UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
|
☑ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2015
OR
|
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-11919
TeleTech Holdings, Inc.
(Exact name of registrant as specified in its charter)
|
Delaware |
|
84-1291044 |
|
(State or other jurisdiction of |
|
(I.R.S. Employer |
|
incorporation or organization) |
|
Identification No.) |
9197 South Peoria Street
Englewood, Colorado 80112
(Address of principal executive offices)
Registrant’s telephone number, including area code: (303) 397-8100
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer ☐ |
|
Accelerated filer ☑ |
|
|
|
|
|
Non-accelerated filer ☐ (Do not check if a smaller reporting company) |
|
Smaller reporting company ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of November 2, 2015, there were 48,395,849 shares of the registrant’s common stock outstanding.
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
SEPTEMBER 30, 2015 FORM 10-Q
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
(Amounts in thousands, except share amounts)
(unaudited)
|
|
|
September 30, |
|
December 31, |
|
||
|
|
|
2015 |
|
2014 |
|
||
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
86,170 |
|
$ |
77,316 |
|
|
Accounts receivable, net |
|
|
258,231 |
|
|
276,432 |
|
|
Prepaids and other current assets |
|
|
75,798 |
|
|
64,702 |
|
|
Deferred tax assets, net |
|
|
27,175 |
|
|
22,501 |
|
|
Income tax receivable |
|
|
3,015 |
|
|
4,532 |
|
|
Total current assets |
|
|
450,389 |
|
|
445,483 |
|
|
|
|
|
|
|
|
|
|
|
Long-term assets |
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
165,795 |
|
|
150,212 |
|
|
Goodwill |
|
|
118,784 |
|
|
128,705 |
|
|
Deferred tax assets, net |
|
|
24,159 |
|
|
31,512 |
|
|
Other intangible assets, net |
|
|
53,564 |
|
|
59,905 |
|
|
Other long-term assets |
|
|
45,524 |
|
|
36,658 |
|
|
Total long-term assets |
|
|
407,826 |
|
|
406,992 |
|
|
Total assets |
|
$ |
858,215 |
|
$ |
852,475 |
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
46,358 |
|
$ |
37,019 |
|
|
Accrued employee compensation and benefits |
|
|
71,937 |
|
|
70,069 |
|
|
Other accrued expenses |
|
|
40,662 |
|
|
34,430 |
|
|
Income tax payable |
|
|
7,247 |
|
|
10,141 |
|
|
Deferred tax liabilities, net |
|
|
358 |
|
|
— |
|
|
Deferred revenue |
|
|
30,183 |
|
|
29,887 |
|
|
Other current liabilities |
|
|
27,296 |
|
|
17,085 |
|
|
Total current liabilities |
|
|
224,041 |
|
|
198,631 |
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities |
|
|
|
|
|
|
|
|
Line of credit |
|
|
115,000 |
|
|
100,000 |
|
|
Deferred tax liabilities, net |
|
|
2,351 |
|
|
4,675 |
|
|
Deferred rent |
|
|
10,023 |
|
|
8,956 |
|
|
Other long-term liabilities |
|
|
81,011 |
|
|
74,149 |
|
|
Total long-term liabilities |
|
|
208,385 |
|
|
187,780 |
|
|
Total liabilities |
|
|
432,426 |
|
|
386,411 |
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 10) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mandatorily redeemable noncontrolling interest |
|
|
3,920 |
|
|
2,814 |
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity |
|
|
|
|
|
|
|
|
Preferred stock; $0.01 par value; 10,000,000 shares authorized; zero shares outstanding as of September 30, 2015 and December 31, 2014 |
|
|
— |
|
|
— |
|
|
Common stock; $0.01 par value; 150,000,000 shares authorized; 48,404,250 and 48,452,852 shares outstanding as of September 30, 2015 and December 31, 2014, respectively |
|
|
485 |
|
|
485 |
|
|
Additional paid-in capital |
|
|
347,445 |
|
|
356,792 |
|
|
Treasury stock at cost: 33,648,003 and 33,599,401 shares as of September 30, 2015 and December 31, 2014, respectively |
|
|
(534,680) |
|
|
(527,595) |
|
|
Accumulated other comprehensive income (loss) |
|
|
(102,902) |
|
|
(52,274) |
|
|
Retained earnings |
|
|
703,898 |
|
|
677,859 |
|
|
Noncontrolling interest |
|
|
7,623 |
|
|
7,983 |
|
|
Total stockholders’ equity |
|
|
421,869 |
|
|
463,250 |
|
|
Total liabilities and stockholders’ equity |
|
$ |
858,215 |
|
$ |
852,475 |
|
The accompanying notes are an integral part of these consolidated financial statements.
1
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
(Amounts in thousands, except per share amounts)
(Unaudited)
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
|
||||||||
|
|
|
2015 |
|
2014 |
|
2015 |
|
2014 |
|
||||
|
Revenue |
|
$ |
309,195 |
|
$ |
305,900 |
|
$ |
944,939 |
|
$ |
903,611 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services |
|
|
225,978 |
|
|
220,244 |
|
|
682,579 |
|
|
646,346 |
|
|
Selling, general and administrative |
|
|
48,418 |
|
|
49,847 |
|
|
146,031 |
|
|
148,016 |
|
|
Depreciation and amortization |
|
|
15,486 |
|
|
13,893 |
|
|
46,529 |
|
|
41,152 |
|
|
Restructuring charges, net |
|
|
622 |
|
|
593 |
|
|
1,629 |
|
|
1,750 |
|
|
Impairment losses |
|
|
3,066 |
|
|
— |
|
|
3,066 |
|
|
— |
|
|
Total operating expenses |
|
|
293,570 |
|
|
284,577 |
|
|
879,834 |
|
|
837,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
15,625 |
|
|
21,323 |
|
|
65,105 |
|
|
66,347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
196 |
|
|
542 |
|
|
877 |
|
|
1,545 |
|
|
Interest expense |
|
|
(2,337) |
|
|
(1,646) |
|
|
(5,711) |
|
|
(5,197) |
|
|
Other income (expense), net |
|
|
146 |
|
|
248 |
|
|
1,133 |
|
|
5,498 |
|
|
Total other income (expense) |
|
|
(1,995) |
|
|
(856) |
|
|
(3,701) |
|
|
1,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
13,630 |
|
|
20,467 |
|
|
61,404 |
|
|
68,193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
(1,192) |
|
|
(5,778) |
|
|
(13,438) |
|
|
(14,071) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
12,438 |
|
|
14,689 |
|
|
47,966 |
|
|
54,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to noncontrolling interest |
|
|
(1,243) |
|
|
(1,442) |
|
|
(3,303) |
|
|
(3,795) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to TeleTech stockholders |
|
$ |
11,195 |
|
$ |
13,247 |
|
$ |
44,663 |
|
$ |
50,327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
12,438 |
|
$ |
14,689 |
|
$ |
47,966 |
|
$ |
54,122 |
|
|
Foreign currency translation adjustments |
|
|
(21,997) |
|
|
(16,660) |
|
|
(39,342) |
|
|
(11,373) |
|
|
Derivative valuation, gross |
|
|
(11,426) |
|
|
(18,908) |
|
|
(17,733) |
|
|
(5,044) |
|
|
Derivative valuation, tax effect |
|
|
4,928 |
|
|
7,675 |
|
|
8,264 |
|
|
2,282 |
|
|
Other, net of tax |
|
|
223 |
|
|
248 |
|
|
(2,140) |
|
|
804 |
|
|
Total other comprehensive income (loss) |
|
|
(28,272) |
|
|
(27,645) |
|
|
(50,951) |
|
|
(13,331) |
|
|
Total comprehensive income (loss) |
|
|
(15,834) |
|
|
(12,956) |
|
|
(2,985) |
|
|
40,791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Comprehensive income attributable to noncontrolling interest |
|
|
(906) |
|
|
(1,053) |
|
|
(2,443) |
|
|
(3,212) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to TeleTech stockholders |
|
$ |
(16,740) |
|
$ |
(14,009) |
|
$ |
(5,428) |
|
$ |
37,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
48,345 |
|
|
49,093 |
|
|
48,346 |
|
|
49,493 |
|
|
Diluted |
|
|
48,936 |
|
|
49,940 |
|
|
49,052 |
|
|
50,338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to TeleTech stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.23 |
|
$ |
0.27 |
|
$ |
0.92 |
|
$ |
1.02 |
|
|
Diluted |
|
$ |
0.23 |
|
$ |
0.27 |
|
$ |
0.91 |
|
$ |
1.00 |
|
The accompanying notes are an integral part of these consolidated financial statements.
2
TELETECH HOLDINGS, INC. AN
D SUBSIDIARIES
Consolidated Statement of Stockholders’ Equity
(Amounts in thousands)
(Unaudited)
|
|
|
Stockholders’ Equity of the Company |
|
|
|
|
|
|
|
||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock |
|
Common Stock |
|
Treasury |
|
Additional |
|
Comprehensive |
|
Retained |
|
Noncontrolling |
|
|
|
|
|||||||||||
|
|
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Stock |
|
Paid-in Capital |
|
Income (Loss) |
|
Earnings |
|
interest |
|
Total Equity |
|
||||||||
|
Balance as of December 31, 2014 |
|
— |
|
$ |
— |
|
48,453 |
|
$ |
485 |
|
$ |
(527,595) |
|
$ |
356,792 |
|
$ |
(52,274) |
|
$ |
677,859 |
|
$ |
7,983 |
|
$ |
463,250 |
|
|
Net income |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
44,663 |
|
|
2,766 |
|
|
47,429 |
|
|
Dividends to shareholders |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(17,423) |
|
|
— |
|
|
(17,423) |
|
|
Adjustments to redemption value of mandatorily redeemable noncontrolling interest |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(1,201) |
|
|
— |
|
|
(1,201) |
|
|
Dividends distributed to noncontrolling interest |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(2,925) |
|
|
(2,925) |
|
|
Foreign currency translation adjustments |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(39,019) |
|
|
— |
|
|
(323) |
|
|
(39,342) |
|
|
Derivatives valuation, net of tax |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(9,469) |
|
|
— |
|
|
— |
|
|
(9,469) |
|
|
Vesting of restricted stock units |
|
— |
|
|
— |
|
330 |
|
|
3 |
|
|
5,098 |
|
|
(8,394) |
|
|
— |
|
|
— |
|
|
— |
|
|
(3,293) |
|
|
Exercise of stock options |
|
— |
|
|
— |
|
284 |
|
|
3 |
|
|
4,413 |
|
|
(9,668) |
|
|
— |
|
|
— |
|
|
— |
|
|
(5,252) |
|
|
Excess tax benefit from equity-based awards |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
354 |
|
|
— |
|
|
— |
|
|
— |
|
|
354 |
|
|
Equity-based compensation expense |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
8,361 |
|
|
— |
|
|
— |
|
|
122 |
|
|
8,483 |
|
|
Purchases of common stock |
|
— |
|
|
— |
|
(663) |
|
|
(6) |
|
|
(16,596) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(16,602) |
|
|
Other, net of tax |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(2,140) |
|
|
— |
|
|
— |
|
|
(2,140) |
|
|
Balance as of September 30, 2015 |
|
— |
|
$ |
— |
|
48,404 |
|
$ |
485 |
|
$ |
(534,680) |
|
$ |
347,445 |
|
$ |
(102,902) |
|
$ |
703,898 |
|
$ |
7,623 |
|
$ |
421,869 |
|
The accompanying notes are an integral part of these consolidated financial statements.
3
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
|
|
|
Nine Months Ended September 30, |
|||||
|
|
|
2015 |
|
2014 |
|
||
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
47,966 |
|
$ |
54,122 |
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
46,529 |
|
|
41,152 |
|
|
Amortization of contract acquisition costs |
|
|
754 |
|
|
740 |
|
|
Amortization of debt issuance costs |
|
|
534 |
|
|
527 |
|
|
Imputed interest expense and fair value adjustments to contingent consideration |
|
|
786 |
|
|
(3,675) |
|
|
Provision for doubtful accounts |
|
|
964 |
|
|
471 |
|
|
Gain on disposal of assets |
|
|
(118) |
|
|
— |
|
|
Impairment losses |
|
|
3,066 |
|
|
— |
|
|
Deferred income taxes |
|
|
4,380 |
|
|
13,051 |
|
|
Excess tax benefit from equity-based awards |
|
|
(420) |
|
|
(1,086) |
|
|
Equity-based compensation expense |
|
|
8,569 |
|
|
9,031 |
|
|
Loss (gain) on foreign currency derivatives |
|
|
4,820 |
|
|
1,756 |
|
|
Changes in assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
4,722 |
|
|
(24,179) |
|
|
Prepaids and other assets |
|
|
(6,839) |
|
|
(16,118) |
|
|
Accounts payable and accrued expenses |
|
|
11,857 |
|
|
(17,830) |
|
|
Deferred revenue and other liabilities |
|
|
(11,406) |
|
|
3,945 |
|
|
Net cash provided by operating activities |
|
|
116,164 |
|
|
61,907 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Proceeds from sale of long-lived assets |
|
|
116 |
|
|
135 |
|
|
Purchases of property, plant and equipment, net of acquisitions |
|
|
(49,184) |
|
|
(52,234) |
|
|
Investments in non-marketable equity investments |
|
|
(9,000) |
|
|
— |
|
|
Acquisitions, net of cash acquired of zero and $3,525, respectively |
|
|
(1,776) |
|
|
(23,903) |
|
|
Net cash used in investing activities |
|
|
(59,844) |
|
|
(76,002) |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Proceeds from line of credit |
|
|
1,697,500 |
|
|
1,540,100 |
|
|
Payments on line of credit |
|
|
(1,682,500) |
|
|
(1,525,100) |
|
|
Proceeds from other debt |
|
|
— |
|
|
— |
|
|
Payments on other debt |
|
|
(2,556) |
|
|
(3,769) |
|
|
Payments of contingent consideration related to acquisitions |
|
|
(11,883) |
|
|
(8,547) |
|
|
Dividends paid to shareholders |
|
|
(8,710) |
|
|
— |
|
|
Payments to noncontrolling interest |
|
|
(3,557) |
|
|
(4,838) |
|
|
Proceeds from exercise of stock options |
|
|
459 |
|
|
314 |
|
|
Excess tax benefit from equity-based awards |
|
|
420 |
|
|
1,086 |
|
|
Payments of debt issuance costs |
|
|
(35) |
|
|
— |
|
|
Purchase of treasury stock |
|
|
(16,602) |
|
|
(47,281) |
|
|
Net cash used in financing activities |
|
|
(27,464) |
|
|
(48,035) |
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
(20,002) |
|
|
(8,275) |
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
|
8,854 |
|
|
(70,405) |
|
|
Cash and cash equivalents, beginning of period |
|
|
77,316 |
|
|
158,017 |
|
|
Cash and cash equivalents, end of period |
|
$ |
86,170 |
|
$ |
87,612 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
4,640 |
|
$ |
4,038 |
|
|
Cash paid for income taxes |
|
$ |
10,924 |
|
$ |
10,540 |
|
|
Non-cash investing and financing activities |
|
|
|
|
|
|
|
|
Acquisition of long-lived assets through capital leases |
|
$ |
5,316 |
|
$ |
— |
|
|
Acquisition of equipment through increase in accounts payable |
|
$ |
5,448 |
|
$ |
2,944 |
|
|
Contract acquisition costs credited to accounts receivable |
|
$ |
820 |
|
$ |
— |
|
|
Dividend declared but not paid |
|
$ |
8,713 |
|
$ |
— |
|
The accompanying notes are an integral part of these consolidated financial statements.
4
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1)OVERVIEW AND BASIS OF PRESENTATION
Summary of Business
TeleTech Holdings, Inc. and its subsidiaries (“TeleTech” or the “Company”) is a customer engagement management services provider, delivering integrated consulting, technology, growth and customer care solutions on a global scale. Our suite of product and service capabilities allows us to design and deliver enhanced, value-driven customer experiences across numerous communication channels. TeleTech’s 41,000 employees serve clients in the automotive, communication, financial services, government, healthcare, logistics, media and entertainment, retail, technology, transportation and travel industries via operations in the U.S., Australia, Belgium, Brazil, Bulgaria, Canada, China, Costa Rica, Germany, Hong Kong, Ireland, Israel, Lebanon, Macedonia, Mexico, New Zealand, the Philippines, Poland, Singapore, South Africa, Thailand, Turkey, the United Arab Emirates, and the United Kingdom.
Basis of Presentation
The Consolidated Financial Statements are comprised of the accounts of TeleTech, its wholly owned subsidiaries, its 55% equity owned subsidiary Percepta, LLC, and its 80% interest in iKnowtion, LLC. All intercompany balances and transactions have been eliminated in consolidation.
The unaudited Consolidated Financial Statements do not include all of the disclosures required by accounting principles generally accepted in the U.S. (“GAAP”), pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The unaudited Consolidated Financial Statements reflect all adjustments which, in the opinion of management, are necessary to state fairly the consolidated financial position of the Company and the consolidated results of operations and comprehensive income (loss) and the consolidated cash flows of the Company. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.
During the three months ended June 30, 2015, an additional expense of $1.75 million was recorded as an additional estimated tax liability that should have been recorded in prior periods related to ongoing discussions with relevant government authorities related to site compliance with tax advantaged status. The total amount of $1.75 million should have been recorded as additional tax expense in the amount of $466 thousand in 2012, $406 thousand in 2013, $645 thousand in 2014 and $234 thousand in the first quarter of 2015.
During the three months ended June 30, 2015, the Company recorded an additional $3.2 million loss related to foreign currency translation within Other comprehensive income (loss) that should have been recorded in 2014 and the three months ended March 31, 2015 to correct for an error in translating the financial results of Sofica Group AD, which we acquired on February 28, 2014. Of the $3.2 million recorded, approximately $1.7 million and $1.5 million should have been recorded in the year ended December 31, 2014 and the three months ended March 31, 2015, respectively. The Company also recorded an additional $2.7 million loss to “Other, net of tax” within Other comprehensive income (loss) in the three months ended March 31, 2015 and the nine months ended September 30, 2015 related to the annual actuarial analysis for the Company’s Philippines pension liability that should have been recorded in the fourth quarter of 2014.
The Company has evaluated the aggregate impact of these adjustments and concluded that these adjustments were not material to the previously issued or current period consolidated financial statements.
These unaudited Consolidated Financial Statements should be read in conjunction with the Company’s audited Consolidated financial Statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.
5
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Use of Estimates
The preparation of the Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions in determining the reported amounts of assets and liabilities, disclosure of contingent liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenue and expenses during the reporting period. On an on-going basis, the Company evaluates its estimates including those related to derivatives and hedging activities, income taxes including the valuation allowance for deferred tax assets, self-insurance reserves, litigation reserves, restructuring reserves, allowance for doubtful accounts, contingent consideration, and valuation of goodwill, long-lived and intangible assets. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ materially from these estimates under different assumptions or conditions.
Recently Issued Accounting Pronouncements
In April 2015, the FASB issued ASU No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs”. ASU 2015-03 requires all costs incurred in connection with the issuance of debt to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability. This ASU is effective for interim and annual periods beginning on or after December 15, 2015 and early adoption is permitted. The Company is evaluating when it will adopt the standard but does not expect the adoption of this standard to have a material impact on its financial position, results of operation or related disclosures.
In September 2015, the FASB issued ASU 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments”. ASU 2015-16 requires that the cumulative impact of all measurement period adjustments be recorded in the period in which the adjustment is identified. This change eliminates the requirement to restate prior financial statements. The ASU is effective for interim and annual periods beginning on or after December 15, 2015 and can be early adopted for periods for which the financial statements have not yet been issued. The Company took advantage of the early adoption provision and adopted the standard during the quarter ended September 30, 2015. It did not have a material impact on its financial position, results of operation or related disclosures.
(2)ACQUISITIONS
rogenSi
In the third quarter of 2014, as an addition to the Customer Strategy Services (“CSS”) segment, the Company acquired substantially all operating assets of rogenSi Worldwide PTY, Ltd., a global leadership, change management, sales, performance training and consulting company.
The total purchase price was $34.4 million, subject to certain working capital adjustments, and consists of $18.1 million in cash at closing and an estimated $14.5 million in three earn-out payments, contingent on the acquired companies and TeleTech’s CSS segment achieving certain agreed earnings before interest, taxes, depreciation and amortization (“EBITDA”) targets, as defined in the sale and purchase agreement. Additionally, the estimated purchase price included a $1.8 million hold-back payment for contingencies as defined in the sale and purchase agreement which will be paid in the first quarter of 2016, if required. The total contingent consideration possible per the sale and purchase agreement ranges from zero to $17.6 million and the earn-out payments are payable in early 2015, 2016 and 2017, based on July 1, 2014 through December 31, 2014, and full year 2015 and 2016 performance, respectively.
6
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The fair value of the contingent consideration was measured by applying a probability weighted discounted cash flow model based on significant inputs not observable in the market (Level 3 inputs). Key assumptions include a discount rate of 4.6% and expected future value of payments of $15.3 million. The $15.3 million of expected future payments was calculated using a probability weighted EBITDA assessment with the highest probability associated with rogenSi achieving the targeted EBITDA for each earn-out year. As of the acquisition date, the fair value of the contingent consideration was approximately $14.5 million. During the fourth quarter of 2014 and the third quarter of 2015, the Company recorded fair value adjustments of the contingent consideration of $0.5 million and $0.8 million, respectively, based on revised estimates noting higher probability of exceeding the EBITDA targets (see Note 7). As of September 30, 2015, the fair value of the remaining contingent consideration was $9.9 million, of which $5.9 million and $4.0 million were included in Other accrued expenses and Other long-term liabilities in the accompanying Consolidated Balance Sheets, respectively.
The following summarizes the fair values of the identifiable assets acquired and liabilities assumed as of the acquisition date (in thousands):
|
|
|
Acquisition Date |
|
|
|
|
|
Fair Value |
|
|
|
Cash |
|
$ |
2,670 |
|
|
Accounts receivable, net |
|
|
6,417 |
|
|
Other assets |
|
|
2,880 |
|
|
Property, plant and equipment |
|
|
578 |
|
|
Deferred tax assets, net |
|
|
449 |
|
|
Customer relationships |
|
|
6,331 |
|
|
Tradename / trademarks |
|
|
5,545 |
|
|
Non-compete agreements |
|
|
927 |
|
|
Goodwill |
|
|
17,260 |
|
|
|
|
|
43,057 |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
708 |
|
|
Accrued employee compensation and benefits |
|
|
2,203 |
|
|
Accrued expenses |
|
|
1,146 |
|
|
Other |
|
|
4,597 |
|
|
|
|
|
8,654 |
|
|
|
|
|
|
|
|
Total purchase price |
|
$ |
34,403 |
|
In the third quarter of 2015, the Company finalized its valuation of rogenSi for the acquisition date assets acquired and liabilities assumed. The only material adjustment was an increase to the balances for tradename/ trademarks, customer relationships and non-compete agreements by $3.4 million and a resulting decrease to goodwill of $3.4 million. In connection with this valuation finalization, a reduction to amortization expense of $0.3 million was recorded during the quarter ended September 30, 2015.
The rogenSi customer relationships and non-compete agreements will be amortized over useful lives of 70 months and 30 months, respectively. The goodwill recognized from the rogenSi acquisition is attributable, but not limited to, the acquired workforce and expected synergies within CSS. None of the tax basis of the acquired intangibles and goodwill will be deductible for income tax purposes. The acquired goodwill and the operating results of rogenSi are reported, as its own reporting unit, within the CSS segment from the date of acquisition.
7
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Sofica
In the first quarter of 2014, as an addition to the Customer Management Services (“CMS”) segment, the Company acquired a 100% interest in Sofica Group, a Bulgarian joint stock company (“Sofica”). Sofica provides customer lifecycle management and other business process services across multiple channels in multiple sites in over 18 languages.
The purchase price of $14.2 million included $9.4 million in cash consideration (including working capital adjustments) and an estimated $3.8 million in earn-out payments, payable in 2015 and 2016, contingent on Sofica achieving specified EBITDA targets, as defined by the stock purchase agreement. The total contingent consideration possible per the stock purchase agreement ranges from zero to $7.5 million. Additionally, the purchase price includes a $1.0 million hold-back payment for contingencies as defined in the stock purchase agreement which will be paid in the second quarter of 2016, if required.
The fair value of the contingent consideration was measured based on significant inputs not observable in the market (Level 3 inputs). Key assumptions include a discount rate of 5.0% and expected future value of payments of $4.0 million. The $4.0 million of expected future payments was calculated using a probability weighted EBITDA assessment with the highest probability associated with Sofica achieving the targeted EBITDA for each earn-out year. As of the acquisition date, the fair value of the contingent consideration was approximately $3.8 million. During the third and fourth quarters of 2014, the Company recorded fair value adjustments of the contingent consideration of $1.8 million and $0.6 million, respectively, based on revised estimates noting higher probability of exceeding the EBITDA targets (see Note 7). During the second quarter of 2015, the Company recorded a negative fair value adjustment for contingent consideration of $0.5 million based on revised estimates noting lower profitability than initially estimated. As of September 30, 2015, the fair value of the remaining contingent consideration was $3.1 million which was included in Other accrued expenses in the accompanying Consolidated Balance Sheets.
Financial Impact of Acquired Businesses
The acquired businesses purchased in 2014 noted above contributed revenues of $14.6 million and $41.9 million, and income from operations of $3.3 million and $6.4 million, inclusive of $0.3 million and $1.7 million of acquired intangible amortization, to the Company for the three and nine months ended September 30, 2015, respectively. These same acquired businesses contributed revenues of $8.5 million and $14.5 million, and income from operations of $1.4 million and $2.1 million, inclusive of $0.4 million and $0.7 million of acquired intangible amortization, to the Company for the three and nine months ended September 30, 2014, respectively.
Investments
CaféX
In the first quarter of 2015, the Company invested $9.0 million in CafeX Communications, Inc. (“CafeX”) through the purchase of a portion of the Series B Preferred Stock of CafeX. After the transaction, the Company owns 17.3% of the total equity of CafeX. CaféX is a provider of omni-channel web-based real time communication (WebRTC) solutions that enhance mobile applications and websites with in-app video communication and screen share technology to increase customer satisfaction and enterprise efficiency. TeleTech anticipates deploying the CafeX technology as part of the TeleTech customer experience offerings within the CMS business segment and as part of its Humanify platform.
8
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(3)SEGMENT INFORMATION
The Company reports the following four segments:
|
· |
the CMS segment includes the customer experience delivery solutions which integrate innovative technology with highly-trained customer experience professionals to optimize the customer experience across all channels and all stages of the customer lifecycle from an onshore, offshore or work-from-home environment; |
|
· |
the CGS segment provides technology-enabled sales and marketing solutions that support revenue generation across the customer lifecycle, including sales advisory, search engine optimization, digital demand generation, lead qualification, and acquisition sales, growth and retention services; |
|
· |
the CTS segment includes operational and design consulting, systems integration, and cloud and on-premise managed services, the requirements needed to design, deliver and maintain best-in-class multichannel customer engagement platforms; and |
|
· |
the CSS segment provides professional services in customer experience strategy, customer intelligence analytics, system and operational process optimization, and culture development and knowledge management. |
The Company allocates to each segment its portion of corporate operating expenses. All intercompany transactions between the reported segments for the periods presented have been eliminated.
The following tables present certain financial data by segment (in thousands):
Three Months Ended September 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
Income |
|
||
|
|
|
Gross |
|
Intersegment |
|
Net |
|
& |
|
(Loss) from |
|
|||||
|
|
|
Revenue |
|
Sales |
|
Revenue |
|
Amortization |
|
Operations |
|
|||||
|
Customer Management Services |
|
$ |
212,690 |
|
$ |
— |
|
$ |
212,690 |
|
$ |
10,900 |
|
$ |
8,930 |
|
|
Customer Growth Services |
|
|
33,853 |
|
|
— |
|
|
33,853 |
|
|
1,535 |
|
|
(257) |
|
|
Customer Technology Services |
|
|
42,141 |
|
|
(7) |
|
|
42,134 |
|
|
2,447 |
|
|
3,774 |
|
|
Customer Strategy Services |
|
|
20,518 |
|
|
— |
|
|
20,518 |
|
|
604 |
|
|
3,178 |
|
|
Total |
|
$ |
309,202 |
|
$ |
(7) |
|
$ |
309,195 |
|
$ |
15,486 |
|
$ |
15,625 |
|
Three Months Ended September 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
Income |
|
||
|
|
|
Gross |
|
Intersegment |
|
Net |
|
& |
|
(Loss) from |
|
|||||
|
|
|
Revenue |
|
Sales |
|
Revenue |
|
Amortization |
|
Operations |
|
|||||
|
Customer Management Services |
|
$ |
226,814 |
|
$ |
— |
|
$ |
226,814 |
|
$ |
9,973 |
|
$ |
18,625 |
|
|
Customer Growth Services |
|
|
28,765 |
|
|
— |
|
|
28,765 |
|
|
1,511 |
|
|
1,800 |
|
|
Customer Technology Services |
|
|
35,203 |
|
|
(9) |
|
|
35,194 |
|
|
1,927 |
|
|
(286) |
|
|
Customer Strategy Services |
|
|
15,127 |
|
|
— |
|
|
15,127 |
|
|
482 |
|
|
1,184 |
|
|
Total |
|
$ |
305,909 |
|
$ |
(9) |
|
$ |
305,900 |
|
$ |
13,893 |
|
$ |
21,323 |
|
9
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Nine months Ended September 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
Income |
|
||
|
|
|
Gross |
|
Intersegment |
|
Net |
|
& |
|
(Loss) from |
|
|||||
|
|
|
Revenue |
|
Sales |
|
Revenue |
|
Amortization |
|
Operations |
|
|||||
|
Customer Management Services |
|
$ |
675,015 |
|
$ |
— |
|
$ |
675,015 |
|
$ |
32,750 |
|
$ |
43,956 |
|