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Edited Transcript of TTEC earnings conference call or presentation 9-May-18 12:30pm GMT

Thomson Reuters StreetEvents

Q1 2018 TTEC Holdings Inc Earnings Call

Englewood May 14, 2018 (Thomson StreetEvents) -- Edited Transcript of TTEC Holdings Inc earnings conference call or presentation Wednesday, May 9, 2018 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Kenneth D. Tuchman

TTEC Holdings, Inc. - Founder, Chairman & CEO

* Paul Miller

TTEC Holdings, Inc. - Head of IR, Senior VP & Treasurer

* Regina M. Paolillo

TTEC Holdings, Inc. - Executive VP and Chief Financial & Administrative Officer

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Conference Call Participants

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* Francis Carl Atkins

SunTrust Robinson Humphrey, Inc., Research Division - Associate

* William Arthur Warmington

Wells Fargo Securities, LLC, Research Division - MD & Senior Equity Analyst

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Presentation

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Operator [1]

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Welcome to TTEC's First Quarter 2018 Earnings Conference Call. (Operator Instructions) This call is being recorded at the request of TTEC.

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.

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Paul Miller, TTEC Holdings, Inc. - Head of IR, Senior VP & Treasurer [2]

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Good morning, and thank you for joining us today. TTEC is hosting this call to discuss its first quarter financial results for the period ended March 31, 2018. Participating on 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 in the first quarter, we encourage you to read our quarterly report on Form 10-Q when we file with the SEC in the coming days.

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 large clients, the risk 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 as well as the potential impact to the financial results due to foreign exchange rate fluctuations or 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 would now turn the call over to Ken Tuchman, TTEC's Chairman and Chief Executive Officer.

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Kenneth D. Tuchman, TTEC Holdings, Inc. - Founder, Chairman & CEO [3]

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Thanks, Paul, and good morning, everyone.

This quarter, we continued to advance our position as a leading global provider of end-to-end transformational digital customer experience solutions for the world's most innovative and customer-centric brands. We remain firmly committed to our direction, and our progress is steady.

We're growing our pipeline. We're diversifying our bookings with offerings from our TTEC Digital and TTEC Engage centers of excellence that include strategy, analytics, consulting, technology, trust and safety, and operational delivery.

We're tracking new customer-centric companies seeking technology-rich solutions to accelerate their digital transformation. We are successfully leveraging machine learning and automation to improve operational efficiencies and augment human capabilities. And we continue to invest in innovation to remain strategically relevant and ahead of the market.

Shortly, Regina will discuss our financial performance and provide a bridge from our first quarter results to our full year guidance. In the meantime, let me update you on some key activities from the quarter.

Our new market-facing position with TTEC Digital and TTEC Engage is relevant, compelling and resonating with current clients and new prospects. In a world that is now wrapped in a digital skin, brands are understanding that technology impacts everything they do. They have recognized that their business strategies are directly linked to technology, and they must fundamentally rethink how they operate and differentiate.

Digital transformation has become the critical enabler to satisfy rising customer expectations, and companies are rushing to figure out a way forward. Our positioning that unifies customer experience strategy and enabling technology under the TTEC Digital, with exceptional operational execution under TTEC Engage, is resonating with a ready market.

According to Forrester, 60% of executives believe that they are dangerously behind in their digital transformation. Our conversations with prospects and clients reflect a sense of urgency. Companies are asking us to help them migrate interactions to new digital channels, modernize their technology operations and create an integrated and actionable view of their customer data. They are looking for solutions that will enable them to listen, sense, respond, anticipate and exceed their customers' needs within and across any channel.

To meet the growing demand for digital domain expertise, we recently added Dave Anderson to our executive team to lead our global CX consulting organization. Dave comes to us from Tata Consulting Services, where he was Global Managing Partner for Strategy and Transformation. Prior to Tata, he led IBM's Customer Experience Strategy and Transformation Services. Dave is a collaborative, market-facing leader who has successfully grown complex businesses, and we're excited to have him on board.

The interconnectivity between consulting and technology is increasingly becoming a critical enabler of success. Here is an example of a new booking from this quarter that illustrates the link. A large benefits administrations company had successfully partnered with our TTEC technology team for several years. Digitally native competitors began to enter their market, and our client was racing to both improve the customer experience and reduce cost both -- but needed a comprehensive road map to drive long-term success.

Through TTEC Digital, our combined consulting and technology team designed a plan, merging channel orchestration and knowledge management with a complete set of self-service capabilities, including AI and chatbots. When implemented over the next few quarters, the initiative will dramatically improve the customer experience by automating simple tasks and freeing up talent to solve more complex ones. The projected savings for our client will be significant, and the streamlined customer experience will be an industry differentiator.

Now let me share an example of digital organization -- excuse me, of a digital -- of digital optimization that delivered tangible results on the front lines this quarter. This example is with a long-standing CMS client. Our goal is to help them reduce repeat calls and transfers by educating their customers on available digital options. Working with our client, we implemented key technology and process improvements that reduced inefficiencies by more than 20%. In addition to removing significant costs from their operations, the new simplified experience, not surprisingly, delivered a noticeable uptick in customer satisfaction.

Our contact center in the cloud business is thriving. A key to customer experience transformation is the ability to anticipate, respond and adapt to customer journeys in real time. Cloud technology is enabling these intuitive experiences, and adoption is accelerating.

According to industry reports, demand for cloud contact center technology is exploding, with the total spending expected to multiply threefold by 2022. As one of the early market entrants with a focus on complex enterprise deployments, our award-winning Humanify technology platforms are well positioned to grow.

Today, we manage over 220,000 reoccurring licensed users that enable billions of omni-channel interactions annually across the globe. As our cloud business expands, we're experiencing both top and bottom line benefits. We're seeing strong bookings and a growing pipeline across our full range of technology services, including systems integration, hosted managed services and cloud delivery. This strength is demonstrated by the continued growth of our CTS business, which Regina will explain in more detail shortly.

Investments in digital customer experience technologies and AI are driving innovation. Last year, we accelerated our commitment to key digital solutions, including omni-channel technology, customer analytics and AI. These offerings are opening doors with new clients and extending our relationships with existing ones.

Our approach to AI and automation balances human intuition and creativity with the computational power and efficiency of technology. We view AI as a way to augment human capital, not to replace it. It is the next step in the evolution of a seamless service experience. And to be successful, companies must follow a human-centered and thoughtful path.

We believe that for AI to deliver impactful outcomes in the service lane, a program must have 4 interconnected strands: an omni-channel CX strategy, a robust foundational knowledge base, a predictive customer insights platform, with an enabling technology stack. These ecosystem powers a hybrid service workforce that trains and supports both intelligent virtual assistants and expert human associates. We currently have several client implementations underway, and while it is still early days, the programs are demonstrating promising results.

The service experience is the differentiator. In the complex interconnected digital world, our solutions are more relevant than ever. Ad agencies focus on inspiring customers to act. Systems integrators knit technology capabilities together. As a service provider, we are the only player in the customer experience chain that is accountable for listening and responding to the virtual touch points from the final service mile. Whether it is text, chat, e-mail, video, voice interactions, what happens on the front line makes or breaks customer impressions of a brand.

Winning companies understand that these interactions are the moments that matter, and they directly and immediately influence customer engagement. These customer experience leaders are investing heavily to ensure that whatever channel the customer chooses, the experience is relevant, simple and enjoyable.

As a company recognized for its exclusive focus on technology-enabled customer engagement, we're being chosen by both industry disruptors and established market leaders. Working in partnership with clients, we're exploring how digital technologies and human talent can work together to achieve larger strategic and operational goals. This crucial blend of human and digital is fundamentally reshaping how companies acquire, grow, retain and serve and protect their customers.

Recent reports by PwC and Deloitte echo our perspective and concur that for today and into the foreseeable future, regardless how technologically advanced interactions become, the best experience will be the ones that successfully infuse humanity into each touch point.

Digital transformation is not a debate but a necessity to compete. This is true for our clients as well as ourselves. We remain committed to our journey and are proud of our progress. We have an exceptional client base, a robust and differentiated omni-channel customer experience offering, a strong and experienced management team and a dedicated base of employees operating globally on the front lines with compassion and precision every day. I'm confident in our future and look forward to sharing our progress in the quarters to come.

I'll now turn the call over to Regina.

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Regina M. Paolillo, TTEC Holdings, Inc. - Executive VP and Chief Financial & Administrative Officer [4]

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Thanks, Ken, and good morning, everyone. I'll review our first quarter 2008 (sic) [2018] financial results and then provide additional context [reporting] our full year guidance.

Our first quarter results include a short list of items which require some context ahead of my comments on the GAAP and non-GAAP results. At the top of this list is our adoption of ASC 606. Our first quarter 2018 results include $12.5 million of net revenue, $6.3 million of net EBITDA and $6.3 million of net operating income related to ASC 606.

It's important to note that the guidance we provided in our March earnings call included the net impact of ASC 606, which we estimated to be immaterial to our full year results, with a net increase to revenue and operating income in the first half and a net reduction to revenue and operating income in the second half. While we continue to estimate ASC 606 as immaterial to our full year results, the impact between first and second quarter will be different than originally anticipated, with the first quarter receiving a greater benefit and the second quarter a lesser benefit. Our full year guidance on revenue of between $1,505,000,000 and $1,525,000,000 is unchanged.

In the first quarter, we made incremental investments in our strategy, branding, product development, marketing programs and sales resources. Additionally, our noncash stock-based compensation was up year-over-year. As planned, and included in our guidance, these investments, representing approximately $8 million, are pulling our adjusted EBITDA and operating income margin percentages down in the first quarter but will decline as a percentage of revenue and be accretive to our profit margins as we progress through the remainder of the year. Our full year adjusted EBITDA guidance of between 13.9% and 14.2% and our full year operating income margin between 8.7% and 8.9% are unchanged.

On a full year basis and in comparison to 2017, we continue to estimate our gross margin to approve -- improve approximately 15 basis points; SG&A, 35 basis points; and depreciation, 10 basis points. Collectively, a 60 basis point improvement. Net of the 20 basis point increase in amortization expense related to the purchase of Connextions and Motif, at the midpoint of our guidance, we continue to estimate a 40 basis point improvement in our operating margin.

In the first quarter, beyond the restructure and impairments of $2 million, we wrote off an equity investment in the amount of $15.6 million, realized an $800,000 gain from additional proceeds on the sale of TSG, recognized a $700,000 purchase gain agreement -- purchase bargain agreement gain related to a small CMS acquisition, and recorded $1.9 million of additional buyout expense related to the Motif acquisition based on their improved performance. The net amount of these onetime items is $15.8 million, which has an approximate $0.29 impact on our EPS.

With that context, I will now highlight the 2018 financial results. New business signings in the first quarter of 2018 were $100 million compared to $101 million in the prior year quarter. Highlights of our bookings include a healthy balance across segments; contributions from the Americas, Europe, and AsiaPAC; group representation across verticals, with noteworthy growth in our focus verticals, including health care, retail, technology and business services; and an increased percent of our bookings in products and services that are recurring in nature.

Turning to our first quarter 2008 (sic) 2018 results on a GAAP basis. In the first quarter of 2018, we reported revenue of $375.2 million, up 10.9% over the prior year. Operating income was $24.9 million or 6.6% of revenue versus $26.5 million or 7.8% in the prior year. GAAP earnings per share was $0.10 in the first quarter versus $0.42.

As indicated earlier, the GAAP numbers include the adoption of AS 606 -- ASC 606, the planned $8 million of incremental investment and $15.8 million of onetime charges, collectively representing $23.8 million of additional expense in the first quarter. The onetime charges will not repeat themselves, and the planned investments will decline as a percentage of revenue throughout the remainder of 2018, resulting in improved profitability, consistent with our guidance. Our first quarter 2018 GAAP results include a positive FX impact of $4 million on revenue and $1.9 million on operating income.

Consistent with prior quarters, the remainder of my financial comments are on a non-GAAP basis, which exclude restructure, impairment and integration expenses and other onetime items and the remaining asset we are exiting. A reconciliation of our GAAP to non-GAAP numbers is included in the tables attached to our press release.

Revenue increased 13% to $373.6 million over the same period last year. Inorganic growth was 12%. Adjusted EBITDA was $51.1 million or 13.6%, an increase from 3 -- 13.1% in the same period last year. Operating income was $27.4 million or 7.3% of revenue, a decrease from 8.1% in the prior year quarter. Excluding the positive impact from ASC 606, revenue increased 9.2%, EBITDA margin was 12.4% and the operating income margin was 5.8%. The decline in operating income is a function of the investments noted earlier.

Our reported tax rate in the first quarter 2018 was 26.2% compared to 21.1% in the prior year period. The normalized tax rate was 24.5% versus 21.3%. The higher tax rate is primarily due to the jurisdictional mix of taxable income and U.S. tax reform cross-border provisions.

Capacity utilization was 77% in the first quarter of 2018, down slightly from 78% in the prior year. Capital expenditures were $7.5 million in the first quarter of 2018, down from $12 million in the prior year due to the timing of spend.

Our first quarter 2018 cash flow from operations was $67.4 million compared to $74.9 million in the prior year. Our first quarter DSO was 84 days versus 75 days last year. Our sequential cash generation was strong in the first quarter as evidenced by a $46.4 million reduction in our net debt.

Turning to our first quarter 2018 segment results, which are represented on a non-GAAP basis. CMS' revenue increased 16.1% to $292.6 million over the prior year quarter. Organic revenue was flat versus the same period in the prior year. CMS' operating income was $19.5 million or 6.7% of revenue versus $20.6 million or 8.2% in the prior year period.

ASC 606 had a positive impact on revenue, adjusted EBITDA and operating income of $12.4 million $6.3 million, $6.3 million, respectively. Excluding ASC 606, revenue grew 11.2% and operating income margin was 4.7%. The decline in operating income is attributable to the planned investments noted earlier, as the lion's share of the incremental expenses are allocated to CMS. Given the visibility we have through our current pipeline, backlog and client-committed volumes, we continue to estimate that CMS will achieve its full year revenue and operating income guidance.

CGS' revenue was $32.5 million in the first quarter 2018, relatively unchanged over the prior year. Operating income was $2 million or 6.3% of revenue compared to 8.1%. Our CGS' -- our CGS segment's first quarter results do not highlight the underlying improvement we're experiencing in the customer growth business. Our largest CGS booking in the fourth quarter ramped in the first quarter of 2018.

Given the specialized nature of the work we do for this new P&C insurance client, the recruiting and training cost, coupled with licensing fees, had a near-term negative impact on margins. Excluding this client, CGS' performance showed another quarter of improvement with a first quarter adjusted operating income margin in the 9% range, an improvement both year-over-year and sequentially. This client program is now in production, and we anticipate improvement in CGS' top and bottom line performance. The completion of this ramp and strong first quarter bookings improved CGS' 2018 revenue, backlog and outlook for the year. We expect this business to meet its full year guidance.

CTS' revenue increased 11% to $35.2 million in the first quarter 2018, and operating income increased 74% to $4.8 million or 13.8% of revenue, a 500 basis point improvement over the prior year. We are seeing favorable trends across our CTS segment, with strong bookings and improved revenue and operating income. We're particularly pleased with the accelerating demand for our cloud-based contact center solutions, with the first quarter year-over-year revenue and operating income growth in excess of 50%.

Our CTS pipeline continues to increase as we penetrate a growing addressable market through direct sales and channel partners. We anticipate further margin expansion throughout 2018 from higher revenue, revenue mix and operating efficiencies. We expect this segment to perform in line with its full year guidance.

CSS' revenue was $13.3 million in the first quarter 2018, down 8.4% over the prior year. Operating income was $1 million or 7.7% of revenue, an increase from 5.2%. Despite lower revenue, primarily a function of timing, given the natural variability in our consulting engagements, the year-over-year margin improvement shows better alignment of CSS' strategy and talent with those practices that create synergies with our Engage and Digital technology centers of excellence.

We view CSS' customer consulting competencies as important capabilities in our integrated solutions portfolio. We are seeing higher market demand for customer experience transformation as our clients seek brand differentiation through a more frictionless and personalized customer interaction. The growing demand for digital solutions is also creating new opportunities.

Looking ahead, the completion of our go-to-market branding; the addition of Dave Anderson, who brings a wealth of experience in customer engagement, transformation and executive selling; the build-out of solutions inclusive of CSS; the addition of more CSS solutions-oriented sales executives; strong bookings; and an improved backlog support this segment meeting its full year revenue and operating income guidance.

Our first quarter results were ahead of our guidance based on the timing of ASC 606 adjustments, which had significantly more benefit in the first quarter 2018 than originally estimated and will now have less of a benefit in the second quarter. On a full year basis, our estimate of the ASC 606 impact remains the same. And as a result, we are confirming our full year guidance while slightly adjusting the operating income split between first half and second half.

Our full year guidance includes the adoption of 606 but excludes impairment, restructuring and integration charges and the CSS Middle East business, which we are exiting.

Revenue between $1,505,000,000 and $1,525,000,000, adjusted EBITDA between 13.9% and 14.2%, operating income margin between 8.7% and 8.9%, capital expenditures at 3.8% of revenue and an effective tax rate between 24% and 26%. We anticipate 47% of our revenue in the first half, consistent with our prior guidance, and 36% of our operating income in the first half versus the 38% we previously guided.

We are executing on multiple fronts and realizing tangible results from our strategy, differentiated solutions and improved go-to-market platform. Our guidance is well supported by our bookings, backlog and growing pipeline.

As of March 31, 2018, we had $1,419,000,000 of 200 -- $1,419,000,000 of 2018 revenue backlog from current customer contracts or 94% of our full year revenue estimate at the midpoint of our guidance. This leaves $96 million of net new revenue required from new customer contracts. The risk-adjusted pipeline coverage on the required net new revenue is over 2.5x at March 31, 2018, and up over 40% from the prior year.

On a full year basis and using the midpoint of our guidance, we now approximate 2018 segment performance as follows: CMS revenue growth of 2.2% and OI growth of 4.8%, with 47% of the revenue and 33% of the operating income in the first half; CGS revenue growth of 7.6% and operating income growth of 23.6%, with 49% of revenue and 45% of the operating income in the first half; CTS' revenue growth of 15.8% and operating income growth of 25.8%, with 47% of revenue and 41% of operating income in the first half; CSS revenue and operating income growth of 4.4% each, and 47% of revenue and 40% of operating income in the first half.

In bridging our first quarter results to full year guidance, I would offer the following: our backlog is up year-over-year and represents 94% of our full year guidance at the midpoint at March 31. Our near-term pipeline coverage, in conjunction with our historical conversion rates, support the additional volumes necessary to close out the remaining net new revenue required to meet the midpoint of our revenue guidance. There are meaningful client ramps occurring across the business, which will contribute to revenue and gross margin expansion upon reaching steady state. As our volumes build throughout the year on relatively flat SG&A, we will realize an accelerated improvement in our operating income as we have in prior years.

I'll now turn the call back to Paul.

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Paul Miller, TTEC Holdings, Inc. - Head of IR, Senior VP & Treasurer [5]

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Thanks, Regina. As we open the call, we ask that you limit your questions to 2 at a time. Operator, you may now open the line.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is coming from Mr. Frank Atkins from SunTrust.

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Francis Carl Atkins, SunTrust Robinson Humphrey, Inc., Research Division - Associate [2]

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Congrats on the hire of Dave Anderson. I wondered if you could talk a little bit about your goals, kind of in the near term as well as the longer term, on the consulting and transformational work side and how that kind of integrates with the full strategy at TTEC.

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Kenneth D. Tuchman, TTEC Holdings, Inc. - Founder, Chairman & CEO [3]

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This is Ken. Clearly, our goals are to accelerate the growth within CSS. And we have full intention, are very confident that that's going to take place with the new leadership that's been brought in and additional folks that are being recruited that are rainmakers for that particular business. But I think that to -- the central part of your question is, is that the goals are really very simple. And that is, is that every client that we have across the globe, yet as per my script, is realizing that digital transformation is hard and that omni-channel is extremely hard and that customer orchestration is something that they're trying to figure out. And so consequently, our management consulting organization is getting in the middle of assisting our clients with sorting that out, coming up with strategies, helping them design all of the necessary journeys and the micro-journeys, et cetera, identifying the technology voids so that there is a proper hand-off between our consulting organization and our technology organization. And so those 2 organizations are working very closely together. And as they work together, they're also, obviously, identifying opportunities for our TTEC Engage business. So I don't know if I'm answering your question, and if I'm not, feel free to ask additional questions.

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Francis Carl Atkins, SunTrust Robinson Humphrey, Inc., Research Division - Associate [4]

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No, that was helpful. And then my second question is on CTS. You've seen strong demand there. Can you talk a little bit about why you think you're winning more and your positioning within the competitive landscape? And just where the areas of demand in CTS are coming from?

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Kenneth D. Tuchman, TTEC Holdings, Inc. - Founder, Chairman & CEO [5]

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So when you look at our CTS business and you look at our embedded client base, and then you look at the "cloud-based competitors" that are out there, there's -- a, there's only a few of them; and b, the few that there are have been very, very focused on, what I would call, the entry-level part of the marketplace. So 1 to 25 positions. And in many cases, they will talk about that they'll have -- that they have some clients that are 500 or 700 positions. But for the most part, 85%, 90% of their business is in the smaller contact center space. Our focus has been on -- in the enterprise space. And we have a reputation and have been involved in that space for decades. And so consequently, virtually every client that we do business with is a very large multinational enterprise with thousands of positions, not hundreds of positions. So consequently, our credentials across the financial services industry, the insurance industry within the financial services industry, the banking industry, the automotive industry, the government, like the IRS, like the U.S. Census, like multiple states, et cetera, are all taking advantage of our platform. And so I think that what we have is significant credibility for providing a turnkey CX-based strategy, where we're either hosting it for our clients in our cloud or where we are deploying it for them in their own cloud and then managing it for them over a long-term contract. This is a business that right now, everybody who's had traditional contact centers is now having to expand from a voice-centric environment to an omni-channel environment, which means that they need to add chat, they need to add SMS text, they need to be connected to all the new chat channels, whether it be Facebook Messenger, whether it be Apple Business Chat, which is now coming out in the next few months, whether it be WeChat, WhatsApp, et cetera. And our technologies are pre-connected to all of those different channels. And in addition to that, we built a proprietary platform that allows our customers to understand the context that a customer has regardless of the channel they're in so that they can start with an SMS text. And if they pick up the phone and call 3 days later, we know -- the customer service associate knows exactly where they left off and can begin the conversation from where they left off. Or whether it was a video chat or whether it was some other type of a proprietary chat. So this is an area that we have deep, deep experience, which is -- we quoted close to 220,000-or-plus workstations that are now under our management. We're managing those workstations across the globe. We don't believe there's a single company in the world that is providing these capabilities that can say that they: a, have that many positions; or b, can say that they are representing this many enterprise clients. And then, the last point I'll make -- and I know I'm going on a bit on this, but this is a very important part of our business and where we plan on putting a lot more energy into to get even more growth than we're already seeing, is when you look at the companies that have chosen to resell our solution, some of the largest telecom carriers in the world are now reselling our solution as well as Cisco themselves are reselling our solution. And so we now have multiple channel partners that are fully commissioned and that are selling our cloud-based platform across the globe. So I apologize for the very long answer, but I'm not sure that folks really fully understand or appreciate this particular business or this segment.

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Regina M. Paolillo, TTEC Holdings, Inc. - Executive VP and Chief Financial & Administrative Officer [6]

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And not to make it longer, I would just add 2 things -- 2 additional themes. One, the business has significant attach rate. Whether that attach rate comes from an initial implementation in a part of the business and extended, but also as our clients continue to integrate the platforms that we're building with them with additional applications, there's lots more work for us. And then, last but not least, that there is an important theme in that growth, that a lot of it is in our cloud platform, which is -- has elements of, what I would say, multi-tenant and has a significantly different gross margin than the balance of the business. And that's why you're seeing the level of uplift in our margin, and we expect that to continue.

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Operator [7]

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Our next question is coming from Mr. Bill Warmington from Wells Fargo.

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William Arthur Warmington, Wells Fargo Securities, LLC, Research Division - MD & Senior Equity Analyst [8]

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So my first question for you was going to be on the ASC 606 adjustment. The $12.5 million on the revenue line was a lot larger than what we had expected. And so I wanted to ask what segment that was coming from within the business. And then also, in terms of how it flowed through, you mentioned $6.3 million on the operating income line. The EPS impact, ballpark, it looks like about $0.10 benefit in the quarter. Is that about right? That was the first question.

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Regina M. Paolillo, TTEC Holdings, Inc. - Executive VP and Chief Financial & Administrative Officer [9]

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Yes. So as we outlined in the script, the impact is in CMS. It was planned. I would say what's off is that the split between Q1 and Q2 is different than what we thought. It is a result of upfront fees, and we have a fair amount of upfront fees from our seasonal business. As we applied 606, we needed to take those fees and push them from 2017 into 2018. And the same thing will happen at a higher level because of the growth we're having in the second half of last year. So it's immaterial to the year. And from an EPS point of view, I don't have that number handy, but when we talk later, I'll confirm that for you or disaffirm it.

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William Arthur Warmington, Wells Fargo Securities, LLC, Research Division - MD & Senior Equity Analyst [10]

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Okay. And then how much FEMA revenue was there from -- in CMS this quarter?

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Regina M. Paolillo, TTEC Holdings, Inc. - Executive VP and Chief Financial & Administrative Officer [11]

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Yes. So if you remember, that FEMA revenue related to storms in late third quarter and fourth quarter of last year, and so you're really looking at a quarter that had no FEMA in Q1 of last year and no FEMA in this quarter.

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William Arthur Warmington, Wells Fargo Securities, LLC, Research Division - MD & Senior Equity Analyst [12]

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Got it. Okay. And then a question on the revenue by vertical. That's something that you guys had been providing in the fact sheets on the -- on your website. And I didn't see it for the fourth quarter, and I just wanted to check and see if you guys were going to be providing that for Q1. And I was specifically trying to get at what the telecom vertical exposure was running.

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Regina M. Paolillo, TTEC Holdings, Inc. - Executive VP and Chief Financial & Administrative Officer [13]

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Well, we haven't been providing it. What I can say -- I think your question is more pointed towards the headwind in the industry, in and around telco. And I can tell you that our telco concentration is down significantly over the last 5 or 6 years. And we're probably in around the mid-20s. I'll also say that we've been very focused in telco on working with partners who are value-seekers, not cost-seekers. So we've been selective about the telcos we work with. And secondly, we are focusing our work on, what I would say, higher ground, higher-valued work in service-to-sales and in sales. So not suggesting that we don't have some of that historical telco, but we have very little of it. The bulk of our portfolio in telco is more CGS work or in CMS service-to-sales and also work that we would do in onshore.

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William Arthur Warmington, Wells Fargo Securities, LLC, Research Division - MD & Senior Equity Analyst [14]

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Got it. Okay. And then another thing that caught my attention, that $15.6 million write-off for an equity investment, what was that for?

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Kenneth D. Tuchman, TTEC Holdings, Inc. - Founder, Chairman & CEO [15]

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It was various different investments that were made in various different software that we just felt we weren't realizing the full value of it, et cetera, and felt it was the appropriate thing to do.

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William Arthur Warmington, Wells Fargo Securities, LLC, Research Division - MD & Senior Equity Analyst [16]

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Got it. All right. One last one, if I could. The -- I just wanted to make sure I got the organic constant-currency revenue growth by segment, if I could trouble you for that.

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Regina M. Paolillo, TTEC Holdings, Inc. - Executive VP and Chief Financial & Administrative Officer [17]

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Why don't we take that off-line? It feels, to me, more like a model question. But happy to go through that with you guys in detail. We gave the numbers very, very, very specifically in our script. My sense is that you can derive it from that, but happy to help you do that interpretation when we get into a one-on-one.

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Operator [18]

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Thank you for your questions. That is all the time we have today. This concludes TTEC's First Quarter 2018 Earnings Conference Call. You may disconnect at this time.