TTEC's Q3 2025 Earnings Call: Contradictions Emerge on AI Expertise and Partnerships, Vertical Growth Focus, Client Adoption and Market Caution, and Digital Revenue Strategy

Date of Call: November 7, 2025

Financials Results

• Revenue: $519M, down 1.9% YOY (from $529M)
• EPS: $0.12 per share, compared to $0.11 prior year
• Operating Margin: 5.6% of revenue, compared to 6.4% in the prior year

Guidance:

• Maintaining full-year 2025 guidance; Engage revenue tracking toward the high end of the range.
• Forecasting Engage adjusted EBITDA and operating income toward the lower end of the range due to foreign-exchange-related cost headwinds.
• Expect Q4 and second-half sequential and year-over-year EBITDA/operating income growth driven by seasonal healthcare volumes and ramped clients.
• Digital maintaining full-year guidance at the lower end while remixing toward AI-led consulting; backlogs support guidance (Engage backlog $1.66B; Digital backlog $444M).

Business Commentary:

* Revenue and Segment Performance: - TTEC Holdings reported revenue of $519 million for Q3 2025. The Engage segment revenue decreased by 4%, while the Digital segment revenue increased by 5.4%. - The Engage segment results were inline with expectations, reflecting the impact of upfront investments to support fourth-quarter ramp-ups. Digital segment revenue benefited from a $15 million year-over-year increase in product resales, despite a 7.9% decrease in recurring revenue.

Sentiment Analysis:

Overall Tone: Positive

• Management repeatedly expressed confidence in returning to historical growth and margins, citing: "we're confident that we'll deliver year-over-year growth in the fourth quarter and for the year overall," reduced net debt by $119M YOY, and investments in AI and talent positioning the company for 2026 upside.

• Profitability and Earnings: - Adjusted EBITDA was $43 million, representing 8.4% of revenue, compared to $50 million or 9.5% in the prior year. Operating income was $29 million, or 5.6% of revenue. - The decline in profitability was due to investments in ramping certain key clients and seasonal healthcare volumes, which impacted costs in the quarter.

• AI and Service Offering Evolution: - TTEC is focusing on integrating AI solutions across its business segments, seeing significant potential for AI-enabled customer experiences to drive business outcomes. - This approach includes leveraging AI for associate augmentation, lead generation, and customer support, aiming to improve efficiency and effectiveness in customer interactions.

• Healthcare Business Growth: - The healthcare segment experienced double-digit year-over-year growth with a significant ramp in fourth-quarter volumes, contributing to overall revenue. - Growth is attributed to expanding long-term recurring contracts that maintain a steady base level of employees, shifting from seasonal to sustained business models.

Q&A:

• Question from George Sutton (Craig-Hallum Capital Group LLC): Can you walk through the front-loaded Q3 investments for the healthcare seasonal ramps and what they bring long term?
  Response: Investments are to support double-digit YoY Q4 healthcare growth and to convert seasonal ramps into recurring year-round contracts, strengthening relationships and delivering ongoing revenue into 2026.

• Question from George Sutton (Craig-Hallum Capital Group LLC): Does a holistic AI approach produce positive net economics for TTEC?
  Response: Yes — pairing AI with humans enables outcome-based pricing, reduces labor costs, increases margins long-term, and drives growth in digital projects.

• Question from Margaret Nolan (William Blair & Company L.L.C.): Do you have the sales and delivery headcount and capabilities to pivot to AI consulting, and how will you balance investments?
  Response: Yes — roughly 1,700 full-time engineers and ~125 paid AI projects underway; hyperscaler partnerships and in-house capabilities support the pivot while balancing build vs. buy investments.

• Question from Margaret Nolan (William Blair & Company L.L.C.): How will you further improve free cash flow given current revenue dynamics?
  Response: Priority is debt reduction and free cash flow conversion via working-capital improvements, disciplined CapEx, and margin expansion while balancing necessary AI investments; further improvements expected via 2026 planning.

• Question from Vincent Colicchio (Barrington Research Associates, Inc.): Which Engage verticals are you most optimistic about?
  Response: High conviction in financial services/fintech, public sector, automotive (digital), travel (global growth), and retail (increased sales investment and pipeline).

• Question from Vincent Colicchio (Barrington Research Associates, Inc.): Are you seeing first-time outsourcers that expand TAM?
  Response: Yes — some clients moving from captive to outsource with meaningful upside; broader captive market (~$300B) suggests a gradual but sizable outsourcing opportunity.

• Question from Yu Lee (Guggenheim Securities, LLC): Is product resale revenue one-off and will it cause Digital revenue to sequentially decline in Q4?
  Response: Resales are one-off and hard to forecast; they occur sporadically each quarter and are not relied upon in forward forecasts, though some are teed up for Q4.

• Question from Yu Lee (Guggenheim Securities, LLC): Is there a path for Digital ex-resale to grow organically year-on-year?
  Response: Yes — the 'remix' to AI-led professional services and expanded partner network should drive Digital back to organic growth, targeted by second half 2026, dependent on pace of legacy decline.

Contradiction Point 1

AI Expertise and Investment Strategy

It involves TTEC's approach to AI capabilities, particularly the balance between building and buying AI expertise, which impacts the company's growth strategy and technological competitiveness.

With the shift to AI consulting, do you have sufficient sales and delivery personnel, and how will you balance potential investments? - Margaret Nolan (William Blair & Company L.L.C.)

2025Q3: With over 1,700 full-time engineers skilled in AI, TTEC feels confident in its AI capabilities. The company has approximately 125 AI projects underway, reflecting expertise in integrating AI with various systems. The balance between building and buying AI capabilities is ongoing. - Kenneth Tuchman(CEO)

How has managed services' revenue percentage evolved over time and what impact has it had on the business? - Margaret Marie Niesen Nolan (William Blair & Company L.L.C., Research Division)

2025Q2: What we've done is we've increased our partner network fivefold, which creates more managed service opportunities. We're expanding beyond CCaaS, integrating with AWS, Azure, Google, and other partners, offering more diverse services to clients. - Kenneth Tuchman(CEO)

Contradiction Point 2

Growth Opportunities in Verticals

It highlights differing perspectives on the growth potential of specific verticals, which affects strategic planning and market focus.

Which verticals, aside from Engage and health care, are you most optimistic about in the coming quarters? - Vincent Colicchio (Barrington Research Associates, Inc.)

2025Q3: Optimism exists in financial services, government/public sector, automotive, travel, and retail. These areas show strong prospects for revenue growth and new business opportunities. - Kenneth Tuchman(CEO)

Which Engage verticals are you most confident about for the second half? - Vincent Alexander Colicchio (Barrington Research Associates, Inc., Research Division)

2025Q2: Opportunity exists in financial services, health care, technology, travel, streaming, and media content. We're diversifying into faster-growing verticals, leveraging our expertise and partnerships for expansion. - Kenneth Tuchman(CEO) and Kenneth R. Wagers(CFO)

Contradiction Point 3

Client Adoption and Market Caution

It highlights differing perspectives on client adoption and market caution, which can impact TTEC's growth expectations and client spending.

With the shift to AI consulting, do you have sufficient sales and delivery headcount, and how will you balance investments? - Margaret Nolan (William Blair & Company L.L.C.)

2025Q3: While there's still some hesitation in the marketplace, we're quite confident that we're moving in the right direction with our strategic initiatives. - Kenneth Tuchman(CEO)

Where are the client adoption challenges due to their caution despite working with hyperscalers that aren't cautious? - George Sutton (Craig-Hallum)

2025Q1: Clients are excited but hesitant due to factors like uncertainty in AI reliability, business uncertainty from trade policies, and cautious spending. - Ken Tuchman(CEO)

Contradiction Point 4

Digital Revenue Expectations and Focus

It involves differing expectations and emphasis on the Digital segment's revenue, which impacts TTEC's growth strategy and investor expectations.

Which verticals, other than Engage and healthcare, are you most optimistic about in the coming quarters? - Vincent Colicchio (Barrington Research Associates, Inc.)

2025Q3: Third-party resale revenue is non-recurring and unpredictable. TTEC plans to continue focusing on cloud and AI offerings. - Kenneth Tuchman(CEO)

Are you disappointed that you're not raising guidance for the year? - Cassie Chan (Bank of America)

2025Q1: Digital revenue was consistent with our expectations, but given the strong backlog of new business signed in Q4, we expect growth in the second half of the year. - Kenny Wagers(CFO)

Contradiction Point 5

AI Consulting and Sales & Delivery Head Count

It involves the company's strategy and preparedness in AI consulting, which is a key growth area highlighted by the company.

With the shift to AI consulting, do you have sufficient sales and delivery staff, and how will you manage investment trade-offs? - Margaret Nolan (William Blair & Company L.L.C.)

2025Q3: We're in a situation where we have 1,700-plus full-time AI engineers, and they are at work on 250 AI projects. If you really need a lot of new hires and there is no offshore presence, it will cost you something like $30 million. - Kenneth Tuchman(CEO)

How is AI being integrated into deals, and what impact does this have on win rates and deal structures? - George Sutton (Craig-Hallum)

2024Q4: On the Digital side alone, over 150-ish projects are underway implementing AI. Over 75% of our associates now have tools that take advantage of AI. We view AI as our friend, enhancing associate experience and providing better quality service. - Kenneth Tuchman(CEO)