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 September 30, 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 every Interactive Data File required to be submitted 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 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 ☐
			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 October 31, 2018, there were 46,193,077 shares of the registrant’s common stock outstanding.

Table of Contents

TTEC HOLDINGS, INC. AND SUBSIDIARIES

SEPTEMBER 30, 2018 FORM 10-Q

TABLE OF CONTENTS


		Page No.

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017 (unaudited)	1

	Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2018 and 2017 (unaudited)	2

	Consolidated Statement of Stockholders’ Equity as of and for the nine months ended September 30, 2018 (unaudited)	3

	Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017 (unaudited)	4

	Notes to the Consolidated Financial Statements (unaudited)	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	46

Item 4.	Controls and Procedures	48

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	49

Item 1A.	Risk Factors	49

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49

Item 5.	Other Information	49

Item 6.	Exhibits	50

SIGNATURES		51

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)


	September 30,		December 31,
	2018		2017
ASSETS
Current assets
Cash and cash equivalents	$	93,879	$	74,437
Accounts receivable, net		301,770		385,751
Prepaids and other current assets		86,054		63,668
Income tax receivable		13,447		11,099
Assets held for sale		7,822		7,835
Total current assets		502,972		542,790

Long-term assets
Property, plant and equipment, net		161,244		163,297
Goodwill		201,826		206,694
Deferred tax assets, net		22,335		12,012
Other intangible assets, net		82,902		92,086
Other long-term assets		67,327		61,857
Total long-term assets		535,634		535,946
Total assets	$	1,038,606	$	1,078,736

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	51,567	$	46,029
Accrued employee compensation and benefits		88,636		83,997
Other accrued expenses		30,324		18,993
Income tax payable		13,501		7,497
Deferred revenue		33,555		21,628
Other current liabilities		21,841		22,312
Liabilities held for sale		3,546		1,322
Total current liabilities		242,970		201,778

Long-term liabilities
Line of credit		272,500		344,000
Deferred tax liabilities, net		10,698		11,285
Non-current income tax payable		38,302		47,871
Deferred rent		14,942		15,714
Other long-term liabilities		130,336		95,243
Total long-term liabilities		466,778		514,113
Total liabilities		709,748		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 September 30, 2018 and December 31, 2017		—		—
Common stock; $0.01 par value; 150,000,000 shares authorized; 46,192,458 and 45,861,959 shares outstanding as of September 30, 2018 and December 31, 2017, respectively		462		459
Additional paid-in capital		351,141		351,725
Treasury stock at cost: 35,859,795 and 36,190,294 shares as of September 30, 2018 and December 31, 2017, respectively		(610,214)		(615,677)
Accumulated other comprehensive income (loss)		(125,973)		(102,304)
Retained earnings		705,218		721,664
Noncontrolling interest		8,224		6,978
Total stockholders’ equity		328,858		362,845
Total liabilities and stockholders’ equity	$	1,038,606	$	1,078,736

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

Table of Contents

TTEC 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,
	2018		2017		2018		2017
Revenue	$	364,936	$	359,036	$	1,090,038	$	1,050,742

Operating expenses
Cost of services (exclusive of depreciation and amortization presented separately below)		286,925		275,548		844,555		797,450
Selling, general and administrative		43,321		45,167		134,611		132,372
Depreciation and amortization		17,317		16,515		52,052		47,273
Restructuring and integration charges, net		2,716		6,006		4,599		9,768
Impairment losses		—		—		1,120		—
Total operating expenses		350,279		343,236		1,036,937		986,863

Income from operations		14,657		15,800		53,101		63,879

Other income (expense)
Interest income		1,401		899		3,940		2,020
Interest expense		(8,410)		(3,469)		(22,634)		(8,699)
Other income (expense), net		989		4,416		(8,786)		6,573
Loss on assets held for sale		—		—		(2,000)		(3,178)
Total other income (expense)		(6,020)		1,846		(29,480)		(3,284)

Income before income taxes		8,637		17,646		23,621		60,595

Provision for income taxes		(1,893)		(2,071)		(4,648)		(9,059)

Net income		6,744		15,575		18,973		51,536

Net income attributable to noncontrolling interest		(1,369)		(806)		(3,489)		(2,828)

Net income attributable to TTEC stockholders	$	5,375	$	14,769	$	15,484	$	48,708

Other comprehensive income (loss)
Net income	$	6,744	$	15,575	$	18,973	$	51,536
Foreign currency translation adjustments		(2,255)		(1,153)		(28,139)		8,414
Derivative valuation, gross		7,463		3,221		6,679		24,713
Derivative valuation, tax effect		(2,015)		(1,288)		(2,744)		(10,117)
Other, net of tax		103		127		317		386
Total other comprehensive income (loss)		3,296		907		(23,887)		23,396
Total comprehensive income (loss)		10,040		16,482		(4,914)		74,932

Less: Comprehensive income attributable to noncontrolling interest		(1,313)		(899)		(3,271)		(3,153)

Comprehensive income (loss) attributable to TTEC stockholders	$	8,727	$	15,583	$	(8,185)	$	71,779

Weighted average shares outstanding
Basic		46,172		45,838		46,021		45,816
Diluted		46,316		46,367		46,390		46,348

Net income per share attributable to TTEC stockholders
Basic	$	0.12	$	0.32	$	0.34	$	1.06
Diluted	$	0.12	$	0.32	$	0.33	$	1.05

Dividends declared per share outstanding	$	0.28	$	0.25	$	0.55	$	0.47

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	—		—	—		—		—		—		—		15,484		3,489		18,973
Dividends to shareholders ($0.55 per common share)	—		—	—		—		—		—		—		(25,346)		—		(25,346)
Dividends distributed to noncontrolling interest	—		—	—		—		—		—		—		—		(2,025)		(2,025)
Foreign currency translation adjustments	—		—	—		—		—		—		(27,921)		—		(218)		(28,139)
Derivatives valuation, net of tax	—		—	—		—		—		—		3,935		—		—		3,935
Vesting of restricted stock units	—		—	315		3		5,215		(9,836)		—		—		—		(4,618)
Exercise of stock options	—		—	15		—		248		(40)		—		—		—		208
Equity-based compensation expense	—		—	—		—		—		9,292		—		—		—		9,292
Purchases of common stock	—		—	—		—		—		—		—		—		—		—
Other, net of tax	—		—	—		—		—		—		317		—		—		317
Balance as of September 30, 2018	—	$	—	46,192	$	462	$	(610,214)	$	351,141	$	(125,973)	$	705,218	$	8,224	$	328,858

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)


	Nine Months Ended September 30,
	2018		2017
Cash flows from operating activities
Net income	$	18,973	$	51,536
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		52,052		47,273
Amortization of contract acquisition costs		1,183		1,273
Amortization of debt issuance costs		744		521
Imputed interest expense and fair value adjustments to contingent consideration		8,204		39
Provision for doubtful accounts		483		380
(Gain) loss on disposal of assets		25		85
Gain on sale of business and dissolution of entity		—		(3,323)
Impairment losses		1,120		—
Impairment on equity investment		15,632		—
Gain (adjustment) on bargain purchase of a business		(685)		—
Non-cash loss on held for sale assets		2,000		3,178
Deferred income taxes		(5,276)		8,155
Excess tax benefit from equity-based awards		(708)		(1,970)
Equity-based compensation expense		9,292		8,358
(Gain) loss on foreign currency derivatives		659		829
Changes in assets and liabilities, net of acquisitions:
Accounts receivable		77,186		13,460
Prepaids and other assets		(39,752)		(26,814)
Accounts payable and accrued expenses		14,777		32,597
Deferred revenue and other liabilities		10,200		14,066
Net cash provided by operating activities		166,109		149,643

Cash flows from investing activities
Proceeds from sale of long-lived assets		21		31
Purchases of property, plant and equipment, net of acquisitions		(31,841)		(43,932)
Proceeds from sale of business		—		391
Investments in non-marketable equity investments		(2,119)		(1,384)
Acquisitions, net of cash acquired of $4.5 million and zero, respectively		(2,027)		(81,360)
Net cash used in investing activities		(35,966)		(126,254)

Cash flows from financing activities
Proceeds from line of credit		1,573,500		1,571,837
Payments on line of credit		(1,645,000)		(1,534,137)
Payments on other debt		(4,613)		(4,501)
Payments of contingent consideration and hold back payments to acquisitions		(785)		(674)
Dividends paid to shareholders		(12,414)		(10,069)
Payments to noncontrolling interest		(2,025)		(2,745)
Proceeds from exercise of stock options		208		2,150
Tax payments related to issuance of restricted stock units		(4,618)		(4,937)
Payments of debt issuance costs		(35)		(38)
Purchase of treasury stock		—		(18,328)
Net cash used in financing activities		(95,782)		(1,442)

Effect of exchange rate changes on cash and cash equivalents		(14,919)		1,631

Increase in cash and cash equivalents		19,442		23,578
Cash and cash equivalents, beginning of period		74,437		55,264
Cash and cash equivalents, end of period	$	93,879	$	78,842

Supplemental disclosures
Cash paid for interest	$	13,677	$	8,138
Cash paid for income taxes	$	30,088	$	11,357
Non-cash, investing and financing activities
Acquisition of long-lived assets through capital leases	$	11,482	$	931
Acquisition of equipment through increase in accounts payable, net	$	1,056	$	405
Dividend declared but not paid	$	12,932	$	11,462

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)