Executive Summary / Key Takeaways

• TTEC Holdings is undergoing a strategic transformation, leveraging its deep expertise and proprietary AI-enabled solutions to become a leader in the evolving customer experience (CX) market.
• The company's two segments, TTEC Digital and TTEC Engage, are pivoting towards AI-led, outcome-based solutions, with Digital focusing on enterprise-wide transformations and Engage expanding offshore delivery and AI integration.
• Recent financial performance, particularly in Q3 2025, demonstrates improving operational efficiencies, significant net debt reduction, and a strengthened balance sheet, with a net leverage ratio of 3.46x.
• Management anticipates a return to year-over-year growth in Digital's professional and recurring managed services in 2025 and expects strong profitability improvements in Engage's Q4 2025 and the second half of 2025.
• While macroeconomic caution and the complexity of AI adoption present challenges, TTEC's differentiated technology, strategic partnerships, and consultative approach position it for long-term growth and enhanced profitability.

The CX Revolution: TTEC's Strategic Pivot to AI-Driven Transformation

TTEC Holdings, Inc., a global leader in customer experience (CX) solutions since 1982, stands at the forefront of an industry undergoing profound transformation. The company designs, builds, and operates technology-enabled customer experiences across both digital and live interaction channels, aiming to enhance customer satisfaction, loyalty, revenue, and profitability for its diverse client base. With approximately 660 clients spanning financial services, healthcare, public sector, and technology, TTEC's overarching strategy centers on diversification across clients, geographies, partners, and solutions, alongside an expanded digital CX value proposition. This strategic pivot is deeply rooted in the company's history, from its early days as a CX outsourcer to its current emphasis on integrated, AI-enhanced solutions.

The AI revolution is fundamentally reshaping the CX landscape, creating both immense opportunities and significant complexities. TTEC's leadership emphasizes that while technology mastery is foundational, the true challenges of AI lie in organizational agility, data governance, and secure cloud infrastructure. Many sophisticated brands struggle to define a clear path forward, often encountering "clumsy, inflexible and impersonal" customer experiences when attempting to integrate AI without a comprehensive strategy. TTEC's decades of frontline CX experience and fluency across all hyperscalers and CX technology platforms provide a critical differentiator, enabling it to guide clients through this intricate journey.

Competitive Landscape and Differentiated Positioning

The CX market is highly competitive, with TTEC vying against a range of players from large global service integrators (GSIs) like Accenture (ACN) to specialized CX providers such as Teleperformance, Concentrix (CNXC), and Verint Systems (VRNT). TTEC's unique market positioning stems from its singular focus on digital CX transformation, which contrasts with the broader, often less specialized, offerings of GSIs. This focused approach allows TTEC to build deeper, more collaborative partnerships with leading hyperscalers like Amazon Web Services (AWS), Cisco (CSCO), Genesys, Google (GOOGL), and Microsoft (MSFT), co-developing essential features for modern contact centers and jointly selling enterprise-wide programs.

TTEC's competitive advantage is further amplified by its extensive experience, boasting thousands of CCaaS implementations over 25 years, and a deep bench of over 1,700 full-time engineers, all with AI backgrounds. This expertise enables seamless integration with clients' complex ecosystems, often involving 85 to 200 disparate systems, a capability critical for effective AI deployment. While larger competitors may offer greater global reach or resource depth, TTEC's agility and specialized knowledge in CX orchestration and AI integration allow it to deliver more tailored, efficient, and outcome-based solutions. This differentiation is particularly evident in its ability to win business from clients dissatisfied with competitors' lack of innovation, as seen with a recent travel platform client.

Technological Edge: Powering CX with Proprietary AI and Analytics

TTEC's core technological differentiation lies in its suite of AI-enabled CX solutions and proprietary intellectual property (IP), which are central to its strategy of harmonizing automation and human interaction. The company is not merely adopting AI; it is building and deploying purpose-driven solutions across platforms to deliver tangible, quantifiable benefits for its clients and its own operations.

One notable innovation is TTEC Addi, a real-time voice-to-voice translation solution. This proprietary technology, which leverages advanced language models, was ranked #1 in a bake-off against 25 other products by a large healthcare company. This capability allows TTEC to effectively neutralize accents, making offshore talent "much more almost indigenous sounding to the country that we're serving", thereby expanding access to highly educated talent pools and opening new markets. The strategic implication for investors is enhanced operational flexibility, broader talent acquisition, and potentially higher margins by optimizing global delivery models.

Another key differentiator is TTEC's AI gateway solution, proprietary middleware designed to reduce integration time and cost by up to 75% with any legacy or modern contact center platform. This accelerates time-to-value for clients, reduces implementation risks, and enhances the overall customer experience, strengthening TTEC's position as a preferred integration partner. Furthermore, TTEC Perform, an AI-enabled performance management platform, provides personalized real-time coaching for associates. It has been deployed across numerous client programs, delivering "double-digit improvements in handle time, quality, attrition and employee engagement." These internal operational efficiencies directly translate into cost savings and improved service quality, bolstering TTEC's profitability and client retention.

The company's R&D initiatives are focused on infusing AI into every aspect of its business. This includes agent assist tools that "instantly are assisting the agent with the next best action", analytics tools providing real-time client insights, and AI integration across quality assurance, training, learning, and recruiting. The stated goal is to streamline operations, reduce delivery costs, and enhance agent capabilities, making them "smarter, to be able to make them deliver more accurate answers and to make them more efficient." These technological advancements contribute directly to TTEC's competitive moat, enabling it to offer superior, outcome-based solutions that drive higher average selling prices and better margins over the long term.

TTEC Engage: Operational Excellence and Offshore Expansion

TTEC Engage, the company's digitally enabled CX operational and managed services segment, is a cornerstone of its business. In Q3 2025, Engage generated $397.2 million in revenue, a 4.0% decrease from Q3 2024, but saw its operating income increase by 38% to $7.5 million, with the operating margin rising to 1.9% from 1.3% in the prior year. For the nine months ended September 30, 2025, revenue was $1.22 billion, a 5.6% decrease from 9M 2024, but operating income significantly improved to $33.3 million compared to a loss of $205.6 million in the prior-year period, which included a goodwill impairment.

The segment's strategy is centered on expanding its geographic delivery footprint, particularly in offshore locations, which represented 39% of total revenue in Q3 2025, up from 35% in Q3 2024. This shift is a "single biggest margin driver", with a majority of the current pipeline being offshore, including expansion in South Africa, Egypt, Eastern Europe, and Latin America. Engage has successfully added 11 new significant clients year-to-date in 2025 and 19 new large enterprise clients over the last seven quarters. The embedded client base is also accelerating, with year-to-date contracted revenues in new areas like revenue generation, tech support, and fraud mitigation exceeding 150% of last year's awards.

Engage's profitability in Q3 2025 was impacted by strategic investments in ramping key clients for Q4 seasonal healthcare volumes, expanding executive leadership, and boosting funding for innovation. However, these investments are expected to deliver "double-digit growth in our health care seasonal business year-over-year" and contribute to "more steady work and growth... into the balance of 2026." The segment has deployed AI in over 110 programs with more than 65 clients, with nearly all new client pitches incorporating core AI associate augmentation tools, demonstrating impressive frontline performance improvements.

TTEC Digital: Architecting the Future of CX Technology

TTEC Digital, the CX technology and service provider segment, is rapidly evolving to meet changing client priorities. In Q3 2025, Digital's revenue increased by 5.4% to $121.9 million compared to Q3 2024. However, operating income decreased by 35% to $4.9 million, with the operating margin declining to 4.0% from 6.5% in the prior year. This was primarily due to lower margins in its recurring business and a $15 million year-over-year increase in lower-margin one-time on-premise product resales. For the nine months ended September 30, 2025, revenue was $343.7 million, a slight 0.1% decrease from 9M 2024, but operating income increased by 32% to $22.1 million, with the operating margin rising to 6.4% from 4.9%.

The segment is actively remixing its professional and managed services, shifting from point solutions to optimizing existing environments through AI-led consulting, journey orchestration, and data and analytics services. This transition, while creating temporary revenue pressure, positions TTEC Digital for stronger long-term performance with higher gross margins and deeper client engagement. Digital signed 20 new meaningful clients in Q3 2025, expanding its portfolio by layering AI capabilities onto existing client environments. These initial engagements, though sometimes smaller than traditional CCaaS implementations, are highly strategic and often expand into multiphase programs, generating recurring managed service opportunities.

Digital's professional services revenue decreased by 4% in Q3 2025, but operating income increased by 7.6%, reflecting a 330 basis point margin improvement due to proactive resource capacity management and increased utilization. Excluding two legacy CCaaS partners, Professional Services grew by 23.3% in Q3 2025, indicating strong momentum with an expanded CX technology partner network. AI-enabled offerings driving enterprise-wide digital transformations are yielding higher margins, with operating income increasing 88% year-over-year, significantly outpacing revenue growth. The company's goal is to achieve "net positive growth" for the digital business in the second half of 2026, driven by this strategic remix.

Financial Health and Liquidity

TTEC is demonstrating a strong commitment to improving its financial health and liquidity. As of September 30, 2025, the company reported $73.5 million in cash and cash equivalents. Net debt has seen a significant year-over-year reduction of $119 million, reaching $813 million, driven by a focused effort on cash flow generation and deleveraging. The net leverage ratio stood at 3.46x at the end of Q3 2025, a notable improvement from 4.49x in the prior year.

Cash flows from operating activities for the nine months ended September 30, 2025, increased to $118.5 million, primarily due to a $171.8 million increase in net working capital and a $4.4 million increase in net cash income from operations. Free cash flow for the same period was $92.1 million, up from $94.2 million in the prior year, reflecting improved profitability and working capital management.

The company's Credit Facility was recently amended on November 5, 2025, extending its maturity date to November 23, 2027. While this Tenth Amendment provides additional liquidity and flexibility, it also includes increased pricing, a reduced facility size (from $1.2 billion to $1.05 billion, with further reductions in 2026), and more restrictive covenants. TTEC believes it has sufficient liquidity to meet its business operating requirements for the next 12 months and plans to seek alternative credit arrangements in 2026 to gain greater flexibility. Capital expenditures for 2025 are projected to be between 1.8% and 2% of revenue, with approximately 55% allocated to growth initiatives and 45% to maintenance.

Outlook and Guidance

TTEC's management maintains a cautious yet confident outlook for 2025, acknowledging the volatile global economic environment while emphasizing the company's strong positioning. For the full year 2025, TTEC anticipates GAAP revenue of $2.04 billion (midpoint), representing a 7.6% decrease year-over-year. However, adjusted EBITDA is guided to $225 million (midpoint), an 11.2% increase year-over-year, translating to an 11% EBITDA margin compared to 9.2% in 2024. Non-GAAP operating income is projected at $164 million (midpoint), a 20% increase year-over-year, or 8% of revenue, and Non-GAAP EPS is guided to $1.08 (midpoint), a 52.5% increase.

The profitability improvement in 2025 is expected to be more pronounced in the second half of the year. This is driven by ongoing profit optimization initiatives in Engage, including offshore expansion and AI integration, and the strategic remix in Digital towards higher-margin AI-led solutions. Engage's 2025 revenue is tracking towards the high end of guidance, supported by strong embedded base growth and new enterprise logos, though profitability is expected at the lower end due to negative foreign exchange impacts on non-U.S. costs. Digital is forecasted to return to year-over-year revenue growth of approximately 5% in professional and recurring managed services, offsetting a 45% decline in one-time on-premise product revenue.

Risks and Challenges

Despite the positive outlook, TTEC faces several pertinent risks. Macroeconomic uncertainty, driven by factors like trade policy fluctuations, is causing clients to adopt a cautious approach, leading to smaller initial contract sizes and potential delays in investment decisions. The complex nature of AI adoption also presents a challenge, as many clients lack the foundational readiness (e.g., modern data states, reengineered processes) to fully leverage AI, potentially leading to "disappointing returns" and "customer dissatisfaction" if poorly executed.

Foreign currency exchange rate fluctuations pose a risk to liquidity and operating results, particularly for foreign subsidiaries with local functional currencies and U.S. dollar-denominated client contracts. While hedging programs are in place, long-term weakening of non-functional currencies could impact segment margins. Additionally, the company's annual goodwill impairment assessment identified all three reporting units as being at risk for future impairment if projected operating results are not met. Client concentration also remains a factor, with one client contributing over 10% of total revenue for the nine months ended September 30, 2025.

Conclusion

TTEC Holdings is strategically positioned to capitalize on the transformative shifts within the customer experience industry, driven by the pervasive influence of artificial intelligence. The company's deep history in CX, coupled with its aggressive pivot towards AI-enabled solutions and strategic partnerships with hyperscalers, forms a compelling investment thesis. While 2024 was a transitional year marked by revenue headwinds and significant investments, TTEC's Q3 2025 results and forward guidance signal a clear path to improved profitability and financial strength. The company's differentiated technology, particularly in areas like real-time translation and AI-driven operational efficiencies, provides a strong competitive moat against both specialized CX providers and larger GSIs.

As TTEC continues to expand its offshore delivery capabilities and refine its AI-led service offerings, it is poised to drive higher margins and deeper client engagement. The anticipated return to growth in Digital's key services and the expected profitability resurgence in Engage in the latter half of 2025 underscore management's confidence in its strategic execution. Investors should recognize TTEC's commitment to deleveraging, operational discipline, and technological leadership as critical drivers for its long-term value creation in a rapidly evolving market.