TTEC Holdings Inc (TTEC) 2017 Q1 法說會逐字稿

Welcome to the TeleTech's First Quarter 2017 Earnings Conference Call. (Operator Instructions) This call is being recorded at the request of TeleTech. I would now like to turn the call over to Paul Miller, TeleTech's Senior Vice President, Treasurer and Head of Investor Relations. Thank you, sir. You may begin.

Good morning, and thank you for joining us today. TeleTech is hosting this call to discuss its first quarter financial results for the period ended March 31, 2017. Participating on today's call are Ken Tuchman, our Chairman and Chief Executive Officer; and Regina Paolillo, our Chief Financial and Administrative Officer. Yesterday, TeleTech issued a press release announcing its financial results. While this call will reflect items discussed within those documents, we encourage our listeners to read on quarter report on Form 10-K -- 10-Q ended March 31, 2017.

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 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. Such factors include, but are not limited to reliance on several large clients, the risks associated with lower profitability from or the loss of one or more significant clients, execution risks associated with ramping new business or integrating acquired businesses, the possibility of asset impairments and/or restructuring charges and the potential impact to the financial results due to foreign exchange rate fluctuations and legislative developments in the United States or other countries where we do business. For a more detailed description of our risk factors, please review our annual report on Form 10-K. 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 Tuchman, TeleTech's Chairman and Chief Executive Officer.

Thank you, Paul, and good morning everyone. We're off to a strong start for the year, and I'm excited to update you on several topics this morning. As you see from our first quarter results, the sales execution and the profit enhancement strategies we implemented in 2016 are paying off and have laid a solid foundation for 2017. Momentum is evident in our first quarter year-over-year results. Revenue and profitability are up. Bookings are up, and reflect a solid mix of offerings from across our segments. Earnings per share are up, operating and free cash flow are up. Growth within our embedded base is strong, with several clients adding new services for multiple segments. We are attracting new customer-centric companies, who are choosing TeleTech specifically for our end-to-end Customer Engagement as a Service offering.

Shortly, Regina will review our first quarter 2017 financial results and improved outlook for the year. But first, allow me to share some highlights.

Last month, we completed the strategic acquisition of healthcare services company, Connextions from OptumHealth. This acquisition further enhances the diversity of our health care payer, provider and life sciences client base. In addition, it expands the breadth and depth of our core members' service capabilities, into health and wellness management. Telehealth support, financial member services and expands our back-office competencies. It also enhances our technology portfolio with bConnected, a robust proprietary engagement platform currently in use by several connection clients, and it provides a multitude of long term contracts that will be additive to our revenue backlog.

This acquisition offers us abundant growth opportunities. Consumerism and health care is raising the member expectations, and it is no secret that the industry must respond with accelerated innovation and customer focus. Payers, providers and life sciences companies need ways to quickly digitize and modernize their member interactions. We have over a decade of experience navigating this complicated landscape, and have created leading edge solutions specifically for health care. This acquisition continues to strengthen our ability to make a meaningful impact in our client business and their customers' lives. I want to welcome the Connextions clients and employees to the TeleTech family, and look forward to sharing our progress in the quarters to come.

Companies in every industry are realizing that the quality of services they deliver is as important to driving growth as the products they manufacture. In many industries, as products have become commoditized, services have become the only way to differentiate. Channel proliferation, automation and the cloud are all accelerating the shift within the services economy.

In this connected always-on world, consumers today demand individualized experiences that are frictionless and seamless within and across channels, whether they are person-to-person, digital or fully automated. Each step on their journey must be choreographed to be consistent, contextualized and captivating. It is no longer enough to deliver what a customer wants; brands are being challenged to anticipate what a customer expects. Across every interaction channel in every phase of the customer journey, this is where our value stands out.

Clients are seeking a customer experience partner, who can create, deliver and continuously improve experiences. They need a partner who can mitigate risk through their operational excellence, while also providing innovative capabilities today with a bridge to the future. They're searching for far more than a vendor to implement orders. They need a trusted brand ambassador who will delight customers across any channel, anytime and at any scale.

As demand is accelerating and the number of customer touch points increases, the need for support is multiplying, and companies are struggling to keep up. According to a recent Economist study, 80% of companies reported a dramatic spike and request for service in existing and new channels. With the right strategies, processes and insight, these companies can turn many of these interactions into growth opportunities, but they need help getting there. With our end-to-end Customer Engagement as a Service offering, we're operating at the epicenter of this shift. Our insight-driven consulting, technology and operations deliver seamless experiences within and across channels. Built on a unified delivery methodology, we're helping clients consistently increase revenue, reduce cost and build lasting customer loyalty.

Today, when we engage with clients, we're less focused on labor augmentation alone. We're more interested in providing clients with everything it takes to enable a positive outcome. Allow me to share a few examples of new client wins from this quarter that illustrates the impact of our holistic approach. A Fortune 10 life sciences company is combining our strategic consulting, technology solutions and care services to deliver a frictionless experience to hospitals, clinics and patients who use their diagnostic machines. To simplify service experience for their sophisticated equipment, we're building a robust customer database and set of knowledge tools to enable real-time support from our professional associates.

The second example is from the increasingly commoditized travel industry. This leading auto rental company chose TeleTech because of our unique ability to link real-time predictive modeling to sales activities in the B2B marketplace. By combining predictive insights from over 20,000 data sources, with the sales acumen of our specially trained associates, we are helping this client find and acquire customers in targeted segments, faster and at a lower cost than ever before.

While we have successfully seeded the market with many examples like these, we remain focused on refining our value proposition, so that this more clearly demonstrates the transformational power of our offerings. We are simplifying our positioning to make it easier for the market and our clients to understand the depth and breadth of our capabilities. With our new Chief Strategy and Marketing Officer, Kyle Priest onboard, we look forward to reviewing exciting developments in our go-to-market platform over the next few months.

More than ever, the companies that win, will be the ones that create the most authentic, relevant and seamless experiences across every channel. With our Customer Engagement as a Service offering, we're enabling our clients to tap into a flexible, scalable model that adapts and responds to their needs. Our model limits risk, accelerates innovation, lowers costs and delivers repeatable and valuable outcomes for our clients, their customers and our shareholders.

As we head into the second quarter, we're confident in our strategy to grow our top line and increase our operating margin. Moving forward, we will continue to strengthen our sales, focused by increasing sell-through of our full set of offerings to our embedded client base of predominantly large iconic brands. Seek out new clients that are committed to driving growth through customer experience differentiation, fine-tune our profit enhancement programs to further improve our bottom line, and continue to consistently drive shareholder value across our business through our semiannual dividend, stock repurchases and targeted acquisition.

For 35 years, we've operated on the premise that everybody deserves experiences that reflect the best of humanity. Our approach balances the efficiency of automation with the empathy and compassion of the human touch. This enables us to deliver experiences across every channel and phase of the customer life cycle that is simple, personal and empowering. On behalf of our 48,000 employees around the world, we thank you for your continued contribution and support. And I'll now turn the call over to Regina.

Thank you, Ken, and good morning, everyone. There are 3 primary topics that I'll address in my comments this morning: highlights of our first quarter 2017 financial performance, additional insight into the acquisition of Connextions, inclusive of our integration and restructuring plan, and last I'll provide updated 2017 guidance.

As Ken noted, the year is off to a strong start. Further, we're experiencing positive trends in our financial performance and forward guidance. We're reaping the benefits of the restructure activities we executed in the second half of 2016, as well as continued optimization activities related to the utilization of our technology, facilities, talent and corporate overhead.

The acquisition of Connextions in early April on the back of the Atelka acquisition in late 2016, are enabling our strategic goals related to verticals, geographic and solution diversification. And importantly adding scale that will continue this trend of improved utilization.

Turning to the first quarter 2017. I'll first summarize the financial results on a GAAP basis before focusing on the non-GAAP results, which excludes restructure and impairment charges and the assets we are exiting, which we discussed in our last quarterly earnings. A reconciliation of our GAAP to non-GAAP numbers, excluding restructuring and impairment charges and assets we're exiting, is included at the last page of the tables attached to our press release.

On a GAAP basis, first quarter 2017 revenue is $338.3 million versus $312.4 million in the same period last year, an 8.3% increase. The Atelka acquisition contributed $17.7 million of revenue or 5.7 percentage points of growth. Our operating income was $26.5 million in the first quarter, with 7.8% of revenue compared to $17.8 million or 5.7% in the prior-year period. EPS was $0.42 versus $0.23 in the prior year. Year-over-year first quarter 2017 revenue grew 8.3%. Operating income grew 49.2%, and EPS grew 82.6%.

New business signings in the first quarter of 2017 were $101 million compared to $100 million in the prior year quarter. Our bookings were diversified across industries, geographies and segments with 56% coming from our customer strategy, technology and growth businesses. We added 8 new client relationships in the quarter.

Our reported tax provision in the first quarter 2017 were 21.1%, down from 27.6% in the prior year quarter, which had included a tax provision adjustment in our Middle East operation. Our normalized tax rate was 21.3%. Capacity utilization was 78% in the first quarter of 2017, representing a 500 basis point improvement year-over-year.

We ended the first quarter with $66.5 million in cash and $197.6 million in total debt, resulting in a net debt position of $131.1 million. The $43 million reduction in net debt from the end of 2016 is primarily attributable to improved profitability and cash flow from operations, inclusive of better working capital management. Our DSO was 75 days in the first quarter of 2017, down from 83 days in the same period last year.

Capital expenditures were $12 million in the first quarter, down from $14.9 million in the prior year. The majority of CapEx continues to be growth-oriented with investments in our CMS footprint, CTS cloud infrastructure and other corporate, IT and R&D initiatives. In the first quarter, we repurchased more than 386,000 shares of common stock for cost of $11.7 million. We ended the quarter with $33.2 million of authorized repurchase funds.

Regarding our semiannual dividend, the Board of Directors approved a $0.22 dividend per share in the first quarter or $10.1 million, which is paid on April 14, 2017 to shareholders of record on March 31. The dividend represented an 18.9% increase over the April distribution in 2016.

On a non-GAAP basis, first quarter 2017 revenue increased 8.7% to $330.7 million over the same period last year. Our operating income was $26.8 million in the first quarter or 8.1% of revenue compared to $20.4 million or 6.7% in the prior year period. Excluding Atelka, organic revenue growth was 2.9%. Year-over-year foreign exchange was a $1 million benefit to revenue and a $4.1 million benefit to operating income, with the majority of the impact affecting the CMS segment. Operating cost efficiencies and lower depreciation and amortization also added to the bottom line performance improvement.

On a consolidated basis, assets we are exiting contributed $7.5 million in revenue, a loss of $107,000 in the first quarter 2017, which again are removed from our non-GAAP results.

Turning now to our segments' first quarter 2017 results. CMS' non-GAAP revenue grew 10.6% to 2.8% organic. Operating income was 8.2% of revenue versus 6.9% in the prior-year period. Foreign-exchange provided a tailwind of $959,000 on revenue, and $3.9 million on operating income. While geographic revenue mix and Atelka related integration activities negatively weighed on the operating margin in the quarter, they were offset by higher site capacity utilization, lower depreciation and amortization and streamlined operating efficiencies.

CGS' non-GAAP revenue increased 1.6%, in line with our expectations primarily given the loss of a large clients last year. CGS' operating income margin improved by 370 basis points year-over-year to 8.1% of revenue in the first quarter of 2017. In line with our plans, we continued to improve pricing and focus on those verticals, markets and solutions with the greatest opportunity for CGS growth and profitability.

CGS' non-GAAP revenue in the first quarter 2017 increased 3.9% over the prior-year period, while the operating income margin declined 190 basis points to 8.8% of revenue. The margin pressure was primarily related to the revenue mix with an increased percentage of lower-margin product sales in the quarter. We remain on plan for the year, including further growth in our recurring revenue-based managed services and cloud solutions.

CSS' non-GAAP revenue increased 4.9% in the first quarter 2017, primarily from our content and collaboration, service optimization and insight practice areas. CSS's operating income margin increased 490 basis points year-over-year to 5.2% of revenue.

Before I provide our updated guidance, I'll highlight the impact, the Connextions acquisition will have on our 2017 results. The acquisition delivers a logical extension of our long-standing client relationship with OptumHealth and UHC, but also strengthens and grows our client base and other health care payers and providers, extends our health care solution capabilities, introduces new proprietary technology, and accelerates our scale. We estimate the Connextions acquisition to add approximately $85 million in revenue, and a 10- to 20-basis point improvement in our non-GAAP operating income results in 2017. To achieve these results and in-line with the acquisition plan, we will restructure the business to achieve best-in-class performance and financial results. As a result and as negotiated in the purchase price, we will incur $15 million to $16 million in restructure and transition charges in the second and third quarters, and we'll invest approximately $10 million of CapEx.

Taking into consideration the cumulative funds deployed, including the purchase price, the restructure and capital expenditures, we expect this acquisition to be a premium to our historical 25% adjusted return on invested capital. We estimate the acquisition will add $130 million of annualized rate revenue -- annualized run-rate revenue by the end of 2018, and deliver an operating margin at a premium to our current CMS operating margin.

Our 2017 updated guidance includes the in-year contribution from the Connextions acquisition and in line with our previous guidance, excludes the components of our businesses being exited. As such, we've eliminated the revenue and operating income related to the assets we are exiting from the 2017 outlook and the 2016 baseline. We're separately providing an outlook for the revenue and operating income, related to the assets we are exiting, 2016 adjusted baseline and amounts related to the assets we are exiting can be found in our February 2017 earnings script.

We estimate our 2017 guidance as follows. Revenue between $1.4 billion and $1.410 billion, a year-over-year increase of 12.7% to 13.5%. This compares to our original 2017 guidance of $1.315 billion to $1.325 billion. Operating margin in the range of 8.3% to 8.5% before impairment, restructuring and transition charges. This compares to our original 2017 guidance of 8.1% to 8.3%. Capital expenditures of 4.6% of revenue, of which approximately 70% is growth-oriented. This compares to our original 2017 guidance of 4.2%. The increase is attributable to the CapEx required to complete the Connextions transition. On a full year basis, the revenue and operating income for the assets we expect to exit are estimated to be $20 million and breakeven, respectively. We expect approximately 47% of our revenue and 41% of our operating income in the first half.

With regard to our segment guidance, with the exception of CMS, which incorporates the specific information we provided on Connextions, we expect the remaining segments to generally perform in line with our previously provided guidance as outlined in our February 2017 earnings script. We had a solid quarter, executing on a number of fronts, including our financial results, strategic initiatives and profit optimization. We expect the progress we've realized in the first quarter to continue. The momentum we are experiencing is driven by a combination of our global, diverse customer experience asset base, in ready market and our prioritized focus.

TeleTech's transformation to provide integrated outcome-based offerings across customer strategy, technology, growth and care services could not be better positioned to deliver upon our clients' customer experience goals, and accelerate our market share. I'll now turn the call back to Paul.

Thanks, Regina. (Operator Instructions) Operator, you may now open the line.

(Operator Instructions) The first question comes from Mike Malouf of Craig-Hallum Capital Group.

Ken, I'm wondering if you could talk a little bit about the sales cycle. I know that on the last quarter you talked actually, that the sales cycle was, I think you used the term, "compression", which was actually quite positively surprising. So I was wondering if you could give a little bit of commentary on that.

Yes. I think the word I used was that it's compressing, which is a positive thing, not a negative thing in that historically, over the last multiple decades, we were typically seeing a sales cycle of 9 to up to 18 months on deals. And what we're seeing is a much higher sense of urgency, and we're seeing deals get done in as little as -- some deals are getting done as little as 90 days, and other deals are probably taking more in the 6 to 9 months range. And so overall, we're seeing that there is a demand across the industry. People are looking for broad changes in their business. I think that the sense of urgency is clearly being caused by the upheaval that digitization is causing to their marketplace, and the fact that they are now acknowledging that having brand differentiation through how they're delivering services has now become paramount. And so I think that we're, right now, our big issue to be very frank, is we feel very good about the marketplace and about our opportunity. And now it's about us continuing to hire and add more people that can actually get in front of the various different global opportunities.

Great. And then sort of seguing into the last comment. How, especially given the unemployment rate continues to dip lower, how are the wage pressures out there that you're seeing here in the U.S.? And then maybe, a commentary in Brazil would be helpful as well?

Well, I mean, I think the wage pressures are real, and it's something that we have been talking about, with our clients for the last, frankly, 2 years as unemployment continues to drop. The bottom line, though, is that we have always been very focused on educating our clients, on how critical it is to focus on keeping employees engaged and for them to try to mitigate attrition. And so consequently, what I would say is that a high percentage of our clients, either because of the cost of living, COLA increase in their contracts, we're able to pass through wage increases. And in cases where there are not COLAs that are in the contract, we are having ongoing dialogue and continuing to show clients the benefit of us being able to keep up with the wage in that particular market that we are -- that we're in. So what I would say to you, is again, wages are real, wage pressure is real. By the way, really just at the front line, I actually -- what I tell people all the time is that, I think we're going to start to see that middle and upper management, wages are actually pretty stable. And now what's happening is the front line is seeing, that the -- is seeing the pressure due to the fact that, a, where the economy is, b, just where unemployment is, and c, with some of the minimum wage laws that have been changed in various different cities as well as states, et cetera. So I think we feel very confident that our clients really understand the need for us to be providing a competitive wage. And we've been very upfront and even in our scripts and transparent in telling everybody that we are going out of our way to seek clients that truly either are already an iconic brand and want to maintain that status, or they want to strive to be an iconic brand and they want the highest possible Net Promoter Score. And they're not going to get that by us hiring people that have to make a decision between us or Burger King. They're going to get that from us being able to provide a competitive wage. And so we think that we're providing a higher end capability, and that capability maybe costs a bit more on what we actually have to pay the people, but we think we're delivering overall far better value, and we think our clients understand that.

I'll just add that I think it also provides an opportunity to open up a conversation with our clients for investment in technology, digitization, ability to kind of do work anywhere, anyplace, relegate transactions that are voice today to a digital platform. And given we've got these 3 other businesses, we're well positioned to be able to play in those activities with our clients to maintain the price or improve the price, but cover the wage increase burden.

And we actually have multiple projects going on right now, where clients have asked us if we could intercede with technology to offset -- to us with some of the increase in cost. And so, as far as we're concerned, we're just as happy, the revenue is every bit is good. And obviously, when it comes from some of the other segments, it has a potential for more profitability. And then I guess the last point -- I'm sorry that I'm waxing on so much about this, is that many of our contracts we're starting to add variable performance clauses, and so that also benefits us as well, where we're actually getting paid for the increase in performance.

The next question comes from Frank Atkins of SunTrust.

I wanted to ask a little bit about the CTS segment, nice sequential performance there. Can you talk about areas of strength and growth you're seeing in the CTS segment?

Yes. Well, for sure we're seeing most of the interest and activity in our cloud area, where people are moving from premise-based capabilities to cloud-based capabilities, so that's one area where clients are very interested. And then secondly, they're very focused on everything that can be connected to that cloud-based solution. So everything from CRM solutions to analytical solutions to voice analytics solutions, just a myriad of capabilities to then bringing in and introducing omnichannel. So everything from click to talk, to chat, to proactive chat, to video, live video with a customer service professional or sales professional, et cetera. So that's really where the focus of the practice is and is going, and we're actually very excited about the potential as more and more customers are realizing the benefits of our cloud-based solution.

Okay, great. And as my follow-up, I wanted to ask, can we expect any additional cost to get around the acquisition of Connextions or integration for that? And then can you talk a little bit about the strategic and cultural fit, with the rest of the firm?

Yes. So I would, as in my prepared remarks, I want to make it very clear that we acquired the business on April 3, so we will be accounting for it in the second quarter. We will -- I don't expect any costs outside of the $15 million to $16 million of restructure and transition charges that I outlined and that includes really, our guidance on CMS includes, any at all integration costs related to this acquisition. From a cultural point of view, I'll let Ken go first.

Well, I would say, of any acquisition we could do, this is probably one of the best cultural fits ever. And the reason for that is several of -- we have multiple executives as well as folks in the management ranks that multiple years ago, worked at Connextions. So Marty DeGhetto came from Connextions as well as several other people, so that's one point. The second point is that we've enjoyed a relationship with UHG and their respective companies that spans well over 15 years. So there's a good cultural fit from our client standpoint as far as who we acquired the business from. And then lastly, we made a decision about 3 to 4 years ago, that health care was going to be an area that we were really going to lean into and pivot. And so it's an area that we've been very focused on, and always wanting to continue to expand. And so we think that this helps us with our overall health care platform, and I think that will become very obvious as the quarters come. And just so that the folks listening to this call are aware, I mean, we are truly honored to be doing business with UHG. They're the sixth largest company in the United States, and they're the 16th largest company in the world. I think that when you look at a company that has revenues that are $180 billion, and growing very rapidly, and when a high percentage of their expense is in the administrative area, we think that we can provide a lot of valuable services to that organization. And then the clients that have come along with the business are just -- they're all stellar. Let's just say, in the Fortune 100 range, and with long-term relationships and taking advantage of technology. So it's not just simply us providing the services, but we're also providing the technology as a service as well and hosting it.

The next question comes from Joan Tong of Sidoti.

Can you just talk about your exposure in health care? How much of your revenue right now is from that particular vertical? And Ken, you obviously are very optimistic about the long-term view for that industry, but can you just talk about some of the near-term operating environment dynamics as well?

No. I guess what I'd say is, we haven't disclosed each of these verticals as a percentage of our revenue. I will say that with the acquisition of Connextions, and after a number of years of refocusing on health care, it will be right away, our third largest vertical, right behind Com Media and financial services. And we would expect that over the next year, the opportunities we have there, with the clients, the diversified solutions and the diversified footprint in providers, that could very well get to, position 2 over the next 12 to 15 months.

And then maybe, you guys can talk a little bit about the pipeline. And Ken, you mentioned about the compressing of the sales cycle. Are you referring to the, just the EMS (sic) [CMS] business, or it's across the board to these higher growth areas, the CTS, CGS and CSS? And also, can you talk a little bit about the pipeline? And you also mentioned about hiring of people, just some color there would be helpful.

It's definitely across the board that we're seeing this. And I would expect anybody, by the way, that is in the business of helping companies with experienced engagement in growth services to be seeing similar types of sense of urgency. I don't think, it's necessarily just unique to us. I think there's a huge shift of people looking to do wholesale, automation, refits for changeovers and modernization. I think that's happening across the globe, because so much has happened with technology and there's been so much change in just the last, frankly, 24 months. I think that, again, as I said, this digitization and the disruption to retail is very real and we're, frankly, we're really excited by it, because when you think about it, if you go all the way back to our history, we basically started out as one of the first true direct marketing companies. That was where our roots were from and if you look at what is taking place in the digital world, it is now all of these brands, are now realizing that consumerism is here to stay, and that the world is going direct. And so we're seeing it across the automotive sector, we're seeing all these traditional sectors that've historically, either had their products represented by dealerships or represented by distributors, or represented by retailers are now realizing the need to go direct. And so it's really an interesting phenomenon. And I think a lot of that has to do with, quite frankly, the fact that you can order product and you can get it shipped to you in as little as 2 hours. And so I'm sure everyone saw yesterday that the delivery wars with Target and Walmart and Amazon, where they're all competing on who is going to give away the most free delivery, and who's going to deliver it to your home the fastest. All of that requires our type of capabilities and interface, for the logistics and the coordination. And that's why we represent those types of clients. So I don't see this trend per se slowing down. As a matter of fact, I think it's going the other direction. And thank God we're not a retailer right now. So I don't know if I'm answering your question. You had multiple facets in your question. I'm not -- I probably should have written some of them down.

You mentioned adding people, right, hiring additional people?

Yes.

Meaning?

Yes. The follow-up question, I think you answered like previous participants' questions regarding, like are you done with the restructuring going forward? You feel pretty comfortable, but you might hire additional marketing people, salespeople. Can you just give us a little bit more color, like how many you're talking about? And that would be helpful.

Go ahead, Regina.

Yes. So we have discussed the fact that as part of the restructure that we did last year, right, getting ahead of our challenges in sales and marketing, that we were going to bring in and form a new role, CMO, importantly driving the offer management. Kyle is with us today, and very quick out of the gate, working and more on that in the future as it crystalizes. But as far as that, we will be investing in folks to fill out that whole product management/solution management area. We've -- one of the other important other changes we made was to intensify our focus on the embedded base and that there, we would add client partners, a set of client partners. We had 2, we were adding 3. And I think that pretty much covers the majority. We have the typical sourcing of the business as necessary, but those are, I think, were the main points.

Yes. But I do think, I wanted to stress because I think, I know where you might be going. We are very budget-oriented and extremely, I would say that all of us are conservative and fiscally responsible. So if you're asking of the people that we're going to be added, is that going to impact our margins, or is that going to impact our forecast, I can assure you that it is all built into our forecast, that we created all the necessary runway, so that we could afford the adds that we're bringing on, and so that we can deliver on the outlook that Regina has communicated.

The next question comes from Bill Warmington of Wells Fargo.

So a question initially on the improved sales execution. The -- in looking at the bookings number, it looks like the bookings were basically flat on a year-over-year basis, and I know that, that can move around from quarter-to-quarter, so we typically look at it on a trailing 12-month basis. And it was down 6% on a year-over-year basis, and it's actually the third quarter in a row, it's been down. So the question is, when do you start to see the bookings number improve? Or is that -- am I looking at the wrong variable?

Yes. Bill, it's Ken. What I would say to you is the following. Bookings don't -- we're very conservative about what we count as a booking. Regina and her team only allows bookings when all paperwork, all contracts are signed, all MSAs, all SOWs are signed, et cetera. And so therefore, it's a timing issue. And so if a booking gets done 24 hours after the quarter closes, it gets pushed to the next quarter. So as much as we do think that the bookings metric matters, we think what matters the most is the cumulative bookings, not the individual quarter bookings. We feel very good about the pipeline, and we think that we're experiencing as of right now that our bookings in fact are growing, that our clients -- that the clients that we're bringing on in the embedded base are activating more so now, and that they're taking us up on more of our service offerings. So Regina, you wanted to say something?

Yes. The only other thing that you have to take into consideration is when you look comparatively on -- over the LTM, you're leading in that LTM on a couple of businesses that we're exiting. And so I think you have to understand, we reset the top line of the company. We have a new baseline. I have not provided the baseline for bookings, we can do that, so that you can also understand on an LTM basis that there are 3 -- there are parts of our business that are not a major focus, and just by definition, are going to be a bit of an anchor on a traditional comparison of LTM.

Of LTM, yes.

So on the topic of sales, Ken, you mentioned the variable performance clauses. Are those bonus and penalty, or just bonus arrangements?

They're both, they're both. I mean, whenever you're entering into a contract where you're asking for upside performance, you have to balance the upside performance with the fact that there's the potential for not delivering, and therefore, there's penalties. But thankfully, we're not a big penalty payer. I'm not going to say that we never have to pay a penalty here or there, but it's relatively immaterial because we perform. And I realized that every provider you talk to says that they're ranked #1. What I would just simply tell you is all you have to do is call our clients, and they will tell you, we are consistently ranked their #1 top-performing provider and that's why we're not paying penalties. But again, I want to stress that clients are buying a little bit differently. When you look at who we're now interfacing with, we're moving away from the vendor manager, and we're dealing much more with the CMO, the Chief Digital Officer, the Chief Experience Officer, the head of the business unit, or in multiple cases, the CEO of these very large companies. And it's that in itself is why we think that there's -- the deals have the potential to get done faster because there's higher level people that are, shall we say, pushing away some of the bureaucracy to expedite deals that are coming in. The other thing is that when you're leading with strategy and consulting, that allows us to have deep insight as to what these companies are trying to accomplish, and it lets us look down the continuum to see other opportunities that frankly we weren't aware of prior to. And then the proof-of-concept deals that we do, when they're successful, are leading to larger deals, whether it be with embedded based customers or net new customers, and this is really all driven by our clients' need for speed to market their various different new solutions and new ways of addressing the marketplace.

Got it. And then on the Connextions business, how much does that compete with West's Health Advocate business?

(inaudible)

It seems like a fairly similar business, so that's why I'm asking.

Yes. I mean I would say there's some overlap, but I believe that the Health Advocate business in West is largely focused towards, let's say, wellness, population management, those kinds of activities. There is some of this in that, but by and large, right, we're working with payers and providers here on what I would say are a set of services we have today, which would include license agents, selling insurance as well as managing...

Member management, provider management.

Member interactions around enrollment, inquiries. This allows us, as Ken said in his comments, to extend into back-office.

Claims.

Claims, processing, telehealth. So, there is some overlap there, but I would say it's much, much broader and a smaller piece of what Health Advocate is doing.

And by the way, for the, just FYI, that particular division that you're mentioning within West is their most profitable division.

Got it. Is the revenue model for Connextions per employee per month?

It's the revenue model per month? I mean

I'm sorry, what was the question?

The headcount question?

Yes. What I'm just saying for Health Advocate, I know their revenue model is up for employee per month.

Yes. You have to ask them. I don't know how they...

I don't want to answer for them.

Thank you for your questions. That is all the time we have today. This concludes the TeleTech's First Quarter 2017 Earnings Conference Call. You may disconnect at this time.