Ttec Holdings Inc (TTEC) Q2 2021 Earnings Call Transcript

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Ttec Holdings Inc (TTEC -0.73%)
Q2 2021 Earnings Call
Aug 4, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to TTEC Second Quarter 2021 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Paul Miller, TTEC's Senior Vice President, Treasurer and Investor Relations Officer. Thank you, sir. You may begin.

Paul Miller -- Senior Vice President, Treasurer and Investor Relations

Good morning and thank you for joining us today. TTEC is hosting this call to discuss its second quarter earnings results for the period ended June 30, 2021. [Speech Overlap]

Regina Paolillo -- Executive Vice President, Chief Administrative and Financial Officer

Hi. Great. I'm going to keep you on mute, and I'll speak up if I need anything from.

Paul Miller -- Senior Vice President, Treasurer and Investor Relations

[Speech Overlap] Participating in today's call are Ken Tuchman, our Chairman and Chief Executive Officer and Regina Paolillo, our Chief Financial and Administrative Officer. Yesterday, TTEC issued a press release announcing its financial results. While this call will reflect items discussed within that document for complete information about our financial performance, we also encourage you to read our second quarter 2021 Quarterly Reports on Form 10-Q. 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. For a more detailed description of our risk factors, please review our 2020 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, Chairman and Chief Executive Officer.

Kenneth Tuchman -- Chairman and Chief Executive Officer

Thanks, Paul and good morning to everyone. I'm pleased to report that we delivered record results once again this quarter. Our exclusive focus on digital customer experience design, implementation, and execution for a diverse global and iconic client base continues to propel us forward. Our results over the prior second -- over the prior year second quarter period are as follows: Revenue increased 22% to $555 million. Non-GAAP operating income increased 39% to $79 million. Adjusted EBITDA increased 35% to $96 million and non-GAAP EPS increased 49% to $1.27. Bookings for the quarter were $204 million and include 22 new clients. Many of these new deals include CRM, artificial intelligence, machine learning, and advanced data solutions that are strategic and positioned at the heart of our clients' long-term digital transformation initiatives. Our continued velocity and growing our embedded base and adding new clients has set us up for long-term growth as our clients leveraged the full breadth of our customer experience offerings.

Based on our strong first half performance and positive forward visibility, we're increasing our top and bottom line 2021 guidance. Our stellar performance continues to be driven by a coordinated team effort that spans our entire organization from frontline talent to executive leadership and I'm proud of our positive trajectory and I'm excited about the immense opportunities ahead. Customer loyalty is the new currency for growth in the CX-driven economy from the Boardroom on down. Companies are realizing that today's breakthrough results demand a redesign of their business placing customers in the center of their universe. They have acknowledged that they cannot compete and truly affect net promoter score or customer satisfaction, if they are not committed to transforming their strategy, process, technology and operations.

Clients are no longer satisfied with the incremental gains a discrete solution provides. They want change that drives an end-to-end fully connected, simple, seamless and satisfying experience. Our outcome based holistic CX platform is uniquely positioned to deliver such an experience. Our go-to-market momentum continues to accelerate with record revenue retention and bookings. We are building meaningful relationships with two types of clients who are devoted to winning the hearts, minds and wallet share of their loyal customers. The first category are digital natives. These disruptive businesses across a multitude of categories such as digitally connected home, fitness, food delivery, e-commerce, e-gaming, online travel, health tech, fintech and media streaming are increasingly depending on us to help them deepen their customer engagement. This category has grown rapidly over the past several years and now represents over $300 million in revenue to TTEC's annual -- annually and now growing at 20% per annum.

Let me share a few examples of digital native wins from this quarter. We signed a significant contract with a marquee sports wagering brand, who is leading the explosive gaming trends sweeping the country. In addition, we nearly doubled the run rate of our business with one of the largest and fastest growing door-to-door delivery services. Based on our success together, they've asked us to help them launch their customer first approach enabled by our CX technology as they expand across the globe. These widely popular high growth consumer brands represent the Fortune 500 of tomorrow. They're building their companies with a customer obsessed mindset that requires CX partner with TTEC's proven expertise and comprehensive capabilities to help power their future success.

The market force is driving our born-digital sector of the same factors driving expansion with our tenured multinational enterprise and public sector clients. TTEC is always enjoyed a leading share with these titans within the worlds of automotive manufacturing, healthcare, financial services to cite just a few. These industry bellwethers are all undergoing large scale digital CX transformation. They are rushing to untangle decades of legacy systems, dead end [Phonetic] processes and disconnected databases while facing new operating models and changing regulations and they have significant work to do. These huge organizations have an architected comprehensive CX strategy across business units, geographies and customer segments. They haven't built the data infrastructure they need to anticipate the customer needs with real-time data and they have yet to benefit from the flexibility and agility of our feature rich cloud-based solution. They lack the CX capabilities to deliver the seamless, intuitive cross channel journeys of their born-digital competitors and they're rushing to catch up.

Our scale and expertise puts us in a unique position to help these large companies during the watershed moment ushered in by the pandemic. The surge in digital demand challenge these well-known brands to modernize, virtualize and commit to plans to continuously innovate their CX environments. In many cases, after trying to digitally transform their operations themselves, they have realized that it is simply too hard to do it on their own. Increasingly, they are asking us to take a much larger share of their cash of operations including technology. For both the digital disruptors and their large scale multinational predecessors, we are infusing technology and innovation into everything we do on their behalf. We're building data rich CRM systems using AI, machine learning and automation, and implementation implementing advanced real-time analytics approaches to help our clients do more, do it faster, and do it better. When you zoom out from the specific technologies, data strategies and processes, you can begin to see the massive impact digital CX can have on the success of both scaled, well-established businesses and emerging -- as well as emerging born-digital brand -- and born-digital brands. For example, the future of fast casual dining is all about convenience, order online for easy pickup or delivery to help one of the largest fastest growing Fortune 500 fast casual restaurant chains capitalize on this trend, we built a machine learning, AI-based data lake. This system identifies customer behavior patterns and purchasing cycles, so that the brand can deliver the right message at the right time to stimulate online sales. To date, this approach has driven over 170% increase in this client's digital revenue.

My second example puts a spotlight on the importance of trust when doing business online. To protect the safety and security for guest of one of the largest global online marketplaces for lodging and vacation rentals, we built the complex detection bots that analyze and detect possible fraudulent records. Faced with daily additions to millions of records, the bot reduces processing time by over 40% and significantly improves accuracy. This ability to discern and eliminate fraudulent activity makes the experience trusted and safer for customers and builds brand value for our client. We're also using digital innovation to stay ahead of the competitive labor market. Our ability to attract, hire, train and retain quality employees enables us to drive better outcomes for our clients.

One example is our proprietary AI-based real play training solution. Using voice recognition, machine learning technology and responsive game development data visualization, TTEC real play provides a safe environment for associates to learn before they participate in live interactions with our clients customers. One client has seen this award winning technology reduce their on-boarding time by up to 50% and -- and increased speed the proficiency by almost 75%, truly game changing stuff. Through TTEC Digital, we have successfully created a global CX design, implementation, and execution powerhouse with unmatched scale, breadth and reach.

Today, we manage hundreds of thousands of CX licenses making TTEC one of the largest CX technology solution providers in the marketplace. Additionally, we currently employ thousands of -- of dedicated CX technology professionals including full stack and application developers, data scientists, and AI and automation specialists. We are viewed as the leading specialized technology partner for the top CX ecosystems in the world, highlighted by Amazon Web Services, Genesys, Cisco, Microsoft and Salesforce to name a few.

Importantly, we have been the Genesys and Microsoft Partner of the Year for several years. These credentials highlight only a fraction of our deep technology expertise and highly talented team, both of which differentiate us in a crowded competitive marketplace. We fully expect this platform to expand over the quarters to come. To take full advantage of this opportunity, we are doubling down on our investment in R&D, sales, and sales and marketing and Regina will share the details in our comments shortly.

There are several factors supporting our conviction regarding the execution of our strategic vision and goals related to our digital business. The first is our exposure to thousands of companies and billions of customer interactions provides us with unique lens for innovation and delivering meaningful outcomes. Our CX subject matter expertise across vertical industries, client specific needs and frontline execution enables us to create solutions that deliver unparalleled value and results. The next is speed. Through our Humanify Connect platform, we can launch a client's program with some of the most complicated feature rich functions in a significantly compressed timeline. In addition to speed, we have breadth and scale our agile comprehensive cloud capabilities provide both enterprise clients and fast growing digital natives, a secure flexible turnkey solution that can adapt and scale on demand, and finally our CX technology capabilities are unmatched. We have a full stack development enterprise across the entire CX ecosystem that enables rapid customization and verticalization across the most important and leading CX technology ecosystem partners worldwide.

We have been purposeful in executing our partner roadmap and creating an ecosystem to enable a framework for enterprise grade, public, hybrid and multi-cloud CX application deployments. The extension of our list of marquee channel partners continues to be a key component of our growth story. As the world becomes increasingly reliant on technology to work, study, play, communicate and collaborate, our ability to help our clients meet their customers' evolving needs and compelling ways becomes paramount. Through our Engage and Digital businesses, we are future-proofing our client CX strategy, technology and operations, and in turn, building more strategic long-term relationships with our clients. Our end-to-end customer experience as a service platform is enabling our clients to build customer loyalty by keeping customer experiences intuitive, personalized and authentic.

Our longer term strategic initiatives have not changed. We are relentless in our pursuit to increase our market share by adding differentiated CX offerings, building new channel partnerships, expanding our delivery footprint, growing our embedded client base, adding new brands, reliably executing strategic acquisitions and continuing to build and develop a best-in-class leadership team. This gives us several avenues to deliver -- avenues to leverage profitable growth and a well-capitalized balance sheet to increase shareholder value.

On behalf of our executive team and our Board of Directors, I want to personally thank each of our 58,000 team members across the globe for their hard work, unwavering positivity and passion for client service. We thank all our shareholders for your continued support and we look forward to updating you on our progress in the months ahead and Regina will now cover the key financial highlights to the quarter, as well as share our stronger growth guidance for the full year. Thank you.

Regina Paolillo -- Executive Vice President, Chief Administrative and Financial Officer

Thanks, Ken and good morning everyone. We had another exceptional quarter that exceeded our revenue and profit forecast. Our outperformance underscores the market differentiation in our tech-rich, customer experience as a service offerings. As we capitalize on a growing addressable market with favorable trends and intense need for speed, we are experiencing continued momentum across our business, including a growing revenue backlog and sales pipeline expanding margins and an improved long-term growth trajectory.

Turning to our new business signings. We had another strong quarter with $204 million in bookings. Year-to-date bookings totaled $373 million, up 20% over the prior year period. These year-to-date bookings include 42 new clients and 13 distinct bookings that combine the capability of Engage and Digital with the total annual contract value of $79 million. Year-to-date digital bookings grew 34% and Engage 22%. Every region grew with the Americas growing 24%, EMEA 40% and Asia-Pac 34%. Our intense vertical focus, including financial services, healthcare, automotive, technology, public sector and retail is paying off. These industry collectively comprise $270 million of our year-to-date bookings. Additionally, our born-digital hypergrowth sector bookings including some of the most noteworthy clients is up 180% to $81 million year-to-date. The strength of our bookings has resulted in the current 2021 revenue backlog of approximately $2.2 billion or 97% of the midpoint of our updated revenue guidance. We have a robust $1.5 billion pipeline for the second half, supporting continued strong bookings in the third and fourth quarters.

Turning to our second quarter financial results. My comments reference revenue on a non-GAAP basis and EBITDA, operating income and earnings per share 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 press release. On a consolidated basis in the second quarter of 2021, revenue increased 22.4% to $554.8 million of which 10.3% was organic. Adjusted EBITDA increased 34.9% to $95.8 million or 17.3% of revenue compared to 15.7% in the prior year. Operating income increased 38.7% to $78.6 million or 14.2% of revenue, 170 basis point improvement over the prior year. EPS increased 49% to $1.27 compared to $0.85. Foreign exchange, primarily from a weaker US dollar had a positive impact of $10.4 million on revenue primarily impacting our Engage business. FX had a negative $1 million impact on operating income.

Turning now to our second quarter segment results. Our Digital segment revenue increased 40% to $108 million in the second quarter versus the prior year quarter. The recurring revenue grew 14.4% and the professional services grew 98%. Highlights include the growth of our Amazon Connect, Genesys -- and Genesys omnichannel platforms, our Microsoft, Salesforce, LivePerson and Pega practices and our experience strategy consulting. Operating income was $17.1 million or 15.8% of revenue compared to $16 million or 20.7% in the prior year period. The margin was impacted by acquisition-related costs, investments in sales and marketing and CX professional talent to fuel continued top-line growth. With $333 million of 2021 revenue backlog and the near $700 million second half sales pipeline, we're confident in meeting our 2021 updated revenue guidance. It's important to note that our 2021 guidance has improved despite the negative impact from a change in accounting to conform Avtex' cloud-based revenue recognition to TTEC's accounting standards. This change had a slight impact on our previously forecasted 2020 top-line and a negative $8.8 million impact on each of Digital's 2021 EBITDA and operating income.

Our comments on 2021 and 2022 estimates fully incorporate this change in accounting which, fully preserves the relevant Avtex cloud revenue but extends the period over which the revenue will be recognized. Our Engage segment continued to outperform in the second quarter. Revenue grew 18.8% to $446.8 million all organic growth compared to $375.9 million in the prior year. Operating income grew 51.3% to $65 million versus $40.7 million in the prior year. Engage's operating income margin expanded 300 basis points to 13.8%. Highlights include client revenue retention on an LTM basis of 122 percentage points versus 110% in the prior year. Year-to-date revenue growth across all regions with the Americas growing 27%, EMEA 59% and Asia-Pac 20%. Significant volume increases in our financial services, healthcare, automotive technology, public sector and retail clients, which collectively grew $195 million or 35% on a year-to-date basis, continued high growth in our born-digital hypergrowth sector with $158 million in revenue to date, a 20% growth rate.

On our Engage profit margins -- Our Engage profit margins continue to expand on top-line scale, increased growth in our higher margin verticals and offerings and continued efficiency in our SG&A and asset utilization. With significant positive industry tailwinds, our $1.85 billion 2021 revenue backlog and a second half sales pipeline of approximately $800 million, we are confident in meeting our 2021 updated Engage guidance.

I'll now share a handful of other balance sheet and working capital metrics. At June 30th, 2021, cash was $174.7 million and debt for $842.5 million, of which $834 million represented borrowings under our recently upsized credit facility from $900 million to $1.2 billion. Net debt increased to $667.8 million from $231.7 million in the prior year, primarily related to the acquisition-related investments and capital distributions largely offsets by strong cash flow generation. Second quarter cash flow from operations improved to $63.1 million from $43.1 million, a 46.2% increase over the prior year. The increase is attributable to the improvement in our profitability and working capital management. DSO improved to 58 days in the second quarter of 2021, down from 71 days in the prior year period and relatively flat sequentially. Capital expenditures were $12 million or 2.2% of revenue for the second quarter 2021 compared to $15.1 million or 3.3% in the prior year. The decrease as a percentage of revenue was primarily due to our focus on the improvement in our fixed asset utilization in particular our facility and technology assets.

Our normalized tax rate was 21.4% in the second quarter 2021 versus 24.9% in the prior year. The 350 basis point reduction is primarily due to the jurisdictional mix of our revenue -- of our income. We anticipate a forward tax rate in the range of 22% to 24%. In the second quarter, we paid a semi-annual dividend in the amount of $0.43 or approximately $20 million, which was paid on April 21, 2021 to shareholders record on April 5, 2021. This dividend represents a 26.5% increase over the semi-annual dividend paid in April of 2020.

Turning to our outlook, our year-to-date overperformance strong revenue backlog and the underlying momentum in our business fundamentals, which Ken highlighted, provide us with visibility and confidence to increase our guidance as follows. Using the midpoint of our 2021 guidance as outlined in greater detail in our first quarter earnings press release, GAAP revenue of $2.257 billion, an increase over the prior year of 15.8%, non-GAAP adjusted EBITDA of $349.8 million, an increase of 15% over the prior year and 15.5% of revenue compared to 15.6% in the prior year. Non-GAAP operating income of $283.8 million, an increase of 17.1% over the prior year and 12.6% of revenue compared to 12.4% in the prior year. Non-GAAP earnings per share of $4.43, an increase of $0.61 or 16% or the prior year. Other relevant guidance metrics include capital expenditures between 2.9% and 3.1% of revenue. The full-year tax of -- tax rate of 22% and 24% and a diluted share count of between 47.2 and 47.6 million.

Please represent -- reference our commentary in the business outlook section to our second quarter 2021 earnings press release to obtain our expectations for the third and fourth quarter of 2021 performance. Before I close, I'd like to provide some directional context on our current view of 2022's revenue and EBITDA growth rates. My comments assume there are no material changes in the current macro economic or pandemic environment. Based on our 2021 updated revenue forecast of $2.257 billion and EBITDA forecast of $349.8 million at the midpoint of our guidance, we currently expect total company 2022 revenue growth in the range of 9% to 11% and total company 2022 EBITDA growth in the range of 10% to 12%. This includes Digital revenue growth between 18% and 22% and the Engage revenue growing between 7% and 9%. Additionally, we currently estimate Digital's 2022 EBITDA to grow between 20% and 22% and Engage's EBITDA to grow between 8% and 10%. We look forward to finalizing this guidance in conjunction with our year-end -- year-end earnings call.

In closing, our business has never been stronger. We are executing and innovating with speed and delivering tangible results for our clients, our people and our shareholders. I will now turn the call back to Paul.

Paul Miller -- Senior Vice President, Treasurer and Investor Relations

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

Questions and Answers:

Operator

Thank you, sir. [Operator Instructions] Our first question would come from Maggie Nolan of William Blair. Your line is open. Please go ahead.

Maggie Nolan -- William Blair -- Analyst

Thank you. Good to hear the strong outlook on 2022. Can you talk a little bit more about what level of visibility you have into the year 2022 at this point, and what would take you to the high end of the range of guidance that you preliminarily put out there?

Kenneth Tuchman -- Chairman and Chief Executive Officer

Hi, Maggie. It's Ken. How are you? Look, I think that we are very excited by not only the bookings that we've accomplished in the first half of the year, but also by just the pipeline that's in front of us as well as just the conversion rate of our pipeline and the percentage of deals that we're able to convert. And then lastly, the compression of the time that it takes to actually close the deal. All of that -- All that gives us strong confidence with the revenue backlog moving forward with the guidance that we've given. Regina, if you want to add to that, feel free to.

Regina Paolillo -- Executive Vice President, Chief Administrative and Financial Officer

Yeah, I think the only other thing I'd add, Maggie, is I just stressed that I think we've honed our ability to estimate our backlog and we certainly continue to grow our pipeline and have healthy conversion rate. So, I think what Ken said, absolutely but we have a fairly good progress on the backlog and kind of where we are this year in our backlog into '22 gives us some confidence to actually put those numbers out there. I think when we think about the high end, there are some other things like some of the practice areas in particular on the omnichannel component in Digital namely Cisco as we all know, right, the company, I think it's very important to remember, as you look at our growth rates this year that we did have, right, completion of a really fine government contract that was near $90 million of revenue last year and that is no longer in our numbers. But yet, we're now talking about a plus [Phonetic] 15% growth rate overall for the company and a 30 -- albeit with acquisition almost a 30% growth rate in our Digital business, but when we look at our Digital business, we're seeing just fascinating, I would say, acceleration in Microsoft and Genesys and Amazon Connect and those platforms alongside Pega and LivePerson finally coming into their own are allowing us to grow through that government contract.

So it's really about now Cisco. We do see some signs, but I would say in the digital business it's largely about the Cisco practice and that coming back to life in a meaningful way that would get us I think on the Digital high I'm not saying the low, but on the Digital high. And on the Engage side, we've seen very good progress and you can hear it from the growth rates in EMEA. We're starting to focus on Asia-Pac and I think it's -- that's the other part of the higher end of Engage is really about those regions continuing to give. I will note that you didn't hear me say it's -- the continuation of COVID work, right? We're beyond that. We're progressing as expected. Every quarter that COVID comes down more and more, but yet we're showing very strong growth.

Maggie Nolan -- William Blair -- Analyst

It's great context. Thanks. And then you've seen good performance out of your hypergrowth clients as well. Can you share with us what your expectations are for that group in the medium term and maybe talk about revenue retention and stickiness of client relationships within that group?

Kenneth Tuchman -- Chairman and Chief Executive Officer

Yeah, I mean, we have well in excess of 150 hypergrowth clients right now and we're growing that suite of clients at a very rapid rate. So we -- we feel highly confident that we're going to continue to keep adding clients in that area. But in addition to that, the stickiness is quite good for a multitude of reasons. One is they can start out small with our SCR division and they see that they can scale to virtually almost unlimited capacity with TTEC Engage and two, along their journey it's obvious that many of these companies need some digital assistance and modernizing their platforms. So they can handle the scale as they go through hypergrowth and so that also helps us out quite a bit. And then lastly, there -- I think we've demonstrated to these hypergrowth companies that we can outperform the all the smaller competitors that just simply don't have our experience, our process, and our technology.

So we feel very good about those accounts, a high percentage of more the brands that you hear about on a daily basis on CNBC and many of which are growing very rapidly, whether it be the hypergrowth ones in the healthcare space that you hear about or whether it be the hypergrowth ones in the fitness space or the hypergrowth ones in the delivery space as well as just all the direct to consumer products from beds to sheets to underwear to -- you name it. We're dealing with all those types of companies. So this is going to be an ongoing significant area for us that we're going to continue to keep expanding on a global basis and we're excited. As I mentioned in my script, we think that many of these are going to become the Fortune 500 of tomorrow and will be the future Googles and Facebooks et cetera, just based on their uniqueness and based on their growth rates that they're experiencing.

Regina Paolillo -- Executive Vice President, Chief Administrative and Financial Officer

The only thing I'd add is just remember that we have a full group with the acquisition of SCR now TTEC. We have an entire group near 3,000 people, including a full salesforce and leadership that is focused every day on this. We do on the TTEC side bring to the table logos as well, especially when they get to a certain size that I was putting this born-digital hypergrowth category, but that -- that group wakes up every morning focused on this sector. And if you look at that group in -- in year-to-date, the bookings grew 84%. I talked about the revenue, but also the group -- the bookings grew 84%. So I think when you think about that 20% growth rate within our Engage sector that's not just a one-time. We had a little bit of a pullback last year because these are smaller companies. But ultimately, that business has grown more than 20% in prior years of a smaller base. So we expect it to continue.

Maggie Nolan -- William Blair -- Analyst

Hey, thanks, Ken and Regina. Nice quarter.

Kenneth Tuchman -- Chairman and Chief Executive Officer

Thank you.

Paul Miller -- Senior Vice President, Treasurer and Investor Relations

Thank you. Our next question would come from Mike Latimore of Northland Capital Markets. Your line is open. Please go ahead.

Mike Latimore -- Northland Capital Markets. -- Analyst

All right. Thank you. Yeah, great quarter there, guys. Just wanted to touch on Avtex a little more. You've owned it for a few months now. Can you just maybe provide a little bit of an update there on go-to-market strategies, any cross-sell opportunities you're seeing? Just an update on Avtex would be great.

Kenneth Tuchman -- Chairman and Chief Executive Officer

Well so far, it's gone extremely well. I think one of the main reasons is that there is an incredible culture fit and I think that that really helps. Secondly, I think that we're capitalizing off of their Genesys and Microsoft expertise and their capitalizing off of just overall scale and geographic reach. And thirdly, a high percentage of our proposals include digital transformation on the Engage side and so we're just now starting to benefit from reaching out to their their their client base. They have quite a few clients. So it's going to take some time, but that's a good problem to have. And I'd say the other thing that's been very beneficial is we have had for, I would say, almost close to a decade a data science practice that has done some very complex work and in combination with their Azure Cortana AI practice that's really added some very significant benefits in our ability to scale across the insights aspect that we're trying to achieve when we're looking at literally billions of different data points for our clients to be able to give them real-time information, insights, feedback, campaign management, et cetera. So, so far so good. Obviously early days, but we feel very positive about the acquisition. Regina, do -- would you like to add anything?

Regina Paolillo -- Executive Vice President, Chief Administrative and Financial Officer

Yeah, I mean, I would just say that we've spent a fair amount of time in the organizational design and execution. So we've executed a whole new organization where we have a set of practices where we've integrated the full. As you know, we have George now President. So that was a big motion that kind of settles the teams down and they have their targets. And we've integrated them into our budget. So all of that maybe administrative but critically important to set the goals, set the expectations, set the leadership and that by itself is really helping with the cross-sell what you asked, and it is happening. I mean I'm personally involved in a couple of these, but it's amazing to see how that Microsoft business, which is in and around dynamics and other analytics tools really changes the conversation, because the omnichannel is one thing in terms of the mechanics that is affords us. But the applications are so important to changing the business process and the conversation is changing. The other thing that Avtex does extremely well is they don't sell technology. They sell solving problems, closing gap, providing opportunities. It's in their culture, it's in their language, it's in their approach and so that integration has been really important. They have a number of what I would say thought leaders who are now getting in rooms all over the world with our clients and it's really changing the conversation as we change the conversation. It drives a broader set of executives and when that happens, just the speed -- speed picks up larger deals happened and so we're really looking forward to exploiting that, if you will.

Mike Latimore -- Northland Capital Markets. -- Analyst

And given the current mix of digital, what percent would you say is recurring revenue at this point?

Regina Paolillo -- Executive Vice President, Chief Administrative and Financial Officer

It's 57%.

Mike Latimore -- Northland Capital Markets. -- Analyst

Okay. That's high. Great. Thanks a lot.

Operator

Thank you. Thank you. Our next question would come from George Sutton of Craig-Hallum. Your line is open. Please go ahead.

George Sutton -- Craig-Hallum -- Analyst

Thank you. Ken, I thought you did a great job in your prepared comments talking about the current landscape and sort of the demand for a redesigned for a lot of the legacy companies out there, legacy customers. I'm curious as you're looking at the pipeline, is that how it's occurring, is it a holistic kind of a change that is occurring at that type of a customer or is it still a point solution where you're broadening out your opportunity over time?

Kenneth Tuchman -- Chairman and Chief Executive Officer

I think it's both. I mean, we have Fortune 5 and 10 companies right now that are asking us to work on a complete digital transformation and we have companies in the Fortune 50 and 100 that are adding -- asking us to add machine learning AI capabilities, chat bot capabilities, voice bot capabilities. What we're showing our clients is that incrementalism is not going to ultimately put them at the top as it relates to driving a higher net promoter score, higher customer satisfaction, better brand loyalty, et cetera. And so consequently, what we're finding is that as we start to interface more and more with Chief Digital Officers, Chief Marketing Officers, CEOs, et cetera, they are much more interested in the art of the possible and they are much more interested in what a transformation would look like, what the impact could be, et cetera. And we have so many references of clients where we've done this for that we're getting a really high take rate.

We're seeing just on the Engage side right now, about a third of our deals that we're closing now we're including digital. And so, look, I think the good news about this is, if this is a -- this is not a sprint. It's definitely a marathon and clients are going to be going through these major transformations comfortably over the next 5 plus years and there is no lack of opportunity right now in the marketplace.

George Sutton -- Craig-Hallum -- Analyst

That's why actually just looked up the word incrementalism and that is indeed a word. So thank you for adding that to my vocabulary and again congrats on a great quarter.

Kenneth Tuchman -- Chairman and Chief Executive Officer

Thanks so much.

Operator

Thank you. Our next question would come from Jason Kupferberg of Bank of America. Your line is open. Please go ahead.

Cathy -- Bank of America -- Analyst

Hey guys, this is Cathy [Phonetic] on for Jason. Thanks for taking my question. I know you have talked a little bit about increased investments in the back half of the year, which will cause the margins down a little bit, can you just share a little bit more about what type of investments you're looking to make and where is organic a piece of those investments as well. Just any color there. Thanks.

Kenneth Tuchman -- Chairman and Chief Executive Officer

We're making investments in multiple areas. One is, we're increasing our senior leadership team. Just because we see substantial growth opportunities ahead. And so therefore we're investing ahead of the kind of the curve. Secondly, we're increasing our spend in sales, increasing our spend in marketing, increasing our investments in research and development and product management. Regina, would you like to add anything else to that?

Regina Paolillo -- Executive Vice President, Chief Administrative and Financial Officer

No, I just wanted to make sure that you understand when we talk about those investments, they are all organic, they're not inorganic, right? We're not including, I mean, the only thing we are, I would add to it, is we will be integrating, right? We want to expedite the integration of Avtex and we have work to do on that. So there is some investment there. But other than that, when we say investments in R&D and sales and marketing, it's all organic.

Cathy -- Bank of America -- Analyst

Okay, awesome. And I also saw that you guys now have a top client that's greater than 10% of your revenue. Can you just remind us who that client is, how fast they are growing or is some of that just because you guys have closed and integrated Avtex? Thanks.

Kenneth Tuchman -- Chairman and Chief Executive Officer

Well, first of all, what I'd like to --

Regina Paolillo -- Executive Vice President, Chief Administrative and Financial Officer

We won't give you the name.

Kenneth Tuchman -- Chairman and Chief Executive Officer

Yeah, we don't provide the name of clients that are just in general, as our clients ask us not to otherwise we would be happy to disclose it but what I would say to you is the following. We've been in this business now for almost 40 years. And we consistently have a horse race of clients that temporarily hit the 10% mark. And then as we grow, they dropped down below the 10% mark. There is nothing unusual about that and it's not like a client is 20% or anything like that, but it's not uncommon for a client to go up to 10% or 11% or even 12% and then a quarter or two quarters later be at 9% et cetera as we continue to grow through them.

Cathy -- Bank of America -- Analyst

Okay, got it. That's very helpful. Thank you.

Kenneth Tuchman -- Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. Next question would come from Joseph Vafi of Canaccord. Your line is open. Please go ahead.

Joseph Vafi -- Canaccord -- Analyst

Hey guys, good morning. Good results. I was curious if you looked at the new logo wins this quarter versus a year ago. Let's say what is the needs and the customer requirements, are they changed what's -- what's different about these customers versus a year ago. And then I have a follow-up.

Kenneth Tuchman -- Chairman and Chief Executive Officer

Well, I would say that starting from what I was saying in the script is that many of the clients now because of the pandemic are in need of technology to help them virtualize. Secondly, many of clients have shifted their plans from bricks-and-mortar in general and are looking to have more of a direct to consumer relationship and so consequently are asking for help in that area as well as the market directly to consumers versus just directly -- versus through a distribution point or retailer et cetera. I would say there -- because of the pandemic, there has been somewhat of some geo-shifting of clients that are opting for more sense of security, at least on a temporary basis, meaning that they've -- they realize that doing at homework in some of the emerging markets is a bit more complicated than it is in a place like North America where living conditions, households, quality of Internet is dramatically different. So I think those are the types of things that we're seeing. And then I would just simply say that data is becoming a very significant priority of clients and our ability to show them real-time data of what's taking place by building data lakes and data platforms that have AI and ML. We're seeing a lot of requests in those -- in that area. Right now, we're building a ton of them as we speak. Regina, what am I missing here?

Regina Paolillo -- Executive Vice President, Chief Administrative and Financial Officer

Yeah, I think I'll come at it a slightly different angle, right? I think there's another category where we have built brand in certain areas. So for example, if I look at the list and I kind of look at the names and I categorize them vertically, right? We've made a name in credit unions. We've made a name in FinTech. We've made a name in the States and especially the states that work together in terms of digitizing of stuff that we did during COVID. And then I would say in healthcare, we're making a name on the care side now and that can be planned healthcare payers who are getting more deep into the care side and wellness, but it's more of the same in the sense that we're now proven and we're proliferating those sectors within an industry and going, it's also I would say when that's happening, our marketing plan, our digital marketing platform is so refined at this point that when we make decisions to go deep within an industry in a particular sector we're all over it and it's showing its success. So in that way it's a little bit more of the same things that we're doing and that we talked about, but we are proliferating a broader within the industry.

Joseph Vafi -- Canaccord -- Analyst

That's great. Thanks. And then just one quick follow-up on it sounded like there were some nice cross-sell wins in the quarter between CX and digital. Just any comment there on trends. Thanks a lot.

Regina Paolillo -- Executive Vice President, Chief Administrative and Financial Officer

Yeah. It's I would say, 6 or 7 a quarter at this point that our major transformations or like Ken said, right, these are pointed areas where clients need help. And there are multiple, what I would say, cross sell is now very much within the segment and across the segment. Those ones that I talked about were across segments, but it's also really good to see the -- especially on the digital side, just the level of cross sell of the various practice areas that we have and we're kind of at a clip, now that we've got 6 or 7 a quarter and hopefully grow from there.

Operator

Thank you. Our next question would come from James Faucette of Morgan Stanley. You may begin.

James Faucette -- Morgan Stanley -- Analyst

Thank you very much. I have a couple of questions and they're kind of related. We've heard from other companies about issues related to hiring and increased churn of employees, et cetera, you seem to be managing through that pretty well, but just wondering overall what that looks like. And if that's having an impact on your wages right now and how well you're able to -- and can you talk a little bit how you're -- well you're able to pass through pricing, it seems like at least on your preliminary margin guidance even for next year you're expecting margins to expand a little bit. So it sounds like you're being able to pass through any wage inflation you're maybe seeing, but I just want to get a little color there and see -- for you to share with us what you're seeing.

Kenneth Tuchman -- Chairman and Chief Executive Officer

Yes. Sure. Great question. So first of all, it's no secret that we have never been viewed as a second-tier or a third-tier provider. We've always been viewed as kind of the top provider that you go to that not only has the most innovation to offer, but historically hires the higher end of the front line on the Engage side and consequently to do that, we tend to pay more than all of our competitors and have historically done so. I think it's safe to say that we saw labor cost increasing almost 2.5 years ago and got well ahead of it. And if you go back to our older conference calls, we talked about very significant price increases when we saw labor going up. It took us about a year at the time to readjust all of our pricing and get all of our clients to a price point where we needed them to be, so that we could ultimately pay the labor what we felt they needed. And then with the onset of the pandemic and the onset of the labor shortage we have been highly communicative with our client base and telling them what we see is going on with the future of where labor is in America and the speed at which in North America and in some other markets, labor costs are going up. And what I would say is, for the most part and when I say for the most part, I mean, a solid 75% to 85% of our client base. They see it, they agree with it, they are experienced experiencing it themselves and they are agreeing to immediate wage increases, so that they don't experience high turnover and end up with labor shortages.

So we feel pretty good about it. You know, not every client is exactly where we want them to be, but I don't think anyone in any business, whatever say that they are when they in the service business. But clearly more than the majority are and that's why we're able to maintain the guidance that -- that we have. We are -- but we feel very good about where we are, our hiring ability, our fill rates, et cetera. And we -- I can't stress this enough, and this is not meant to sound like a political announcement or pay whatever but the -- we go in upfront in our proposals telling people what we have to pay these people to maintain a proper level of of retention and that we are very focused on working only with clients who are customer-obsessed and the ones that aren't customer-obsessed and that look at this as an expense center, we let those clients go to our competitors as that we view that business as business that is not the sweet spot of what we practice and frankly it's dilutive to our margin.

James Faucette -- Morgan Stanley -- Analyst

That's -- that's great. Sorry, Regina, I cut you off. Go ahead.

Regina Paolillo -- Executive Vice President, Chief Administrative and Financial Officer

Yeah, I just want to add a couple of things, one is scale always -- it's a point on how we -- why we are comfortable kind of the EBITDA growing faster next year than the revenue. And it is scale, it is that we do expect that as we lay in in the second half of this year. We're investment in leadership in R&D and in sales and marketing. These are investments that take years to return. So we expect those to kind of normalize those investments as a percentage of revenue. Also it's important to note, when you think about our first half-second half, the increase in the EBITDA and how that lays out, you have to keep in mind that we've booked almost $600 million in the last three quarters, I think it's exactly 562 million or something like that. Q1 -- Q4 of last year, Q1 and Q2. And if you think about that on a rolling basis, that's of significant uptick and that means that they are across the company in both these businesses, a percentage of revenue in ramp that is much higher than we had previously because of those bookings numbers. That will normalize, right? So as the company has gotten from 100 million a quarter of bookings to 125 million and so on. Now it's -- now, we're at 200 this the second quarter. These are long cycle sales but long cycle ramps some of them are nonrecurring faster, but our recurring business. And so that has an impression, if you will, on the EBITDA and operating income and we expect then now that we adjust to that level of business in ramp as a percentage of revenue will be able to normalize back to what we feel are 17% EBITDA rates in -- in the Digital business near term and plus 16% in the Engage.

James Faucette -- Morgan Stanley -- Analyst

Got it, got it. And then just quickly obviously historically acquisitions have been a key part of the value creation at TTEC. Just making sure when you talk about '22 revenue growth that's at this point, all organic and I guess really what I'm looking for is, any color or commentary on kind of potential for acquisitions and what that landscape looks like right now.

Regina Paolillo -- Executive Vice President, Chief Administrative and Financial Officer

Yeah. I would say it's all organic with maybe very small Avtex has done a fine job in the practice areas of Genesys and Microsoft CRM of picking up very small, $7 million, $8 million, $9 million. So there may be one of those are, that's in the mix with that, but yes, generally it's organic and then -- Ken, do you want to talk a little bit about M&A?

Kenneth Tuchman -- Chairman and Chief Executive Officer

Yeah, I mean, what I would say to you is that we are committed to our shareholders to continue to do M&A, and we have a solid pipeline of deals where it's no secret that we're rather conservative in trying to find deals that are -- that are highly accretive and what I would say is, stay tuned.

James Faucette -- Morgan Stanley -- Analyst

Great. Thank you very much everybody.

Kenneth Tuchman -- Chairman and Chief Executive Officer

Thanks so much.

Operator

Thank you. Our next question would come from Bryan Bergin of Cowen. Your line is open. Please go ahead.

Bryan Bergin -- Cowen -- Analyst

Hi, good morning. Thank you. I wanted to dig in a little bit on Digital segment growth performance in the quarter. Can you talk about how some of the various components did including that organic cloud services, ex the government contract impact and I think Avtex was around $55 million revenue. If so, I think that would be fairly better than expectations on our run rate and I'm curious if that becomes a new normal or some of the accounting changes you mentioned, Regina, cause that to be a bit more lumpy going forward?

Regina Paolillo -- Executive Vice President, Chief Administrative and Financial Officer

Yeah. So I would say our recurring revenue is up just under 15% and our non-recurring is up 98%. Those include that government contract. They're obviously up a lot more inside that Digital business. The Amazon Connect platform is up 75% year-over-year. If you look at Avtex on a stand-alone basis, so what I'm saying is, if you look at the Genesys and the Microsoft practices, we don't have them in our year but there -- that's up 17%. So what -- if you -- let me stop there and see kind of where you want to go. If you look at the recurring revenue without census, let me just give you that data point, it -- we're up 104% and so we continue to carry what is about a 31% negative growth based on the government contract, remember that was like $90 million on our business. That was $307 million. And so there is about a 31% decline. But as you -- as we -- as we add these other businesses and they grow, they're certainly helping us earn through that.

Bryan Bergin -- Cowen -- Analyst

Okay. But on Avtex. So it was a solid Q for them here. Does that -- is this the right type of run rate or is there any change? I just want to clarify on that account [Speech Overlap]

Regina Paolillo -- Executive Vice President, Chief Administrative and Financial Officer

Here's what I would say, right, I think it's the right kind of run rate. We have -- not to go into too much detail, but we have two issues, right? As we bring them onto our books, we have to conform to our accounting. Avtex had a deferred revenue on its balance sheet, right, that we had to work through how much of a haircut that deferred revenue would get, as we bring on to our books. This is not uncommon, right? This happens in all companies, especially those that have deferred revenue. The second is that in their cloud business, right? They took some more significant amount upfront and ran a less amount over time in -- we're confirming them to our contracts and we're conforming them to our standard of accounting and therefore you have a bit of a down against the guidance I previously gave you. So it's up. The guidance previously at the midpoint was about 393. It's now just under 400 -- it's $400 million. So it is up and it is up despite, right, some headwinds from finalizing the purchase accounting and the forward accounting. It's very important that you understand that other than a deferred revenue haircut which is natural when these types of acquisitions are done the cloud part is really just a go-forward. It's in the backlog and it will be earned on a forward basis. It's just going to be earned slower. So it's a one-time correction. It's in our numbers now. And I would say that it is neutering a little bit that growth rate, but with a couple of quarters done our view and that's why you see the guidance for next year, right, that guidance, but at least an indication is 18% to 22%.

Bryan Bergin -- Cowen -- Analyst

Okay. Yeah. Makes sense. Very helpful. Thank you for the color. And then just a follow-up here on the increased sales and marketing investments, are those being directed or concentrated at certain regions more than others? I'm curious of your pressing we're aggressively on Europe and APAC publicly [Phonetic].

Regina Paolillo -- Executive Vice President, Chief Administrative and Financial Officer

Yeah. So in in one respect, yes, regionally, and I would say that we are very quickly. Avtex was not focused outside of the US too much, but we are standing up Genesys practices and Microsoft practices as we speak. So that's putting teams in place ahead of the revenue but clearly developing pipeline there already. So I would say there is a more significant focus in EMEA. But I would also say that in North America, we will make sure that in Q3 and Q4, we're standing up the sales organization to execute up getting to a reliable and predictable first step, Ken would say more but first step will get us to a reliable and predictable kind of $200 million per quarter in bookings. Right. And to do that we're going to need to increased sales and marketing and increase -- that you have set inside sales and feet on the street.

The other thing I'll say is we're building within the Engage business a platform, though, I would say is, kind of mature offer management. So we've added transformation office there and a fairly significant piece of that is making sure that we modernize our existing offers, constantly refresh them and be able to be expanding into other areas. Now this could include nuance for verticals. This could include tech-rich platforms within the Engage, but we're also building that now. Again you hear the guidance and you hear the guidance for this year and you hear the estimates for next year. This is not a runaway investment. We continue to be of a mentality that we need to put the investment in the business to make sure that we can continue to grow above that double-digit organically and to do that, we think we need to put matures and pillars in the business and that's what we're doing. But these are not going to all of a sudden drop our margins 300 basis points, 400 basis points. We're making sure that we balance the profitability with making sure we can grow the top line.

Bryan Bergin -- Cowen -- Analyst

Understood. Thank you. Thank you. Our last question comes from Josh Vogel of Sidoti. Your line is open. Please go ahead.

Josh Vogel -- Sidoti & Company LLC -- Analyst

Thank you. Good morning, Ken, Regina. You covered a lot. Thank you. I just had an extent -- extension of an earlier question around employee attrition and retention and I know you have extensive training protocols in place, but outside of offering higher wages given the complexity and breadth of your offerings. I'm curious if this narrows the pool of qualified candidates that you had traditionally gone after as the skillsets needed to expand and also which geographies are you seeing the richest pool, but also the toughest time in finding available talent. Thank you.

Kenneth Tuchman -- Chairman and Chief Executive Officer

Yeah. Hi. I don't -- For us, I don't -- we're not -- I don't think we are feeling per se challenged in that way. And I think a big part of that is due to the fact that we're hiring at home, and I don't need to tell you, you've read 100 or so articles one that comes out every single day about employees are demanding flexibility, employees want at minimum, a hybrid employees most many employees want work at home and we're one of the largest work at home employers in the United States and in Canada.

So consequently the pool is immense. When you think about mothers who -- new mothers who have decided to potentially take a break from work and then realizing that they can earn an income by working at home, a high percentage of these people -- very high percentage of these people are college educated. In many cases, they're actually overqualified and so we're just not experiencing the same thing that you're hearing about in restaurants and hospitality and physical locations where people would rather either draw unemployment or whether they're concerned about their health and safety because they're in the general public, that might be -- that poses the risk of of COVID. So I'm not going to suggest that there aren't certain markets that from time that aren't potentially challenging. But what I would say to you is, is that for the most part, we're hitting all of our fill rates and we -- we think that that's going to continue on, even if the labor market were to get tighter. That said, I actually don't think the labor market is going to get tighter. I think the labor market with the unemployment money to everybody coming to an end I think you're going to start to see that people are going to realize that they're going to have to get back to work and I actually think that that's going to open up a significant -- a significantly larger pool. But we're very satisfied with the quality and the talent of the people that we're hiring across the globe right now.

Josh Vogel -- Sidoti & Company LLC -- Analyst

Understood. I appreciate all that color. Thank you.

Kenneth Tuchman -- Chairman and Chief Executive Officer

Thank you.

Operator

Thank you for your questions. That is all the time we have today. I will now turn the call back to Paul Miller.

Paul Miller -- Senior Vice President, Treasurer and Investor Relations

Yeah. We just want to thank everyone for your participation. This concludes our call. Thank you.

Kenneth Tuchman -- Chairman and Chief Executive Officer

Thank you.

Operator

[Operator Closing Remarks]

Duration: 70 minutes

Call participants:

Paul Miller -- Senior Vice President, Treasurer and Investor Relations

Regina Paolillo -- Executive Vice President, Chief Administrative and Financial Officer

Kenneth Tuchman -- Chairman and Chief Executive Officer

Maggie Nolan -- William Blair -- Analyst

Mike Latimore -- Northland Capital Markets. -- Analyst

George Sutton -- Craig-Hallum -- Analyst

Cathy -- Bank of America -- Analyst

Joseph Vafi -- Canaccord -- Analyst

James Faucette -- Morgan Stanley -- Analyst

Bryan Bergin -- Cowen -- Analyst

Josh Vogel -- Sidoti & Company LLC -- Analyst

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