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Our Strategy
We aim to grow our revenue and profitability by focusing on our core customer engagement operational capabilities, linking them to higher margin, insights and technology-enabled platforms and managed services to drive a superior customer experience for our clients’ customers. To that end we plan to continue:continually strive to:
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| Expand into new geographic markets that give us access to new customers and partners; |
| Execute strategic acquisitions that further complement and expand our integrated solutions; |
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Our Integrated Service Offerings Centers of Excellence and Business Segments
We haveprovide strategic value and differentiation through our two centersbusiness segments: TTEC Digital and TTEC Engage.
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TTEC Digital houses our professional provides the CX technology services and platforms to support our clients’ customer interaction delivery infrastructure. The segment designs, builds and operates the omnichannel ecosystem in a cloud, on premise, or hybrid environment, and fully integrates, orchestrates, and administers highly scalable, feature-rich CX technology platforms.applications. These solutions are critical to enabling and accelerating digital transformation for our clients.
| ● | Technology Services: Our technology services design, integrate and operate highly scalable, digital omnichannel technology solutions in the cloud, on premise, or hybrid environment, including journey orchestration, automation and AI, knowledge management, and workforce productivity. |
| ● | Professional Services: Our management consulting practices deliver customer experience strategy, analytics, process optimization, and learning and performance services. |
Customer Strategy Services Segment
Through our strategy and operations, analytics, and learning and performance consulting expertise, we help our clients design, build and execute their customer engagement strategies. We help our clientsTTEC Engage delivers the CX managed services to better understand and predict their customers’ behaviors and preferences along with their current and future economic value. Using proprietary analytic models, we provide the insight clients need to build the business case for customer centricity and to better optimize their investments in customer experience. This insight-based strategy creates a roadmap for transformation. We build customer journey maps to inform service design across automated, human and hybrid interaction and increasingly are developing and implementing strategies around Interactive Virtual Assistants (chat bots). A key component of this segment involves instilling a high-performance culture through management and leadership alignment and process optimization.
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Customer Technology Services Segment
In connection with the design of the customer engagement strategy, our ability to architect, deploy and host or manage the client’s customer experience environments becomes a key enabler to achieving and sustaining the client’s customer engagement vision. Given the proliferation of mobile communication technologies and devices, we enablesupport our clients’ operations to interact with their customers acrossend-to-end customer interaction delivery, by providing the growing array of channels including email, social networks, mobile, web, SMS text, voiceessential CX omnichannel and chat. We design, implementapplication technologies, human resources, recruiting, training and manage cloud, on-premiseproduction, at-home or hybrid customer experience environments to deliver a consistent and superior experience across all touch pointsfacility-based delivery infrastructure on a global scale, that we believe result in higher quality, lower costs and reduced risk for our clients. Through our Humanify™ Technology platforms, we also provide data-driven context aware software-as-a-service (“SaaS”) based solutions that link customers seamlessly and directly to appropriate resources, any time and across any channel.
TTEC Engage houses our end-to-end managed services operations forengagement processes. This segment provides full-service digital, omnichannel customer engagement, supporting customer care, growth and trust and safety services.
Customer Management Services Segment
We design and manage clients’ front-to-back office processes to deliver just-in-time, personalized, protected, multi-channel interactions. Our front-office solutions seamlessly integrate voice, chat, email, e-commerce and social media to optimize the customer experience for our clients. In addition, we manage certain client back-office processes to enhance their customer-centric view of relationships and maximize operating efficiencies. We also perform fraud prevention and content moderation services to protect our clients and their customers from malevolent digital activities. Our delivery of integrated business processes via our onshore, offshore or work-from-home associates reduces operating costs and allows customer needs to be met more quickly and efficiently, resulting in higher satisfaction, brand loyalty and a stronger competitive position for our clients.
Customer Growth Services Segment
We offer integrated sales and marketing solutions to help our clients boost revenue in new, fragmented or underpenetrated business-to-consumer or business-to-business markets. We deliver or manage approximately $4 billion in client revenue annually via the discovery, acquisition, growth and retention, of customers through a combination of our highly trained, client-dedicated sales professionals and proprietary analytics platform. This platform continuously aggregates individual customer information across all channels into one holistic view so as to ensure more relevantfraud detection and personalized communications.prevention services.
| ● | Customer Acquisition Services: Our customer growth and acquisition services optimize the buying journeys for acquiring new customers by leveraging technology and analytics to deliver personal experiences that increase the quantity and quality of leads and customers. |
| ● | Customer Care Services: Our customer care services provide turnkey contact center solutions, including digital omnichannel technologies, associate recruiting and training, facilities, and operational expertise to create exceptional customer experiences across all touchpoints. |
| ● | Fraud Prevention Services: Our digital fraud detection and prevention services proactively identify and prevent fraud and provide community content moderation and compliance. |
Based on our clients’ requirements,preference, we provide our services on an integrated cross-business segment andand/or on a discrete basis.
Additional information with respect to our segments and geographic footprint is included in Part II, Item 8. Financial Statements and Supplementary Data, Note 3 to the Consolidated Financial Statements.
Our Competitive Strengths
We believe that our differentiation liesTTEC is an industry leader in our integrated unified offering and our holistic approach to customer experience and engagement as an end-to-end providerCX by leveraging the following competitive strengths:
| ● | Humanify®Technology Platform and Insights-Driven Technology Solutions - Innovation has been a priority since our inception almost 40 years ago. Our dedication and investment in transforming our business has differentiated our solutions portfolio and increased the value we deliver to our clients across the CX continuum. Our Humanify® Technology Platform delivers an ecosystem of integrated CX applications, including omnichannel contact center platforms, the largest CRMs and ERP’s as well as innovative technology solutions that we fully integrate into our clients' broader technology systems. The platform is based on secure, scalable public and private data centers, in both pure cloud, on premise, and hybrid environments. This architecture enables us to centralize and standardize our global delivery capabilities, resulting in scalability and improved quality of delivery for our clients, as well as lowering capital and information technology operating costs. |
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Fundamental to our continued industry leadership.
As the complexity and pace of technological change required to deliver our omnichannel customer engagement increases, the successful execution of our principal corporate strategies depends on our competitive strengths, which are briefly described below:
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Technological Excellence
Our Humanify Technology Platforms are based on secure, private, 100% internet protocol based infrastructure. This architecture enables us to centralize and standardize our worldwide delivery capabilities resulting in improved scalability and quality of delivery for our clients, as well as lower capital, and lower information technology (“IT”) operating costs.
The foundation of this platformplatforms is our ninenetwork of global data centers located on five continents. Our data centerswhich provide a fullyan integrated suite of voice and data routing, workforce management, quality monitoring, business analyticanalytics, storage, and storageinfrastructure security and fault-tolerance capabilities, enabling seamless operations from any locationlocations around the globe. This hub‘hub and spoke modelmodel’ enables us to provide our services at a competitive cost while increasingdelivering scalability, reliability, regulatory compliance and asset utilization andacross the diversityfull suite of our service offerings. It also provides an effective redundancy for a timely responsesresponse to system interruptions and outages due to natural disasters, grid downtime, and other conditions outside of our control. We monitor and manage our data centers 24 x 7, 365 days per year from several strategically located global command centers to ensure the availability of our redundant, fail-over capabilities for each data center.
Importantly, this broad-based platform has become theaccelerated our time to market foundation for new, innovative offerings including TTEC’s cloud-based offerings,such as TTEC's cloud based Humanify® Operations/Insights Platform, Humanify® @Home for remote omnichannel agents, and our suite of human capital solutions.
Further, our Humanify® Technology Platforms leverage reference architectures for multiple scenariossolutions whether we are operating the platforms and the services, implementing customized platforms for clients, or providing advanced managed services and continuous and automated development environments.
Innovative Human Capital Strategies
Our globally located, highly trained employees are a crucial component of They also provide clients with secure and compliant solutions for regional (e.g., the success of our business. We have made significant investments in proprietary technologies, management tools, methodologiesEuropean Union General Data Protection Regulation (“GDPR”), or the California Consumer Protection Act (“CCPA”)), industry (e.g., the Payment Card Industry Data Security Standard (“PCI”), or the Health Insurance Portability and training processes in the areas of talent acquisition, learning services, knowledge management, workforce collaboration and performance optimization. These capabilities are the culmination of more than three decades of experience in managing large, global workforces combined with the latest technology, innovation and strategy in the field of human capital management. This capability has enabled us to deliver a consistent, scalable and flexible workforce that is highly engaged in achievingAccountability Act (“HITRUST”)), or exceeding our clients’ business objectives.
Globally Deployed Best Operating Practices
Globally deployed best operating practices assure that we deliver a consistent, scalable, high-quality experience to our clients’ customers from any of our 97 customer engagement centers and work from home associates around the world. Standardized processes include our approach to attracting, screening, hiring, training, scheduling, evaluating, coaching and maximizing associate performance to meet our clients’ needs. We provide real-time reporting and analytics on performance across the globe to ensure consistency of delivery. This information provides valuable insight into what is driving customer inquiries, enabling us to proactively recommend process changes to our clients to optimize their customers’ experience.
Our global operating model includes customer engagement centers in 17 countries on six continents that operate 24 hours a day, 365 days a year. New customer engagement centers are established and existing centers are expandedclient specific standards (e.g. FedRamp or scaled down to accommodate anticipated business demands or specific client needs. We have significant capacity in the Philippines, India, Mexico and Brazil to support customer demand and deliver superior cost efficiencies. We continue to explore opportunities in North America, Central Europe and Africa to diversify our client footprint enabling near-shore and off-shore locations that enable our multi-lingual service offerings and provide superior client economics.FISMA).
| ● | Innovative Human Capital Strategies - Our global, highly trained employee base is crucial to the success of our business. We have made significant investments in proprietary technologies and management tools, methodologies and training processes in the areas of virtual and non-virtual talent acquisition, learning services, knowledge management, workforce engagement and collaboration and performance optimization. These capabilities are the culmination of almost four decades of experience in managing a large, global workforce combined with the latest technology, innovation and strategies in the field of human capital management. This capability has enabled us to deliver a scalable and flexible workforce that is highly engaged in achieving and exceeding our clients' expectations. |
| ● | Robust Technology Partner Ecosystem - Our strategic alliances with important digital channel partners enable our clients to deliver high-impact, personalized customer experiences more efficiently. We go to market with our Humanify® cloud offering with our key strategic partners including Cisco, LivePerson, Pega and Amazon to continue to fuel AI-powered digital transformation. |
| ● | Globally Deployed Best Operating Practices - Globally deployed best operating practices help us deliver a consistent, scalable, high-quality experience to our clients' customers from any of our 83 global customer delivery centers and geographically disbursed work-from-home associate base. Standardized processes include our approach to attracting, screening, hiring, training, scheduling, evaluating, coaching and maximizing associate performance to meet our clients' needs. We also provide real-time reporting and analytics on performance across the globe to help ensure transparency and consistency of delivery. This information provides valuable insight into what is driving customer inquiries, enabling us to proactively recommend process changes that optimize the customer experience. |
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Of the 17 countries from which we provide customer management solutions, 10 provide some services for onshore clients including the U.S., Australia, Brazil, Canada, China, Germany, Ireland, South Africa, Thailand, and the United Kingdom. The total number of workstations in these countries is 19,900, or 45% of our total delivery capacity. The other seven countries provide services, partially or entirely, for offshore clients including Bulgaria, Costa Rica, India, Macedonia, Mexico, Poland, and the Philippines. The total number of workstations in these countries is 24,500 or 55% of our total delivery capacity.
See Item 1A. Risk Factors for a description of the risks associated with our foreign operations.
Clients
We develop long-term relationships with Globalclients globally, including many of the worlds’ iconic brands, Fortune 1000 companies, government agencies, and disruptive growth companies. These organizations are in customer intensive industries or sectors, whose business complexities and customer focus requires a partner that can quickly design and globally scalebuild integrated technology and data-enabled services.
services, often on a global scale. In 2017,2020, our top five and ten clients represented 35%40% and 49%53% of total revenue, respectively; and onerespectively.
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In several of our operating segments,offerings across TTEC Digital and TTEC Engage, we enter into long-term relationships whichthat provide us with a more predictable recurring revenue stream. AlthoughIn our TTEC Digital segment, our CX cloud and managed services technology solution contracts have an average three-year term with penalties in the case a client terminates for convenience. In our TTEC Engage segment, most of our contracts can be terminated for convenience by either party, but our relationships with our top five clients have ranged from 1014 to 21 years including multiple programs and contract renewals for several of these clients. In 2017,2020, we had a 95% client111% revenue retention rate for the combined Customer Management Services and Customer Growth Services segments.TTEC Engage segment, versus 102% in 2019.
Certain of our communications clients provide us with telecommunication services through arm’s length negotiated transactions. These clients currently represent approximately 13%8% of our total annual revenue. Expenditures under these supplier contracts represent less than one percent of our total operating costs.
Competition
We are a leading global customer experience company that designs, buildstechnology and operates omnichannel customer experiences on our clients’ behalf.services partner for many of the world’s most iconic brands, Fortune 1000 companies, government agencies, and disruptive growth companies. Our competitors vary by geography and business segment, and range from large multinational corporations to smaller, narrowly-focusednarrowly focused enterprises. Across our lines of business, the principal competitive factors include: client relationships, technology and process innovation, integrated solutions, digital and virtual delivery capabilities, operational performance and efficiencies, pricing, brand recognition and financial strength.
Our strategy in maintaining market leadership is to prudently invest, innovate and provide integrated value-driven services, all centered around customer engagement management. Today, we are executing on a more expansive, holistic strategy by transforming our business into higher-value offerings through organic investments and strategic acquisitions. As we execute, we are differentiating ourselves in the marketplace and entering new markets that introduce us to an expanded competitive landscape.
In our Customer Management Services business,TTEC Digital segment, we primarily compete with smaller pure play technology and service providers and divisions of multinational companies, including Five9, LivePerson, 8x8, InContact, Twilio, EPAM, Endava, Globant, GlobalLogic, Accenture, Cognizant, Infosys, among others.
In our TTEC Engage segment, we primarily compete with in-house customer management operations as well as other companies that provide customer care services including: Alorica, Convergys,Teleperformance, Telus, Concentrix, TaskUs, 24-7 Intouch, Sykes, and Teleperformance,Webhelp, Accenture, Genpact, Exl, among others. As we expand our offerings into customer engagement consulting, technology, and growth, we are competing with smaller specialized companies and divisions of multinational companies, including Bain & Company, McKinsey & Company, Accenture, IBM, AT&T, Interactive Intelligence, LiveOps, inContact, Five9, WPP, Publicis Groupe, Dentsu, Sitel, and others.
Employees
Our people are our most valuable asset. As of December 31, 2017, we had 56,000 employees in 24 countries on six continents. Although a percentage of our Customer Management Services segment employees are hired seasonally to address the fourth quarter and first quarter higher business volumes in retail, healthcare and other seasonal industries, most remain employed throughout the year and work at 97 locations and through our @home environment. Approximately 65% of our employees are located outside of the U.S. Approximately 10% of our employees are covered by collective bargaining agreements, most of which are mandated under national labor laws outside of the United States. These agreements are subject to periodic renegotiations and we anticipate that they will be renewed in the ordinary course of business without material impact to our business or in a manner materially different from other companies covered by such industry-wide agreements.
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Research, Innovation, Intellectual Property and Proprietary Technology
We recognize the value of innovation in our business and are committed to developing leading-edge technologies and proprietary solutions. Research and innovation have been a major factor in our success and we believe that they will continue to contribute to our growth in the future. We use our investment in research and development to create, commercialize and deploy innovative business strategies and high-value technology solutions.
We deliver value to our clients through, and our success in part depends on, certain proprietary technologies and methodologies. We leverage U.S. and foreign patent, trade secret, copyright and trademark laws as well as confidentiality, proprietary information non-disclosure agreements, and key staff non-competition agreements to protect our proprietary technology.
As of December 31, 20172020, we had 413 patent applications pending in 8 jurisdictions;pending; and own 116also hold 84 U.S. and non-U.S. patents in 11 jurisdictions that we leverage in our operations and as market placemarketplace differentiation for our service offerings. Our trade name, logos and names of our proprietary solution offerings are protected by their historic use and, in addition, by trademarks and service marks registered in 27 countries.21 jurisdictions.
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Human Capital Resources
Headcount Information: As of December 31, 2020, TTEC had 61,000 employees, approximately 1,300 of whom are CX professionals serving TTEC Digital clients and approximately 59,700 of whom serve TTEC Engage clients. Approximately 46% of TTEC employees are located in the United States, 38% are based in Asia-Pacific region, 8% are located in Central and South America, 4% are based in India, and 3% are based in Europe, Middle East and Africa and 1% are based in Canada. After the start of the COVID-19 pandemic in the second quarter of 2020, we have seen a rapid growth of our employee population in the United States. Between the start of the second quarter and end of fiscal year 2020, our U.S. based employee population increased from 17,000 to 27,900 with most employees working remotely.
Development and Training: The attraction, development and retention of our employees is important to TTEC’s success. To support advancement of our employees and prepare them for demands of rapidly changing workplace and client requirements we offer an extensive career focused curriculum. The pressures of COVID-19 pandemic notwithstanding, in 2020 we made significant investments in our talent management platform, TTEC University, that includes a library of more than 8,000 courses that cover topics important to general business acumen ranging from business operations, leadership, ethics, finance, negotiations, and project management to subject-matter specific professional and technical curriculum. TTEC development programs help identify top performers, improve employee retention, and create promotion-from-within opportunities in the Company. In 2020, TTEC launched the Talent Accelerator Program (“TAP”) designed to identify and attract new talent and prepare them for success within our organization. The program recruits recently graduated candidates with diverse backgrounds ranging for technology to humanities who undergo a three-year specialized training and rotation through all business functions and segments in our organization. Program participants gain experience in finance, risk, human capital, IT, communication, marketing, sales, and operations, becoming fully immersed in the day-to-day operations of the business. Once the program is completed, the TAP participants will be equipped with knowledge and experience necessary to progress as a manager in the Company.
Diversity & Inclusion: TTEC believes that our culture of diversity and inclusion enables us to create, develop and leverage the strengths of our employee population to align with our client expectations and enable the Company’s growth objectives. To achieve our objectives, TTEC formed the Diversity Council that combines representatives from TTEC’s different business segments and geographies who bring a diverse mix of backgrounds and perspectives. The Diversity Council includes special affinity groups representation such as Women in Leadership and Black Leadership Council to help unify us and make us stronger as one team.
Our Diversity Council is a critical driver in fostering organizational change, establishing a dedicated focus on diversity, equity, and inclusion priorities identifying best practices and new opportunities, increasing awareness and education, providing leadership opportunities within TTEC to traditionally underrepresented employees, as well as holding the organization accountable in driving a culture that realizes TTEC’s vision of ‘bringing humanity to business’. The Company has adopted several metrics that focus on ensuring accountability for progress in diversity. The CEO, members of TTEC executive leadership team and other senior leaders have diversity and inclusion objectives embedded in their annual performance goals. As of December 31, 2020, 59% of the Company’s global workforce was female and 51% of employees in supervisory roles were female. As of December 31, 2020, 54% of the U.S. workforce were people of color and 34% of employees in supervisory roles were people of color.
Competitive Pay/Benefits and Pay for Performance Philosophy: TTEC compensation programs are designed to align compensation of our employees to market, and to provide appropriate incentives to attract, retain and motivate employees to achieve exceptional results for our clients and our shareholders. Our pay-for-performance philosophy aligns our compensation with TTEC’s performance and with the returns that our stockholders receive from their investment in the Company. Further, TTEC provides employees with a comprehensive benefits program that includes nicotine abatement, mental health initiatives, and overall wellness programs to support employees’ physical, emotional, and financial health.
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Workplace Safety: The health and safety of our employees is one of our highest priorities. Our business’s success depends on protecting our employees, visitors, clients and facilities, and we rely on our employees to help us meet our safety and security standards. TTEC employees are required to complete health and safety training when they join the Company and they are encouraged to report any concerns about safety in their work environment. This employee empowerment initiative launched in 2018 and the shift to working from home during the pandemic, lead to a reduction to our injuries at work of approximately 65% by year end 2020.
Our commitment to safety was more important than ever in 2020 when we had to change how we work to address COVID-19 pandemic. We took rapid measures across our business segments and geographies to transition most of our employees to a work from home environment. For the sites that provided essential services and had to remain operational during the pandemic, we invested approximately $5.6 million into enhanced sanitation and safety protocols including increased cleaning frequency, added signage and workstation reconfiguration for social distancing, personal protective equipment, contact tracing, shuttle services, and automated health attestations.
Retention and Turnover: At TTEC, our employees are at the core of everything we do, and our people strategy centers around their experience as part of our team. Since TTEC Engage segment of our business is people intensive, retention and reduction in turnover is a priority important to the financial results of our operations. Our turnover reduction efforts focus on market pay, trained management teams, development programs, career mobility, communication and the work environment and company culture that make an employee feel engaged, rewarded, appreciated, informed, and fulfilled in the organization.
Employee Engagement: To assess and improve employee engagement, we conduct annual employee pulse and Net Promoter Score (“NPS”) surveys. We take action to address areas of employee concerns raised in the surveys and reinforce activities that employees tell us encourage them to stay with the Company and recommend the Company as an employer of choice to others. In recent years, approximately 35,000 employees completed our employee NPS survey. TTEC’s overall employee engagement score exceeded Gallup’s reported best in-class ratings.
ITEM 1A. RISK FACTORSFACTORS
In addition to the other information presented in this Annual Report on Form 10-K, you should carefully consider the risks and uncertainties discussed in this section when evaluating our business. If any of these risks or uncertainties actually occur, our business, financial condition, and results of operations (including revenue, profitability and cash flows) could be materially and adversely affected, and the market price of our stock could decline. Risk Related to Our Business Operations and our Strategy If we are unsuccessful in implementing our business strategy, our long-term business and financial prospects could be affected Our growth strategy is based on continuous diversification of our business beyond contact center customer care outsourcing to an integrated CXaaS platform that unites innovative and disruptive technologies, CX consulting, data analytics, client growth solutions, and customer experience focused system design and integration enabled through industry focused client relationships, continuous technology innovation, scaled delivery footprint, CX partner ecosystem, and strategic M&A. Failure to successfully implement our business strategy and effectively respond to changes in market dynamics may decline.
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Our markets are highly competitive, and we mightmay not be able to compete effectively
The markets where we offer our services are highly competitive. Our future performance is largely dependent on our ability to compete successfully in markets we currently serve, while expanding into new, profitable markets. We compete with large multinational service providers; offshore service providers from lower-cost jurisdictions that offer similar services, often at highly competitive prices and more aggressive contract terms; niche solution providers that compete with us in specific geographic markets, industry segments or service areas; companies that rely onutilize new, potentially disruptive technologies or delivery models, including artificial intelligence powered solutions; and in-house functions of large companies that use their own resources, rather than outsourcing the customer care and customer experience services we provide. Some of our competitors have greater financial or marketing resources than we do and, therefore, may be better able to compete.
Further, the continuing trend of consolidation in the technology sector and among business process outsourcing competitors in various geographies where we have operations may result in new competitors with greater scale, a broader footprint, better technologies, and priceor efficiencies that may be attractive to our clients.clients and impact our business. If we are unable to compete successfully and provide our clients with superior service and solutions at competitive prices, we could lose market share and clients to competitors, which would materially adversely affect our business, financial condition, and results of operations.
If we are unsuccessful in implementing our business strategy, our long-term financial prospects could be adversely affected
Our growth strategy is based on continuous diversification of our business beyond contact center customer care outsourcing to an integrated customer experience platform that unites innovative and disruptive technologies, strategic consulting, data analytics, client growth solutions, and customer experience focused system design and integration. These investments in technologies and integrated solution development, however, may not lead to increased revenue and profitability as we may not be successful in deploying our new products and services. If we are not successful in creating value from these investments, the investments could have a negative impact on our operating results and financial condition.
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Cyber-attacks, cyber-fraud, and unauthorized information disclosure could harm our reputation, cause liability, result in service outages and losses, any of which could adversely affect our business and results of operations
Our business involves the use, storage, and transmission of information about our clients, customers of our clients, and our employees. While we take reasonable measures to protect the security of and unauthorized access to our systems and the privacy of personal and proprietary information that we access and store, our security controls over our systems may not prevent the improper access to or disclosure of this information. Such unauthorized access or disclosure could subject us to liability under relevant law and our contracts and could harm our reputation resulting in loss of revenue and loss of business opportunities.
In recent years, there have been an increasing number of high profile security breaches at companies and government agencies, and security experts have warned about the growing risks of hackers and cyber criminals launching a broad range of attacks targeting information technology systems. Our business is dependent on information technology systems. Information security breaches, computer viruses, interruption or loss of business data, DDoS (distributed denial of service) attacks, and other cyber-attacks on any of these systems could disrupt the normal operations of our contact centers, our cloud platform offerings, and our enterprise services, impeding our ability to provide critical services to our clients.
We are experiencing an increase in frequency of cyber-fraud attempts, such as so-called “social engineering” attacks and phishing scams, which typically seek unauthorized money transfers or information disclosure. We actively train our employees to recognize these attacks and have implemented proactive risk mitigation measures to curb them. There are no assurances, however, that these attacks, which are also growing in sophistication, may deceive our employees, resulting in a material loss.
While we have taken reasonable measures to protect our systems and processes from intrusion and cyber-fraud, we cannot be certain that advances in cyber-criminal capabilities, discovery of new system vulnerabilities, and attempts to exploit such vulnerabilities will not compromise or breach the technology protecting our systems and the information that we manage and control, which could result in damage to our systems, our reputation and our profitability.
Our need for consistent improvements in cybersecurity may force us to expend significant additional resources to respond to system disruptions and security breaches, including additional investments in repairing systems damaged by such attacks, reconfiguring and rerouting systems to reduce vulnerabilities, and resolution of legal claims that may arise from data breaches. A significant cyber security breach could materially harm our business, financial condition, and operating results.
The recently enacted General Data Protection Regulation (“GDPR”) in Europe goes into effect in the second quarter of 2018. We are currently working to develop our compliance solutions for GDPR and, once fully implemented these solutions may impose significant incremental costs on our operations in Europe, thus impacting our results of operations.
Our results of operations and ability to grow could be materially adversely affected if we cannot adapt our service offerings to changes in technology
Our success depends on and market expectations, our ability to developgrow and implement technology, consulting and outsourcing services and solutions that anticipate and respond to rapid and continuous changes in technology. Areasour results of significant change include artificial intelligence, digital offerings, voice recognition and self-help software solutions, automation, chatbots, and ‘as-a-service’ cloud solutions. operations may be affected
Our growth and profitability will depend on our ability to develop and adopt new disruptive technologies that expand our existing offerings to leverageby leveraging new technological trends in technology and cost efficiencies in our operations.
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We may not be successful in anticipating or responding to new technology developments and our integration of these technologies may not achieve their intended service enhancements or cost reductions. Services and technologies offered by our competitors may make our service offerings obsolete and may reduce or replace some of our offerings.operations, while meeting rapidly evolving client expectations. As technology continues to evolve,evolves, more tasks currently performed by our agents may be replaced by automation, robotics, artificial intelligence, chatbots and other technological advances,technology solutions, which pose risksputs our lower-skill tier one customer care offerings.offerings at risk. These technology innovations could potentially reduce our business volumes and related revenues, unless we are successful in adoptionadapting and deployment of technological alternatives that replacedeploying technology profitably.
We may not be successful in anticipating or responding to our tier oneclient expectations and interests in adopting evolving technology solutions, and their integration in our offerings may not achieve the intended enhancements or cost reductions. Services and technologies offered by our competitors may make our service offerings not competitive, or even obsolete, and may negatively impact our clients’ interest in our offerings. Our failure to innovate, maintain technological advantage,advantages, or respond effectively and timely to transformational changes in technology could have a material adverse effect on our business, financial condition, and results of operations.
Our cloud solutions are technology vendor dependent, which may impact our ability to grow and our results of operations
Our cloud service solutions are based on third-party technologies and our relationships with these solution partners. If these technology providers do not continue to evolve their offerings to stay competitive in the rapidly changing cloud technologies market, if cloud platforms offered by others become more competitive, or if our cloud solution partners do not continue their partnership with TTEC, our financial results of operations could be materially impacted.
While our business has not been materially adversely affected by the COVID-19 pandemic to date, it may be impacted in the future due to the resurgence of the virus, or impact of the pandemic on our clients’ businesses
In March 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic. Within weeks of this announcement, travel bans, the state of emergency, quarantines, lockdowns, “shelter in place” orders, and business restrictions and shutdowns were issued in most countries where TTEC does business. These restrictions eased during the summer of 2020, but recent increases in the rates of COVID-19 infections and the emergence of new variants of the virus around the globe are leading to reinstatements of some of the restrictions that we experienced in 2020. The COVID-19 vaccine roll-out has been challenged in many parts of the world where TTEC does business. While TTEC was able to adjust to the earlier impacts of the pandemic without material adverse impacts to our business in 2020, we are unable to attractaccurately predict the full impact the COVID-19 pandemic, and retain talentedmeasures being taken to respond to its effects, will have on our results of operations, financial condition, liquidity, and experienced executivescash flows due to numerous uncertainties in the future.
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The operations of some of our clients, especially our clients in travel, hospitality, retail, and automotive industries, have been materially impacted by the COVID-19 pandemic and restrictions on travel and people’s mobility around the globe. Approximately 20% of our revenue for key positionsthe fiscal year ended December 31, 2020 was generated from the clients in these affected industries. On-going travel restrictions and large-scale unemployment that resulted from government-mandated restrictions on businesses around the globe are likely to continue to affect certain of our clients and their business volumes in 2021 and beyond. Although our revenue from these clients did not decrease, but actually grew in 2020 as they invested in their customer relationships to adjust to the changing business and our strategy executionrealities, there can be adverselyno assurance that this revenue will not be impacted
Our business success depends on contributionsa going forward basis. We may also experience payment defaults or bankruptcy of senior management and key personnel. Our ability to attract, motivate and retain key senior management staff is conditioned onsome of our ability to pay adequate compensation and incentives. We compete for top senior management candidates with other, often larger, companies that at times have access to greater resources. Our ability to attract qualified individuals for our senior management team is also impacted by our requirement that members of senior management sign non-compete agreements as a condition to joining TTEC. If we are not able to attract and retain talented and experienced executives, we would be unable to compete effectively and our growth may be limited,clients, which could also have a material adverse effect on our financial condition and results of operation.
The COVID-19 pandemic and global government-mandated restrictions on business adopted to contain it, are resulting in what is likely to be an extended global economic downturn, which could affect demand for our services and impact our results of operations and prospects.financial condition, even after the pandemic is contained and the business restrictions are lifted.
As our work from home delivery grows, our operations are subject to new untested risks
In connection with COVID-19 pandemic, TTEC expanded its work from home environment and transitioned approximately 80% of our global workforce to work remotely from home; and most employees that we hired in 2020 were hired to work from home. Although some of these employees will return to conventional delivery sites and offices, once pandemic is under control, many of our employees may continue to work remotely for the foreseeable future. Certain jurisdictions where we do business have regulations specific to work from home, which add complexity and cost to our service delivery. Some of the services we provide are subject to stringent regulatory requirements, and our inability to continuously observe how our agents deliver services when working from home may impact our compliance. Service delivery from home, in certain of our lines of business, may also expose TTEC, our clients, and their customers to a heighten risk of fraud. Employees who work from home rely on residential communication networks and internet providers that may not be as resilient as commercial networks and providers and may be more susceptible to service interruptions and cyberattacks than commercial systems; which may also make our enterprise information technology systems, when interfacing with these residential environments, vulnerable. Our business continuity and disaster recovery plans, which have been historically developed and tested with focus on centralized delivery locations, may not work effectively in a distributed work from home delivery model, where weather impacts, network and power grid downtime may be difficult to manage and where system redundancies are not possible. Over the years, TTEC established strong operating and administrative controls over our business; and our controls, designed for brick-and-mortar environment, may not always provide effective safeguards for a large-scale work from home delivery model. We may not be effective in timely updating our existing controls nor implementing new controls, tailored to the work from home environment. For these and other reasons, our clients may be unwilling to continue to allow us to deliver our services remotely. If we are unable to manage our work from home environment effectively to address these and other risks unique to remote service delivery or if we cannot maintain client confidence in our work from home environment, our reputation and results of operations may be impacted.
Remote work by majority of our employee population for an extended period of time may impact TTEC culture, and employee engagement with our company, which could affect productivity and our ability to retain employees who are critical to our operations and may increase our costs and impact our financial results of operations.
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Our inability to forecast demand, staffing levels,sites and work from home delivery mix could impact our financial results of operations
Predicting customer demand, making timely staffing level decisions, investments in our customer engagement centers work from home technology environment, are important to our successful execution and profitability maximization. We can provide no assurance that we will continue to be able to achieve or maintain desired customer engagement center site capacity utilization and work from home delivery mix, because quarterly variations in client volumes and client sentiment toward work from home delivery, can have a material adverse effect on our delivery platform and our utilization rates. The use of utilization rate as a meaningful metric for business process outsourcing organizations is undergoing a review in light of the changes to the business introduced by COVID-19 pandemic and transition of customer engagement center employees to work from home. If our utilization rates are below expectations, because of our high fixed costs of operation, our financial conditions and results of operations could be adversely affected.
The social distancing rules and other government mandates that continue during the sustained pandemic impacted the structure and configuration of our large-scale facilities, where employees work in close proximity. These new regulatory requirements forced TTEC to make investments to reconfigure our existing customer engagement centers and to accept lower capacity utilization than the utilization priced under our multi-year contracts. If we are unable to renegotiate our contracts to recoup these additional costs, manage these costs by continuing to maintain a large work at home delivery platform, or adjust our cost structure to absorb them, our margins and profitability will be impacted and will result in adverse impact on our results of operations.
A large portion of our revenue is generated from a limited number of clients and the loss of one or more of ourthese clients could adversely affect our business
We rely on strategic, long-term relationships with large, global companies in targeted industries.industries and certain agencies of the United States and state and local governments. As a result, we derive a substantial portion of our revenue from relatively few clients. Our five and ten largest clients collectively represented 35%40% and 49%53% of our revenue in 2017 while the largest2020 with one client represented 9.0% of our revenue in 2017.over 10%.
Although weWe have multiple engagements with all of our largest clients and all contracts are unlikely to terminate at the same time, the contracts with our five largest clients expire between 20182021 and 2023 and there can be no assurance that these contracts will continue to be renewed at all or be renewed on favorable terms. While our ongoing sales and marketing activities aim to add new opportunities with existing and new commercial and public sector clients, there can be no assurances that such additional work can be secured nor that it would yield financial benefits comparable to expiring contracts. The loss of all or part of a major client’sclients’ business could have a material adverse effect on our business, financial condition, and results of operations, if the loss of revenue wasis not replaced with profitable business from other clients.
We serve clients in industries that have historically experienced a significant level of consolidation. If one of our clients is acquired (including by another of our clients) our business volumevolumes and revenue may materially decrease due to the termination or phase out of an existing client contract, volume discounts, or other contract concessions which could have an adverse effect on our business, financial condition, and results of operations.
Our delivery model involves geographic concentration exposing us to significant operational risks
Our business model is dependent on our service customer engagement centers and enterprise support functions being located in low cost jurisdictions around the globe. We have on the ground presence in 24 countries, but our customer care and experience management delivery capacity and our back office functions are concentrated in the Philippines, Mexico, India, and Bulgaria and our technology solutions customer engagement centers are concentrated in a few locations in the United States. Natural disasters (floods, winds, and earthquakes), terrorist attacks, pandemics, large-scale utilities outages, telecommunication and transportation disruptions, labor or political unrest, and restriction on repatriation of funds at some of these locations may interrupt or limit our ability to operate or may increase our costs. Our business continuity and disaster recovery plans, while extensive, may not be effective, particularly if catastrophic events occur.
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Our dependence on our customer engagement centers and enterprise services support functions in the Philippines, which is subject to frequent severe weather, natural disasters, and occasional security threats, represents a particular risk. For these and other reasons, our geographic concentration could result in a material adverse effect on our business, financial condition and results of operations. Although we procure business interruption insurance to cover some of these exposures, adequate insurance may not be available on an ongoing basis for a reasonable price.
Our growth of operations could strain our resources and cause our business to suffer
We plan to continue growing our business organically through expansion, sales efforts, and strategic acquisitions, while maintaining tight controls on our expenses and overhead. Lean overhead functions combined with focused growth may place a strain on our management systems, infrastructure and resources, resulting in internal control failures, missed opportunities, and staff attrition which could impact our business and results of operations.
Our profitability could suffer if our cost-management strategies are unsuccessful
Our ability to improve or maintain our profitability is dependent on our ability to engage in continuous management of our costs. Our cost management strategies include optimizing the alignment between the demand for our services and our resource capacity, including contact center utilization; the costs of service delivery; the cost of sales and general and administrative costs as a percentage of revenues, and the use of process automation for standard operating tasks. If we are not effective in managing our operating and administrative costs in response to changes in demand and pricing for our services, or if we are unable to absorb or pass on to our clients the increases in our costs of operations, our results of operations could be materially adversely affected.
Our financial results depend on our capacity utilization and our ability to forecast demand and make timely decisions about staffing levels, investments, and operating expenses
Our ability to meet our strategic growth and profitability objectives depends on how effectively we manage our contact center capacity against the fluctuating and seasonal client demands. Predicting customer demand and making timely staffing level decisions, investments, and other operating expenditure commitments in each of our delivery center locations is key to our successful execution and profitability maximization. We can provide no assurance that we will continue to be able to achieve or maintain desired delivery center capacity utilization, because quarterly variations in client volumes, many of which are outside our control, can have a material adverse effect on our utilization rates. If our utilization rates are below expectations, because of our high fixed costs of operation, our financial conditions and results of operations could be adversely affected.
If we cannot recruit, hire, train, and retain qualified employees to respond to client demands at the right price point, our business will be adversely affected
Our business is labor intensive and our ability to recruit and train employees with the right skills, at the right price point, and in the time frametimeframe required by our client commitments is critical to achieving our growth objective. Demand for qualified personnel with multiple languagemulti-language capabilities and fluency in English may exceed supply. Employees with specific backgrounds and skills may also be required to keep pace with evolving technologies and client demands. While we invest in employee retention, we continue to experienceour industry is known for high employee turnover and are continuously recruiting and training replacement staff. Some of our facilities are located in geographies with low unemployment, which makes it costly to hire personnel, and in several jurisdictions, jurisdiction-specific wage regulations are changing rapidly making it difficult to recruit new employees at price points acceptable for our business model. Our inability to attract and retain qualified personnel at costs acceptable under our contracts, our costs associated with attracting, training, and retaining employees, and the challenge of managing the continuously changing and seasonal client demands could have a material adverse effect on our business, financial condition, and results of operations.
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Uncertainty related to cost of labor across various jurisdictions in the United States could adversely affect our results of operating
As a labor intensive business, weWe sign multi-year client contracts that are priced based on prevailing labor costsrates in jurisdictions where we deliver services. Yet,In the United States, however, our business is confronted with a patchwork of ever changingever-changing minimum wage, mandatory time off, and rest and meal break laws at the state and local levels. As these jurisdiction-specific laws change with little notice or grace period for transition, we often have no opportunity to adjust and change how we do business andnor pass cost increases to our clients.
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The United States and other governments in jurisdictions where we hire employees adopted income support measures aimed at supporting citizens who lost their jobs due to COVID-19 pandemic. The individuals who benefit from these income support measures may be attractive employment prospects for TTEC, but COVID-19 enhanced unemployment benefits in some jurisdictions where we hire, may exceed local prevailing wages and may make it more difficult for us to hire a sufficient number of employees to deliver our contractual commitments.
The frequent changes in the law andlaws, inconsistencies in laws across different jurisdictions, inCOVID-19 income support measures, and a possible federal government mandate for a $15/hour wage, supported by the United States,Biden administration with the presumptive support of both houses of Congress, may result in higher costs, lower contract profitability, higher turnover, and reduced operational efficiencies, which could, in the aggregate, have material adverse impact on our results of operations.
Turnover in senior sales staff and the length of time required for newly-hired sales staff to become productive could adversely impact our growth and our results of operations
It can take several months before newly-hired sales staff are productive in selling our service offerings, technology and consulting solutions to prospective clients. The long ramp period impacts the speed at which they can be effective in contributing to our growth. The cost of sales staff recruiting and their base compensation, therefore, cannot be immediately offset by the revenue such staff produce. Further, given the length of the ramp period, sometimes we cannot determine if new sales representatives would succeed until they have been employed for a period of time. If we cannot reliably limit turnover in our sales staff and speed up development of newly-hired sales staff to a productive level, or if we lose productive sales representatives in whom we have heavily invested, our future growth rates and revenue will suffer.
Our sales cycles for new client relationships, andfor new lines of business with existing clients, and for public sector clients can be long, which results in a long lead time before we receive certain revenuesrevenue
We often face a long selling cycle to secure contracts with new clients or contracts for new lines of business with existing clients. When we are successful in securing a new engagement, it is generally followed by a long implementation period when clients must give notice to incumbent service providers or transfer in-house operations to us. There may also be a long ramp up period before we commence our services, and for certain contracts we receive no revenue until we start performing the work. If we are not successful in obtaining contractual commitments after the initial prolonged sales cycle, or in maintaining the contractual relationship for a period of time necessary to offset new project investment costs and appropriate return on that investment, the investments may have a material adverse effect on our results of operations.
Our growth strategy includes the expansion of our offerings to public sector clients. The procurement process for government entities is often more challenging than contracting in the private sector and is different from our standard Engage and Digital business practices, including upfront investment to position for opportunities and respond to requests for proposal. If we are unable to manage our public sector business development effectively and are not successful in winning work, despite the investment we make, our private sector work can adversely impact our results of operations.
Our growth of operations and geographic footprint expansion could strain our resources and negatively impact our business
We plan to continue growing our business through the growth of clients’ wallet share, increasing sales efforts, geographic expansion, and strategic acquisitions, while maintaining tight controls on our expenses and overhead. Lean overhead functions combined with focused growth may place a strain on our management systems, infrastructure, and resources, resulting in internal control failures, missed opportunities, and staff attrition. If we fail to manage our growth effectively, our brand business, financial condition, and results of operations could be adversely affected.
Contract terms typical in our industry can lead to volatility in our revenue and in our margins
Many of our TTEC Engage contracts require clients to provide monthly forecasts of volumes, but no guaranteed or minimum volume or revenue levels. Such forecasts vary from month to month, which can impact our staff and space utilizations, our cost structure, and our profitability.
Many of our contracts have termination for convenience clauses with short notice periods and no guarantees of minimum revenue levels or profitability, which could have a material adverse effect on our results of operation. Although many of our contracts can be terminated for convenience, our relationships with our top five clients have ranged from 10 to 21 years with the majority of these clients having completed multipleIf a client terminates a contract renewals with us. Yet, our contracts do not guarantee a minimum revenue level or profitability, and clients may terminate them or materially reducereduces customer interaction volumes, which would reduce our earning potential. Thisit could have a material adverse effect on our results of operations and makes it harder to make projections.
Many of our contracts utilize performance pricing that link some of our fees to the attainment of performance criteria, which could increase the variability of our revenue and operating margin. These performance criteria can be complex, and at times they are not entirely within our control. If we fail to satisfy our contract performance metrics, our revenue under the contracts and our operating margin are reduced.
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We may not always offset increased costs with increased fees under long-term contracts. The pricing and other terms of our client contracts, particularly on our long-term contact centerservice agreements, are based on estimates and assumptions we make at the time we enter into these contracts.contact inception. These estimates reflect our best judgments regarding the nature of the engagement and our expected costs to provide the contracted services, andbut these judgments could differ from actual results. Not all our larger long-term contracts allow for escalation of fees as our cost of operations increase andincrease. Moreover, those that do allow for such escalations do not always allow increases at rates comparable to increases that we experience due to rising minimum wage costs, and related payroll cost increases.increases, and increased costs of work from home environment, not offset by reduction in physical footprint due to long term lease commitments. If and to the extent we cannotdo not negotiate long-term contract terms that provide for fee adjustments to reflect increases in our cost of servicecost-of-service delivery, our business, financial conditions, and results of operation wouldcould be materially impacted.
Our contracts seldom address the impacts of currency fluctuation onWe provide service level commitments to certain customers. If we do not meet these contractual commitments, we could be obligated to provide credits or refunds or face contract terminations, which could adversely affect our costs of delivery. As we continue to leveragerevenue and harm our global delivery model, more of our expenses may be incurred in currencies other than those in which we bill for services. An increase in the value of certain currencies, such as U.S. or Australian dollar against the Philippine peso and India rupee, could increase costs for our delivery at offshore sites by increasing our labor and other costs that are denominated in local currencies. Our contractual provisions, cost management efforts, and currency hedging activities may not be able to offset the currency fluctuation impact, resulting in the decrease of the profitability of our contracts.reputation.
Our pricing depends on effectiveness of our forecasting of the level of effort.effort forecasts. Pricing forof our services in our technology and strategic consulting businessesdigital business is highly contingent on our ability to accurately forecast the level of effort and cost necessary to deliver our services, which is data dependent and could turn out tocan be materially inaccurate. The inaccurateerrors in level of effort in project estimatesestimations could yield lower profit margins or cause projects to become unprofitable, resulting in adverse impacts on our results of operations.
The new U.S. tax reform legislationWe routinely consider strategic transactions and uncertainties of related interpretations may adversely affect our results of operations
The United States recently enacted comprehensive tax reform legislation known as the Tax Cutsenter into such transactions any time and Jobs Act (the "2017 Tax Act") that, among other things, reduces the U.S. federal corporate income tax rate from 35% to 21% and implements a territorial tax system, but imposes an alternative “base erosion and anti-abuse tax” (“BEAT”), an incremental tax on global intangible low taxed foreign income (“GILTI”) as well as a one-time mandatory repatriation tax on accumulated foreign earnings on domestic corporations. The comprehensivesuch transactions may negatively impact of the BEAT and GILTI on TTEC is not yet clear and will depend on future tax regulatory guidance and actions the Company may take, as a result of the 2017 Tax Act.
There are a number of uncertainties and ambiguities as to the interpretation and application of many of the provisions in the 2017 Tax Act, such as for example, the impact of the BEAT on the deductibility of payments we routinely make to our foreign affiliates for cost of services delivered outside of the United States and sold to clients based in the United States. In the absence of guidance on these issues, we will use what we believe to be reasonable interpretations and assumptions in applying the provisions of the 2017 Tax Act for purposes of determining our income tax liability and results of operations. Future guidance on the interpretations of the 2017 Tax Act that will be provided by the U.S. Department of Treasury or audit positions that may be taken by the Internal Revenue Service that differ from the interpretations and assumptions that we will reasonably make could have a material adverse effect on our overall effective tax rate, results of operations and financial condition.
Uncertainty of tax regulations in countries where we do business may affect our costs of operation
We operate in multiple countries through legal entity structures that optimize our operations and tax positions globally. We make our business decisions regarding entity capitalization and repatriation of capital based on the needs of the business and costs and tax impacts of such decisions. Corporate tax reform, base-erosion efforts and tax transparency continue to be high priorities in many tax jurisdictions where we have business operations. As a result, policies regarding corporate income and other taxes in numerous jurisdictions are under heightened scrutiny. Changes in the tax regulations in the countries where we currently operate could lead to higher taxation levels, higher costs of doing business, and labor uncertainties when employees’ take-home pay is impacted by unexpected tax changes.
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We face special risks associated with our business outside of the United States
An important component of our business strategy is service delivery outside of the United States and our continuing international expansion. In 2017 we derived approximately 44% of our revenue from operations outside of the United States. Conducting business abroad is subject to a variety of risks, including:
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While we monitor and endeavor to mitigate timely the relevant regulatory, geopolitical, and other risks related to our operations outside of the United States, we cannot assess with certainty what impact such risks are likely to have over time on our business and we can provide no assurancecreate unanticipated risks
We continuously analyze strategic opportunities that we will always be able to mitigate these risks successfully and avoid material impact to our business and results of operations.
Our profitability may be adversely affected if we are unable to expand and maintain our contact centers in countries with stable wage rates and find new “near shore” locations required by our clients.
Our business is labor-intensive and therefore cost of wages, benefits and related taxes constitute a large component of our operating expenses. As a result, expansion of our business is dependent upon our ability to maintain and expand our operations in cost-effective locations, in and outside of the United States. Most of our contact centers are located in jurisdictions subject to minimum wage regulations, which may result in increased wages in the future, thus impacting our profitability.
Our clients often dictate where they wish for us to locate the contact centers that serve their customers and ‘near shore’ jurisdictions located in close proximity to the United States have grown in popularity recently. There is no assurance that we will be able to find and secure locations suitable for contact center operations in ‘near shore’ jurisdictions which meet our cost-effectiveness and security standards. Our inability to expand our operations to such ‘near shore’ locations, however, may impact our ability to secure new and additional business from clients, and may impact our growth and results of operations.
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Restrictions on mobility of people across borders may affect our ability to compete for andbelieve could provide services to clients
Our business depends on the ability of some of our employees to obtain the necessary visas and entry permits to do business in the countries where our clients and contact centers are located. In recent years, in response to terrorist attacks and global unrest, immigration authorities generally, and those in the United States in particular, have increased the level of scrutiny in granting such visas, and even imposed bans on immigration and commercial travel for citizens of certain countries. If further terrorist attacks occur or global unrest intensifies, we anticipate that these restrictions will further increase. Immigration and business entry rules outside of the United States may also require us to meet certain additional legal requirements as a condition to obtaining or maintaining visas. Furthermore, immigration laws in most countries where we do business are subject to legislative change and varying standards of application and enforcement due to political forces, economic conditions or other events unrelated to our operations. If we are unable to obtain the necessary visasvalue for our personnel with need to travel to the United States or for our United States based employees who may need to travel to countries with newly restricted access; if the issuancestockholders, and have acquisitions, divestitures, and potential business combinations in various stages of such visas is delayed or if the length of such visas is shortened, we may notactive review. There can be able to continue to provide services on a timely and cost-effective basis, receive revenues as early as expected or manage our customer engagement centers efficiently. Any of these developments could have a material adverse effect on our business, results of operations and financial condition.
If the transfer pricing arrangements we have among our subsidiaries are determined to be inappropriate, our tax liability may increase
We have transfer pricing arrangements among our subsidiaries in relation to various aspects of our business, including operations, marketing, sales, and delivery functions. U.S., Australian, Philippines and other transfer pricing regulations in other countries where we operate, require that cross-border transactions between affiliates be on arm’s-length terms. We carefully consider the pricing among our subsidiaries to assure that they are at arm’s-length. If tax authorities were to determine that the transfer prices and terms we have applied are not appropriate, we may incur increased tax liability, including accrued interest and penalties, which would cause material increase in our tax liability, thereby impacting our profitability and cash flows, and potentially resulting in a material adverse effect on our operations, effective tax rate and financial condition.
The recently enacted 2017 Tax Act in the U.S. may impact the transfer pricing arrangements we have with our cross-border affiliates, because of potential impact BEAT (base erosion and anti-abuse tax) may have on such payments. The comprehensive impact of the BEAT on TTEC is not yet clear and will depend on future tax regulatory guidance and actions the Company may take, as a result of the 2017 Tax Act. If the requirements of 2017 Tax Act and requirements of tax regulations in countries where we have subsidiaries do not reconcile, our overall tax liability and penalties resulting from transfer pricing arrangements may impact our profitability, effective tax rate and financial condition.
Our strategy of growing through acquisitions may impact our business in unexpected ways
Our growth strategy involves acquisitions that help us expand our service offerings and diversify our geographic footprint. We continuously evaluate acquisition opportunities, but there are no assurances, however, that we will be able to identify acquisition targetsstrategic transaction opportunities that complement our strategy and are available at valuation levels accretive to our business.
Even if we are successful in acquiring, our acquisitionsidentifying and executing these transactions, they may subject our business to risks that maycould impact our results of operation:operation, including:
| inability to integrate acquired companies effectively and realize anticipated synergies and benefits from the acquisitions; |
| diversion of management’s attention to the integration of the acquired businesses at the expense of delivering results for the legacy business; |
| inability to appropriately scale critical resources to support the business of the expanded enterprise and other unforeseen challenges of operating the acquired business as part of TTEC’s operations; |
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| inability to retain key employees of the acquired businesses and/or inability of such key employees to be effective as part of TTEC operations; |
| impact of liabilities or ethical issues of the acquired businesses undiscovered or underestimated as part of the acquisition due diligence; |
| failure to realize anticipated growth opportunities from a combined business, because existing and potential clients may be unwilling to consolidate business with a single |
| impacts of cash on hand and debt incurred to finance acquisitions, thus reducing liquidity for other significant strategic objectives; |
| inadequate or ineffective internal controls, disclosure controls, corruption prevention policies, human resources and other key policies and practices of the acquired |
| ● | reduced revenue and income and resultant stock price impact due to divestiture transactions. |
While we consider these transactions to improve our business, financial results, and shareholder value over time, there can be no assurance that our goals will be realized.
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Increases in the cost of communication and data services or significant interruptions in such services could adversely affect our business
Our business is significantly dependent on internet, data, and telephone services provided by various domestic and foreign communication companies. Any disruption of these services could adversely affect our business. We have taken steps to mitigate our exposure to service disruptions by investing in complex and multi-layered redundancies focused on our customer engagement center locations, and we can transition service delivery among our different customer engagement centers around the world. Despite these efforts, and especially in light of the recent transition of a large portion of our delivery to a work from home environment where conventional redundancies strategies are ineffective, there can be no assurance that the redundancies we have in place would be sufficient to maintain operations without disruption.
Our inability to obtain communication and data services at favorable rates could negatively affect our results of operations. Where possible, we have entered into long-term contracts with various providers to mitigate short term rate increases and fluctuations. There is no obligation, however, for the vendors to renew their contracts with us, or to offer the same or lower rates in the future, and such contracts may be subject to termination or modification for various reasons outside of our control. A significant increase in the cost of communication services that is not recoverable through an increase in the price of our services could adversely affect our business.
The current trend to outsource customer care may not continue and the prices that clients are willing to pay for the services may diminish, adversely affecting our business
Our growth depends, in large part, on the willingness of our clients and potential clients to outsource customer care and management services to companies like TTEC. There can be no assurance that the customer care outsourcing trend will continue; and our clients and potential clients may elect to perform in-house customer care and management services that they currently outsource. Reduction in demand for our services and increased competition from other providers and in-house service alternatives could create pricing pressures and excess capacity that would have an adverse effect on our business, financial condition, and results of operations.
Our profitability could suffer if our cost-management strategies are unsuccessful
Our ability to improve or maintain our profitability is dependent on our ability to engage in continuous management of our costs. Our cost management strategies include optimizing the alignment between the demand for our services and our resource capacity, including our customer engagement centers’ utilization; investment in our work from home environment; the costs of service delivery; the cost of sales and general and administrative costs as a percentage of revenues; and the use of process automation for standard operating tasks. Our ongoing cost management measures must be balanced against the need for investment to support our growth, technology transformation in our business, and increasing cybersecurity threats. If we are not effective in managing our operating and administrative costs in response to changes in demand and pricing for our services, if we manage our costs at the expense of investments necessary to grow and protect our business, or if we are unable to absorb or pass on to our clients the increases in our costs of operations, our results of operations could be materially adversely affected.
Our profitability may be adversely affected if we are unable to expand and maintain service delivery in countries with stable wage rates and launch operations in new delivery locations required by our clients
Our business is labor-intensive and therefore cost of wages, benefits, and related taxes constitute a large component of our operating expenses. As a result, our growth is dependent upon our ability to maintain and expand our operations in cost-effective locations, in and outside of the United States.
Our clients often dictate locations from where they wish for us to serve their customers, such as “near shore” jurisdictions located in close proximity to the U.S., to a headquarter location of the client, or in specific locations elsewhere in the world. There is no assurance that we will be able to effectively launch operations in jurisdictions which meet our cost-effectiveness, labor availability, and security standards. Our inability to expand our operations to such locations, however, may impact our ability to secure new clients and additional business from existing clients, and could adversely affect our growth and results of operations.
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Intellectual property infringement may adversely impact our ability to innovate and compete
Our intellectual property may not always receive favorable treatment from the United States Patent and Trademark Office, the European Patent Office, or similar foreign intellectual property adjudication and registration agencies; and our “patent pending” intellectual property may not receive a patent or may be subject to prior art limitations.
The lack of an effective legal system in certain countries where we do business or lack of commitment to protection of intellectual property rights, may prevent us from being able to defend our intellectual property and related technology against infringement by others, leading to a material adverse effect on our business, results of operations and financial condition.
We have incurred and may in the future incur impairments to goodwill, long-lived assets or strategic investments
As a result of past acquisitions, as of December 31, 2017,2020, we have approximately $206.7$363.5 million of goodwill and $92.1$112.1 million of intangible assets included on our Consolidated Balance Sheet. We review our goodwill and intangible assets for impairment at least once annually, and more often when events or changes in circumstances indicate the carrying value may not be recoverable. We perform an assessment of qualitative and quantitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of the goodwill or intangible asset is less than its carrying amount. In the event that the book value of goodwill or intangible asset is impaired, such impairment would be charged to earnings in the period when such impairment is determined. We have recorded goodwill and intangible impairments in the past, and there can be no assurance that we will not incur impairment charges in the future that could have material adverse effects on our financial condition or results of operations.
Risks Related to Our share priceTechnology
Cyberattacks, cyber fraud, and unauthorized information disclosure could be adversely affected if we are unable to maintain effective internal controls over financial reporting and we are not able to prevent or timely detect errors or fraud
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. As previously disclosed, in prior periods,harm our management had identified material weaknesses in our internal control over financial reporting and has taken remedial actions that we believe remediate such material weaknesses. Although we improved our control environment in response to the previously identified material weaknesses, there can be no assurances that we will be able to prevent future control deficiencies, including material weaknesses, from occurring.
Any internal and disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Inherent limitations within a control system include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, any controls can be circumvented by individuals acting alone or in collusion with others to override controls. If additional material weaknesses or significant deficiencies in our internal control over financial reporting are discovered or occur in the future, our consolidated financial statements may contain material misstatements. These misstatements couldreputation, result in restatementsliability and service outages, any of our consolidated financial statements and cause investors to lose confidence in our reported financial information, which could lead to a decline in our stock price.
Intellectual property infringement by us and by others may adversely impact our ability to innovate and compete
Our solutions could infringe intellectual property of others impacting our ability to deploy them with clients. From time to time, we and members of our supply chain receive assertions that our service offerings or technologies infringe on the patents or other intellectual property rights of third parties. While to date we have been successful in defending such claims and many of these claims are without basis, the claims could require us to cease activities, incur expensive licensing costs, or engage in costly litigation, which could adversely affect our business and results of operation.operations
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Our intellectual propertyinformation about our clients, their customers, and our employees. While we take reasonable measures to protect the security of and unauthorized access to our systems and the privacy of personal and proprietary information that we access and store, our security controls over our systems may not always receive favorable treatment frombe adequate to prevent the United States Patentimproper access to or disclosure of this information. Such unauthorized access or disclosure could subject TTEC to significant liability under relevant law or our contracts and Trademark Office, the European Patent Office or similar foreign intellectual property adjudication and registration agencies; andcould harm our “patent pending” intellectual property may not receive a patent or may be subject to prior art limitations.
The lack of legal system sophisticationreputation, resulting in certain countries where we do business or lack of commitment to protection of intellectual property rights, may prevent us from being able to defend our intellectual property and related technology against infringement by others, leading to a material adverse effectimpacts on our business, results of operations, loss of future revenue and financial condition.
Increases in the cost of communication and data services or significant interruptions in such services could adversely affectbusiness opportunities. These risks may further increase as our business model that includes high percentage of work from home delivery in addition to our delivery through customer experience centers.
OurIn recent years, there have been an increasing number of high-profile security breaches at companies and government agencies, and security experts have warned about the growing risks of hackers, cybercriminals and state actors launching a broad range of attacks targeting information technology systems. Information security breaches, computer viruses, interruption or loss of business is significantly dependentdata, DDoS (distributed denial of service) attacks, ransomware and other cyberattacks on telephone, internet and data service provided by various domestic and foreign communication companies. Any disruptionany of these systems could disrupt our normal operations of customer engagement centers and remote service delivery, our cloud platform offerings, and our enterprise services, could adversely affectimpeding our business. ability to provide critical services to our clients.
We have taken steps to mitigate our exposure to service disruptions by investing in complex and multi-layered redundancies, and we can transition services among our different contact centers around the world. Despite these efforts, there can be no assurance, however, that the redundancies we have in place would be sufficient to maintain operations without disruption.
Our inability to obtain communication and data services at favorable rates could negatively affect our results of operations. Where possible, we have entered into long-term contracts with various providers to mitigate short term rate increases and fluctuations. There is no obligation, however, for the vendors to renew their contracts with us, or to offer the same or lower rates in the future, and such contracts are subject to termination or modification for various reasons outside of our control. A significant increase in the cost of communication services that is not recoverable throughexperiencing an increase in frequency of cyber-fraud attempts, such as so-called “social engineering” attacks and phishing scams, which typically seek unauthorized money transfers or information disclosure. We actively train our employees to recognize these attacks and have implemented proactive risk mitigation measures to curb them. There are no assurances, however, that these attacks, which are growing in sophistication, may not deceive our employees, resulting in a material loss.
16
While we have taken reasonable measures to protect our systems and processes from unauthorized intrusions and cyber-fraud, we cannot be certain that advances in cyber-criminal capabilities, discovery of new system vulnerabilities, and attempts to exploit such vulnerabilities will not compromise or breach the price oftechnology protecting our servicessystems and the information that we manage and control, which could adversely affectresult in damage to our business.systems, our reputation, and our profitability.
If our cloud platform experiences disruptions due to technology failures or cyberattacks and if we fail to correct such impacts promptly, our business will be materially impacted
Defects or errors within software could adversely affect our business.
TheOur cloud platforms and third-party software and systems that we use to conduct our business and serve our clients is highlyare complex and may, from time to time have service interruptions, contain design defects, configuration or coding errors, orand other software errorsvulnerabilities that may be difficult to detect or correct, and which aremay be outside of our control. Although our commercial agreements may contain provisions designed to limit our exposure to potential claims and liabilities, these provisionsfrom such occurrences, they may not always effectively protect us against claims in all casesjurisdictions and in all jurisdictions. As a result, problems with the softwareagainst third-party claims. If our clients’ business is damaged, our reputation could suffer, we could be subject to contract termination and systems that we use may result inpayments for damages, to our clients for which we are held responsible, or cause damage to our reputation, adversely affecting our business, our reputation, our results of operations and financial condition.
Risks Related to Our International Operations
We face special risks associated with international operations
An important component of our business strategy is service delivery outside of the United States and our continuing international expansion. During 2020, we derived approximately 31% of our revenue from operations outside of the U.S. Conducting business abroad is subject to a variety of risks, including:
| ● | inconsistent regulations, licensing requirements, prescriptive labor rule, corrupt business practices, restrictive export control and immigration laws may result in inadvertent violation of laws that we may not be able to immediately detect or correct; and may increase our cost of operations as we endeavor to comply with laws that differ from one country to another; |
| ● | uncertainty of tax regulations in countries where we do business may affect our costs of operation; |
| ● | longer payment cycles could impact our cash flows and results of operations; |
| ● | political and economic instability and unexpected changes in regulatory regimes could adversely affect our ability to deliver services overseas and our ability to repatriate cash; |
| ● | the withdrawal of the United Kingdom from the European Union (known as “Brexit”) added complexity and cost to provision of services and movement of people across UK, Ireland and continental members of the European Union, which could impact our European operations and our operations in the UK; |
| ● | currency exchange rate fluctuations, restrictions on currency movement, and impact of international tax laws could adversely affect our results of operations, if we are forced to maintain assets in currencies other than U.S. dollars, while our financial results are reported in U.S. dollars; |
| ● | infrastructure challenges and lack of sophisticated disaster and pandemic preparedness in some countries where we do business may impact our service delivery; and |
| ● | terrorist attacks or civil unrest in some of the regions where we do business, and the resulting need for enhanced security measures may impact our ability to deliver services, threaten the safety of our employees, and increase our costs of operations. |
While we monitor and endeavor to mitigate in a timely manner the relevant regulatory, geopolitical, and other risks related to our operations outside of the United States, we cannot assess with certainty what impact such risks are likely to have over time on our business, and we can provide no assurance that we will always be able to mitigate these risks successfully and avoid adverse impact on our business and results of operations.
17
Our delivery model involves geographic concentration outside of the United States exposing us to significant operational risks
Our customer engagement delivery and our back-office functions are concentrated in the Philippines, Mexico, India, and Bulgaria. Our business model is dependent on our ability to locate at least some of our customer engagement service delivery and enterprise support functions in low-cost jurisdictions around the globe. Our dependence on our customer engagement centers and enterprise support functions in the Philippines and Mexico, which are subject to frequent severe weather, natural disasters, health and security threats, and arbitrary government actions represents a particular risk. Natural disasters (floods, winds, and earthquakes), terrorist attacks, pandemics, large-scale utilities outages, telecommunication and transportation disruptions, labor or political unrest, and restriction on repatriation of funds at some of these locations may interrupt or limit our ability to operate or may increase our costs. Our business continuity and disaster recovery plans, while extensive, may not be effective, particularly if catastrophic events occur.
For these and other reasons, our geographic concentration in locations outside of the United States could result in a material adverse effect on our business, financial condition and results of operations. Although we procure business interruption insurance to cover some of these exposures, adequate insurance may not be available on an ongoing basis for a reasonable price.
We may face new risks as we expand our operations into countries where we have no prior experience
At times, our clients ask us to stand up operations quickly in countries where we previously have not done business. New market entry is fraught with operational, security, regulatory compliance, safety, and corruption risks, and these risks are exacerbated when new operations are launched quickly. TTEC has extensive experience in new market entry around the globe, but there can no assurances that new operations in new countries would not result in financial loses and operational instability. If we elect not to follow our clients to markets where they wish to have services, we may lose lucrative contracts, including contracts in multiple jurisdictions where we have experience, to competitors who are already established in the markets new to us, which would impact our financial results of operations.
Our financial results may be adversely impacted by foreign currency exchange rate risk
Many contracts that we service from customer care contactengagement centers or employees working from home based outside of the United States are typically priced, invoiced, and paid in U.S. and Australian dollars, the British pound or Euros, while the costs incurred to deliver thethese services and operate contact centers are incurred in the functional currencies of the applicable operating subsidiary.country of operations. The fluctuations between the currencies of the contract and operating currencies present foreign currency exchange risks. Furthermore, because our financial statements are denominated in U.S. dollars, but approximately 24%17% of our revenue is derived from contracts denominated in other currencies, our results of operations could be adversely affected if the U.S. dollar strengthens significantly against foreign currencies.
While we hedge at various levels against the effect of exchange rate fluctuations, we can provide no assurance that we will be able to continue to successfully manage this foreign currency exchange risk and avoid adverse impacts on our business, financial condition, and results of operations.
Risks Related to Legal, Compliance and Regulatory Matters
16
Complianceoperations may be impacted by changes in laws, our failure to comply with laws including unexpected changesand regulations relevant to such laws, could adversely affect our results of operationsbusiness
Our business is subject to extensive, regulationand at times conflicting, regulations by U.S. andthe United States, state, local, foreign national, state and provincial authorities relating to confidential client and customer data,, data privacy, customer communications, telemarketing practices, and licensed healthcare, and financial services, collections, and gaming/gambling support activities, trade restrictions and sanctions, tariffs, import/export controls, taxation, labor regulations, wages and severance, health care requirements, disclosure obligations, and immigration among other areas.
18
As we provide services to clients’ customers residing in countries where we do not have operations on the ground, we may also be subject to laws and regulations of these countries. Costs and complexity of compliance with existing and future regulations that could apply to our business may adversely affect our profitability.profitability; and If we fail to comply with regulations relevant to our business,these mandates, we could be subject to contractual, civil orand criminal liability, monetary damages and fines. Private lawsuits and enforcementEnforcement actions by regulatory agencies maycould also materially increase our costs of operations and impact our ability to serve our clients.
As we provide services to clients’ customers residing in countries across the world, we are subject to numerous, and sometimes conflicting, legal regimes on matters as diverse as import/export controls, communication content requirements, trade restrictions and sanctions, tariffs, taxation, data privacy, labor relations, wages and severance, health care requirements, internal and disclosure control obligations, and immigration. Violations of these regulations could impact our reputation and result in financial liability, criminal prosecution, unfavorable publicity, restrictions on our ability to process information and breach of our contractual commitments.
Adverse changes in laws or regulations that impact our business may negatively affect the sale of our services, slow the growth of our operations, or mandate changes to how we deliver our services, including our ability to use offshore resources. These changes could threaten our ability to continue to serve certain markets.
The current trendUncertainty and inconsistency in privacy and data protection laws that impact our business, failure to outsource customer carecomply with contractual obligations related to privacy, and high cost of compliance may not continueimpact our ability to deliver services and our results of operations
During the prices that clients are willing to pay for the services may diminish, adversely affecting our business
Our growth depends,last several years, there has been a significant increase in large part, on the willingness of our clientsdata protection and potential clients to outsource customer careprivacy regulations and management services to companies like TTEC. There can be no assurance that the customer care outsourcing trend will continue;enforcement activity in many jurisdictions where we and our clients do business. These new regulations are often complex and potential clientsat times they impose conflicting requirements among different jurisdictions that we serve. For example, the European Union’s General Data Protection Regulation (GDPR) imposes data protection requirements for controllers and processers of personally identifiable information collected in Europe, while the California Consumer Privacy Protection Act (CCPA), and other similar acts in Illinois, and New York, and Massachusetts in the United States imposed similar regulations protecting state residents with a different reach. Well-publicized security breaches have led to enhanced government and regulatory scrutiny of the measures being taken by companies to protect against cyberattacks and may electin the future result in heightened cybersecurity requirements, including additional regulatory expectations for oversight of vendors and service providers. Unauthorized disclosure of sensitive or confidential client and their customers data, whether through breach of our systems or otherwise, could expose us to perform in-house customer carecostly litigation and management servicescause us to lose clients. For example, the U.S. government may impose new federal data privacy and regulation mandates as part of Biden Administration agenda in 2021. Failure to comply with all privacy and data protection laws that they currently outsource. Reduction in demand for our services and increased competition from other providers and in-house service alternatives would create pricing pressures and excess capacity that could have an adverse effect onare relevant to different parts of our business financial condition, andmay result in legal claims, significant fines, sanctions, or penalties, or may make it difficult for us to secure business or efficiently serve our clients. Compliance with these evolving regulations may require significant investment which would impact our results of operations.
Wage and hour class action lawsuits targeting our business can expose us to costly litigation and damage our reputation
The contact center industry in the United States is a target of plaintiffs’ law firms that specialize in wage and hour class action lawsuits against large employers by soliciting potential plaintiffs including current and former employees, with billboard and social media advertising. The plaintiff law firms seek large settlements based entirely on the number of potential plaintiffs in a class, whether or not there is any basis for the claims that they make on behalf of their clients, most of whom do not believe themselves to be aggrieved nor seek recourse until solicited. The cost of defending litigation for these large class action lawsuits is material. Because TTEC hires large numbers of employees in the United States and our industry has large turnover, the potential size of plaintiffs’ classes in these wage and hour lawsuits can be considerable, creating a material impact on the cost of operations. As we continue to hire more employees in the United States, and expand our operations to California, where the number of wage and hour class action lawsuits is larger than in many other states combined and where verdicts in these lawsuits are very large, our results of operations may be material impacted by these lawsuits.
19
Legislation discouraging offshoring of service by U.S.United States companies or making such offshoring difficult could significantly affect our business
A perceived association between offshore service providers and the loss of jobs in the United States has been a focus of political debate in recent years. As a result, current and prospective clients may be reluctant to hire offshore service providers like TTEC to avoid negative perceptions and regulatory scrutiny. If they seek customer care and management capacity onshore that was previously available to them through outsourcers outside of the United States,States., they may elect to perform these services in-house as a less expensive alternative toinstead of outsourcing the services onshore. Possible tax incentives for U.S. businesses to return offshored including outsourced and offshored, services to the U.S.United States could also impact our clients’ continuing interest in using our services.
Legislation aimed to expand protections for U.S. and European based customers from having their personal data accessible outside of the United Statestheir home jurisdictions, could also impact offshoreoffshored outsourcing opportunities by requiring notice and consent as a condition for sharing personal identifiable information with foreign service providers based outsidedelivery personnel. Further, the U.S. government’s reputation for use of individuals’ personal information for national security purposes without individuals’ consent, caused restrictions on transfer to the United States.States for processing of customers and customers’ data in several countries (e.g., Canada). Any material changes in current trends among U.S. basedour clients to use services outsourced and delivered offshore or to transfer information outside of the home country for processing would materially impact our business and results of operations.
Health epidemicsIncreases in income tax rates, changes in income tax laws or disagreements with tax authorities could disrupt our business and adversely affect our business, financial condition or results of operations
Our contact centers typically seat hundreds of employeesWe are subject to income taxes in one location. Accordingly, an outbreak of a contagious infectionthe United States and in one or more of the marketscertain foreign jurisdictions in which we dooperate. Increases in income tax rates or other changes in income tax laws in any particular jurisdiction could reduce our after-tax income from such jurisdictions and could adversely affect our business, may result infinancial condition or results of operations. Our operations outside the U.S. generate a significant worker absenteeism, lower capacity utilization rates, voluntary or mandatory closureportion of our customer engagement centers, travel restrictionsincome and many of the other countries in which we have significant operations, have recently made or are actively considering changes to existing tax laws that could significantly impact how U.S. multinational corporations are taxed on foreign earnings.
The incoming U.S. presidential administration has called for changes to fiscal and tax policies, which may include comprehensive tax reform. Many of these proposed and enacted changes to the taxation of our employees,activities could increase our effective tax rate or adversely affect our business, financial condition, or results of operations.
There are no assurances that we will be able to implement effective tax planning strategies that are necessary to optimize our tax position following changes in tax laws globally. If we are unable to implement a cost-effective contracting structure, our effective tax rate and our results of operations would be impacted.
Our ability to use our net operating losses or federal tax credits to offset future taxable income may be subject to certain limitations.
If the transfer pricing arrangements we have among our subsidiaries are determined to be inappropriate, our tax liability may increase
We have transfer pricing arrangements among our subsidiaries in relation to various aspects of our business, including operations, marketing, sales, and delivery functions. The United States, Australia, Mexico, India, Philippines and other disruptionstransfer pricing regulations in other countries where we operate, require that cross-border transactions between affiliates be on arm’s-length terms. We carefully consider the pricing among our subsidiaries to assure that they are at arm’s-length. If tax authorities were to determine that the transfer prices and terms we have applied are not appropriate, we may incur increased tax liability, including accrued interest and penalties, which would cause material increase in our business. Any prolonged or widespread health epidemic could severely disrupttax liability, thereby impacting our business operationsprofitability and havecash flows, and potentially resulting in a material adverse effect on our business, itsoperations, effective tax rate and financial condition and results of operations.
condition.
1720
Risks Related to Ownership of Our Common Stock
The volatility ofExclusive forum for dispute resolution provisions in our stock price may result in loss of investmentbylaws could limit our stockholders’ ability to obtain a favorable judicial forum for their disputes
Our share price has beenbylaws designate Delaware’s state courts as the exclusive forum for most disputes between us and may continue to be subject to substantial fluctuation.our stockholders, including federal claims and derivative actions. We believe that market prices of outsourced customer care management services stock in general have experienced volatility and such volatility will affect our stock price. As we continue to diversify our service offerings to include growth, technology and strategic consulting, our stock price volatilitythis provision may stabilize or it may be further impactedbenefit us by stock price fluctuations in these new industries. In addition to fluctuations specific to our industry and service offerings, we believe that various other factors such as general economic conditions, changes or volatilityproviding increased consistency in the financial markets,application of Delaware law and changing market conditionfederal securities laws by chancellors and judges who are particularly experienced in resolving corporate disputes, efficient administration of cases relative to other forums, and protection against the burdens of multi-forum litigation. This choice of forum provision does not have the effect of causing our stockholders to waive our obligation to comply with the federal securities laws. This bylaw forum selection provision is not uncommon for companies incorporated in the State of Delaware, but it could limit our clients could impactstockholders’ ability to select a more favorable judicial forum for disputes with us, our directors, officers or other employees and may therefore discourage litigation. It is important to note, however, that our choice of forum provision would (i) not be enforceable with respect to any suits brought to enforce any liability or duty created by the valuationSecurities Exchange Act of 1934, as amended, and (ii) have uncertain enforceability with respect to claims under the Securities Act of 1933, as amended.
Delaware law and certain provisions in our certificate of incorporation and bylaws might discourage, delay or prevent a change of control of our stock. The quarterly variationscompany or changes in our financial results, acquisitionmanagement and, divestiture announcements by us ortherefore, depress the price of our competitors, strategic partnershipscommon stock
Our restated certificate of incorporation and new service offering, our failure to meet our growth objectives or exceed our targets,amended and securities analysts’ perception about our performancerestated bylaws contain provisions that could causedepress the market price of our sharescommon stock by acting to fluctuate substantiallydiscourage, delay or prevent a change in control of our company or changes in our management that the future.stockholders of our company may deem advantageous. These provisions, among other things:
| ● | authorize the issuance of "blank check" preferred stock that our board of directors could use to implement a stockholder rights plan; |
| ● | provide that special meetings of our stockholders may be called only by our Chairman, President or our board of directors; |
| ● | establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings; |
| ● | permit the board of directors to establish the number of directors; and |
| ● | provide that the board of directors is expressly authorized to make, alter or repeal our amended and restated bylaws. |
In addition, Section 203 of the Delaware General Corporation Law may discourage, delay or prevent a change in control of our company. Section 203 imposes certain restrictions on mergers, business combinations and other transactions between us and holders of 15% or more of our common stock. Further, as described below, a majority of our stock is held by a single controlling stockholder, which means that a change in control of our company or the composition of the Board of Directors will not occur without the approval of the controlling stockholder.
Our Chairman and Chief Executive Officer controls a majority of our stock and has control over all matters requiring action by our stockholders; and his interest may conflict with the interests of our other stockholders
Kenneth D. Tuchman, our Chairman and Chief Executive Officer, directly and beneficially owns approximately 69%60% of TTEC’s common stock. As a result, Mr. Tuchman could and does exercise significant influence and control over our business practices and strategy, including the directionstrategy. As long as Mr. Tuchman continues to beneficially own more than 50% of our businesscommon stock he will be able to elect all of the members of our Board of Directors, effect stockholder actions by written consent in lieu of stockholder meetings, and our dividend policy, anddetermine the outcome of all matters requiring action bysubmitted to a vote of our stockholders, including matters involving mergers or other business combinations, the electionacquisition or disposition of assets, the occurrence of indebtedness, the issuance of any additional shares of common stock or other equity securities and the payment of dividends on our common stock.
21
The interest of Mr. Tuchman may not always coincide with the interest of our entireother stockholders, and Mr. Tuchman may seek to cause the company to take actions that might involve risks to our business or adversely affect us or our other stockholders. For example, Mr. Tuchman’s control of TTEC could delay or prevent a change of control, merger, consolidation, or sale of all or substantially all our assets that our other stockholders support, or conversely, Mr. Tuchman’s control could result in the consummation of a transaction that our other stockholders do not support. As a controlling stockholder, Mr. Tuchman is generally entitled to vote his shares as he sees fit, which may not always be in the interest of our other stockholders. This concentrated control could also discourage parties from acquiring our common stock or initiating potential mergers, takeovers or other change of control transactions, which could depress the trading price of our common stock.
Our status as a “controlled company” could make our common stock less attractive to some investors or otherwise harm our stock price
Because we qualify as a “controlled company” under the listing rules of the NASDAQ Stock Market, we are not required to have a majority of our Board of Directors and our capital structure. Further, a changebe independent, nor are we required to have an independent compensation committee or an independent nominating committee of the Board. While the Company has elected not to avail itself of these governance exceptions available to “controlled companies,” in controlthe future the Company may elect to do so. Accordingly, because of our “controlled company” status, the other stockholders may not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance rules for NASDAQ-listed companies. Our status as a controlled company could make our common stock less attractive to some investors or significant capital transactions could not be effected without Mr. Tuchman’s approval, even if such a change in control or other capital transactions could benefitotherwise harm our other stockholders.stock price.
ITEM 1B. UNRESOLVED STAFF COMMENTS
We have not received written comments regarding our periodic or current reports from the staff of the SEC that were issued 180 days or more preceding the end of our 20172020 fiscal year that remain unresolved.
Our corporate headquarters are located in Englewood, Colorado, which consists of approximately 264,000 square feet of owned office space.Colorado. In addition to our headquarters and the customer engagement centers used by our Customer Management Services and Customer Growth Services segmentsEngage segment discussed below, we also maintain sales and consulting offices in several countries around the world which serve our Customer Technology Services and Customer Strategy Services segments.Digital segment.
As of December 31, 20172020 we operated 9783 customer engagement centers that are classified as follows:
| Multi-Client Center — We lease space for these centers and serve multiple clients in each facility; |
| Dedicated Center — We lease space for these centers and dedicate the entire facility to one client; and |
| Managed Center — These facilities are leased or owned by our clients and we staff and manage these sites on behalf of our clients in accordance with facility management contracts. |
1822
As of December 31, 2017,2020, our customer engagement centers were located in the following countries:
| | | | | | | | | |
|
| |
| |
| |
| Total |
|
| | | | | | | | Number of |
|
| | Multi-Client | | Dedicated | | Managed | | Delivery |
|
| | Centers | | Centers | | Centers | | Centers |
|
Australia |
| — | | 3 | | — |
| 3 | |
Brazil |
| 2 | | — | | — |
| 2 | |
Bulgaria |
| 2 | | — | | — |
| 2 | |
Canada |
| 3 | | — | | 1 |
| 4 | |
Greece | | 1 | | — | | — | | 1 | |
Germany |
| — | | — | | 1 |
| 1 | |
India |
| 1 | | — | | — |
| 1 | |
Ireland |
| 1 | | — | | — |
| 1 | |
Mexico |
| 3 | | — | | — |
| 3 | |
Philippines |
| 18 | | — | | — |
| 18 | |
Poland | | 1 | | — | | — | | 1 | |
South Africa |
| — | | — | | 1 |
| 1 | |
Thailand | | — | | — | | 1 | | 1 | |
United Kingdom |
| 1 | | — | | 2 |
| 3 | |
United States of America |
| 27 | | 5 | | 9 |
| 41 | |
Total |
| 60 |
| 8 |
| 15 |
| 83 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
|
|
|
|
|
|
|
|
| Number of |
|
|
| Multi-Client |
| Dedicated |
| Managed |
| Delivery |
|
|
| Centers |
| Centers |
| Centers |
| Centers |
|
Australia |
| — |
| 4 |
| — |
| 4 |
|
Brazil |
| 2 |
| — |
| — |
| 2 |
|
Bulgaria |
| 2 |
| — |
| — |
| 2 |
|
Canada |
| 8 |
| — |
| 1 |
| 9 |
|
China |
| — |
| — |
| 1 |
| 1 |
|
Costa Rica |
| — |
| 1 |
| — |
| 1 |
|
Germany |
| — |
| — |
| 1 |
| 1 |
|
India |
| 4 |
| — |
| — |
| 4 |
|
Ireland |
| 1 |
| — |
| — |
| 1 |
|
Macedonia |
| 1 |
| — |
| — |
| 1 |
|
Mexico |
| 3 |
| — |
| — |
| 3 |
|
Philippines |
| 18 |
| 3 |
| — |
| 21 |
|
Poland |
| — |
| — |
| 1 |
| 1 |
|
South Africa |
| — |
| — |
| 2 |
| 2 |
|
Thailand |
| — |
| — |
| 1 |
| 1 |
|
United Kingdom |
| — |
| — |
| 2 |
| 2 |
|
United States of America |
| 25 |
| 7 |
| 9 |
| 41 |
|
Total |
| 64 |
| 15 |
| 18 |
| 97 |
|
The leases for our customer engagement centers have remaining terms ranging from one to nine13 years and generally contain renewal options. We believe that our existing customer engagement centers are suitable and adequate for our current operations, and we have plans to build additional centers to accommodate future business.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company has been involved in legal actions, both as plaintiff and defendant, which arise in the ordinary course of business. The Company accrues for exposures associated with such legal actions to the extent that losses are deemed both probable and reasonably estimable. To the extent specific reserves have not been made for certain legal proceedings, their ultimate outcome, and consequently, an estimate of possible loss, if any, cannot reasonably be determined at this time.
Based on currently available information and advice received from counsel, the Company believes that the disposition or ultimate resolution of any current legal proceedings, except as otherwise specifically reserved for in its financial statements, will not have a material adverse effect on the Company’s financial position, cash flows or results of operations.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
1923
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the NASDAQ Global Select Market under the symbol “TTEC.” The following table sets forth the range of the high and low sales prices per share of the common stock for the quarters indicated as reported on the NASDAQ Global Select Market:
|
|
|
|
|
|
|
|
|
| High |
| Low |
| ||
Fourth Quarter 2017 |
| $ | 43.35 |
| $ | 37.85 |
|
Third Quarter 2017 |
| $ | 42.15 |
| $ | 38.60 |
|
Second Quarter 2017 |
| $ | 42.60 |
| $ | 28.85 |
|
First Quarter 2017 |
| $ | 31.30 |
| $ | 29.10 |
|
|
|
|
|
|
|
|
|
Fourth Quarter 2016 |
| $ | 31.75 |
| $ | 25.40 |
|
Third Quarter 2016 |
| $ | 30.24 |
| $ | 26.87 |
|
Second Quarter 2016 |
| $ | 28.29 |
| $ | 25.80 |
|
First Quarter 2016 |
| $ | 28.71 |
| $ | 24.49 |
|
As of December 31, 2017,2020, we had approximately 282248 holders of record of our common stock and during 20172020 we declared and paid a $0.22$0.34 per share semi-annual dividend, a $0.40 per share semi-annual dividend and a $0.25$2.14 per share special one-time dividend on our common stock. During 20162019 we declared and paid an $0.185a $0.30 per share dividend and a $0.20$0.32 per share dividend on our common stock as discussed below.
On February 24,In 2015, our Board of Directors adopted a dividend policy, with the intent to distribute a periodic cash dividend to stockholders of our common stock, after consideration of, among other things, TTEC’s performance, cash flows, capital needs and liquidity factors. The Company paid the initial dividend of $0.18 per common share was paid on March 16,in 2015 and has continued to shareholders of record as of March 6, 2015. Thereafter, the Company has been payingpay a semi-annual dividend in October and April of each year in amounts ranging between $0.18 and $0.25$0.40 per common share. On February 28, 2018,December 3, 2020, the Board of Directors authorized a $0.27special one-time dividend of $2.14 per common share, payable on December 30, 2020 to shareholders of record as of December 18, 2020. On February 25, 2021, the Board of Directors authorized a $0.43 dividend per common share, payable on April 12, 2018,21, 2021, to shareholders of record as of March 30, 2018.April 5, 2021. While it is our intention to continue to pay semi-annual dividends in 20182021 and beyond, any decision to pay future cash dividends will be made by our Board of Directors. In addition, our credit facility restricts our ability to pay dividends in the event we are in default or do not satisfy certain covenants.
Stock Repurchase Program
We continue to have the opportunity to return capital to our shareholders via an ongoing stock repurchase program (originally authorized by the Board of Directors in 2001). As of December 31, 2017,2020, the cumulative authorized repurchase allowance was $762.3 million, of which we have purchasedused $735.8 million to purchase 46.1 million shares for $735.8 million.
20
Issuer Purchases of Equity Securities During the Fourth Quarter of 2017
The following table provides information about our repurchases of equity securities during the quarter ended December 31, 2017:2020, the remaining amount authorized for repurchases under the program was approximately $26.6 million. During 2019 and 2020, we did not purchase any shares under the program.
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| Value of Shares that |
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| Purchased as |
| May Yet Be |
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| Part of Publicly |
| Purchased Under |
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| Announced |
| the Plans or |
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| of Shares |
| Average Price |
| Plans or |
| Programs (In |
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Period |
| Purchased |
| Paid per Share |
| Programs |
| thousands) |
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September 30, 2017 |
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| $ | 26,580 |
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October 1, 2017 - October 31, 2017 |
| — |
| $ | — |
| — |
| $ | 26,580 |
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November 1, 2017 - November 30, 2017 |
| — |
| $ | — |
| — |
| $ | 26,580 |
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December 1, 2017 - December 31, 2017 |
| — |
| $ | — |
| — |
| $ | 26,580 |
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Total |
| — |
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| — |
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In 2018,From January 1, 2021 through February 28, 2018,24, 2021, we purchased nodid not purchase any additional shares.shares and we do not currently have plans to make repurchases during 2021. The stock repurchase program does not have an expiration date and the Board authorizes additional stock repurchases under the program from time to time.date.
Stock Performance Graph
The graph depicted below compares the performance of TTEC common stock with the performance of the NASDAQ Composite Index; the Russell 2000 Index; and customized peer group over the period beginning on December 31, 20122015 and ending on December 31, 2017.2020. We have chosen athe “Peer Group” composed of Convergys Corporation (NYSE: CVG)8x8, Inc. (NASDAQ: EGHT), Five9 Inc. (NASDAQ: FIVN), Genpact (NASDAQ: G), Sykes Enterprises, Incorporated (NASDAQ: SYKE) and Teleperformance (NYSE Euronext: RCF). We believe that the companies in the Peer Group are relevant to our current business model, market capitalization and position in the overall BPO industry.our two segments Digital and Engage.
The graph assumes that $100 was invested on December 31, 20122015 in our common stock and in each comparison index, and that all dividends were reinvested. We declared per share dividends on our common stock of $0.385$0.55 during 20162018, $0.62 during 2019 and $0.47$2.88 during 2017.2020. Stock price performance shown on the graph below is not necessarily indicative of future price performance.
24
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Among TTEC Holdings, Inc., The NASDAQ Composite Index,
The Russell 2000 Index, And A Peer Group
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| 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | |||||||||||||||||||
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| 2015 |
| 2016 |
| 2017 |
| 2018 |
| 2019 |
| 2020 |
| |||||||||||||
TTEC Holdings, Inc. |
| 100 | 134 | 133 | 159 | 176 | 236 | | $ | 100 | | $ | 111 | | $ | 148 | | $ | 107 | | $ | 151 | | $ | 290 | |
NASDAQ Composite |
| 100 | 142 | 162 | 173 | 187 | 242 | | $ | 100 | | $ | 109 | | $ | 141 | | $ | 137 | | $ | 187 | | $ | 272 | |
Russell 2000 |
| 100 | 139 | 146 | 139 | 169 | 194 | | $ | 100 | | $ | 121 | | $ | 139 | | $ | 124 | | $ | 155 | | $ | 186 | |
Peer Group |
| 100 | 151 | 163 | 204 | 227 | 290 | | $ | 100 | | $ | 110 | | $ | 148 | | $ | 159 | | $ | 238 | | $ | 347 | |
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2125
22
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, the Consolidated Financial Statements and the related notes appearing elsewhere in this Form 10-K (amounts in thousands except per share amounts).
| | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | |||||||||||||
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| 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | |||||
| | | | | | | | | | | | | | | | |
Statement of Operations Data | | | | | | | | | | | | | | | | |
Revenue | | $ | 1,949,248 | | $ | 1,643,704 | | $ | 1,509,171 | | $ | 1,477,365 | | $ | 1,275,258 | |
Cost of services | |
| (1,452,719) | |
| (1,242,887) | |
| (1,157,927) | |
| (1,110,068) | |
| (941,592) | |
Selling, general and administrative | |
| (203,902) | |
| (202,540) | |
| (182,428) | |
| (182,314) | |
| (175,797) | |
Depreciation and amortization | |
| (78,862) | |
| (69,086) | |
| (69,179) | |
| (64,507) | |
| (68,675) | |
Other operating expenses | |
| (9,073) | (1) |
| (5,482) | (5) |
| (7,583) | (9) |
| (19,987) | (12) |
| (36,442) | (16) |
Income from operations | |
| 204,692 | |
| 123,709 | |
| 92,054 | |
| 100,489 | |
| 52,752 | |
Other income (expense) | |
| (34,424) | (2) |
| (13,298) | (6) |
| (35,816) | (10) |
| (11,602) | (13) |
| (2,454) | (17) |
Provision for income taxes | |
| (40,937) | (3) |
| (25,677) | (7) |
| (16,483) | (11) |
| (78,075) | (14) |
| (12,863) | (18) |
Noncontrolling interest | |
| (10,683) | |
| (7,570) | |
| (3,938) | |
| (3,556) | |
| (3,757) | |
Net income attributable to TTEC stockholders | | $ | 118,648 | | $ | 77,164 | | $ | 35,817 | | $ | 7,256 | | $ | 33,678 | |
| | | | | | | | | | | | | | | | |
Weighted average shares outstanding | | | | | | | | | | | | | | | | |
Basic | |
| 46,647 | |
| 46,373 | |
| 46,064 | |
| 45,826 | |
| 47,423 | |
Diluted | |
| 46,993 | |
| 46,758 | |
| 46,385 | |
| 46,382 | |
| 47,736 | |
| | | | | | | | | | | | | | | | |
Net income per share attributable to TTEC stockholders | | | | | | | | | | | | | | | | |
Basic | | $ | 2.54 | | $ | 1.66 | | $ | 0.78 | | $ | 0.16 | | $ | 0.71 | |
Diluted | | $ | 2.52 | | $ | 1.65 | | $ | 0.77 | | $ | 0.16 | | $ | 0.71 | |
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Dividends issued per common share | | $ | 2.88 | | $ | 0.62 | | $ | 0.55 | | $ | 0.47 | | $ | 0.385 | |
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Balance Sheet Data | | | | | | | | | | | | | | | | |
Total assets | | $ | 1,516,408 | (4) | $ | 1,376,788 | (8) | $ | 1,054,508 | | $ | 1,078,736 | (15) | $ | 846,304 | (19) |
Total long-term liabilities | | $ | 609,500 | (4) | $ | 532,846 | (8) | $ | 466,241 | | $ | 514,113 | (15) | $ | 304,380 | (19) |
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| Year Ended December 31, |
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| 2017 |
| 2016 |
| 2015 |
| 2014 |
| 2013 |
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Statement of Operations Data |
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Revenue |
| $ | 1,477,365 |
| $ | 1,275,258 |
| $ | 1,286,755 |
| $ | 1,241,781 | (11) | $ | 1,193,157 | (16) |
Cost of services |
|
| (1,110,068) |
|
| (941,592) |
|
| (928,247) |
|
| (886,492) |
|
| (846,631) |
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Selling, general and administrative |
|
| (182,314) |
|
| (175,797) |
|
| (194,606) |
|
| (198,553) |
|
| (193,423) |
|
Depreciation and amortization |
|
| (64,507) |
|
| (68,675) |
|
| (63,808) |
|
| (56,538) |
|
| (46,064) |
|
Other operating expenses |
|
| (19,987) | (1) |
| (36,442) | (5) |
| (9,914) | (9) |
| (3,723) | (12) |
| (5,640) | (17) |
Income from operations |
|
| 100,489 |
|
| 52,752 |
|
| 90,180 |
|
| 96,475 |
|
| 101,399 |
|
Other income (expense) |
|
| (11,602) | (2) |
| (2,454) | (6) |
| (4,291) |
|
| 3,984 | (13) |
| (9,330) | (18) |
Provision for income taxes |
|
| (78,075) | (3) |
| (12,863) | (7) |
| (20,004) | (10) |
| (23,042) | (14) |
| (20,598) | (19) |
Noncontrolling interest |
|
| (3,556) |
|
| (3,757) |
|
| (4,219) |
|
| (5,124) |
|
| (4,083) |
|
Net income attributable to TTEC stockholders |
| $ | 7,256 |
| $ | 33,678 |
| $ | 61,666 |
| $ | 72,293 |
| $ | 67,388 |
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Weighted average shares outstanding |
|
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Basic |
|
| 45,826 |
|
| 47,423 |
|
| 48,370 |
|
| 49,297 |
|
| 51,338 |
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Diluted |
|
| 46,382 |
|
| 47,736 |
|
| 49,011 |
|
| 50,102 |
|
| 52,244 |
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Net income per share attributable to TTEC stockholders |
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Basic |
| $ | 0.16 |
| $ | 0.71 |
| $ | 1.27 |
| $ | 1.47 |
| $ | 1.31 |
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Diluted |
| $ | 0.16 |
| $ | 0.71 |
| $ | 1.26 |
| $ | 1.44 |
| $ | 1.29 |
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Dividends issued per common share |
| $ | 0.47 |
| $ | 0.385 |
| $ | 0.36 |
| $ | — |
| $ | — |
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Balance Sheet Data |
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Total assets |
| $ | 1,078,736 | (4) | $ | 846,304 | (8) | $ | 843,327 |
| $ | 852,475 | (15) | $ | 842,342 | (20) |
Total long-term liabilities |
| $ | 514,113 | (4) | $ | 304,380 | (8) | $ | 191,473 |
| $ | 187,780 | (15) | $ | 175,564 | (20) |
| (1) | Includes $1.1 million related to reductions in force, $2.2 million of expense for facility exit and other charges, and $5.8 million of impairments related to right of use lease assets and leasehold improvements. |
| (2) | Includes a $6.2 million charge related to the purchase of the remaining 30% of the Motif acquisition (for discussion regarding the acquisition of Motif, see our Annual Report on Form 10-K for the year ended December 31, 2017), a $19.9 million charge related to the deconsolidation of three subsidiaries, and a net $1.8 million benefit related to the fair value adjustments of contingent consideration for three acquisitions. |
| (3) | Includes a $1.8 million benefit related to return to provision adjustments, a $2.0 million benefit related to restructuring, $2.9 million of expense related to changes in tax contingent liabilities, $0.4 million of expense related to changes in valuation allowance, a $3.0 million benefit related to losses on dissolution of subsidiaries, $0.8 million of expense for earn outs related to acquisitions, a $4.0 million benefit related to equity based compensation, a $4.2 million benefit related to the amortization of purchased intangibles, and a $0.1 million benefit related to other items. |
| (4) | The Company spent $53.3 million, net of cash acquired of $4.4 million in 2020 for the acquisitions of Serendebyte, Voice Foundry US/UK and Voice Foundry ASEAN. Upon acquisition of these businesses, the Company acquired $84.6 million of assets and assumed $7.6 million in liabilities ($1.6 million in long-term liabilities). |
| (5) | Includes $1.1 million related to reductions in force, $0.7 million of expense for facility exit and other charges, a $2.6 million impairment of leasehold improvements and right to use lease assets, and a $1.1 million impairment of internally developed software, customer relationship intangible assets and other long-term assets. |
26
| (6) |
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| (7) | Includes a $1.7 million benefit related to return to provision adjustments, a $2.8 million benefit related to tax rate changes, $0.7 million of expense related to changes in tax contingent liabilities, $4.5 million of expense related to changes in valuation allowance, a $0.9 million benefit related to restructuring, a $4.7 million benefit related to equity based compensation, a $2.9 million benefit related to the amortization of purchased intangibles, and a $0.3 million benefit related to other items. |
| (8) | The Company spent $107.0 million, net of cash acquired of $4.5 million in 2019 for the acquisition of FCR. Upon acquisition of FCR, the Company acquired $171.7 million in assets and assumed $9.6 million in liabilities ($4.0 million in long-term liabilities). |
| (9) | Includes $0.8 million related to reductions in force, $5.3 million of expense for facility exit charges and a termination fee for a technology vendor contract, $1.1 million of expense related to the impairment of property and equipment and a $0.3 million impairment charge related to internally developed software. |
| (10) | Includes a $15.6 million impairment of the full value of an equity investment and a related bridge loan, a $9.9 million charge related to the future purchase of the remaining 30% of the Motif acquisition, a $1.6 million net loss related to a business unit which was classified as assets held for sale and subsequently reclassified to assets held and used as of December 31, 2018, a $2.0 million benefit related to royalty payments in connection with the sale of a business unit, a $0.7 million benefit related to the bargain purchase of an acquisition closed in March 2018, and a $0.3 million benefit related to a fair value adjustment of the contingent consideration based on revised estimates of performance against targets for one or our acquisitions. |
| (11) | Includes a $4.2 million benefit related to the impairment of an equity investment, a $3.4 million benefit related to return to provision adjustments, $0.5 million of expense related to the disposition of assets, a $0.7 million benefit related to stock options, $1.6 million of expense related to changes in tax contingent liabilities, $1.5 million of expense related to changes in valuation allowance, a $2.1 million benefit related to restructuring, and a $0.5 million benefit related to other items. |
| (12) | Includes $1.2 million expense related to reductions in force, |
| (13) |
| Includes |
| (14) |
| Includes $62.4 million of expense related to the US 2017 Tax Act, $0.4 million of expense related to the disposition of assets, a $1.9 million |
| (15) |
| The Company spent $116.7 million, net of cash acquired of $6.0 million, in 2017 for the acquisitions of Connextions and Motif. Upon acquisitions of Connextions and Motif, the Company acquired $40.8 million in assets and assumed |
| (16) |
| Includes $3.4 million expense related to reductions in force, |
23
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| (17) |
| Includes a $5.3 million estimated loss related to two business units which |
27
| (18) |
| Includes $1.7 million of expense related to return to provision adjustments, $1.1 million of expense related to a transfer pricing adjustment for a prior period, $0.5 million of expense related to tax rate changes, $0.5 million of expense related to changes in valuation allowances, a $1.5 million |
| (19) |
| The Company spent $46.1 million, net of cash acquired of $2.7 million, in 2016 for the acquisition of |
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2428
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Executive Summary
TTEC Holdings, Inc. (“TTEC”, “the Company”, “we”, “our” or “us”)is a leading global customer experience company that designs, buildsas a service (“CXaaS”) partner for many of the world’s iconic brands, Fortune 1000 companies, government agencies, and operates omnichanneldisruptive growth companies. TTEC helps its clients deliver frictionless customer experiences, on behalf of the world's moststrengthen customer relationships, brand recognition and loyalty through personalized interactions, improve their Net Promoter Score, customer satisfaction and quality assurance, and lower their total cost to serve by combining innovative brands.We help large global companies increase revenuedigital solutions with best-in-class service capabilities to enable and reduce costs by delivering personalizeddeliver simplified, consistent and seamless customer experiencesexperience across every interactional channelchannels and phasephases of the customer lifecycle as an end-to-end provider of customer engagement services, technologies, insightslifecycle.
Our CXaaS solutions enhance our clients’ customers experience and innovations.help differentiate our clients from their competition.
In the fast expanding direct-to-customer ("DTC") channel where experiences are everything, enterprises must become increasingly more customer-centric, virtualized and digitally enabled to acquire, grow and maintain customers. Our mission is to enable and accelerate our clients' path to virtual and digital transformation. We are organized intofocused on improving the experience of our clients' customers by leveraging existing and emerging technologies — cloud, omnichannel, analytics, artificial intelligence ("AI"), machine learning ("ML"), robotic process automation ("RPA"), and real-time conversational messaging.
The Company reports its financial information based on two centers of excellence:segments: TTEC Digital and TTEC Engage.
| TTEC Digital |
| ● | TTEC Engage provides the CX managed services to support our clients’ end-to-end customer interaction delivery, by providing the essential CX omnichannel and application technologies, human resources, recruiting, training and production, at-home or facility-based delivery infrastructure on a global scale, and engagement processes. This segment provides full-service digital, |
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TTEC Digital and TTEC Engage strategically come together under our unified offering, HumanifyTM® Customer EngagementExperience as a Service ("CXaaS"), which drives measurable customer results for clients through the delivery of personalized, omnichannel interactions that are seamlessexperiences. Our Humanify® cloud platform provides a fully integrated ecosystem of CX offerings, including messaging, AI, ML, RPA, analytics, cybersecurity, customer relationship management ("CRM"), knowledge management, journey orchestration and relevant. Our offering is supported by 56,000 employees delivering services in 24 countries from 97 customer engagement centers on six continents.traditional voice solutions. Our end-to-end approachplatform differentiates the Companyus from many competitors by combining service design, strategic consulting, best-in-class technology, data analytics, process optimization, system integration and operational excellence, and technology solutions and services.excellence. This unified offering is value-oriented, outcome-based and delivered to large enterprises, governments and disruptive growth companies on a global scale across four business segments: twoscale.
During fiscal 2020, the TTEC global operating platform delivered onshore, nearshore, and offshore services in 20 countries on six continents -- the United States, Australia, Belgium, Brazil, Bulgaria, Canada, Costa Rica, Germany, Greece, India, Ireland, Mexico, the Netherlands, New Zealand, the Philippines, Poland, Singapore, South Africa, Thailand, and the United Kingdom with the help of which comprise TTEC Engage - Customer Management Services (“CMS”)61,000 consultants, technologists, and Customer Growth Services (“CGS”); and two of which comprise TTEC Digital - Customer Technology Services (“CTS”) and Customer Strategy Services (“CSS”).CX professionals.
Our revenue for fiscal 20172020 was $1,477$1.949 billion, approximately $307 million, approximately 23% or $336 million of16% which came from the CGS, CTSour TTEC Digital segment and CSS segments, focused on customer-centric strategy, growth and technology-based services with the remainder$1.642 billion, or 84%, which came from our TTEC Engage segment.
29
Table of our revenue coming from the core customer care services of our CMS segment.Contents
Since our establishment in 1982, we have helped clients strengthen their customer relationships, brand recognition and loyalty by simplifying and personalizing interactions with their customers. We deliver thought leadership, through innovation in programs that differentiate our clients from their competition.
To improve our competitive position in a rapidly changing market and stay strategically relevant to our clients, we continue to invest in innovation and service offerings for both mainstream and high growth disruptive businesses, diversifying and strengthening our core customer care services with consulting, data analytics, and insights, technologies, and technology-enabled, outcomes-focused services.
We also invest in businesses that enable us to expand our geographic footprint, broaden our product and service capabilities, increase our global client base and industry expertise, tailor our geographic footprint to the needs of our clients, and further scale our end-to-end integrated solutions platform. In 2017,To this end we acquired Motif, Inc.,have been highly acquisitive in the last several years, including an acquisition in the second half of 2020 of a digital trustpreferred Amazon Connect cloud contact center service provider, an acquisition in the first quarter of 2020 of an autonomous customer experience and safety services company basedintelligent automation solutions provider and an acquisition in Indiathe fourth quarter of 2019 of a provider of customer care, social media community management, content moderation, technical support and the Philippines, and Connextions, Inc., a U.S.-based health services company focused on improving the customer relationshipsbusiness process solutions for healthcare plan providers and pharmacy benefits managers.rapidly growing businesses in early stages of their lifecycle.
We have developed tailoredextensive expertise in the automotive, communications, healthcare, financial services, national/federal and state and local government, healthcare, logistics, media and entertainment, e-tail/retail, technology, travel and transportation industries. We target customer-focused industry leadersserve more than 300 diverse clients globally, including many of the world’s iconic brands, Fortune 1000 companies, government agencies, and disruptive growth companies.
In March 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic. Within weeks of this announcement, travel bans, a state of emergency, quarantines, lockdowns, “shelter in place” orders, and business restrictions and shutdowns were issued in most countries where TTEC does business. The need to comply with these measures, which came into effect with little notice, impacted our day-to-day operations and disrupted our business in the Global 1000last month of the first quarter and servesecond quarter of the year. As a result, operations were suspended in some of our TTEC Engage customer experience delivery sites. Business continuity plans were executed to transition as many employees as was reasonably possible to a work from home environment to support the health and well-being of our employees and communities and to provide a stable service delivery platform for our clients.
Between mid-March and mid-April 2020, we transitioned over 43,000 employees, or 80% of our employee population, to a work from home environment. With the easing of some of the government restrictions, those employees who were considered essential and could not operate effectively while remote returned to our brick-and-mortar sites, but most continue to work from home.
For those sites that continue to operate, we have taken extensive measures to protect the health and safety of our employees, in accordance with the recommendations and guidelines provided by the World Health Organization, the U.S. and European Centers for Disease Control and Prevention, the U.S. Occupational Safety Association, and local governments in jurisdictions where our customer experience centers are located.
Although our business experienced the effects of COVID-19 in the first half of 2020, our implementation of business continuity plans, rapid transition of employees to a work from home environment, and the geographic diversification of our delivery centers allowed us to mitigate potentially more severe impacts, and positioned us to support our commercial and public sector clients experiencing significant surge volumes of customer, patient and citizen COVID-19 related engagement. Our COVID-19 related surge work has contributed approximately 30012% of our total revenue for 2020. Although approximately 20% of our pre-COVID-19 business was comprised of clients globally.in industries that have been negatively impacted by the pandemic, i.e. automotive, retail and travel and hospitality, the 2020 total revenue derived from these clients has increased approximately 10% over the prior year period. Through the period ended December 31, 2020 the COVID-19 pandemic has not had a material adverse impact on our operational or financial results. While we expect this positive trend to continue and while some of our COVID-19 related work has transitioned to more traditional business activities for the same clients, there is uncertainty about our COVID-19 surge volumes and our non-COVID-19 related business. We cannot accurately predict the severity of the economic and operational challenges of a pro-longed COVID-19 pandemic on our clients’ businesses and its effect on the magnitude and timing of their buying decisions. Further, while to date we have been successful in managing service delivery from our delivery sites that could not be replaced with work from home delivery, unpredictable lockdown decisions in some jurisdictions where we do business may continue to impact our delivery capability with little notice, thus potentially impacting our results of operations in the future.
30
In March 2020, we launched multiple cost reduction, optimization, and liquidity preservation initiatives to align our expenses with anticipated changes in revenue and increased costs related to the COVID-19 pandemic and government mandated restriction measures. We also intensified our cash flow discipline, including working capital management, hiring freezes, cuts in non-essential spending, suspension of merit increases and some incentive programs, deferral of capital expenditures, where possible, and negotiations for rent concessions for those facilities that we were unable to use during the government restrictions related to the COVID-19 pandemic. Our results of operations for 2020 permitted us to reverse most of the cost austerity measures. With the greater adoption of our work from home solution during the COVID-19 pandemic, we also launched a comprehensive review of our global real estate footprint to balance our commitments to physical facilities around the globe against evolving client preferences with respect to traditional physical delivery centers and work from home delivery. Considering the continued COVID-19 related uncertainties, we continue to remain vigilant in our cost management.
Our Integrated Service Offerings Centers of Excellence and Business Segments
We haveprovide strategic value and differentiation through our two centers of excellence that encompass our four operatingbusiness segments: TTEC Digital and reportable segments.TTEC Engage.
TTEC Digital houses our professional provides the CX technology services and platforms to support our clients’ customer interaction delivery infrastructure. The segment designs, builds and operates the omnichannel ecosystem in a cloud, on premise, or hybrid environment, and fully integrates, orchestrates, and administers highly scalable, feature-rich CX technology platforms.applications. These solutions are critical to enabling and accelerating digital transformation for our clients.
| ● | Technology Services: Our technology services design, integrate and operate highly scalable, digital omnichannel technology solutions in the cloud, on premise, or hybrid environment, including journey orchestration, automation and AI, knowledge management, and workforce productivity. |
| ● | Professional Services: Our management consulting practices deliver customer experience strategy, analytics, process optimization, and learning and performance services. |
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Customer Strategy Services Segment
Through our strategy and operations, analytics, and learning and performance consulting expertise, we help our clients design, build and execute their customer engagement strategies. We help our clientsTTEC Engage delivers the CX managed services to better understand and predict their customers’ behaviors and preferences along with their current and future economic value. Using proprietary analytic models, we provide the insight clients need to build the business case for customer centricity and to better optimize their investments in customer experience. This insight-based strategy creates a roadmap for transformation. We build customer journey maps to inform service design across automated, human and hybrid interactions and increasingly are developing and implementing strategies around Interactive Virtual Assistants (chat bots). A key component of this segment involves instilling a high-performance culture through management and leadership alignment and process optimization.
Customer Technology Services Segment
In connection with the design of the customer engagement strategy, our ability to architect, deploy and host or manage the client’s customer experience environments becomes a key enabler to achieving and sustaining the client’s customer engagement vision. Given the proliferation of mobile communication technologies and devices, we enablesupport our clients’ operations to interact with their customers acrossend-to-end customer interaction delivery, by providing the growing array of channels including email, social networks, mobile, web, SMS text, voiceessential CX omnichannel and chat. We design, implementapplication technologies, human resources, recruiting, training and manage cloud, on-premiseproduction, at-home or hybrid customer experience environments to deliver a consistent and superior experience across all touch pointsfacility-based delivery infrastructure on a global scale, that we believe result in higher quality, lower costs and reduced risk for our clients. Through our Humanify™ Technology platforms, we also provide data-driven context aware software-as-a-service (“SaaS”) based solutions that link customers seamlessly and directly to appropriate resources, any time and across any channel.
TTEC Engage houses our end-to-end managed services operations forengagement processes. This segment provides full-service digital, omnichannel customer engagement, supporting customer care, growth and trust and safety services.
Customer Management Services Segment
We design and manage clients’ front-to-back office processes to deliver just-in-time, personalized, protected, multi-channel interactions. Our front-office solutions seamlessly integrate voice, chat, email, e-commerce and social media to optimize the customer experience for our clients. In addition, we manage certain client back-office processes to enhance their customer-centric view of relationships and maximize operating efficiencies. We also perform fraud prevention and content moderation services to protect our clients and their customers from malevolent digital activities. Our delivery of integrated business processes via our onshore, offshore or work-from-home associates reduces operating costs and allows customer needs to be met more quickly and efficiently, resulting in higher satisfaction, brand loyalty and a stronger competitive position for our clients.
Customer Growth Services Segment
We offer integrated sales and marketing solutions to help our clients boost revenue in new, fragmented or underpenetrated business-to-consumer or business-to-business markets. We deliver or manage approximately $4 billion in client revenue annually via the discovery, acquisition, growth and retention, of customers through a combination of our highly trained, client-dedicated sales professionals and proprietary analytics platform. This platform continuously aggregates individual customer information across all channels into one holistic view so as to ensure more relevantfraud detection and personalized communications.prevention services.
| ● | Customer Acquisition Services: Our customer growth and acquisition services optimize the buying journeys for acquiring new customers by leveraging technology and analytics to deliver personal experiences that increase the quantity and quality of leads and customers. |
| ● | Customer Care Services: Our customer care services provide turnkey contact center solutions, including digital omnichannel technologies, associate recruiting and training, facilities, and operational expertise to create exceptional customer experiences across all touchpoints. |
| ● | Fraud Prevention Services: Our digital fraud detection and prevention services proactively identify and prevent fraud and provide community content moderation and compliance. |
Based on our clients’ requirements,preference, we provide our services on an integrated cross-business segment andand/or on a discrete basis.
Additional information with respect to our segments and geographic footprint is included in Part II, Item 8. Financial Statements and Supplementary Data, Note 3 to the Consolidated Financial Statements.
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Our 20172020 Financial Results
In 2017,2020, our revenue increased 15.8%18.6% to $1,477$1,949 million over the same period in 2016,2019, including an increase of 0.2%0.02% or $3.1$0.3 million due to foreign currency fluctuations. The increase in revenue iswas comprised of ana $1.6 million, or 0.5%, increase from the Atelka, Connextions,for TTEC Digital and Motif acquisitions and organic growth in the CMS and CTS segments offset by lower revenue due to the salea $303.9 million, or 22.7%, increase for TTEC Engage.
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Our 20172020 income from operations increased $47.7$81.0 million to $100.5$204.7 million or 6.8%10.5% of revenue, from $52.8$123.7 million or 4.1%7.5% of revenue for 2016.2019. The increasechange in operating income is attributable to a number of different factors across the segments. The TTEC Digital operating income expanded with an 16.4%, or $6.4 million, improvement over last year primarily due to the CMS acquisitions,growth of its higher margin cloud business. The TTEC Engage operating income increased 88.0%, or $74.6 million, compared to the CMSprior year based on the increase in revenue including, but not limited to, the acquisition of FCR and CTS revenue growth noted above,significant surge volumes in our commercial and a $12.5 million benefitpublic sector clients experiencing spikes in customer interactions related to improved foreign exchange trends. These increases were partially offset by a $5.3 million impairment charge related to two trade names, and $14.7 million related to the restructuring and integration of the Connextions acquisition and other overhead restructurings (see Part II. Item 8. Financial Statements and Supplementary Data, Notes 7 and 11 to the Consolidated Financial Statements). Included in 2016 was $18.2 million of impairment charges related to trade name, customer relationship and non-compete intangible assets, $11.1 million of impairment charges related to internally developed software and technology, a $1.4 million impairment of goodwill (see Part II. Item 8. Financial Statements and Supplementary Data, Notes 6 and 7 to the Consolidated Financial Statements), a $1.3 million impairment of fixed assets, and a $3.7 million restructuring charge related to a reorganization of the global sales force and restructuring of a portion of the IT functions. COVID-19.
Income from operations in 20172020 and 20162019 included a total of $20.0$9.1 million and $36.4$5.5 million of restructuring and integration charges and asset impairments, respectively.
Our offshore customer engagement centers spanning six countries serve clients based in the U.S. and in other countries and span seven countries with 24,50023,400 workstations representing 55% of our global delivery capabilities. Revenue for our CMS and CGS segments that isTTEC Engage segment provided in these offshore locations was $453 million and represented 36%29% of our 2020 revenue, for 2017, as compared to $437 million and 41%34% of our revenue for 2016.2019 revenue.
We internally target capacityOur seat utilization in our customer engagement centers at 80% to 90% of our available workstations. As of December 31, 2017, the overall capacity utilization in our multi-client centers was 83%. The table below presents workstation data for all of our centers as of December 31, 2017 and 2016. Our utilization percentage is defined as the total number of utilized production workstations compared to the total number of available production workstations. As of December 31, 2020, the total production workstations for our TTEC Engage segment was 42,434 and the overall capacity utilization in our centers was 57% versus 74% in the prior year period. The utilization is lower than the previous year primarily due to COVID-19 protocols requiring the distancing of associates which has reduced the available seat capacity. Adjusted for social distancing protocols, which reduced the available workstations to approximately 21,200, and accounting for all client paid seats as utilized, whether through actual usage or contractual commitments to hold the seats, current utilization is in excess of 114%.
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| December 31, 2016 |
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Total centers |
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Sites open >1 year |
| 42,033 |
| 34,409 |
| 82 | % | 38,506 |
| 30,674 |
| 80 | % |
Sites open <1 year |
| 2,404 |
| 2,392 |
| 100 | % | 270 |
| 270 |
| 100 | % |
Total workstations |
| 44,437 |
| 36,801 |
| 83 | % | 38,776 |
| 30,944 |
| 80 | % |
WhilePost COVID-19 we expect our clients to leverage a more diversified geographic footprint and an increased mix of work from home vs. brick and mortar seats. We will continue to see demand from all geographic regions to utilizerefine our offshore delivery capabilitiessite strategy and expect this trend to continuecapacity as we finalize plans with our clients someand prospects.
Some of our clients havemay be subject to regulatory pressures to bring the services onshore to the United States. In light of these trends, weserve clients onshore. We plan to continue to selectively retain and grow capacity and expand into new offshore markets, while maintaining appropriate capacity in the United States.onshore. As we grow our offshore delivery capabilities and our exposure to foreign currency fluctuationsfluctuation increases, we will continue to actively manage this risk via a multi-currency hedging program designed to minimize operating margin volatility.
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Critical Accounting Policies and Estimates
Management’s Discussion and Analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses as well as the disclosure of contingent assets and liabilities. We regularly review our estimates and assumptions. These estimates and assumptions, which are based upon historical experience and on various other factors believed to be reasonable under the circumstances, form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Reported amounts and disclosures may have been different had management used different estimates and assumptions or if different conditions had occurred in the periods presented. Below is a discussion of the policies that we believe may involve a high degree of judgment and complexity.
Revenue Recognition
We recognizeThe Company recognizes revenue from contracts and programs when evidencecontrol of the promised goods or services is transferred to the customers, in an arrangement exists,amount that reflects the deliveryconsideration it expects to be entitled to in exchange for those goods or services. Revenue is recognized when or as performance obligations are satisfied by transferring control of a promised good or service has occurred,to a customer. A performance obligation is a promise in a contract to transfer a distinct good or service to the feecustomer. Performance obligation is fixed or determinablethe unit of accounting for revenue recognition under the provisions of ASC Topic 606, “Revenue from Contracts with Customers” and collectionall related amendments (“ASC 606”). A contract’s transaction price is reasonably assured. allocated to each distinct performance obligation in recognizing revenue.
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The BPO inbound and outbound service fees are based on either a per minute, per hour, per full-time employee,FTE, per transaction or per call basis. Certainbasis, which represents the majority of our contracts. These contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct. For example, services for the training of the Company’s agents (which are separately billable to the customer) are a separate promise in our BPO contracts, but they are not distinct from the primary service obligations to transfer services to the customers. The performance of the customer service by the agents is highly dependent on the initial, growth, and seasonal training services provided to the agents during the life of a program. The training itself is not considered to have value to the customer on a standalone basis, and therefore, training on a standalone basis cannot be considered a separate unit of accounting. The Company therefore defers revenue from certain training services that are rendered mainly upon commencement of a new client contract or program, including seasonal programs. Revenue is also deferred when there is significant growth training in an existing program. Accordingly, recognition of initial, growth, and seasonal training revenues and associated costs (consisting primarily of labor and related expenses) are deferred and amortized over the period of economic benefit. With the exception of training, which is typically billed upfront and deferred, the remainder of revenue is invoiced on a monthly or quarterly basis as services are performed and does not create a contract asset or liability.
In addition to revenue from BPO services, revenue also consists of fees from services for program launch, professional consulting, fully-hosted or managed technology and learning innovation services. The contracts containing these service offerings may contain multiple performance obligations. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using the best estimate of the standalone selling price of each distinct good or service in the contract. The primary method used to estimate standalone selling price is the expected cost plus a margin approach, under which the Company forecasts its expected costs of satisfying a performance obligation and then adds an appropriate margin for that distinct good or service. The Company forecasts its expected cost based on historical data, current prevailing wages, other direct and indirect costs incurred in recently completed contracts, market conditions, and other client specific cost considerations. For these services, the point at which the transfer of control occurs determines when revenue is recognized in a specific reporting period. Within our Digital segment, where there are product sales, the attribution of revenue is recognized when the transfer of control is completed and the products are delivered to the client’s location. Where services are rendered to a customer, the attribution is aligned with the progress of work and is recognized over time (i.e. based on measuring the progress toward complete satisfaction of a performance obligation using an output method or an input method). Where output method is used, revenue is recognized on the basis of direct measurements of the value to the customer of the goods or services transferred relative to the remaining goods or services promised under the contract. The majority of the Company’s services are recognized over time using the input method in which revenue is recognized on the basis of efforts or inputs toward satisfying a performance obligation (for example, resources consumed, labor hours expended, costs incurred, or time elapsed) relative to the total expected inputs to satisfy the performance obligation. The measures used provide faithful depiction of the transfer of goods or services to the customers. For example, revenue is recognized on certain consulting contracts based on labor hours expended as a measurement of progress where the consulting work involves input of consultants’ time. The progress is measured based on the hours expended over total number of estimated hours included in the contract multiplied by the total contract consideration. The contract consideration can be a fixed price or an hourly rate, and in either case, the use of labor hours expended as an input measure provides a faithful depiction of the transfer of services to the customers. Deferred revenues for these services represent amounts collected from, or invoiced to, customers in excess of revenues recognized. This results primarily from i) receipt of license fees that are deferred due to one or more of the revenue recognition criteria not being met, and ii) the billing of annual customer support agreements, annual managed service agreements, and billings for other professional services that have not yet been performed by the Company. The Company records amounts billed and received, but not earned, as deferred revenue. These amounts are recorded in Deferred revenue or Other long-term liabilities, as applicable, in the accompanying Consolidated Balance Sheets based on the period over which the Company expects to render services. Costs directly associated with revenue deferred, consisting primarily of labor and related expenses, are also deferred and recognized in proportion to the expected future revenue from the contract.
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Variable consideration exists in contracts for certain client programs that provide for adjustments to monthly billings based upon whether we achieve, exceedthe Company achieves, exceeds or failfails certain performance criteria. Adjustments to monthly billings consist of contractual bonuses/penalties, holdbacks and other performance based contingencies.conditions. Variable consideration is estimated at contract inception at its most likely value and updated at the end of each reporting period as additional performance data becomes available. Revenue recognitionrelated to such variable consideration is limitedrecognized only to the amountextent that a significant reversal of any incremental revenue is not contingent upon delivery of future services or meeting other specified performance conditions.considered probable.
Revenue also consists of services for agent training, program launch, professional consulting, fully-hosted or managed technology and learning innovation. These service offerings may contain multiple element arrangements whereby we determine if those service offerings represent separate units of accounting. A deliverable constitutes a separate unit of accounting when it has standalone value and delivery orContract modifications are routine in the performance of the undelivered items is considered probablecustomer contracts. Contracts are often modified to account for customer mandated changes in the contract specifications or requirements, including service level changes. In most instances, contract modifications relate to goods or services that are incremental and substantially within our control. If those deliverablesdistinctly identifiable, and, therefore, are accounted for prospectively.
Direct and incremental costs to obtain or fulfill a contract are capitalized, and the capitalized costs are amortized over the corresponding period of benefit, determined to be separate units of accounting, revenue is recognized as services are provided. If those deliverables are not determined to be separate units of accounting, revenueon a contract by contract basis. The Company recognizes an asset for the delivered servicesincremental costs of obtaining a contract with a customer if it expects to recover those costs. The incremental costs of obtaining a contract are bundled into one unitthose costs that the Company incurs to obtain a customer contract that it would not have incurred if the contract had not been obtained. Contract acquisition costs consist primarily of accountingpayment of commissions to sales personnel and recognized over the life of the arrangement or at the time all services and deliverables have been delivered and satisfied. We allocate revenue to each of the deliverables based on a selling price hierarchy of vendor specific objective evidence (“VSOE”), third-party evidence, and then estimated selling price. VSOE isare incurred when customer contracts are signed. The deferred sales commission amounts are amortized based on the price charged when the deliverable is sold separately. Third-party evidence isexpected period of economic benefit and are classified as current or non-current based on largely interchangeable competitor servicesthe timing of when they are expected to be recognized as an expense. Costs to obtain a contract that would have been incurred regardless of whether the contract was obtained are recognized as an expense when incurred, unless those costs are explicitly chargeable to the customer regardless of whether the contract is obtained. Sales commissions are paid for obtaining new clients only and are not paid for contract renewals or contract modifications. Capitalized costs of obtaining contracts are periodically reviewed for impairment.
In certain cases, the Company negotiates an upfront payment to a customer in standalone salesconjunction with the execution of a contract. Such upfront payments are critical to similarly situated customers. Estimated selling price is based on our best estimateacquisition of whatnew business and are often used as an incentive to negotiate favorable rates from the selling prices of deliverables would be if they were sold regularly on a standalone basis. Estimated selling price is established considering multiple factors including, but not limited to, pricing practices in different geographies, service offerings,clients and customer classifications. Once we allocate revenue to each deliverable, we recognize revenue when all revenue recognition criteria are met.
Periodically, we will make certain expenditures related to acquiring contracts or provide up-frontaccounted for as upfront discounts for future services. These expendituresSuch payments are either made in cash at the time of execution of a contract or are netted against the Company’s service invoices. Payments to customers are capitalized as contract acquisition costs and are amortized in proportion to the expected future revenue from the contract, which in most cases results in straight-line amortization over the life of the contract. AmortizationSuch payments are considered a reduction of thesethe selling prices of the Company’s products or services, and therefore, are accounted for as a reduction of revenue when amortized. Such capitalized contract acquisition costs are periodically reviewed for impairment taking into consideration ongoing future cash flows expected from the contract and estimated remaining useful life of the contract.
Some of the Company’s service contracts are short-term in nature with a contract term of one year or less. For those contracts, the Company has utilized the practical expedient in ASC 606-10-50-14 exempting the Company from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is recorded aspart of a reductioncontract that has an original expected duration of one year or less. Also in alignment with ASC 606-10-50-14, the Company does not disclose the value of unsatisfied performance obligations for contracts for which it recognizes revenue at the amount to which it has the right to invoice for services performed. Additionally, the Company’s standard payment terms are less than one year. Given the foregoing, the Company has elected the practical expedient under ASC 606-10-32-18 to not assess whether a contract has a significant financing component. Pursuant to the Company’s election of the practical expedient under ASC 606-10-32-2A, sales, value add, and other taxes that are collected from customers concurrent with revenue-producing activities, which the Company has an obligation to remit to the governmental authorities, are excluded from revenue.
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During 2014, new guidance was issued 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. The updated guidance includes cost guidance, whereby all direct and incremental costs to obtain or fulfill a contract will be capitalized and amortized over the corresponding period of benefit, determined on a contract by contract basis. The updated guidance also requires additional qualitative and quantitative disclosures relating to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers largely on a disaggregated basis. We have evaluated the adoption impact of the updated accounting guidance on our consolidated financial statements and continue to evaluate the impact on disclosures and internal controls. The new guidance will impact: (i) revenue associated with certain taxes, which will be recognized on a net basis versus the current gross treatment; (ii) the timing of revenue recognition associated with upfront fees on certain contracts; and (iii) the timing of recognition related to certain elements of variable consideration. We adopted this updated accounting guidance beginning January 1, 2018 using the modified retrospective method under which we will recognize a cumulative-effect adjustment in the range of $9 million to $12 million.
Income Taxes
Accounting for income taxes requires recognition of deferred tax assets and liabilities for the expected future income tax consequences of transactions that have been included in the Consolidated Financial Statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using tax rates in effect for the year in which the differences are expected to reverse. When circumstances warrant, we assess the likelihood that our net deferred tax assets will more likely than not be recovered from future projected taxable income.
We continually review the likelihood that deferred tax assets will be realized in future tax periods under the “more-likely-than-not” criteria. In making this judgment, we consider all available evidence, both positive and negative, in determining whether, based on the weight of that evidence, a valuation allowance is required.
We follow a two-step approach to recognizing and measuring uncertain tax positions. The first step is to determine if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained on audit. The second step is to estimate and measure the tax benefit as the amount that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority. We evaluate these uncertain tax positions on a quarterly basis. This evaluation is based on the consideration of several factors including changes in facts or circumstances, changes in applicable tax law, and settlement of issues under audit.
Interest and penalties relating to income taxes and uncertain tax positions are accrued net of tax in the Provision for income taxes in the accompanying Consolidated Statements of Comprehensive Income (Loss).
In the future, our effective tax rate could be adversely affected by several factors, many of which are outside our control. Our effective tax rate is affected by the proportion of revenue and income before taxes in the various domestic and international jurisdictions in which we operate. Further, we are subject to changing tax laws, regulations and interpretations in multiple jurisdictions in which we operate, as well as the requirements, pronouncements and rulings of certain tax, regulatory and accounting organizations. We estimate our annual effective tax rate each quarter based on a combination of actual and forecasted results of subsequent quarters. Consequently, significant changes in our actual quarterly or forecasted results may impact the effective tax rate for the current or future periods.
Tax Reform
The United States recently enacted comprehensive tax reform legislation known as the Tax Cuts and Jobs Act (the "2017 Tax Act") that, among other things, reduces the U.S. federal corporate income tax rate from 35% to 21% and implements a territorial tax system, but imposes an alternative “base erosion and anti-abuse tax” (“BEAT”), and an incremental tax on global intangible low taxed foreign income (“GILTI”) effective January 1, 2018. In addition, the law imposes a one-time mandatory repatriation tax on accumulated foreign earnings on domestic corporations effective for the 2017 tax year. In response, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available,
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prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Tax Act and allows the registrant to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. We have recognized the provisional impacts related to the one-time transition tax and revaluation of deferred tax balances and included these estimates in our consolidated financial statements for the year ended December 31, 2017. The ultimate impact may materially differ from these provisional amounts, due to, among other things, additional analysis, changes in interpretations and assumptions we have made, additional regulatory guidance that may be issued, and actions we may take as a result of the Tax Act. Our selection of an accounting policy with respect to the new GILTI rules will depend in part on analyzing our global income to determine whether we expect to have future U.S. inclusions in taxable income related to GILTI, and if so, what the impact is expected to be. We have not yet computed a reasonable estimate of the effect of this provision, and therefore, we have not made a policy decision regarding whether to record deferred taxes related to GILTI nor have we made any adjustments related to GILTI tax in our year-end financial statements.
Impairment of Long-Lived Assets
We evaluate the carrying value of property, plant and equipment and definite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An asset is considered to be impaired when the forecasted undiscounted cash flows of an asset group are estimated to be less than its carrying value. The amount of impairment recognized is the difference between the carrying value of the asset group and its fair value. Fair value estimates are based on assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates.
Goodwill and Indefinite-Lived Intangible Assets
We evaluate goodwill and indefinite-lived intangible assets for possible impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.
We use a two steptwo-step process to assess the realizability of goodwill. The first step, Step 0, is a qualitative assessment that analyzes current economic indicators associated with a particular reporting unit. For example, we analyze changes in economic, market and industry conditions, business strategy, cost factors, and financial performance, among others, to determine if there would be a significant decline to the fair value of a particular reporting unit. A qualitative assessment also includes analyzing the excess fair value of a reporting unit over its carrying value from impairment assessments performed in previous years. If the qualitative assessment indicates a stable or improved fair value, no further testing is required.
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If a qualitative assessment indicates that a significant decline to fair value of a reporting unit is more likely than not, or if a reporting unit’s fair value has historically been closer to its carrying value, we will proceed to Step 1 testing where we calculate the fair value of a reporting unit based on discounted future probability-weighted cash flows. If Step 1 indicates that the carrying value of a reporting unit is in excess of its fair value, we will record an impairment equal to the amount by which a reporting unit’s carrying value exceeds its fair value.
We estimate fair value using discounted cash flows of the reporting units. The most significant assumptions used in these analyses are those made in estimating future cash flows. In estimating future cash flows, we use financial assumptions in our internal forecasting model such as projected capacity utilization, projected changes in the prices we charge for our services, projected labor costs, as well as contract negotiation status. The financial and credit market volatility directly impacts our fair value measurement through our weighted average cost of capital that we use to determine our discount rate. We use a discount rate we consider appropriate for the country where the business unit is providing services.
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Similar to goodwill, the Company may first use a qualitative analysis to assess the realizability of its indefinite-lived intangible assets. The qualitative analysis will include a review of changes in economic, market and industry conditions, business strategy, cost factors, and financial performance, among others, to determine if there would be a significant decline to the fair value of an indefinite-lived intangible asset. If a quantitative analysis is completed, an indefinite-lived intangible asset (such as a trade name) is evaluated for possible impairment by comparing the fair value of the asset with its carrying value. Fair value is estimated as the discounted value of future revenues arising from a trade name using a royalty rate that a market participant would pay for use of that trade name. An impairment charge is recorded if the trade name’sintangible asset’s carrying value exceeds its estimated fair value.
Restructuring and LiabilityDerivatives
We routinely assess the profitability and utilization of our customer engagement centers and existing markets. In some cases, we have chosen to close under-performing customer engagement centers and complete reductions in workforce to enhance future profitability. Severance payments that occur from reductions in workforce are in accordance with postemployment plans and/or statutory requirements that are communicated to all employees upon hire date; therefore, we recognize severance liabilities when they are determined to be probable and reasonably estimable. Other liabilities for costs associated with an exit or disposal activity are recognized when the liability is incurred, rather than upon commitment to a plan.
Derivatives
Wemay enter into foreign exchange forward and option contracts to reduce our exposure to foreign currency exchange rate fluctuations that are associated with forecasted revenue earned in foreign locations. We may enter into interest rate swaps to reduce our exposure to interest rate fluctuations associated with our variable rate debt. Upon proper qualification, these contracts are often accounted for as cash flow hedges under current accounting standards. From time-to-time, we may also enter into foreign exchange forward contracts to hedge our net investment in a foreign operation.
All derivative financial instruments are reported in the accompanying Consolidated Balance Sheets at fair value. Changes in fair value of derivative instruments designated as cash flow hedges are recorded in Accumulated other comprehensive income (loss), a component of Stockholders’ Equity, to the extent they are deemed effective. Based on the criteria established by current accounting standards, all of our cash flow hedge contracts are deemed to be highly effective. Changes in fair value of any net investment hedge are recorded inas cumulative translation adjustment in Accumulated other comprehensive income (loss) in the accompanying Consolidated Balance Sheets offsetting the change in cumulative translation adjustment attributable to the hedged portion of our net investment in the foreign operation. Any realized gains or losses resulting from the foreign currency cash flow hedges are recognized together with the hedged transactions within Revenue. Any realized gains or losses resulting from the interest rate swaps are recognized in Interest expense. Gains and losses from the settlements of our net investment hedges remain in Accumulated other comprehensive income (loss) until partial or complete liquidation of the applicable net investment.
We also enter into fair value derivative contracts to reduce our exposure to foreign currency exchange rate fluctuations associated with changes in asset and liability balances. Changes in the fair value of derivative instruments designated as fair value hedges affect the carrying value of the asset or liability hedged, with changes in both the derivative instrument and the hedged asset or liability being recognized in Other income (expense), net in the accompanying Consolidated Statements of Comprehensive Income (Loss).
While we expect that our derivative instruments will continue to be highly effective and in compliance with applicable accounting standards, if our hedges did not qualify as highly effective or if we determine that forecasted transactions will not occur, the changes in the fair value of the derivatives used as hedges would be reflected currently in earnings.
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Contingencies
We record a liability for pending litigation and claims where losses are both probable and reasonably estimable. Each quarter, management reviews all litigation and claims on a case-by-case basis and assigns probability of loss and range of loss.
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Explanation of Key Metrics and Other Items
Cost of Services
Cost of services principally include costs incurred in connection with our customer managementexperience services and technology services, including direct labor and related taxes and benefits, telecommunications, technology costs, sales and use tax and certain fixed costs associated with the customer engagement centers. In addition, cost of services includes income related to grants we may receive from local or state governments as an incentive to locate customer engagement centers in their jurisdictions which reduce the cost of services for those facilities.
Selling, General and Administrative
Selling, general and administrative expenses primarily include costs associated with administrative services such as sales, marketing, product development, legal, information systems (including core technology and telephony infrastructure), accounting and finance and legal settlements.finance. It also includes outside professional fees (i.e., legal and accounting services), building expense for non-engagement center facilities and other items associated with general business administration.
Restructuring and Integration Charges, Net
Restructuring charges, net primarily include costs incurred in conjunction with reductions in force or decisions to exit facilities, including termination benefits and lease liabilities, net of expected sublease rentals. Integration charges represent the activities related to the re-hiring and retraining of the agents, the consolidation of facilities, the transfer of IT systems and other duplicative expenses incurred as the acquisitions are fully integrated.
Interest Expense
Interest expense includes interest expense, amortization of debt issuance costs associated with our Credit Facility, and the accretion of deferred payments associated with our acquisitions.
Other Income
The main components of other income are miscellaneous income not directly related to our operating activities, such as foreign exchange gains and reductions in our contingent consideration.
Other Expenses
The main components of other expenses are expenditures not directly related to our operating activities, such as foreign exchange losses and increases in our contingent consideration.
RESULTS OF OPERATIONS
Year Ended December 31, 20172020 Compared to December 31, 20162019
The tables included in the following sections are presented to facilitate an understanding of Management’s Discussion and Analysis of Financial Condition and Results of Operations and present certain information by segment for the years ended December 31, 20172020 and 20162019 (amounts in thousands). All inter-company transactions between the reported segments for the periods presented have been eliminated.
Customer Management ServicesTTEC Digital
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| | Year Ended December 31, | | | | | |
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| 2020 |
| 2019 |
| $ Change |
| % Change |
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Revenue | | $ | 306,985 | | $ | 305,346 | | $ | 1,639 |
| 0.5 | % | |
Operating Income | |
| 45,315 | |
| 38,927 | |
| 6,388 |
| 16.4 | % | |
Operating Margin | |
| 14.8 | % |
| 12.7 | % | | | | | | |
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| Year Ended December 31, |
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| 2017 |
| 2016 |
| $ Change |
| % Change |
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Revenue |
| $ | 1,141,760 |
| $ | 924,325 |
| $ | 217,435 |
| 23.5 | % |
Operating Income |
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| 78,206 |
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| 50,541 |
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| 27,665 |
| 54.7 | % |
Operating Margin |
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| 6.8 | % |
| 5.5 | % |
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37
The increase in revenue for the Customer Management ServicesTTEC Digital segment was related to significant increases in the cloud platform and the systems integration practice including a large multi-year governmental contract, and the acquisitions of Serendebyte and Voice Foundry during 2020, offset by reductions in the legacy facility based training business and the Middle East consulting practice, both of which the Company has exited.
The operating income expansion is primarily attributable to a $246.0 million net increase in organic and inorganic client programs including the Atelka, Connextions and Motif acquisitions and a $2.3 million increasecontinued improved utilization of technology and people assets as the business scales its cloud and system integration revenue, as well as the exit of the less profitable facilities based training and Middle East consulting practices. The operating income also increased due to foreign currency fluctuations, offset by program completionsthe $2.0 million impairment of $30.9 million.
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the consulting components in this segment (See Part II, Item 8. Financial Statements and Supplementary Data, Notes 6 and 11 to the Consolidated Financial Statements) recorded during 2019. The operating income as a percentage of revenue increased to 6.8%14.8% in 20172020 as compared to 5.5%12.7% in 2016. The operating margin increased due to higher revenue, a $12.1 million benefit due to improved foreign exchange trends, increased capacity utilization, and efficiencies realized from the expense rationalization activities completed during the second half of 2016. This increase was offset by $13.6 million of 2017 planned restructuring and integration charges for the Connextions acquisition related to severance, center closure costs, the hiring, training and licensing of employees in new delivery centers and the integration of the IT systems (see Part II. Item 8. Financial Statements and Supplementary Data, Note 2 to the Consolidated Financial Statements) and an increase of $9.3 million for variable incentive compensation. The increase was also due to the 2016 $11.1 million impairment for internally developed software and technology assets and a $1.4 million impairment of goodwill (see Part II. Item 8. Financial Statements and Supplementary Data, Note 6 to the Consolidated Financial Statements).2019. Included in the operating income was amortization related to acquired intangibles of $4.6$3.0 million and $0.9$2.6 million for the years ended December 31, 20172020 and 2016,2019, respectively.
Customer Growth ServicesTTEC Engage
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| Year Ended December 31, |
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| 2017 |
| 2016 |
| $ Change |
| % Change |
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| | Year Ended December 31, | | | | | |
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| 2020 |
| 2019 |
| $ Change |
| % Change |
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Revenue |
| $ | 128,698 |
| $ | 141,005 |
| $ | (12,307) |
| (8.7) | % | | $ | 1,642,263 | | $ | 1,338,358 | | $ | 303,905 |
| 22.7 | % | |
Operating Income |
|
| 7,803 |
|
| 6,969 |
|
| 834 |
| 12.0 | % | |
| 159,377 | |
| 84,782 | |
| 74,595 |
| 88.0 | % | |
Operating Margin |
|
| 6.1 | % |
| 4.9 | % |
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| |
| 9.7 | % |
| 6.3 | % | | | | | | |
The decreaseincrease in revenue for the Customer Growth ServicesTTEC Engage segment was due to a $9.0net increase of $408.5 million increase in client programs including the acquisition of FCR in the fourth quarter of 2019 and certain surge programs for several clients in connection with the COVID-19 pandemic, offset by a decrease for program completions of $21.3$104.6 million. Prior to the end of 2020, a significant portion of the surge work has converted into longer-term normal course business.
The operating income increased in line with the improved revenue including the acquisition of FCR as well as continued improved profitability in our customer growth, @Home, fraud prevention and detection and customer acquisition offerings and auto and hypergrowth client portfolios, offset by increases in amortization for acquired intangibles. Partially offsetting these increases was a net $7.6 million in restructuring and impairment charges related to several facilities in the U.S, Canada, and the Philippines. (see Part II, Item 8. Financial Statements and Supplementary Data, Note 11 to the Consolidated Financial Statements). As a result, the operating income as a percentage of revenue increased to 6.1%9.7% in 20172020 as compared to 4.9% in 2016. This was attributable to pricing improvements and other profit optimization actions, along with reductions in amortization expense and a reduction6.3% in the operating loss for the Digital Marketing unit, which was sold effective December 22, 2017 (see Part II. Item 8. Financial Statements and Supplementary Data, Note 2 to the Consolidated Financial Statements). Included in the operating income was amortization related to acquired intangibles of zero and $1.8 million for the years ended December 31, 2017 and 2016, respectively.
Customer Technology Services
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| Year Ended December 31, |
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| 2017 |
| 2016 |
| $ Change |
| % Change |
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Revenue |
| $ | 138,581 |
| $ | 141,254 |
| $ | (2,673) |
| (1.9) | % |
Operating Income |
|
| 12,047 |
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| 933 |
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| 11,114 |
| 1,191.2 | % |
Operating Margin |
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| 8.7 | % |
| 0.7 | % |
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The decrease in revenue for the Customer Technology Services segment was driven by an increase in the CISCO offerings offset by a decrease in the Avaya offerings as we wound down and then sold the business unit in the second quarter of 2017.
The operating income as a percentage of revenue increased to 8.7% in 2017 as compared to 0.7% in 2016. This increase is primarily due to a $12.1 million charge recorded in 2016 related to the impairment of customer relationships, trade name, non-compete intangible assets and technology fixed assets due to the lower financial performance of the Avaya business unit offset by the 2017 $3.3 million impairment of a trade name intangible asset (see Part II. Item 8. Financial Statements and Supplementary Data, Note 7 to the Consolidated Financial Statements). Included in the operating income was amortization related to acquired intangibles of $1.1 million and $4.6 million for the years ended December 31, 2017 and 2016, respectively.
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Customer Strategy Services
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| Year Ended December 31, |
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| 2017 |
| 2016 |
| $ Change |
| % Change |
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Revenue |
| $ | 68,326 |
| $ | 68,674 |
| $ | (348) |
| (0.5) | % |
Operating Income |
|
| 2,433 |
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| (5,691) |
|
| 8,124 |
| 142.8 | % |
Operating Margin |
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| 3.6 | % |
| (8.3) | % |
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The decrease in revenue for the Customer Strategy Services segment was related to growth in the Content and Collaboration and Service Optimization practices offset by decreases in the Mindset and Sales Transformation and Customer Insights practices across multiple delivery regions.
The operating income as a percentage of revenue was 3.6% in 2017 as compared to an operating loss of (8.3)% in 2016. The increase is primarily related to the 2016 $7.5 million charge for the impairment of two trade name intangibles offset by the 2017 $2.0 million impairment of one trade name intangible asset (see Part II. Item 8. Financial Statements and Supplementary Data, Note 7 to the Consolidated Financial Statements).prior period. Included in the operating income was amortization expense related to acquired intangibles of $1.8$13.2 million and $2.9$9.0 million for the years ended December 31, 20172020 and 2016,2019, respectively.
Interest Income (Expense)
Interest income increaseddecreased to $2.8$1.7 million in 20172020 from $1.2$1.9 million in 2016.2019 due to lower interest rates offset by higher average cash balances. Interest expense increaseddecreased to $13.7$17.5 million during 20172020 from $7.9$19.1 million for the comparable period in 2016,during 2019, primarily due to largerlower interest rates despite higher utilization of the line of credit, primarily related to the acquisitions, higher average interest rates, the upsizing of the credit facility completed in October 2017, and a $1.2$1.6 million increase period over period in the charge related to the future purchase of the remaining 30% interest in Motif, which was finalized during the second quarter of the Motif acquisition.2020.
Other Income (Expense), Net
For the year ended December 31, 2020 Other income (expense), net decreased to net expense of $18.6 million from net income of $3.9 million during the prior year.
Included in the year ended December 31, 20172020 was a net $2.6$1.8 million lossbenefit related to the fair value adjustments of contingent consideration for three acquisitions, offset by a business unit which has been sold effective December 22, 2017 and a $3.2 million gain related to dissolution of a foreign entity and a release of its cumulative translation adjustment (see Part II. Item 8. Financial Statements and Supplementary Data, Note 2 to the Consolidated Financial Statements).
Included in the year ended December 31, 2017 was a $5.3$19.9 million expense related to the Connextions acquisitiondeconsolidation of three subsidiaries and the finalizationrelated removal of the transition services agreement.
Included in the year ended December 31, 2016 was a total of $5.3 million of estimated losses related to two business units which had been classified as assets held for sale (see Part II. Item 8. Financial Statements and Supplementary Data, Note 2 to the Consolidated Financial Statements).
Included in the year ended December 31, 2016, was a $4.8 million benefit related to fair value adjustments of the contingent consideration based on revised estimates of performance against targets for two of our acquisitionsCurrency Translation Adjustments (see Part II, Item 8. Financial Statements and Supplementary Data, NoteNotes 2 and 9 to the Consolidated Financial Statements).
38
Included in the year ended December 31, 2019 was a $2.4 million benefit related to the fair value adjustment of contingent consideration for an acquisition, a $1.4 million benefit on recovery of receivables in connection with the consulting business that we are winding down, a $1.4 million benefit related to royalty payments in connection with the sale of a business, and a $0.7 million benefit on the sale of trademarks.
Income Taxes
The reported effective tax rate for 20172020 was 87.8%24.0% as compared to 25.6%23.3% for 2016.2019. The effective tax rate for 20172020 was impacted by earnings in international jurisdictions currently under an income tax holiday, $62.4$2.9 million of expense related to the US 2017 Tax Act, $0.6changes in tax contingent liabilities, a $1.8 million of benefit related to provision to return adjustments, a $1.9$3.0 million benefit related to impairments,losses on dissolutions of subsidiaries, $0.4 million of expense related to the disposition of assets, $0.6 million of expense related to changes in valuation allowances, a $2.2$2.0 million benefit related to excess taxes on equity compensation, $5.8 million of benefit related to restructuring charges, and$0.8 million of expense for earnouts related to acquisitions, a $2.1$4.0 million benefit related to equity based compensation, a $4.2 million benefit related to the finalizationamortization of a transition service agreement.purchased intangibles, and $0.1 million of other benefits. Without these items our effective tax rate for the year ended December 31, 20172020 would have been 24.4%22.5%.
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For the year ended December 31, 2016,2019, our effective tax rate was 25.6%23.3%. The effective tax rate for 20162019 was impacted by earnings in international jurisdictions currently under an income tax holiday, $1.7$0.7 million of expense related to returnchanges in tax contingent liabilities, a $1.7 million benefit related to provision to return adjustments, $1.1a $2.8 million of expense related to a transfer pricing adjustment for a prior period, $0.5 million of expensebenefit related to tax rate changes, $0.5$4.5 million of expense related to changes in valuation allowances, $1.5a $0.9 million of benefit related to restructuring expenses, and $9.8charges, a $4.7 million of benefit related to impairmentsequity based compensation, a $2.9 million benefit related to the amortization of purchased intangibles, and assets held for sale.$0.3 million of other benefits. Without these items our effective tax rate for the year ended December 31, 20162019 would have been 23.3%24.4%.
Year Ended December 31, 2016 Compared2019 compared to 2015December 31, 2018
The tables included inFor a discussion of our results of operations for the following sections are presentedyear ended December 31, 2019 compared to facilitate an understanding ofthe year ended December 31, 2018, please see Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and present certain information by segment for the years ended December 31, 2016 and 2015 (amounts– Results of Operations in thousands). All inter-company transactions between the reported segments for the periods presented have been eliminated.
Customer Management Services
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| Year Ended December 31, |
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| 2016 |
| 2015 |
| $ Change |
| % Change |
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Revenue |
| $ | 924,325 |
| $ | 913,272 |
| $ | 11,053 |
| 1.2 | % |
Operating Income |
|
| 50,541 |
|
| 58,018 |
|
| (7,477) |
| (12.9) | % |
Operating Margin |
|
| 5.5 | % |
| 6.4 | % |
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The increase in revenue for the Customer Management Services segment was attributable to a $47.0 million net increase in client programs and acquisitions offset by program completions of $18.2 million. Revenue was further impacted by a $17.7 million reduction due to foreign currency fluctuations, primarily the Australian dollar and the Brazilian Real.
The operating income as a percentage of revenue decreased to 5.5% in 2016 as compared to 6.4% in 2015. The decrease was primarily driven by a $11.1 million impairment for internally developed software and technology assets and a $1.4 million impairment of goodwill (see Part II. Item 8. Financial Statements and Supplementary Data, Note 6 to the Consolidated Financial Statements) and a shift in business mix to onshore vs. offshore. This was offset by an increase of $4.3 million due to foreign currency fluctuations. Included in the operating income was amortization related to acquired intangibles of $0.9 million and $0.8 million for the years ended December 31, 2016 and 2015, respectively.
Customer Growth Services
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| Year Ended December 31, |
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| 2016 |
| 2015 |
| $ Change |
| % Change |
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Revenue |
| $ | 141,005 |
| $ | 129,021 |
| $ | 11,984 |
| 9.3 | % |
Operating Income |
|
| 6,969 |
|
| 3,077 |
|
| 3,892 |
| 126.5 | % |
Operating Margin |
|
| 4.9 | % |
| 2.4 | % |
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The increase in revenue for the Customer Growth Services segment was due to a $21.9 million increase in client programs offset by program completions of $8.6 million and a $1.3 million reduction due to foreign currency fluctuations.
The operating income as a percentage of revenue increased to 4.9% in 2016 as compared to 2.4% in 2015. This increase was attributable to increased revenue and improvements in the efficiency of the selling, general and administrative expenses and a decrease in amortization. Also included in the 2015 income was a $5.9 million goodwill impairment for the WebMetro reporting unit (see Part II. Item 8. Financial Statements and Supplementary Data, Note 6 to the Consolidated Financial Statements). Included in the operating income was amortization related to acquired intangibles of $1.8 million and $2.7 million for the years ended December 31, 2016 and 2015, respectively.
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Customer Technology Services
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| Year Ended December 31, |
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| 2016 |
| 2015 |
| $ Change |
| % Change |
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Revenue |
| $ | 141,254 |
| $ | 157,606 |
| $ | (16,352) |
| (10.4) | % |
Operating Income |
|
| 933 |
|
| 13,339 |
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| (12,406) |
| (93.0) | % |
Operating Margin |
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| 0.7 | % |
| 8.5 | % |
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The decrease in revenue for the Customer Technology Services segment was driven most significantly by lower volumes in the Avaya platform due to Avaya’s product transition and financial challenges. Additionally, CISCO product sales have declined as clients increasingly move to adopt cloud based solutions.
The operating income as a percentage of revenue decreased to 0.7% in 2016 as compared to 8.5% in 2015. Included in the 2016 income was a $12.1 million charge related to the impairment of customer relationships, trade name, non-compete intangible assets and technology fixed assets due to continued lower financial performance of the Avaya business unit (see Part II. Item 8. Financial Statements and Supplementary Data, Note 7 to the Consolidated Financial Statements). This was offset by increases in the profitability of the CISCO platform including Cloud, Managed Service and Consulting services. Included in the operating income was amortization related to acquired intangibles of $4.6 million and $4.2 million for the years ended December 31, 2016 and 2015, respectively.
Customer Strategy Services
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| Year Ended December 31, |
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| 2016 |
| 2015 |
| $ Change |
| % Change |
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Revenue |
| $ | 68,674 |
| $ | 86,856 |
| $ | (18,182) |
| (20.9) | % |
Operating Income |
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| (5,691) |
|
| 15,746 |
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| (21,437) |
| (136.1) | % |
Operating Margin |
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| (8.3) | % |
| 18.1 | % |
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The decrease in revenue for the Customer Strategy Services segment was primarily related to the decrease in the Middle East consulting business as well as revenue volatility in several other regions and a $1.2 million decrease due to foreign currency fluctuations.
The operating loss as a percentage of revenue was (8.3)% in 2016 as compared to income of 18.1% in 2015. The loss included $7.5 million of charges for the impairment of two trade name intangible assets due to continued lower performance for two business units (see Part II. Item 8. Financial Statements and Supplementary Data, Note 7 to the Consolidated Financial Statements). The operating margin decrease also related to lower revenue which caused an underutilization of the consultants as well as the planned investments in practice areas and geographic expansion. Included in the operating income was amortization expense related to acquired intangibles of $2.9 million and $2.9 million for the years ended December 31, 2016 and 2015, respectively.
Interest Income (Expense)
Interest income increased slightly to $1.2 million in 2016 from $1.1 million in 2015. Interest expense increased to $7.9 million during 2016 from $7.5 million for the comparable period in 2015, primarily due to higher outstanding balancesour Annual Report on the line of credit.
Other Income (Expense), Net
Included in the year ended December 31, 2016 was a total of $5.3 million of estimated losses related to two business units which have been classified as assets held for sale (see Part II. Item 8. Financial Statements and Supplementary Data, Note 2 to the Consolidated Financial Statements).
Included in the year ended December 31, 2016, was a $4.8 million benefit related to fair value adjustments of the contingent consideration based on revised estimates of performance against targets for two of our acquisitions (see Part II, Item 8. Financial Statements and Supplementary Data, Note 9 to the Consolidated Financial Statements).
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Included in the year ended December 31, 2015, was a net $26 thousand expense related to fair value adjustments of the contingent consideration based on revised estimates of performance against targets for two of our acquisitions (see Part II, Item 8. Financial Statements and Supplementary Data, Note 9 to the Consolidated Financial Statements).
Income Taxes
The reported effective tax rate for 2016 was 25.6% as compared to 23.3% for 2015. The effective tax rate for 2016 was impacted by earnings in international jurisdictions currently under an income tax holiday, $1.7 million of expense related to return to provision adjustments, $1.1 million of expense related to a transfer pricing adjustment for a prior period, $0.5 million of expense related to tax rate changes, $0.5 million of expense related to changes in valuation allowances, $1.5 million of benefit related to restructuring expenses, and $9.8 million of benefit related to impairments and assets held for sale. Without these items our effective tax rate for the year ended December 31, 2016 would have been 23.3%.2019.
For the year ended December 31, 2015, our effective tax rate was 23.3%. The effective tax rate for 2015 was impacted by earnings in international jurisdictions currently under an income tax holiday, $2.6 million of benefit related to impairments, $0.7 million benefit related to restructuring charges, $1.2 million net of expense related to changes in valuation allowance and a related release of a deferred tax liability, $1.3 million of expense related to state net operating losses and credits, $1.5 million of expense related to provisions for uncertain tax positions, and $0.4 million benefit related to other discrete items. Without these items our effective tax rate for the year ended December 31, 2015 would have been 20.4%.
Liquidity and Capital Resources
Our principal sources of liquidity are our cash generated from operations, our cash and cash equivalents, and borrowings under our Credit Facility, dated June 3, 2013 which was amended and restated effective October 30, 2017 (the “Credit Facility”).Facility. During the year ended December 31, 2017,2020, we generated positive operating cash flows of $113.2$271.9 million. We believe that our cash generated from operations, existing cash and cash equivalents, and available credit will be sufficient to meet expected operating and capital expenditure requirements for the next 12 months.
We manage a centralized global treasury function in the United States with a focus on concentratingsafeguarding and safeguardingoptimizing the use of our global cash and cash equivalents. While the majority of ourOur cash is held outsidein the U.S., we prefer to hold in U.S. Dollarsdollars, and outside of the U.S. in addition to the local currencies of ourU.S. dollars and foreign subsidiaries.currencies. We expect to use our offshore cash to supportfund working capital, global operations, dividends, acquisitions, and growth of our foreign operations.other strategic activities. While there are no assurances, we believe our global cash is well protected given our cash management practices, banking partners and utilization of diversified bank deposit accounts and other high quality investments.
We have global operations that expose us to foreign currency exchange rate fluctuations that may positively or negatively impact our liquidity. We are also exposed to higher interest rates associated with our variable rate debt. To mitigate these risks, we enter into foreign exchange forward and option contracts and interest rate swaps through our cash flow hedging program. Please refer to Item 7A. Quantitative and Qualitative Disclosures About Market Risk, Foreign Currency Risk, for further discussion.
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In March 2020, we borrowed $350.0 million under our revolving credit facility as a precautionary measure to provide additional liquidity during the global economic uncertainty and financial market conditions cause by the COVID-19 pandemic. During September 2020, this additional borrowing was repaid. Although we expect that current cash and cash equivalent balances and cash flows that are generated from operations will be sufficient to meet our domestic and international working capital needs and other capital and liquidity requirements for at least the next 12 months, if our access to capital is restricted or our borrowing costs increase, our operations and financial condition could be adversely impacted.
We primarily utilize our Credit Facility to fund working capital, general operations, stock repurchases, dividends, and other strategic activities, such as the acquisitions described in Part II. Item 8. Financial Statements and Supplementary Data, Note 2 to the Consolidated Financial Statements. As of December 31, 20172020 and 2016,2019, we had borrowings of $344.0$385.0 million and $217.3$290.0 million, respectively, under our Credit Facility, and our average daily utilization was $494.7$550.9 million and $375.3$331.8 million for the years ended December 31, 20172020 and 2016,2019, respectively. After consideration for the current level of availability based on the covenant calculations, our remaining borrowing capacity was approximately $350$510.0 million as of December 31, 2017.2020. As of December 31, 2017,2020, we were in compliance with all covenants and conditions under our Credit Facility.
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The amount of capital required over the next 12 months will depend on our levels of investment in infrastructure necessary to maintain, upgrade or replace existing assets. Our working capital and capital expenditure requirements could also increase materially in the event of acquisitions or joint ventures, among other factors. These factors could require that we raise additional capital through future debt or equity financing. We can provide no assurance that we will be able to raise additional capital with commercially reasonable terms acceptable to us.
The following discussion highlights our cash flow activities during the years ended December 31, 2017, 2016,2020 and 2015.2019.
Cash and Cash Equivalents
We consider all liquid investments purchased within 90 days of their original maturity to be cash equivalents. Our cash and cash equivalents totaled $74.4$132.9 million and $55.3$82.4 million as of December 31, 20172020 and 2016,2019, respectively. We diversify the holdings of such cash and cash equivalents considering the financial condition and stability of the counterparty institutions.
We reinvest our cash flows to grow our client base, expand our infrastructure, for investment in research and development, for strategic acquisitions, for the purchase of our outstanding stock and to pay dividends.
Cash Flows from Operating Activities
For the years 2017, 20162020 and 20152019, we reported net cash flows provided by operating activities of $113.2 million, $111.8$271.9 million and $138.0$238.0 million, respectively. The increase of $1.3$33.9 million from 20162019 to 20172020 was primarily due to a $110.6$73.5 million increase in net cash income from operations offset by a $39.5 million decrease in payments made for operating expenses offset by a $51.4 million decrease in cash collected from accounts receivable and an $19.2 million decrease in prepaid assets. The decrease of $26.2 million from 2015 to 2016 was primarily due to a $12.0 million increase in cash collected from accounts receivable, a $5.3 million increase in prepaid assets, offset by $34.3 million increase in payments made for operating expenses. net working capital.
Cash Flows from Investing Activities
For the years 2017, 20162020 and 2015,2019, we reported net cash flows used in investing activities of $169.0 million, $100.4$112.4 million and $77.2$162.9 million, respectively. The net increasedecrease in cash used in investing activities from 20162019 to 20172020 was primarily due to increased spending on acquisitions of $69.9 million. The net increase in cash used in investing activities from 2015a $49.8 million decrease related to 2016 was primarily due to increased spending on acquisitions of $44.7 million offset by a decrease in spending on investments of $5.8 million and a decrease of $15.8 million due to lower capital expenditures.acquisitions.
Cash Flows from Financing Activities
For the years 2017, 20162020 and 2015,2019, we reported net cash flows provided by (used in)used in financing activities of $71.6 million, $(1.6)$112.2 million and $(57.1)$47.4 million, respectively. The change in net cash flows from 20162019 to 20172020 was primarily due to a $9.4$87.0 million net additional draw on the line of credit, offset by a $42.8 million increase in borrowing on the Credit Facility, a decrease in therelated to payments of contingent consideration and hold-back payments of $8.1 million, offset by a $56.4 million decrease in purchases of our outstanding common stockrelated to several acquisitions and a $4.1 million payment to purchase a non-controlling interest. The change in net cash flows from 2015 to 2016 was primarily due to a $117.3$105.8 million increase in borrowing on the Credit Facility, a decrease in the contingent consideration and hold-back paymentsdividends paid to shareholders.
40
Free Cash Flow
Free cash flow (see “Presentation of Non-GAAP Measurements” below for the definition of free cash flow) was $61.2 million, $61.0$212.1 million and $71.4$177.2 million for the years 2017, 20162020 and 2015,2019, respectively. The increase from 20162019 to 20172020 was primarily due to thean increase in the net cash flows provided by operating activities. The decrease from 2015 to 2016 was primarily due to the decrease in cash flows provided by operating activitiesoperations offset by a decrease in spend forslightly lower capital expenditures.expenditures
38
Presentation of Non-GAAP Measurements
Free Cash Flow
Free cash flow is a non-GAAP liquidity measurement. We believe that free cash flow is useful to our investors because it measures, during a given period, the amount of cash generated that is available for debt obligations and investments other than purchases of property, plant and equipment. Free cash flow is not a measure determined by GAAP and should not be considered a substitute for “income from operations,” “net income,” “net cash provided by operating activities,” or any other measure determined in accordance with GAAP. We believe this non-GAAP liquidity measure is useful, in addition to the most directly comparable GAAP measure of “net cash provided by operating activities,” because free cash flow includes investments in operational assets. Free cash flow does not represent residual cash available for discretionary expenditures, since it includes cash required for debt service. Free cash flow also includes cash that may be necessary for acquisitions, investments and other needs that may arise.
The following table reconciles net cash provided by operating activities to free cash flow for our consolidated results (in thousands):
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|
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|
|
|
|
|
|
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| |||||||||
|
| Year Ended December 31, |
| ||||||||||||||||
|
| 2017 |
| 2016 |
| 2015 |
| ||||||||||||
| | | | | | | | ||||||||||||
| | Year Ended December 31, | |||||||||||||||||
|
| 2020 |
| 2019 | | ||||||||||||||
Net cash provided by operating activities |
|
| $ | 113,152 |
| $ | 111,830 |
| $ | 137,998 |
| | | $ | 271,920 | | $ | 237,989 | |
Less: Purchases of property, plant and equipment |
|
|
| 51,958 |
|
| 50,832 |
|
| 66,595 |
| | |
| 59,772 | |
| 60,776 | |
Free cash flow |
|
| $ | 61,194 |
| $ | 60,998 |
| $ | 71,403 |
| | | $ | 212,148 | | $ | 177,213 | |
Obligations and Future Capital Requirements
Future maturities of our outstanding debt and contractual obligations as of December 31, 20172020 are summarized as follows (in thousands):
| | | | | | | | | | | | | | | | |
|
| Less than |
| 1 to 3 |
| 3 to 5 |
| Over 5 |
| | |
| ||||
| | 1 Year | | Years | | Years | | Years | | Total |
| |||||
| | | | | | | | | | | | | | | | |
Credit Facility(1) | | $ | 5,557 | | $ | 11,114 | | $ | 385,685 | | $ | — | | $ | 402,356 | |
Equipment financing arrangements | |
| 6,193 | |
| 4,188 | |
| 575 | |
| — | |
| 10,956 | |
Purchase obligations | |
| 15,071 | |
| 12,520 | |
| 298 | |
| — | |
| 27,889 | |
Operating lease commitments undiscounted) | |
| 51,120 | |
| 77,998 | |
| 25,626 | |
| 8,397 | |
| 163,141 | |
Transition tax related to US 2017 Tax Act | | | 3,300 | | | 9,600 | | | 13,210 | | | — | | | 26,110 | |
Other debt | |
| 12,239 | |
| 8,562 | |
| 14 | |
| — | |
| 20,815 | |
Total | | $ | 93,480 | | $ | 123,982 | | $ | 425,408 | | $ | 8,397 | | $ | 651,267 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Less than |
| 1 to 3 |
| 3 to 5 |
| Over 5 |
|
|
|
| ||||
|
| 1 Year |
| Years |
| Years |
| Years |
| Total |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Facility(1) |
| $ | 10,154 |
| $ | 20,308 |
| $ | 345,692 |
| $ | — |
| $ | 376,154 |
|
Equipment financing arrangements |
|
| 3,588 |
|
| 5,376 |
|
| 1,570 |
|
| — |
|
| 10,534 |
|
Contingent consideration |
|
| 399 |
|
| — |
|
| — |
|
| — |
|
| 399 |
|
Purchase obligations |
|
| 10,333 |
|
| 6,977 |
|
| 681 |
|
| — |
|
| 17,991 |
|
Operating lease commitments |
|
| 44,299 |
|
| 61,314 |
|
| 38,139 |
|
| 30,984 |
|
| 174,736 |
|
Transition tax related to US 2017 Tax Act |
|
| — |
|
| 2,900 |
|
| 9,400 |
|
| 35,600 |
|
| 47,900 |
|
Other debt |
|
| 2,988 |
|
| 31,232 |
|
| 425 |
|
| — |
|
| 34,645 |
|
Total |
| $ | 71,761 |
| $ | 128,107 |
| $ | 395,907 |
| $ | 66,584 |
| $ | 662,359 |
|
| (1) |
| Includes estimated interest payments based on the weighted-average interest rate, unused commitment, fees, |
| ● |
| Contractual obligations to be paid in a foreign currency are translated at the period end exchange rate. |
| ● |
| Purchase obligations primarily consist of outstanding purchase orders for goods or services not yet received, which are not recognized as liabilities in our Consolidated Balance Sheets until such goods and/or services are received. |
| ● |
| The contractual obligation table excludes our liabilities of |
3941
Our outstanding debt is primarily associated with the use of funds under our Credit Agreement to fund working capital, repurchase our common stock,for strategic acquisitions, to pay dividends and for other cash flow needs across our global operations.
Purchase Obligations
Occasionally we contract with certain of our communications clients to provide us with telecommunication services. These clients currently represent approximately 13%8% of our total annual revenue. We believe these contracts are negotiated on an arm’s-length basis and may be negotiated at different times and with different legal entities.
Future Capital Requirements
We expect total capital expenditures in 20182021 to be approximately 3.8%between 3.1% and 3.3% of 2018 revenue. Approximately 70%60% of these expected capital expenditures are to support growth in our business and 30%40% relate to the maintenance of existing assets. The anticipated level of 20182021 capital expenditures is primarily driven by new client contracts and the corresponding requirements for additional customer engagement center capacity as well as enhancements to our technological infrastructure.
We may consider restructurings, dispositions, mergers, acquisitions and other similar transactions. Such transactions could include the transfer, sale or acquisition of significant assets, businesses or interests, including joint ventures or the incurrence, assumption, or refinancing of indebtedness and could be material to the consolidated financial condition and consolidated results of our operations. Our capital expenditures requirements could also increase materially in the event of an acquisition or joint ventures.venture. In addition, as of December 31, 2017,2020, we were authorized to purchase an additional $26.6 million of common stock under our stock repurchase program (see Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities). Our stock repurchase program does not have an expiration date.
The launch of large client contracts may result in short-term negative working capital because of the time period between incurring the costs for training and launching the program and the beginning of the accounts receivable collection process. As a result, periodically we may sometimes generate negative cash flows from operating activities.
Debt Instruments and Related Covenants
On February 11, 2016,14, 2019, we entered into a FirstFourth Amendment to our June 3, 2013 Amended and Restated Credit Agreement and Amended and Restated Security Agreement originally dated as of June 3, 2013 (collectively the “Credit Agreement”) for a senior secured revolving credit facility (the “Credit Facility”) with a syndicate of lenders led by Wells Fargo Bank, National Association, as agent, swing line and fronting lender.
On October 30, 2017, the Company entered into a Third Amendment to the Credit Agreement and exercised the Credit Facility’s accordion feature to increase the total commitment under the Credit Facility to $1.2 billion. All other material terms of the Credit Agreement remained unchanged.
The Credit Agreement provides for a secured revolving credit facility thatlender which matures on February 11, 2021 with a maximum aggregate commitment of $1.2 billion. At our discretion, direct borrowing options under the Credit Agreement include (i) Eurodollar loans with one, two, three, and six month terms, (ii) overnight base rate loans, and (iii) alternate currency loans. The Credit Agreement also provides for a foreign subsidiary borrowing capacity sub-limit for loans or letters of credit of up to 50% of the total commitment amount, in both U.S. dollars and certain foreign currencies.
14, 2024 (the “Credit Facility”). We primarily utilize our Credit Facility to fund working capital, general operations, stock repurchases, dividends, acquisitions, and other strategic activities.
The maximum commitment under the Credit Facility is $900.0 million with an accordion feature of up to $1.2 billion in the aggregate, if certain conditions are satisfied. The Credit Facility commitment fees are payable to the lenders as previously disclosed and as determined by reference to our net leverage ratio. The Credit Agreement contains customary affirmative, negative, and financial covenants, which remained unchanged from the 2016 Credit Facility, except that we are now obligated to maintain a maximum net leverage ratio of 3.50 to 1.00, and a minimum Interest Coverage Ratio of 2.50 to 1.00. The Credit Agreement permits accounts receivable factoring up to the greater of $75 million or 25 percent of the average book value of all accounts receivable over the most recent twelve month period.
Base rate loans bear interest at a rate equal to the greatest of (i) Wells Fargo’s prime rate, (ii) one half of 1% in excess of the federal funds effective rate, or (iii) 1.25% in excess of the one month London Interbank Offered Rate (“LIBOR”), plus in each case a margin of 0% to 0.75% based on our net leverage ratio. Eurodollar loans bear interest at LIBOR plus a margin of 1.0% to 1.75% based on our net leverage ratio. Alternate currency loans bear interest at rates applicable to their respective currencies.
Letter of credit fees are one eighth of 1% of the stated amount of the letter of credit on the date of issuance, renewal or amendment, plus an annual fee equal to the borrowing margin for Eurodollar loans.
4042
The Credit Facility commitment fees are payable to the lenders in an amount equal to the unused portion of the Credit Facility at a rate of 0.125% to 0.250% per annum based on our net leverage ratio.
Indebtedness under the Credit Agreement is guaranteed by certain of our domestic subsidiaries and is secured by security interests (subject to permitted liens) in the U.S. accounts receivable and cash of our Company and certain of its domestic subsidiaries. The indebtedness may also be secured by tangible assets of our Company and its domestic subsidiaries, if borrowings by foreign subsidiaries exceed $100.0 million and the total net leverage ratio is greater than 3.00 to 1.00. We also pledged 65% of the voting stock and all of the non-voting stock, if any, of certain of our material foreign subsidiaries.
The Credit Agreement contains customary affirmative, negative, and financial covenants. These covenants include, but are not limited to, the following, in each case subject to exceptions set forth in the Credit Agreement: incurring additional indebtedness or, guaranteeing of indebtedness; creating, incurring, assuming or permitting to exist liens on property and assets; making loans and investments and entering into certain types of mergers, consolidations and acquisitions; making capital distributions or paying, redeeming or repurchasing subordinated debt; entering into certain affiliate transactions; and entering into agreements that would restrict the ability of the Company’s subsidiaries to pay dividends and make distributions.
In addition, the Company is obligated to maintain a maximum net leverage ratio of 3.25 to 1.00, and a minimum interest coverage ratio of 2.50 to 1.00.
The Credit Facility also contains certain customary information and reporting requirements, and events of default, including without limitation events of default based on payment obligations, material inaccuracies of representations and warranties, covenant defaults, cross defaults to certain other debt, certain ERISA events, changes in control, monetary judgments, and insolvency proceedings. Upon the occurrence of an event of default, the lenders may accelerate the maturity of all amounts outstanding under the Credit Facility.
As of December 31, 20172020 and 2016,2019, we had borrowings of $344.0$385.0 million and $217.3$290.0 million, respectively, under the Credit Facility. During 2017, 20162020, 2019 and 2015,2018, borrowings accrued interest at an average rate of approximately 2.2%1.6%, 1.5%3.4%, and 1.2%3.1% per annum, respectively, excluding unused commitment fees. Our daily average borrowings during 2017, 20162020, 2019 and 20152018 were $494.7$550.9 million, $375.3$331.8 million and $319.6$514.7 million, respectively. As of December 31, 2017,2020, and 2016,2019, based on the current level of availability based on the covenant calculations, the remaining borrowing capacity was approximately $350$510.0 million and $370$530.0 million, respectively.
Off-Balance Sheet Arrangements
As of December 31, 2020, we had no transactions that met the definition of off-balance sheet arrangements that may have a current or future material effect on our consolidated financial position or operating results.
Client Concentration
During 2017,2020, one of our clients represented 9.0%more than 10% of our total annual revenue. Our five largest clients accounted for 35%40%, 35%37% and 35% of our annual revenue for each of the three years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively. We have long-term relationships with our top five Engage clients, ranging from 1014 to 21 years, with the majorityall of these clients having completed multiple contract renewals with us. The relative contribution of any single client to consolidated earnings is not always proportional to the relative revenue contribution on a consolidated basis and varies greatly based upon specific contract terms. In addition, clients may adjust business volumes served by us based on their business requirements. We believe the risk of this concentration is mitigated, in part, by the long-term contracts we have with our largest clients. Although certain client contracts may be terminated for convenience by either party, we believe this risk is mitigated, in part, by the service level disruptions and transition/migration costs that would arise for our clients.clients if they terminated our contract for convenience.
TheSome of the contracts with our five largest clients expire between 20182021 and 2023. Additionally, a particular client2023, but most of our largest clients may have multiple contracts with us with different expiration dates.dates for different lines of work. We have historically renewed most of our contracts with our largest clients, but there can be no assurance that future contracts will be renewed or, if renewed, will be on terms as favorable as the existing contracts.
4143
Cybersecurity
We have made and continue to make significant financial investments in technologies and processes to mitigate cyber risks. We have a number of complex information systems used for a variety of functions ranging from services we deliver to our customers to how we support for our operations. We depend on the proper functioning of these information systems. Like any information system, they are susceptible to cyber-attack. Any cyber-attack could impact the availability, reliability, speed, accuracy, or other proper functioning of these systems or result in confidential data being compromised, which could have a significant impact on our reputation, results of operations, and financial condition. Our information systems are protected through physical and technological safeguards as well as backup systems considered appropriate by management. We also provide employee awareness training about phishing, malware, social engineering, and other cyber risks. Further, we have formed a cybersecurity specific risk management steering committee that meets periodically to fully coordinate all enterprise level cybersecurity issues, and ourissues. Our Board of Directors and executive leadership team are updated at least quarterly on the progress and status of our cybersecurity priorities. We must continuously monitor and develop our information technology networks and infrastructure to prevent, detect, address, and mitigate the risk of unauthorized access, distributed denial of service attacks, malware attacks, computer viruses, cyber fraud, and other events intended to disrupt information systems, wrongfully obtaintheft of valuable information, or cause other types of malicious events that result in harm to our business. InvestmentOur investment in cybersecurity is not expected to decrease in the foreseeable future, and despite our on-going efforts to improve our cybersecurity, there can be no assurance that a sophisticated cyber-attack cancould be detected or thwarted.
Recently Issued Accounting Pronouncements
We discuss the potential impact of recent accounting pronouncements in Part II, Item 8. Financial Statements and Supplementary Data, Note 1 to the Consolidated Financial Statements.
Changes in Accounting Principle
As discussed in Note 1, the Company changed its method of accounting for leases in 2019 due to the adoption of Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842).
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKRISK
Market risk represents the risk of loss that may impact our consolidated financial position, consolidated results of operations, or consolidated cash flows due to adverse changes in financial and commodity market prices and rates. Market risk also includes credit and non-performance risk by counterparties to our various financial instruments. We are exposed to market risks due to changes in interest rates and foreign currency exchange rates (as measured against the U.S. dollar);, as well as credit risk associated with potential non-performance of our counterparty banks. These exposures are directly related to our normal operating and funding activities. We enter into derivative instruments to manage and reduce the impact of currency exchange rate changes, primarily between the U.S. dollar/Philippine peso, the U.S. dollar/Mexican peso, and the Australian dollar/Philippine peso. We enter into interest rate derivative instruments to reduce our exposure to interest rate fluctuations associated with our variable rate debt. To mitigate against credit and non-performance risk, it is our policy to only enter into derivative contracts and other financial instruments with investment grade counterparty financial institutions and, correspondingly, our derivative valuations reflect the creditworthiness of our counterparties. As of the date of this report, we have not experienced, nor do we anticipate, any issue related to derivative counterparty defaults.
44
Interest Rate Risk
We have previously entered into interest rate derivative instruments to reduce our exposure to interest rate fluctuations associated with our variable rate debt. The interest rate on our Credit Agreement is variable based upon the Prime Rate and LIBOR and, therefore, is affected by changes in market interest rates. As of December 31, 2017,2020, we had $344.0$385.0 million of outstanding borrowings under the Credit Agreement. Based upon average daily outstanding borrowings during the years ended December 31, 20172020 and 2016,2019, interest accrued at a rate of approximately 2.2%1.6% and 1.5%3.4% per annum, respectively. If the Prime Rate or LIBOR increased by 100 basis points, there would be $1.0 million of additional interest expense per $100.0 million of outstanding borrowing under the Credit Agreement.
42
The Company’s interest rate swap arrangement expired as of May 31, 2017 and no additional swaps have been entered into. As of December 31, 2016 the outstanding interest rate swap was as follows:into since that time.
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Foreign Currency Risk
Our subsidiaries in the Philippines, Mexico, India, Costa Rica, Bulgaria and Poland use the local currency as their functional currency for paying labor and other operating costs. Conversely, revenue for these foreign subsidiaries is derived principally from client contracts that are invoiced and collected in U.S. dollars or other foreign currencies. As a result, we may experience foreign currency gains or losses, which may positively or negatively affect our results of operations attributed to these subsidiaries. For the years ended December 31, 2017, 20162020, 2019 and 2015,2018, revenue associated with this foreign exchange risk was 26%17%, 32%22% and 30%23% of our consolidated revenue, respectively.
The following summarizes relative (weakening) strengthening of local currencies that are relevant to our business:
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| |||||||
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| Year Ended December 31, |
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| 2017 |
| 2016 |
| 2015 |
| |||||||
| | | | | | | | |||||||
| | Year Ended December 31, |
| |||||||||||
|
| 2020 |
| 2019 |
| 2018 |
| |||||||
Canadian Dollar vs. U.S. Dollar |
| 6.6 | % | 3.1 | % | (19.3) | % |
| 2.1 | % | 4.5 | % | (8.6) | % |
Philippine Peso vs. U.S. Dollar |
| (0.8) | % | (5.9) | % | (4.7) | % |
| 5.2 | % | 3.5 | % | (5.1) | % |
Mexican Peso vs. U.S. Dollar |
| 5.0 | % | (19.5) | % | (17.5) | % |
| (5.2) | % | 3.8 | % | 0.2 | % |
Australian Dollar vs. U.S. Dollar |
| 7.7 | % | (1.3) | % | (11.8) | % |
| 9.0 | % | (0.6) | % | (10.7) | % |
Euro vs. U.S. Dollar |
| 12.1 | % | (3.6) | % | (11.5) | % |
| 8.6 | % | (2.0) | % | (4.7) | % |
Indian Rupee vs. U.S. Dollar | | (2.5) | % | (2.5) | % | (9.0) | % | |||||||
Philippine Peso vs. Australian Dollar |
| (9.2) | % | (4.5) | % | 6.3 | % |
| (4.2) | % | 4.0 | % | 5.0 | % |
In order to mitigate the risk of these non-functional foreign currencies weakening against the functional currencies of the servicing subsidiaries, which thereby decreases the economic benefit of performing work in these countries, we may hedge a portion, though not 100%, of the projected foreign currency exposure related to client programs served from these foreign countries through our cash flow hedging program. While our hedging strategy can protect us from adverse changes in foreign currency rates in the short term, an overall weakening of the non-functional revenue foreign currencies would adversely impact margins in the segments of the servicing subsidiary over the long term.
Cash Flow Hedging Program
To reduce our exposure to foreign currency exchange rate fluctuations associated with forecasted revenue in non-functional currencies, we purchase forward and/or option contracts to acquire the functional currency of the foreign subsidiary at a fixed exchange rate at specific dates in the future. We have designated and account for these derivative instruments as cash flow hedges for forecasted revenue in non-functional currencies.
While we have implemented certain strategies to mitigate risks related to the impact of fluctuations in currency exchange rates, we cannot ensure that we will not recognize gains or losses from international transactions, as this is part of transacting business in an international environment. Not every exposure is or can be hedged and, where hedges are put in place based on expected foreign exchange exposure, they are based on forecasts for which actual results may differ from the original estimate. Failure to successfully hedge or anticipate currency risks properly could adversely affect our consolidated operating results.
4345
Our cash flow hedging instruments as of December 31, 20172020 and 20162019 are summarized as follows (in thousands). All hedging instruments are forward contracts, except as noted.
| | | | | | | | | | | | |
|
| Local |
| | |
|
| |
|
| |
|
| | Currency | | U.S. Dollar | | | % Maturing | | | Contracts |
| |
| | Notional | | Notional | | | in the next | | | Maturing |
| |
As of December 31, 2020 | | Amount | | Amount | | | 12 months | | | Through |
| |
Canadian Dollar |
| 2,450 | | $ | 1,853 | | | 100.0 | % | | July 2021 | |
Philippine Peso |
| 6,725,000 | |
| 130,468 | (1) | | 54.9 | % | | December 2023 | |
Mexican Peso |
| 1,159,500 | |
| 52,398 | | | 51.1 | % | | December 2023 | |
| | | | $ | 184,719 | | | | | | | |
| | | | | | | | | | | | |
|
| Local |
| | |
|
| | |
| | |
| | Currency | | U.S. Dollar |
| | | | | | | |
| | Notional | | Notional |
| | | | | | | |
As of December 31, 2019 | | Amount | | Amount |
| | | | | | | |
Philippine Peso |
| 7,715,000 | |
| 147,654 | (1) | | | | | | |
Mexican Peso |
| 1,299,500 | |
| 61,529 | | | | | | | |
| | | | $ | 209,183 | | | | | | | |
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| Local |
|
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|
| Currency |
| U.S. Dollar |
|
| % Maturing |
|
| Contracts |
| |
|
| Notional |
| Notional |
|
| in the next |
|
| Maturing |
| |
As of December 31, 2017 |
| Amount |
| Amount |
|
| 12 months |
|
| Through |
| |
Philippine Peso |
| 10,685,000 |
|
| 219,917 | (1) |
| 62.3 | % |
| August 2021 |
|
Mexican Peso |
| 1,609,000 |
|
| 93,589 |
|
| 41.0 | % |
| May 2021 |
|
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|
|
| $ | 313,506 |
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| Local |
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| Currency |
| U.S. Dollar |
|
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|
|
|
|
| |
|
| Notional |
| Notional |
|
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|
| |
As of December 31, 2016 |
| Amount |
| Amount |
|
|
|
|
|
|
| |
Philippine Peso |
| 14,315,000 |
|
| 301,134 | (1) |
|
|
|
|
|
|
Mexican Peso |
| 2,089,000 |
|
| 129,375 |
|
|
|
|
|
|
|
|
|
|
| $ | 430,509 |
|
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|
|
|
|
|
| (1) |
| Includes contracts to purchase Philippine pesos in exchange for New Zealand dollars and Australian dollars, which are translated into equivalent U.S. dollars on December 31, |
The fair value of our cash flow hedges at December 31, 20172020 was a liabilityan asset (in thousands):
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| |||||||
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|
|
| Maturing in the |
| ||||||||
|
| December 31, 2017 |
| Next 12 Months |
| |||||||||
| | | | | | | | |||||||
| | | | | Maturing in the | | ||||||||
|
| December 31, 2020 |
| Next 12 Months |
| |||||||||
Canadian Dollar | | $ | 73 | | $ | 73 | | |||||||
Philippine Peso |
|
| (8,766) |
|
| (5,751) |
| |
| 7,942 | |
| 4,819 | |
Mexican Peso |
|
| (17,490) |
|
| (9,632) |
| |
| 3,375 | |
| (1,974) | |
|
| $ | (26,256) |
| $ | (15,383) |
| |||||||
| | $ | 11,390 | | $ | 2,918 | | |||||||
Our cash flow hedges are valued using models based on market observable inputs, including both forward and spot foreign exchange rates, implied volatility, and counterparty credit risk. The fair value liability of our cash flow hedges decreasedincreased by $27.8$5.6 million from December 31, 20162019 to December 31, 2017.2020. The decreaseincrease in fair value liability from December 31, 2016 largely2019 primarily reflects a reductionchanges in the total notional value of outstanding cash flow hedgescurrency translation between the U.S. dollar and an increase in average hedge exchange rates.Mexican Peso and U.S. dollar and Philippines Peso.
We recorded net lossesgains (losses) of $22.8$2.6 million, $28.0$(4.2) million, and $12.4$(17.5) million for settled cash flow hedge contracts for the years ended December 31, 2017, 2016,2020, 2019, and 2015,2018, respectively. These lossesgains(losses) were reflected in Revenue in the accompanying Consolidated Statements of Comprehensive Income (Loss). If the exchange rates between our various currency pairs were to increase or decrease by 10% from current period-end levels, we would incur a material gain or loss on the contracts. However, any gain or loss would be mitigated by corresponding increases or decreases in our underlying exposures.
Other than the transactions hedged as discussed above and in Part II. Item 8. Financial Statements and Supplementary Data, Note 8 to the Consolidated Financial Statements, the majority of the transactions of our U.S. and foreign operations are denominated in their respective local currency. However, transactions are denominated in other currencies from time-to-time. We do not currently engage in hedging activities related to these types of foreign currency risks because we believe them to be insignificant as we endeavor to settle these accounts on a timely basis. For the years ended 20172020 and 2016,2019, approximately 24%14% and 22%21%, respectively, of revenue was derived from contracts denominated in currencies other than the U.S. Dollar. Our results fromof operations and revenue could be adversely affected if the U.S. Dollar strengthens significantly against foreign currencies.
46
Fair Value of Debt and Equity Securities
We did not have any investments in marketable debt or equity securities as of December 31, 20172020 or 2016.2019.
44
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item are located beginning on page F-1 of this report and incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
This Form 10-K includes the certifications of our Chief Executive Officer (the “CEO”) and Chief Financial Officer (the “CFO”) required by Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). See Exhibits 31.1 and 31.2. This Item 9A includes information concerning the controls and control evaluations referred to in those certifications.
Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to provide reasonable assurance that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
We carried out an evaluation under the supervision and with the participation of management, including the CEO and CFO, of the effectiveness of our disclosure controls and procedures, as of December 31, 2017,2020, the end of the period covered by this Form 10-K. Based on this evaluation, our CEO and CFO have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective at the reasonable assurance level.
Inherent Limitations of Internal Controls
Our management, including the CEO and CFO, believes that any disclosure controls and procedures or internal control over financial reporting, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of internal controls are met. Further, the design of internal controls must consider the benefits of controls relative to their costs. Inherent limitations within internal controls include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by unauthorized override of the control. Over time, control may become inadequate because of changes in conditions or deterioration in the degree of compliance with associated policies or procedures. While the objective of the design of any system of controls is to provide reasonable assurance of the effectiveness of controls, such design is also based in part upon certain assumptions about the likelihood of future events, and such assumptions, while reasonable, may not take into account all potential future conditions. Thus, even effective internal control over financial reporting can only provide reasonable assurance of achieving their objectives. Therefore, because of the inherent limitations in cost effective internal controls, misstatements due to error or fraud may occur and may not be prevented or detected.
4547
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures which (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets, (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, (c) provide reasonable assurance that receipts and expenditures are being made only in accordance with appropriate authorization of management and the Board of Directors, and (d) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements.
In connection with the preparation of this Annual Report on Form 10-K, our management, under the supervision and with the participation of our CEO and CFO, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 20172020 based on the framework established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). As a result of that evaluation, our management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2017,2020, the end of the period covered by this Form 10-K.
We excluded Connextions, Inc. (“Connextions”) and Motif, Inc. (“Motif”) Voice Foundry from our assessment of internal control over financial reporting as of December 31, 20172020 because these companies werethis company was acquired by the Company in a purchase business combinations during 2017. Connextionscombination in 2020. Voice Foundry’s total assets and total revenues represent 5.8%4.7% and 6.5%, respectively, of the related consolidated financial amounts. Motif represents 1.2% and 0.3%3.7%, respectively, of the related consolidated financial amounts as of and for the year ended December 31, 2017.2020.
The effectiveness of our internal control over financial reporting as of December 31, 20172020 has been audited by PricewaterhouseCoopers LLP, our independent registered public accounting firm, as stated in their report, which is included herein.
Remediation of Prior Material Weaknesses
The following captures the progress made by management related to each of the material weaknesses as previously reported which have been remediated.
Revenue: Management previously identified a material weakness in the design and operating effectiveness of controls over the revenue process. During 2016, management took the necessary steps to redesign the control framework, including the implementation of (i) a revenue quality assurance organization, (ii) standardized contract and invoice review and approval templates, and (iii) a document storage system for improved organization and evidence of review. Additionally, management established a quarterly control owner certification process and invested in employee training. Management completed the design and implementation of this control framework in the quarter ended December 31, 2016. Based on the results of our testing during 2017, management has concluded that the controls are adequately designed and have operated effectively for a sufficient period of time. Accordingly, the revenue material weakness was remediated as described in our Quarterly Report on Form 10-Q for the period ended September 30, 2017.
Impairments: Management previously identified a material weakness in the design and operating effectiveness of controls over the review of cash flow forecasts used in the accounting for long-lived asset recoverability and goodwill impairment and determination of impairment charge in accordance with generally accepted accounting principles. During 2016, management took the necessary steps to redesign the control framework, including implementation of specific preparation and review procedures to (i) ensure the accuracy of the valuation models used to calculate fair market values, (ii) validate the source of the financial forecasts, and (iii) evidence the assessment of the models for reasonableness. In addition, TTEC engaged a third-party valuation expert to assist management with the underlying valuation models supporting the goodwill and intangible impairment assessments. Management completed the design and implementation of the control framework during the
46
quarter ended December 31, 2016. Based on the results of our testing during 2017, management has concluded that the controls are adequately designed and have operated effectively for a sufficient period of time during 2017. Accordingly, the impairments material weakness is remediated.
Control Environment: Management previously identified a material weakness of the effectiveness of the control environment as we did not have a sufficient complement of qualified personnel commensurate with our financial reporting requirements. During 2016 and 2017 TTEC invested significantly in the quality of our accounting talent including management, technical, process improvement and financial system roles. Additionally, we implemented a number of programs to: improve our talent acquisition and retention platforms; enhance technical, transactional and control knowledge of our accounting teams; and create a culture of accountability and control. These programs have significantly improved the stability of our global accounting organization. Management has demonstrated for a sufficient period of time the sustainability of our internal controls over financial reporting and improvements made to our complement of resources and concluded our control environment is effective. Accordingly, the control environment material weakness is remediated.
Changes in Internal Control over Financial Reporting
There has beenwere no changechanges in our internal control over financial reporting during the most recent quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
GOVERNANCE
The information in our 20182021 Definitive Proxy Statement on Schedule 14A, which will be filed no later than 120 days after December 31, 20172020 (the “2018“2021 Proxy Statement”) regarding our executive officers under the heading “Information Regarding Executive Officers” is incorporated herein by reference. We have both athe Ethics Code of Ethical Conduct for Senior Executive and Financial ManagersOfficers and athe Ethics Code defining rules of Conduct. Theconduct for our employees, partners and suppliers. Our Ethics Code of Ethical Conduct for Senior Executive and Financial Officers applies to our Chief Executive Officer, Chief Financial Officer, presidentslead executives of our business segments, Controller, Treasurer, the General Counsel, Chief Audit executive, senior financial officers of each operating segment and other persons performing similar functions. The Ethics Code of Conduct applies todefines conduct for all directors, officers, employees, partners and members of our supply chainsuppliers (as applicable). Both the Ethics Code of Ethical Conduct for Senior Executive and Financial Officers and the Ethics Code of Conduct are posted on our website at www.ttec.com on the Corporate Governance page. We will post on our website any amendments to or waivers ofunder the Ethics Code of Ethical Conduct for Senior Executive and Financial Officers and our Code of Conduct, in accordance with applicable laws and regulations.
48
There have been no material changes to the procedures by which stockholders may recommend nominees to the board of directors. The remaining information called for by this Item 10 is incorporated by reference herein from our 20182021 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information in our 20182021 Proxy Statement is incorporated herein by reference.
47
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information regarding these matters is included in Part II, Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Also the information in our 20182021 Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information in our 20182021 Proxy Statement is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANTS FEES AND SERVICES
The information in our 20182021 Proxy Statement is incorporated herein by reference.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) | The following documents are filed as part of this report: |
(a)The following documents are filed as part of this report:
1. Consolidated Financial Statements.
The Index to Consolidated Financial Statements is set forth on page F-1 of this report.
2. Financial Statement Schedules.
All schedules for TTEC have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information is included in the respective Consolidated Financial Statements or notes thereto.
3. Exhibits.
3. Exhibits.
EXHIBIT INDEX
| | | | | | | | |
Exhibit | | | | Incorporated Herein by Reference | ||||
No. | Exhibit Description | | Form | | Exhibit | | Filing Date | |
| |
| | | | | | |
3.01** | | | S-1/A | | 3.01 | | 7/5/1996 | |
| | | | | | | | |
| | |||||||
| | 8-K | | 3.03 | | 1/9/2018 | ||
| | | | | | | | |
3.04** | | | 8-K | | 3.04 | | 1/9/2018 | |
| | | | | | | | |
| | | 10-K | | 4.01 | | 3/4/2020 | |
| | | | | | | | |
10.06** | | TeleTech Holdings, Inc. 2010 Equity Incentive Plan | | DEF 14A | | A | | 4/12/2010 |
| | | | | | | | |
4849
10.07** | | | DEF 14A | | A | | 4/3/2020 | |
| | | | | | | | |
|
| |||||||
| | | 10-Q | | 10.25 | | 8/7/2019 | |
| | | | | | | | |
| | | 10-Q | | 10.26 | | 5/4/2020 | |
| | | | | | | | |
| | |||||||
| ||||||||
| | 10-K | | 10.29 | | 3/9/2015 | ||
| | | | | | | | |
10.30** | | | 10-K | | 10.30 | | 3/9/2015 | |
| | | | | | | | |
| | Independent Director Restricted Stock Unit Award Agreement (effective May 14, 2020) | | 10-Q | | 10.31 | | 8/5/2020 |
| | | | | | | | |
10.32** | | | 10-K | | 10.32 | | 3/6/2019 | |
| | | | | | | | |
10.33** | | | 10-Q | | 10.33 | | 11/5/2019 | |
| | | | | | | | |
| | Independent Director Compensation Arrangements (effective May 2021) | | | | | | |
| | | | | | | | |
10.40** | | | 10-K | | 10.68 | | 4/1/2002 | |
| | | | | | | | |
10.41** | | | 10-K | | 10.17 | | 2/23/2009 | |
| | | | | | | | |
10.60** | | | 10-Q | | 10.60 | | 5/10/2018 | |
| | | | | | | | |
| | |||||||
49
|
| |||||||
| | 10-Q | | 10.82 | | 5/10/2018 | ||
| | | | | | | | |
| | | 10-K | | 10.86 | | 3/6/2019 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
10.88** | | | 8-K | | 10.88 | | 12/11/2019 | |
| | | | | | | | |
50
10.90** | | | 8-K | | 10.1 | | 6/7/2013 | |
| | | | | | | | |
10.91** | | | 8-K | | 10.90 | | 2/16/2016 | |
| | |||||||
| | | | | | |||
10.94** | ||||||||
| ||||||||
| 8-K | | 10.32 | | 2/26/2019 | |||
| | | | | | | | |
10.99** | | |||||||
| 8-K | | 10.99 | | 10/29/2019 | |||
| | | | | | | | |
21.1* | | |||||||
| | | | | | |||
| | | | | | | | |
23.1* | |
50
|
| |||||||
| ||||||||
| | | | | | | ||
| | | | | | | | |
24.1* | | | | | | | | |
| | | | | | | | |
31.1* | | |||||||
| | | | | | | ||
| | | | | | | | |
31.2* | | | | | | | | |
| | | | | | | | |
32.1* | | | | | | | ||
| | | | | | | | |
32.2* | | | | | | | | |
| | | | | | | | |
101.INS | | XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | | | | | | |
| |
| | | | | | |
101.SCH | | |||||||
| XBRL Taxonomy Extension Schema | | | | | | | |
| | | | | | | | |
| | XBRL Taxonomy Extension Calculation Linkbase | | | | | | |
| | | | | | | | |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase | | | | | | |
| | | | | | | | |
101.LAB | | XBRL Taxonomy Extension Label Linkbase | | | | | | |
| | | | | | | | |
| | XBRL Taxonomy Extension Presentation Linkbase | | | | | | |
| | | | | | | | |
| | The cover page from TTEC Holdings, Inc’s Annual Report on Form 10-K for the year ended December 31, 2020, formatted in Inline XBRL | | | | | | |
* Filed or furnished herewith.
**Identifies exhibit that consists of or includes a management contract or compensatory plan or arrangement.
51
*** Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets as of December 31, 2017 and 2016, (ii) Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2017, 2016 and 2015, (iii) Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2017, 2016 and 2015, (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015, and (v) Notes to Consolidated Financial Statements.
None
5152
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned; thereunto duly authorized on March 12, 2018.1, 2021.
| | |
| TTEC HOLDINGS, INC. | |
| | |
| | |
| By: | /s/ KENNETH D. TUCHMAN |
| | Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 12, 2018,1, 2021, by the following persons on behalf of the registrant and in the capacities indicated:
| | |
Signature | | Title |
| |
|
| ||
/s/ KENNETH D. TUCHMAN | | PRINCIPAL EXECUTIVE OFFICER |
Kenneth D. Tuchman | | Chief Executive Officer and Chairman of the Board |
| | |
| | |
/s/ REGINA M. PAOLILLO | | PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER |
Regina M. Paolillo | | Chief Financial Officer |
| | |
* | | DIRECTOR |
Steven J. Anenen | | |
| | |
* | | DIRECTOR |
Tracy L. Bahl | | |
| | |
* | | DIRECTOR |
Gregory A. Conley | | |
| | |
* | | DIRECTOR |
Robert N. Frerichs | | |
| | |
* | | DIRECTOR |
Marc L. Holtzman | | |
| | |
* | | DIRECTOR |
Ekta Singh-Bushell | | |
* By /s/ Regina M. Paolillo under Power of Attorney as attached hereto as Exhibit 24.1
5253
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS OF TTEC HOLDINGS, INC.
| |
| Page No. |
F-2 | |
Consolidated Balance Sheets as of December 31, |
|
| |
| |
| |
|
F-1
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors and Stockholders of TTEC Holdings, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of TTEC Holdings, Inc. and its subsidiaries (the “Company”) as of December 31, 20172020 and 2016,2019, and the related consolidated statements of comprehensive income (loss), of stockholders’ equity and mezzanine equity, and of cash flows for each of the three years in the period ended December 31, 2017,2020, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2017,2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20172020 and 2016,2019, and the results of theirits operations and theirits cash flows for each of the three years in the period ended December 31, 20172020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Changes in Accounting Principles
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019 and the manner in which it accounts for revenues from contracts with customers in 2018.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management'sManagement’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
F-2
As described in Management’s Report on Internal Control over Financial Reporting, management has excluded Connextions, Inc. (“Connextions”) and Motif, Inc. (“Motif”)Voice Foundry from its assessment of internal control over financial reporting as of December 31, 20172020 because they wereit was acquired by the Company in a purchase business combinationscombination during 2017.2020. We have also excluded Connextions and MotifVoice Foundry from our audit of internal control over financial reporting. Connextions and Motif are wholly-owned subsidiaries,Voice Foundry is a wholly owned subsidiary, whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent approximately 5.8%4.7% and 1.2% of total assets, respectively and approximately 6.5% and 0.3% of total revenue,3.7%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2017.2020.
F-2
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Acquisition of Voice Foundry US - Valuation of Customer Relationships Intangible Asset
As described in Note 2 to the consolidated financial statements, on August 5, 2020, the Company closed the first phase of the acquisition of the Voice Foundry business by acquiring 100% of the business’s net assets in the U.S. and U.K. (the “VF US Transaction”) for the total purchase price of $45.89 million, which resulted in a $6.55 million customer relationships intangible asset being recorded. A multi-period excess earnings method under the income approach was used to estimate the fair value of the customer relationships intangible asset. The significant assumption utilized in calculating the fair value of the customer relationships intangible asset was the customer attrition rate.
The principal considerations for our determination that performing procedures relating to the valuation of customer relationships intangible assets acquired in the VF US Transaction is a critical audit matter are the significant judgment by management when developing the fair value estimate for the customer relationships intangible asset, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating management’s significant assumption related to the customer attrition rate. In addition, the audit effort involved the use of professionals with specialized skill and knowledge.
F-3
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls over management’s valuation of the customer relationships intangible asset and controls over the development of the customer attrition rate assumption. These procedures also included, among others, (i) reading the purchase agreement, (ii) testing management’s process for developing the fair value estimate for the customer relationships intangible asset, (iii) evaluating the appropriateness of the valuation method and the reasonableness of the customer attrition rate used by management in the valuation, and (iv) testing the completeness and accuracy of the data used in the valuation. Evaluating the reasonableness of the customer attrition rate involved considering the past performance of the acquired business as well as economic and industry forecasts. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s valuation method and the customer attrition rate.
/s/PricewaterhouseCoopers LLP
Denver, Colorado
March 12, 20181, 2021
We have served as the Company’s auditor since 2007.
F-3F-4
TTEC HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in thousands, except share amounts)
|
|
|
|
|
|
|
|
|
| December 31, |
| December 31, |
| ||
|
| 2017 |
| 2016 |
| ||
ASSETS |
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 74,437 |
| $ | 55,264 |
|
Accounts receivable, net |
|
| 385,751 |
|
| 300,808 |
|
Prepaids and other current assets |
|
| 63,668 |
|
| 59,905 |
|
Deferred tax assets, net |
|
| — |
|
| — |
|
Income tax receivable |
|
| 11,099 |
|
| 7,035 |
|
Assets held for sale |
|
| 7,835 |
|
| 10,715 |
|
Total current assets |
|
| 542,790 |
|
| 433,727 |
|
|
|
|
|
|
|
|
|
Long-term assets |
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
| 163,297 |
|
| 151,037 |
|
Goodwill |
|
| 206,694 |
|
| 129,648 |
|
Deferred tax assets, net |
|
| 12,012 |
|
| 53,585 |
|
Other intangible assets, net |
|
| 92,086 |
|
| 30,787 |
|
Other long-term assets |
|
| 61,857 |
|
| 47,520 |
|
Total long-term assets |
|
| 535,946 |
|
| 412,577 |
|
Total assets |
| $ | 1,078,736 |
| $ | 846,304 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
Accounts payable |
| $ | 46,029 |
| $ | 38,197 |
|
Accrued employee compensation and benefits |
|
| 83,997 |
|
| 66,133 |
|
Other accrued expenses |
|
| 18,993 |
|
| 14,830 |
|
Income tax payable |
|
| 7,497 |
|
| 7,040 |
|
Deferred revenue |
|
| 21,628 |
|
| 23,318 |
|
Other current liabilities |
|
| 22,312 |
|
| 29,154 |
|
Liabilities held for sale |
|
| 1,322 |
|
| 1,357 |
|
Total current liabilities |
|
| 201,778 |
|
| 180,029 |
|
|
|
|
|
|
|
|
|
Long-term liabilities |
|
|
|
|
|
|
|
Line of credit |
|
| 344,000 |
|
| 217,300 |
|
Deferred tax liabilities, net |
|
| 11,285 |
|
| 160 |
|
Non-current income tax payable |
|
| 47,871 |
|
| — |
|
Deferred rent |
|
| 15,714 |
|
| 15,256 |
|
Other long-term liabilities |
|
| 95,243 |
|
| 71,664 |
|
Total long-term liabilities |
|
| 514,113 |
|
| 304,380 |
|
Total liabilities |
|
| 715,891 |
|
| 484,409 |
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 14) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mandatorily redeemable noncontrolling interest |
|
| — |
|
| — |
|
|
|
|
|
|
|
|
|
Stockholders’ equity |
|
|
|
|
|
|
|
Preferred stock; $0.01 par value; 10,000,000 shares authorized; zero shares outstanding as of December 31, 2017 and December 31, 2016 |
|
| — |
|
| — |
|
Common stock; $0.01 par value; 150,000,000 shares authorized; 45,861,959 and 46,113,693 shares outstanding as of December 31, 2017 and December 31, 2016, respectively |
|
| 459 |
|
| 462 |
|
Additional paid-in capital |
|
| 351,725 |
|
| 348,739 |
|
Treasury stock at cost: 36,190,294 and 35,938,560 shares as of December 31, 2017 and December 31, 2016, respectively |
|
| (615,677) |
|
| (603,262) |
|
Accumulated other comprehensive income (loss) |
|
| (102,304) |
|
| (126,964) |
|
Retained earnings |
|
| 721,664 |
|
| 735,939 |
|
Noncontrolling interest |
|
| 6,978 |
|
| 6,981 |
|
Total stockholders’ equity |
|
| 362,845 |
|
| 361,895 |
|
Total liabilities and stockholders’ equity |
| $ | 1,078,736 |
| $ | 846,304 |
|
| | | | | | | |
| | December 31, | | December 31, |
| ||
|
| 2020 |
| 2019 |
| ||
ASSETS | | | | | | | |
Current assets | | | | | | | |
Cash and cash equivalents | | $ | 132,914 | | $ | 82,407 | |
Accounts receivable, net of allowance of $5,067 and $5,452 | |
| 378,397 | |
| 331,096 | |
Prepaids and other current assets | |
| 104,597 | |
| 96,287 | |
Income and other tax receivables | |
| 40,894 | |
| 40,035 | |
Total current assets | |
| 656,802 | |
| 549,825 | |
| | | | | | | |
Long-term assets | | | | | | | |
Property, plant and equipment, net | |
| 178,706 | |
| 176,633 | |
Operating lease assets | | | 120,820 | | | 150,808 | |
Goodwill | |
| 363,502 | |
| 301,694 | |
Deferred tax assets, net | |
| 15,081 | |
| 13,263 | |
Other intangible assets, net | |
| 112,059 | |
| 115,596 | |
Other long-term assets | |
| 69,438 | |
| 68,969 | |
Total long-term assets | |
| 859,606 | |
| 826,963 | |
Total assets | | $ | 1,516,408 | | $ | 1,376,788 | |
| | | | | | | |
LIABILITIES, STOCKHOLDERS’ EQUITY AND MEZZANINE EQUITY | | | | | | | |
Current liabilities | | | | | | | |
Accounts payable | | $ | 66,658 | | $ | 64,440 | |
Accrued employee compensation and benefits | |
| 163,658 | |
| 114,165 | |
Other accrued expenses | |
| 55,915 | |
| 79,171 | |
Income tax payable | |
| 19,709 | |
| 11,307 | |
Deferred revenue | |
| 39,956 | |
| 39,447 | |
Current operating lease liabilities | | | 43,651 | | | 45,218 | |
Other current liabilities | |
| 6,623 | |
| 9,541 | |
Total current liabilities | |
| 396,170 | |
| 363,289 | |
| | | | | | | |
Long-term liabilities | | | | | | | |
Line of credit | |
| 385,000 | |
| 290,000 | |
Deferred tax liabilities, net | |
| 7,747 | |
| 10,602 | |
Non-current income tax payable | | | 22,291 | | | 25,208 | |
Non-current operating lease liabilities | | | 98,277 | | | 127,395 | |
Other long-term liabilities | |
| 96,185 | |
| 79,641 | |
Total long-term liabilities | |
| 609,500 | |
| 532,846 | |
Total liabilities | |
| 1,005,670 | |
| 896,135 | |
| | | | | | | |
Commitments and contingencies (Note 13) | | | | | | | |
| | | | | | | |
Redeemable noncontrolling interest | | | 52,976 | | | 48,923 | |
| | | | | | | |
Stockholders’ equity | | | | | | | |
Preferred stock; $0.01 par value; 10,000,000 shares authorized; 0 shares outstanding as of December 31, 2020 and December 31, 2019 | |
| — | |
| — | |
Common stock; $0.01 par value; 150,000,000 shares authorized; 46,737,033 and 46,488,938 shares outstanding as of December 31, 2020 and December 31, 2019, respectively | |
| 467 | |
| 465 | |
Additional paid-in capital | |
| 360,293 | |
| 356,409 | |
Treasury stock at cost: 35,315,220 and 35,563,315 shares as of December 31, 2020 and December 31, 2019, respectively | |
| (601,214) | |
| (605,314) | |
Accumulated other comprehensive income (loss) | |
| (72,156) | |
| (106,234) | |
Retained earnings | |
| 757,312 | |
| 773,218 | |
Noncontrolling interest | |
| 13,060 | |
| 13,186 | |
Total stockholders’ equity | |
| 457,762 | |
| 431,730 | |
Total liabilities, stockholders’ equity and mezzanine equity | | $ | 1,516,408 | | $ | 1,376,788 | |
The accompanying notes are an integral part of these consolidated financial statements.
F-4F-5
TTEC HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
(Amounts in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
| |||||||
|
|
| 2017 |
| 2016 |
| 2015 |
| |||
Revenue |
|
| $ | 1,477,365 |
| $ | 1,275,258 |
| $ | 1,286,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
Cost of services (exclusive of depreciation and amortization presented separately below) |
|
|
| 1,110,068 |
|
| 941,592 |
|
| 928,247 |
|
Selling, general and administrative |
|
|
| 182,314 |
|
| 175,797 |
|
| 194,606 |
|
Depreciation and amortization |
|
|
| 64,507 |
|
| 68,675 |
|
| 63,808 |
|
Restructuring and integration charges, net |
|
|
| 14,665 |
|
| 4,392 |
|
| 1,814 |
|
Impairment losses |
|
|
| 5,322 |
|
| 32,050 |
|
| 8,100 |
|
Total operating expenses |
|
|
| 1,376,876 |
|
| 1,222,506 |
|
| 1,196,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
| 100,489 |
|
| 52,752 |
|
| 90,180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
| 2,841 |
|
| 1,234 |
|
| 1,090 |
|
Interest expense |
|
|
| (13,734) |
|
| (7,943) |
|
| (7,538) |
|
Other income (expense), net |
|
|
| 1,869 |
|
| 9,555 |
|
| 2,157 |
|
Loss on assets held for sale |
|
|
| (2,578) |
|
| (5,300) |
|
| — |
|
Total other income (expense) |
|
|
| (11,602) |
|
| (2,454) |
|
| (4,291) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
| 88,887 |
|
| 50,298 |
|
| 85,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
| (78,075) |
|
| (12,863) |
|
| (20,004) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
| 10,812 |
|
| 37,435 |
|
| 65,885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to noncontrolling interest |
|
|
| (3,556) |
|
| (3,757) |
|
| (4,219) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to TTEC stockholders |
|
| $ | 7,256 |
| $ | 33,678 |
| $ | 61,666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
| $ | 10,812 |
| $ | 37,435 |
| $ | 65,885 |
|
Foreign currency translation adjustments |
|
|
| 8,285 |
|
| (21,055) |
|
| (38,200) |
|
Derivative valuation, gross |
|
|
| 27,931 |
|
| (7,838) |
|
| (15,768) |
|
Derivative valuation, tax effect |
|
|
| (11,284) |
|
| 2,330 |
|
| 7,228 |
|
Other, net of tax |
|
|
| 105 |
|
| 721 |
|
| (2,707) |
|
Total other comprehensive income (loss) |
|
|
| 25,037 |
|
| (25,842) |
|
| (49,447) |
|
Total comprehensive income (loss) |
|
|
| 35,849 |
|
| 11,593 |
|
| 16,438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Comprehensive income attributable to noncontrolling interest |
|
|
| (3,933) |
|
| (3,514) |
|
| (3,026) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to TTEC stockholders |
|
| $ | 31,916 |
| $ | 8,079 |
| $ | 13,412 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
| 45,826 |
|
| 47,423 |
|
| 48,370 |
|
Diluted |
|
|
| 46,382 |
|
| 47,736 |
|
| 49,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to TTEC stockholders |
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| $ | 0.16 |
| $ | 0.71 |
| $ | 1.27 |
|
Diluted |
|
| $ | 0.16 |
| $ | 0.71 |
| $ | 1.26 |
|
| | | | | | | | | | | |
| |
| Year Ended December 31, |
| |||||||
|
|
| 2020 |
| 2019 |
| 2018 |
| |||
Revenue | | | $ | 1,949,248 | | $ | 1,643,704 | | $ | 1,509,171 | |
| | | | | | | | | | | |
Operating expenses | | | | | | | | | | | |
Cost of services (exclusive of depreciation and amortization presented separately below) | | |
| 1,452,719 | |
| 1,242,887 | |
| 1,157,927 | |
Selling, general and administrative | | |
| 203,902 | |
| 202,540 | |
| 182,428 | |
Depreciation and amortization | | |
| 78,862 | |
| 69,086 | |
| 69,179 | |
Restructuring charges, net | | | | 3,264 | | | 1,747 | | | 6,131 | |
Impairment losses | | |
| 5,809 | |
| 3,735 | |
| 1,452 | |
Total operating expenses | | |
| 1,744,556 | |
| 1,519,995 | |
| 1,417,117 | |
| | | | | | | | | | | |
Income from operations | | |
| 204,692 | |
| 123,709 | |
| 92,054 | |
| | | | | | | | | | | |
Other income (expense) | | | | | | | | | | | |
Interest income | | |
| 1,656 | |
| 1,913 | |
| 4,476 | |
Interest expense | | |
| (17,489) | |
| (19,113) | |
| (28,674) | |
Other income (expense), net | | |
| (18,591) | |
| 3,902 | |
| (11,618) | |
Total other income (expense) | | |
| (34,424) | |
| (13,298) | |
| (35,816) | |
| | | | | | | | | | | |
Income before income taxes | | |
| 170,268 | |
| 110,411 | |
| 56,238 | |
| | | | | | | | | | | |
Provision for income taxes | | |
| (40,937) | |
| (25,677) | |
| (16,483) | |
| | | | | | | | | | | |
Net income | | |
| 129,331 | |
| 84,734 | |
| 39,755 | |
| | | | | | | | | | | |
Net income attributable to noncontrolling interest | | |
| (10,683) | |
| (7,570) | |
| (3,938) | |
| | | | | | | | | | | |
Net income attributable to TTEC stockholders | | | $ | 118,648 | | $ | 77,164 | | $ | 35,817 | |
| | | | | | | | | | | |
Other comprehensive income (loss) | | | | | | | | | | | |
Net income | | | $ | 129,331 | | $ | 84,734 | | $ | 39,755 | |
Foreign currency translation adjustments | | |
| 29,537 | |
| 6,816 | |
| (30,382) | |
Derivative valuation, gross | | |
| 5,717 | |
| 16,990 | |
| 11,526 | |
Derivative valuation, tax effect | | |
| (1,468) | |
| (4,530) | |
| (4,058) | |
Other, net of tax | | |
| 488 | |
| (786) | |
| 308 | |
Total other comprehensive income (loss) | | |
| 34,274 | |
| 18,490 | |
| (22,606) | |
Total comprehensive income (loss) | | |
| 163,605 | |
| 103,224 | |
| 17,149 | |
| | | | | | | | | | | |
Less: Comprehensive income attributable to noncontrolling interest | | |
| (8,352) | |
| (7,698) | |
| (3,624) | |
| | | | | | | | | | | |
Comprehensive income attributable to TTEC stockholders | | | $ | 155,253 | | $ | 95,526 | | $ | 13,525 | |
| | | | | | | | | | | |
Weighted average shares outstanding | | | | | | | | | | | |
Basic | | |
| 46,647 | |
| 46,373 | |
| 46,064 | |
Diluted | | |
| 46,993 | |
| 46,758 | |
| 46,385 | |
| | | | | | | | | | | |
Net income per share attributable to TTEC stockholders | | | | | | | | | | | |
Basic | | | $ | 2.54 | | $ | 1.66 | | $ | 0.78 | |
Diluted | | | $ | 2.52 | | $ | 1.65 | | $ | 0.77 | |
The accompanying notes are an integral part of these consolidated financial statements.
F-5F-6
TTEC HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity and Mezzanine Equity
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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 |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 61,666 |
|
| 3,382 |
|
| 65,048 |
|
Dividends to shareholders ( $0.36 per common share) |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (17,423) |
|
| — |
|
| (17,423) |
|
Dividends distributed to noncontrolling interest |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (3,960) |
|
| (3,960) |
|
Adjustments to redemption value of mandatorily redeemable noncontrolling interest |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (1,113) |
|
| — |
|
| (1,113) |
|
Foreign currency translation adjustments |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| (37,844) |
|
| — |
|
| (356) |
|
| (38,200) |
|
Derivatives valuation, net of tax |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| (8,540) |
|
| — |
|
| — |
|
| (8,540) |
|
Vesting of restricted stock units |
| — |
|
| — |
| 372 |
|
| 4 |
|
| 5,768 |
|
| (10,016) |
|
| — |
|
| — |
|
| — |
|
| (4,244) |
|
Exercise of stock options |
| — |
|
| — |
| 342 |
|
| 3 |
|
| 5,307 |
|
| (9,737) |
|
| — |
|
| — |
|
| — |
|
| (4,427) |
|
Excess tax benefit from equity-based awards |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| (823) |
|
| — |
|
| — |
|
| — |
|
| (823) |
|
Equity-based compensation expense |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| 11,035 |
|
| — |
|
| — |
|
| 152 |
|
| 11,187 |
|
Purchases of common stock |
| — |
|
| — |
| (686) |
|
| (7) |
|
| (17,224) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (17,231) |
|
Other, net of tax |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| (2,707) |
|
| — |
|
| — |
|
| (2,707) |
|
Balance as of December 31, 2015 |
| — |
| $ | — |
| 48,481 |
| $ | 485 |
| $ | (533,744) |
| $ | 347,251 |
| $ | (101,365) |
| $ | 720,989 |
| $ | 7,201 |
| $ | 440,817 |
|
Net income |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 33,678 |
|
| 3,757 |
|
| 37,435 |
|
Dividends to shareholders ( $0.385 per common share) |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (18,262) |
|
| — |
|
| (18,262) |
|
Dividends distributed to noncontrolling interest |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (3,825) |
|
| (3,825) |
|
Adjustments to redemption value of mandatorily redeemable noncontrolling interest |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (466) |
|
| — |
|
| (466) |
|
Foreign currency translation adjustments |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| (20,812) |
|
| — |
|
| (243) |
|
| (21,055) |
|
Derivatives valuation, net of tax |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| (5,508) |
|
| — |
|
| — |
|
| (5,508) |
|
Vesting of restricted stock units |
| — |
|
| — |
| 297 |
|
| 3 |
|
| 4,681 |
|
| (8,614) |
|
| — |
|
| — |
|
| — |
|
| (3,930) |
|
Exercise of stock options |
| — |
|
| — |
| 29 |
|
| — |
|
| 458 |
|
| (82) |
|
| — |
|
| — |
|
| — |
|
| 376 |
|
Excess tax benefit from equity-based awards |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| 557 |
|
| — |
|
| — |
|
| — |
|
| 557 |
|
Equity-based compensation expense |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| 9,627 |
|
| — |
|
| — |
|
| 81 |
|
| 9,708 |
|
Purchases of common stock |
| — |
|
| — |
| (2,693) |
|
| (26) |
|
| (74,657) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (74,683) |
|
Other, net of tax |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| 721 |
|
| — |
|
| 10 |
|
| 731 |
|
Balance as of December 31, 2016 |
| — |
| $ | — |
| 46,114 |
| $ | 462 |
| $ | (603,262) |
| $ | 348,739 |
| $ | (126,964) |
| $ | 735,939 |
| $ | 6,981 |
| $ | 361,895 |
|
Net income |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 7,256 |
|
| 3,556 |
|
| 10,812 |
|
Dividends to shareholders ( $0.47 per common share) |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (21,531) |
|
| — |
|
| (21,531) |
|
Dividends distributed to noncontrolling interest |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (3,645) |
|
| (3,645) |
|
Foreign currency translation adjustments |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| 7,908 |
|
| — |
|
| 377 |
|
| 8,285 |
|
Derivatives valuation, net of tax |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| 16,647 |
|
| — |
|
| — |
|
| 16,647 |
|
Vesting of restricted stock units |
| — |
|
| — |
| 298 |
|
| 3 |
|
| 4,913 |
|
| (10,313) |
|
| — |
|
| — |
|
| — |
|
| (5,397) |
|
Exercise of stock options |
| — |
|
| — |
| 60 |
|
| — |
|
| 994 |
|
| 1,156 |
|
| — |
|
| — |
|
| — |
|
| 2,150 |
|
Equity-based compensation expense |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| 12,143 |
|
| — |
|
| — |
|
| (291) |
|
| 11,852 |
|
Purchases of common stock |
| — |
|
| — |
| (610) |
|
| (6) |
|
| (18,322) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (18,328) |
|
Other, net of tax |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| 105 |
|
| — |
|
| — |
|
| 105 |
|
Balance as of December 31, 2017 |
| — |
| $ | — |
| 45,862 |
| $ | 459 |
| $ | (615,677) |
| $ | 351,725 |
| $ | (102,304) |
| $ | 721,664 |
| $ | 6,978 |
| $ | 362,845 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Stockholders’ Equity of the Company | | | | | | | | | |
| ||||||||||||||||||||
|
|
|
|
| |
|
|
|
| |
|
| |
|
| |
| Accumulated |
|
| |
|
| |
|
| |
|
| |
| |
| | | | | | | | | | | | | | | | | | Other | | | | | | | | | | | | |
| |
| | Preferred Stock | | Common Stock | | Treasury | | Additional | | Comprehensive | | Retained | | Noncontrolling | | | | | Mezzanine |
| ||||||||||||
| | Shares | | Amount | | Shares | | Amount | | Stock | | Paid-in Capital | | Income (Loss) | | Earnings | | interest | | Total Equity | | 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 |
| — | |
| — |
| — | |
| — | |
| — | |
| — | |
| — | |
| 35,817 | |
| 3,938 | |
| 39,755 | |
| — | |
Dividends to shareholders ($0.55 per common share) |
| — | |
| — |
| — | |
| — | |
| — | |
| — | |
| — | |
| (25,346) | |
| — | |
| (25,346) | |
| — | |
Dividends distributed to noncontrolling interest | | — | | | — | | — | | | — | | | — | | | — | | | — | | | — | | | (2,925) | | | (2,925) | | | — | |
Foreign currency translation adjustments |
| — | |
| — |
| — | |
| — | |
| — | |
| — | |
| (30,068) | |
| — | |
| (314) | |
| (30,382) | |
| — | |
Derivatives valuation, net of tax |
| — | |
| — |
| — | |
| — | |
| — | |
| — | |
| 7,468 | |
| — | |
| — | |
| 7,468 | |
| — | |
Vesting of restricted stock units |
| — | |
| — |
| 318 | |
| 3 | |
| 5,252 | |
| (9,898) | |
| — | |
| — | |
| — | |
| (4,643) | |
| — | |
Exercise of stock options |
| — | |
| — |
| 15 | |
| — | |
| 248 | |
| (40) | |
| — | |
| — | |
| — | |
| 208 | |
| — | |
Equity-based compensation expense |
| — | |
| — |
| — | |
| — | |
| — | |
| 12,145 | |
| — | |
| — | |
| — | |
| 12,145 | |
| — | |
Other, net of tax |
| — | |
| — |
| — | |
| — | |
| — | |
| — | |
| 308 | |
| — | |
| — | |
| 308 | |
| — | |
Balance as of December 31, 2018 |
| — | | $ | — |
| 46,195 | | $ | 462 | | $ | (610,177) | | $ | 353,932 | | $ | (124,596) | | $ | 725,551 | | $ | 7,677 | | $ | 352,849 | | $ | — | |
Cumulative effect of adopting accounting standard updates |
| — | |
| — |
| — | |
| — | |
| — | |
| — | |
| — | |
| (758) | |
| — | |
| (758) | |
| — | |
Net income | | — | | | — | | — | | | — | | | — | | | — | | | — | | | 77,164 | | | 6,969 | | | 84,133 | | | 601 | |
Acquisition of noncontrolling interest | | — | | | — | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 48,322 | |
Dividends to shareholders ($0.62 per common share) |
| — | |
| — |
| — | |
| — | |
| — | |
| — | |
| — | |
| (28,739) | |
| — | |
| (28,739) | |
| — | |
Contribution from noncontrolling interest | | — | | | — | | — | | | — | | | — | | | — | | | — | | | — | | | 3,362 | | | 3,362 | | | — | |
Dividends distributed to noncontrolling interest | | — | | | — | | — | | | — | | | — | | | — | | | — | | | — | | | (4,950) | | | (4,950) | | | — | |
Foreign currency translation adjustments |
| — | |
| — |
| — | |
| — | |
| — | |
| — | |
| 6,688 | |
| — | |
| 128 | |
| 6,816 | |
| — | |
Derivatives valuation, net of tax |
| — | |
| — |
| — | |
| — | |
| — | |
| — | |
| 12,460 | |
| — | |
| — | |
| 12,460 | |
| — | |
Vesting of restricted stock units |
| — | |
| — |
| 294 | |
| 3 | |
| 4,863 | |
| (10,337) | |
| — | |
| — | |
| — | |
| (5,471) | |
| — | |
Equity-based compensation expense |
| — | |
| — |
| — | |
| — | |
| — | |
| 12,814 | |
| — | |
| — | |
| — | |
| 12,814 | |
| — | |
Other, net of tax |
| — | |
| — |
| — | |
| — | |
| — | |
| — | |
| (786) | |
| — | |
| — | |
| (786) | |
| — | |
Balance as of December 31, 2019 |
| — | | $ | — |
| 46,489 | | $ | 465 | | $ | (605,314) | | $ | 356,409 | | $ | (106,234) | | $ | 773,218 | | $ | 13,186 | | $ | 431,730 | | $ | 48,923 | |
Net income |
| — | |
| — |
| — | |
| — | |
| — | |
| — | |
| — | |
| 118,648 | |
| 8,156 | |
| 126,804 | |
| 2,527 | |
Acquisition of noncontrolling interest | | — | |
| — |
| — | |
| — | |
| — | |
| — | |
| — | | | — | | | — | | | — | | | 3,849 | |
Dividends to shareholders ($2.88 per common share) | | — | | | — | | — | | | — | | | — | | | — | | | — | | | (134,554) | | | — | | | (134,554) | | | — | |
Dividends distributed to noncontrolling interest |
| — | |
| — |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| (8,478) | |
| (8,478) | |
| (2,323) | |
Foreign currency translation adjustments |
| — | |
| — |
| — | |
| — | |
| — | |
| — | |
| 29,341 | |
| — | |
| 196 | |
| 29,537 | |
| — | |
Derivatives valuation, net of tax |
| — | |
| — |
| — | |
| — | |
| — | |
| — | |
| 4,249 | |
| — | |
| — | |
| 4,249 | |
| — | |
Vesting of restricted stock units |
| — | |
| — |
| 248 | |
| 2 | |
| 4,100 | |
| (8,623) | |
| — | |
| — | |
| — | |
| (4,521) | |
| — | |
Equity-based compensation expense |
| — | |
| — |
| — | |
| — | |
| — | |
| 12,507 | |
| — | |
| — | |
| — | |
| 12,507 | |
| — | |
Other, net of tax |
| — | |
| — |
| — | |
| — | |
| — | |
| — | |
| 488 | |
| — | |
| — | |
| 488 | |
| — | |
Balance as of December 31, 2020 |
| — | | $ | — |
| 46,737 | | $ | 467 | | $ | (601,214) | | $ | 360,293 | | $ | (72,156) | | $ | 757,312 | | $ | 13,060 | | $ | 457,762 | | $ | 52,976 | |
The accompanying notes are an integral part of these consolidated financial statements.
F-6F-7
TTEC HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
| |||||||
|
| 2017 |
| 2016 |
| 2015 |
| |||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 10,812 |
| $ | 37,435 |
| $ | 65,885 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 64,507 |
|
| 68,675 |
|
| 63,808 |
|
Amortization of contract acquisition costs |
|
| 1,678 |
|
| 659 |
|
| 900 |
|
Amortization of debt issuance costs |
|
| 745 |
|
| 753 |
|
| 712 |
|
Imputed interest expense and fair value adjustments to contingent consideration |
|
| 51 |
|
| (4,523) |
|
| 716 |
|
Provision for doubtful accounts |
|
| 458 |
|
| 1,164 |
|
| 1,465 |
|
(Gain) loss on disposal of assets |
|
| 3,694 |
|
| (44) |
|
| (166) |
|
Gain on sale of businesses and dissolution of entity |
|
| (908) |
|
| — |
|
| — |
|
Impairment losses |
|
| 5,322 |
|
| 32,050 |
|
| 8,100 |
|
Non-cash loss on held for sale assets |
|
| — |
|
| 5,300 |
|
| — |
|
Deferred income taxes |
|
| 16,777 |
|
| (1,583) |
|
| 9,317 |
|
Excess tax benefit from equity-based awards |
|
| (2,192) |
|
| (601) |
|
| (662) |
|
Equity-based compensation expense |
|
| 11,852 |
|
| 9,773 |
|
| 11,304 |
|
(Gain) loss on foreign currency derivatives |
|
| (681) |
|
| 1,710 |
|
| (1,469) |
|
Changes in assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (59,284) |
|
| (7,858) |
|
| (19,867) |
|
Prepaids and other assets |
|
| (19,266) |
|
| (92) |
|
| (5,379) |
|
Accounts payable and accrued expenses |
|
| 18,968 |
|
| (19,141) |
|
| 16,189 |
|
Deferred revenue and other liabilities |
|
| 60,619 |
|
| (11,847) |
|
| (12,855) |
|
Net cash provided by operating activities |
|
| 113,152 |
|
| 111,830 |
|
| 137,998 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of long-lived assets |
|
| 39 |
|
| 114 |
|
| 202 |
|
Purchases of property, plant and equipment, net of acquisitions |
|
| (51,958) |
|
| (50,832) |
|
| (66,595) |
|
Proceeds from sale of business |
|
| 636 |
|
| — |
|
| — |
|
Investments in non-marketable equity investments |
|
| (1,384) |
|
| (3,179) |
|
| (9,000) |
|
Acquisitions, net of cash acquired of $5,997, $2,655, and zero, respectively |
|
| (116,320) |
|
| (46,460) |
|
| (1,776) |
|
Net cash used in investing activities |
|
| (168,987) |
|
| (100,357) |
|
| (77,169) |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
Proceeds from line of credit |
|
| 2,293,587 |
|
| 2,093,500 |
|
| 2,262,350 |
|
Payments on line of credit |
|
| (2,166,887) |
|
| (1,976,200) |
|
| (2,262,350) |
|
Payments on other debt |
|
| (6,041) |
|
| (3,222) |
|
| (3,222) |
|
Payments of contingent consideration and hold-back payments to acquisitions |
|
| (1,409) |
|
| (9,467) |
|
| (11,883) |
|
Dividends paid to shareholders |
|
| (21,531) |
|
| (18,262) |
|
| (17,423) |
|
Payments to noncontrolling interest |
|
| (3,645) |
|
| (4,317) |
|
| (4,593) |
|
Purchase of mandatorily redeemable noncontrolling interest |
|
| — |
|
| (4,105) |
|
| — |
|
Proceeds from exercise of stock options |
|
| 2,150 |
|
| 371 |
|
| 825 |
|
Tax payments related to issuance of restricted stock units |
|
| (5,397) |
|
| (3,933) |
|
| (4,248) |
|
Excess tax benefit from equity-based awards |
|
| — |
|
| 601 |
|
| 662 |
|
Payments of debt issuance costs |
|
| (918) |
|
| (1,888) |
|
| (35) |
|
Purchase of treasury stock |
|
| (18,328) |
|
| (74,683) |
|
| (17,231) |
|
Net cash provided by (used in) financing activities |
|
| 71,581 |
|
| (1,605) |
|
| (57,148) |
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
| 3,427 |
|
| (14,908) |
|
| (20,693) |
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
| 19,173 |
|
| (5,040) |
|
| (17,012) |
|
Cash and cash equivalents, beginning of period |
|
| 55,264 |
|
| 60,304 |
|
| 77,316 |
|
Cash and cash equivalents, end of period |
| $ | 74,437 |
| $ | 55,264 |
| $ | 60,304 |
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures |
|
|
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ | 11,727 |
| $ | 6,976 |
| $ | 6,052 |
|
Cash paid for income taxes |
| $ | 18,813 |
| $ | 19,741 |
| $ | 15,178 |
|
Non-cash investing and financing activities |
|
|
|
|
|
|
|
|
|
|
Acquisition of long-lived assets through capital leases |
| $ | 9,836 |
| $ | 584 |
|
| 10,492 |
|
Acquisition of equipment through increase in accounts payable, net |
| $ | 97 |
| $ | (681) |
| $ | 386 |
|
Contract acquisition costs credited to accounts receivable |
| $ | — |
| $ | 206 |
|
| 1,055 |
|
| | | | | | | | | | |
| | Year Ended December 31, |
| |||||||
|
| 2020 |
| 2019 |
| 2018 |
| |||
Cash flows from operating activities | | | | | | | | | | |
Net income | | $ | 129,331 | | $ | 84,734 | | $ | 39,755 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | |
Depreciation and amortization | |
| 78,862 | |
| 69,086 | |
| 69,179 | |
Amortization of contract acquisition costs | |
| 590 | |
| 1,002 | |
| 3,015 | |
Amortization of debt issuance costs | |
| 732 | |
| 1,083 | |
| 992 | |
Imputed interest expense and fair value adjustments to contingent consideration | |
| 4,484 | |
| 2,339 | |
| 10,217 | |
Provision for credit losses | |
| 494 | |
| 1,711 | |
| 3,679 | |
(Gain) loss on disposal of assets | |
| 521 | |
| 189 | |
| 111 | |
Loss on dissolution of subsidiary | | | 19,905 | | | 0 | | | 0 | |
Impairment losses | |
| 5,809 | |
| 3,735 | |
| 1,452 | |
Impairment on equity investment | | | 0 | | | 0 | | | 15,632 | |
Gain (adjustment) on bargain purchase of a business | | | 0 | | | 0 | | | (685) | |
Non-cash loss on assets held for sale reclassified to held and used | | | 0 | | | 0 | | | 1,616 | |
Deferred income taxes | |
| (5,193) | |
| (1,376) | |
| (7,975) | |
Excess tax benefit from equity-based awards | |
| (726) | |
| (1,231) | |
| (635) | |
Equity-based compensation expense | |
| 12,507 | |
| 12,814 | |
| 12,145 | |
(Gain) loss on foreign currency derivatives | |
| 103 | |
| (140) | |
| 1,524 | |
Changes in assets and liabilities, net of acquisitions: | | | | | | | | | | |
Accounts receivable | |
| (40,625) | |
| 29,608 | |
| 29,985 | |
Prepaids and other assets | |
| 57,597 | |
| 27,413 | |
| (30,438) | |
Accounts payable and accrued expenses | |
| 76,726 | |
| 97,268 | |
| 11,713 | |
Deferred revenue and other liabilities | |
| (69,197) | |
| (90,246) | |
| 7,063 | |
Net cash provided by operating activities | |
| 271,920 | |
| 237,989 | |
| 168,345 | |
| | | | | | | | | | |
Cash flows from investing activities | | | | | | | | | | |
Proceeds from sale of long-lived assets | |
| 20 | |
| 382 | |
| 34 | |
Purchases of property, plant and equipment, net of acquisitions | |
| (59,772) | |
| (60,776) | |
| (43,450) | |
Investments in non-marketable equity investments | | | 0 | | | 0 | | | (2,119) | |
Acquisitions, net of cash acquired of $4,423, $4,547, and $4,530, respectively | |
| (52,675) | |
| (102,457) | |
| (2,027) | |
Net cash used in investing activities | |
| (112,427) | |
| (162,851) | |
| (47,562) | |
| | | | | | | | | | |
Cash flows from financing activities | | | | | | | | | | |
Net proceeds(borrowings) from line of credit | |
| 95,000 | |
| 8,000 | |
| (62,000) | |
Payments on other debt | |
| (8,619) | |
| (11,855) | |
| (5,989) | |
Payments of contingent consideration and hold-back payments to acquisitions | |
| (48,686) | |
| (5,902) | |
| (1,349) | |
Dividends paid to shareholders | | | (134,554) | | | (28,739) | | | (25,346) | |
Payments to noncontrolling interest | |
| (10,801) | |
| (4,950) | |
| (2,925) | |
Capital contribution from noncontrolling interest | | | 0 | | | 3,362 | | | 0 | |
Proceeds from exercise of stock options | |
| 0 | |
| 0 | |
| 208 | |
Tax payments related to issuance of restricted stock units | | | (4,521) | | | (5,471) | | | (4,643) | |
Payments of debt issuance costs | |
| (45) | |
| (1,819) | |
| (35) | |
Net cash used in financing activities | |
| (112,226) | |
| (47,374) | |
| (102,079) | |
| | | | | | | | | | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | |
| 6,157 | |
| (410) | |
| (14,904) | |
| | | | | | | | | | |
Increase in cash, cash equivalents and restricted cash | |
| 53,424 | |
| 27,354 | |
| 3,800 | |
Cash, cash equivalents and restricted cash, beginning of period | |
| 105,591 | |
| 78,237 | |
| 74,437 | |
Cash, cash equivalents and restricted cash, end of period | | $ | 159,015 | | $ | 105,591 | | $ | 78,237 | |
| | | | | | | | | | |
Supplemental disclosures | | | | | | | | | | |
Cash paid for interest | | $ | 10,233 | | $ | 13,108 | | $ | 17,456 | |
Cash paid for income taxes | | $ | 47,761 | | $ | 36,316 | | $ | 39,984 | |
Non-cash investing and financing activities | | | | | | | | | | |
Acquisition of long-lived assets through finance leases | | $ | 1,852 | | $ | 3,731 | | | 15,018 | |
Acquisition of equipment through increase in accounts payable, net | | $ | 347 | | $ | 881 | | $ | 339 | |
The accompanying notes are an integral part of these consolidated financial statements.
F-7F-8
(1)
Overview
TTEC Holdings, Inc. (“TTEC”, “the Company”) (formerly known as TeleTech Holdings, Inc. until the name was changed in January 2018)is a leading global customer experience company that designs, buildsas a service (“CXaaS”) partner for many of the world’s iconic brands, Fortune 1000 companies, government agencies, and operates omnichanneldisruptive growth companies. TTEC helps its clients deliver frictionless customer experiences, on behalf of the world's moststrengthen customer relationships, brand recognition and loyalty through personalized interactions, improve their Net Promoter Score, customer satisfaction and quality assurance, and lower their total cost to serve by combining innovative brands.The Company helps large global companies increase revenuedigital solutions with best-in-class service capabilities to enable and reduce costs by delivering personalizeddeliver simplified, consistent and seamless customer experiencesexperience across every interactional channelchannels and phasephases of the customer lifecycle as an end-to-end provider of customer engagement services, technologies, insights and innovations.lifecycle. TTEC’s 56,00061,000 employees serve clients in the automotive, communication, financial services, government,national/federal and state and local governments, healthcare, logistics, media and entertainment, e-tail/retail, technology, transportationtravel and traveltransportation industries via operations in the U.S.,United States, Australia, Belgium, Brazil, Bulgaria, Canada, China, Costa Rica, Germany, Hong Kong,Greece, India, Ireland, Lebanon, Macedonia, Mexico, the Netherlands, New Zealand, the Philippines, Poland, Singapore, South Africa, Thailand, Turkey, the United Arab Emirates, and the United Kingdom.
The Company reports its financial information based on two segments: TTEC Digital and TTEC Engage.
| ● | TTEC Digital provides the CX technology services and platforms to support the Company’s clients’ customer interaction delivery infrastructure. The segment designs, builds and operates the omnichannel ecosystem in a cloud, on premise, or hybrid environment, inclusive of fully integrating, orchestrating, and administrating highly scalable, feature-rich CX technology applications. |
| ● | TTEC Engage provides the CX managed services to support the Company’s clients’ end-to-end customer interaction delivery, by providing the essential CX omnichannel and application technologies, human resources, recruiting, training and production, at-home or facility-based delivery infrastructure on a global scale, and engagement processes. This segment provides full-service digital, omnichannel customer engagement, supporting customer care, customer acquisition, growth and retention, and fraud detection and prevention services. |
TTEC Digital and TTEC Engage strategically come together under the Company’s unified offering, Humanify® Customer Experience as a Service ("CXaaS"), which drives measurable customer results for clients through the delivery of personalized, omnichannel experiences. The Company’s Humanify® cloud platform provides a fully integrated ecosystem of CX offerings, including messaging, artificial intelligence, machine learning, robotic process automation, analytics, cybersecurity, customer relationship management, knowledge management, journey orchestration, and traditional voice solutions. The Company’s end-to-end platform differentiates the Company from many competitors by combining design, strategic consulting, best-in-class technology, data analytics, process optimization, system integration and operational excellence.
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, its 100% interest in iKnowtion,70% equity owned subsidiary First Call Resolution, LLC effective January 2016, and its 100% interest in Motif,70% equity owned subsidiary Serendebyte, Inc. (see Note 2 and 16)2). All intercompany balances and transactions have been eliminated in consolidation.
During the three months ended March 31, 2016, the Company recorded an additional tax expense of $1.1 million that should have been recorded in prior periods related to operations by an entity outside its country of incorporation. The total amount of $1.1 million should have been recorded as additional expense in the amount of $180 thousand in 2011, $123 thousand in 2012, $137 thousand in 2013, $358 thousand in 2014 and $301 thousand in 2015.
During the three months ended June 30, 2015, the Company recorded an additional expense of $1.75 million 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 the Company 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 related to the annual actuarial analysis for the Company’s Philippines pension liability that should have been recorded in the fourth quarter of 2014.
During the three months ended December 31, 2015, the Company recorded an additional $2.9 million impairment to correct for an error in the goodwill impairment annual assessment and quarterly assessment for the WebMetro reporting unit. The Company should have recorded a $2.3 million impairment in the three months ended December 31, 2014 and an additional $0.6 million impairment in the three months ended September 30, 2015.Reclassifications
The Company has evaluatedelected to modify the aggregate impactpresentation of these adjustmentsthe proceeds and concluded that these adjustments were not materialborrowings on the line of credit within the financing section of the Cash Flow Statement from a two-line presentation to the previously issued or currenta one-line net presentation. Prior period Consolidated Financial Statements.
presentation has been modified to ensure consistency.
F-8F-9
Use of Estimates
The preparation of the Consolidated Financial Statements in conformity with accounting principles generally accepted in the U.S. (“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,credit losses, contingent consideration, and valuation of goodwill, long-lived and intangible assets.assets and redeemable noncontrolling interest. 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.
Concentration of Credit Risk
The Company is exposed to credit risk in the normal course of business, primarily related to accounts receivable and derivative instruments. Historically, the losses related to credit risk have been immaterial. The Company regularly monitors its credit risk to mitigate the possibility of current and future exposures resulting in a loss. The Company evaluates the creditworthiness of its clients prior to entering into an agreement to provide services and as necessary through the life of the client relationship. The Company does not believe it is exposed to more than a nominal amount of credit risk in its derivative hedging activities, as the Company diversifies its activities across six well-capitalized,eight investment-grade financial institutions.
Fair Value of Financial Instruments
Fair values of cash equivalents, accounts receivable and payable and debt approximate the carrying amounts because of their short-term nature.
Cash, Cash Equivalents and Restricted Cash
Cash and Cash Equivalents
The Company considers all cash equivalents consist of cash, primarily held in interest-bearing investments, and highly liquid short-term investments with anmaturities, which have original maturitymaturities of less than 90 daysdays. Restricted cash includes cash whereby the Company’s ability to use the funds at any time is contractually limited or less to be cash equivalents. is generally designated for specific purposes arising out of certain contractual or other obligations.
The Company manages a centralized global treasury function in the United States with a focus on concentratingsafeguarding and safeguardingoptimizing the use of its global cash and cash equivalents. While the majority of theThe Company’s cash is held outsidein the U.S., the Company prefers to hold in U.S. Dollars in addition to the local currenciesdollars and outside of the U.S. in U.S. dollars and foreign subsidiaries.currencies. The Company believes that it has effectively mitigated and managed its risk relating to its global cash through its cash management practices, banking partners, and utilization of diversified bank deposit accounts and high quality investments. However, the Company can provide no assurances that it will not sustain losses.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the Consolidated Balance Sheets that sum to the amounts reported in the Consolidated Statement of Cash Flows (in thousands):
| | | | | | | | | | | |
| | | December 31, 2020 |
| December 31, 2019 |
| December 31, 2018 | | |||
| | | | | | | | | | | |
Cash and cash equivalents | | | $ | 132,914 |
| $ | 82,407 |
| $ | 78,237 | |
Restricted cash included in "Prepaid and other current assets" | | |
| 26,101 | |
| 23,172 | |
| — | |
Restricted cash included in "Other noncurrent assets" | | |
| — | |
| 12 | |
| — | |
Total | | | $ | 159,015 |
| $ | 105,591 |
| $ | 78,237 | |
F-10
Accounts Receivable
AnAt the end of each quarter an allowance for doubtful accounts is determinedcredit losses will be calculated based on the agingcurrent quarterly revenue multiplied by the historical loss percentage of the Company’s accounts receivable,prior three-year period and recorded in the income statement. In addition to the evaluation of historical experience, client financial condition,losses, the Company considers current and management judgment.future economic conditions and events such as changes in customer credit quality and liquidity. The Company writes offwill write-off accounts receivable against thethis allowance when the Company determines a balance is uncollectible.
Derivatives
The Company enters into foreign exchange forward and option contracts to reduce its exposure to foreign currency exchange rate fluctuations that are associated with forecasted revenue earned in foreign locations. The Company also enters into interest rate derivatives which consist of interest rate swaps to reduce the Company’s exposure to interest rate fluctuations associated with its variable rate debt. Upon proper qualification, these contracts are designated as cash flow hedges. The Company formally documents at the inception of the hedge all relationships between hedging instruments and hedged items as well as its risk management objective and strategy for undertaking various hedging activities.
F-9
All derivative financial instruments are reported at fair value and recorded in Prepaids and other current assets, Other long-term assets, Other current liabilities, and Other long-term liabilities in the accompanying Consolidated Balance Sheets as applicable for each period end. Changes in fair value of derivative instruments designated as cash flow hedges are recorded in Accumulated other comprehensive income (loss), a component of Stockholders’ Equity, to the extent they are deemed effective. Ineffectiveness is measured based on the change in fair value of the forward contracts and the fair value of the hypothetical derivatives with terms that match the critical terms of the risk being hedged. Based on the criteria established by current accounting standards, the Company’s cash flow hedge contracts are deemed to be highly effective. Any realized gains or losses resulting from the foreign currency cash flow hedges are recognized together with the hedged transaction within Revenue. Any realized gains or losses from the interest rate swaps are recognized in Interest expense. Gains and losses from the settlements of the Company’s net investment hedges remain in Accumulated other comprehensive income (loss) until partial or complete liquidation of the applicable net investment.
The Company also enters into fair value derivative contracts that hedge against foreign currency exchange gains and losses primarily associated with short-term payables and receivables. Changes in the fair value of derivative instruments designated as fair value hedges affect the carrying value of the asset or liability hedged, with changes in both the derivative instrument and the hedged asset or liability being recognized in Other income (expense), net in the accompanying Consolidated Statements of Comprehensive Income (Loss).
Property, Plant and Equipment
Property, plant and equipment are stated at historical cost less accumulated depreciation and amortization. Maintenance, repairs and minor renewals are expensed as incurred.
Depreciation and amortization are computed on the straight-line method based on the following estimated useful lives:
| | |
Building |
| 30 years |
Computer equipment and software |
| 3 to 7 years |
Telephone equipment |
| 4 to 7 years |
Furniture and fixtures |
| 5 years |
Leasehold improvements |
| Lesser of economic useful life (typically 10 years) or original lease term |
Other |
| 3 to 7 years |
The Company evaluates the carrying value of property, plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. An asset is considered to be impaired when the forecasted undiscounted cash flows of an asset group are estimated to be less than its carrying value. The amount of impairment recognized is the difference between the carrying value of the asset group and its fair value. Fair value estimates are based on assumptions concerning the amount and timing of forecasted future cash flows.
F-11
Software Development Costs
The Company capitalizes costs incurred to acquire or develop software for internal use. Capitalized software development costs are amortized using the straight-line method over the estimated useful life equal to the lesser of the license term or 4 or 7 years depending on the software type. ThePreviously, the expense related to these assets has been classified as amortization expense is recordedwithin the income statement. Based on the new guidance adopted as of January 1, 2020, the amortization of any assets that are classified as cloud computing arrangements will be expensed and included in Depreciationoperating expenses within the income statement. The expense for the portion of the internally developed software incurred prior to January 1, 2020 and any assets that are not related to a cloud computing arrangement, will remain in amortization inexpense on a go-forward basis, as TTEC adopted the accompanying Consolidated Statements of Comprehensive Income (Loss).new standard on a prospective basis.
F-10
Goodwill
The Company evaluates goodwill for possible impairment at least annually on December 1, and whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The Company uses a two steptwo-step process to assess the realizability of goodwill. The first step, Step 0, is a qualitative assessment that analyzes current economic indicators associated with a particular reporting unit. For example, the Company analyzes changes in economic, market and industry conditions, business strategy, cost factors, and financial performance, among others, to determine if there would be a significant decline to the fair value of a particular reporting unit. A qualitative assessment also includes analyzing the excess fair value of a reporting unit over its carrying value from impairment assessments performed in previous years. If the qualitative assessment indicates a stable or improved fair value, no further testing is required.
If a qualitative assessment indicates that a significant decline to fair value of a reporting unit is more likely than not, or if a reporting unit’s fair value has historically been closer to its carrying value, the Company will proceed to Step 1 testing where the Company calculates the fair value of a reporting unit. If Step 1 indicates that the carrying value of a reporting unit is in excess of its fair value, the Company will record an impairment equal to the amount by which a reporting unit’s carrying value exceeds its fair value.
Other Intangible Assets
The Company has other intangible assets that include customer relationships (definite-lived) and, trade names (indefinite-lived and definite-lived)(definite-lived) and non-compete agreements (definite-lived). Definite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives, which range from three2 to 12 years. The Company evaluates the carrying value of its definite-lived intangible assets whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. A definite-lived intangible asset is considered to be impaired when the forecasted undiscounted cash flows of its asset group are estimated to be less than its carrying value.
The Company evaluates indefinite-lived intangible assets for possible impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Similar to goodwill, the Company may first use a qualitative analysis to assess the realizability of its indefinite-lived intangible assets. The qualitative analysis will include a review of changes in economic, market and industry conditions, business strategy, cost factors, and financial performance, among others, to determine if there would be a significant decline to the fair value of an indefinite-lived intangible asset. If a quantitative analysis is completed, an indefinite-lived intangible asset (i.e. trade name) is evaluated for possible impairment by comparing the fair value of the asset with its carrying value. Fair value is estimated as the discounted value of future revenues arising from a trade name using a royalty rate that a market participant would pay for use of that trade name. An impairment charge is recorded if the trade name’sintangible asset’s carrying value exceeds its estimated fair value.
Self Insurance Liabilities
The Company self-insures for certain levels of workers’ compensation, employee health, property, errors and omissions, cyber risks, and general liability insurance. The Company records estimated liabilities for these insurance lines based upon analyses of historical claims experience. The most significant assumption the Company makes in estimating these liabilities is that future claims experience will emerge in a similar pattern with historical claims experience. The liabilities related to workers’ compensation and employee health insurance are included in Accrued employee compensation and benefits in the accompanying Consolidated Balance Sheets. The liability for other general liability insurance is included in Other accrued expenses in the accompanying Consolidated Balance Sheets.
F-11F-12
Restructuring Liabilities
The Company routinely assesses the profitability and utilization of its customer engagement centers and existing markets. In some cases, the Company has chosen to close under-performing customer engagement centers and complete reductions in workforce to enhance future profitability. Severance payments that occur from reductions in workforce are in accordance with the Company’s postemployment plans and/or statutory requirements that are communicated to all employees upon hire date; therefore, severance liabilities are recognized when they are determined to be probable and reasonably estimable. Other liabilities for costs associated with an exit or disposal activity are recognized when the liability is incurred, rather than upon commitment to a plan.
Income Taxes
Accounting for income taxes requires recognition of deferred tax assets and liabilities for the expected future income tax consequences of transactions that have been included in the Consolidated Financial Statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Gross deferred tax assets may then be reduced by a valuation allowance for amounts that do not satisfy the realization criteria established by current accounting standards.
The Company accounts for uncertain tax positions using a two-step approach to recognizing and measuring uncertain tax positions. The first step is to determine if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained on audit. The second step is to estimate and measure the tax benefit as the amount that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority. The Company evaluates these uncertain tax positions on a quarterly basis. This evaluation is based on the consideration of several factors including changes in facts or circumstances, changes in applicable tax law, and settlement of issues under audit. The Company recognizes interest and penalties related to uncertain tax positions as a part of the Provision for income taxes in the accompanying Consolidated Statements of Comprehensive Income (Loss).
The Company provided for U.S. income tax expense on the earnings of foreign subsidiaries under the 2017 Tax Act. This lead to a reassessment of the determination as to whether the US subsidiaries’ foreign earnings are considered permanently reinvested outside the U.S.
No amount was booked related to withholding taxes on theMinimal changes in indefinite reinvestment assertion on the potential repatriation of foreign earnings as it is the Company’s determination that there would be no material additional amount of tax if the related foreign cash was repatriated to the United States.were made during 2020. The Company has not completed its analysis in regard to the full tax impact related to a changeprior changes in indefinite reinvestment reassertion as the computation is complex and impacted by the provisional calculations outlined above.any related taxes have been recorded. No additional income taxes have been provided for any remaining outside basis difference inherent in our foreign subsidiaries as these amounts continue to be indefinitely reinvested in foreign operations. Determination of any unrecognized deferred tax liability related to the outside basis difference in investments in foreign subsidiaries is not practicable due to the inherent complexity of the multi-national tax environment in which we operate.
Revenue Recognition
The Company recognizes revenue from contracts and programs when control of the promised goods or services is transferred to the customers, in an amount that reflects the consideration it expects to be entitled to in exchange for those goods or services. Revenue is recognized when or as performance obligations are satisfied by transferring control of a promised good or service to a customer. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. Performance obligation is the unit of accounting for revenue recognition under the provisions of ASC Topic 606, “Revenue from Contracts with Customers” and all related amendments (“ASC 606”). A contract’s transaction price is allocated to each distinct performance obligation in recognizing revenue.
F-12F-13
The Business Process Outsourcing (“BPO”) inbound and outbound service fees are based on either a per minute, per hour, per FTE, per transaction or per call basis, which represents the majority of our contracts. These contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct. For example, services for the training of the Company’s agents (which are separately billable to the customer) are a separate promise in the BPO contracts, but they are not distinct from the primary service obligations to transfer services to the customers. The performance of the customer service by the agents is highly dependent on the initial, growth, and seasonal training services provided to the agents during the life of a program. The training itself is not considered to have value to the customer on a standalone basis, and therefore, training on a standalone basis cannot be considered a separate unit of accounting. The Company therefore defers revenue from certain training services that are rendered mainly upon commencement of a new client contract or program, including seasonal programs. Revenue is also deferred when there is significant growth training in an existing program. Accordingly, recognition of initial, growth, and seasonal training revenues and associated costs (consisting primarily of labor and related expenses) are deferred and amortized over the period of economic benefit. With the exception of training which is typically billed upfront and deferred, the remainder of revenue is invoiced on a monthly or quarterly basis as services are performed and does not create a contract asset or liability.
In addition to revenue from BPO services, revenue also consists of fees from services for program launch, professional consulting, fully-hosted or managed technology and learning innovation services. The contracts containing these service offerings may contain multiple performance obligations. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using the best estimate of the standalone selling price of each distinct good or service in the contract. The primary method used to estimate standalone selling price is the expected cost plus a margin approach, under which the Company forecasts its expected costs of satisfying a performance obligation and then adds an appropriate margin for that distinct good or service. The Company forecasts its expected cost based on historical data, current prevailing wages, other direct and indirect costs incurred in recently completed contracts, market conditions, and other client specific cost considerations. For these services, the point at which the transfer of control occurs determines when revenue is recognized in a specific reporting period. Within our Digital segment, where there are product sales, the attribution of revenue is recognized when the transfer of control is completed and the products are delivered to the client’s location. Where services are rendered to a customer, the attribution is aligned with the progress of work and is recognized over time (i.e. based on measuring the progress toward complete satisfaction of a performance obligation using an output method or an input method). Where output method is used, revenue is recognized on the basis of direct measurements of the value to the customer of the goods or services transferred relative to the remaining goods or services promised under the contract. The majority of the Company’s services are recognized over time using the input method in which revenue is recognized on the basis of efforts or inputs toward satisfying a performance obligation (for example, resources consumed, labor hours expended, costs incurred, or time elapsed) relative to the total expected inputs to satisfy the performance obligation. The measures used provide faithful depiction of the transfer of goods or services to the customers. For example, revenue is recognized on certain consulting contracts based on labor hours expended as a measurement of progress where the consulting work involves input of consultants’ time. The progress is measured based on the hours expended over total number of estimated hours included in the contract multiplied by the total contract consideration. The contract consideration can be a fixed price or an hourly rate, and in either case, the use of labor hours expended as an input measure provides a faithful depiction of the transfer of services to the customers. Deferred revenues for these services represent amounts collected from, or invoiced to, customers in excess of revenues recognized. This results primarily from i) receipt of license fees that are deferred due to one or more of the revenue recognition criteria not being met, and ii) the billing of annual customer support agreements, annual managed service agreements, and billings for other professional services that have not yet been performed by the Company. The Company records amounts billed and received, but not earned, as deferred revenue. These amounts are recorded in either Deferred revenue or Other long-term liabilities, as applicable, in the accompanying Consolidated Balance Sheets based on the period over which the Company expects to render services. Costs directly associated with revenue deferred, consisting primarily of labor and related expenses, are also deferred and recognized in proportion to the expected future revenue from the contract.
F-14
Tax ReformTTEC HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Variable consideration exists in contracts for certain client programs that provide for adjustments to monthly billings based upon whether the Company achieves, exceeds or fails certain performance criteria. Adjustments to monthly billings consist of contractual bonuses/penalties, holdbacks and other performance based conditions. Variable consideration is estimated at contract inception at its most likely value and updated at the end of each reporting period as additional performance data becomes available. Revenue related to such variable consideration is recognized only to the extent that a significant reversal of any incremental revenue is not considered probable.
Contract modifications are routine in the performance of the customer contracts. Contracts are often modified to account for customer mandated changes in the contract specifications or requirements, including service level changes. In most instances, contract modifications relate to goods or services that are incremental and distinctly identifiable, and, therefore, are accounted for prospectively.
Incremental Costs to Obtain a Contract
Direct and incremental costs to obtain or fulfill a contract are capitalized, and the capitalized costs are amortized over the corresponding period of benefit, determined on a contract by contract basis. The Company recognizes an asset for the incremental costs of obtaining a contract with a customer if it expects to recover those costs. The incremental costs of obtaining a contract are those costs that the Company incurs to obtain a customer contract that it would not have incurred if the contract had not been obtained. Contract acquisition costs consist primarily of payment of commissions to sales personnel and are incurred when customer contracts are signed. The deferred sales commission amounts are amortized based on the expected period of economic benefit and are classified as current or non-current based on the timing of when they are expected to be recognized as an expense. Costs to obtain a contract that would have been incurred regardless of whether the contract was obtained are recognized as an expense when incurred, unless those costs are explicitly chargeable to the customer regardless of whether the contract is obtained. Sales commissions are paid for obtaining new clients only and are not paid for contract renewals or contract modifications. Capitalized costs of obtaining contracts are periodically reviewed for impairment. As of December 31, 2020, the Company has a deferred asset of $6.8 million related to sales commissions.
In certain cases, the Company negotiates an upfront payment to a customer in conjunction with the execution of a contract. Such upfront payments are critical to acquisition of new business and are often used as an incentive to negotiate favorable rates from the clients and are accounted for as upfront discounts for future services. Such payments are either made in cash at the time of execution of a contract or are netted against the Company’s service invoices. Payments to customers are capitalized as contract acquisition costs and are amortized in proportion to the expected future revenue from the contract, which in most cases results in straight-line amortization over the life of the contract. Such payments are considered a reduction of the selling prices of the Company’s products or services, and therefore, are accounted for as a reduction of revenue when amortized. Such capitalized contract acquisition costs are periodically reviewed for impairment taking into consideration ongoing future cash flows expected from the contract and estimated remaining useful life of the contract.
Practical Expedients and Exemptions
Some of the Company’s service contracts are short-term in nature with a contract term of one year or less. For those contracts, the Company has utilized the practical expedient in ASC 606-10-50-14 exempting the Company from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less. Also in alignment with ASC 606-10-50-14, the Company does not disclose the value of unsatisfied performance obligations for contracts for which it recognizes revenue at the amount to which it has the right to invoice for services performed. Additionally, the Company’s standard payment terms are less than one year from transfer of goods or services, as such, the election could apply. Given the foregoing, the Company has elected the practical expedient under ASC 606-10-32-18 to not assess whether a contract has a significant financing component. Pursuant to the Company’s election of the practical expedient under ASC 606-10-32-2A, sales, value add, and other taxes that are collected from customers concurrent with revenue-producing activities, which the Company has an obligation to remit to the governmental authorities, are excluded from revenue.
F-15
Lease Expense
The United States recently enacted comprehensive tax reform legislation knownCompany has negotiated certain rent holidays, landlord/tenant incentives and escalations in the base price of lease payments over the initial term of its operating leases. The initial term could include the “build-out” period of leases, where no lease payments are typically due. The Company recognizes rent holidays and rent escalations on a straight-line basis to lease expense over the lease term. The landlord/tenant incentives are recorded as the Tax Cuts and Jobs Act (the "2017 Tax Act") that, among other things, reduces the U.S. federal corporate income tax rate from 35% to 21% and implements a territorial tax system, but imposes an alternative “base erosion and anti-abuse tax” (“BEAT”), and an incremental tax on global intangible low taxed foreign income (“GILTI”) effective January 1, 2018. In addition, the law imposes a one-time mandatory repatriation tax on accumulated foreign earnings on domestic corporations effective for the 2017 tax year. In response, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Tax Act and allows the registrant to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. We have recognized the provisional impacts relatedreduction to the one-time transition taxright of use asset and revaluation of deferred tax balances and included these estimatesdepreciated on a straight line basis over the remaining lease term once the assets are placed in our consolidated financial statements for the year ended December 31, 2017. The ultimate impact may materially differ from these provisional amounts, due to, among other things, additional analysis, changes in interpretations and assumptions we have made, additional regulatory guidance that may be issued, and actions we may take as a result of the Tax Act.service.
Equity-Based Compensation Expense
Equity-based compensation expense for all share-based payment awards granted is determined based on the grant-date fair value net of an estimated forfeiture rate on a straight-line basis over the requisite service period of the award, which is typically the vesting term of the share-based payment award. The Company estimates the forfeiture rate annually based on its historical experience of forfeited awards.
Foreign Currency Translation
The assets and liabilities of the Company’s foreign subsidiaries, whose functional currency is not the U.S. Dollar, are translated at the exchange rates in effect on the last day of the period and income and expenses are translated using the monthly average exchange rates in effect for the period in which the items occur. Foreign currency translation gains and losses are recorded in Accumulated other comprehensive income (loss) within Stockholders’ Equity. Foreign currency transaction gains and losses are included in Other income (expense), net in the accompanying Consolidated Statements of Comprehensive Income (Loss).
Revenue Recognition
The Company recognizes revenue when evidence of an arrangement exists, the delivery of service has occurred, the fee is fixed or determinable and collection is reasonably assured. The BPO inbound and outbound service fees are based on either a per minute, per hour, per FTE, per transaction or per call basis. Certain client programs provide for adjustments to monthly billings based upon whether the Company achieves, exceeds or fails certain performance criteria. Adjustments to monthly billings consist of contractual bonuses/penalties, holdbacks and other performance based contingencies. Revenue recognition is limited to the amount that is not contingent upon delivery of future services or meeting other specified performance conditions.
F-13
Revenue also consists of services for agent training, program launch, professional consulting, fully-hosted or managed technology and learning innovation services. These service offerings may contain multiple element arrangements whereby the Company determines if those service offerings represent separate units of accounting. A deliverable constitutes a separate unit of accounting when it has standalone value and delivery or performance of the undelivered item is considered probable and substantially within our control. If those deliverables are determined to be separate units of accounting, revenue is recognized as services are provided. If those deliverables are not determined to be separate units of accounting, revenue for the delivered services are bundled into one unit of accounting and recognized over the life of the arrangement or at the time all services and deliverables have been delivered and satisfied. The Company allocates revenue to each of the deliverables based on a selling price hierarchy of vendor specific objective evidence (“VSOE”), third-party evidence, and then estimated selling price. VSOE is based on the price charged when the deliverable is sold separately. Third-party evidence is based on largely interchangeable competitor services in standalone sales to similarly situated customers. Estimated selling price is based on the Company’s best estimate of what the selling prices of deliverables would be if they were sold regularly on a standalone basis. Estimated selling price is established considering multiple factors including, but not limited to, pricing practices in different geographies, service offerings, and customer classifications. Once the Company allocates revenue to each deliverable, the Company recognizes revenue when all revenue recognition criteria are met.
Deferred Revenue and Costs
The Company records amounts billed and received, but not earned, as deferred revenue. These amounts are recorded in Deferred revenue or as a component of Other long-term liabilities in the accompanying Consolidated Balance Sheets based on the period over which the Company expects to render services.
We defer revenue for initial training that occurs upon commencement of a new contract if that training is billed separately because the training is not considered to provide standalone value from other services. Accordingly, the corresponding training costs, consisting primarily of labor and related expenses, are also deferred. In these circumstances, both the training revenue and costs are amortized straight-line over the life of the contract as a component of Revenue and Cost of services, respectively. In situations where these initial training costs are not billed separately, but rather included in the hourly service rates paid by the client over the life of the contract, no deferral is necessary as the revenue is being recognized over the life of the contract and the associated training costs are expensed as incurred.
Rent Expense
The Company has negotiated certain rent holidays, landlord/tenant incentives and escalations in the base price of rent payments over the initial term of its operating leases. The initial term could include the “build-out” period of leases, where no rent payments are typically due. The Company recognizes rent holidays and rent escalations on a straight-line basis to rent expense over the lease term. The landlord/tenant incentives are recorded as an increase to deferred rent liabilities and amortized on a straight line basis to rent expense over the initial lease term.
Asset Retirement Obligations
Asset retirement obligations relate to legal obligations associated with the retirement of long-lived assets resulting from the acquisition, construction, development and/or normal use of the underlying assets.
The Company records all asset retirement obligations at estimated fair value. The Company’s asset retirement obligations primarily relate to clauses in its customer engagement center operating leases which require the Company to return the leased premises to its original condition. The associated asset retirement obligations are capitalized as part of the carrying amount of the underlying asset and depreciated over the estimated useful life of the asset. The liability, reported within Other long-term liabilities, is accreted through charges to operating expenses. If the asset retirement obligation is settled for an amount other than the carrying amount of the liability, the Company recognizes a gain or loss on settlement.
F-14
Recently IssuedAdopted 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 was 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. The Company assigned a project manager and team, selected an external consulting company to assist through the project, completed the project assessment phase, and has finalized its implementation approach. The Company has evaluated the adoption impact of the updated accounting guidance on our consolidated financial statements and continues to evaluate the impact on disclosures and internal controls. The new guidance will impact: (i) revenue associated with certain taxes, which will be recognized on a net basis versus the current gross treatment; (ii) the timing of revenue recognition associated with upfront fees on certain contracts; and (iii) the timing of recognition related to certain elements of variable consideration. The Company adopted this updated accounting guidance beginning January 1, 2018 using the modified retrospective method under which it will recognize a cumulative-effect adjustment in the range of $9 million to $12 million.
In February 2016, the FASB issued ASU 2016-02, “Leases”“Leases”, along with subsequent amendments, which amendsamended the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets related to the rights and obligations created by those leases and making targeted changes to lessor accounting. The ASU also requires new disclosures regarding the amounts, timing, and uncertainty of cash flows arising from leases. The Company adopted ASU is effective2016-02 as of January 1, 2019 and recorded a $0.8 million reduction to retained earnings as the cumulative effect of adoption. See Note 15 for interim and annual periods beginning on or after December 15, 2018 and early adoption is permitted. The new leases standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company is currently assessing the impact on the consolidated financial statements and related disclosures, evaluating software solutions and other tracking methods, and finalizing the implementation approach.additional disclosures.
In MarchJanuary 2016, the FASB issued ASU 2016-09, “Compensation2016-13, “Financial Instruments – Stock Compensation: Improvements to Employee Share-Based Payment Accounting”Credit Losses” (ASC 326), which amends the existing accounting standards related to stock-based compensation.methodology of how and when companies measure credit losses on financial instruments. The ASU simplifies several aspectsobjective of accounting for share-based payment transactions, including the accounting for income taxes, forfeitures, statutory tax withholding requirements, as well as classification in the statement of cash flows. The ASU is effective for interimto provide financial statement users more useful information regarding expected credit losses on financial instruments and annual periods beginning on or after December 15, 2016. Beginning withother commitments. In November 2018, the first quarterFASB issued ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses” which clarifies the scope of 2017, the Company has adopted the new guidance as applicable and this adoption did not have a material impact on its financial position, results of operation or related disclosures.
in ASU 2016-13. In August 2016,May 2019, the FASB issued ASU No. 2016-15, “Statement of Cash Flows”. ASU 2016-15 is intended to reduce diversity in practice regarding how certain cash transactions are presented and classified in2019-05, “Financial Instruments – Credit Losses (Topic 326), Targeted Transition Relief”, which amended the Consolidated Statement of Cash Flows by providingtransition guidance on eight specific cash flow issues. The ASU is effective for interim and annual periods beginning on or after December 15, 2017 and early adoption is permitted. The Company is currently assessing the impact on the consolidated statements and related disclosures.
F-15
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles – Goodwill and Other: Simplifying the Accounting for Goodwill Impairment”. ASU 2017-04 removes the need to complete Step 2 of any goodwill impairment test that has failed Step 1. The goodwill impairment will now be calculated as the amount by which a reporting unit’s carrying value exceeds its fair value.new credit losses standard. The ASU is effective for interim and annual periods beginning on or after December 15, 2019 andwith early adoption is permitted.permitted, using a modified retrospective approach. The Company early adopted this standard as ofthe new guidance effective January 1, 2017.2020 and the adoption did not have a material effect on the financial statements. See Note 4 for additional disclosures.
In August 2017,2018, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to2018-15 “Customer’s Accounting for Hedging Activities”. ASU 2017-12 amends and simplifies existing guidanceImplementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract” (“CCA”), which aligns the accounting for derivatives and hedges including aligning accountingthe costs of implementing CCA’s with companies’ risk management strategies and increasing disclosure transparency regarding both the scope and results of hedging programs. The changes include designation and measurement guidancerequirements for qualifying hedging relationships and the presentation of hedge results.capitalizing implementation costs incurred to develop or obtain hosting arrangement. The ASU is effective for interim and annual periods beginning on or after December 15, 2018 and early adoption is permitted.2019, using a prospective or retrospective transition approach. The Company is currently assessingadopted the impactnew guidance effective January 1, 2020 using the prospective approach and the adoption did not have a material effect on the consolidated statements and related disclosures.financial statements.
F-16
Other Recently Issued Accounting Pronouncements
In February 2018,December 2019, the FASB issued ASU 2018-02, “2019-12, “Simplifying the Accounting for Income Statement - Reporting Comprehensive Income (Topic 220)Taxes” (ASU 740), Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”. ASU 2018-02 allows companies the optionwhich is intended to reclassify strandedsimplify various aspects related to income tax effects from Accumulated other comprehensive income (loss) (AOCI) to retained earnings resulting from the newly enacted corporate tax rate in the Tax Cuts and Jobs Act. If adopted, theaccounting. The ASU is effective in yearsfor interim and annual periods beginning on or after December 15, 2018, and2020 with early adoption is permitted. The Company is currently assessingwill adopt this guidance prospectively beginning January 1, 2021, and has determined the impact of adoption will not have a material impact on the consolidated statementsCompany’s financial position, results of operations or cash flows.
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform” (Topic 848), which provides optional expedients and related disclosures.exceptions for contracts, hedging relationships, and other transactions affected by reference rate reform due to the anticipated cessation of LIBOR on or before December 31, 2021. The ASU is effective from March 12, 2020 through December 31, 2022 and could impact the accounting for LIBOR provisions in the Company’s credit facility agreement. In addition, in January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform – Scope,” which clarified the scope of ASC 848 relating to contract modifications. The Company does not expect that the adoption of this guidance will have a material impact on the Company’s financial position, results of operations or cash flows.
(2)
ACQUISITIONSMotifVoice Foundry
On November 8, 2017,August 5, 2020, TTEC Digital, LLC, a subsidiary of the Company, agreed to acquire allclosed the first phase of the outstanding sharesacquisition of the Voice Foundry business by acquiring 100% of the business’s net assets in Motif, Inc.the U.S. and U.K., a California corporation (“Motif”(the “VF US Transaction”). MotifVoice Foundry is a digital trustpreferred Amazon Connect cloud contact center service and safety services company serving eCommerce marketplaces, online retailers, travel agenciesimplementation partner with approximately 60 employees in the U.S. and financial services companies. Motif provides omni-channel community moderation services via voice, email and chat from delivery centers in India and the Philippines via approximately 2,700 employees. Motif will beU.K. The business has been integrated into the Customer Management Services (“CMS”) segment.TTEC Digital segment and is being fully consolidated into the financial statements of TTEC.
Total cash paid at acquisition was $34.3 million. The acquisition will be implemented through two separate transactions. In November 2017, the Company completed the acquisition of 70% of all outstanding shares in Motif from private equity and certain individual investors for $46.8 million,VF US Transaction is subject to customary representations and warranties, holdbacks, and working capital adjustments. The Company also agreed to purchaseVF US Transaction includes two contingent payments over the remaining 30% interest in Motif from Motif’s founders (“founders’ shares”) no later than Maynext two years with each payment having a maximum value of $7.4 million based on VF US’s EBITDA performance for 2020 (“30% buyout period”).and 2021. The Company agreedfinalized the net working capital adjustment for $0.3 million which will be paid from TTEC Digital to pay forVoice Foundry during the founders’ shares atfirst quarter of 2021.
The fair value of the contingent consideration has been estimated using a purchase priceMonte Carlo model. The model was based on Motif’s fiscal year 2020’scurrent expected EBITDA performance, a discount rate of 23.1%, a volatility rate of 47%, and an adjusted normalized EBITDA, $5.0risk-free rate of 2.6%. Based on the model, a $10.9 million in cash,expected future payment was calculated and 30%recorded as of the excess cash presentacquisition date. During the fourth quarter of 2020, a $3.2 million expense was recorded related to a fair value adjustment of the estimated contingent consideration based on revised estimates of EBITDA performance for 2021. The expense was included in Other income (expense) in the business at the timeConsolidated Statements of the buyout; or if the buyout occurs prior to May 2020, the trailing twelve months EBITDA, calculated from the most recently completed full monthly period ending prior to the date of the buyout triggering event, $5.0 million in cash, and 30% of the excess cash in the business at that point. In connection with this mandatory buyout, the Company has recorded a $27.8 million liability asComprehensive Income (Loss). As of December 31, 2017 which2020, the value of the accrual is $14.1 million, with $7.4 million included in Other accrued expenses and $6.7 million included in Other long-term liabilities in the accompanying Consolidated Balance Sheet. As a partSheets.
A multi-period excess earnings method under the income approach was used to estimate the fair value of the transition,customer relationships intangible asset. The significant assumption utilized in calculating the Motif founders agreed to continue to stay as executives in the acquired business, at least through the 30% buyout period, as partfair value of the Company’s CMS segment, and not to compete withcustomer relationships intangible asset was the Company with respect to the acquired business.
customer attrition rate.
F-16F-17
The following summarizes the preliminary estimated fair values of the identifiable assets acquired and liabilities assumed as of the acquisition date.date (in thousands):
|
|
|
|
|
|
| Preliminary |
| |
|
| Estimate of |
| |
|
| Acquisition Date |
| |
|
| Fair Value |
| |
Cash |
| $ | 5,997 |
|
Accounts receivable, net |
|
| 5,187 |
|
Prepaid expenses |
|
| 1,248 |
|
Other current assets |
|
| 670 |
|
Property, plant and equipment |
|
| 2,182 |
|
Income tax receivable |
|
| 1,691 |
|
Customer relationships |
|
| 37,200 |
|
Goodwill |
|
| 39,272 |
|
|
| $ | 93,447 |
|
|
|
|
|
|
Accounts payable |
| $ | 2,914 |
|
Accrued employee compensation and benefits |
|
| 5,249 |
|
Accrued expenses |
|
| 104 |
|
Deferred tax liability |
|
| 11,402 |
|
Other |
|
| 340 |
|
|
| $ | 20,009 |
|
|
|
|
|
|
Total purchase price |
| $ | 73,438 |
|
| | | | |
|
| Preliminary |
| |
| | Estimate of |
| |
| | Acquisition Date |
| |
| | Fair Value |
| |
Accounts receivable, net | | $ | 3,758 | |
Prepaid and other expenses | |
| 345 | |
Tradename | |
| 400 | |
Non-compete | |
| 150 | |
Customer relationships | |
| 6,550 | |
Goodwill | | | 35,891 | |
| | $ | 47,094 | |
| | | | |
Accounts payable | | $ | 289 | |
Accrued employee compensation | |
| 741 | |
Deferred revenue | |
| 170 | |
| | $ | 1,200 | |
| | | | |
Total purchase price | | $ | 45,894 | |
The estimates of fair value of identifiable assets acquired and liabilities assumed are preliminary, pending finalization of athe valuation and tax returns, thus are subject to revisions that may result in adjustments to the values presented above.
The MotifVF US customer relationships and tradename have been estimated based on the initial valuation and arewill be amortized over an estimated useful lifelives of 11 years.4 and 2 years, respectively. The goodwill recognized from the MotifVF US acquisition is estimated to be attributable, but not limited to, the acquired workforce and expected synergies with CMS. None of theTTEC Digital segment. The tax basis of the acquired intangibles and goodwill will be deductible for income tax purposes. The acquired goodwill and intangibles and operating results of MotifVF US are reported within the CMSTTEC Digital segment from the date of acquisition.
ConnextionsVoice Foundry ASEAN
On April 3, 2017,November 4, 2020, TTEC Europe BV, a subsidiary of the Company, acquired allclosed the final phase of the outstanding sharesacquisition of Connextions, Inc.the Voice Foundry business by acquiring 100% of the issued stock of Saasy Ventures Pty Ltd. (“Saasy”, a health care customer service provider company, from OptumHealth Holdings, LLC. Connextions is being“VF ASEAN”). The business has been integrated into the health care verticalTTEC Digital segment and is being fully consolidated into the financial statements of the CMS segment of the Company. Connextions employed approximately 2,000 at several centers in the U.S.TTEC.
The totalTotal cash paid at acquisition was $80$15.2 million. The purchase priceVF ASEAN Transaction is subject to customary representations and warranties, indemnities,holdbacks, and net working capital adjustment. In connectionadjustments. The VF ASEAN Transaction includes two contingent payments over the next two years with each payment having a maximum value of $4.4 million based on VF ASEAN’s EBITDA performance for 2020 and 2021.
The fair value of the contingent consideration has been estimated using a Monte Carlo model. The model was based on current expected EBITDA performance, a discount rate of 18.4%, a volatility rate of 50%, and an adjusted risk-free rate of 1.6%. Based on the model, a $2.8 million expected future payment was calculated and recorded as of the acquisition date. During the Company and OptumHealth (directly and through affiliates) also entered into long-term technology and customer services agreements, and into transition services agreementsfourth quarter of 2020, a $1.2 million expense was recorded related to facilitate the transfera fair value adjustment of the business.estimated contingent consideration based on estimates of EBITDA performance for 2020 and 2021. The Companyexpense was requiredincluded in Other income (expense) in the Consolidated Statements of Comprehensive Income (Loss). As of December 31, 2020, the value of the accrual is $3.9 million, with $2.2 million included in Other accrued expenses and $1.7 million included in Other long-term liabilities in the accompanying Consolidated Balance Sheets.
A multi-period excess earnings method under the income approach was used to pay an additional $1.8 million forestimate the working capital adjustment, which was paid during the third quarter of 2017. Additionally, fair value adjustments related toof the transition services agreements reducedcustomer relationships intangible asset. The significant assumption utilized in calculating the purchase price by $4.1 million resulting in a net purchase pricefair value of $77.7 million.
the customer relationships intangible asset was the customer attrition rate.
F-17F-18
The following summarizes the estimated fair values of the identifiable assets acquired and liabilities assumed as of the acquisition date (in thousands):
| | | | |
|
| Preliminary |
| |
| | Estimate of |
| |
| | Acquisition Date |
| |
| | Fair Value |
| |
Cash | | $ | 1,300 | |
Accounts receivable, net | | | 937 | |
Prepaid and other expenses | |
| 115 | |
Income tax receivable | | | 30 | |
Property, plant and equipment | | | 274 | |
Tradename | |
| 300 | |
Customer relationships | |
| 3,100 | |
Goodwill | | | 14,418 | |
| | $ | 20,474 | |
| | | | |
Accounts payable | | $ | 960 | |
Accrued employee compensation | |
| 113 | |
Deferred revenue | | | 236 | |
Deferred tax liability | | | 1,013 | |
Other accrued liabilities | |
| (78) | |
| | $ | 2,244 | |
| | | | |
Total purchase price | | $ | 18,230 | |
The estimates of fair value of identifiable assets acquired and liabilities assumed are preliminary, pending finalization of the valuation and tax returns, thus are subject to revisions that may result in adjustments to the values presented above.
The VF ASEAN customer relationships and tradename have been estimated based on the initial valuation and will be amortized over estimated useful lives of 4 and 2 years, respectively. The goodwill recognized from the VF ASEAN acquisition is estimated to be attributable, but not limited to, the acquired workforce and expected synergies with TTEC Digital segment. The tax basis of the acquired intangibles and goodwill will be not deductible for income tax purposes. The acquired goodwill and intangibles and operating results of VF ASEAN are reported within the TTEC Digital segment from the date of acquisition.
Serendebyte
On February 7, 2020, the Company acquired, through its subsidiary TTEC Digital LLC, 70% of the outstanding shares of capital stock of Serendebyte Inc., a Delaware corporation (“the Serendebyte Transaction”). Serendebyte is an autonomous customer experience and intelligent automation solutions provider with 125 employees based in India, the United States, and Canada. The business has been integrated into the TTEC Digital segment and is being fully consolidated into the financial statements of TTEC.
Total cash paid at acquisition, for 70% of the outstanding shares of capital stock, was $9.0 million. The Serendebyte Transaction is subject to customary representations and warranties, holdbacks, and a net working capital adjustment. The Company finalized the net working capital adjustment for $0.8 million during the second quarter of 2020 which was paid by Serendebyte to TTEC Digital LLC in the second quarter of 2020.
F-19
As of the closing of the Serendebyte Transaction, Serendebyte’s founder and certain members of its management continued to hold the remaining 30% interest in Serendebyte, Inc. (“Remaining Interest”). Between January 31, 2023 and December 31, 2023, Serendebyte’s founder and the management team shall have an option to sell to TTEC Digital LLC and TTEC Digital LLC shall have an option to purchase the Remaining Interest at a purchase price equal to a multiple of Serendebyte’s adjusted trailing twelve month EBITDA for this particular acquisition. The noncontrolling interest was recorded at fair value on the date of acquisition. The fair value was based on significant inputs not observable in the market (Level 3 inputs) including forecasted earnings, discount rate of 35%, working capital requirements and applicable tax rates. The noncontrolling interest was valued at $3.8 million and is shown as Redeemable noncontrolling interest in the accompanying Consolidated Balance Sheets.
As a condition to closing, Serendebyte’s founder and certain members of the management team agreed to continue their affiliation with Serendebyte at least through 2023, and the founder agreed not to compete with TTEC for a period of four years after the disposition of the Remaining Interest.
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 |
| |||||
| | | | | ||||
| | Acquisition Date |
| |||||
| | Fair Value |
| |||||
Cash |
| $ | — |
| | $ | 3,123 | |
Accounts receivable, net |
|
| 15,959 |
| |
| 1,243 | |
Prepaid expenses |
|
| 241 |
| ||||
Other current assets |
|
| 51 |
| ||||
Prepaid and other expenses | |
| 1,327 | | ||||
Property, plant and equipment |
|
| 7,594 |
| | | 20 | |
Deferred tax assets | | | 14 | | ||||
Tradename | | | 400 | | ||||
Customer relationships |
|
| 35,000 |
| | | 1,920 | |
Goodwill |
|
| 35,272 |
| | | 9,033 | |
|
| $ | 94,117 |
| ||||
|
|
|
|
| ||||
| | $ | 17,080 | | ||||
| | | | | ||||
Accounts payable |
| $ | 1 |
| | $ | 120 | |
Accrued employee compensation and benefits |
|
| 346 |
| |
| 1,025 | |
Accrued income taxes | |
| 170 | | ||||
Accrued expenses |
|
| 386 |
| | | 2,208 | |
Deferred tax liabilities |
|
| 15,273 |
| ||||
Deferred revenue |
|
| 399 |
| ||||
|
| $ | 16,405 |
| ||||
|
|
|
|
| ||||
Deferred tax liabilities - long-term | |
| 629 | | ||||
| | $ | 4,152 | | ||||
| | | | | ||||
Total purchase price |
| $ | 77,712 |
| | $ | 12,928 | |
In the fourth quarter of 2017,2020, the Company finalized itsthe valuation of ConnextionsSerendebyte for the acquisition date assets acquired and liabilities assumed and determined that no material adjustments to any of the balances were required.
At the date of the purchase, an additional $2.2 million of cash was retained in the entity that was withdrawn by the holders of the Remaining Interest during the second quarter of 2020.
The ConnextionsSerendebyte customer relationships will beand tradename are being amortized over a useful lifelives of 12 years.5 and 3 years, respectively. The goodwill recognized from the ConnextionsSerendebyte acquisition is attributable, but not limited to, the acquired work forceworkforce and expected synergies with CMS. NoneTTEC Digital segment. The tax basis of the acquired intangibles and goodwill will not be deductible for income tax purposes. The acquired goodwill and intangibles and operating results of Serendebyte are reported within the TTEC Digital segment from the date of acquisition.
First Call Resolution
On October 26, 2019, the Company acquired, through its subsidiary TTEC Services Corporation (“TSC”), 70% of the outstanding membership interest in First Call Resolution, LLC (“FCR”), an Oregon limited liability company (“the FCR Transaction”). FCR is a customer care, social networking and business process solutions service provider with approximately 2,000 employees based in the U.S. The business has been integrated into the Engage segment and is being fully consolidated into the financial statements of TTEC.
F-20
Total cash paid at acquisition was $107.0 million, inclusive of $4.5 million related to cash balances, for the 70% membership interest in FCR. The FCR Transaction was subject to customary representations and warranties, holdbacks, and a net working capital adjustment. The FCR Transaction included a potential contingent payment with a maximum value of $10.9 million based on FCR’s 2020 EBITDA performance. The Company finalized the working capital adjustment for $0.7 million during the first quarter of 2020 which was paid by FCR to TSC in March 2020.
As of the closing of the FCR Transaction, Ortana Holdings, LLC, an Oregon limited liability company (“Ortana”), owned by the FCR founders, will continue to hold the remaining 30% membership interest in FCR (“Remaining Interest”). Between January 31, 2023 and December 31, 2023, Ortana shall have an option to sell to TSC and TSC shall have an option to purchase from Ortana the Remaining Interest at a purchase price equal to a multiple of FCR’s adjusted trailing twelve month EBITDA for this particular acquisition and not to compete with the Company for a period of four years after the disposition of the Remaining Interest. The noncontrolling interest was recorded at fair value on the date of acquisition. The fair value was based on significant inputs not observable in the market (Level 3 inputs) including forecasted earnings, discount rate of 19.6%, working capital requirements and applicable tax rates. The noncontrolling interest was valued at $48.3 million on the acquisition date and is shown as Redeemable noncontrolling interest in the accompanying Consolidated Balance Sheets.
The fair value of the contingent consideration has been measured based on significant inputs not observable in the market (Level 3 inputs). Significant assumptions include a discount rate of 16.7% expected forecast volatility of 20%, an equivalent metric risk premium of 15.1%, risk-free rate of 1.6% and a credit spread of 1.8%. Based on these, a $6.5 million expected future payment was calculated. As of the acquisition date, the present value of the contingent consideration was $6.1 million. During the first, second and fourth quarters of 2020, $3.3 million, $1.1 million and $1.8 million of net benefits, respectively, were recorded related to fair value adjustment of the estimated contingent consideration based on revised actuals and estimates of EBITDA performance for 2020. The benefits were included in Other income (expense) in the Consolidated Statements of Comprehensive Income (Loss). As of December 31, 2020, the final value of the contingent consideration was calculated at 0 based on actual performance for 2020.
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 | | $ | 5,225 | |
Accounts receivable, net | |
| 10,659 | |
Prepaid expenses | | | 357 | |
Property and equipment | | | 6,006 | |
Other assets | | | 224 | |
Operating lease assets | | | 5,127 | |
Tradename | |
| 8,600 | |
Customer relationships | |
| 38,540 | |
Goodwill | | | 96,739 | |
| | $ | 171,477 | |
| | | | |
Accounts payable | | $ | 388 | |
Operating lease liability - short-term | | | 1,160 | |
Accrued employee compensation and benefits | |
| 4,049 | |
Accrued expenses | |
| 72 | |
Operating lease liability - long-term | |
| 3,967 | |
| | $ | 9,636 | |
| | | | |
Total purchase price | | $ | 161,841 | |
In the first quarter of 2020, the Company finalized its valuation of FCR for the acquisition date assets acquired and liabilities assumed and determined that no material adjustments to any of the balances were required.
F-21
As part of the purchase, an additional net $0.7 million of cash was retained in the entity to pay for certain Ortana liabilities that had been recorded prior to the acquisition.
The FCR customer relationships and tradename are being amortized over a useful life of 10 and 4 years, respectively. The goodwill recognized from the FCR acquisition is attributable, but not limited to, the acquired workforce and expected synergies with Engage. The tax basis of the acquired intangibles and goodwill will be deductible for income tax purposes. The acquired goodwill and theintangibles and operating results of ConnextionsFCR are reported within the CMSEngage segment from the date of acquisition.
Atelka
On November 9, 2016, the Company acquired all of the outstanding shares of Atelka Enterprise Inc. (“Atelka”), a Canadian customer contact center management and business process outsourcing services company that serves Canadian telecommunications, logistics, and entertainment clients. This acquisition was an addition to the CMS segment. Atelka employs approximately 2,800 in Quebec, Ontario, New Brunswick and Prince Edward Island.
The total purchase price was $48.4 million ($65.0 million CAD), including certain working capital adjustments, and consisted of $47.5 million in cash at closing and a $1.4 million hold-back for contingencies as defined in the sale and purchase agreement, which will be released to the seller in 12 and 24 months, post acquisition, if not used. During the fourth quarter of 2017, $0.6 million ($0.8 million CAD) of the hold-back was released to the seller.
F-18
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 |
| $ | 2,655 |
|
Accounts receivable, net |
|
| 18,449 |
|
Other assets |
|
| 615 |
|
Property, plant and equipment |
|
| 3,161 |
|
Deferred tax assets, net |
|
| 638 |
|
Customer relationships |
|
| 10,500 |
|
Goodwill |
|
| 20,275 |
|
|
|
| 56,293 |
|
|
|
|
|
|
Accounts payable |
|
| 1,199 |
|
Accrued employee compensation and benefits |
|
| 2,418 |
|
Accrued expenses |
|
| 2,597 |
|
Other |
|
| 1,678 |
|
|
|
| 7,892 |
|
|
|
|
|
|
Total purchase price |
| $ | 48,401 |
|
In the third quarter of 2017, the Company finalized its valuation of Atelka for the acquisition date assets and liabilities assumed and determined that no material adjustments to any of the balances were required.
The Atelka customer relationships will be amortized over a useful life of 12 years. The goodwill recognized from the Atelka acquisition is attributable, but not limited to, the acquired work force and expected synergies with CMS. 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 Atelka are reported within the CMS segment from the date of acquisition.
Financial Impact of Acquired Businesses
The acquired businesses purchased in 20172020 and 20162019 noted above contributed revenues of $172.3$122.1 million and $10.0$18.6 million, and a net lossincome of $(0.7)$8.2 million and $(0.3)$1.4 million, inclusive of $3.5$7.4 million and $0.1$1.1 million of acquired intangible amortization, to the Company for the years ended December 31, 20172020 and 2016,2019, respectively.
The unaudited proforma financial results for the twelve months ended 20172020 and 20162019 combines the consolidated results of the Company, Motif, ConnextionsVoice Foundry US, Voice Foundry ASEAN, Serendebyte and AtelkaFCR, assuming the Motif and Connextions acquisitions had been completed on January 1, 2016 and the Atelka acquisition on January 1, 2015.2019. The reported revenue and net income of $1,275.3 million$1,643.7 and $37.4$77.2 million would have been $1,489.1$1,741.3 million and $31.1$93.1 million for the twelve months ended December 31, 2016,2019, respectively, on an unaudited proforma basis.
For 2017,2020, the reported revenue and net income of $1,477.4$1,949.2 million and $7.3$118.6 million would have been $1,541.6$1,965.6 million and $11.5$123.8 million for the year ended December 31, 2017,2020, respectively, on an unaudited proforma basis.
The unaudited pro forma consolidated results are not to be considered indicative of the results if these acquisitions occurred in the periods mentioned above, or indicative of future operations or results. Additionally, the pro forma consolidated results do not reflect any anticipated synergies expected as a result of the acquisition.
F-19
Table of ContentsInvestments
TTEC HOLDINGS, INC. AND SUBSIDIARIESCaféX
Notes to the Consolidated Financial Statements
AssetsBetween 2015 and Liabilities Held for Sale
During the third quarter of 2016, the Company determined that one business unit from the Customer Growth Services (“CGS”) segment and one business unit from the Customer Strategy Services (“CSS”) segment would be divested from the Company’s operations. These business units met the criteria to be classified as held for sale. The Company had engaged a broker for both business units and was working with potential buyers for both business units. The Company took into consideration the discounted cash flow models, management input based on early discussions with brokers and potential buyers, and third-party evidence from similar transactions to complete the fair value analysis as there had not been a selling price determined at this point for either unit. For the two business units in CGS and CSS losses of $2.6 million and $2.7 million, respectively, were recorded as of December 31, 2016 in Loss on assets held for sale in the Consolidated Statements of Comprehensive Income (Loss). No adjustments were made for this business unit as this continues to be reflective of the fair value at December 31, 2017.
For the business unit in CGS, based on further discussion and initial offers, management determined that the estimated selling price assumed should be revised and an additional $3.2 million loss was recorded in June 30, 2017 and included in Loss on assets held for sale in the Consolidated Statements of Comprehensive Income (Loss). Effective December 22, 2017, the business unit was sold to The Search Agency (“TSA”) for an up-front payment of $245 thousand and future contingent earnout on the one year anniversary of the closing date. During the fourth quarter of 2017, a net $0.6 million gain was recorded in Loss on assets held for sale in the Consolidated Statements of Comprehensive Income (Loss).
The following table presents information related to the major components of assets and liabilities that were classified as held for sale in the Consolidated Balance Sheet as of December 31, 2017.
|
|
|
|
|
|
| As of |
| |
|
| December 31, 2017 |
| |
Cash |
| $ | — |
|
Accounts receivable, net |
|
| 6,151 |
|
Allowance for doubtful accounts |
|
| — |
|
Other assets |
|
| 303 |
|
Property, plant and equipment |
|
| 49 |
|
Deferred tax assets, net |
|
| — |
|
Customer relationships |
|
| 999 |
|
Goodwill |
|
| 3,033 |
|
Other intangible assets |
|
| — |
|
Allowance for reduction of assets held for sale |
|
| (2,700) |
|
Total assets |
| $ | 7,835 |
|
|
|
|
|
|
Accounts payable |
| $ | 413 |
|
Accrued employee compensation and benefits |
|
| 833 |
|
Accrued expenses |
|
| 54 |
|
Other |
|
| 22 |
|
Total liabilities |
| $ | 1,322 |
|
F-20
Investments
CaféX
In the first quarter of 2015, the Company invested $9.0$13.3 million in CafeXCaféX Communications, Inc. (“CaféX”) through the purchase of a portion of the Series B Preferred Stock of CaféX. CaféX is, a provider of omni-channel web-based real time communication (WebRTC) solutions that enhance mobile applicationssolutions. In 2018, the Company provided CaféX a $2.1 million bridge loan which was supposed to accrue interest at a rate of 12% per annum and websites with in-app video communication and screen share technology to increase customer satisfaction and enterprise efficiency. TTEC anticipates deployingmature in the CaféX technology as partsecond quarter of the TTEC customer experience offerings within the CMS business segment and as part2020, more recently changed to November 30, 2021. As of its Humanify platform. At December 31, 2015, the Company owned 17.2% of the total equity of CaféX. During the fourth quarter of 2016, the Company invested an additional $4.3 million to purchase a portion of the Series C Preferred Stock; $3.2 million was paid in the fourth quarter of 2016 and $1.1 million was paid in the first quarter of 2017. At December 31, 2017,2020, the Company owns 17.2%17.8% of the total equity of CaféX. The investment is accounted for under the cost method of accounting. The Company evaluates its investments for possible other-than-temporary impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. TheAs of March 31, 2018, the Company testedevaluated the investment in CaféX for impairment due to its failure to consummate a planned IP sale, a shift in the strategy, a default under a loan agreement with its bank, and concludeda lack of potential additional funding options. Based on this evaluation, the Company determined that the fair value of its investment in CaféX was zero and thus the investment was not impaired at December 31, 2017 or December 31, 2016.
During the first quarter of 2018, theimpaired. The Company provided to CaféX $2.1recorded a $15.6 million in the form of a bridge loan which accrues interest at a rate of 12% until maturity or conversion, which will be no later than June 30, 2020. Based on certain events, the loan could convert into Series D preferred stock.
Divestitures
Technology Solutions Group (“TSG”)
Effective June 30, 2017, the Company sold the Technology Solutions Group to SKC Communication Products, LLC (“SKC”) for an upfront payment of $250 thousand and future contingent royalty payments over the next 3 years. TSG had been included in the CTS segment. During the second quarter of 2017, a $30 thousand gain, which included the write-off of $0.7 million of goodwill, was recorded and included in the Consolidated Statements of Comprehensive Income (Loss). During the third quarter of 2017, a $141 thousand gain was recorded as a result of TSG delivering to SKC working capital in excess of the target set forth in the stock purchase agreement,equity investment and the gain was included in the Consolidated Statements of Comprehensive Income (Loss). During the fourth quarter of 2017, TTEC received $259 thousand related to quarterly royalty paymentsbridge loan which was included in Other Incomeincome (expense) in the Consolidated Statements of Comprehensive Income (Loss).
TeleTech Spain Holdings SLF-22
Dissolutions
In the ordinary course of business, the Company operates different legal entities around the globe that have functional currencies other than USD. From time-to-time, the Company liquidates some of the entities when they are no longer needed to operate its business, and also forms new entities to support the needs of the business. The liquidation proceedings may take different forms, take considerable amount of time, and may also result in losses or gains unrelated to operations. In the second quarter ended June 30, 2020, the Company exited a foreign subsidiary that resulted in a $2.5 million loss included in Other income (expense), net in the Consolidated Statements of Comprehensive Income (Loss) from the realization of the Accumulated Other Comprehensive Income (Loss), which represents the Currency Translation Adjustment of the investment in the foreign subsidiary. Similarly, in the third quarter of 2017,ended September 30, 2020, the Company dissolved TeleTech Spain Holdings SL, a fully ownedexited two foreign subsidiary domiciled in Spain. Upon complete liquidation, $3.2 million attributable to the accumulated translation adjustment component of equity has beensubsidiaries that have ceased operations and therefore were removed from Accumulated other comprehensive income (loss) and recognizedthe consolidated financial statements as part of the gain on liquidation. The $3.2reporting period ended September 30, 2020. As a result of the deconsolidation, a $17.4 million gainloss was included in Other income (expense), net in the Consolidated Statements of Comprehensive Income (Loss) for. The majority of this loss related to the three and nine months ended September 30, 2017.realization of the Accumulated Other Comprehensive Income (Loss) balance which represents the Currency Translation Adjustment of the investment in the foreign subsidiaries. The operating income of these subsidiaries prior to dissolution was not material to the year-to-date consolidated results of the Company.
(3)
SEGMENT INFORMATIONThe Company reports the following fourtwo segments:
TTEC Digital provides the CX technology services and platforms to support the Company’s clients’ customer interaction delivery infrastructure. The segment designs, builds and operates the omnichannel ecosystem in a cloud, on premise, or hybrid environment, and fully integrates, orchestrates, and administers highly scalable, feature-rich CX technology applications. These solutions are critical to enabling and accelerating digital transformation for the Company’s clients.
| Technology Services: the |
F-21
| Professional Services: the |
|
|
|
|
TTEC Engage delivers the CX managed services to support the Company’s clients’ end-to-end customer interaction delivery, by providing the essential CX omnichannel and application technologies, human resources, recruiting, training and production, at-home or facility-based delivery infrastructure on a global scale, and engagement processes. This segment provides full-service digital, omnichannel customer engagement, supporting customer care, customer acquisition, growth and retention, and fraud detection and prevention services.
| ● | Customer Acquisition Services: the Company’s customer growth and acquisition services optimize the buying journeys for acquiring new customers by leveraging technology and analytics to deliver personal experiences that increase the quantity and quality of leads and customers. |
| ● | Customer Care Services: the Company’s customer care services provide turnkey contact center solutions, including digital omnichannel technologies, associate recruiting and training, facilities, and operational expertise to create exceptional customer experiences across all touchpoints. |
| ● | Fraud Prevention Services: the Company’s digital fraud detection and prevention services proactively identify and prevent fraud and provide community content moderation and compliance. |
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.
F-23
The following tables present certain financial data by segment (in thousands):
Year Ended December 31, 20172020
| | | | | | | | | | | | | | | | |
|
| | |
| | |
| | |
| Depreciation |
| Income |
| ||
| | Gross | | Intersegment | | Net | | & | | from |
| |||||
| | Revenue | | Sales | | Revenue | | Amortization | | Operations |
| |||||
TTEC Digital | | $ | 307,278 | | $ | (293) | | $ | 306,985 | | $ | 14,029 | | $ | 45,315 | |
TTEC Engage | |
| 1,642,263 | |
| 0 | |
| 1,642,263 | |
| 64,833 | |
| 159,377 | |
Total | | $ | 1,949,541 | | $ | (293) | | $ | 1,949,248 | | $ | 78,862 | | $ | 204,692 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Depreciation |
|
|
|
| |
|
| Gross |
| Intersegment |
| Net |
| & |
| Income from |
| |||||
|
| Revenue |
| Sales |
| Revenue |
| Amortization |
| Operations |
| |||||
Customer Management Services |
| $ | 1,141,779 |
| $ | (19) |
| $ | 1,141,760 |
| $ | 52,193 |
| $ | 78,206 |
|
Customer Growth Services |
|
| 128,698 |
|
| — |
|
| 128,698 |
|
| 2,959 |
|
| 7,803 |
|
Customer Technology Services |
|
| 138,918 |
|
| (337) |
|
| 138,581 |
|
| 7,092 |
|
| 12,047 |
|
Customer Strategy Services |
|
| 68,326 |
|
| — |
|
| 68,326 |
|
| 2,263 |
|
| 2,433 |
|
Total |
| $ | 1,477,721 |
| $ | (356) |
| $ | 1,477,365 |
| $ | 64,507 |
| $ | 100,489 |
|
Year Ended December 31, 20162019
| | | | | | | | | | | | | | | | |
|
| | |
| | |
| | |
| Depreciation |
| Income |
| ||
| | Gross | | Intersegment | | Net | | & | | from |
| |||||
| | Revenue | | Sales | | Revenue | | Amortization | | Operations |
| |||||
TTEC Digital | | $ | 305,595 | | $ | (249) | | $ | 305,346 | | $ | 11,216 | | $ | 38,927 | |
TTEC Engage | |
| 1,338,358 | |
| 0 | |
| 1,338,358 | |
| 57,870 | |
| 84,782 | |
Total | | $ | 1,643,953 | | $ | (249) | | $ | 1,643,704 | | $ | 69,086 | | $ | 123,709 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Depreciation |
|
|
|
| |
|
| Gross |
| Intersegment |
| Net |
| & |
| Income from |
| |||||
|
| Revenue |
| Sales |
| Revenue |
| Amortization |
| Operations |
| |||||
Customer Management Services |
| $ | 924,654 |
| $ | (329) |
| $ | 924,325 |
| $ | 48,770 |
| $ | 50,541 |
|
Customer Growth Services |
|
| 141,005 |
|
| — |
|
| 141,005 |
|
| 5,905 |
|
| 6,969 |
|
Customer Technology Services |
|
| 141,865 |
|
| (611) |
|
| 141,254 |
|
| 10,645 |
|
| 933 |
|
Customer Strategy Services |
|
| 68,674 |
|
| — |
|
| 68,674 |
|
| 3,355 |
|
| (5,691) |
|
Total |
| $ | 1,276,198 |
| $ | (940) |
| $ | 1,275,258 |
| $ | 68,675 |
| $ | 52,752 |
|
Year Ended December 31, 20152018
| | | | | | | | | | | | | | | | |
|
| | |
| | |
| | |
| Depreciation |
| Income |
| ||
| | Gross | | Intersegment | | Net | | & | | from |
| |||||
| | Revenue | | Sales | | Revenue | | Amortization | | Operations |
| |||||
TTEC Digital | | $ | 239,144 | | $ | (345) | | $ | 238,799 | | $ | 8,814 | | $ | 33,054 | |
TTEC Engage | |
| 1,270,372 | |
| 0 | |
| 1,270,372 | |
| 60,365 | |
| 59,000 | |
Total | | $ | 1,509,516 | | $ | (345) | | $ | 1,509,171 | | $ | 69,179 | | $ | 92,054 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Depreciation |
|
|
|
| |
|
| Gross |
| Intersegment |
| Net |
| & |
| Income from |
| |||||
|
| Revenue |
| Sales |
| Revenue |
| Amortization |
| Operations |
| |||||
Customer Management Services |
| $ | 913,272 |
| $ | — |
| $ | 913,272 |
| $ | 44,633 |
| $ | 58,018 |
|
Customer Growth Services |
|
| 129,021 |
|
| — |
|
| 129,021 |
|
| 6,065 |
|
| 3,077 |
|
Customer Technology Services |
|
| 157,838 |
|
| (232) |
|
| 157,606 |
|
| 9,775 |
|
| 13,339 |
|
Customer Strategy Services |
|
| 86,856 |
|
| — |
|
| 86,856 |
|
| 3,335 |
|
| 15,746 |
|
Total |
| $ | 1,286,987 |
| $ | (232) |
| $ | 1,286,755 |
| $ | 63,808 |
| $ | 90,180 |
|
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | For the Year Ended December 31, |
| |||||||
|
|
| 2020 |
| 2019 |
| 2018 |
| |||
Capital Expenditures | | | | | | | | | | | |
TTEC Digital | | | $ | 7,881 | | $ | 14,397 | | $ | 4,833 | |
TTEC Engage | | |
| 51,891 | |
| 46,379 | |
| 38,617 | |
Total | | | $ | 59,772 | | $ | 60,776 | | $ | 43,450 | |
| | | | | | | | | | | |
| | | December 31, | | |||||||
| | | 2020 |
| 2019 | | 2018 | | |||
Total Assets | | | | | | | | | | | |
TTEC Digital | | | $ | 277,365 |
| $ | 238,081 | | $ | 222,977 | |
TTEC Engage | | |
| 1,239,043 | |
| 1,138,707 | |
| 831,531 | |
Total | | | $ | 1,516,408 |
| $ | 1,376,788 | | $ | 1,054,508 | |
| | | | | | | | | | | |
| | | December 31, | | |||||||
| | | 2020 |
| 2019 | | 2018 | | |||
Goodwill | | | | | | | | | | | |
TTEC Digital | | | $ | 128,211 |
| $ | 66,275 | | $ | 66,158 | |
TTEC Engage | | |
| 235,291 | |
| 235,419 | |
| 138,475 | |
Total | | | $ | 363,502 |
| $ | 301,694 | | $ | 204,633 | |
| | | | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Year Ended December 31, |
| |||||||
|
|
| 2017 |
| 2016 |
| 2015 |
| |||
Capital Expenditures |
|
|
|
|
|
|
|
|
|
|
|
Customer Management Services |
|
| $ | 48,069 |
| $ | 40,321 |
| $ | 56,570 |
|
Customer Growth Services |
|
|
| 871 |
|
| 4,185 |
|
| 4,681 |
|
Customer Technology Services |
|
|
| 2,308 |
|
| 5,217 |
|
| 4,216 |
|
Customer Strategy Services |
|
|
| 710 |
|
| 1,109 |
|
| 1,128 |
|
Total |
|
| $ | 51,958 |
| $ | 50,832 |
| $ | 66,595 |
|
F-22F-24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, |
| |||||||
|
|
| 2017 |
| 2016 |
| 2015 |
| |||
Total Assets |
|
|
|
|
|
|
|
|
|
|
|
Customer Management Services |
|
| $ | 869,594 |
| $ | 585,679 |
| $ | 525,470 |
|
Customer Growth Services |
|
|
| 41,036 |
|
| 71,540 |
|
| 75,291 |
|
Customer Technology Services |
|
|
| 100,351 |
|
| 115,537 |
|
| 146,480 |
|
Customer Strategy Services |
|
|
| 67,755 |
|
| 73,548 |
|
| 96,086 |
|
Total |
|
| $ | 1,078,736 |
| $ | 846,304 |
| $ | 843,327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, |
| |||||||
|
|
| 2017 |
| 2016 |
| 2015 |
| |||
Goodwill |
|
|
|
|
|
|
|
|
|
|
|
Customer Management Services |
|
| $ | 119,497 |
| $ | 42,589 |
| $ | 23,218 |
|
Customer Growth Services |
|
|
| 24,439 |
|
| 24,439 |
|
| 24,439 |
|
Customer Technology Services |
|
|
| 40,839 |
|
| 41,500 |
|
| 41,500 |
|
Customer Strategy Services |
|
|
| 21,919 |
|
| 21,120 |
|
| 25,026 |
|
Total |
|
| $ | 206,694 |
| $ | 129,648 |
| $ | 114,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables present certain financial data based upon the geographic location where the services are provided (in thousands):
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
|
|
| As of and for the |
| ||||||||||||||||||
|
|
| Year Ended December 31, |
| ||||||||||||||||||
|
|
| 2017 |
| 2016 |
| 2015 |
| ||||||||||||||
| | | | | | | | | | | | |||||||||||
| | | As of and for the |
| ||||||||||||||||||
| | | Year Ended December 31, |
| ||||||||||||||||||
|
| | 2020 |
| 2019 |
| 2018 |
| ||||||||||||||
Revenue |
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | |
United States |
|
| $ | 820,597 |
| $ | 693,023 |
| $ | 679,959 |
| | | $ | 1,338,267 | | $ | 1,002,524 | | $ | 862,026 | |
Philippines |
|
|
| 353,122 |
|
| 351,853 |
|
| 343,013 |
| | |
| 347,575 | |
| 370,395 | |
| 351,829 | |
Latin America |
|
|
| 130,082 |
|
| 122,347 |
|
| 147,267 |
| | |
| 98,633 | |
| 100,117 | |
| 109,104 | |
Europe / Middle East / Africa |
|
|
| 62,597 |
|
| 65,866 |
|
| 78,182 |
| | |
| 78,478 | |
| 70,613 | |
| 67,163 | |
Asia Pacific / India |
|
|
| 36,715 |
|
| 28,219 |
|
| 32,554 |
| | |
| 59,750 | |
| 55,554 | |
| 57,978 | |
Canada |
|
|
| 74,252 |
|
| 13,950 |
|
| 5,780 |
| | |
| 26,545 | |
| 44,501 | |
| 61,071 | |
Total |
|
| $ | 1,477,365 |
| $ | 1,275,258 |
| $ | 1,286,755 |
| | | $ | 1,949,248 | | $ | 1,643,704 | | $ | 1,509,171 | |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
| | | | | | | | | | | | |||||||||||
Property, plant and equipment, gross |
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | |
United States |
|
| $ | 490,110 |
| $ | 441,222 |
| $ | 415,918 |
| | | $ | 576,803 | | $ | 559,326 | | $ | 508,202 | |
Philippines |
|
|
| 137,683 |
|
| 133,214 |
|
| 140,712 |
| | |
| 162,391 | |
| 144,213 | |
| 130,176 | |
Latin America |
|
|
| 51,451 |
|
| 50,605 |
|
| 49,464 |
| | |
| 46,307 | |
| 45,743 | |
| 44,065 | |
Europe / Middle East / Africa |
|
|
| 10,231 |
|
| 8,805 |
|
| 14,567 |
| | |
| 23,043 | |
| 14,823 | |
| 10,499 | |
Asia Pacific / India |
|
|
| 24,592 |
|
| 23,484 |
|
| 23,181 |
| | |
| 15,918 | |
| 21,562 | |
| 19,874 | |
Canada |
|
|
| 15,912 |
|
| 19,988 |
|
| 16,239 |
| | |
| 13,844 | |
| 15,516 | |
| 15,193 | |
Total |
|
| $ | 729,979 |
| $ | 677,318 |
| $ | 660,081 |
| | | $ | 838,306 | | $ | 801,183 | | $ | 728,009 | |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
| | | | | | | | | | | | |||||||||||
Other long-term assets |
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | |
United States |
|
| $ | 46,029 |
| $ | 36,442 |
| $ | 34,007 |
| | | $ | 55,548 | | $ | 57,417 | | $ | 56,459 | |
Philippines |
|
|
| 7,753 |
|
| 8,194 |
|
| 5,220 |
| | |
| 8,756 | |
| 7,892 | |
| 5,188 | |
Latin America |
|
|
| 1,475 |
|
| 1,161 |
|
| 1,161 |
| | |
| 912 | |
| 993 | |
| 1,329 | |
Europe / Middle East / Africa |
|
|
| 1,950 |
|
| 1,099 |
|
| 811 |
| | |
| 2,328 | |
| 993 | |
| 544 | |
Asia Pacific / India |
|
|
| 4,326 |
|
| 110 |
|
| 165 |
| | |
| 1,726 | |
| 1,422 | |
| 1,680 | |
Canada |
|
|
| 324 |
|
| 514 |
|
| 1,122 |
| | |
| 168 | |
| 252 | |
| 241 | |
Total |
|
| $ | 61,857 |
| $ | 47,520 |
| $ | 42,486 |
| | | $ | 69,438 | | $ | 68,969 | | $ | 65,441 | |
F-23
(4)
Accounts receivable, net in the accompanying Consolidated Balance Sheets consists of the following (in thousands):
| | | | | | | |
| | December 31, |
| ||||
|
| 2020 |
| 2019 |
| ||
Accounts receivable | | $ | 383,464 | | $ | 336,548 | |
Less: Allowance for credit losses | |
| (5,067) | |
| (5,452) | |
Accounts receivable, net | | $ | 378,397 | | $ | 331,096 | |
In connection with the implementation of ASC 326 as of January 1, 2020, the Company analyzed the prior history of credit losses on revenue for TTEC as a whole and separately for each of the two segments. Based on this evaluation, no modification to the allowance for credit losses balance was necessary as of the implementation date. At the end of each quarter beginning with March 31, 2020, an allowance for credit losses has been calculated based on the current quarterly revenue multiplied by the historical loss percentage of the prior three year period and recorded in the income statement. In addition to the evaluation of historical losses, the Company considers current and future economic conditions and events such as changes in customer credit quality and liquidity. The Company will write-off accounts receivable against this allowance when the Company determines a balance is uncollectible.
|
|
|
|
|
|
|
|
|
| December 31, |
| ||||
|
| 2017 |
| 2016 |
| ||
Accounts receivable |
| $ | 386,672 |
| $ | 301,470 |
|
Less: Allowance for doubtful accounts |
|
| (921) |
|
| (662) |
|
Accounts receivable, net |
| $ | 385,751 |
| $ | 300,808 |
|
F-25
Activity in the Company’s Allowance for doubtful accountscredit losses consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| December 31, |
| |||||||||||||||||
|
| 2017 |
| 2016 |
| 2015 |
| |||||||||||||
| | | | | | | | | | | ||||||||||
| | December 31, |
| |||||||||||||||||
|
| 2020 |
| 2019 |
| 2018 |
| |||||||||||||
Balance, beginning of year |
| $ | 662 |
| $ | 2,176 |
| $ | 3,425 |
| | $ | 5,452 | | $ | 5,592 | | $ | 921 | |
Provision for doubtful accounts |
|
| 458 |
|
| 1,164 |
|
| 1,465 |
| ||||||||||
Provision for credit losses | |
| 494 | |
| 1,711 | |
| 3,679 | | ||||||||||
Uncollectible receivables written-off |
|
| (180) |
|
| (2,670) |
|
| (2,035) |
| |
| (880) | |
| (1,311) | |
| (429) | |
Effect of foreign currency and other |
|
| (19) |
|
| (8) |
|
| (679) |
| |
| 1 | |
| (540) | |
| 1,421 | |
Balance, end of year |
| $ | 921 |
| $ | 662 |
| $ | 2,176 |
| | $ | 5,067 | | $ | 5,452 | | $ | 5,592 | |
On October 15, 2018, Sears Holding Corporation (“Sears”) announced that it had filed a petition for bankruptcy protection in the United States Bankruptcy Court for the Southern District of New York. As of December 31, 2020 and December 31, 2019, TTEC had approximately $2.7 million in pre-petition accounts receivables outstanding related to Sears; during the fourth quarter of 2018 a $2.7 million allowance for uncollectible accounts was recorded and included in Selling, general and administrative expenses in the Consolidated Statements of Comprehensive Income (Loss). TTEC continues to provide post-petition services to Sears and has assessed these receivables for collection risk and has determined that these will be collectible.
Significant Clients
The Company had one client that contributed in excess of 10% of total revenue for the year ended December 31, 2020; this client operates in the financial services industry and is included in the TTEC Engage segment. The Company had no clients that contributed in excess of 10% of total revenue for the year ended December 31, 2017.2019. The Company had one client that contributed in excess of 10% of total revenue infor the yearsyear ended December 31, 2016 and 2015. This2018; this client operates in the communicationshealthcare industry and is included in the CMSTTEC Engage segment. The revenue from this clientthese clients as a percentage of total revenue wasis as follows:
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
| ||||
|
| 2017 |
| 2016 |
| 2015 |
|
|
|
|
|
|
|
|
|
Telecommunications client |
| 9 | % | 10 | % | 10 | % |
| | | | | | | |
| | Year Ended December 31, |
| ||||
|
| 2020 |
| 2019 |
| 2018 |
|
| | | | | | | |
Financial services client |
| 13 | % | 3 | % | 4 | % |
Healthcare client | | 6 | % | 8 | % | 10 | % |
Accounts receivable from this client was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
| |||||||
|
| 2017 |
| 2016 |
| 2015 |
| |||
|
|
|
|
|
|
|
|
|
|
|
Telecommunications client |
| $ | 26,920 |
| $ | 28,080 |
| $ | 23,953 |
|
| | | | | | | | | | |
| | Year Ended December 31, |
| |||||||
|
| 2020 |
| 2019 |
| 2018 |
| |||
| | | | | | | | | | |
Financial services client | | $ | 58,960 | | $ | 4,321 | | $ | 9,812 | |
Healthcare client | | $ | 17,453 | | $ | 18,385 | | $ | 49,245 | |
The Company does have clients with aggregate revenue exceeding $100 million annually and the loss of one or more of its significantthese clients could have a material adverse effect on the Company’s business, operating results, or financial condition. TheTo mitigate this risk, the Company does not require collateral from its clients. has multiple contracts with these larger clients, where each individual contract is for an amount below the $100 million aggregate.
To limit the Company’s credit risk with its clients, management performs periodic credit evaluations, maintains allowances for uncollectible accountscredit losses and may require pre-payment for services from certain clients. Based on currently available information, management does not believe significant credit risk exists as of December 31, 2017.
2020.
F-24F-26
Accounts Receivable Factoring Agreement
On March 5, 2019, the Company entered into an Uncommitted Receivables Purchase Agreement (“Agreement”) with Bank of the West (“Bank”), whereby from time-to-time the Company may elect to sell, on a revolving basis, U.S. accounts receivables of certain clients at a discount to the bank for cash on a limited recourse basis. The maximum amount of receivables that the Company may sell to the Bank at any given time shall not exceed $75 million. The sales of accounts receivable in accordance with the Agreement are reflected as a reduction of Accounts Receivable, net on the Consolidated Balance sheets. The Company has retained no interest in the sold receivables but retains all collection responsibilities on behalf of the Bank. The discount on the accounts receivable sold will be recorded within Other expense, net in the Consolidated Statements of Comprehensive Income (Loss). The cash proceeds from this Agreement are included in the change in accounts receivable within the operating activities section of the Consolidated Statements of Cash Flows.
As of December 31, 2020 and 2019, the Company had factored $71.0 million and $52.0 million, respectively, of accounts receivable; under the Agreement discounts on these receivables were not material during the year. As of December 31, 2020 and 2019, the Company had collected $26.1 million and $23.2 million, respectively, of cash from customers which had not been remitted to the Bank. The unremitted cash is Restricted Cash and is included within Prepaid and Other Current Assets with the corresponding liability included in Accrued Expenses on the Consolidated Balance Sheet. The Company has not recorded any servicing assets or liabilities as of December 31, 2020 and 2019 as the fair value of the servicing arrangement as well as the fees earned were not material to the financial statements.
(5)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following (in thousands):
|
|
|
|
|
|
|
| |||||||
|
| December 31, |
| |||||||||||
|
| 2017 |
| 2016 |
| |||||||||
| | | | | | | | |||||||
| | December 31, |
| |||||||||||
|
| 2020 |
| 2019 |
| |||||||||
Land and buildings |
| $ | 38,858 |
| $ | 38,868 |
| | $ | 32,944 | | $ | 32,942 | |
Computer equipment and software |
|
| 390,899 |
|
| 364,854 |
| |
| 474,415 | |
| 447,260 | |
Telephone equipment |
|
| 46,521 |
|
| 42,858 |
| |
| 51,717 | |
| 49,447 | |
Furniture and fixtures |
|
| 76,856 |
|
| 68,248 |
| |
| 85,149 | |
| 85,191 | |
Leasehold improvements |
|
| 176,467 |
|
| 162,232 |
| |
| 193,823 | |
| 186,083 | |
Motor vehicles |
|
| 158 |
|
| 143 |
| |
| 258 | |
| 260 | |
Construction-in-progress and other |
|
| 220 |
|
| 115 |
| |
| — | |
| — | |
Property, plant and equipment, gross |
|
| 729,979 |
|
| 677,318 |
| |
| 838,306 | |
| 801,183 | |
Less: Accumulated depreciation and amortization |
|
| (566,682) |
|
| (526,281) |
| |
| (659,600) | |
| (624,550) | |
Property, plant and equipment, net |
| $ | 163,297 |
| $ | 151,037 |
| | $ | 178,706 | | $ | 176,633 | |
Depreciation and amortization expense for property, plant and equipment was $57.0$62.7 million, $59.1$57.5 million and $54.0$58.4 million for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively.
Included in the computer equipment and software is internally developed software of $8.5$16.2 million net and $10.1$15.3 million net as of December 31, 20172020 and 2016,2019, respectively.
F-27
(6)
GOODWILLGoodwill consisted of the following (in thousands):
| | | | | | | | | | | | | | | | |
|
| | |
| | |
| | |
| Effect of |
| | |
| |
| | December 31, | | Acquisitions / | | | | | Foreign | | December 31, |
| ||||
| | 2019 | | Adjustments | | Impairments | | Currency | | 2020 |
| |||||
| | | | | | | | | | | | | | | | |
TTEC Digital | | $ | 66,275 | | $ | 59,341 | | $ | — | | $ | 2,595 | | $ | 128,211 | |
TTEC Engage | |
| 235,419 | |
| (254) | |
| — | |
| 126 | |
| 235,291 | |
Total | | $ | 301,694 | | $ | 59,087 | | $ | — | | $ | 2,721 | | $ | 363,502 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Effect of |
|
|
|
| |
|
| December 31, |
| Acquisitions / |
|
|
|
| Foreign |
| December 31, |
| ||||
|
| 2016 |
| Adjustments |
| Impairments |
| Currency |
| 2017 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer Management Services |
| $ | 42,589 |
| $ | 73,934 |
| $ | — |
| $ | 2,974 |
| $ | 119,497 |
|
Customer Growth Services |
|
| 24,439 |
|
| — |
|
| — |
|
| — |
|
| 24,439 |
|
Customer Technology Services |
|
| 41,500 |
|
| (661) |
|
| — |
|
| — |
|
| 40,839 |
|
Customer Strategy Services |
|
| 21,120 |
|
| — |
|
| — |
|
| 799 |
|
| 21,919 |
|
Total |
| $ | 129,648 |
| $ | 73,273 |
| $ | — |
| $ | 3,773 |
| $ | 206,694 |
|
| | | | | | | | | | | | | | | | |
|
| | |
| | |
| | |
| Effect of |
| | |
| |
| | December 31, | | Acquisitions / | | | | | Foreign | | December 31, |
| ||||
| | 2018 | | Adjustments | | Impairments | | Currency | | 2019 |
| |||||
| | | | | | | | | | | | | | | | |
TTEC Digital | | $ | 66,158 | | $ | 0 | | $ | — | | $ | 117 | | $ | 66,275 | |
TTEC Engage | |
| 138,475 | |
| 96,993 | |
| — | |
| (49) | |
| 235,419 | |
Total | | $ | 204,633 | | $ | 96,993 | | $ | — | | $ | 68 | | $ | 301,694 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Effect of |
|
|
|
| |
|
| December 31, |
| Acquisitions / |
|
|
|
| Foreign |
| December 31, |
| ||||
|
| 2015 |
| Adjustments |
| Impairments |
| Currency |
| 2016 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer Management Services |
| $ | 23,218 |
| $ | 21,030 |
| $ | (1,363) |
| $ | (296) |
| $ | 42,589 |
|
Customer Growth Services |
|
| 24,439 |
|
| — |
|
| — |
|
| — |
|
| 24,439 |
|
Customer Technology Services |
|
| 41,500 |
|
| — |
|
| — |
|
| — |
|
| 41,500 |
|
Customer Strategy Services |
|
| 25,026 |
|
| (3,033) |
|
| — |
|
| (873) |
|
| 21,120 |
|
Total |
| $ | 114,183 |
| $ | 17,997 |
| $ | (1,363) |
| $ | (1,169) |
| $ | 129,648 |
|
Impairment
The Company has sixthree reporting units with goodwill and performs a goodwill impairment test on at least an annual basis. The Company conducts its annual goodwill impairment test during the fourth quarter, or more frequently, if indicators of impairment exist.
F-25
the reporting structure within this segment. The Company has changed how it views and assesses performance of the components within the segment as the business has evolved and multiple recent acquisitions have been incorporated. After evaluation, The Company will maintain two reporting units within TTEC HOLDINGS, INC. AND SUBSIDIARIES
NotesDigital but these include different components than previously included. Given the change in reporting units, the Company conducted an impairment test before and after the change, and it was concluded that the fair value of the reporting units exceeded the carrying value on both testing dates. With the change in reporting units, the Company performed a relative fair value valuation calculation to allocate the Consolidated Financial Statements
Company’s historical goodwill between the two reporting units based on the shift in components. The resulting reallocation of goodwill was not material.
For the annual goodwill impairment analysis, the Company electedqualitatively assessed each of the three reporting units to determine whether it was necessary to perform a Step 1 evaluation for all of its reporting units, which includes comparing a reporting unit’s estimated fair value to its carrying value. The determination of fair value requires significant judgments including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term growth rates for the businesses, the useful lives over which the cash flows will occur and determination of appropriate discount rates (based in part on the Company’s weighted average cost of capital). Changes in these estimates and assumptions could materially affect the determination of fair value and/or conclusions on goodwill impairment for each reporting unit. As of December 1, 2017, the date of the annual impairment testing, the Company concludedtest. In evaluating whether it is more likely than not that for all six of the reporting units the fair values were in excess of their respective carrying values and the goodwill for those reporting units was not impaired.
During the Company’s annual impairment testing as of December 1, 2017, the Company identified triggering events that could lead to impairment of goodwill for the CSS reporting unit, including lower revenues and profits than had been anticipated over the past two years. The carrying value of CSS was $43.4 million at December 1, 2017, including approximately $22.0 million of goodwill. Based on the Company’s assessment, the estimated fair value of the CSS reporting unit exceeded its carrying value by approximately 44.0%, but based on additional sensitivity analysis, the amount of cushion could fall to 10% if the performance of the business does not improve as expected. The estimate of fair value was based on generally accepted valuation techniques and information available at the date of the assessment, which incorporated management’s assumptions about expected revenues and future cash flows and available market information for comparable companies.
The process of evaluating the fair value of the reporting units is highly subjectiveare less than their carrying amounts, the entity assessed the following relevant events and requires significant judgmentcircumstances for each of the three reporting units; macroeconomic conditions, industry and estimates asmarket considerations, cost factors, changes in management or key personnel, changes in strategy, changes to the composition of each reporting unit, and the Company’s share price relative to the industry and their peers. In addition, the Company identified the relevant assumptions in the most recent fair value analysis for each of the reporting units operate in a number of markets and geographical regions. We used a market approach and an income approach to determine our best estimates of fair value which incorporated the following significant assumptions:
|
|
|
|
|
|
|
|
|
|
CMS - Humanify reporting unit
then evaluated whether those assumptions had been affected by events or circumstances that were positive, negative or neutral. As of December 1, 2016,2020, the calculated fair value for the Humanify reporting unit was below the carrying value which necessitated an impairment analysis. The Company tested alldate of the assetsannual impairment test, the Company concluded that for all three of the reporting unit for impairment.
Definite-lived long-lived assets consistedunits the qualitative analysis concluded that the events and circumstances evaluated were primarily positive in nature thus it is not more likely than not that each of internally developed software and purchased IP. Based on a decision to change the strategy of this business unit in December 2016 which will not use these assets on a go forward basis, the Company has determined that there is no value associated with these assets and recorded a $10.8 million impairment in the three months ended December 31, 2016, which was included in Impairment losses in the Consolidated Statements of Comprehensive Income (Loss).reporting unit’s fair values respectively are less than their carrying amounts.
For the goodwill impairment analysis, the Company calculated the fair value of the Humanify reporting unit and compared that to the updated carrying value and determined that the fair value was not in excess of its carrying value. Key assumptions used in the fair value calculation for goodwill impairment testing include, but are not limited to, revenue growth of approximately $300 thousand to $1 million per year through 2027, a perpetual growth rate of 3%, a discount rate of 16.75%, and negative EBITDA through 2020 growing to a 15.6% EBITDA for the terminal year. Estimated future cash flows under the income approach were based on the Company’s internal business plan adjusted as appropriate for the Company’s view of market participant assumptions.
F-26F-28
The fair value of the Humanify reporting unit was determined to be zero. Upon completing this assessment, the Company determined that the implied fair value of goodwill was below the carrying value and the entire goodwill balance of $1.4 million was impaired and expensed in the three months ended December 31, 2016 which is included in Impairment losses in the Consolidated Statements of Comprehensive Income (Loss).
CSS reporting unit
During the quarter ended September 30, 2016, the Company identified negative indicators such as lower financial performance and the reversal of contingent consideration for the CSS reporting unit and thus the Company updated its quantitative assessment for the CSS reporting unit fair value using an income based approach. The determination of fair value requires significant judgments including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term growth rates for the businesses, the useful lives over which the cash flows will occur and determination of appropriate discount rates (based in part on the Company’s weighted average cost of capital). Changes in these estimates and assumptions could materially affect the determination of fair value and/or conclusions on goodwill impairment for each reporting unit. At September 30, 2016, the fair value for the CSS reporting unit exceeded the carrying value and thus no impairment was required.
The Company also determined that effective September 30, 2016 the assets of one of the business units within the CSS reporting unit will be held for sale (see discussion in Note 2). Therefore the CSS reporting unit was separated into the component that will be held for sale and the components that will be held for use and two separate fair value analyses were completed. At September 30, 2016 the fair value for the CSS held for use component exceeded the carrying value and thus no impairment was required. The fair value for the CSS held for sale component also exceeded the carrying value and thus no impairment was required.
Other intangible assets which are included in Other long-term assets in the accompanying Consolidated Balance Sheets consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| Acquisitions |
| Effect of |
|
|
|
| |||||||||||||||||||||
|
| December 31, |
|
|
|
|
|
|
| and |
| Foreign |
| December 31, |
| |||||||||||||||||||||||
|
| 2016 |
| Amortization |
| Impairments |
| Adjustments |
| Currency |
| 2017 |
| |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
|
| | |
| | |
| | |
| Acquisitions |
| Effect of |
| | |
| |||||||||||||||||||||
| | December 31, | | | | | | | | and | | Foreign | | December 31, |
| |||||||||||||||||||||||
| | 2019 | | Amortization | | Impairments | | Adjustments | | Currency | | 2020 |
| |||||||||||||||||||||||||
Customer relationships, gross |
| $ | 50,454 |
| $ | — |
| $ | — |
| $ | 72,492 |
| $ | 1,829 |
| $ | 124,775 |
| | $ | 161,756 | | $ | 0 | | $ | — |
| $ | 11,570 |
| $ | 275 | | $ | 173,601 | |
Customer relationships - accumulated amortization |
|
| (25,943) |
|
| (7,213) |
|
| — |
|
| (210) |
|
| (194) |
|
| (33,560) |
| |
| (54,653) | |
| (13,640) | |
| — |
| | — |
| | (476) | |
| (68,769) | |
Other intangible assets, gross |
|
| 4,589 |
|
| — |
|
| — |
|
| 151 |
|
| 44 |
|
| 4,784 |
| |
| 13,162 | |
| 0 | |
| — |
| | 1,250 |
| | 38 | |
| 14,450 | |
Other intangible assets - accumulated amortization |
|
| (3,978) |
|
| (254) |
|
| — |
|
| 1 |
|
| 318 |
|
| (3,913) |
| |
| (4,669) | |
| (2,546) | |
| — |
| | — |
| | (8) | |
| (7,223) | |
Trade name - indefinite life |
|
| 5,665 |
|
| — |
|
| (5,322) |
|
| — |
|
| (343) |
|
| — |
| |||||||||||||||||||
Other intangible assets, net |
| $ | 30,787 |
| $ | (7,467) |
| $ | (5,322) |
| $ | 72,434 |
| $ | 1,654 |
| $ | 92,086 |
| | $ | 115,596 | | $ | (16,186) | | $ | — | | $ | 12,820 | | $ | (171) | | $ | 112,059 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
|
|
|
|
|
|
|
|
| Acquisitions |
| Effect of |
|
|
|
| |||||||||||||||||||||||
|
| December 31, |
|
|
|
|
| and |
| Foreign |
| December 31, |
| |||||||||||||||||||||||||
|
| 2015 |
| Amortization |
| Impairments |
| Adjustments |
| Currency |
| 2016 |
| |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
|
| | |
| |
| |
| Acquisitions |
| Effect of |
| | |
| |||||||||||||||||||||||
| | December 31, | | | | | | and | | Foreign | | December 31, |
| |||||||||||||||||||||||||
| | 2018 | | Amortization | | Impairments | | Adjustments | | Currency | | 2019 |
| |||||||||||||||||||||||||
Customer relationships, gross |
| $ | 62,257 |
| $ | — |
| $ | (17,150) |
| $ | 6,588 |
| $ | (1,241) |
| $ | 50,454 |
| | $ | 123,527 | | $ | — | | $ | — | | $ | 38,540 | | $ | (311) | | $ | 161,756 | |
Customer relationships - accumulated amortization |
|
| (30,180) |
|
| (7,246) |
|
| 6,120 |
|
| 5,097 |
|
| 266 |
|
| (25,943) |
| |
| (43,223) | |
| (11,055) | |
| (423) | |
| — | |
| 48 | |
| (54,653) | |
Other intangible assets, gross |
|
| 13,750 |
|
| — |
|
| (5,566) |
|
| (3,701) |
|
| 106 |
|
| 4,589 |
| |
| 4,575 | |
| — | |
| — | |
| 8,600 | |
| (13) | |
| 13,162 | |
Other intangible assets - accumulated amortization |
|
| (8,755) |
|
| (2,285) |
|
| 3,956 |
|
| 2,929 |
|
| 177 |
|
| (3,978) |
| |
| (3,968) | |
| (541) | |
| (170) | |
| — | |
| 10 | |
| (4,669) | |
Trade name - indefinite life |
|
| 14,143 |
|
| — |
|
| (8,682) |
|
| — |
|
| 204 |
|
| 5,665 |
| |||||||||||||||||||
Other intangible assets, net |
| $ | 51,215 |
| $ | (9,531) |
| $ | (21,322) |
| $ | 10,913 |
| $ | (488) |
| $ | 30,787 |
| | $ | 80,911 | | $ | (11,596) | | $ | (593) | | $ | 47,140 | | $ | (266) | | $ | 115,596 | |
F-27
The acquisitions and adjustments recorded during 20172020 relate to the purchases of Serendebyte and Voice Foundry (see Note 2 for further information).
The acquisitions recorded during 2019 relate to the purchase of Connextions and MotifFCR (see Note 2 for further information) and the impairment of. The impairments recorded during 2019 relate to rogenSi intangible assets during the fourth quarter of 2017 (see below).
The acquisitions and adjustments recorded during 2016 relate toDigital - rogenSi
In connection with reduced profitability of the purchaserogenSi component of Atelka (see Note 2 for further information) and the TTEC Digital segment, an interim impairment of several intangible assetsanalysis was completed during the third and fourth quarters of 2016 (see below).
CTS - eLoyalty
During the fourthsecond quarter of 2017 in connection with the rebranding2019. The long-lived assets reviewed for impairment consisted of the consolidated company, management has determined that it will no longer becustomer relationship intangible, intellectual property, and right of use assets. The Company completed an asset group recoverability evaluation based on the current estimated cash flow based on forecasted revenues and operating income using significant inputs not observable in the name of eLoyalty and will be transitioning to TTEC Digital.market (Level 3 inputs). Based on this change in branding strategy, an evaluation ofcalculation, the indefinite-lived trade name was completed and it was determined that the fair value of the asset was zero. The Company recorded an impairment expense of $3.3$2.0 million in the three months ended December 31, 2017June 30, 2019, which was included in Impairment losses in the Consolidated Statements of Comprehensive Income (Loss).
CSS - PRG
During the fourth quarter of 2017 in connection with the rebranding As part of the consolidated company and the full integration of the CSS segment, management has determined that it will no longer be using the name of PRG and will be transitioning all CSS entities to TTEC Consulting. Based on this change in branding strategy, an evaluation of the indefinite-lived trade name was completed and it was determined that the fair value of the asset was zero. The Company recorded impairment expense of $2.0 million inimpairment $0.4 million was assigned to the three months endedcustomer relationship intangible asset and $0.2 million to the IP intangible asset. At December 31, 2017 which was included in Impairment losses in the Consolidated Statements of Comprehensive Income (Loss).
CTS - Avaya
In connection with reduced profitability for the Avaya component of the CTS segment an interim impairment analysis was completed during the third quarter of 2016. The Company modified the sales focus of the Avaya component away from premise product and services towards cloud solutions. The indefinite-lived intangible asset evaluated for impairment consisted of the TSG trade name. The Company calculated the fair value of the trade name using a relief from royalty method based on forecasted revenues sold under the trade name using significant inputs not observable in the market (Level 3 inputs). The valuation assumptions included an estimated royalty rate of 0.5%, a discount rate specific to the trade name of 19.0%, which was equal to the reporting unit’s equity risk premium adjusted for its size and company specific risk factors. and a perpetuity growth rate of 3.0%. Based on the calculated fair value of $0.4 million,2020, the Company recorded impairment expensereviewed the evaluation completed as of $0.7 million in the three months ended SeptemberJune 30, 2016 which was included in Impairment losses in the Consolidated Statements of Comprehensive Income (Loss).
Additional triggering events occurred related to continued lower than expected financial performance and the bankruptcy filing for Avaya. In connection with this event, the forecasted revenue and operating income for the future years has decreased and thus an impairment analysis was completed during the fourth quarter of 2016 for both the indefinite-lived TSG trade name and the TSG customer relationship asset. The Company completed an asset group recoverability analysis using significant inputs not observable in the market (Level 3 inputs). These included a declining revenue stream from 2017 through 2019, and a negative EBITDA for the next 4 years. The estimated fair value was a negative $0.9 million. Based on this recoverability analysis, annoted no material changes, thus no additional impairment of $9.2 million of customer relationships, $0.4 million of trade name and $0.4 million of non-compete intangible assets was recorded. In addition $1.3 million of fixed assets were also impaired. The total $11.3 million of expense was recorded in the three months ended December 31, 2016 and was included in Impairment losses in the Consolidated Statements of Comprehensive Income (Loss).
F-28
CSS - rogenSi
In connection with reduced profitability of the rogenSi component of the CSS segment, an interim impairment analysis was completed during the third quarter of 2016. The indefinite-lived intangible asset evaluated for impairment consisted of the trade name. The Company calculated the fair value of the trade name using a relief from royalty method based on forecasted revenues sold under the trade name using significant inputs not observable in the market (Level 3 inputs). The valuation assumptions included an estimated royalty rate of 2.0%, a discount rate specific to the trade name of 18.2%, which was equal to the reporting unit’s equity risk premium adjusted for its size and company specific risk factors, and a perpetuity growth rate of 3.0%. Based on the calculated fair value of $3.1 million, the Company recorded impairment expense of $1.2 million in the three months ended September 30, 2016 which was included in Impairment losses in the Consolidated Statements of Comprehensive Income (Loss)
During the fourth quarter of 2016 in connection with the full integration of the CSS segment, management has determined that it will no longer be using the name rogenSi and will be transitioning all CSS entities to TTEC Consulting. Based on this change in branding strategy, an evaluation of the indefinite-lived trade name was completed and it was determined that the fair value of the asset was zero. The Company recorded impairment expense of $3.0 million in the three months ended December 31, 2016 which was included in Impairment losses in the Consolidated Statements of Comprehensive Income (Loss).
CSS – component held-for-sale
The Company calculated the fair value of the trade name using a relief from royalty method based on forecasted revenues sold under the trade name using significant inputs not observable in the market (Level 3 inputs). The valuation assumptions included an estimated royalty rate of 3.75%, a discount rate specific to the trade name of 19.2% and a perpetuity growth rate of 3.0%. Based on the calculated fair value of $2.0 million, the Company recorded impairment expense of $3.3 million in the three months ended September 30, 2016 which was included in Impairment losses in the Consolidated Statements of Comprehensive Income (Loss).is required.
Customer relationships are being amortized over the remaining weighted average useful life of 8.87.1 years and other intangible assets are being amortized over the remaining weighted average useful life of 3.82.9 years. Amortization expense related to intangible assets was $7.5$16.2 million, $9.5$10.5 million and $9.7$10.8 million for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively.
F-29
Expected future amortization of other intangible assets as of December 31, 20172020 is as follows (in thousands):
|
|
|
| |||
2018 |
| $ | 10,903 | |||
2019 |
|
| 10,682 | |||
2020 |
|
| 9,381 | |||
| | | | |||
2021 |
|
| 8,850 |
| $ | 18,041 |
2022 |
|
| 8,160 | |
| 17,313 |
2023 | |
| 16,072 | |||
2024 | |
| 13,174 | |||
2025 | |
| 11,140 | |||
Thereafter |
|
| 44,110 | |
| 36,319 |
Total |
| $ | 92,086 | | $ | 112,059 |
(8)DERIVATIVES
F-29
Cash Flow Hedges
The Company enters into foreign exchange and interest rate related derivatives. Foreign exchange derivatives entered into consist of forward and option contracts to reduce the Company’s exposure to foreign currency exchange rate fluctuations that are associated with forecasted revenue earned in foreign locations. Interest rate derivatives consist of interest rate swaps to reduce the Company’s exposure to interest rate fluctuations associated with its variable rate debt. Upon proper qualification, these contracts are designated as cash flow hedges. It is the Company’s policy to only enter into derivative contracts with investment grade counterparty financial institutions, and correspondingly, the fair value of derivative assets consider,considers, among other factors, the creditworthiness of these counterparties. Conversely, the fair value of derivative liabilities reflects the Company’s creditworthiness. As of December 31, 2017,2020, the Company had not experienced, nor does it anticipate, any issues related to derivative counterparty defaults. The following table summarizes the aggregate unrealized net gain or loss in Accumulated other comprehensive income (loss) for the years ended December 31, 2017, 20162020, 2019 and 20152018 (in thousands and net of tax):
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
|
|
| Year Ended December 31, |
| ||||||||||||||||||
|
|
| 2017 |
| 2016 |
| 2015 |
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
| | | | | | | | | | | | |||||||||||
| | | Year Ended December 31, |
| ||||||||||||||||||
| | | 2020 |
| 2019 |
| 2018 |
| ||||||||||||||
| | | | | | | | | | | | |||||||||||
Aggregate unrealized net gain/(loss) at beginning of period |
|
| $ | (32,393) |
| $ | (26,885) |
| $ | (18,345) |
| | | $ | 4,182 | | $ | (8,278) | | $ | (15,746) | |
Add: Net gain/(loss) from change in fair value of cash flow hedges |
|
|
| 31,053 |
|
| 11,242 |
|
| (16,349) |
| | |
| 2,321 | |
| 15,545 | |
| 20,278 | |
Less: Net (gain)/loss reclassified to earnings from effective hedges |
|
|
| (14,406) |
|
| (16,750) |
|
| 7,809 |
| | |
| 1,928 | |
| (3,085) | |
| (12,810) | |
Aggregate unrealized net gain/(loss) at end of period |
|
| $ | (15,746) |
| $ | (32,393) |
| $ | (26,885) |
| | | $ | 8,431 | | $ | 4,182 | | $ | (8,278) | |
The Company’s foreign exchange cash flow hedging instruments as of December 31, 20172020 and 20162019 are summarized as follows (in thousands). All hedging instruments are forward contracts.
| | | | | | | | | | | | |
|
| Local |
| | |
| | |
| | |
|
| | Currency | | U.S. Dollar | | | % Maturing | | | Contracts |
| |
| | Notional | | Notional | | | in the next | | | Maturing |
| |
As of December 31, 2020 | | Amount | | Amount | | | 12 months | | | Through |
| |
Canadian Dollar |
| 2,450 | | $ | 1,853 | | | 100.0 | % | | July 2021 | |
Philippine Peso |
| 6,725,000 | |
| 130,468 | (1) | | 54.9 | % | | December 2023 | |
Mexican Peso |
| 1,159,500 | |
| 52,398 | | | 51.1 | % | | December 2023 | |
| | | | $ | 184,719 | | | | | | | |
| | | | | | | | | | | | |
|
| Local |
| | |
| | |
| | | |
| | Currency | | U.S. Dollar | | | | | |
| | |
| | Notional | | Notional |
| |
|
| | | | |
As of December 31, 2019 | | Amount | | Amount |
| | | | | | | |
Philippine Peso |
| 7,715,000 | |
| 147,654 | (1) | | | | | | |
Mexican Peso |
| 1,299,500 | |
| 61,529 | | | | | | | |
| | | | $ | 209,183 | | | | | | | |
| | | | | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Local |
|
|
|
|
|
|
|
|
|
|
|
| Currency |
| U.S. Dollar |
|
| % Maturing |
|
| Contracts |
| |
|
| Notional |
| Notional |
|
| in the next |
|
| Maturing |
| |
As of December 31, 2017 |
| Amount |
| Amount |
|
| 12 months |
|
| Through |
| |
Philippine Peso |
| 10,685,000 |
|
| 219,917 | (1) |
| 62.3 | % |
| August 2021 |
|
Mexican Peso |
| 1,609,000 |
|
| 93,589 |
|
| 41.0 | % |
| May 2021 |
|
|
|
|
| $ | 313,506 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Local |
|
|
|
|
|
|
|
|
|
|
|
| Currency |
| U.S. Dollar |
|
|
|
|
|
|
| |
|
| Notional |
| Notional |
|
|
|
|
|
|
| |
As of December 31, 2016 |
| Amount |
| Amount |
|
|
|
|
|
|
| |
Philippine Peso |
| 14,315,000 |
|
| 301,134 | (1) |
|
|
|
|
|
|
Mexican Peso |
| 2,089,000 |
|
| 129,375 |
|
|
|
|
|
|
|
|
|
|
| $ | 430,509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
| Includes contracts to purchase Philippine pesos in exchange for New Zealand dollars and Australian dollars, which are translated into equivalent U.S. dollars on December 31, |
F-30
The Company’s interest rate swap arrangement expired as of May 31, 2017 and no additional swaps have been entered into. As of December 31, 2016, the outstanding interest rate swap was as follows:
|
| |||||||||||
|
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|
|
| ||||||||
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
| |||||
Fair Value Hedges
The Company enters into foreign exchange forward contracts to economically hedge against foreign currency exchange gains and losses on certain receivables and payables of the Company’s foreign operations. Changes in the fair value of derivative instruments designated as fair value hedges are recognized in earnings in Other income (expense), net. As of December 31, 20172020 and 2016,2019, the total notional amount of the Company’s forward contracts used as fair value hedges was $176.2$35.5 million and $227.8$64.5 million, respectively.
Derivative Valuation and Settlements
The Company’s derivatives as of December 31, 20172020 and 20162019 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
| |||||||
|
| December 31, 2017 |
| ||||||||||||||
|
| Designated |
| Not Designated |
| ||||||||||||
|
| as Hedging |
| as Hedging |
| ||||||||||||
| | | | | | | | ||||||||||
| | December 31, 2020 |
| ||||||||||||||
| | Designated | Not Designated |
| |||||||||||||
| | as Hedging | as Hedging | | |||||||||||||
Designation: |
| Instruments |
| Instruments |
| | Instruments | Instruments |
| ||||||||
|
| Foreign |
| Interest |
| Foreign |
| ||||||||||
|
| Foreign |
| Foreign |
| ||||||||||||
Derivative contract type: |
| Exchange |
| Rate |
| Exchange |
| | Exchange | | Exchange |
| |||||
Derivative classification: |
| Cash Flow |
| Cash Flow |
| Fair Value |
| | Cash Flow | | Fair Value | | |||||
|
|
|
|
|
|
|
|
|
|
| |||||||
| | | | | | | | ||||||||||
Fair value and location of derivative in the Consolidated Balance Sheet: |
|
|
|
|
|
|
|
|
|
| | | | | | | |
Prepaids and other current assets |
| $ | 220 |
| $ | — |
| $ | 1,603 |
| | $ | 6,939 | | $ | 103 | |
Other long-term assets |
|
| 393 |
|
| — |
|
| — |
| |
| 4,528 | |
| — | |
Other current liabilities |
|
| (15,603) |
|
| — |
|
| (133) |
| |
| (73) | |
| (118) | |
Other long-term liabilities |
|
| (11,266) |
|
| — |
|
| — |
| |
| (4) | |
| — | |
Total fair value of derivatives, net |
| $ | (26,256) |
| $ | — |
| $ | 1,470 |
| | $ | 11,390 | | $ | (15) | |
|
|
|
|
|
|
|
|
|
|
| |||||||
|
| December 31, 2016 |
| ||||||||||||||
|
| Designated |
| Not Designated |
| ||||||||||||
|
| as Hedging |
| as Hedging |
| ||||||||||||
| | | | | | | | ||||||||||
| | December 31, 2019 |
| ||||||||||||||
| | Designated | Not Designated |
| |||||||||||||
| | as Hedging | as Hedging | | |||||||||||||
Designation: |
| Instruments |
| Instruments |
| | Instruments | Instruments |
| ||||||||
|
| Foreign |
| Interest |
| Foreign |
| ||||||||||
|
| Foreign |
| Foreign |
| ||||||||||||
Derivative contract type: |
| Exchange |
| Rate |
| Exchange |
| | Exchange | | Exchange |
| |||||
Derivative classification: |
| Cash Flow |
| Cash Flow |
| Fair Value |
| | Cash Flow | | Fair Value | | |||||
|
|
|
|
|
|
|
|
|
|
| |||||||
| | | | | | | | ||||||||||
Fair value and location of derivative in the Consolidated Balance Sheet: |
|
|
|
|
|
|
|
|
|
| | | | | | | |
Prepaids and other current assets |
| $ | 1,178 |
| $ | — |
| $ | 1,606 |
| | $ | 3,467 | | $ | 205 | |
Other long-term assets |
|
| — |
|
| — |
|
| — |
| |
| 3,525 | |
| — | |
Other current liabilities |
|
| (23,503) |
|
| (147) |
|
| (866) |
| |
| (1,223) | |
| (107) | |
Other long-term liabilities |
|
| (31,714) |
|
| — |
|
| — |
| |
| (95) | |
| — | |
Total fair value of derivatives, net |
| $ | (54,039) |
| $ | (147) |
| $ | 740 |
| | $ | 5,674 | | $ | 98 | |
F-31
The effect of derivative instruments on the Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 20172020 and 20162019 were as follows (in thousands):
| | | | | | | |
| | Year Ended December 31, | | ||||
| | 2020 | | 2019 | | ||
| | Designated as Hedging | | ||||
Designation: | | Instruments | | ||||
Derivative contract type: | | Foreign Exchange | | ||||
Derivative classification: |
| Cash Flow | | ||||
| | | | | | | |
Amount of gain or (loss) recognized in Other comprehensive income (loss) - effective portion, net of tax | | $ | 1,928 | | $ | (3,085) | |
| | | | | | | |
Amount and location of net gain or (loss) reclassified from Accumulated OCI to income - effective portion: | | | | | | | |
Revenue | | $ | 2,618 | | $ | (4,228) | |
| | | | | | | |
| | Year Ended December 31, | | ||||
| | 2020 | | 2019 | | ||
Designation: |
| Not Designated as | | ||||
Derivative contract type: |
| Foreign Exchange | | ||||
Derivative classification: |
| Fair Value | | ||||
| | | | | | | |
Amount and location of net gain or (loss) recognized in the Consolidated Statement of Comprehensive Income (Loss): | | | | | | | |
Other income (expense), net |
| $ | 205 |
| $ | 1,773 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
| ||||||||||
|
| 2017 |
| 2016 |
| ||||||||
|
| Designated as Hedging |
| Designated as Hedging |
| ||||||||
Designation: |
| Instruments |
| Instruments |
| ||||||||
|
| Foreign |
| Interest |
| Foreign |
| Interest |
| ||||
Derivative contract type: |
| Exchange |
| Rate |
| Exchange |
| Rate |
| ||||
Derivative classification: |
| Cash Flow |
| Cash Flow |
| Cash Flow |
| Cash Flow |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain or (loss) recognized in Other comprehensive income (loss) - effective portion, net of tax |
| $ | (14,336) |
| $ | (70) |
| $ | (16,438) |
| $ | (312) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount and location of net gain or (loss) reclassified from Accumulated OCI to income - effective portion: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
| $ | (22,792) |
| $ | — |
| $ | (28,025) |
| $ | — |
|
Interest expense |
|
| — |
|
| (115) |
|
| — |
|
| (534) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
| ||||||||||
|
| 2017 |
| 2016 |
| ||||||||
Designation: |
| Not Designated as Hedging Instruments |
| Not Designated as Hedging Instruments |
| ||||||||
Derivative contract type: |
| Foreign Exchange |
| Foreign Exchange |
| ||||||||
|
| Forward |
|
|
| Forward |
|
|
| ||||
Derivative classification: |
| Contracts |
| Fair Value |
| Contracts |
| Fair Value |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount and location of net gain or (loss) recognized in the Consolidated Statement of Comprehensive Income (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
Other income (expense), net |
|
| — |
|
| 1,350 |
|
| — |
|
| (5,826) |
|
The authoritative guidance for fair value measurements establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires that the Company maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
Level 1 — | Quoted prices in active markets for identical assets or liabilities. |
| |
Level 2 — | Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, similar assets and liabilities in markets that are not active or can be corroborated by observable market data. |
| |
Level 3 — | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. |
F-32
The following presents information as of December 31, 20172020 and 20162019 of the Company’s assets and liabilities required to be measured at fair value on a recurring basis, as well as the fair value hierarchy used to determine their fair value.
Accounts Receivable and Payable - The amounts recorded in the accompanying balance sheets approximate fair value because of their short-term nature.
F-32
Investments – The Company measures investments, including cost and equity method investments, at fair value on a nonrecurring basis when they are deemed to be other-than-temporarily impaired. The fair values of these investments are determined based on valuation techniques using the best information available, and may include market observable inputs and discounted cash flow projections. An impairment charge is recorded when the cost of the investment exceeds its fair value and this condition is determined to be other-than-temporary. As of December 31, 2017,2020, the investment in CaféX Communications, Inc., which consists of the Company’s first quarter 2015 $9.0total $15.6 million investment, the fourth quarter 2016 $3.2 million investment, and the first and second quarters of 2017 $1.3 million investment, is recorded at $13.5 million.was fully impaired to zero (see Note 2).
Debt - The Company’s debt consists primarily of the Company’s Credit Agreement, which permits floating-rate borrowings based upon the current Prime Rate or LIBOR plus a credit spread as determined by the Company’s leverage ratio calculation (as defined in the Credit Agreement). As of December 31, 20172020 and 2016,2019, the Company had $344.0$385.0 million and $217.3$290.0 million, respectively, of borrowings outstanding under the Credit Agreement. During 20172020 and 2016,2019, borrowings accrued interest at an average rate of 2.2%1.6% and 1.5%3.4% per annum, respectively, excluding unused commitment fees. The amounts recorded in the accompanying Balance Sheets approximate fair value due to the variable nature of the debt based on level 2 inputs.
Derivatives - Net derivative assets (liabilities) are measured at fair value on a recurring basis. The portfolio is valued using models based on market observable inputs, including both forward and spot foreign exchange rates, interest rates, implied volatility, and counterparty credit risk, including the ability of each party to execute its obligations under the contract. As of December 31, 2017,2020, credit risk did not materially change the fair value of the Company’s derivative contracts.
The following is a summary of the Company’s fair value measurements for its net derivative assets (liabilities) as of December 31, 20172020 and 20162019 (in thousands):
As of December 31, 20172020
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
| Fair Value Measurements Using |
|
|
|
| ||||||||||||||||||||
|
| Quoted Prices in |
| Significant |
|
|
|
|
|
|
| |||||||||||||||
|
| Active Markets |
| Other |
| Significant |
|
|
|
| ||||||||||||||||
|
| for Identical |
| Observable |
| Unobservable |
|
|
|
| ||||||||||||||||
|
| Assets |
| Inputs |
| Inputs |
|
|
|
| ||||||||||||||||
|
| (Level 1) |
| (Level 2) |
| (Level 3) |
| At Fair Value |
| |||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
| | Fair Value Measurements Using | | | |
| ||||||||||||||||||||
|
| Quoted Prices in |
| Significant |
| | |
|
| |
| |||||||||||||||
| | Active Markets | | Other | | Significant | | | |
| ||||||||||||||||
| | for Identical | | Observable | | Unobservable | | | |
| ||||||||||||||||
| | Assets | | Inputs | | Inputs | | | |
| ||||||||||||||||
| | (Level 1) | | (Level 2) | | (Level 3) | | At Fair Value |
| |||||||||||||||||
Cash flow hedges |
| $ | — |
| $ | (26,256) |
| $ | — |
| $ | (26,256) |
| | $ | — | | $ | 11,390 | | $ | — | | $ | 11,390 | |
Interest rate swaps |
|
| — |
|
| — |
|
| — |
|
| — |
| |||||||||||||
Fair value hedges |
|
| — |
|
| 1,470 |
|
| — |
|
| 1,470 |
| |
| — | |
| (15) | |
| — | |
| (15) | |
Total net derivative asset (liability) |
| $ | — |
| $ | (24,786) |
| $ | — |
| $ | (24,786) |
| | $ | — | | $ | 11,375 | | $ | — | | $ | 11,375 | |
As of December 31, 2019
| | | | | | | | | | | | | |
| | Fair Value Measurements Using | | | |
| |||||||
|
| Quoted Prices in |
| Significant |
| | |
|
| |
| ||
| | Active Markets | | Other | | Significant | | | |
| |||
| | for Identical | | Observable | | Unobservable | | | |
| |||
| | Assets | | Inputs | | Inputs | | | |
| |||
| | (Level 1) | | (Level 2) | | (Level 3) | | At Fair Value |
| ||||
Cash flow hedges | | $ | — | | $ | 5,674 | | $ | — | | $ | 5,674 | |
Fair value hedges | |
| — | |
| 98 | |
| — | |
| 98 | |
Total net derivative asset (liability) | | $ | — | | $ | 5,772 | | $ | — | | $ | 5,772 | |
F-33
As of December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fair Value Measurements Using |
|
|
|
| |||||||
|
| Quoted Prices in |
| Significant |
|
|
|
|
|
|
| ||
|
| Active Markets |
| Other |
| Significant |
|
|
|
| |||
|
| for Identical |
| Observable |
| Unobservable |
|
|
|
| |||
|
| Assets |
| Inputs |
| Inputs |
|
|
|
| |||
|
| (Level 1) |
| (Level 2) |
| (Level 3) |
| At Fair Value |
| ||||
Cash flow hedges |
| $ | — |
| $ | (54,039) |
| $ | — |
| $ | (54,039) |
|
Interest rate swaps |
|
| — |
|
| (147) |
|
| — |
|
| (147) |
|
Fair value hedges |
|
| — |
|
| 740 |
|
| — |
|
| 740 |
|
Total net derivative asset (liability) |
| $ | — |
| $ | (53,446) |
| $ | — |
| $ | (53,446) |
|
The following is a summary of the Company’s fair value measurements as of December 31, 20172020 and 20162019 (in thousands):
As of December 31, 20172020
| | | | | | | | | | |
| | Fair Value Measurements Using |
| |||||||
|
| Quoted Prices in |
| | |
| Significant |
| ||
| | Active Markets for | | Significant Other | | Unobservable |
| |||
| | Identical Assets | | Observable Inputs | | Inputs |
| |||
| | (Level 1) | | (Level 2) | | (Level 3) |
| |||
Assets | | | | | | | | | | |
Derivative instruments, net | | $ | — | | $ | 11,375 | | $ | — | |
Total assets | | $ | — | | $ | 11,375 | | $ | — | |
| | | | | | | | | | |
Liabilities | | | | | | | | | | |
Deferred compensation plan liability | | $ | — | | $ | (23,858) | | $ | — | |
Derivative instruments, net | | | — | | | 0 | | | — | |
Contingent consideration | |
| — | |
| — | |
| (18,032) | |
Total liabilities | | $ | — | | $ | (23,858) | | $ | (18,032) | |
| | | | | | | | | | |
Redeemable noncontrolling interest | | $ | — | | $ | 0 | | $ | (52,976) | |
|
|
|
|
|
|
|
|
|
|
|
|
| Fair Value Measurements Using |
| |||||||
|
| Quoted Prices in |
|
|
|
| Significant |
| ||
|
| Active Markets for |
| Significant Other |
| Unobservable |
| |||
|
| Identical Assets |
| Observable Inputs |
| Inputs |
| |||
|
| (Level 1) |
| (Level 2) |
| (Level 3) |
| |||
Assets |
|
|
|
|
|
|
|
|
|
|
Derivative instruments, net |
| $ | — |
| $ | — |
| $ | — |
|
Total assets |
| $ | — |
| $ | — |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan liability |
| $ | — |
| $ | (13,219) |
| $ | — |
|
Derivative instruments, net |
|
| — |
|
| (24,786) |
|
| — |
|
Contingent consideration |
|
| — |
|
| — |
|
| (399) |
|
Total liabilities |
| $ | — |
| $ | (38,005) |
| $ | (399) |
|
As of December 31, 20162019
| | | | | | | | | | |
| | Fair Value Measurements Using |
| |||||||
|
| Quoted Prices in |
| | |
| Significant |
| ||
| | Active Markets for | | Significant Other | | Unobservable |
| |||
| | Identical Assets | | Observable Inputs | | Inputs |
| |||
| | (Level 1) | | (Level 2) | | (Level 3) |
| |||
Assets | | | | | | | | | | |
Derivative instruments, net | | $ | — | | $ | 5,772 | | $ | — | |
Total assets | | $ | — | | $ | 5,772 | | $ | — | |
| | | | | | | | | | |
Liabilities | | | | | | | | | | |
Deferred compensation plan liability | | $ | — | | $ | (20,370) | | $ | — | |
Derivative instruments, net | |
| — | |
| — | |
| — | |
Contingent consideration | |
| — | |
| — | |
| (6,134) | |
Total liabilities | | $ | — | | $ | (20,370) | | $ | (6,134) | |
| | | | | | | | | | |
Redeemable noncontrolling interest | | $ | — | | $ | — | | $ | (48,923) | |
|
|
|
|
|
|
|
|
|
|
|
|
| Fair Value Measurements Using |
| |||||||
|
| Quoted Prices in |
|
|
|
| Significant |
| ||
|
| Active Markets for |
| Significant Other |
| Unobservable |
| |||
|
| Identical Assets |
| Observable Inputs |
| Inputs |
| |||
|
| (Level 1) |
| (Level 2) |
| (Level 3) |
| |||
Assets |
|
|
|
|
|
|
|
|
|
|
Derivative instruments, net |
| $ | — |
| $ | — |
| $ | — |
|
Total assets |
| $ | — |
| $ | — |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan liability |
| $ | — |
| $ | (10,841) |
| $ | — |
|
Derivative instruments, net |
|
| — |
|
| (53,446) |
|
| — |
|
Contingent consideration |
|
| — |
|
| — |
|
| (1,808) |
|
Total liabilities |
| $ | — |
| $ | (64,287) |
| $ | (1,808) |
|
Deferred Compensation Plan - The Company maintains a non-qualified deferred compensation plan structured as a Rabbi trust for certain eligible employees. Participants in the deferred compensation plan select from a menu of phantom investment options for their deferral dollars offered by the Company each year, which are based upon changes in value of complementary, defined market investments. The deferred compensation liability represents the combined values of market investments against which participant accounts are tracked.
F-34
Contingent Consideration — The Company recorded contingent consideration related to the acquisitions of iKnowtion, Sofica, rogenSi,FCR and Atelka. TheseVF. The contingent payables werepayable for FCR was recognized at fair value using a discounted cash flow approach and a discount rate of 21.0%, 5.0%, 4.6%, or 0%, respectively.16.7%. The contingent payable for VF US was calculated using a Monte Carlo simulation including a discount rates vary dependent on the specific risksrate of each acquisition23.1%. The contingent payable for VF Asean was calculated using a Monte Carlo simulation including the countrya discount rate of operation, the nature of services and complexity of the acquired business, and other factors. These18.4% The measurements were based on significant inputs not observable in the market. The Company recordedrecords interest expense each period using the effective interest method until the future value of these contingent payables reachedreaches their expected future value. Interest expense related to all recorded contingent payables is included in Interest expense in the Consolidated Statements of Comprehensive Income (Loss).
F-34
The Company recorded contingent consideration relatedTTEC HOLDINGS, INC. AND SUBSIDIARIES
Notes to a revenue servicing agreement with Welltok in the fourth quarter of 2016, in which a maximum of $1.25 million will be paid over eight quarters based on the dollar value of revenue earned by the Company. The contingent payable was recognized at fair value of $1.25 million as of December 31, 2016.Consolidated Financial Statements
During the first, second quarterand fourth quarters of 2015,2020, the Company recorded a fair value adjustment ofadjustments to the contingent consideration associated with the Sofica reporting unit within the CMS segmentFCR acquisition based on reviseddecreased estimates reflecting Sofica earnings will be lower than anticipated for 2015.of EBITDA which caused the estimated payable to decrease. Accordingly, a $0.5$3.3 million decrease, a $1.1 million decrease and a $1.8 million decrease to the payable were recorded as of March 31, 2020, June 30, 2020 and December 31, 2020, respectively, and were included in Other income (expense), net in the payableConsolidated Statements of Comprehensive Income (Loss). As of December 31, 2020, the final calculated contingent consideration for FCR is 0.
During the fourth quarter of 2020, the Company recorded fair value adjustments to the contingent consideration associated with the VF acquisitions based on increased actual results and estimates of EBITDA for 2021 which caused the payables to increase. Accordingly, a combined $4.3 million increase to the payables was recorded as of June 30, 2015December 31, 2020, and was included in Other income (expense), net in the Consolidated Statements of Comprehensive Income (Loss).
During the third and fourth quartersquarter of 2015,2018 and the thirdsecond quarter of 2016,2019, the Company recorded fair value adjustments ofto the contingent consideration associated with the rogenSi reporting unit within the CSS segmentSCS acquisition based on reviseddecreased estimates reflecting that rogenSi earnings wouldof EBITDA which caused the estimated payable to be higher and then lower than anticipatedzero for 2015 and 2016.both future payments. Accordingly, a $0.8 million increase, a $0.3 million decrease, and a $4.3$2.5 million decrease to the payable waswere recorded as of September 30, 2015, December 31, 2015,2018 and SeptemberJune 30, 2016,2019, respectively, and were included in Other income (expense), net in the Consolidated Statements of Comprehensive Income (Loss). As of September 30, 2016,December 31, 2019, the fair value ofEBITDA was below the remainingtarget, thus the contingent consideration was reduced to zero given the remote possibility of any additional payments. As of December 31, 2016, the payment was finalized atwith a value of zero and thus no additional expense was required.0 value.
A rollforward of the activity in the Company’s fair value of the contingent consideration is as follows (in thousands):
| | | | | | | | | | | | | | | | |
|
| | |
| | |
| | |
| Imputed |
| | |
| |
| | December 31, | | | | | | | | Interest / | | December 31, |
| |||
| | 2019 | | Acquisitions | | Payments | | Adjustments | | 2020 |
| |||||
| | | | | | | | | | | | | | | | |
FCR | | $ | 6,134 | | $ | — | | $ | — | | $ | (6,134) | | $ | 0 | |
VF US | | | 0 | | | 10,943 | | | — | | | 3,142 | | | 14,085 | |
VF ASEAN | | | 0 | | | 2,778 | | | — | | | 1,169 | | | 3,947 | |
Total | | $ | 6,134 | | $ | 13,721 | | $ | — | | $ | (1,823) | | $ | 18,032 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Imputed |
|
|
|
| |
|
| December 31, |
|
|
|
|
|
|
| Interest / |
| December 31, |
| |||
|
| 2016 |
| Acquisitions |
| Payments |
| Adjustments |
| 2017 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Welltok |
|
| 1,250 |
|
| — |
|
| (851) |
|
| — |
|
| 399 |
|
Atelka |
|
| 558 |
|
| — |
|
| (582) |
|
| 24 |
|
| — |
|
Total |
| $ | 1,808 |
| $ | — |
| $ | (1,433) |
| $ | 24 |
| $ | 399 |
|
| | | | | | | | | | | | | | | | |
|
| | |
| | |
| | |
| Imputed |
| | |
| |
| | December 31, | | | | | | | | Interest / | | December 31, |
| |||
| | 2018 | | Acquisitions | | Payments | | Adjustments | | 2019 |
| |||||
| | | | | | | | | | | | | | | | |
SCS | | $ | 2,363 | | $ | — | | $ | — | | $ | (2,363) | | $ | 0 | |
FCR | |
| 0 | |
| 6,134 | |
| — | |
| — | |
| 6,134 | |
Total | | $ | 2,363 | | $ | 6,134 | | $ | — | | $ | (2,363) | | $ | 6,134 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Imputed |
|
|
|
| |
|
| December 31, |
|
|
|
|
|
|
| Interest / |
| December 31, |
| |||
|
| 2015 |
| Acquisitions |
| Payments |
| Adjustments |
| 2016 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
iKnowtion |
| $ | 500 |
| $ | — |
| $ | (500) |
| $ | — |
| $ | — |
|
Sofica |
|
| 3,153 |
|
| — |
|
| (3,146) |
|
| (7) |
|
| — |
|
rogenSi |
|
| 9,797 |
|
| — |
|
| (5,793) |
|
| (4,004) |
|
| — |
|
Welltok |
|
| — |
|
| 1,250 |
|
| — |
|
| — |
|
| 1,250 |
|
Atelka |
|
| — |
|
| 558 |
|
| — |
|
| — |
|
| 558 |
|
Total |
| $ | 13,450 |
| $ | 1,808 |
| $ | (9,439) |
| $ | (4,011) |
| $ | 1,808 |
|
F-35
The sources of pre-tax operating income are as follows (in thousands):
| | | | | | | | | | |
| | Year Ended December 31, |
| |||||||
|
| 2020 |
| 2019 |
| 2018 |
| |||
Domestic | | $ | 129,620 | | $ | 39,864 | | $ | (13,926) | |
Foreign | |
| 40,648 | |
| 70,547 | |
| 70,164 | |
Total | | $ | 170,268 | | $ | 110,411 | | $ | 56,238 | |
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
| |||||||
|
| 2017 |
| 2016 |
| 2015 |
| |||
Domestic |
| $ | 10,909 |
| $ | (6,216) |
| $ | 25,402 |
|
Foreign |
|
| 77,978 |
|
| 56,514 |
|
| 60,487 |
|
Total |
| $ | 88,887 |
| $ | 50,298 |
| $ | 85,889 |
|
The United States recently enacted comprehensive tax reform legislation known asCompany’s selection of an accounting policy with respect to both the Tax CutsGILTI and Jobs Act (the "2017 Tax Act") that, among other things, reducesBEAT rules is to compute the U.S. federal corporate income tax rate from 35%related taxes in the period the entity becomes subject to 21% and implements a territorial tax system, but imposes an alternative “base erosion and anti-abuse tax” (“BEAT”), and an incremental tax on global intangible low taxed foreign income (“GILTI”) effective January 1, 2018. In addition,either. A reasonable estimate of the law imposes a one-time mandatory repatriation tax on accumulated foreign earnings on domestic corporations effective for the 2017 tax year. In response, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of these provisions has been included in the 2017 Tax Act and allows the registrant to record provisional amounts during a measurement period not to extend beyond one year2020 annual financial statements.
F-35
TTEC HOLDINGS, INC. AND SUBSIDIARIES
Notes to the one-time transition tax and revaluation of deferred tax balances and included these estimates in our consolidated financial statements for the year ended December 31, 2017. The significant components of this expense include (i) the remeasurement of net deferred tax assets at the lower enacted U.S. federal corporate tax rate, which resulted in a net $1.1 million increase in income tax expense; and (ii) the deemed repatriation tax on unremitted non-U.S. earnings and profits that were previously tax deferred and other tax impacts of the 2017 Tax Act, which resulted in a $62.4 million increase in income tax expense, net of deductions and credits.Consolidated Financial Statements
No amount was booked related to withholding taxes on theMinimal changes in indefinite reinvestment assertion onwere made during the potential repatriation of foreign earnings as it is the Company’s determination that there would be no material additional amount of tax if the related foreign cash was repatriated to the United States.year. The Company has not completed its analysis in regard to the full tax impact related to a changeprior changes in indefinite reinvestment reassertion as the computation is complex and impacted by the provisional calculations outlined above.any related taxes have been recorded. No additional income taxes have been provided for any remaining outside basis difference inherent in ourthe Company’s foreign subsidiaries as these amounts continue to be indefinitely reinvested in foreign operations. Determination of any unrecognized deferred tax liability related to the outside basis difference in investments in foreign subsidiaries is not practicable due to the inherent complexity of the multi-national tax environment in which we operate.the Company operates.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted and signed into law. The ultimate impact of the 2017 TaxCARES Act may materially differ from the provisional amounts recorded, due to, among other things, additional analysis, changes in interpretations and assumptions we have made, additional regulatory guidance that may be issued, and actions we may take as a result of the Tax Act. In addition, foreign and state governments may enact tax laws in response to the Tax Act that could result in further changes to global taxation anddid not materially affect our financial positionfourth quarter income tax provision, deferred tax assets and resultsliabilities, or related taxes payable. We are continuing to assess the future implications of operations.
Our selection of an accounting policy with respect to the new GILTI rules will depend in part on analyzing our global income to determine whether we expect to have future U.S. inclusions in taxable income related to GILTI, and if so, what the impact is expected to be. We have not yet computed a reasonable estimate of the effect of this provision, and therefore, we have not made a policy decision regarding whether to record deferred taxes related to GILTI nor have we made any adjustments related to GILTI tax in our year-end financial statements.
We expect to complete our analysis of the impacts of the 2017 Tax Actthese provisions within the measurement period in accordance with SAB 118.
F-36
TTEC HOLDINGS, INC. AND SUBSIDIARIES
NotesCARES Act but do not expect there to the Consolidated Financial Statements
be a material impact on our financial statements at this time.
The components of the Company’s Provision for (benefit from) income taxes are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| Year Ended December 31, |
| |||||||||||||||||
|
| 2017 |
| 2016 |
| 2015 |
| |||||||||||||
| | | | | | | | | | | ||||||||||
| | Year Ended December 31, |
| |||||||||||||||||
|
| 2020 |
| 2019 |
| 2018 |
| |||||||||||||
Current provision for (benefit from) |
|
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Federal |
| $ | 48,556 |
| $ | (373) |
| $ | 4,094 |
| | $ | 22,763 | | $ | 5,289 | | $ | 2,771 | |
State |
|
| 99 |
|
| 372 |
|
| 1,829 |
| |
| 9,871 | |
| 2,826 | |
| 2,754 | |
Foreign |
|
| 12,643 |
|
| 14,447 |
|
| 4,764 |
| |
| 13,496 | |
| 18,938 | |
| 18,933 | |
Total current provision for (benefit from) |
|
| 61,298 |
|
| 14,446 |
|
| 10,687 |
| |
| 46,130 | |
| 27,053 | |
| 24,458 | |
Deferred provision for (benefit from) |
|
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Federal |
|
| 14,441 |
|
| (2,390) |
|
| (1,895) |
| |
| (2,390) | |
| 2,515 | |
| (943) | |
State |
|
| 707 |
|
| 103 |
|
| 1,085 |
| |
| (254) | |
| 118 | |
| (138) | |
Foreign |
|
| 1,629 |
|
| 704 |
|
| 10,127 |
| |
| (2,549) | |
| (4,009) | |
| (6,894) | |
Total deferred provision for (benefit from) |
|
| 16,777 |
|
| (1,583) |
|
| 9,317 |
| |
| (5,193) | |
| (1,376) | |
| (7,975) | |
Total provision for (benefit from) income taxes |
| $ | 78,075 |
| $ | 12,863 |
| $ | 20,004 |
| | $ | 40,937 | | $ | 25,677 | | $ | 16,483 | |
The following reconciles the Company’s effective tax rate to the federal statutory rate (in thousands):
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| Year Ended December 31, |
| |||||||||||||||||
|
| 2017 |
| 2016 |
| 2015 |
| |||||||||||||
Income tax per U.S. federal statutory rate (35%) |
| $ | 31,110 |
| $ | 17,605 |
| $ | 30,062 |
| ||||||||||
| | | | | | | | | | | ||||||||||
| | Year Ended December 31, |
| |||||||||||||||||
|
| 2020 |
| 2019 |
| 2018 |
| |||||||||||||
Income tax per U.S. federal statutory rate (21%, 21%, 21%) | | $ | 35,756 | | $ | 23,186 | | $ | 11,810 | | ||||||||||
State income taxes, net of federal deduction |
|
| 460 |
|
| (158) |
|
| 1,603 |
| |
| 6,923 | |
| 3,144 | |
| 2,003 | |
Change in valuation allowances |
|
| (924) |
|
| (129) |
|
| 3,923 |
| |
| 3,903 | |
| 9,832 | |
| 2,191 | |
Foreign income taxes at different rates than the U.S. |
|
| (14,417) |
|
| (10,206) |
|
| (14,490) |
| |
| (783) | |
| (3,356) | |
| (3,758) | |
Foreign withholding taxes |
|
| 323 |
|
| 590 |
|
| 958 |
| |
| 106 | |
| 600 | |
| 785 | |
Losses in international markets without tax benefits |
|
| 1,098 |
|
| 2,474 |
|
| 1,999 |
| |
| (1,656) | |
| (2,651) | |
| (68) | |
Nondeductible compensation under Section 162(m) |
|
| 647 |
|
| 104 |
|
| 512 |
| |
| 656 | |
| 668 | |
| 615 | |
Liabilities for uncertain tax positions |
|
| 1,607 |
|
| (133) |
|
| 1,756 |
| |
| 2,882 | |
| 661 | |
| 1,105 | |
Permanent difference related to foreign exchange gains |
|
| 142 |
|
| 388 |
|
| 162 |
| |
| (71) | |
| 36 | |
| 136 | |
(Income) losses of foreign branch operations |
|
| (824) |
|
| (635) |
|
| (517) |
| |
| (10) | |
| 55 | |
| 475 | |
Non-taxable earnings of noncontrolling interest |
|
| (1,030) |
|
| (1,128) |
|
| (1,349) |
| |
| (1,964) | |
| (1,294) | |
| (594) | |
Foreign dividend less foreign tax credits |
|
| (4,798) |
|
| (4,646) |
|
| (4,425) |
| |
| (1,723) | |
| (1,681) | |
| (1,748) | |
Increase in deferred tax liability - branch losses in UK |
|
| — |
|
| — |
|
| (2,530) |
| ||||||||||
Decrease (increase) to deferred tax asset - change in tax rate |
|
| 1,101 |
|
| 443 |
|
| (526) |
| |
| (48) | |
| (2,848) | |
| (1,944) | |
State income tax credits |
|
| 207 |
|
| 100 |
|
| (1,477) |
| ||||||||||
State and Federal income tax credits and NOL's | |
| (3,918) | |
| (1,176) | |
| 19 | | ||||||||||
Foreign earnings taxed currently in U.S. |
|
| 3,143 |
|
| 3,673 |
|
| 2,839 |
| |
| 1,936 | |
| 2,172 | |
| 3,976 | |
Taxes related to prior year filings |
|
| (865) |
|
| 2,554 |
|
| 344 |
| | | (1,718) | | | (1,643) | | | (1,659) | |
Taxes related to US tax reform |
|
| 61,569 |
|
| — |
|
| — |
| ||||||||||
Taxes related to acquisition accounting | | | 1,317 | | | 978 | | | 2,110 | | ||||||||||
Other |
|
| (474) |
|
| 1,967 |
|
| 1,160 |
| |
| (651) | |
| (1,006) | |
| 1,029 | |
Income tax per effective tax rate |
| $ | 78,075 |
| $ | 12,863 |
| $ | 20,004 |
| | $ | 40,937 | | $ | 25,677 | | $ | 16,483 | |
| | | | | | | | | | | ||||||||||
Effective tax rate percentage | | | 24.0% | | | 23.3% | | | 29.3% | | ||||||||||
F-37F-36
The Company’s deferred income tax assets and liabilities are summarized as follows (in thousands):
|
|
|
|
|
|
|
| |||||||
|
| Year Ended December 31, |
| |||||||||||
|
| 2017 |
| 2016 |
| |||||||||
| | | | | | | | |||||||
| | Year Ended December 31, |
| |||||||||||
|
| 2020 |
| 2019 |
| |||||||||
Deferred tax assets, gross |
|
|
|
|
|
|
| | | | | | | |
Accrued workers compensation, deferred compensation and employee benefits |
| $ | 8,597 |
| $ | 11,212 |
| | $ | 8,574 | | $ | 7,999 | |
Allowance for doubtful accounts, insurance and other accruals |
|
| 2,197 |
|
| 3,348 |
| |||||||
Amortization of deferred rent liabilities |
|
| 2,352 |
|
| 3,362 |
| |||||||
Allowance for credit losses, insurance and other accruals | |
| 4,463 | |
| 3,393 | | |||||||
Amortization of deferred lease liabilities | |
| 20,352 | |
| 25,757 | | |||||||
Net operating losses |
|
| 17,887 |
|
| 20,253 |
| |
| 20,508 | |
| 19,222 | |
Equity compensation |
|
| 1,481 |
|
| 2,489 |
| |
| 1,660 | |
| 1,442 | |
Customer acquisition and deferred revenue accruals |
|
| 7,026 |
|
| 11,739 |
| |
| 6,868 | |
| 9,047 | |
Federal and state tax credits, net |
|
| 50 |
|
| 7,439 |
| |
| 2,383 | |
| 1,263 | |
Depreciation and amortization |
|
| — |
|
| 4,671 |
| |||||||
Unrealized losses on derivatives |
|
| 3,137 |
|
| 13,815 |
| |
| 1,187 | |
| 1,421 | |
Contract acquisition costs |
|
| — |
|
| 1,044 |
| |||||||
Impairment of equity investment | | | 4,064 | | | 4,142 | | |||||||
Partnership Investment | | | 526 | | | 2,435 | | |||||||
Other |
|
| 1,557 |
|
| 2,331 |
| |
| 5,444 | |
| 1,322 | |
Total deferred tax assets, gross |
|
| 44,284 |
|
| 81,703 |
| |
| 76,029 | |
| 77,443 | |
Valuation allowances |
|
| (9,526) |
|
| (9,949) |
| |
| (18,697) | |
| (17,051) | |
Total deferred tax assets, net |
|
| 34,758 |
|
| 71,754 |
| |
| 57,332 | |
| 60,392 | |
Deferred tax liabilities |
|
|
|
|
|
|
| | | | | | | |
Depreciation and amortization |
|
| (12,850) |
|
| — |
| |
| (10,734) | |
| (6,095) | |
Unrealized gain on derivatives | | | (2,959) | | | (1,491) | | |||||||
Contract acquisition costs |
|
| (5,331) |
|
| — |
| |
| (3,182) | |
| (5,740) | |
Intangible assets |
|
| (15,405) |
|
| (17,971) |
| |
| (15,880) | |
| (22,585) | |
Operating lease assets | |
| (16,763) | |
| (21,413) | | |||||||
Other |
|
| (446) |
|
| (357) |
| |
| (480) | |
| (407) | |
Total deferred tax liabilities |
|
| (34,032) |
|
| (18,328) |
| |
| (49,998) | |
| (57,731) | |
Net deferred tax assets |
| $ | 726 |
| $ | 53,426 |
| | $ | 7,334 | | $ | 2,661 | |
Quarterly, the Company assesses the likelihood by jurisdiction that its net deferred tax assets will be recovered. Based on the weight of all available evidence, both positive and negative, the Company records a valuation allowance against deferred tax assets when it is more-likely-than-not that a future tax benefit will not be realized.
As of December 31, 20172020 the Company had approximately $4.2$1.2 million of net deferred tax assetsliabilities in the U.S. and $3.5$8.5 million of net deferred tax liabilitiesassets related to certain international locations whose recoverability is dependent upon their future profitability. As of December 31, 20172020 the deferred tax valuation allowance was $9.5$18.7 million and related primarily to tax losses in foreign jurisdictions which do not meet the “more-likely-than-not” standard under current accounting guidance.
When there is a change in judgment concerning the recovery of deferred tax assets in future periods, a valuation allowance is recorded into earnings during the quarter in which the change in judgment occurred. In 2017,2020, the Company made adjustments to its deferred tax assets and corresponding valuation allowances. The net change to the valuation allowance consisted of the following: a $0.1$1.1 million increase in certain state creditsrelated to capital loss carry forwards and NOLs that are nowother credit carry forwards not expected to be utilized prior to expiration,in New Zealand and the United Kingdom, a $2.1$3.6 million increase in valuation allowance in the United Kingdom, Ireland, Canada, Luxembourg, Turkey, the United States and Australia for deferred tax assets that do not meet the “more-likely-than-not” standard, and a $2.5$1.1 million release of valuation allowance in Argentina, New Zealand, Belgium, Turkey, United Statesthe U.S. related to capital loss carry forwards not expected to be utilized, and a $1.9 million release of valuation allowance in Luxembourg, Ireland, and various other jurisdictions related to the utilization or write-off of deferred tax assets.
F-37
Activity in the Company’s valuation allowance accounts consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| Year Ended December 31, |
| |||||||||||||||||
|
| 2017 |
| 2016 |
| 2015 |
| |||||||||||||
| | | | | | | | | | | ||||||||||
| | Year Ended December 31, |
| |||||||||||||||||
|
| 2020 |
| 2019 |
| 2018 |
| |||||||||||||
Beginning balance |
| $ | 9,949 |
| $ | 10,139 |
| $ | 10,721 |
| | $ | 17,051 | | $ | 10,867 | | $ | 9,526 | |
Additions of deferred income tax expense |
|
| 2,044 |
|
| 1,914 |
|
| 4,300 |
| |
| 4,650 | |
| 7,373 | |
| 2,913 | |
Reductions of deferred income tax expense |
|
| (2,467) |
|
| (2,104) |
|
| (4,882) |
| |
| (3,004) | |
| (1,189) | |
| (1,572) | |
Ending balance |
| $ | 9,526 |
| $ | 9,949 |
| $ | 10,139 |
| | $ | 18,697 | | $ | 17,051 | | $ | 10,867 | |
F-38
As of December 31, 2017,2020, after consideration of all tax loss and tax credit carry back opportunities, the Company had tax affected tax loss carry forwards worldwide expiring as follows (in thousands):
|
|
|
|
2018 |
| $ | 98 |
2019 |
|
| 205 |
2020 |
|
| 319 |
2021 |
|
| 160 |
After 2021 |
|
| 9,687 |
No expiration |
|
| 5,282 |
Total |
| $ | 15,751 |
| | | |
2021 |
| $ | 2 |
2022 | |
| 3 |
2023 | |
| 183 |
2024 | |
| 4 |
After 2024 | |
| 11,229 |
No expiration | |
| 9,087 |
Total | | $ | 20,508 |
The Company has been granted “Tax Holidays” as an incentive to attract foreign investment by the governments of the Philippines and Costa Rica. Generally, a Tax Holiday is an agreement between the Company and a foreign government under which the Company receives certain tax benefits in that country, such as exemption from taxation on profits derived from export-related activities. In the Philippines, the Company has been granted multiple agreements, with an initial period of four years and additional periods for varying years, expiring at various times between 20172020 and 2019.2022. The aggregate benefit to income tax expense for the years ended December 31, 2017, 20162020, 2019 and 20152018 was approximately $11.9$4.4 million, $12.4$8.4 million and $12.2$8.2 million, respectively, which had a favorable impact on diluted net income per share of $0.26, $0.27$0.09, $0.18 and $0.25,$0.18, respectively.
Accounting for Uncertainty in Income Taxes
In accordance with ASC 740, the Company has recorded a reserve for uncertain tax positions. The total amount of interest and penalties recognized in the accompanying Consolidated Balance Sheets and Consolidated Statements of Comprehensive Income (Loss) as of December 31, 2017, 20162020, 2019 and 20152018 was approximately $1.8$3.0 million, $693 thousand$2.1 million and $709 thousand,$1.4 million, respectively.
The Company had a reserve for uncertain tax benefits, on a net basis, of $3.3$7.5 million and $3.5$4.8 million for the years ended December 31, 20172020 and 2016,2019, respectively. The liability for uncertain tax positions was increased by $0.9 million during 2016 for new uncertain tax positions.
The tabular reconciliation of the reserve for uncertain tax benefits on a gross basis without interest for the three years ended December 31, 20172020 is presented below (in thousands):
|
|
|
| |||
Balance as of December 31, 2014 |
| $ | 1,661 | |||
| | | | |||
Balance as of December 31, 2017 |
| $ | 3,298 | |||
Additions for current year tax positions |
|
| 1,048 | |
| 3,600 |
Reductions in prior year tax positions |
|
| — | |
| (2,114) |
Balance as of December 31, 2015 |
|
| 2,709 | |||
Balance as of December 31, 2018 | |
| 4,784 | |||
Additions for current year tax positions |
|
| 826 | |
| 0 |
Reductions in prior year tax positions |
|
| (1,153) | |
| 0 |
Balance as of December 31, 2016 |
|
| 2,382 | |||
Balance as of December 31, 2019 | |
| 4,784 | |||
Additions for current year tax positions |
|
| 916 | |
| 2,725 |
Reductions in prior year tax positions |
|
| — | |
| 0 |
Balance as of December 31, 2017 |
| $ | 3,298 | |||
Balance as of December 31, 2020 | | $ | 7,509 | |||
At December 31, 2017,2020, the amount of uncertain tax benefits including interest, that, if recognized, would reduce tax expense was $5.1$10.5 million. Within the next 12 months, it is expected that the amount of unrecognized tax benefits willmay be reduced by $3.9 million as a result of the expiration of various statutes of limitation or the confirmationother confirmations of tax positions by tax authorities.
In accordance with ASC 740, the Company recorded a liability of $0.9 million related to an uncertain tax position.
The Company recorded a liability during the second quarter of 2015 of $1.75 million and during the first quarter of 2016 of $1.1 million, inclusive of penalties and interest, for an uncertain tax position. See Note 1 for further information on these items.
During the second quarter of 2016, $0.3 million of liability was released due to the closing of a statute of limitations.
positions.
F-39F-38
During the third quarter of 2016, $0.8 million of liability was released due to the favorable outcome of communications with a revenue authority related to site compliance for locations with tax advantaged status.
During the third quarter of 2016, $0.5 million of liability was released due to the closing of a statute of limitations.
The Company and its domestic and foreign subsidiaries (including Percepta LLC and its domestic and foreign subsidiaries) file income tax returns as required in the U.S. federal jurisdiction and various state and foreign jurisdictions. The following table presents the major tax jurisdictions and tax years that are open as of December 31, 20172020 and subject to examination by the respective tax authorities:
| | |
Tax Jurisdiction | Tax Year Ended | |
United States |
|
|
Australia |
|
|
|
|
|
Canada |
|
|
Mexico |
|
|
Philippines |
|
|
The Company’s U.S. income tax returns filed for the tax years ending December 31, 20142017 to present, remain open tax years. The Company has been notified of the intent to audit, or is currently under audit of, income taxes for Canadathe United States for tax year 2017 and 2018, and the Philippines for tax years 2017 and 2018. During 2020, the Company confirmed the closure of the Canadian audit for tax years 2009 and 2010, the Philippines for tax year 2015, Ireland for tax year 2016 and the state of Minnesota in the United StatesNew York for tax years 20142015 through 2016.2017 with no material changes to the financial statements. Although the outcome of examinations by taxing authorities are always uncertain, it is the opinion of management that the resolution of these audits will not have a material effect on the Company’s Consolidated Financial Statements. The Company successfully closed their audit in the second quarter of 2017 in Hong Kong for the tax year 2014 with no material changes. The Company also recorded a benefit in the amount of $0.8 million in the financial statements during the fourth quarter related to the favorable resolution of tax audits.
(11) CHARGES, INTEGRATION CHARGES AND IMPAIRMENT LOSSES
Restructuring Charges
During the years ended December 31, 2017, 20162020, 2019 and 2015,2018, the Company continued restructuring activities primarily associated with reductions in the Company’s capacity, workforce and related management in all of itsboth segments to better align the capacity and workforce with current business needs.
During 2017,2020 and 2018, TTEC determined it would close several restructuring activities were completeddelivery centers in the Engage segment and a $2.2 million and a net $4.8 million, respectively, was expensed related to early termination fees and cease use lease accruals. These expenses are included in the purchase of Connextions (see Note 2) including the closure of two delivery centers that came with the acquisition. During 2017, aRestructuring charges, net $0.4 million severance accrual was recorded in relation to these closures. In conjunction with closing these two delivery centers, a $0.6 million termination fee and a $1.4 million net lease liability and applicable expenses were recorded as of December 31, 2017. These net charges were included in the Consolidated Statements of Comprehensive Income (Loss) during the year ended December 31, 2017..
A summary of the expenses recorded for restructuring and included in Restructuring and integration charges, net in the accompanying Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
| |||||||
|
|
| 2017 |
| 2016 |
| 2015 |
| |||
Reduction in force |
|
|
|
|
|
|
|
|
|
|
|
Customer Management Services |
|
| $ | 1,012 |
| $ | 2,837 |
| $ | 1,482 |
|
Customer Growth Services |
|
|
| — |
|
| 147 |
|
| 22 |
|
Customer Technology Services |
|
|
| 94 |
|
| 324 |
|
| 13 |
|
Customer Strategy Services |
|
|
| 55 |
|
| 92 |
|
| 297 |
|
Total |
|
| $ | 1,161 |
| $ | 3,400 |
| $ | 1,814 |
|
| | | | | | | | | | | |
| | | Year Ended December 31, |
| |||||||
| |
| 2020 |
| 2019 |
| 2018 |
| |||
Reduction in force | | | | | | | | | | | |
TTEC Digital | | | $ | 668 | | $ | 141 | | $ | 133 | |
TTEC Engage | | |
| 396 | |
| 894 | |
| 694 | |
Total | | | $ | 1,064 | | $ | 1,035 | | $ | 827 | |
| | | | | | | | | | | |
| | | Year Ended December 31, |
| |||||||
| |
| 2020 |
| 2019 |
| 2018 |
| |||
Facility exit and other charges | | | | | | | | | | | |
TTEC Digital | | | $ | 90 | | $ | 41 | | $ | 0 | |
TTEC Engage | | |
| 2,110 | |
| 671 | |
| 5,304 | |
Total | | | $ | 2,200 | | $ | 712 | | $ | 5,304 | |
F-40F-39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
| |||||||
|
|
| 2017 |
| 2016 |
| 2015 |
| |||
Facility exit and other charges |
|
|
|
|
|
|
|
|
|
|
|
Customer Management Services |
|
| $ | 2,050 |
| $ | 959 |
| $ | — |
|
Customer Growth Services |
|
|
| — |
|
| — |
|
| — |
|
Customer Technology Services |
|
|
| 84 |
|
| 33 |
|
| — |
|
Customer Strategy Services |
|
|
| 85 |
|
| — |
|
| — |
|
Total |
|
| $ | 2,219 |
| $ | 992 |
| $ | — |
|
A rollforward of the activity in the Company’s restructuring accruals for the years ended December 31, 20172020 and 2016,2019, respectively, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| Reduction |
| Facility Exit and |
|
|
|
| ||||||||||||
|
| in Force |
| Other Charges |
| Total |
| |||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Balance as of December 31, 2015 |
| $ | 806 |
| $ | — |
| $ | 806 |
| ||||||||||
| | | | | | | | | | | ||||||||||
| | Reduction | | Facility Exit and | | | |
| ||||||||||||
| | in Force | | Other Charges | | Total |
| |||||||||||||
| | | | | | | | | | | ||||||||||
Balance as of December 31, 2018 | | $ | 416 | | $ | 3,226 | | $ | 3,642 | | ||||||||||
Expense |
|
| 3,728 |
|
| 992 |
|
| 4,720 |
| |
| 1,039 | |
| 712 | |
| 1,751 | |
Payments |
|
| (2,646) |
|
| (894) |
|
| (3,540) |
| |
| (1,145) | |
| (962) | |
| (2,107) | |
Changes due to foreign currency |
|
| (92) |
|
| — |
|
| (92) |
| | | (55) | | | 15 | | | (40) | |
Changes in estimates |
|
| (328) |
|
| — |
|
| (328) |
| | | (4) | | | — | | | (4) | |
Balance as of December 31, 2016 |
|
| 1,468 |
|
| 98 |
|
| 1,566 |
| ||||||||||
Reclassifications due to ASU 842 implementation | |
| — | |
| (2,917) | |
| (2,917) | | ||||||||||
Balance as of December 31, 2019 | |
| 251 | |
| 74 | |
| 325 | | ||||||||||
Expense |
|
| 1,316 |
|
| 2,219 |
|
| 3,535 |
| |
| 1,064 | | | 2,200 | |
| 3,264 | |
Payments |
|
| (1,892) |
|
| (908) |
|
| (2,800) |
| |
| (1,067) | | | (1,729) | |
| (2,796) | |
Changes due to foreign currency |
|
| (43) |
|
| — |
|
| (43) |
| | | (14) | | | (2) | | | (16) | |
Changes in estimates |
|
| (155) |
|
| — |
|
| (155) |
| | | (78) | | | — | | | (78) | |
Balance as of December 31, 2017 |
| $ | 694 |
| $ | 1,409 |
| $ | 2,103 |
| ||||||||||
Balance as of December 31, 2020 | | $ | 156 | | $ | 543 | | $ | 699 | | ||||||||||
The remaining restructuring and other accruals are expected to be paid or extinguished during 20182021 and are all classified as current liabilities within Other accrued expenses in the Consolidated Balance Sheets.
IntegrationSeverance Charges
In the normal course of business, the Company will pay severance to terminated employees related to programs that are ending who are no longer needed and cannot be repurposed to a new program.
During the second quarter of 2020, a $3.0 million accrual was recorded with the expense included in Cost of services during the quarter ended June 30, 2020. During the third and fourth quarters, a total of 2017, as$1.6 million was paid and a result of the Connextions acquisition, certain integration activities were completed and $5.6$0.3 million and $3.9 million of additional expenses were incurred andreduction in expense was recorded. The accrual is expected to be paid respectively. These integration activities included the hiring, training and licensing of a group of employees at new delivery centers as one of the acquired centers was closedor extinguished during the third quarter of 2017next six months and one ofthus is classified as current liabilities within Other accrued expenses in the acquired centers was closed during the fourth quarter of 2017. In connection with these center closures, leasehold improvements of $3.5 million were written off as a related integration expense. The Company has also incurred significant expenses related to the integration of the IT systems and has paid duplicative software costs and facilities expenses for several areas during the transition period.Consolidated Balance Sheets.
Impairment Losses
During each of the periods presented, the Company evaluated the annual recoverability of its leasehold improvement assets at certain customer engagement centers. An asset is considered to be impaired when the anticipated undiscounted future cash flows of its asset group are estimated to be less than the asset group’s carrying value. The amount of impairment recognized is the difference between the carrying value of the asset group and its fair value. To determine fair value, the Company used Level 3 inputs in its discounted cash flows analysis. Assumptions included the amount and timing of estimated future cash flows and assumed discount rates. During 2017, 20162020, 2019 and 2015,2018, the Company recognized impairment losses, net related to leasehold improvement assets and right of zero, zero,use lease assets of $5.8 million, $2.7 million and $0.4$1.1 million, respectively, in its Customer Management Services segment.across the TTEC Digital and TTEC Engage segments.
(12)INDEBTEDNESS
F-41
Credit Facility
On February 11, 2016,14, 2019, the Company entered into a FirstFourth Amendment to our June 3, 2013its Amended and Restated Credit Agreement and Amended and Restated Security Agreement originally dated as of June 3, 2013 (collectively the “Credit Agreement”) for a senior secured revolving credit facility (the “Credit Facility”) with a syndicate of lenders led by Wells Fargo Bank, National Association. The Credit Agreement provides for a secured revolving credit facility thatAssociation, as agent, swing line and fronting lender which matures on February 11, 2021 with an initial14, 2024 (the “Credit Facility”).
F-40
The maximum aggregate commitment ofunder the Credit Facility is $900.0 million andwith an accordion feature of up to $1.2 billion in the aggregate, if certain conditions are satisfied.
On October 30, 2017, the Company entered into a Third Amendment The Credit Facility commitment fees are payable to the Credit Agreement and exercisedlenders in an amount equal to the Credit Facility’s accordion feature to increase the total commitment underunused portion of the Credit Facility multiplied by a rate per annum as determined by reference to $1.2 billion. All other material termsthe Company’s net leverage ratio. The Credit Agreement contains customary affirmative, negative, and financial covenants, which remained unchanged from the 2016 Credit Facility, except that the Company is now obligated to maintain a maximum net leverage ratio of 3.50 to 1.00, and a minimum Interest Coverage Ratio of 2.50 to 1.00. The Credit Agreement permits accounts receivable factoring up to the greater of $75 million or 25 percent of the Credit Agreement remained unchanged.average book value of all accounts receivable over the most recent twelve month period.
Base rate loans bear interest at a rate equal to the greatest of (i) Wells Fargo’s prime rate, (ii) one half of 1% in excess of the federal funds effective rate, and (iii) 1.25% in excess of the one month London Interbank Offered Rate (“LIBOR”); plus in each case a margin of 0% to 0.75% based on the Company’s net leverage ratio. Eurodollar loans bear interest at LIBOR plus a margin of 1.0% to 1.75% based on the Company’s net leverage ratio. Alternate currency loans bear interest at rates applicable to their respective currencies.
Letter of credit fees are one eighth of 1% of the stated amount of the letter of credit on the date of issuance, renewal or amendment, plus an annual fee equal to the borrowing margin for Eurodollar loans.
The Credit Facility commitment fees are payable to the lenders in an amount equal to the unused portion of the Credit Facility at a rate of 0.125% to 0.250% based on the Company’s net leverage ratio.
The Company is obligated to maintain a maximum net leverage ratio of 3.25 to 1.00, and a minimum interest coverage ratio of 2.50 to 1.00.
The Company primarily utilizes its Credit Agreement to fund working capital, general operations, stock repurchases, dividends, acquisitions, and other strategic activities, such as the acquisitions described in Note 2.activities. As of December 31, 2017,2020, and 2016,2019, the Company had borrowings of $344.0$385.0 million and $217.3$290.0 million, respectively, under its Credit Agreement, and its average daily utilization was $494.7$550.9 million and $375.3$331.8 million for the years ended December 31, 20172020 and 2016,2019, respectively. The Company had increased borrowings under the Credit Agreement from late March 2020 through late September 2020, related to precautionary measures taken to proactively strengthen the Company’s cash reserves and financial flexibility in response to COVID-19 related uncertainties. As of September 30, 2020, those additional borrowings had been repaid. Based on the current level of availability based on the covenant calculations, the Company’s remaining borrowing capacity was approximately $350$510.0 million as of December 31, 2017.2020. As of December 31, 2017,2020, the Company was in compliance with all covenants and conditions under its Credit Agreement.
(13)
Deferred revenue in the accompanying Consolidated Balance Sheets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
| December 31, |
| ||||
|
| 2017 |
| 2016 |
| ||
Deferred Revenue - Current |
| $ | 21,628 |
| $ | 23,318 |
|
Deferred Revenue - Long-term |
|
| 9,632 |
|
| 8,851 |
|
Total Deferred Revenue |
| $ | 31,260 |
| $ | 32,169 |
|
Deferred costs in the accompanying Consolidated Balance Sheets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
| December 31, |
| ||||
|
| 2017 |
| 2016 |
| ||
Deferred Costs - Current |
| $ | 13,649 |
| $ | 14,755 |
|
Deferred Costs - Long-term |
|
| 9,654 |
|
| 8,124 |
|
Total Deferred Costs |
| $ | 23,303 |
| $ | 22,879 |
|
F-42
(14)COMMITMENTS AND CONTINGENCIES
Letters of Credit
As of December 31, 2017,2020, outstanding letters of credit under the Credit Agreement totaled $4.5$2.8 million and primarily guaranteed workers’ compensation and other insurance related obligations. As of December 31, 2017,2020, letters of credit and contract performance guarantees issued outside of the Credit Agreement totaled $0.7$0.8 million.
Guarantees
Indebtedness under the Credit Agreement is guaranteed by certain of the Company’s present and future domestic subsidiaries.
Legal Proceedings
From time to time, the Company has been involved in legal actions, both as plaintiff and defendant, which arise in the ordinary course of business. The Company accrues for exposures associated with such legal actions to the extent that losses are deemed both probable and reasonably estimable. To the extent specific reserves have not been made for certain legal proceedings, their ultimate outcome, and consequently, an estimate of possible loss, if any, cannot reasonably be determined at this time.
Based on currently available information and advice received from counsel, the Company believes that the disposition or ultimate resolution of any current legal proceedings, except as otherwise specifically reserved for in its financial statements, will not have a material adverse effect on the Company’s financial position, cash flows or results of operations.
F-41
(14)DEFERRED REVENUE AND COSTS
Deferred revenue in the accompanying Consolidated Balance Sheets consist of the following (in thousands):
| | | | | | | |
| | December 31, |
| ||||
|
| 2020 |
| 2019 |
| ||
Deferred Revenue - Current | | $ | 39,956 | | $ | 39,447 | |
Deferred Revenue - Long-term (included in Other long-term liabilities) | |
| 17,434 | |
| 23,142 | |
Total Deferred Revenue | | $ | 57,390 | | $ | 62,589 | |
Deferred costs in the accompanying Consolidated Balance Sheets consist of the following (in thousands):
| | | | | | | |
| | December 31, |
| ||||
|
| 2020 |
| 2019 |
| ||
Deferred Costs - Current (included in Prepaids and other current assets) | | $ | 25,669 | | $ | 26,092 | |
Deferred Costs - Long-term (included in Other long-term assets) | |
| 18,015 | |
| 25,436 | |
Total Deferred Costs | | $ | 43,684 | | $ | 51,528 | |
Activity in the Company’s Deferred revenue accounts consists of the following (in thousands):
| | | | |
Balance as of December 31, 2019 | | $ | 62,589 | |
Additions | |
| 136,852 | |
Amortization | |
| (142,051) | |
Balance as of December 31, 2020 | | $ | 57,390 | |
(15)LEASES
Operating leases are included in our Consolidated Balance Sheet as Operating lease assets, Current operating lease liabilities and Non-current operating lease liabilities. Finance leases are included in Property, plant and equipment, Other current liabilities and Other long-term liabilities in our Consolidated Balance Sheet. The Company primarily leases real estate and equipment under various arrangements that provide the Company the right-of-use for the underlying asset that require lease payments over the lease term. The Company determines the value of each lease by computing the present value of each lease payment using the interest rate implicit in the lease, if available; otherwise the Company estimates its incremental borrowing rate over the lease term. The Company determines its incremental borrowing rate based on its estimated credit risk with adjustments for each individual leases’ geographical risk and lease term. Operating lease assets also include prepaid rent and initial direct costs less any tenant improvements.
The Company’s real estate portfolio typically includes one or more options to renew, with renewal terms that generally can extend the lease term from one to 10 years. The exercise of these lease renewal options is at the Company’s discretion and is included in the lease term only if the Company is reasonably certain to exercise. The Company also has variousservice arrangements whereby it controls specific space provided by a third-party service provider. These arrangements meet the definition of a lease and are accounted for under ASC 842. Lease expense for operating leases primarily for customer engagement centers, equipment,is recognized on a straight-line basis over the lease term and office space, which generallyis included in the Consolidated Statements of Comprehensive Income (Loss). The Company’s lease agreements do not contain renewal options. Rentany material residual value guarantees or restrictive guarantees.
F-42
The components of lease expense under operating leases was approximately $46.3 million, $39.5 million and $37.7 million for the years ended December 31, 2017, 20162020 and 2015, respectively.2019 are as follows (in thousands):
| | | | | | | | | |
| | Location in Statements of | | Year Ended December 31, | | ||||
Description | | Comprehensive Income (Loss) |
| 2020 |
| 2019 |
| ||
Amortization of ROU assets - finance leases | | Depreciation and amortization | | $ | 7,661 | | | 7157 | |
Interest on lease liabilities - finance leases | | Interest expense | | | 203 | | $ | 141 |
|
Operating lease cost (cost resulting from lease payments) | | Cost of services | |
| 46,375 | |
| 47,269 | |
Operating lease cost (cost resulting from lease payments) | | Selling, general and administrative | | | 2,040 | | | 3,731 | |
Operating lease cost (cost resulting from lease payments) | | Restructuring | | | 1,232 | | | — | |
Operating lease cost | | Impairment | | | 5,127 | | | — | |
Operating lease cost (cost resulting from lease payments) | | Other income (expense), net | | | 1,149 | | | 968 | |
Short-term lease cost | | Cost of services | |
| 3,888 | |
| 4,338 | |
Variable lease cost (cost excluded from lease payments | | Cost of services | | | (287) | | | — | |
Less: Sublease income | | Selling, general and administrative | | | (836) | | | (445) | |
Less: Sublease income | | Other income (expense), net | |
| (2,464) | |
| (1,984) | |
Total lease cost | | | | $ | 64,088 |
| $ | 61,175 | |
Other supplementary information for the years ended December 31, 2020 and 2019 are as follows (dollar values in thousands):
| | | | | | | |
| | Year Ended December 31, | | ||||
|
| 2020 |
| 2019 |
| ||
Finance lease - operating cash flows | | $ | 68 | | $ | 103 | |
Finance lease - financing cash flows | | $ | 7,911 | | $ | 10,251 | |
Operating lease - operating cash flows (fixed payments) | | $ | 55,862 | | $ | 51,898 | |
New ROU assets - operating leases | | $ | 6,834 | | $ | 15,494 | |
Modified ROU assets - operating leases | | $ | 6,485 | | $ | 46,543 | |
New ROU assets - finance leases | | $ | 2,292 | | $ | 6,133 | |
| | | | | | | |
| | December 31, 2020 | | | December 31, 2019 | ||
Weighted average remaining lease term - finance leases | | | 2.46 years | | | 2.91 years | |
Weighted average remaining lease term - operating leases | | | 3.73 years | | | 4.27 years | |
Weighted average discount rate - finance leases | | | 1.64% | | | 1.43% | |
Weighted average discount rate - operating leases | | | 6.95% | | | 7.22% | |
Operating and financing lease right-of-use assets and lease liabilities within our Consolidated Balance Sheet as of December 31, 2020 and 2019 are as follows (in thousands):
| | | | | | | | |
Description | Location in Balance Sheet | | December 31, 2020 | | December 31, 2019 |
| ||
Assets | | | | | | | | |
Operating lease assets | Operating lease assets | | $ | 120,820 | | $ | 150,808 | |
Finance lease assets | Property, plant and equipment, net | |
| 12,659 | |
| 18,016 | |
Total leased assets | | | $ | 133,479 | | $ | 168,824 | |
| | | | | | | | |
Liabilities | | | | | | | | |
Current | | | | | | | | |
Operating | Current operating lease liabilities | | $ | 43,651 | | $ | 45,218 | |
Finance | Other current liabilities | | | 6,193 | | | 7,470 | |
Non-current | | | | | | | | |
Operating | Non-current operating lease liabilities | | | 98,277 | | | 127,395 | |
Finance | Other long-term liabilities | | | 4,763 | | | 8,896 | |
Total lease liabilities | | | $ | 152,884 | | $ | 188,979 | |
F-43
The future minimum operating lease and finance lease payments required under non-cancelable leases as of December 31, 2020 and 2019 are as follows (in thousands):
December 31, 2020
| | | | | | | | | | |
|
| Operating |
| Sub-lease |
| Finance |
| |||
| | Leases | | Income | | Leases |
| |||
Year 1 | | $ | 51,120 | | $ | (3,500) | | $ | 6,237 | |
Year 2 | |
| 46,913 | |
| (3,489) | |
| 2,740 | |
Year 3 | |
| 31,085 | |
| (3,123) | |
| 1,631 | |
Year 4 | |
| 17,338 | |
| (2,905) | |
| 579 | |
Year 5 | |
| 8,288 | |
| (2,940) | |
| — | |
Thereafter | |
| 8,397 | |
| (490) | |
| — | |
Total minimum lease payments | | $ | 163,141 | | $ | (16,447) | | $ | 11,187 | |
Less imputed interest | | | (21,213) | | | | | | (231) | |
Total lease liability | | $ | 141,928 | | | | | $ | 10,956 | |
December 31, 2019
| | | | | | | | | | |
|
| Operating |
| Sub-lease |
| Finance |
| |||
| | Leases | | Income | | Leases |
| |||
Year 1 | | $ | 54,903 | | $ | (2,976) | | $ | 7,594 | |
Year 2 | |
| 47,892 | |
| (621) | |
| 5,587 | |
Year 3 | |
| 43,590 | |
| (345) | |
| 2,139 | |
Year 4 | |
| 28,124 | |
| (201) | |
| 1,109 | |
Year 5 | |
| 14,494 | |
| — | |
| 331 | |
Thereafter | |
| 14,734 | |
| — | |
| — | |
Total minimum lease payments | | $ | 203,737 | | $ | (4,143) | | $ | 16,760 | |
Less imputed interest | | | (31,124) | | | | | | (394) | |
Total lease liability | | $ | 172,613 | | | | | $ | 16,366 | |
In 2008, the Company sub-leased one of its customer engagement centers to a third party for the remaining term of the original lease. The sub-lease began on January 1, 2009 and rental income is recognized on a straight-line basis over the term of the sub-lease through 2026. In 2017, the Company sub-leased one of its office spaces for the remaining term of the original lease. The sub-lease began on November 6, 2017 and ends May 31, 2021. Future minimumIn 2019, the Company sub-leased one of its office spaces for the remaining term of the original lease. The sub-lease rental receipts are shown inbegan on March 1, 2019 and ends July 21, 2023. In 2020, the table below.Company sub-leased one of its office spaces for the remaining term of the original lease. The sub-lease began on February 6, 2020 and ends on June 14, 2023.
(16) OTHER LONG-TERM LIABILITIES
The future minimum rental payments and receipts required under non-cancelable operating leasescomponents of Other long-term liabilities as of December 31, 20172020 and 2019 are as follows (in thousands):
| | | | | | | | |
| | | December 31, 2020 |
| December 31, 2019 | | ||
| | | | | | | | |
Deferred revenue | | | $ | 17,434 |
| $ | 23,142 | |
Deferred compensation plan | | | | 23,858 | | | 20,370 | |
Other | | |
| 54,893 | |
| 36,129 | |
Total | | | $ | 96,185 |
| $ | 79,641 | |
|
|
|
|
|
|
|
|
|
| Operating |
| Sub-Lease |
| ||
|
| Leases |
| Income |
| ||
2018 |
| $ | 44,177 |
| $ | (2,470) |
|
2019 |
|
| 34,528 |
|
| (2,470) |
|
2020 |
|
| 26,471 |
|
| (2,470) |
|
2021 |
|
| 20,854 |
|
| (206) |
|
2022 |
|
| 17,215 |
|
| — |
|
Thereafter |
|
| 30,984 |
|
| — |
|
Total |
| $ | 174,229 |
| $ | (7,616) |
|
The Company records operating lease expense on a straight-line basis over the life of the lease as described in Note 1. The deferred lease liability as of December 31, 2017 and 2016 was $15.7 million and $15.3 million, respectively.
F-43F-44
Asset Retirement Obligations
The Company records asset retirement obligations (“ARO”) for several of its customer engagement center leases. Capitalized costs related to ARO’s are included in Other long-term assets in the accompanying Consolidated Balance Sheets while the ARO liability is included in Other long-term liabilities in the accompanying Consolidated Balance Sheets. Following is a summary of the amounts recorded (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at |
|
|
|
|
|
|
|
|
|
| Balance at |
| ||
|
| December 31, |
| Additions and |
|
|
|
|
|
|
| December 31, |
| |||
|
| 2016 |
| Modifications |
| Accretion |
| Settlements |
| 2017 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARO liability total |
| $ | 1,861 |
| $ | 317 |
| $ | 7 |
| $ | (247) |
| $ | 1,938 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at |
|
|
|
|
|
|
|
|
|
| Balance at |
| ||
|
| December 31, |
| Additions and |
|
|
|
|
|
|
| December 31, |
| |||
|
| 2015 |
| Modifications |
| Accretion |
| Settlements |
| 2016 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARO liability total |
| $ | 1,641 |
| $ | 333 |
| $ | 15 |
| $ | (128) |
| $ | 1,861 |
|
Increases to ARO result from a new lease agreement or modifications on an ARO from a preexisting lease agreement. Modifications to ARO liabilities and accumulated accretion occur when lease agreements are amended or when assumptions change, such as the rate of inflation. Modifications are accounted for prospectively as changes in estimates. Settlements occur when leased premises are vacated and the actual cost of restoration is paid. Differences between the actual costs of restoration and the balance recorded as ARO liabilities are recognized as gains or losses in the accompanying Consolidated Statements of Comprehensive Income (Loss).
(16)MANDATORILY REDEEMABLE NONCONTROLLING INTEREST
The Company held an 80% interest in iKnowtion until January 1, 2016 when the additional 20% was purchased. In the event iKnowtion met certain EBITDA targets for calendar year 2015, the purchase and sale agreement required TTEC to purchase the remaining 20% interest in iKnowtion in 2016 for an amount equal to a multiple of iKnowtion’s 2015 EBITDA as defined in the purchase and sale agreement. These terms represented a contingent redemption feature which the Company determined was probable of being achieved.
Based on final EBITDA for 2015, the payment for the remaining 20% was completed in April 2016 for the value shown in the table below in accordance with the purchase and sale agreement.
The Company has recorded the mandatorily redeemable noncontrolling interest at the redemption value based on the corresponding EBITDA multiples as prescribed in the purchase and sale agreement at the end of each reporting period. At the end of each reporting period the changes in the redemption value are recorded in retained earnings. Since the EBITDA multiples as defined in the purchase and sale agreement are below the current market multiple, the Company has determined that there is no preferential treatment to the noncontrolling interest shareholders resulting in no impact to earnings per share.
A rollforward of the mandatorily redeemable noncontrolling interest is as follows (in thousands):
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
| ||||
|
| 2017 |
| 2016 |
| ||
Mandatorily redeemable noncontrolling interest, January 1 |
| $ | — |
| $ | 4,131 |
|
Net income attributable to mandatorily redeemable noncontrolling interest |
|
| — |
|
| — |
|
Working capital distributed to mandatorily redeemable noncontrolling interest |
|
| — |
|
| (492) |
|
Change in redemption value |
|
| — |
|
| 466 |
|
Purchase of mandatorily redeemable noncontrolling interest |
|
| — |
|
| (4,105) |
|
Mandatorily redeemable noncontrolling interest, December 31 |
| $ | — |
| $ | — |
|
(17)ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table presents changes in the accumulated balance for each component of Other comprehensive income (loss), including current period other comprehensive income (loss) and reclassifications out of accumulated other comprehensive income (loss) (in thousands):
| | | | | | | | | | | | | |
|
| Foreign |
| | |
| | |
| | |
| |
| | Currency | | Derivative | | | | | | |
| ||
| | Translation | | Valuation, Net | | Other, Net | | | |
| |||
| | Adjustment | | of Tax | | of Tax | | Totals |
| ||||
| | | | | | | | | | | | | |
Accumulated other comprehensive income (loss) at December 31, 2017 | | $ | (84,100) | | $ | (15,746) | | $ | (2,458) | | $ | (102,304) | |
| | | | | | | | | | | | | |
Other comprehensive income (loss) before reclassifications | |
| (30,068) | |
| 20,278 | |
| 712 | |
| (9,078) | |
Amounts reclassified from accumulated other comprehensive income (loss) | |
| — | |
| (12,810) | |
| (404) | |
| (13,214) | |
Net current period other comprehensive (income) loss | |
| (30,068) | |
| 7,468 | |
| 308 | |
| (22,292) | |
| | | | | | | | | | | | | |
Accumulated other comprehensive income (loss) at December 31, 2018 | | $ | (114,168) | | $ | (8,278) | | $ | (2,150) | | $ | (124,596) | |
| | | | | | | | | | | | | |
Accumulated other comprehensive income (loss) at December 31, 2018 | | $ | (114,168) |
| $ | (8,278) |
| $ | (2,150) |
| $ | (124,596) | |
| | | | | | | | | | | | | |
Other comprehensive income (loss) before reclassifications | |
| 6,688 | |
| 15,545 | |
| (588) | |
| 21,645 | |
Amounts reclassified from accumulated other comprehensive income (loss) | |
| — | |
| (3,085) | |
| (198) | |
| (3,283) | |
Net current period other comprehensive income (loss) | |
| 6,688 | |
| 12,460 | |
| (786) | |
| 18,362 | |
| | | | | | | | | | | | | |
Accumulated other comprehensive income (loss) at December 31, 2019 | | $ | (107,480) |
| $ | 4,182 |
| $ | (2,936) |
| $ | (106,234) | |
| | | | | | | | | | | | | |
Accumulated other comprehensive income (loss) at December 31, 2019 | | $ | (107,480) |
| $ | 4,182 |
| $ | (2,936) |
| $ | (106,234) | |
| | | | | | | | | | | | | |
Other comprehensive income (loss) before reclassifications | |
| 9,722 | |
| 2,321 | |
| 1,016 | |
| 13,059 | |
Amounts reclassified from accumulated other comprehensive income (loss) | |
| 19,619 | |
| 1,928 | |
| (528) | |
| 21,019 | |
Net current period other comprehensive income (loss) | |
| 29,341 | |
| 4,249 | |
| 488 | |
| 34,078 | |
| | | | | | | | | | | | | |
Accumulated other comprehensive income (loss) at December 31, 2020 | | $ | (78,139) |
| $ | 8,431 |
| $ | (2,448) |
| $ | (72,156) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Foreign |
|
|
|
|
|
|
|
|
|
| |
|
| Currency |
| Derivative |
|
|
|
|
|
|
| ||
|
| Translation |
| Valuation, Net |
| Other, Net |
|
|
|
| |||
|
| Adjustment |
| of Tax |
| of Tax |
| Totals |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss) at December 31, 2014 |
| $ | (33,352) |
| $ | (18,345) |
| $ | (577) |
| $ | (52,274) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications |
|
| (37,844) |
|
| (16,349) |
|
| (3,614) |
|
| (57,807) |
|
Amounts reclassified from accumulated other comprehensive income (loss) |
|
| — |
|
| 7,809 |
|
| 907 |
|
| 8,716 |
|
Net current period other comprehensive (income) loss |
|
| (37,844) |
|
| (8,540) |
|
| (2,707) |
|
| (49,091) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss) at December 31, 2015 |
| $ | (71,196) |
| $ | (26,885) |
| $ | (3,284) |
| $ | (101,365) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss) at December 31, 2015 |
| $ | (71,196) |
| $ | (26,885) |
| $ | (3,284) |
| $ | (101,365) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications |
|
| (20,812) |
|
| 11,242 |
|
| 1,902 |
|
| (7,668) |
|
Amounts reclassified from accumulated other comprehensive income (loss) |
|
| — |
|
| (16,750) |
|
| (1,181) |
|
| (17,931) |
|
Net current period other comprehensive income (loss) |
|
| (20,812) |
|
| (5,508) |
|
| 721 |
|
| (25,599) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss) at December 31, 2016 |
| $ | (92,008) |
| $ | (32,393) |
| $ | (2,563) |
| $ | (126,964) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss) at December 31, 2016 |
| $ | (92,008) |
| $ | (32,393) |
| $ | (2,563) |
| $ | (126,964) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications |
|
| 7,908 |
|
| 31,053 |
|
| 575 |
|
| 39,536 |
|
Amounts reclassified from accumulated other comprehensive income (loss) |
|
| — |
|
| (14,406) |
|
| (470) |
|
| (14,876) |
|
Net current period other comprehensive income (loss) |
|
| 7,908 |
|
| 16,647 |
|
| 105 |
|
| 24,660 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss) at December 31, 2017 |
| $ | (84,100) |
| $ | (15,746) |
| $ | (2,458) |
| $ | (102,304) |
|
F-45
The following table presents the classification and amount of the reclassifications from Accumulated other comprehensive income (loss) to the Statement of Comprehensive Income (Loss) (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
| Statement of |
| ||||||||||||
|
| For the Year Ended December 31, |
| Comprehensive Income |
| |||||||||||||||||||
|
| 2017 |
| 2016 |
| 2015 |
| (Loss) Classification |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
| | | | | | | | | | | | | ||||||||||||
| | | | | | | | | | | Statement of |
| ||||||||||||
| | For the Year Ended December 31, | | Comprehensive Income |
| |||||||||||||||||||
|
| 2020 |
| 2019 |
| 2018 |
| (Loss) Classification |
| |||||||||||||||
| | | | | | | | | | | | | ||||||||||||
Derivative valuation |
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | |
Loss on foreign currency forward exchange contracts |
| $ | (22,792) |
| $ | (28,025) |
| $ | (12,410) |
| Revenue |
| | $ | 2,618 | | $ | (4,228) | | $ | (17,548) |
| Revenue | |
Loss on interest rate swaps |
|
| (115) |
|
| (534) |
|
| (1,053) |
| Interest expense |
| ||||||||||||
Tax effect |
|
| 8,501 |
|
| 11,809 |
|
| 5,654 |
| Provision for income taxes |
| |
| (690) | |
| 1,143 | |
| 4,738 |
| Provision for income taxes | |
|
| $ | (14,406) |
| $ | (16,750) |
| $ | (7,809) |
| Net income (loss) |
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
| | $ | 1,928 | | $ | (3,085) | | $ | (12,810) |
| Net income (loss) | | ||||||||||||
| | | | | | | | | | | | | ||||||||||||
Other |
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | |
Actuarial loss on defined benefit plan |
| $ | (522) |
| $ | (1,310) |
| $ | (1,008) |
| Cost of services |
| | $ | (588) | | $ | (221) | | $ | (446) |
| Cost of services | |
Tax effect |
|
| 52 |
|
| 129 |
|
| 101 |
| Provision for income taxes |
| |
| 60 | |
| 23 | |
| 42 |
| Provision for income taxes | |
|
| $ | (470) |
| $ | (1,181) |
| $ | (907) |
| Net income (loss) |
| ||||||||||||
| | $ | (528) | | $ | (198) | | $ | (404) |
| Net income (loss) | | ||||||||||||
F-45
(18)
The following table sets forth the computation of basic and diluted shares for the periods indicated (in thousands):
|
|
|
|
|
|
|
| |||||||||
|
|
| Year Ended December 31, |
| ||||||||||||
|
| 2017 |
| 2016 |
| 2015 |
| |||||||||
|
|
|
|
|
|
|
| |||||||||
| | | | | | | | |||||||||
| | | Year Ended December 31, |
| ||||||||||||
|
| 2020 |
| 2019 |
| 2018 |
| |||||||||
| | | | | | | | | ||||||||
Shares used in basic earnings per share calculation |
| 45,826 |
| 47,423 |
| 48,370 |
| |
| 46,647 |
| 46,373 |
| 46,064 | | |
Effect of dilutive securities: |
|
|
|
|
|
|
|
| | | | | | | | |
Stock options |
|
| 10 |
| 10 |
| 275 |
| |
| — |
| — |
| 6 | |
Restricted stock units |
|
| 536 |
| 286 |
| 338 |
| |
| 318 |
| 349 |
| 314 | |
Performance-based restricted stock units |
|
| 10 |
| 17 |
| 28 |
| |
| 28 |
| 36 |
| 1 | |
Total effects of dilutive securities |
|
| 556 |
| 313 |
| 641 |
| |
| 346 |
| 385 |
| 321 | |
Shares used in dilutive earnings per share calculation |
| 46,382 |
| 47,736 |
| 49,011 |
| |
| 46,993 |
| 46,758 |
| 46,385 | | |
For the years ended December 31, 2017, 20162020, 2019 and 2015, zero, 0.1 million and 0.1 million, respectively, of2018, there were 0 options to purchase shares of common stock or performance-based restricted stock that were outstanding but not included in the computation of diluted net income per share because the exercise price exceeded the value of the shares and the effect would have been anti-dilutive. For the years ended December 31, 2017, 20162020, 2019 and 2015,2018, restricted stock units of 0.0 million, 0.1 million,8 thousand, 28 thousand, and 0.4 million,212 thousand, respectively, were outstanding but not included in the computation of diluted net income per share because the effect would have been anti-dilutive. For the years ended December 31, 2017, 2016 and 2015, there were no performance-based restricted stock units outstanding but not included in the computation of diluted net income per share.
F-46
(19)
Employee Benefit Plan
The Company currently has a 401(k) profit-sharing plan that allows participation by U.S. employees who have completed six months of service, as defined, and are 21 years of age or older. Participants may defer up to 75% of their gross pay, up to a maximum limit determined by U.S. federal law. Participants are also eligible for a matching contribution. The Company may from time to time, at its discretion, make a “matching contribution” based on the amount and rate of the elective deferrals. The Company determines how much, if any, it will contribute for each dollar of elective deferrals. Participants vest in matching contributions over a three-year period. Company matching contributions to the 401(k) plan(s) totaled $5.7$4.2 million, $5.1$6.7 million and $4.6$5.2 million for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively.
Equity Compensation Plans
In February 1999,2020, the Company adopted the TeleTechTTEC Holdings, Inc. 1999 Stock Option and, 2020 Equity Incentive Plan (the “1999“2020 Plan”). An aggregate of 14.0 million shares of common stock were reserved for issuance under the 1999 Plan,, which permitted the awardpermits awards of incentive stock options, non-qualified stock options, stock appreciation rights, shares of restricted common stock, performance stock units and restricted stock units (“RSUs”).units. The 19992020 Plan will also providedprovide for annual equity-based compensation grants to members of the Company’s Board of Directors. Options granted to employees under the 2020 Plan generally vestedvest over fourthree to five years and hadhave a contractual life of ten years. Options issued to Directors vested immediatelyvest over one year and hadhave a contractual life of ten years. In May 2009,At the 2020 Annual Stockholder Meeting, the Company adopted a policy to issue RSUs to Directors, which generally vest over one year.
In May 2010,received shareholder approval for the Company adopted the 2010 Equity Incentive2020 Plan, (the “2010 Plan”). Upon adoption of the 2010 Plan, all authorized and unissued equity in the 1999 Plan were cancelled. An aggregate ofincluding 4.0 million shares of common stock has beento be reserved for issuance under the 2010 Plan, which permits the award of incentive stock options, non-qualified stock options, stock appreciation rights, shares of restricted common stock and RSUs. As of December 31, 2017, a total of 4.0 million shares were authorized and 1.1 million shares were available for issuance under the 2010 Plan.
For the years ended December 31, 2017, 2016,2020, 2019, and 2015,2018, the Company recorded total equity-based compensation expense under all equity-based arrangements (stock options and RSUs) of $11.9$12.5 million, $9.8$12.8 million and $11.3$12.1 million, respectively. For 2017, 20162020, 2019 and 2015,2018, of the total compensation expense, $4.1$4.3 million, $3.1$4.7 million and $2.9$4.7 million was recognized in Cost of services and $7.8$8.2 million, $6.7$8.1 million and $8.4$7.4 million, was recognized in Selling, general and administrative in the Consolidated Statements of Comprehensive Income (Loss), respectively. For the years ended December 31, 2017, 2016,2020, 2019, and 2015,2018, the Company recognized a tax benefit under all equity-based arrangements (stock options and RSUs) of $6.8$3.5 million, $5.0$4.2 million and $6.7$3.7 million, respectively.
F-46
Restricted Stock Units
2017, 20162018, 2019 and 20152020 RSU Awards: The Company granted RSUs in 2017, 20162018, 2019 and 20152020 to new and existing employees that vest over four or five years. The Company also granted RSUs in 2017, 20162018, 2019 and 20152020 to members of the Board of Directors that vest over one year.
During 2015, the Company granted performance-based RSUs to an executive the amount of which is determinable based on a reporting segment of the Company achieving incremental operating income for each year from 2015-2017. During 2015 and 2016, based on operating income performance for reporting segment of the Company, approximately $0.4 million and $0.1 million of RSUs were earned. These RSUs were granted in March 2016 and March 2017, respectively, and will vest 12 months from the grant date. During 2017, the Company cancelled the 2017 performance grant.
F-47
Summary of RSUs: Settlement of the RSUs shall be made in shares of the Company’s common stock by delivery of one share of common stock for each RSU then being settled. The Company calculates the fair value for RSUs based on the closing price of the Company’s stock on the date of grant and records compensation expense over the vesting period using a straight-line method. The Company factors an estimated forfeiture rate in calculating compensation expense on RSUs and adjusts for actual forfeitures upon the vesting of each tranche of RSUs. The Company also factors in the present value of the estimated dividend payments that will have accrued as these RSUs are vesting.
The weighted average grant-date fair value of RSUs, including performance-based RSUs, granted during the years ended December 31, 2017, 2016,2020, 2019, and 20152018 was $29.56, $26.60,$44.70, $40.10, and $26.52,$35.15, respectively. The total intrinsic value and fair value of RSUs vested during the years ended December 31, 2017, 2016,2020, 2019, and 20152018 was $10.6$11.5 million, $10.8$12.5 million, and $13.0$12.5 million, respectively.
Performance Based Restricted Stock Unit Grants
During 2019, the Company awarded performance restricted stock units (“PRSUs”) that are subject to service and performance vesting conditions. If defined minimum targets are met, the annual value of the PRSUs issued will be between $0.4 million and $1.4 million and vest immediately. If the defined minimum targets are not met, then no shares will be issued. The award amounts are based on the Company’s annual adjusted operating income for the fiscal years 2019, 2020 and 2021. Each fiscal year’s adjusted operating income will determine the award amount. The Company recognized compensation expense related to PRSUs of $1.1 million and $1.4 million for the years ended December 31, 2020 and 2019, respectively.
During 2020, the Company awarded PRSUs that are subject to service and performance vesting conditions. If defined minimum targets are met, Company shares will be issued that vest immediately. If the defined minimum targets are not met, then no shares will be issued. The number of shares awarded are based on the Company’s annual revenue and adjusted operating income for the fiscal years 2021 and 2022. Each fiscal year’s revenue and adjusted operating income will determine the award amount. Expense for these awards will begin at the start of the requisite service period, beginning January 1, 2021.
A summary of the status of the Company’s non-vested RSUs and performance-based RSUs and activity for the year ended December 31, 20172020 is as follows:
|
|
|
|
|
|
| ||||||
|
|
|
| Weighted |
| |||||||
|
|
|
| Average |
| |||||||
|
|
|
| Grant Date |
| |||||||
|
| Shares |
| Fair Value |
| |||||||
|
|
|
|
|
|
| ||||||
Unvested as of December 31, 2016 |
| 1,167,621 |
| $ | 25.29 |
| ||||||
| | | | | | | ||||||
|
| |
| Weighted |
| |||||||
| | | | Average |
| |||||||
| | | | Grant Date |
| |||||||
| | Shares | | Fair Value |
| |||||||
| | | | | | | ||||||
Unvested as of December 31, 2019 |
| 768,472 | | $ | 33.11 | | ||||||
Granted |
| 731,817 |
| $ | 29.56 |
|
| 695,467 | | $ | 44.70 | |
Vested |
| (439,601) |
| $ | 24.25 |
|
| (358,579) | | $ | 32.04 | |
Cancellations/expirations |
| (169,410) |
| $ | 26.77 |
|
| (76,184) | | $ | 35.83 | |
Unvested as of December 31, 2017 |
| 1,290,427 |
| $ | 27.87 |
| ||||||
Unvested as of December 31, 2020 |
| 1,029,176 | | $ | 41.12 | | ||||||
All RSUs vested during the year ended December 31, 20172020 were issued out of treasury stock. As of December 31, 2017,2020, there was approximately $23.7$25.7 million of total unrecognized compensation expense and approximately $51.9$75.1 million in total intrinsic value related to non-vested RSU grants. The unrecognized compensation expense will be recognized over the remaining weighted-average vesting period of 1.51.6 years using the straight-line method.
Stock Options
During the year ended December 31, 2011, the Company granted 150,000 stock options to a key employee. The stock option award is made up of four separate tranches. Each tranche will vest based on certain stock price targets (market conditions). The grant date fair values of each tranche were calculated using a Monte Carlo simulation model in addition to a time-based binomial lattice model. The following table provides the assumptions used in the time-based binomial lattice model for each tranche granted:
|
|
|
|
|
|
|
| Year Ended December 31, |
| ||
|
| 2011 |
| ||
Risk-free interest rate |
|
|
| 2.1 | % |
Expected life in years |
| 1.3 | - | 2.7 |
|
Expected volatility |
|
|
| 54.4 | % |
Dividend yield |
|
|
| — | % |
Weighted-average volatility |
|
|
| 54.4 | % |
The Company estimated the expected term based on historical averages of option exercises and expirations. The calculation of expected volatility is based on the historical volatility of the Company’s common stock over the expected term. The risk-free interest rate is based on the yield on the grant measurement date of a traded zero-coupon U.S. Treasury bond, as reported by the U.S. Federal Reserve, with a term equal to the expected term of the stock option granted. The Company factored an estimated forfeiture rate and adjusted for actual forfeitures upon the vesting of each tranche of options.
F-48F-47
A summary of stock option activity for the year ended December 31, 2017 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted |
|
|
|
|
|
|
|
| Weighted |
| Average |
| Aggregate |
| ||
|
|
|
| Average |
| Remaining |
| Intrinsic |
| ||
|
|
|
| Exercise |
| Contract |
| Value |
| ||
|
| Shares |
| Price |
| Term in Years |
| (000’s) |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2016 |
| 191,666 |
| $ | 22.83 |
| 3.23 |
|
|
|
|
Exercises |
| (60,000) |
| $ | 35.81 |
|
|
| $ | 194 |
|
Post-vest cancellations/expirations |
| (16,666) |
| $ | 17.31 |
|
|
|
|
|
|
Outstanding as of December 31, 2017 |
| 115,000 |
| $ | 16.86 |
| 3.46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and exercisable as of December 31, 2017 |
| 15,000 |
| $ | 13.87 |
| 0.71 |
| $ | 396 |
|
There were no stock options granted during 2017, 2016 or 2015. The total intrinsic value of options exercised during the years ended December 31, 2017, 2016 and 2015 was $194 thousand, $400 thousand and $13.9 million, respectively. The total fair value of stock options vested during the years ended December 31, 2017, 2016 and 2015 was zero, respectively.
Cash received from option exercises under the Plans for the years ended December 31, 2017, 2016 and 2015 was $2.1 million, $0.4 million and $0.8 million, respectively. The recognized tax benefit from option exercises for the years ended December 31, 2017, 2016 and 2015 was $0.0 million, $0.2 million and $1.0 million, respectively. Shares issued for options exercised during the year ended December 31, 2017 were issued out of treasury stock.
Stock Repurchase Program
The Company has a stock repurchase program, which was initially authorized by the Company’s Board of Directors in November 2001. As of December 31, 2017,2020, the cumulative authorized repurchase allowance was $762.3 million. During the year ended December 31, 2017,2020, the Company purchased 0.6 million shares for $18.3 million.no additional shares. Since inception of the program, the Company has purchased 46.1 million shares for $735.8 million. As of December 31, 2017,2020, the remaining allowance under the program was approximately $26.6 million. For the period from January 1, 20182021 through February 28, 2018,24, 2021, the Company did not purchase any additional shares. The stock repurchase program does not have an expiration date.
(21)
The Company entered into an agreement under which Avion, LLC (“Avion”) and Airmax LLC (“Airmax”) provide certain aviation flight services as requested by the Company. Such services include the use of an aircraft and flight crew. Kenneth D. Tuchman, Chairman and Chief Executive Officer of the Company, has aan indirect 100% beneficial ownership interest in Avion and Airmax. During 2017, 20162020, 2019 and 2015,2018, the Company expensed $0.4 million, $1.1 million $1.0 million and $1.7$1.1 million, respectively, to Avion and Airmax for services provided to the Company. There was $375$67 thousand in payments due and outstanding to Avion and Airmax as of December 31, 2017.
During 2014, the Company entered into a vendor contract with Convercent Inc. to provide learning management and web and telephony based global helpline solutions. This contract was renewed, after an arms-length market pricing review, in the fourth quarter of 2016. The majority owner of Convercent is a company which is owned and controlled by Kenneth D. Tuchman, Chairman and Chief Executive Officer of the Company. During 2017 and 2016, the Company expensed $70 thousand and $100 thousand, respectively, to Convercent and is expecting to spend another $60 thousand with Convercent during 2018.
During 2015, the Company entered into a vendor contract with Netlink to help the Company develop a key stroke monitoring solution. Shrikant Mehta, one of the Board of Directors, has an ownership interest in Netlink.
F-49
During 2015, the Company paid $98 thousand to Netlink for these services. The Company did not use Netlink services in 2016 or 2017 and has no plans to make additional payment to Netlink at this time.2020.
During 2015, the Company entered into a contract to purchase software from CaféX, in which is a company that TTECthe Company holds a 17.2%17.8% equity investment in.investment. During 2017, 20162020, 2019 and 2015,2018, the Company purchased $0.1 million, $0.4 million0, $50 thousand and $0.25 million,$61 thousand, respectively, of software from CaféX. See Note 2 for further information regarding this investment.
Ms. Regina M. Paolillo, Chief Financial and Administrative Officer of the Company, is a member of the board of directors of Welltok, Inc., a consumer health SaaS company, and partner of the Company in a joint venture. During 2017,the years ended December 31, 2020, 2019 and 2018, the Company recorded revenue of $3.0 million, $5.3 million and $5.7 million, respectively, in connection with work performed through the Motif acquisition,joint venture.
F-48
TTEC HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Company is now a party to a real estate lease for a building that is owned by one of the Motif Founders. The lease expires in 2020 and has future payments of approximately $142 thousand.Consolidated Financial Statements
Self-insurance liabilities of the Company which are included in Accrued employee compensation and benefits and Other accrued expenses in the accompanying Consolidated Balance Sheets were as follows (in thousands):
|
|
|
|
|
|
|
|
|
| December 31, |
| ||||
|
| 2017 |
| 2016 |
| ||
Workers compensation |
| $ | 5,312 |
| $ | 1,523 |
|
Employee health and dental insurance |
|
| 1,631 |
|
| 4,908 |
|
Total self-insurance liabilities |
| $ | 6,943 |
| $ | 6,431 |
|
(22)QUARTERLY FINANCIAL DATA (UNAUDITED)(23)
The following tables present certain quarterly financial data for the year ended December 31, 20172020 (in thousands except per share amounts).
| | | | | | | | | | | | | |
|
| First |
| Second |
| Third |
| Fourth |
| ||||
| | Quarter | | Quarter | | Quarter | | Quarter |
| ||||
| | | | | | | | | | | | | |
Revenue | | $ | 432,213 | | $ | 453,081 | | $ | 492,980 | | $ | 570,974 | |
Cost of services | |
| 321,557 | | | 337,306 | | | 368,405 | | | 425,451 | |
Selling, general and administrative | |
| 49,834 | | | 47,360 | | | 49,473 | | | 57,235 | |
Depreciation and amortization | |
| 18,872 | | | 18,660 | | | 19,522 | | | 21,808 | |
Restructuring and integration charges, net | |
| 538 | | | 793 | | | 1,233 | | | 700 | |
Impairment losses | |
| 696 | | | — | | | 948 | | | 4,165 | |
Income from operations | |
| 40,716 | |
| 48,962 | |
| 53,399 | |
| 61,615 | |
Other income (expense) | |
| (5,832) | | | (4,374) | | | (20,852) | | | (3,366) | |
Provision for income taxes | |
| (10,199) | | | (11,039) | | | (8,415) | | | (11,284) | |
Non-controlling interest | |
| (3,151) | | | (2,224) | | | (2,766) | | | (2,542) | |
Net income attributable to TTEC stockholders | | $ | 21,534 | | $ | 31,325 | | $ | 21,366 | | $ | 44,423 | |
| | | | | | | | | | | | | |
Weighted average shares outstanding | | | | | | | | | | | | | |
Basic | |
| 46,498 | |
| 46,619 | | | 46,732 | | | 46,736 | |
Diluted | |
| 46,813 | |
| 46,861 | | | 47,031 | | | 47,232 | |
| | | | | | | | | | | | | |
Net income per share attributable to TTEC stockholders | | | | | | | | | | | | | |
Basic | | $ | 0.46 | | $ | 0.67 | | $ | 0.46 | | $ | 0.95 | |
Diluted | | $ | 0.46 | | $ | 0.67 | | $ | 0.45 | | $ | 0.94 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| First |
| Second |
| Third |
| Fourth |
| ||||
|
| Quarter |
| Quarter |
| Quarter |
| Quarter |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
| $ | 338,277 |
| $ | 353,429 |
| $ | 359,036 |
| $ | 426,623 |
|
Cost of services |
|
| 253,898 |
|
| 268,004 |
|
| 275,548 |
|
| 312,618 |
|
Selling, general and administrative |
|
| 43,220 |
|
| 43,985 |
|
| 45,167 |
|
| 49,942 |
|
Depreciation and amortization |
|
| 14,500 |
|
| 16,258 |
|
| 16,515 |
|
| 17,234 |
|
Restructuring and integration charges, net |
|
| 169 |
|
| 3,593 |
|
| 6,006 |
|
| 4,897 |
|
Impairment losses |
|
| — |
|
| — |
|
| — |
|
| 5,322 |
|
Income from operations |
|
| 26,490 |
|
| 21,589 |
|
| 15,800 |
|
| 36,610 |
|
Other income (expense) |
|
| (932) |
|
| (4,198) |
|
| 1,846 |
|
| (8,318) |
|
(Provision for) benefit from income taxes |
|
| (5,391) |
|
| (1,597) |
|
| (2,071) |
|
| (69,016) |
|
Non-controlling interest |
|
| (922) |
|
| (1,100) |
|
| (806) |
|
| (728) |
|
Net income (loss) attributable to TTEC stockholders |
| $ | 19,245 |
| $ | 14,694 |
| $ | 14,769 |
| $ | (41,452) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 45,950 |
|
| 45,662 |
|
| 45,838 |
|
| 45,856 |
|
Diluted |
|
| 46,315 |
|
| 46,150 |
|
| 46,367 |
|
| 46,461 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to TTEC stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.42 |
| $ | 0.32 |
| $ | 0.32 |
| $ | (0.90) |
|
Diluted |
| $ | 0.42 |
| $ | 0.32 |
| $ | 0.32 |
| $ | (0.89) |
|
Included in Other income (expense) in the first, second quarterand fourth quarters is a $3.2$3.3 million benefit, a $1.1 million benefit and a $2.5 million expense, respectively, related to additional estimated loss on onethe fair value adjustments of contingent consideration for the acquisitions.
Included in the first and second quarters is a $2.5 million expense and a $17.4 million expense, respectively, related to the deconsolidation of three subsidiaries and the related removal of the units being reported as Assets Held for Sale. In the fourth quarter, we sold this unit and a net $0.6 million gain was recorded.Currency Translation Adjustments.
Included in Other incomeIncome (expense) in the third quarter, was a $3.2 million gain related to dissolution of a foreign entity and a release of its cumulative translation adjustment.
F-50
Included in Other income (expense) in the fourthfirst quarter is a $5.25 millionan interest expense related to finalization of the transition services agreement for the Connextions acquisition, and a $1.2 million interest charge related to the future purchase for the remaining 30% of the Motif acquisition.acquisition for $6.2 million.
Included in the Provision for Income Taxes is $62.4is: a $0.6 million of expense in the fourth quarter, related to the US 2017 Tax Act, $0.4a $1.9 million of expense in the fourth quarter, $1.3 million of expense in the third quarter, and $1.3a $0.2 million of benefitexpense in the second quarter, related to the disposition of assets, $1.9and a $0.2 million of benefitexpense in the fourthfirst quarter related to impairments,changes in tax contingent liabilities; a $1.9$2.3 million benefit in the fourth quarter, a $2.4$0.4 million benefit in the third quarter and a $1.5 million benefit in the second quarter related to restructuring charges. Also included is $0.6 million of expense in the fourth quarter related to changes in valuation allowances. Additionally, $0.3 million of benefit was recorded in the fourth quarter, $0.2 million of expense was recorded in the third quarter, $0.7 million of benefit recorded in the second quarter and $0.3a $0.1 million of expense was recorded in the first quarter related to return to provision adjustments. Also includedadjustments; a $3.0 million benefit in the third quarter related to dissolution of subsidiaries; a $1.0 million expense in the fourth quarter, was $2.1and a $0.9 million of benefit in the second quarter and $0.3 million expense in the first quarter related to transition service agreement. Finally,changes in valuation allowances; a $0.2 million benefit was recorded in the fourth quarter, a $1.0 million benefit was recorded in the third quarter, a $0.7 million benefit was recorded in the second quarter and a $0.3 million benefit was recorded in the first quarter related to stock options.restructuring charges; a $0.4 million benefit in the fourth quarter, a $0.3 million expense in the second quarter and a $0.9 million expense in the first quarter related to acquisition earn outs; a $1.0 million benefit in the first quarter, a $1.0 million benefit in the second quarter, a $1.2 million benefit in the third quarter and a $0.8 million benefit in the fourth quarter related to equity based compensation; a $1.1 million benefit in the first quarter, a $1.0 million benefit in the second quarter, a $1.0 million benefit in the third quarter and a $1.1 million benefit in the fourth quarter related to the amortization of purchased intangibles; and a $0.1 million benefit in the fourth quarter, a $0.1 million expense in the second quarter, and a $0.1 million benefit in the first quarter of other items. Without these items our effective tax rate for the year ended December 31, 2020 would have been 22.5%.
F-49
The following tables present certain quarterly financial data for the year ended December 31, 20162019 (in thousands except per share amounts).
| | | | | | | | | | | | | |
|
| First |
| Second |
| Third |
| Fourth |
| ||||
| | Quarter | | Quarter | | Quarter | | Quarter |
| ||||
| | | | | | | | | | | | | |
Revenue | | $ | 394,356 | | $ | 392,515 | | $ | 395,507 | | $ | 461,326 | |
Cost of services | |
| 293,334 | |
| 299,237 | |
| 304,622 | |
| 345,694 | |
Selling, general and administrative | |
| 49,720 | |
| 50,864 | |
| 48,062 | |
| 53,894 | |
Depreciation and amortization | |
| 16,743 | |
| 17,050 | |
| 16,659 | |
| 18,634 | |
Restructuring and integration charges, net | |
| 961 | |
| 428 | |
| 183 | |
| 175 | |
Impairment losses | |
| 1,506 | |
| 2,063 | |
| — | |
| 166 | |
Income from operations | |
| 32,092 | |
| 22,873 | |
| 25,981 | |
| 42,763 | |
Other income (expense) | |
| (4,150) | |
| (1,914) | |
| (806) | |
| (6,428) | |
Provision for income taxes | |
| (7,466) | |
| (7,345) | |
| (5,196) | |
| (5,670) | |
Non-controlling interest | |
| (1,474) | |
| (1,816) | |
| (1,878) | |
| (2,402) | |
Net income (loss) attributable to TTEC stockholders | | $ | 19,002 | | $ | 11,798 | | $ | 18,101 | | $ | 28,263 | |
| | | | | | | | | | | | | |
Weighted average shares outstanding | | | | | | | | | | | | | |
Basic | |
| 46,203 | |
| 46,318 | |
| 46,481 | |
| 46,487 | |
Diluted | |
| 46,590 | |
| 46,684 | |
| 46,768 | |
| 46,830 | |
| | | | | | | | | | | | | |
Net income per share attributable to TTEC stockholders | | | | | | | | | | | | | |
Basic | | $ | 0.41 | | $ | 0.25 | | $ | 0.39 | | $ | 0.61 | |
Diluted | | $ | 0.41 | | $ | 0.25 | | $ | 0.39 | | $ | 0.60 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| First |
| Second |
| Third |
| Fourth |
| ||||
|
| Quarter |
| Quarter |
| Quarter |
| Quarter |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
| $ | 312,410 |
| $ | 305,105 |
| $ | 312,796 |
| $ | 344,947 |
|
Cost of services |
|
| 231,340 |
|
| 226,768 |
|
| 233,541 |
|
| 249,943 |
|
Selling, general and administrative |
|
| 45,500 |
|
| 44,774 |
|
| 40,628 |
|
| 44,895 |
|
Depreciation and amortization |
|
| 17,729 |
|
| 17,221 |
|
| 16,811 |
|
| 16,914 |
|
Restructuring and integration charges, net |
|
| 88 |
|
| 114 |
|
| 3,688 |
|
| 502 |
|
Impairment losses |
|
| — |
|
| — |
|
| 5,602 |
|
| 26,448 |
|
Income from operations |
|
| 17,753 |
|
| 16,228 |
|
| 12,526 |
|
| 6,245 |
|
Other income (expense) |
|
| (1,320) |
|
| (734) |
|
| (690) |
|
| 290 |
|
Provision for income taxes |
|
| (4,528) |
|
| (2,952) |
|
| 813 |
|
| (6,196) |
|
Non-controlling interest |
|
| (680) |
|
| (926) |
|
| (1,198) |
|
| (953) |
|
Net income attributable to TTEC stockholders |
| $ | 11,225 |
| $ | 11,616 |
| $ | 11,451 |
| $ | (614) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 48,368 |
|
| 47,873 |
|
| 47,081 |
|
| 46,386 |
|
Diluted |
|
| 48,746 |
|
| 48,221 |
|
| 47,315 |
|
| 46,677 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to TTEC stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.23 |
| $ | 0.24 |
| $ | 0.24 |
| $ | (0.01) |
|
Diluted |
| $ | 0.23 |
| $ | 0.24 |
| $ | 0.24 |
| $ | (0.01) |
|
Included in Other income (expense) in the thirdsecond quarter is $4.3a $2.4 million benefit related to the fair value adjustments to theadjustment of contingent consideration related to revised estimates of the performance against the targets for one of the Company’s acquisitions.an acquisition.
Included in Other income (expense) in the third quarter is a $5.3$1.4 million benefit on recovery of receivables in connection with the consulting business that is being wound down and a $0.7 million benefit on the sale of trademarks.
Included in Other Income (expense) for each of the quarters is an interest expense charge related to the determination that two business units would be divestedfuture purchase for the remaining 30% of the Motif acquisition - $1.3 million, $0.5 million, $0.8 million and are being reported as Assets Held for Sale.$2.1 million in the first, second, third and fourth quarters, respectively.
F-51
Included in the Provision for Income Taxes isis: a $1.3$0.2 million expense in the fourth quarter, a $0.2 million expense in the third quarter, a $0.1 million expense in the second quarter, and a $0.2 million expense in the first quarter related to changes in tax contingent liabilities; a $1.6 million benefit in the fourth quarter, a $0.2 million benefit in the third quarter, a $0.1 million benefit in the second quarter and a $0.2$0.1 million expense in the first quarter related to return to provision adjustments; a $2.8 million benefit in the fourth quarter related to restructuring charges. Also included aretax rate changes; a $0.1$2.2 million of benefit in the first quarter, $1.0 million of expense in the secondfourth quarter, and $0.4a $2.3 million of benefitexpense in the fourthsecond quarter related to changes in valuation allowances. Also included are $0.7allowances; a $0.2 million of expense recordedbenefit in the second quarter $0.6and a $0.7 million of expense recordedbenefit in the third quarter and $0.4 million of expense recorded in the fourthfirst quarter related to return to provision adjustments. Additionally,restructuring charges; a $1.2 million benefit in the fourthfirst quarter, there was $1.1a $1.2 million of expense related to a transfer pricing adjustment for a prior period. Also included are a $0.5 million expensebenefit in the fourthsecond quarter, related to tax rate changes. Finally, there was a $1.5 million benefit in the third quarter and a $8.3$0.8 million benefit in the fourth quarter related to impairmentsequity based compensation; a $0.8 million benefit in the first quarter, a $0.7 million benefit in the second quarter, a $0.7 million benefit in the third quarter, a $0.7 million benefit in the fourth quarter related to the amortization of purchased intangibles; and assets helda $0.1 million benefit in the fourth quarter, a $0.2 million expense in the third quarter, a $0.1 million expense in the second quarter, and a $0.1 million expense in the first quarter of other items. Without these items our effective tax rate for sale.the year ended December 31, 2019 would have been 24.4%.
F-52F-50
F-53