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Operator
Welcome to T-TECH's second quarter 2021 earnings conference call. I would like to remind all parties that you will be in a listen-only mode until the question and answer session. This call is being recorded at the request of T-TECH. I would now like to turn the call over to Paul Miller, T-TECH's Senior Vice President, Treasurer, and Investor Relations Officer. Thank you, sir. You may begin.
Paul Miller
Good morning, and thank you for joining us today. T-TECH is hosting this call to discuss its second quarter earnings results for the period ended June 30th, 2021. Participating on today's call are Ken Tuchman.
Ken Tuchman
Hi, great. I'm going to keep you on mute, and I'll speak up if I need anything.
Paul Miller
All right.
Ken Tuchman
Thank you.
Paul Miller
Participating on today's call are Ken Tuchman, our Chairman and Chief Executive Officer, and Regina Paolillo, our Chief Financial and Administrative Officer. Yesterday, T-TECH 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 report 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.
Ken Tuchman
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 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 in growing our embedded base and adding new clients has set us up for long-term growth as our clients leverage 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 am 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're 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 T-TECH 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 trend 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 T-TECH's proven expertise and comprehensive capabilities to help power their future success. The market force is driving our born digital sector are the same factors driving expansion with our tenured multinational enterprise and public sector clients. T-TECH has always enjoyed a leading share with these titans within the world 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 processes, and disconnected databases while facing new operating models and changing regulations. And they have significant work to do. These huge organizations haven't architected a 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 a 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 challenged 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 cast of operations, including technology. For both the digital disruptors and their large-scale multinational predecessors, we're 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 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 as well as emerging 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 a hundred and seventy percent increase in this clients digital revenue My second example puts a spotlight on the importance of trust when doing business online. To protect the safety and security for guests of one of the largest global online marketplaces for lodging and vacation rentals, we built a complex detection bot 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 RealPlay training solution. Using voice recognition, machine learning technology, and responsive game development and data visualization, T-TECH's RealPlay 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 onboarding time by up to 50%. and increased speed to proficiency by almost 75%. Truly game-changing stuff. Through T-TECH 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 T-TECH one of the largest CX technology solution providers in the marketplace. Additionally, we currently employ thousands 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, Genesis, Cisco, Microsoft, and Salesforce, to name a few. Importantly, we have been the Genesis 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 her 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 a unique lens for innovation and delivering meaningful outcomes. Our CX subject matter expertise across vertical industries, client-specific needs, and frontline execution enable us to create solutions that deliver unparalleled value and results. The next is speed. Through our Humanifi 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 in compelling ways becomes paramount. Through our engage in digital businesses, we are future-proofing our clients' 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 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.
Paul
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 offering. As we capitalize on a growing addressable market with favorable trends and an 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 24% 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 a 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 AsiaPAC 34%. Our intense vertical focus, including financial services, healthcare, automotive, technology, public sector, and retail, is paying off. These industries collectively comprise $270 million of our year-to-date bookings. Additionally, our born-digital hyper-growth sector bookings, including some of the most noteworthy clients, is up 187% to $81 million year-to-date. The strength of our bookings has resulted in a 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 in 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 percent of revenue compared to 15.7 percent in the prior year. Operating income increased 38.7 percent to 78.6 million or 14.2 percent of revenue, 170 basis point improvement over the prior year. EPS increased 49 percent to $1.27 compared to 85 cents. Foreign exchange primarily from a weaker U.S. dollar had a positive impact of $10.4 million on revenue, primarily impacting our engaged 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 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 pipeline growth. With $333 million of 2021 revenue backlog and a 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's cloud-based revenue recognition to T-TECH's accounting standard. 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 AptX 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 $61.5 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. Our engaged 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 engaged 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 $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 offset by strong cash flow generation. Second quarter cash flow from operations improves 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 of 2021. compared to $15.1 million or 3.3% in the prior year. The decrease as a percentage of revenue is 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 of 2021 versus 24.9% in the prior year. The 350 basis point reduction is primarily due to the jurisdictional mix 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 43 cents, or approximately 20 million, which was paid on April 21st, 2021 to shareholders' record on April 5th, 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, provides us the 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, gap 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 percent over the prior year and 15.5 percent of revenue compared to 15.6 percent in the prior year. Non-GAAP operating income of $283.8 million, an increase of 17.1 percent over the prior year and 12.6 percent of revenue compared to 12.4 percent in the prior year. Non-GAAP earnings per share, of $4.43, an increase of 61 cents or 16% over the prior year. Other relevant guidance metrics include capital expenditures between 2.9% and 3.1% of revenue, a full year tax rate of 22 and 24%, and a diluted share count of between 47.2 and 47.6 million. Please 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 macroeconomic 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 percent and total company 2022 EBITDA growth in the range of 10 to 12 percent. This includes digital revenue growth between 18 and 22 percent and the engaged revenue growing between 7% and 9%. Additionally, we currently estimate digital's 2022 EBITDA to grow between 20% and 22% and engaged EBITDA to grow between 8% and 10%. We look forward to finalizing this guidance in conjunction with our 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'll now turn the call back to Paul.
Paul Miller
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.
Operator
Thank you, sir. We will begin the question and answer session. If you would like to ask a question, please press star 1 on your touchstone phone. Our first question would come from Maggie Nolan of William Blair. Your line is open. Please go ahead.
William Blair
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?
Ken Tuchman
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 a deal. All of 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.
Paul
Yeah, I think the only other thing I add, Maggie, is, you know, I just stress that, you know, I think we've honed our ability to estimate our backlog and we certainly continue to grow our pipeline and have, you know, healthy conversion rates. So, I think, you know, what Ken said, you know, absolutely about, you know, we have a fairly good progress on the backlog and, you know, kind of where we are this year you know, in our backlog into, you know, 22 gives us some confidence to actually put those numbers out there. I think, you know, 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 the 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 15% growth rate overall for the company, albeit with acquisition almost a 33% 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 Genesis 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. You know, we do see some signs, but I would say in the digital business, it's largely about the Cisco practice and that, you know, 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. You know, and on the engaged side, we've seen very good progress. You can hear it from the growth rates in EMEA. We're starting to focus on Asia-Pac, and I think it's, you know, that's the other part of the higher end of engage is really about, you know, those regions continuing to give. I will note that, you know, 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, you know, very strong growth.
William Blair
That's great context. Thanks. And then you've seen good performance out of your hyper growth clients as well. Can you, um, you know, share with us what your expectations are for that group in the medium term and maybe talk about, uh, revenue retention and stickiness of client relationships within that group?
Ken Tuchman
Yeah. I mean, we have well in excess of 150 hyper growth clients right now, and we're growing that, uh, suite of clients at a very rapid rate. So we, uh, 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 FCR division, and they see that they can scale to virtually almost unlimited capacity with T-TECH Engage. And two, along their journey, it's obvious that many of these companies need some digital assistance and modernizing their platforms so that they can handle the scale as they go through hypergrowth. And so that also helps us out quite a bit. And then lastly, I think we've demonstrated to these hypergrowth companies that we can outperform companies 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 them are the brands that you hear about on a daily basis on CNBC, many of which are growing very rapidly. whether it be the hyper-growth ones in the healthcare space that you hear about or whether it be the hyper-growth ones in the fitness space or the hyper-growth 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 process. a 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.
Paul
The only thing I'd add is, you know, Just remember that we have a full group, right, with the acquisition of SCR, you know, now T-Tech. You know, we have an entire group near 3,000 people, including a full sales force and leadership that is focused every day on this. We do, on the T-Tech side, bring to the table logos as well, especially when they get to a certain size, you know, that I would put in this born digital hypergrowth category. But, you know, that group wakes up every morning focused on this sector. And if you look at that group in year to date, the bookings grew, you know, 84 percent. I talked about the revenue, but also the group, the bookings grew 84 percent. So I think when you think about that 20 percent growth rate within our engaged sector, you know, 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 off of a smaller base, so we expect it to continue.
William Blair
Okay, thanks, Ken and Regina. Nice quarter.
Operator
Thank you. Thank you. Our next question would come from Mike Lattimore of Northland Capital Markets. Your line is open. Please go ahead.
Mike Lattimore
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.
Ken Tuchman
Well, so far it's gone extremely well. I think one of the main reasons is that there's an incredible culture fit, and I think that that really helps. Secondly, I think that we're capitalizing off of their genesis and Microsoft expertise, and they're capitalizing off of just our overall scale and geographic reach. And thirdly, you know, 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 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 sciences 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, would you like to add anything?
Paul
Yeah, 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 folks. As you know, we have George now president. So that was a big motion. that, you know, kind of settles the teams down and, you know, they have their targets and, you know, we've integrated them into our budget. So, you know, all of that, you know, may be administrative, but critically important, you know, to set the goals, set the expectations, set the leadership. And that by itself is really helping with the cross-sell, which 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, you know, which is in and around Dynamics and other analytics tools, really changes the conversation. Because Omnichannel is one thing in terms of the mechanics that it affords us, but the applications are so important to, you know, 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 gaps, 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, you know, it's really changing the conversation. As we change the conversation, it draws a broader set of executives. And, you know, when that happens, just speed picks up. Larger deals happen. So we're really looking forward to exploiting that, if you will.
Mike Lattimore
And given the current mix of digital, what percent would you say is recurring revenue at this point?
Paul
It's 57%. Okay. That's high.
Mike Lattimore
Great. Thanks a lot. Thank you.
Operator
Thank you. Our next question would come from George Sutton of Craig Hallam. Your line is open. Please go ahead.
George Sutton
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 redesign 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?
Ken Tuchman
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 in the Fortune 50 and 100 that are asking us to add machine learning, AI capabilities, chatbot capabilities, voicebot 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're much more interested in the art of the possible. And they're 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 engaged 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 that 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 five plus years. and there's no lack of opportunity right now in the marketplace.
George Sutton
Gotcha. I 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.
Ken Tuchman
Thanks so much.
Operator
Thank you. Our next question would come from Jason Kofferberg of Bank of America. Your line is open. Please go ahead.
Ken Tuchman
Hey, guys. This is Cassie. I'm for Jason. Thanks for taking my question. I know you guys talked a little bit about increased investments in the back half of the year, which will probably bring 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, you know, is organic a piece of those investments as well? Just any color there. Thanks.
Ken Tuchman
You know, 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 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?
Paul
No, I just wanted to make sure that you understand when we talk about those investments, they're 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 app techs and we have work to do on that. So there is some investment there, but other than that, when we say investments and R and D and sales and marketing, it's all organic.
Ken Tuchman
Okay. Awesome. And also saw that you guys now have a top client that's greater than 10% of your revenues. Can you just remind us who that client is, how fast they're growing, or is some of that just because you guys have closed and integrated app tech? Thanks.
Ken Tuchman
Well, first of all, what I'd like to... We won't give you the name. 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 drop down below the 10% mark. There's 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.
Ken Tuchman
Okay, got it. That's very helpful. Thank you.
Ken Tuchman
Thank you.
Operator
Thank you. Next question would come from Joseph Daffy of Canaccord. Your line is open. Please go ahead.
Joseph Daffy
Hey, guys. Good morning. Good results. I was curious, if you look at the new logo wins this quarter versus a year ago, let's say, you know, what is the needs and the customer requirements? Have they changed? What's, you know, what's different about these customers versus a year ago? And then I'll follow up.
Ken Tuchman
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 the 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 they market directly to consumers versus just directly through a distribution point or a retailer, etc. I would say 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, you know, they realize that doing at-home work in some of the emerging markets is a bit more complicated than it is in a place like North America where, you know, 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 that area right now. We're building a ton of them as we speak. Regina, what am I missing here?
Paul
Yeah, I think I'll come at it at 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, you know, 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 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 plans, 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, you know, 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, you know, 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've talked about, but we're proliferating at broader, you know, within the industry.
Joseph Daffy
That's great. Thanks. And then just one quick follow-up on, it sounded like there was some nice cross-sale wins in the quarter between CX and digital. Just any comments there on trends? Thanks a lot.
Paul
Yeah, you know, it's, you know, I would say six or seven a quarter, you know, at this point that, or major transformations are like Ken said, right? These are, you know, pointed areas where clients need help. And there are multiple, you know, what I would say cross-sell is now, you know, 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, you know, we're kind of at a clip now that we've got, you know, six or seven a quarter and, you know, hopefully grow from there.
Operator
Thank you. Our next question would come from James Fawcett of Morgan Stanley. You may begin.
James Fawcett
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, while you're able to pass through pricing? It seems like at least in 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 may be seeing, but I just want to get a little color there and see for you to share with us what you're seeing.
Ken Tuchman
Yeah, sure. Great question. So first of all, it's no secret that we have never been viewed as, you know, 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 engaged 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 two and a half 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 experiencing it themselves, and they're 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. Not every client is exactly where we want them to be, but I don't think anyone in any business would ever say that they are when they're in the service business. But clearly more than the majority are, and that's why we're able to maintain the guidance that we have. But we feel very good about where we are, our hiring ability, our fill rates, et cetera. And I can't stress this enough, and this is not meant to sound like a political announcement or whatever, but we go in up front in our proposals telling people what we have to pay these people to maintain a proper level of retention. And 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 we view that business as business that is not in the sweet spot of what we practice. And frankly, it's diluted to our margin.
James Fawcett
That's great. Sorry, Regina, I cut you off. Go ahead.
Paul
Yeah, I just wanted to add a couple of things. One is, you know, scale always. It's your point on how are we, you know, why are we comfortable. It's 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, you know, more investment in leadership, in R&D, in education. in sales and marketing, these aren't 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, you know, 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 a significant uptick. And that means that there are across the company in both these businesses a percentage of revenue in RAMP that is much higher than we've had previously because of those bookings numbers. that will normalize, right? So as the company's gotten from 100 million a quarter of bookings to 125 and so on, now we're at 200 this second quarter, these are long cycle sales, but they're long cycle ramps, some of them, are non-recurring, faster, but are 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 and ramp as a percentage of revenue, we'll be able to normalize back to, you know, what we feel are, you know, 17% EBITDA rates in the digital business near term and, you know, plus 16% in the engaged.
James Fawcett
Got it, got it. And then just quickly, you know, obviously, historically, acquisitions have been a key part of the value creation at T-TECH. 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.
Paul
Yeah, I would say it's all organic with, you know, maybe very small. You know, Avtex has done a fine job in the practice areas of Genesis and Microsoft, you know, CRM, of picking up very small $7, $8, $9 million. So there may be one of those, you know, 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?
Ken Tuchman
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. It's no secret that we're rather conservative in trying to find deals that are highly accretive. And what I would say is stay tuned.
James Fawcett
Great. Thank you very much, everybody.
Ken Tuchman
Thanks so much.
Operator
Thank you. Our next question would come from Brian Bergen of Cowen. Your line is open. Please go ahead.
Brian Bergen
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, the government contract impact? And I think AptX was around $55 million in revenue. If so, I think that would be fairly better than expectations on a run rate. And I'm curious if that becomes new normal or if some of the accounting changes you mentioned, Regina, caused that to be a bit more lumpy going forward.
Paul
Yeah. So, you know, 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 standalone basis, so what I'm saying is if you look at the Genesis and the Microsoft practices, we don't have them in our year, but that's up 17%. you know, what I, 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, we're up 104%. And so we continue to carry, you know, what is about a 31% negative growth based on the government contract. Uh, remember that was like 90 million on a business that was 307, um, million. And so there's about a 31%, uh, decline, but, you know, as you, as we, um, you know, as we add these other businesses and they grow, they're, you know, certainly, um, helping us to earn through that.
Brian Bergen
Okay. But on Avtex, you know, so it was a solid cue 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 accounting comment.
Paul
Here's what I would say, right? I think it's the right kind of run rate. We have, you know, 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. When 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 it 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 a more significant amount up front and ran a less amount over time. And we're conforming 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 some headwinds from finalizing the purchase accounting and the forward accounting. It is 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, you know, done, you know, our view, and that's why you see the guidance for next year, right, not guidance, but at least an indication, is 18 to 22%. Okay.
Brian Bergen
Yeah, it 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 if you're pressing more aggressively on Europe and APAC.
Paul
Yeah, so in one respect, yes, regionally. And I would say that we are very quickly, AptX was not, you know, focused outside of the U.S. 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, you know, clearly developing pipeline there already. So I would say there's a more significant focus in EMEA, but I would, you know, also say that in North America, we will make sure that, you know, in Q3 and Q4, we're standing up the sales organization to execute, you know, 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 increase sales and marketing and increase the inside sales and feet on the street. The other thing I will say is we're building within the engaged business a platform that I would say is kind of a mature offer management. So we've added a 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 engaged, 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. And to do that, we think we need to put and mature some 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, 400 basis points. We're making sure that we balance the profitability with making sure we can grow the top line.
Brian Bergen
Understood. Thank you.
Operator
Thank you. Our last question comes from Josh Vogel of Sudoti. Your line is open. Please go ahead.
Josh Vogel
Thank you. Good morning, Ken and Gina. You covered a lot. Thank you. I just had an 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 skill sets needed expands. And also, which geographies are you seeing the richest pool but also the toughest time in finding available talent? Thank you.
Ken Tuchman
Yeah. Hi. I don't. For us, I don't think we're 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 the hundred or so articles, one that comes out every single day, about employees are demanding flexibility. Employees want, at minimum, a hybrid. 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 new mothers who have decided to potentially take a break from work and then are realizing that they can earn an income by working at home, a high percentage of these people, a 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 poses the risk of COVID. I'm not going to suggest that there aren't certain markets that aren't potentially challenging, but what I would say to you is that, for the most part, we're hitting all of our fill rates, and 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's 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 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
Understood. I appreciate all that, Collar. Thank you.
Ken Tuchman
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
Yeah, we just want to thank everyone for your participation. This concludes our call. Thank you. Thank you.
Operator
Thank you. This concludes T-TECH's second quarter 2021 earnings conference call. You may disconnect at this time.
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