Edgar Filing: TTEC Holdings, Inc.

ttec_Current folio_10Q

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 March 31, 2018


☐	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

TTEC 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☐	Accelerated filer ☑	Non-accelerated filer ☐	Smaller reporting company ☐
		(Do not check if a smaller reporting company)	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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 April 30, 2018, there were 46,006,719 shares of the registrant’s common stock outstanding.

Table of Contents

TTEC HOLDINGS, INC. AND SUBSIDIARIES

MARCH 31, 2018 FORM 10-Q

TABLE OF CONTENTS


		Page No.

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017 (unaudited)	1

	Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2018 and 2017 (unaudited)	2

	Consolidated Statement of Equity as of and for the three months ended March 31, 2018 (unaudited)	3

	Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017 (unaudited)	4

	Notes to the Unaudited Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	40

Item 4.	Controls and Procedures	42

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	43

Item 1A.	Risk Factors	43

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43

Item 5.	Other Information	43

Item 6.	Exhibits	44

SIGNATURES		45

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TTEC HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Amounts in thousands, except share amounts)

(unaudited)


	March 31,		December 31,
	2018		2017
ASSETS
Current assets
Cash and cash equivalents	$	81,594	$	74,437
Accounts receivable, net		344,249		385,751
Prepaids and other current assets		71,840		63,668
Deferred tax assets, net		—		—
Income tax receivable		12,569		11,099
Assets held for sale		7,412		7,835
Total current assets		517,664		542,790

Long-term assets
Property, plant and equipment, net		157,215		163,297
Goodwill		205,632		206,694
Deferred tax assets, net		16,476		12,012
Other intangible assets, net		88,707		92,086
Other long-term assets		49,168		61,857
Total long-term assets		517,198		535,946
Total assets	$	1,034,862	$	1,078,736

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	39,472	$	46,029
Accrued employee compensation and benefits		85,004		83,997
Other accrued expenses		29,442		18,993
Income tax payable		18,318		7,497
Deferred revenue		28,675		21,628
Other current liabilities		22,535		22,312
Liabilities held for sale		1,481		1,322
Total current liabilities		224,927		201,778

Long-term liabilities
Line of credit		302,500		344,000
Deferred tax liabilities, net		11,458		11,285
Non-current income tax payable		38,956		47,871
Deferred rent		14,677		15,714
Other long-term liabilities		97,121		95,243
Total long-term liabilities		464,712		514,113
Total liabilities		689,639		715,891

Commitments and contingencies (Note 10)

Stockholders’ equity
Preferred stock; $0.01 par value; 10,000,000 shares authorized; zero shares outstanding as of March 31, 2018 and December 31, 2017		—		—
Common stock; $0.01 par value; 150,000,000 shares authorized; 45,979,290 and 45,861,959 shares outstanding as of March 31, 2018 and December 31, 2017, respectively		460		459
Additional paid-in capital		351,672		351,725
Treasury stock at cost: 36,072,963 and 36,190,294 shares as of March 31, 2018 and December 31, 2017, respectively		(613,738)		(615,677)
Accumulated other comprehensive income (loss)		(107,903)		(102,304)
Retained earnings		707,257		721,664
Noncontrolling interest		7,475		6,978
Total stockholders’ equity		345,223		362,845
Total liabilities and stockholders’ equity	$	1,034,862	$	1,078,736

The accompanying notes are an integral part of these consolidated financial statements.

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TTEC HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss)

(Amounts in thousands, except per share amounts)

(Unaudited)


	Three months ended March 31,
	2018		2017
Revenue	$	375,249	$	338,277

Operating expenses
Cost of services (exclusive of depreciation and amortization presented separately below)		283,370		253,898
Selling, general and administrative		47,045		43,220
Depreciation and amortization		17,924		14,500
Restructuring and integration charges, net		849		169
Impairment losses		1,120		—
Total operating expenses		350,308		311,787

Income from operations		24,941		26,490

Other income (expense)
Interest income		1,068		426
Interest expense		(6,459)		(2,318)
Other income (expense), net		(11,516)		960
Total other income (expense)		(16,907)		(932)

Income before income taxes		8,034		25,558

Provision for income taxes		(2,102)		(5,391)

Net income		5,932		20,167

Net income attributable to noncontrolling interest		(1,341)		(922)

Net income attributable to TTEC stockholders	$	4,591	$	19,245

Other comprehensive income (loss)
Net income	$	5,932	$	20,167
Foreign currency translation adjustments		(5,599)		6,228
Derivative valuation, gross		1,235		13,975
Derivative valuation, tax effect		(1,242)		(5,791)
Other, net of tax		108		129
Total other comprehensive income (loss)		(5,498)		14,541
Total comprehensive income (loss)		434		34,708

Less: Comprehensive income attributable to noncontrolling interest		(1,442)		(1,014)

Comprehensive (loss) income attributable to TTEC stockholders	$	(1,008)	$	33,694

Weighted average shares outstanding
Basic		45,871		45,950
Diluted		46,452		46,315

Net income per share attributable to TTEC stockholders
Basic	$	0.10	$	0.42
Diluted	$	0.10	$	0.42

Dividends declared per share outstanding	$	0.27	$	0.22

The accompanying notes are an integral part of these consolidated financial statements.

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TTEC HOLDINGS, INC. AND 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, 2017	—	$	—	45,862	$	459	$	(615,677)	$	351,725	$	(102,304)	$	721,664	$	6,978	$	362,845
Cumulative effect of adopting accounting standard updates	—		—	—		—		—		—		—		(6,584)		—		(6,584)
Net income	—		—	—		—		—		—		—		4,591		1,341		5,932
Dividends to shareholders ($0.27 per common share)	—		—	—		—		—		—		—		(12,414)		—		(12,414)
Dividends distributed to noncontrolling interest	—		—	—		—		—		—		—		—		(945)		(945)
Foreign currency translation adjustments	—		—	—		—		—		—		(5,700)		—		101		(5,599)
Derivatives valuation, net of tax	—		—	—		—		—		—		(7)		—		—		(7)
Vesting of restricted stock units	—		—	117		1		1,939		(3,662)		—		—		—		(1,722)
Exercise of stock options	—		—	—		—		—		—		—		—		—		—
Equity-based compensation expense	—		—	—		—		—		3,609		—		—		—		3,609
Purchases of common stock	—		—	—		—		—		—		—		—		—		—
Other, net of tax	—		—	—		—		—		—		108		—		—		108
Balance as of March 31, 2018	—	$	—	45,979	$	460	$	(613,738)	$	351,672	$	(107,903)	$	707,257	$	7,475	$	345,223

The accompanying notes are an integral part of these consolidated financial statements.

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TTEC HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Amounts in thousands)

(Unaudited)


	Three Months Ended March 31,
	2018		2017
Cash flows from operating activities
Net income	$	5,932	$	20,167
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		17,924		14,500
Amortization of contract acquisition costs		362		406
Amortization of debt issuance costs		247		171
Imputed interest expense and fair value adjustments to contingent consideration		2,011		20
Provision for doubtful accounts		124		61
(Gain) loss on disposal of assets		18		23
Impairment losses		1,120		—
Impairment on equity investment		15,632		—
Gain (adjustment) on bargain purchase of a business		(685)		—
Deferred income taxes		(972)		(918)
Excess tax benefit from equity-based awards		(227)		(284)
Equity-based compensation expense		3,609		2,041
(Gain) loss on foreign currency derivatives		725		(1,205)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable		41,197		28,610
Prepaids and other assets		2,337		(7,187)
Accounts payable and accrued expenses		2,720		10,456
Deferred revenue and other liabilities		(24,687)		8,071
Net cash provided by operating activities		67,387		74,932

Cash flows from investing activities
Proceeds from sale of long-lived assets		4		13
Purchases of property, plant and equipment, net of acquisitions		(7,508)		(12,035)
Payments for contract acquisition costs		—		(1,021)
Investments in non-marketable equity investments		(2,119)		(1,153)
Acquisitions, net of cash acquired of zero and zero, respectively		(460)		—
Net cash used in investing activities		(10,083)		(14,196)

Cash flows from financing activities
Proceeds from line of credit		630,800		536,900
Payments on line of credit		(672,300)		(572,200)
Payments on other debt		(1,563)		(1,215)
Payments of contingent consideration and hold-back payments to acquisitions		(399)		—
Dividends paid to shareholders		—		—
Payments to noncontrolling interest		(945)		(945)
Proceeds from exercise of stock options		—		—
Tax payments related to issuance of restricted stock units		(1,722)		(687)
Payments of debt issuance costs		—		—
Purchase of treasury stock		—		(11,658)
Net cash used in financing activities		(46,129)		(49,805)

Effect of exchange rate changes on cash and cash equivalents		(4,018)		280

Increase in cash and cash equivalents		7,157		11,211
Cash and cash equivalents, beginning of period		74,437		55,264
Cash and cash equivalents, end of period	$	81,594	$	66,475

Supplemental disclosures
Cash paid for interest	$	4,201	$	2,127
Cash paid for income taxes	$	4,143	$	450
Non-cash investing and financing activities
Acquisition of long-lived assets through capital leases	$	4,048	$	534
Acquisition of equipment through increase in accounts payable, net	$	(372)	$	1,361
Contract acquisition costs credited to accounts receivable	$	—	$	—
Dividend declared but not paid	$	12,414	$	10,069

The accompanying notes are an integral part of these consolidated financial statements.

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TTEC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(1)OVERVIEW AND BASIS OF PRESENTATION

Summary of Business

TTEC Holdings, Inc. (“TTEC”, “the Company”) (formerly known as TeleTech Holdings, Inc. until the name was changed in January 2018) is a global customer experience company that designs, builds and operates omnichannel customer experiences on behalf of some of the world's most innovative brands. The Company helps large global companies increase revenue and reduce costs by delivering personalized customer experiences across every interactional channel and phase of the customer lifecycle as an end-to-end provider of customer engagement services, technologies, insights and innovations. TTEC’s 50,500 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, India, Ireland, 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 TTEC, its wholly owned subsidiaries, its 55% equity owned subsidiary Percepta, LLC, and its 100% interest in Motif, Inc. (see Note 2). 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, 2018.

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, 2017.

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.

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TTEC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers”. ASU 2014-09 provides new guidance related to how an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, ASU 2014-09 specifies new accounting for costs associated with obtaining or fulfilling contracts with customers and expands the required disclosures related to revenue and cash flows from contracts with customers. While ASU-2014-09 was originally effective for fiscal years and interim periods within those years beginning after December 15, 2016, in August 2015, the FASB issued ASU 2015-14, “Deferral of Effective Date”, deferring the effective date by one year, to be effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Earlier adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. ASU 2014-09 can be adopted either retrospectively to each prior reporting period presented or as a cumulative-effect adjustment as of the date of adoption, with early application not permitted. In June 2017, FASB issued ASU 2017-10, “Service Concession Arrangements”, which will be adopted along with the ASU 2014-09 guidance.

On January 1, 2018, the Company adopted ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), using the modified retrospective method. The adoption of ASC 606 resulted in the deferral of certain fees that had already been recognized in prior periods. The Company recorded a net reduction to opening retained earnings of $10.0 million, net of tax, as of January 1, 2018 due to the cumulative impact of adopting ASC 606, summarized as follows (in thousands):


	December 31,		Adjustments Due to		January 1,
	2017		ASU 2014-09		2018
Balance Sheet
Assets
Prepaids and other current assets	$	63,668	$	10,797	$	74,465
Deferred tax assets		12,012		4,006		16,018

Liabilities
Deferred revenue	$	21,628		24,785		46,413

Equity
Retained earnings	$	721,664	$	(9,982)	$	711,682

The ASC 606 adjustments pertain to the timing of revenue recognition associated with upfront training fees on certain contracts. Revenues and associated costs for reporting periods beginning after January 1, 2018 are recognized and presented in compliance with the provisions of ASC 606. Consistent with the modified retrospective method of adoption, the Company has not adjusted prior period amounts which continue to be reported in accordance with the Company’s historic revenue accounting policy and principles.

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TTEC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

In accordance with the new revenue standard requirements, the disclosure of the impact of adoption on the Company’s consolidated income statement and balance sheet was as follows (in thousands):


	As of March 31, 2018
			Balances
			Without
			Adoption of		Effect of Change
	As reported		ASC 606		Higher/(Lower)
Statements of Comprehensive Income
Revenue	$	375,249	$	362,748	$	12,501
Cost of services		283,370		277,179		6,191
Provision for income taxes		2,102		335		1,767
Net income	$	5,932	$	1,389	$	4,543


		As of March 31, 2018