tuchman will comment on the process nor will respond to any questions about it on this call. As always, we remain focused on executing against our top business priorities and serving the best interests of our stockholders and all other stakeholders. A replay of this conference call will be available on our website under the Investor Relations section. I will now turn the call over to Ken.

Good morning and thank you for joining us today. 2025 is off to a good start with our Financial Performance Succeeding Plan. In the first quarter, our revenue was $534 million, which was in the range of our forecasted plan. EBITDA was $56 million, up from $55 million in the prior year. This upside was driven by improved EBITDA margins of 10.6% versus 9.5% in the prior year. While we are pleased with our Q1 results, many of our clients are adopting a cautious approach in the current economic environment. Due to the recent uncertainty in trade policy, it is challenging for any business operating on a global scale to accurately predict the future. As a result, we are staying close to our clients and remaining agile as we look forward to stabilization. Despite the current environment, we are encouraged by our progress to date. We are gaining ground as we sign new large enterprise clients, grow our share of wallet with our embedded base, and broaden our market reach with more complex, AI-enabled solutions. Additionally, we’re strengthening our operational excellence and rigor as we continue to fortify our leadership team. As clients try to make sense of the increasingly complex CX ecosystem, our long-standing track record and command of interplay between CX technology and operation makes us the go-to partner for companies that will strive to differentiate on CX excellence. Clients are entrusting us with their CX strategy and execution because of our unparalleled technology credentials and real-world frontline experience. We have decades of domain expertise, have made significant investments in proprietary technology, have delivered thousands of complex implementations, and employ a deep bench of CX strategists and full-stack digital engineers. Our CX focus and AI focus has helped drive our deep partnerships with the hyperscalers. These dominant tech partners with their scale and massive market reach are leading the way into every aspect of multimodal AI. Today, we're co-investing and collaborating with all three hyperscalers on CX roadmaps, building proprietary AI-enabled capabilities on their platforms, and selling and implementing enterprise-wide programs together for clients across the globe. Moving on to a business update. Across both business segments, we remain focused on executing the three priorities we outlined last year. First, increase diversification across clients, geographies, partners, and solutions. Second, transform experiences for employees and clients with digital innovation. And third, strengthen our financial performance on the top and bottom line. In TTEC Engage this quarter, we made measurable improvements on all three objectives. Our solid performance is evident in the growth of new lines of business with our existing clients. In the first quarter alone, we added contracts with embedded-based clients worth over 75% of what we signed in all of last year. We are expanding our share of wallet with our clients due to our digital-first approach, our operational excellence, and ability to deliver new complex work types. For example, this quarter, we pioneered a specialized new line of business with a Fortune 50 technology client, expanded our relationship with one of the largest healthcare payers into provider and clinical services, and we added commercial license support for a Fortune 100 financial services client. Much of this new business will be delivered offshore. We are pleased with the growth in the embedded base as well as our progress continuing to sign new high-growth enterprise clients. One of our most exciting new client wins this quarter is with a fan-obsessed sports streaming service. The company chose us to help them accelerate their vision of delivering a premium experience aligned with their customer interaction preferences. In partnership with TTEC Digital, we developed an end-to-end solution that includes a digital insight hub for analytics that will unify customer data across multiple databases and deliver actionable insights into each customer's unique journey. A technology ecosystem that will deliver the optimal customer journey across channels, whether it's with self-service through Agentic AI or human-assisted service through our live voice and chat interactions, and a team of frontline associates chosen exclusively for their passion for sports and our client's brand. When live, we are confident we will see double-digit improvement in first contact resolution, self-service containment, and significantly improved customer satisfaction and employee engagement. Moving on, our progress in TTEC Engage includes meaningful profitability improvement driven by operational efficiencies, an expanded offshore footprint, and accelerated AI integration with our frontline teams. Through our AI-enabled platforms, we are beginning to see gains in time to proficiency, first contact resolution, and employee engagement and retention. Our proprietary solutions include TTEC RealSkill, Scenario Learning, TTEC Perform, Employee Engagement, and TTEC Addi, Automated Voice Translation, to name a few. Now let's move on to TTEC Digital. The CX technology market is at an inflection point. As I mentioned before, the strong entrance of the hyperscalers into the CX phase is redefining the role of CX technology from providing infrastructure to powering intelligence. The contact center is transforming into a virtual interaction hub that connects bricks and mortar and digital channels seamlessly. This convergence is creating entirely new ways to interact and build engage, profitable customer relationships. TTEC Digital operates at the core of this expanding digital ecosystem, driving our strategy beyond cloud migration and traditional contact center services. We're investing in an integrated approach that will enable us to deliver comprehensive AI-enabled, enterprise-wide digital transformation. Whether a client is going all in on end-to-end platform with hyperscalers, or wants to layer on AI technology to their existing platform, our deep relationships and knowledge of the hyperscalers CX tools puts us in a unique position to deliver outcomes that others can't. For example, this quarter we closed a significant deal with a large financial services brand that was facing end of life with their legacy natural language processing technology. With a new hyperscaler platform, we're helping our client modernize their customer experience by driving better intent recognition, more intelligent routing, and expanded self-service capabilities, while also building the foundation to enable generative AI to further personalize their customer journey. In another example, our technology agnostic positioning helped us secure a complex CX transformation deal with a multinational financial services company. Initially, the client planned to select one hyperscaler platform but ultimately chose a different one. We were by their side from the beginning, and our expertise in both of their platform options made us uniquely qualified to be their partner of choice. Our expertise and deep understanding of how to activate the AI benefits and our proven integration capabilities across the existing platforms made the decision an easy one. Although it's early in our journey with data modernization and Agentic AI, our growth with the hyperscalers and new partners provides us confidence in our direction. In many client engagements, we're starting with smaller clients at first. That will build momentum and grow over time. We're encouraged by our progress across all our newer practices and believe they will be meaningful contributors in the future. As I mentioned earlier, technology innovation is embedded in everything we do. This quarter, we are recognized for our progress bringing real-world AI solutions to market with multiple Stevie Awards for excellence in sales and service. We brought home trophies for several of our proprietary AI-enabled solutions, including TTEC Perform, our employee learning and engagement platform, TTEC Insight, our next-generation quality assurance solution, and TTEC Addi, our real-time voice-to-voice translation solution. In closing, as we look to the future, one thing is crystal clear. No matter how fast tech evolves and how many tools we stack, the customer is still human. And at the end of the day, humans want to feel heard, helped, and valued. It's our mission to ensure that every interaction reflects this fundamental truth, transforming technology into a powerful ally and creating genuine connections and meaningful experiences. When done right, CX will build loyal customers who will spend more, stay longer, and become advocates for the brands they love. With our disciplined strategies, rigorous performance standards, and pragmatic approach to innovation, we'll continue to build a high-value business for the long term. On behalf of our board of directors, management team, and employees across the globe, thank you for your continued support. I will now turn the call over to Kenny.

Thank you, Ken, and good morning. I will start with a review of our first quarter 2025 financial results before providing context into our reiterated 2025 full-year financial outlook. In my discussion of the first quarter financial results, reference to revenue is on a GAAP basis, while EBITDA, operating income, and earnings per share are on a non-GAAP adjusted basis. A full reconciliation of our GAAP to non-GAAP results is included in the tables attached to our earnings release. Turning to our first quarter consolidated financial results, although revenue declined over the prior year as expected, it exceeded our plan primarily attributable to stronger revenue retention. The adjusted EBITDA and operating income contributions and margins were in line with our expectations, reflecting improvements year-over-year and on track to our 2025 full-year guidance. On a consolidated basis for the first quarter of 2025 compared to the prior year period, revenue was $534 million compared to $577 million, a decrease of 7.4%. Adjusted EBITDA was $56 million, or 10.6% of revenue, compared to $55 million, or 9.5%. Operating income was $41 million, or 7.8% of revenue, compared to $38 million, or 6.6%, and earnings per share was $0.28 compared to $0.27. Foreign exchange had a $6 million negative impact on revenue in the first quarter over the prior year, while positively impacting operating income by $4 million, primarily in our Engage segment. Turning to our first quarter 2025 segment results. In our digital segment, first-quarter revenue was $108 million, a decrease of 3.6% over the prior year. As discussed in prior quarters, the revenue continues to be impacted by the intentional decline in the lower margin, one-time, on-premise product sales as clients migrate to cloud-based CX delivery solutions. Excluding one-time product sales, digital's revenue grew 2.8% over the prior year period. More importantly, we continue to grow our recurring managed service offerings, increasing 2.7% compared to the prior year and representing approximately 66% of digital's total first-quarter revenue compared to 62% in the same period last year. In our CX professional services offerings, revenue increased 3.1% year-over-year, partially driven by the diversification and expansion of our CX technology partner network and our deepening relationships with hyperscalers. Our digital backlog is $359 million, or 77%, of our 2025 revenue guidance at the midpoint of the range, slightly down from 80% for the same period last year. Digital's first-quarter 2025 operating income was $12 million, or 11.2% of revenue, compared to $9 million, or 8.3% in the prior year. The year-over-year improvement was due to revenue mix and improved utilization in our professional services practices. We are pleased with our digital segment's first-quarter results. We are seeing good traction in our go-to-market approach, engaging in enterprise-wide digital transformations utilizing multi-platform solutions across all our practices. However, as the market shifts from traditional contact center offerings, the mix of our legacy business and the new opportunities created is also changing. With this dynamic in mind, we are focused on efficiencies, capacity management, and redeployment of our talent to the AI market opportunity, all of which is evident in our first quarter 2025 profitability improvement. Moving on to our Engage segment, first-quarter revenue decreased 8.3% to $426 million over the prior year period. The revenue income was $29 million, or 6.9% of revenue, relatively flat compared to the prior year, but a 70 basis point improvement as a percentage of revenue. The Engage segment's first-quarter financial results were above expectations when compared to our full-year guidance, reflecting the profit optimization initiatives we put in place in the second half of 2024. The revenue decline was expected, although less impactful than planned, primarily due to higher revenue retention in the quarter. As Ken previously mentioned, Engage closed a high volume of contracts representing new lines of business with its embedded base in the first quarter. We also continue to add high-growth potential enterprise logos with three new signings during the quarter, on top of the 15 signed in 2024, all of which will be serviced offshore. The segment's diversified offshore footprint, implementation of AI-enabled solutions, and focus on operational excellence are resonating with our existing clients and continue to attract new clients. Most importantly, the foundation we laid in 2024 to focus on profit optimization is materializing in our financial results. Much of the groundwork was started in the second half of last year, and we will continue to drive efficiencies in our operational delivery, improve our operational agility, and manage cost alignment throughout 2025. The Engage backlog is $1.59 billion, or 101% of our 2025 revenue guidance at the midpoint of the range, up from 94% for the same period of 2024. The Engage last 12-month revenue retention rate is 88% compared to 94% in the prior year. Adjusted for the revenue decline related to the large financial services client discussed in prior quarters, the Engage last 12-month revenue retention rate is 93%. I will now share other first-quarter 2025 metrics before discussing our outlook. Free cash flow was a positive $16 million in the first quarter of 2025 compared to a negative $29 million in the prior year. The $45 million year-over-year increase was due to an additional $37 million provided by operating cash flow and an $8 million decrease in capital expenditures. Working capital provided $23 million of the cash flow from operations improvement compared to the prior year. Capital expenditures were $5 million, or 1%, of revenue for the first quarter of 2025 compared to $13 million, or 2.3%, for the first quarter of last year. As of March 31, 2025, cash was $85 million with $967 million of debt, primarily representing borrowings under our $1.2 billion revolving credit facility. Net debt increased year-over-year by $16 million to $881 million, but decreased by $12 million compared to the prior quarter. We ended the quarter with a net leverage ratio as defined under the credit facility of 3.79 times, continuing the downward trend from 3.99 times at the end of 2024 and 4.49 times at the end of the third quarter of 2024. Our normalized tax rate was 37.9% in the first quarter of 2025 compared to 32.7% in the prior year. The increase is primarily due to the impact of the U.S. valuation allowance recorded against the U.S. pretax losses in the second quarter of 2024. Turning to our 2025 outlook, I will now provide some context supporting our full-year financial guidance. Overall, we are pleased with our first-quarter results, and we are reiterating our 2025 full-year guidance. However, as Ken mentioned, the current global economic environment gives us a cautious outlook for the second half of the year. Both segments are well-positioned to navigate this environment, appreciating that it is difficult to predict the investment decisions of our existing clients and potential new clients as a result of their economic uncertainties and impact on their demand. This emphasizes the importance of the actions we implemented in the second half of last year. In Engage, new key talent combined with our tenured leadership provides the delivery experience necessary to operate going forward. Our focus on improving operational agility, providing digitally enabled solutions, and driving cost optimization efforts position us to better navigate the near-term uncertainty. These actions are resonating in the market as evidenced by the growth in new lines of business within our existing clients and the additional enterprise logo signed in the first quarter. In digital, the market pivot from engagements that only focus on cloud migrations or contact center technology to enterprise-wide digital transformations aligns with our strategic priorities. Digital is now executing an integrated go-to-market approach, solving clients' needs that include AI-enabled solutions, analytics, and multi-platform options across our broad base of practices. Although this market transition creates growth opportunities beyond our legacy practices, we remain focused on the balance between these opportunities and the competitive pressure on traditional contact center cloud migrations and transformation services. Please reference our commentary in the Business Outlook section of our first-quarter 2025 earnings press release to obtain our expectations for our reiterated 2025 full-year guidance at the consolidated and segment level. In closing, the actions we took in the second half of 2024 and continue to drive are evident in our first-quarter 2025 results in terms of profitability, cash flow generation, and a stronger balance sheet. Not only are these strategies critical to deliver increased profitable growth, but also to navigate this new dynamic economic environment. We remain committed to our focus on executing against our top business priorities and serving the best interest of all our stakeholders. I will now turn the call back to Bob.

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

Thank you. We will now begin the question-and-answer session. Our first question comes from George Sutton of Craig-Hallum. Your line is now open.

Thank you. Kenny mentioned that client adoption was somewhat under pressure given caution on their side. But by the same token, you are working with a lot of the hyperscalers, which are not cautious at all. So I am just curious if you could focus where the client adoption challenges are?

Good morning, George. I think it is safe to say that all clients are very excited and looking forward to taking advantage of a lot of the technologies that we are recommending to them and demonstrating to them, etc. But I think that at the same time, there is a number of factors that are causing them to, instead of jumping in with both legs, to jump in with maybe a toe or a foot. And we have been hearing this now for quite some time. Part of it is just related to how reliable, for example, is AI and therefore their ability to experiment with it and get comfortable. Part of it is them getting educated on AI and understanding the differences between deterministic AI and how safe that is, which we know is extremely safe, versus generative AI, which as we all know has some hallucination issues, etc. So there is some of that. And then there is the backdrop of that there is a bit of uncertainty about their business as to how these trade policies are going to impact them. And so, what I would say is that is causing a bit of hesitation as to what their CapEx spend is going to be, what their investment levels are going to be, etc. I think it is safe to say that the majority of clients in 2024 were going into 2025 with the expectation that this was going to be a growth year. I think it is safe to say that right now they feel very differently as to whether this is going to be a growth year. And so consequently, we are a bit of a mirror of our clients. And the good news is that we are winning plenty of share of our business, and we feel really good about how we are positioned. And it will be interesting to see whether or not, I don't want to get political, but just whether all these different trade negotiations go in the favor of our clients and that they don't have issues like delves that potentially aren't fully stocked, etc. So I hope I am answering your question.

Yes, so finally for me, this is a timely update. As our call started, it was announced that this task is being taken private by their co-founders and by Blackstone. Just curious if there would be any comments?

No, I don't have any comments. I mean, I certainly can appreciate why they might see that as an opportunity. But no, and nor do I actually have any insights. So I really don't have any ability to comment on it.

Okay, thank you.

Thank you, George.

Thank you. Our next question comes from Maggie Nolan of William Blair. Your line is now open.

Hi, thank you. It's clear that your knowledge of and your partnership with the hyperscalers will be important to your future success. Do you have an ability to differentiate there versus your peers, or do you view this as something that would be more table stakes for the industry? Where do you think it is most important for TTEC to differentiate?

That's a great question. Good morning. We believe we can differentiate ourselves in several ways. Firstly, we can confidently approach the hyperscalers, and they trust our capability. We have been in this business longer than anyone else, boasting more experience, credentials, and engineers dedicated to helping clients build customer interaction centers and seamlessly integrate with their CRM systems. Our extensive experience includes product development, enabling us to bring all these elements together effectively. Our success in fostering strong relationships with hyperscalers is genuine; they count on us for guidance in product direction and support in developing new products. Our differentiation comes from having completed thousands of CCAST implementations over the past 25 years, navigating through numerous technological advancements from TDMA to voice-over-IP, to cloud, and now entering the AI and agentic capabilities phase. We believe our experience and credentials grant us valuable relationships with hyperscalers, and we are actively co-selling alongside them. At the end of the day, hyperscalers prioritize consumption, and we are one of many companies assisting them in achieving their consumption goals. However, we feel we possess a deeper understanding and a stronger track record compared to our Engage partners. On the digital front, our unique strength lies in our exclusive focus on digital customer experience transformation, while GSIs tend to have a broader focus, which means they often lack the specific attention to detail that we provide in this area.

Thanks, Ken. As a follow-up, could you provide an update on our cost optimization efforts? You mentioned the strengthened leadership team; are they concentrating on this? Is there still more work to be done in the second half of this year, or are we primarily seeing the annualization of the efforts from the latter part of last year?

I would say that it is part of our day-to-day work in what we're doing. The answer is yes, there is more to go. And as Kenny, I believe, reiterated in his script, and this is something that we would be doing going forward, just as with me as the leader of TTEC. It's something that we feel is part of just our normal course of business. But to answer your question directly, yes, there is more to go. And so yes, we will benefit from what we've already done, and our goal is to be doing more. That said, I want to just stress, we have to counterbalance that with our investments. And so we are really doubling down in a myriad of other areas with product development, on technology, etc. So part of our cost takeout is not just for optimization of bottom line profit, but it's also to protect our future and for us to be able to really take advantage of the future that we see going forward. We are really embracing AI as our friend, and we really believe that AI is the future of our business. And therefore, you can imagine that there's a fair bit of rejiggering in that we are planning on taking advantage of AI with everything that we do internally, every single department, every single desktop, all of our front-line associates, as well as helping our clients with AI, including with areas where they're not even taking advantage of our Engage Services, and they may even be using other competitors.

Makes sense. Thank you.

Thank you.

Thank you. Our next question comes from Mike Latimore of Northland Capital Markets. Your line is now open.

Yes, hi, this is Vijay Devar from Northland Capital Markets. The first question is whether you have noticed any delays in the new deals or expansion.

We couldn't hear properly, it's cutting in and out, maybe you can answer that question because I can't hear it on my side.

Could you repeat that one time? I couldn't hear you. This is Kenny.

Yes, have you seen any delays in the new deals or expansion deals?

I think you're asking about delays in new deals. No, I would say, and I would look at Digital a little different than Engage. I would say in our digital business segment that we've got a good flow of business coming right now, as we've mentioned in prior quarters. It seems like the deal sizes are getting a little smaller than they were in prior years. But on the Engage side, other than what Ken mentioned about the macro environment, we feel very good about where our pipeline sits. We feel very good about our backlog. And we think the customers coming into 2025 are interested in the products and services that we have to offer right now. So we're very happy with the sales motion, and we're very happy with what we're seeing from our embedded base, and what we're seeing from new customers coming to TTEC.

Got it. Have you noticed any changes in April and May compared to the first quarter regarding the growth on the call?

I think, look, our outlook, I mean, we're already into Q2. And what we see coming into Q2 and through the balance of the first half of the year is more of the same. We think the trajectory of our pipelines, the trajectory of the backlog that we have, our sales motion in the market, both with Digital and Engage, we think Q2 is going to perform very similar to the way Q1 has performed for us.

That's true. Yes, thank you.

Thank you. The next question comes from Cassie Chan of Bank of America. Your line is now open.

Hey, guys, I appreciate the color on second quarter. I just wanted to just ask, I guess you guys have talked about basically, you're not really seeing any macro deterioration right now. But then you also talked about potential softness in the back half. Is it fair to say that first half trends will be a little bit stronger and maybe back half, you're now expecting some further deterioration just given more uncertainty in the macro. And the reason you didn't potentially change your guidance at this point is that you can kind of accommodate that further macro softness. Just want to make sure I understand the assumptions that are built in?

Yes, Cassie, this is Kenny. Great question. And yes, I think the way you bounced on both those rails is kind of the way we're bouncing on both the rails. We're saying, for our company and the positioning that we have in our markets with both Digital and Engage, we feel very good about our quarter, we feel very good about how we're performing in the market. But as Ken mentioned, and as Ken talked about at length in his script, the second half is more about our customers and about how our customers are being impacted by the macro and everything else that's happening with geopolitics. And so, early in the year, again, good beat for us in Q1. We'll revisit guidance at the end of Q2 to see what we look like for the full year. But we're very happy with where we're sitting as a company. And again, happy with the way the customers are reacting to the way we're providing great products and good services to them right now.

Okay, that's helpful.

I think it's well said.

Yes, that's helpful. And then I guess just a quick follow up on the margin side, I guess, where are the incremental levers that you guys can still pull to get those cost efficiencies? And can you just talk a little bit more about where your plans are in terms of offshore and near-shore operations and bookings and et cetera? Thank you.

Let me begin, and then you can finish, Kenny. It's evident that we are aggressively seeking more business offshore, which will be the primary driver for our margin growth as we work to diversify. I estimate that over 50% of our Engage signings are already dedicated to offshore business, and I believe it may be even higher. The same applies to our Digital sector, where we are quickly increasing our offshore engineering workforce. Offshore operations are definitely a priority for us. Additionally, with the advancements in AI, we are evaluating every aspect of our business to optimize costs. There are numerous emerging technologies that we are optimistic about, which should positively impact our bottom line. However, the implementation of these initiatives requires time. Currently, we are trying to find a balance between cost savings and reinvesting in the business to leverage these technologies and position ourselves for the future.

I want to highlight John Abou, our new President of Engage, who joined last year. We now have a continuous improvement mindset that we didn't have in Engage over the past couple of years. This approach is not just about cutting costs for their own sake but about optimizing our operations to deliver the products and services our customers want and need. We're already seeing positive results and leverage on the Engage side. A significant aspect of this is the diversity mentioned by Ken, which is part of our strategic approach, including exploring various lines of business and growing alongside our embedded-based clients. On the Digital side, Dave Seybold and his team are adapting to new practices and partners, moving away from legacy products towards more profitable options, which is beneficial to our margin and EBITDA. Also, we’ve made important organizational changes in Digital to enhance how we utilize our talent across multiple platforms. The focus on utilization in Digital and continuous improvement in Engage started in 2024 and will persist into 2025 and beyond, putting us in a strong position. However, I want to reiterate what Ken mentioned: we aren't just adding profits to the bottom line. We're reinvesting to develop our AI products, particularly in Engage, which will enhance our offerings for our customers.

Thank you.

Thank you. Our last question comes from Jonathan Lee of Guggenheim. Your line is now open.

Great. Thanks for taking our questions. Is there anything specific in your customer conversations that give you pause around how you feel about the demand environment, especially as you talk through the strength of your pipeline and your backlog?

I think for me, the only thing that gives me pause is that what we're seeing right now, and by the way, I've experienced this multiple times through various different cycles, is that although we are signing some really interesting contracts with very large enterprises, some Fortune 10, Fortune 25, Fortune 50, Fortune 100, etc., contract sizes, I think are starting out much smaller. Again, I've experienced this before. The good news is that when you execute well, they get larger, and in some cases, they get larger at a pretty nice clip, but that to me demonstrates that there's caution in the market. So I think that what we're seeing, both on the Digital side as well as on the Engage side, especially even on the digital side, is these companies know that they're behind and that they have no choice in order to compete to be able to start the journey of really starting to reinvent how they serve their customers. They also know that it's a heavy lift. And so in some cases, they're taking it piece by piece instead of entering into a very large transformational contract where everything is contemplated up front as to the dollars that they're going to spend, etc. And so, it doesn't concern me to be very candid with you, because to me, it's all about getting the contract, building the relationship, having the SOW, and then continuing to expand through demonstration of quality and capability. That said, would we like them to start out larger? It goes without saying. And I think that I'll be surprised if we won't experience this at least through all of second quarter and probably even into third quarter. As the dust settles, let's hope that it does on all these various different trade negotiations that are taking place. Look, it's no secret. I mean, we serve a lot of different industries, and I'm not going to mention client names, but they've all been, for the most part, very vocal that they're trying to get their groundings. Until these trade situations are settled, they're concerned that it's going to impact their business and their customers' business, whether it'd be because of higher costs or whether it'd be through inventory levels that are being depleted with no shipments coming forward. So it's been an interesting kind of decade, so to speak, when it comes to the unexpected, right? COVID was totally unexpected, and I don't think we necessarily expected the level of tariffs situation. That said, I have confidence that this is going to come to an ending in the very near future.

Appreciate the color, Ken. And just as a follow-up, as you think about the contracts that you're signing, are you seeing any evolution in like-for-like pricing? Obviously, there's impact from onshore to offshore mix shift, but is there any pressure given maybe increased competition or just client budget needs?

What I would say is that we are in a very competitive industry, and there are a few competitors who attract business primarily through pricing. However, this ultimately works in our favor, as we have lost some clients over the years to lower-cost providers, only to have them return after a year realizing that it did not meet their needs. I believe the market is rationalizing and consolidating. As larger players dominate or consolidation increases, we will likely see more rational decision-making rather than desperate pricing tactics from smaller providers. Do we encounter competitors offering prices that we decline? Absolutely, probably on a weekly, if not daily, basis. However, when you consider the combination of captive and outsourced services, it constitutes a $400 billion market, excluding the Digital side. Ultimately, there are only a limited number of players who can deliver the necessary level of process, technology, and geographic diversity, and you can count them on one hand. Therefore, we are confident that the market is rationalizing, which we view positively. I may not be providing the exact answer you’re looking for, but we intend to maintain our pricing discipline and work towards significantly increasing our profitability over the long term.

Thanks, Ken.

And that is all the time we have today. This concludes TTEC'S first quarter 2025 earnings conference call. You may disconnect at this time.