Executive Summary / Key Takeaways

• TTEC is executing a strategic transformation to become a leading AI-enabled Customer Experience (CX) provider, leveraging its deep operational expertise and expanding hyperscaler partnerships.
• The company demonstrated a significant profitability turnaround in Q2 2025, with Adjusted EBITDA increasing 12% year-over-year and Free Cash Flow reaching $86 million, driven by operational efficiencies and the absence of prior-year impairments.
• A strategic pivot towards offshore delivery and higher-margin digital solutions is underway, with TTEC Engage's offshore revenue growing to 37% of its total and TTEC Digital's professional and managed services forecasted to grow 5% in 2025.
• TTEC is actively deleveraging, reducing net debt by $78 million quarter-over-quarter to $804 million and improving its net leverage ratio to 3.39x, supported by strong cash flow generation and the suspension of dividends.
• Despite a cautious macroeconomic environment leading to smaller initial client commitments, TTEC's differentiated technology and diversified client wins position it for long-term growth and margin expansion, with profitability improvements expected to be more pronounced in the second half of 2025.

The AI Revolution and TTEC's Strategic Pivot

TTEC Holdings, Inc. (TTEC), founded in 1982, has evolved into a global leader in designing, building, and operating technology-enabled customer experiences. The company's journey, marked by foundational partnerships like the 1999 Percepta joint venture with Ford Motor Company (F), has consistently positioned it at the forefront of CX innovation. Today, TTEC operates through two primary segments: TTEC Digital, focused on CX technology and consulting, and TTEC Engage, providing digitally enabled CX operational and managed services.

The CX industry is currently undergoing an "AI revolution," a transformative period where clients are increasingly seeking integrated CX technology and services that extend beyond mere labor augmentation. This shift is creating both immense opportunities and complex challenges. Global consulting group Cavell projects a 10% increase in demand for contact center associates, from 15.3 million in 2025 to 16.8 million by 2028. However, Gartner predicts that by 2027, over half of businesses planning to replace customer support with automation will reconsider due to unexpected costs, organizational misalignment, and customer dissatisfaction from over-reliance on AI. TTEC's strategic response to these dynamics is multifaceted, centered on diversification across clients, geographies, partners, and solutions, driving digital innovation, and strengthening its financial performance.

TTEC's foundational strength lies in its differentiated technology and deep operational expertise, which are critical in this evolving landscape. TTEC Digital focuses on the intersection of Contact Center as a Service (CCaaS), Customer Relationship Management (CRM), Artificial Intelligence (AI), and Analytics. This segment has forged strategic partnerships with major hyperscalers including Amazon Web Services (AMZN), Cisco (CSCO), Genesys, Google (GOOGL), Microsoft (MSFT), Salesforce (CRM), ServiceNow (NOW), Nice (NICE), and Zendesk (ZEN). These collaborations enable TTEC to co-invest and build proprietary AI-enabled capabilities directly on hyperscaler platforms, offering clients comprehensive, enterprise-wide digital transformation solutions.

The company's proprietary technology offers tangible, quantifiable benefits. Its AI Gateway Solution, for instance, reduces integration time and cost by up to 75% with any legacy or modern contact center platform. This middleware provides clients with powerful AI functionality with minimal risk and cost, accelerating time to value. Internally, TTEC leverages TTEC Perform, an AI-enabled performance management platform, which has delivered double-digit improvements in handle time, quality, attrition, and employee engagement across numerous client programs. Furthermore, AI-assisted Curriculum Wizards dramatically improve the quality of client training materials, reducing unproductive time in training classes and accelerating associates' speed to proficiency. The application of AI-based accent neutralization technology strengthens the customer experience by improving communication clarity, effectively opening up new markets with highly educated talent pools. For clients seeking to test and deploy AI solutions in a low-risk environment, TTEC offers SandcastleCX, a technology innovation environment, complemented by its SurroundCX managed services methodology for continuous technology optimization. These technological differentiators are not merely features; they are TTEC's competitive moat, driving efficiency, enhancing service quality, and fostering client stickiness, which are all critical for achieving higher margins and sustainable long-term growth.

Competitive Dynamics and Market Positioning

The CX market is experiencing significant consolidation, a trend that TTEC believes will reallocate business and benefit established players. As large clients find themselves with fewer providers, they often seek to diversify, creating opportunities for TTEC to expand its footprint. TTEC differentiates itself through its deep technology and analytics expertise, decades of frontline CX experience, and thousands of successful implementations. Its singular focus on digital CX transformation sets it apart from broader General System Integrators (GSIs) who address a wider array of IT services.

While TTEC possesses strong operational and technological capabilities, a direct comparison with key publicly traded competitors like Teleperformance (TEP), Concentrix (CNXC), Verint Systems (VRNT), and NICE Ltd. (NICE) reveals areas for improvement. TTEC's TTM Gross Profit Margin of 20.66% and Operating Profit Margin of 3.38% are notably lower than those of its peers. For example, Concentrix reported a 36% GPM and 6% OPM, Verint 71% GPM and 12% OPM, and NICE 67% GPM and 20% OPM. Teleperformance, based on 2017 data, showed even higher margins at 79% GPM and 42% OPM. TTEC's TTM Net Profit Margin is currently negative at -1.20%, while its competitors are profitable. Furthermore, TTEC's Debt/Equity Ratio of 3.58 is higher than Concentrix (1.17), Verint (0.34), and NICE (0.16), indicating a more leveraged balance sheet.

However, TTEC's Price/Sales Ratio of 0.08 is significantly lower than Concentrix (0.30), Verint (1.73), and NICE (3.95), suggesting a deep discount relative to its revenue base. This valuation disparity indicates that while TTEC has faced financial headwinds, its strategic pivot and technology investments are crucial for closing the profitability gap and realizing its intrinsic value. The company's ability to demonstrate technology capabilities that competitors "talk about, but don't have anywhere near the credentials or the thousands upon thousands of implementations" provides a strong foundation for future market share gains.

Financial Performance and Operational Momentum

TTEC's recent financial performance reflects a company in transition, with a clear focus on improving profitability and strengthening its balance sheet. In the second quarter of 2025, consolidated revenue was $513.6 million, a 3.8% decrease year-over-year. Despite this revenue dip, Adjusted EBITDA saw a significant 12% year-over-year increase to $52 million, achieving a 10.1% margin, a 140 basis point improvement. Free Cash Flow surged to $86 million, compared to $35 million in the prior year period. The GAAP net loss for the quarter was $6.7 million.

The most striking aspect of the Q2 2025 results was the dramatic turnaround in operating income, which rose to $18.9 million (3.7% of revenue) from a loss of $224.4 million (42.0% of revenue) in Q2 2024. This improvement is primarily attributed to the absence of a $233.5 million goodwill impairment charge recorded in the prior year.

Segment-wise, TTEC Engage reported revenue of $400 million, a 4.3% decrease year-over-year. However, its operating margin improved to 4.6%, an increase of 110 basis points year-over-year, driven by profit optimization initiatives and lower impairment/restructuring expenses. Engage's revenue exceeded internal plans, benefiting from the expansion of existing lines of business within its embedded client base and a revenue carryforward from a large public sector program. Critically, revenue from Engage's offshore locations increased to 37% of total revenue in Q2 2025, up from 33% in Q2 2024, underscoring the success of its geographic diversification strategy.

TTEC Digital's revenue was $114 million, a 2.3% decrease year-over-year. Its operating margin saw a substantial increase to 10.0%, up 4.8% year-over-year. This was significantly boosted by a $4 million one-time IP software sale at a 100% profit margin. Even excluding this one-time event, the operating margin improved by 50 basis points. Recurring revenue for Digital declined 2.3% due to cloud migrations, reflecting the ongoing market shift from point solutions to end-to-end hyperscaler solutions.

In terms of liquidity and debt management, TTEC has made considerable progress. As of June 30, 2025, cash and cash equivalents stood at $83 million. Net debt decreased by $78 million quarter-over-quarter to $804 million, resulting in an improved net leverage ratio of 3.39x, down from 3.79x at the end of Q1 2025 and 4.49x at the end of Q3 2024. The Board's decision in November 2024 to suspend the semiannual dividend further emphasizes the company's commitment to debt reduction. TTEC is also in active discussions with its lenders to extend the term of its Credit Facility, which matures in November 2026, through at least November 2027, with management expressing confidence in closing this in Q3 2025.

Outlook and Strategic Trajectory

TTEC's outlook for 2025 reflects a cautious yet determined approach to growth and profitability. The company updated its consolidated revenue guidance for 2025 to $2.09 billion at the midpoint, representing a 5.4% decrease year-over-year. For the Engage segment, revenue guidance was increased by $50 million to $1.62 billion (midpoint), despite a projected 7.3% year-over-year decline. Approximately 45% of this increase is attributed to foreign exchange impacts. Engage's EBITDA and operating income outlook were reiterated, even with a projected 6% negative foreign exchange impact on full-year EBITDA, a testament to ongoing profit optimization efforts.

TTEC Digital's full-year guidance was reiterated, with expectations for a return to year-over-year revenue growth. Professional and managed services are forecasted to grow approximately 5%, which is crucial for offsetting a significant 45% decline in lower-margin, one-time on-premise product revenue as clients continue their migration to cloud-based CX delivery.

The company anticipates that profitability improvements will be "more pronounced in the second half" of 2025. This phasing is due to investments in higher seasonal healthcare volumes in Q3, which are expected to lead to significant year-over-year profitability growth in Q4. TTEC Digital, however, may experience a modest decline in profitability in the second half as its business mix shifts towards hyperscaler, AI, and analytics solutions. While this transition may cause short-term dips in revenue and profitability, these engagements are expected to yield higher margins in the long term. Capital expenditures for 2025 are projected to be between 1.7% and 1.9% of revenue, with 53% allocated to growth initiatives. The estimated effective tax rate for 2025 is 26.9% before discrete items.

Risks and Challenges

Despite the positive momentum, TTEC faces several pertinent risks and challenges. The macroeconomic environment remains cautious, leading clients to adopt smaller initial commitments and delay projects due to economic uncertainty and trade policies. This client hesitation is expected to persist through the second and potentially third quarters of 2025. Client concentration also remains a risk, with one automotive client contributing 10.7% of total revenue for the first half of 2025. The loss of any client generating over $100 million in annual revenue could materially impact TTEC's financial condition.

The complexity of AI implementation also presents challenges. Companies relying too heavily on AI risk failure due to unexpected costs, organizational misalignment, and customer dissatisfaction. TTEC must carefully guide clients through these complexities, addressing concerns about AI reliability and organizational readiness. Foreign currency volatility poses an ongoing risk, with a projected 6% negative impact on full-year Engage EBITDA guidance. Furthermore, TTEC's Credit Agreement includes financial covenants and operating restrictions, and failure to comply could result in a default, potentially requiring further financial adjustments. The company's goodwill, particularly in its Engage, Digital Recurring, and Digital Professional Services units, remains at risk for future impairment if projected operating results are not met.

Conclusion

TTEC is executing a strategic transformation to solidify its position as a leading AI-enabled CX technology and services innovator. The company's deep operational expertise, expanding hyperscaler partnerships, and proprietary AI solutions are central to its strategy to drive profitability and reduce debt. Recent financial results, particularly the significant profitability turnaround in Q2 2025 and consistent debt reduction, underscore the early success of these initiatives.

While TTEC currently lags some peers in profitability and leverage, its strategic pivot towards higher-margin digital solutions and offshore delivery, coupled with a deeply discounted Price/Sales valuation, presents a compelling long-term investment thesis. The company's technological differentiation, offering quantifiable benefits in efficiency and integration, provides a strong competitive moat in a consolidating market. Despite ongoing macroeconomic caution and the inherent complexities of AI adoption, TTEC's commitment to operational discipline and strategic investments positions it for sustained growth and margin expansion, with a clear path to realizing its full potential in the evolving CX landscape.