UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2017~~2019


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-11919

~~TeleTech~~TTEC Holdings, Inc.

(Exact name of registrant as specified in its charter)


Delaware		84-1291044
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

9197 South Peoria Street

Englewood, Colorado 80112

(Address of principal executive offices)

Registrant’s telephone number, including area code: (303) 397-8100

Securities registered pursuant to Section 12(b) of the Act:


Title of each Class	Trading Symbol	Name of each exchange on which registered
Common stock of TTEC Holdings, Inc., $0.01 par value per share	TTEC	NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☑

As of ~~October~~July 31, ~~2017,~~2019, there were ~~45,849,114~~46,483,044 shares of the registrant’s common stock outstanding.

Table of Contents

~~TELETECH~~TTEC HOLDINGS, INC. AND SUBSIDIARIES

~~SEPTEMBER~~JUNE 30, ~~2017~~2019 FORM 10-Q

TABLE OF CONTENTS


		Page No.

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets as of ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016~~2018 (unaudited)	1

	Consolidated Statements of Comprehensive Income (Loss) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018 (unaudited)	2

	Consolidated ~~Statement~~Statements of Stockholders’ Equity as of and for the ~~nine~~three and six months ended ~~September~~ June 30, ~~2017~~2019 and 2018 (unaudited)	3

	Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~ June 30, ~~2017~~2019 and ~~2016~~2018 (unaudited)	4

	Notes to the ~~Unaudited~~ Consolidated Financial Statements (unaudited)	5

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

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4140

Item 4.	Controls and Procedures	4442

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	4543

Item 1A.	Risk Factors	4543

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4644

Item 5.	Other Information	4644

Item 6.	Exhibits	4744

SIGNATURES		4846

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

~~TELETECH~~TTEC HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Amounts in thousands, except share amounts)

~~(unaudited)~~(Unaudited)


	September 30,		December 31,		June 30,		December 31,
	2017		2016		2019		2018
ASSETS
Current assets
Cash and cash equivalents	$	78,842	$	55,264	$	75,517	$	78,237
Accounts receivable, net		304,493		300,808		323,823		350,962
Prepaids and other current assets		67,516		59,905		75,287		61,808
Income tax receivable		8,078		7,035
Assets held for sale		9,279		10,715
Income and other tax receivables						37,855		35,470
Total current assets		468,208		433,727		512,482		526,477

Long-term assets
Property, plant and equipment, net		162,361		151,037		162,643		161,523
Operating lease assets						137,260		—
Goodwill		166,584		129,648		205,758		204,633
Deferred tax assets, net		30,953		53,585		15,058		15,523
Other intangible assets, net		61,784		30,787		75,589		80,911
Other long-term assets		59,628		47,520		70,551		65,441
Total long-term assets		481,310		412,577		666,859		528,031
Total assets	$	949,518	$	846,304	$	1,179,341	$	1,054,508

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	45,155	$	38,197	$	56,625	$	59,447
Accrued employee compensation and benefits		85,820		66,133		101,985		83,437
Other accrued expenses		29,405		14,830		62,740		15,963
Income tax payable		10,194		7,040		10,507		12,325
Deferred revenue		23,416		23,318		39,716		44,926
Current operating lease liabilities						38,719		—
Other current liabilities		23,497		29,154		12,577		19,320
Liabilities held for sale		2,491		1,357
Total current liabilities		219,978		180,029		322,869		235,418

Long-term liabilities
Line of credit		255,000		217,300		228,000		282,000
Deferred tax liabilities, net		155		160		11,232		10,371
Non-current income tax payable						28,253		30,754
Deferred rent		16,023		15,256		—		16,584
Non-current operating lease liabilities						118,350		—
Other long-term liabilities		58,568		71,664		79,988		126,532
Total long-term liabilities		329,746		304,380		465,823		466,241
Total liabilities		549,724		484,409		788,692		701,659

Commitments and contingencies (Note 10)

Mandatorily redeemable noncontrolling interest		—		—

Stockholders’ equity
Preferred stock; $0.01 par value; 10,000,000 shares authorized; zero shares outstanding as of September 30, 2017 and December 31, 2016		—		—
Common stock; $0.01 par value; 150,000,000 shares authorized; 45,847,389 and 46,113,693 shares outstanding as of September 30, 2017 and December 31, 2016, respectively		458		462
Preferred stock; $0.01 par value; 10,000,000 shares authorized; zero shares outstanding as of June 30, 2019 and December 31, 2018						—		—
Common stock; $0.01 par value; 150,000,000 shares authorized; 46,386,727 and 46,194,717 shares outstanding as of June 30, 2019 and December 31, 2018, respectively						464		462
Additional paid-in capital		348,932		348,739		354,068		353,932
Treasury stock at cost: 36,204,864 and 35,938,560 shares as of September 30, 2017 and December 31, 2016, respectively		(615,917)		(603,262)
Treasury stock at cost; 35,665,526 and 35,857,536 shares as of June 30, 2019 and December 31, 2018, respectively						(607,004)		(610,177)
Accumulated other comprehensive income (loss)		(103,893)		(126,964)		(110,686)		(124,596)
Retained earnings		763,116		735,939		741,728		725,551
Noncontrolling interest		7,098		6,981		12,079		7,677
Total stockholders’ equity		399,794		361,895		390,649		352,849
Total liabilities and stockholders’ equity	$	949,518	$	846,304	$	1,179,341	$	1,054,508

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

Table of Contents

~~TELETECH~~TTEC HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss)

(Amounts in thousands, except per share amounts)

(Unaudited)


	Three months ended September 30,				Nine months ended September 30,					Three months ended June 30,				Six months ended June 30,
	2017		2016		2017		2016			2019		2018		2019		2018
Revenue	$	359,036	$	312,796	$	1,050,742	$	930,311		$	392,515	$	349,853	$	786,871	$	725,102

Operating expenses
Cost of services (exclusive of depreciation and amortization presented separately below)		275,548		233,541		797,450		691,649			299,237		274,260		592,571		557,630
Selling, general and administrative		45,167		40,628		132,372		130,902			50,864		44,245		100,584		91,290
Depreciation and amortization		16,515		16,811		47,273		51,761			17,050		16,811		33,793		34,735
Restructuring and integration charges, net		6,006		3,688		9,768		3,890			428		1,034		1,389		1,883
Impairment losses		—		5,602		—		5,602			2,063		—		3,569		1,120
Total operating expenses		343,236		300,270		986,863		883,804			369,642		336,350		731,906		686,658

Income from operations		15,800		12,526		63,879		46,507			22,873		13,503		54,965		38,444

Other income (expense)
Interest income		899		397		2,020		826	��		429		1,471		769		2,539
Interest expense		(3,469)		(2,041)		(8,699)		(5,758)			(4,208)		(7,765)		(9,496)		(14,224)
Other income (expense), net		4,416		6,254		6,573		7,488			1,865		(259)		2,663		(11,775)
Loss on assets held for sale		—		(5,300)		(3,178)		(5,300)
Total other income (expense)		1,846		(690)		(3,284)		(2,744)			(1,914)		(6,553)		(6,064)		(23,460)

Income before income taxes		17,646		11,836		60,595		43,763			20,959		6,950		48,901		14,984

(Provision for) benefit from income taxes		(2,071)		813		(9,059)		(6,667)
Provision for income taxes											(7,345)		(653)		(14,811)		(2,755)

Net income		15,575		12,649		51,536		37,096			13,614		6,297		34,090		12,229

Net income attributable to noncontrolling interest		(806)		(1,198)		(2,828)		(2,804)			(1,816)		(779)		(3,290)		(2,120)

Net income attributable to TeleTech stockholders	$	14,769	$	11,451	$	48,708	$	34,292
Net income attributable to TTEC stockholders										$	11,798	$	5,518	$	30,800	$	10,109

Other comprehensive income (loss)
Net income	$	15,575	$	12,649	$	51,536	$	37,096		$	13,614	$	6,297	$	34,090	$	12,229
Foreign currency translation adjustments		(1,153)		(8,541)		8,414		(8,069)			4,749		(20,285)		6,380		(25,884)
Derivative valuation, gross		3,221		(6,009)		24,713		(2,395)			6,082		(2,019)		10,262		(784)
Derivative valuation, tax effect		(1,288)		2,462		(10,117)		725			(1,630)		513		(2,749)		(729)
Other, net of tax		127		802		386		1,202			(38)		106		17		214
Total other comprehensive income (loss)		907		(11,286)		23,396		(8,537)			9,163		(21,685)		13,910		(27,183)
Total comprehensive income (loss)		16,482		1,363		74,932		28,559			22,777		(15,388)		48,000		(14,954)

Less: Comprehensive income attributable to noncontrolling interest		(899)		(1,202)		(3,153)		(2,734)			(1,787)		(516)		(3,290)		(1,958)

Comprehensive income (loss) attributable to TeleTech stockholders	$	15,583	$	161	$	71,779	$	25,825
Comprehensive income (loss) attributable to TTEC stockholders										$	20,990	$	(15,904)	$	44,710	$	(16,912)

Weighted average shares outstanding
Basic		45,838		47,081		45,816		47,771			46,318		46,016		46,261		45,944
Diluted		46,367		47,315		46,348		48,089			46,684		46,401		46,636		46,424

Net income per share attributable to TeleTech stockholders
Net income per share attributable to TTEC stockholders
Basic	$	0.32	$	0.24	$	1.06	$	0.72		$	0.25	$	0.12	$	0.67	$	0.22
Diluted	$	0.32	$	0.24	$	1.05	$	0.71		$	0.25	$	0.12	$	0.66	$	0.22

Dividends declared per share outstanding	$	0.25	$	0.20	$	0.47	$	0.385		$	—	$	—	$	0.30	$	0.27

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

Table of Contents

~~TELETECH~~TTEC HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statement of Stockholders’ Equity

(Amounts in thousands)

(Unaudited)

Three months ended June 30, 2019 and 2018


	Stockholders’ Equity of the Company																		Stockholders’ Equity of the Company
											Accumulated																		Accumulated
											Other																		Other
	Preferred Stock			Common Stock			Treasury		Additional		Comprehensive		Retained		Noncontrolling				Preferred Stock			Common Stock			Treasury		Additional		Comprehensive		Retained		Noncontrolling
	Shares	Amount		Shares	Amount		Stock		Paid-in Capital		Income (Loss)		Earnings		interest		Total Equity		Shares	Amount		Shares	Amount		Stock		Paid-in Capital		Income (Loss)		Earnings		Interest		Total Equity
Balance as of December 31, 2016	—	$	—	46,114	$	462	$	(603,262)	$	348,739	$	(126,964)	$	735,939	$	6,981	$	361,895
Balance as of March 31, 2019																			—	$	—	46,297	$	463	$	(608,490)	$	353,639	$	(119,878)	$	729,930	$	9,610	$	365,274
Cumulative effect of adopting accounting standard updates																			—		—	—		—		—		—		—		—		—		—
Net income	—		—	—		—		—		—		—		48,708		2,828		51,536	—		—	—		—		—		—		—		11,798		1,816		13,614
Dividends to shareholders ($0.47 per common share)	—		—	—		—		—		—		—		(21,531)		—		(21,531)
Dividends to shareholders ($0.30 per common share)																			—		—	—		—		—		—		—		—		—		—
Capital contribution from noncontrolling interest																			—		—	—		—		—		—		—		—		2,032		2,032
Dividends distributed to noncontrolling interest	—		—	—		—		—		—		—		—		(2,745)		(2,745)	—		—	—		—		—		—		—		—		(1,350)		(1,350)
Foreign currency translation adjustments	—		—	—		—		—		—		8,089		—		325		8,414	—		—	—		—		—		—		4,778		—		(29)		4,749
Derivatives valuation, net of tax	—		—	—		—		—		—		14,596		—		—		14,596	—		—	—		—		—		—		4,452		—		—		4,452
Vesting of restricted stock units	—		—	283		2		4,673		(9,612)		—		—		—		(4,937)	—		—	90		1		1,486		(2,937)		—		—		—		(1,450)
Exercise of stock options	—		—	60		—		994		1,156		—		—		—		2,150
Equity-based compensation expense	—		—	—		—		—		8,649		—		—		(291)		8,358	—		—	—		—		—		3,366		—		—		—		3,366
Purchases of common stock	—		—	(610)		(6)		(18,322)		—		—		—		—		(18,328)
Other, net of tax	—		—	—		—		—		—		386		—		—		386	—		—	—		—		—		—		(38)		—		—		(38)
Balance as of September 30, 2017	—	$	—	45,847	$	458	$	(615,917)	$	348,932	$	(103,893)	$	763,116	$	7,098	$	399,794
Balance as of June 30, 2019																			—	$	—	46,387	$	464	$	(607,004)	$	354,068	$	(110,686)	$	741,728	$	12,079	$	390,649


	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 March 31, 2018	—	$	—	45,979	$	460	$	(613,738)	$	351,672	$	(107,903)	$	707,257	$	7,475	$	345,223
Cumulative effect of adopting accounting standard updates	—		—	—		—		—		—		—		—		—		—
Net income	—		—	—		—		—		—		—		5,518		779		6,297
Dividends to shareholders ($0.27 per common share)	—		—	—		—		—		—		—		—		—		—
Dividends distributed to noncontrolling interest	—		—	—		—		—		—		—		—		(180)		(180)
Foreign currency translation adjustments	—		—	—		—		—		—		(20,022)		—		(263)		(20,285)
Derivatives valuation, net of tax	—		—	—		—		—		—		(1,506)		—		—		(1,506)
Vesting of restricted stock units	—		—	55		—		897		(1,462)		—		—		—		(565)
Equity-based compensation expense	—		—	—		—		—		2,574		—		—		—		2,574
Other, net of tax	—		—	—		—		—		—		106		—		—		106
Balance as of June 30, 2018	—	$	—	46,034	$	460	$	(612,841)	$	352,784	$	(129,325)	$	712,775	$	7,811	$	331,664

Six months ended June 30, 2019 and 2018


	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, 2018	—	$	—	46,195	$	462	$	(610,177)	$	353,932	$	(124,596)	$	725,551	$	7,677	$	352,849
Cumulative effect of adopting accounting standard updates	—		—	—		—		—		—		—		(759)		—		(759)
Net income	—		—	—		—		—		—		—		30,800		3,290		34,090
Dividends to shareholders ($0.30 per common share)	—		—	—		—		—		—		—		(13,864)		—		(13,864)
Capital contribution from noncontrolling interest	—		—	—		—		—		—		—		—		3,362		3,362
Dividends distributed to noncontrolling interest	—		—	—		—		—		—		—		—		(2,250)		(2,250)
Foreign currency translation adjustments	—		—	—		—		—		—		6,380		—		—		6,380
Derivatives valuation, net of tax	—		—	—		—		—		—		7,513		—		—		7,513
Vesting of restricted stock units	—		—	192		2		3,173		(6,398)		—		—		—		(3,223)
Equity-based compensation expense	—		—	—		—		—		6,534		—		—		—		6,534
Other, net of tax	—		—	—		—		—		—		17		—		—		17
Balance as of June 30, 2019	—	$	—	46,387	$	464	$	(607,004)	$	354,068	$	(110,686)	$	741,728	$	12,079	$	390,649


	Stockholders’ Equity of the Company
											Accumulated
											Other
	Preferred Stock			Common Stock			Treasury		Additional		Comprehensive		Retained		Noncontrolling
	Shares	Amount		Shares	Amount		Stock		Paid-in Capital		Income (Loss)		Earnings		interest		Total Equity
Balance as of December 31, 2017	—	$	—	45,862	$	459	$	(615,677)	$	351,725	$	(102,304)	$	721,664	$	6,978	$	362,845
Cumulative effect of adopting accounting standard updates	—		—	—		—		—		—		—		(6,584)		—		(6,584)
Net income	—		—	—		—		—		—		—		10,109		2,120		12,229
Dividends to shareholders ($0.27 per common share)	—		—	—		—		—		—		—		(12,414)		—		(12,414)
Dividends distributed to noncontrolling interest	—		—	—		—		—		—		—		—		(1,125)		(1,125)
Foreign currency translation adjustments	—		—	—		—		—		—		(25,722)		—		(162)		(25,884)
Derivatives valuation, net of tax	—		—	—		—		—		—		(1,513)		—		—		(1,513)
Vesting of restricted stock units	—		—	172		1		2,836		(5,124)		—		—		—		(2,287)
Equity-based compensation expense	—		—	—		—		—		6,183		—		—		—		6,183
Other, net of tax	—		—	—		—		—		—		214		—		—		214
Balance as of June 30, 2018	—	$	—	46,034	$	460	$	(612,841)	$	352,784	$	(129,325)	$	712,775	$	7,811	$	331,664

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

Table of Contents

~~TELETECH~~TTEC HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Amounts in thousands)

(Unaudited)


	Nine Months Ended September 30,				Six Months Ended June 30,
	2017		2016		2019		2018
Cash flows from operating activities
Net income	$	51,536	$	37,096	$	34,090	$	12,229
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		47,273		51,761		33,793		34,735
Amortization of contract acquisition costs		1,273		499		488		758
Amortization of debt issuance costs		521		582		735		494
Imputed interest expense and fair value adjustments to contingent consideration		39		(4,320)		(555)		5,128
Provision for doubtful accounts		380		542		—		257
(Gain) loss on disposal of assets		85		(65)		34		35
Gain on sale of business and dissolution of entity		(3,323)		—
Gain on sales of business						—		—
Impairment losses		—		5,602		3,569		1,120
Loss on held for sale assets		3,178		5,300
Impairment on equity investment						—		15,632
Gain (adjustment) on bargain purchase of a business						—		(685)
Non-cash loss on assets held for sale reclassified to held and used						—		2,000
Deferred income taxes		8,155		5,368		(2,724)		(2,327)
Excess tax benefit from equity-based awards		(1,970)		(539)		(557)		(274)
Equity-based compensation expense		8,358		7,278		6,534		6,183
Loss on foreign currency derivatives		829		4,649
(Gain) loss on foreign currency derivatives						(232)		149
Changes in assets and liabilities, net of acquisitions:
Accounts receivable		13,460		23,780		27,688		65,698
Prepaids and other assets		(26,814)		(12,652)		13,103		(37)
Accounts payable and accrued expenses		32,597		(9,347)		62,770		(9,943)
Deferred revenue and other liabilities		14,066		(4,696)		(57,470)		(26,446)
Net cash provided by operating activities		149,643		110,838		121,266		104,706

Cash flows from investing activities
Proceeds from sale of long-lived assets		31		93		327		8
Purchases of property, plant and equipment, net of acquisitions		(43,932)		(38,863)		(28,428)		(16,883)
Proceeds from sale of business		391		—
Investments in non-marketable equity investments		(1,384)		—		—		(2,119)
Acquisitions, net of cash acquired of zero and zero, respectively		(81,360)		(400)
Acquisitions, net of cash acquired of zero and $4.5 million, respectively						—		(2,002)
Net cash used in investing activities		(126,254)		(39,170)		(28,101)		(20,996)

Cash flows from financing activities
Proceeds from line of credit		1,571,837		1,584,800		540,200		1,093,800
Payments on line of credit		(1,534,137)		(1,555,800)		(594,200)		(1,148,800)
Payments on other debt		(4,501)		(2,306)		(7,016)		(2,841)
Payments of contingent consideration and hold back payments to acquisitions		(674)		(9,467)		(5,902)		(785)
Dividends paid to shareholders		(10,069)		(8,922)		(13,864)		(12,414)
Payments to noncontrolling interest		(2,745)		(3,237)		(2,250)		(1,125)
Purchase of mandatorily redeemable noncontrolling interest		—		(4,105)
Capital contribution from noncontrolling interest						3,362		—
Proceeds from exercise of stock options		2,150		371		—		—
Tax payments related to issuance of restricted stock units		(4,937)		(3,692)		(3,223)		(2,287)
Excess tax benefit from equity-based awards		—		539
Payments of debt issuance costs		(38)		(1,888)		(1,819)		(35)
Purchase of treasury stock		(18,328)		(57,279)
Net cash used in financing activities		(1,442)		(60,986)		(84,712)		(74,487)

Effect of exchange rate changes on cash and cash equivalents		1,631		(9,678)
Effect of exchange rate changes on cash, cash equivalents and restricted cash						239		(12,400)

Increase in cash and cash equivalents		23,578		1,004
Cash and cash equivalents, beginning of period		55,264		60,304
Cash and cash equivalents, end of period	$	78,842	$	61,308
Increase/ (decrease) in cash, cash equivalents and restricted cash						8,692		(3,177)
Cash, cash equivalents and restricted cash, beginning of period						78,237		74,437
Cash, cash equivalents and restricted cash, end of period					$	86,929	$	71,260

Supplemental disclosures
Cash paid for interest	$	8,138	$	4,976	$	6,844	$	8,593
Cash paid for income taxes	$	11,357	$	16,755	$	19,445	$	20,213
Non-cash operating, investing and financing activities
Acquisition of long-lived assets through capital leases	$	931	$	2,417	$	1,318	$	7,539
Acquisition of equipment through increase in accounts payable, net	$	405	$	(542)	$	221	$	248
Contract acquisition costs credited to accounts receivable	$	—	$	200
Dividend declared but not paid	$	11,462	$	9,342

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

Table of Contents

~~TELETECH~~TTEC HOLDINGS, INC. AND SUBSIDIARIES

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~Notes to Consolidated Financial Statements

~~(UNAUDITED)~~(Unaudited)

(1)OVERVIEW AND BASIS OF PRESENTATION

Summary of Business

~~TeleTech~~TTEC Holdings, Inc. ~~and its subsidiaries~~ (“~~TeleTech” or the “Company”~~TTEC”, “the Company”)is a leading global ~~provider of technology enabled~~ customer experience ~~services.~~technology and services company focused on the design, implementation and delivery of transformative solutions for many of the world’s most iconic and disruptive brands. The Company helps ~~leading brands improve~~large global companies increase revenue and reduce costs by delivering personalized customer experiences and operational effectiveness through a unique combination of technological innovation and operational expertise. The Company’s portfolio of solutions includes consulting, technology, operations and analytics to enable a seamless customer experience across every ~~interaction~~interactional channel and phase of the customer ~~lifecycle. TeleTech’s 49,500~~lifecycle as an end-to-end provider of customer engagement services, technologies, insights and innovations. TTEC’s 48,000 employees serve clients in the automotive, communication, financial services, government, healthcare, logistics, media and entertainment, retail, technology, transportation and travel industries ~~across all the segments and~~ via operations in the U.S., Australia, Belgium, Brazil, Bulgaria, Canada, China, Costa Rica, Germany, Greece, Hong Kong, India, Ireland, ~~Lebanon, Macedonia,~~ Mexico, New Zealand, the Philippines, Poland, Singapore, South Africa, Thailand, Turkey, the United Arab Emirates, and the United Kingdom.

Through the first quarter of 2019, the Company was reporting on four segments known as Customer Strategy Services (CSS), Customer Technology Services (CTS), Customer Growth Services (CGS) and Customer Management Services (CMS).

Starting in the second quarter of 2019, the Company changed its strategy, how the Company goes to market, how its clients and potential clients evaluate and consume its services and how it assesses its performance. Based on these changes, the Company will now report its financial information based on the following two segments: TTEC Digital and TTEC Engage.

TTEC Digital designs, builds and delivers tech-enabled, insight-based and outcome-driven customer experience solutions through our professional services and suite of technology offerings. These solutions are critical to enabling and accelerating digital transformation for our clients. These services were previously included in the CSS and CTS segments.

TTEC Engage provides the essential technologies, human resources, infrastructure and processes to operate customer care, acquisition, and fraud detection and prevention services. These services were previously included in the CGS and CMS segments.

Basis of Presentation

The Consolidated Financial Statements are comprised of the accounts of ~~TeleTech,~~TTEC, its wholly owned subsidiaries, ~~and~~ its 55% equity owned subsidiary Percepta, LLC. All intercompany balances and transactions have been eliminated in consolidation.

The unaudited Consolidated Financial Statements do not include all of the disclosures required by accounting principles generally accepted in the U.S. (“GAAP”), pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The unaudited Consolidated Financial Statements reflect all adjustments which, in the opinion of management, are necessary to state fairly the consolidated financial position of the Company and the consolidated results of operations and comprehensive income (loss) and the consolidated cash flows of the Company. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2017.~~2019.

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.

~~The Company has evaluated the impact of this adjustment and concluded that the adjustment was not material to the previously issued consolidated financial statements.~~

These unaudited Consolidated Financial Statements should be read in conjunction with the Company’s audited Consolidated Financial Statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018.

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TTEC HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation.

Use of Estimates

The preparation of the Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions in determining the reported amounts of assets and liabilities, disclosure of contingent liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenue and expenses during the reporting period. On an ~~on-going~~ongoing basis, the Company evaluates its estimates including those related to derivatives and hedging activities, income taxes including the valuation allowance for deferred tax assets, self-insurance reserves, litigation reserves, restructuring reserves, allowance for doubtful accounts, contingent consideration, and valuation of goodwill, long-lived and intangible assets. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ materially from these estimates under different assumptions or conditions.

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents consist of cash and highly liquid short-term investments, primarily held in interest-bearing investments which have original maturities of less than 90 days. Restricted cash includes cash whereby the Company’s ability to use the funds at any time is contractually limited or is generally designated for specific purposes arising out of certain contractual or other obligations.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the Condensed Consolidated Balance Sheets that sum to the amounts reported in the Condensed Consolidated Statement of Cash Flows (in thousands):


	June 30, 2019		December 31, 2018

Cash and cash equivalents	$	75,517	$	78,237
Restricted cash included in "Prepaid and other current assets"		11,400		—
Restricted cash included in "Other noncurrent assets"		12		—
Total	$	86,929	$	78,237

~~Table of Contents~~

~~TELETECH HOLDINGS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

Recently Issued Accounting Pronouncements

In ~~May 2014,~~February 2016, the FASB issued Accounting Standards Update (“ASU”) ~~2014-09, “Revenue from Contracts with Customers~~”. ASU 2014-09 provides new guidance related to how an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, ASU 2014-09 specifies new accounting for costs associated with obtaining or fulfilling contracts with customers and expands the required disclosures related to revenue and cash flows from contracts with customers. While ASU-2014-09 was originally effective for fiscal years and interim periods within those years beginning after December 15, 2016, in August 2015, the FASB issued ASU 2015-14, “Deferral of Effective Date”, deferring the effective date by one year, to be effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Earlier adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. ASU 2014-09 can be adopted either retrospectively to each prior reporting period presented or as a cumulative-effect adjustment as of the date of adoption, with early application not permitted. In June 2017, FASB issued ASU 2017-10, “Service Concession Arrangements”, which will be adopted along with the ASU 2014-09 guidance. The Company has assigned a project manager and team, has selected an external consulting company to assist through the project, has completed the initial project assessment phase, and is finalizing its implementation approach. The Company has determined that it will adopt this new standard using the modified retrospective approach in which a cumulative adjustment to retained earnings will be recorded as of January 1, 2018. The Company is in the process of completing its assessment of the financial statement impact and as such, has not reached any conclusions regarding the potential impact to the financials.

~~In February 2016, the FASB issued ASU~~ 2016-02, “Leases”, which amends 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 FASB also issued ASU ~~also requires~~2018-10, Codification Improvements to Topic 842 Leases, and ASU 2018-11, Targeted Improvements to Topic 842 Leases, which allows the new ~~disclosures regarding~~lease standard to be applied as of the ~~amounts, timing, and uncertainty~~adoption date with a cumulative-effect adjustment to the opening balance of ~~cash flows arising from leases.~~ retained earnings rather than a retroactive restatement of all periods presented.

The ~~ASU is~~Company adopted ASC 842 as of January 1, 2019 using the effective 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,date as the date of initial ~~application, with an option~~application. The election allowed the Company to ~~use certain transition relief.~~recognize the effects of the implementation of ASC 842 as a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. The Company is currently assessing the impact on the consolidated financial statements and related disclosures, evaluating software solutions and other tracking methods, and determining the implementation timeline.

~~In March 2016, the FASB issued ASU 2016-09, “Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting”, which amends the existing accounting standards related to stock-based compensation.~~also has made certain assumptions in judgements when applying ASC 842. The ~~ASU simplifies several aspects of accounting for share-based payment transactions, including the accounting for income taxes, forfeitures, statutory tax withholding requirements,~~most significant judgements are as well as classification in the statement of cash flows. The ASU is effective for interim and annual periods beginning on or after December 15, 2016. Beginning with the first quarter 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.follows:

~~In August 2016, 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 in the Consolidated Statement of Cash Flows by providing 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.

The Company elected the package of practical expedients that allowed the Company not to reassess (a) whether any expired or existing contracts are leases or contain leases, (b) the lease classification for any expired or existing leases, and (c) initial direct costs.

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~~TELETECH~~TTEC HOLDINGS, INC. AND SUBSIDIARIES

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~Notes to Consolidated Financial Statements

~~(UNAUDITED)~~(Unaudited)

The Company did not use hindsight during transition in determining the lease term and assessing impairment of the entity’s right-of-use assets.

The Company elected to not separate non-lease components (which include common area maintenance, taxes, and insurance) from the lease components for gross payment real estate leases. For net payment real estate leases and IT equipment leases, the non-lease components are not included in the lease right of use and liability and instead are reflected as an expense in the period incurred.

The Company did not apply the recognition requirements in ASC 842 for leases with a term of 12 months or less for all asset classes.

~~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. The ASU is effective for interim and annual periods beginning on or after December 15, 2019 and early adoption is permitted. The Company ~~early adopted this~~determines if an arrangement is a lease at contract inception. The key specifics in determining if a leasing arrangement exists are as follows:

Does the arrangement convey the right to control the use of an identified asset in exchange for consideration over a period of time.

Does the Company obtain the right to substantially all of the asset’s economic benefits.

The Company predominantly acts as a lessee and is required under the new standard to apply a dual approach, classifying leases as either finance or operating leases based on whether or not the lease is effectively a financed purchase. The determination of the lease type is largely similar to the process the Company utilized under ASC 840. This classification determines whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. ASC 842 also requires lessees to record a right of use asset and a lease liability for all leases with a term of greater than one year regardless of classification.

The adoption of the new standard resulted in the recording of additional net lease assets and lease liabilities of $129.9 million and $148.3 million, respectively, as of January 1, ~~2017.~~2019. The operating lease assets are lower than the operating lease liabilities, primarily due to deferred rent balances at the transition date being reclassed into the right of use operating assets. On January 1, 2019 the Company recognized a reduction of $0.8 million, net of tax, in its retained earnings as a result of recognizing previously impaired right of use assets recorded at transition. The standard did not impact our consolidated net earnings or cash flows. See Note 11 for additional lease disclosures.

Other Accounting Pronouncements

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities”. ASU 2017-12 amends and simplifies existing guidance for derivatives and hedges including aligning accounting with companies’ risk management strategies and increasing disclosure transparency regarding both the scope and results of hedging programs. The changes include designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The ASU is effective for interim and annual periods beginning after December 15, 2018 and early adoption is permitted. The Company adopted the new guidance effective January 1, 2019 and the adoption did not have a material effect on the financial statements or related disclosures.

The Company adopted ASC 606, “Revenue From Contracts With Customers”, effective January 1, 2018, using the modified retrospective method. The adoption of ASC 606 resulted in the Company deferring recognition of certain fees, which are classified as deferred revenue on the balance sheet. Revenue recognized in the reporting period that was included in deferred revenue balance at the beginning of the period was $35.2 million.

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TTEC HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

In January 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses” (ASC 326), which amends the methodology of how and when companies measure credit losses on financial instruments. The objective of the ASU is to provide financial statement users more useful information regarding expected credit losses on financial instruments and other commitments. In November 2018, the FASB issued ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses” which clarifies the scope of guidance in ASU 2016-13. In May 2019, the FASB issued ASU No. 2019-05, “Financial Instruments—Credit Losses (Topic 326), Targeted Transition Relief” which amended the transition guidance for the new credit losses standard (ASC 326). The ASU is effective for interim and annual periods beginning on or after December 15, 2019 with early adoption permitted, using a modified retrospective approach. The Company is currently ~~assessing~~evaluating the ~~impact~~potential effects of adoption on ~~the~~its consolidated financial statements and related disclosures.

(2)ACQUISITIONS AND DIVESTITURES

~~Connextions~~Strategic Communications Services

On April ~~3, 2017,~~30, 2018, the Company acquired all of the outstanding ~~shares~~equity securities of ~~Connextions, Inc.,~~Strategic Communications Services, Ltd (“SCS”). SCS provides services as a ~~health care customer service provider company, from OptumHealth Holdings, LLC. Connextions is being~~system integrator for multichannel contact center platforms, including CISCO. The Company offers in-house, managed and outsourced network, information, communications and contact center services to leading brands throughout Europe. This business has been integrated into the ~~health care vertical of the Customer Management Services (“CMS”) segment of the Company. Connextions employed approximately 2,000 at several centers in the U.S.~~Company’s TTEC Digital segment.

~~The total~~Total cash paid at acquisition was ~~$80 million.~~£4.4 million ($6.1 million USD) (inclusive of $4.5 million related to cash balances). The purchase price iswas subject to customary representations and warranties, indemnities, and a net working capital adjustment. ~~In connection~~The agreement includes potential earn-out payments over the next three years with a maximum value of £3.0 million ($4.1 million USD) contingent on EBITDA performance over the acquisition, the Company and OptumHealth (directly and through affiliates) also entered into long-term technology and customer services agreements, and into transition services agreements to facilitate the transfer of the business.next three years. The Company ~~was required to pay an additional $1.8 million for~~finalized the working capital adjustment ~~which was paid~~for an additional $210 thousand during the third quarter of ~~2017. Additionally,~~2018 which was paid in October 2018.

The fair value ~~adjustments related to the transition services agreements are expected to reduce the purchase price by $4.1 million resulting in a net estimated purchase price of $77.7 million.~~

~~Table of Contents~~

~~TELETECH HOLDINGS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

~~The following summarizes the preliminary estimated fair values~~ of the ~~identifiable assets acquired~~contingent consideration was measured based on significant inputs not observable in the market (Level 3 inputs). Key assumptions included a discount rate of 4.7% and ~~liabilities assumed as~~expected future value of payments of $2.9 million. The $2.9 million of expected future payments was calculated using probability weighted EBITDA assessment with the highest probability associated with SCS achieving the targeted EBITDA for each earn-out year. As of the acquisition date, ~~(in thousands):~~

Preliminary

Estimate of

Acquisition Date

Fair Value

Cash

$
—

Accounts receivable, net

15,959

Prepaid expenses

241

Other current assets

51

Property, plant and equipment

7,594

Customer relationships

35,000

Goodwill

35,272

$
94,117

Accounts payable

$
1

Accrued employee compensation and benefits

346

Accrued expenses

386

Deferred tax liabilities

15,273

Deferred revenue

399

$
16,405

Total purchase price

$
77,712

~~The estimates of~~the fair value of ~~identifiable assets acquired and liabilities assumed are preliminary, pending finalization~~the contingent consideration was $2.7 million. As of ~~a valuation, thus are subject to revisions that may result in adjustments to the values presented above.~~

~~The Connextions customer relationships have been estimated~~June 30, 2019, based on current year and expected future EBITDA, the ~~initial valuation and are amortized over an estimated useful life~~fair value of ~~12 years. The goodwill recognized from~~ the ~~Connextions acquisition~~contingent consideration is estimated to be ~~attributable, but not limited to,~~zero and thus the ~~acquired work force~~$2.4 million accrual was reversed and ~~expected synergies with CMS. None of the tax basis of the acquired intangibles and goodwill will be deductible for~~is included in Other income ~~tax purposes. The acquired goodwill and the operating results of Connextions are reported within the CMS segment from the date of acquisition.~~

~~Atelka~~

~~On November 9, 2016, the Company acquired all of the outstanding shares of Atelka Enterprise Inc. (“Atelka”)~~(expense), 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 employed approximately 2,800 in Quebec, Ontario, New Brunswick and Prince Edward Island.

The total purchase price was $48.4 million ($65.0 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 definednet in the ~~sale and purchase agreement, which will be released to the seller in month 12 and month 24, post acquisition, if not used.~~Consolidated Statements of Comprehensive Income (Loss).

Table of Contents

~~TELETECH~~TTEC HOLDINGS, INC. AND SUBSIDIARIES

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~Notes to Consolidated Financial Statements

~~(UNAUDITED)~~(Unaudited)

The following summarizes the fair values of the identifiable assets acquired and liabilities assumed as of the acquisition date (in thousands):


	Acquisition Date		Acquisition Date
	Fair Value		Fair Value
Cash	$	2,655	$	4,530
Accounts receivable, net		18,449		985
Prepaid expenses		615		39
Property, plant and equipment		3,161
Deferred tax assets, net		638
Customer relationships		10,500		3,619
Goodwill		20,275		1,231
	$	56,293	$	10,404

Accounts payable	$	1,199	$	216
Accrued employee compensation and benefits		2,418		27
Accrued expenses		2,597		21
Other		1,678
Deferred tax liabilities				629
	$	7,892	$	893

Total purchase price	$	48,401	$	9,511

In the ~~third~~first quarter of ~~2017,~~2019, the Company finalized its valuation of ~~Atelka~~SCS for the acquisition date assets acquired and liabilities assumed and determined that no material adjustments to any of the balances were required.

The ~~Atelka~~SCS customer relationships ~~will be~~are being amortized over a useful life of 1210 years. The goodwill recognized from the ~~Atelka~~SCS acquisition is attributable, but not limited to, the acquired ~~work force~~workforce and expected synergies with ~~CMS.~~TTEC Digital. None of the tax basis of the acquired intangibles and goodwill will be deductible for income tax purposes. The acquired goodwill and ~~the~~intangibles and operating results of ~~Atelka~~SCS are reported within the ~~CMS~~TTEC Digital segment from the date of acquisition.

~~rogenSi~~Berkshire Hathaway Specialty Concierge

~~In the third quarter of 2014, as an addition to the Customer Strategy Services (“CSS”) segment,~~On March 31, 2018, the Company, through its subsidiary Percepta, acquired ~~substantially all operating~~certain assets ~~of rogenSi Worldwide PTY, Ltd.,~~from Berkshire Hathaway Specialty Concierge, LLC (“BH”) related to a ~~global leadership, change management, sales, performance training~~customer engagement center and ~~consulting company.~~the related customer contracts. This acquisition is being accounted for as a business combination. These assets have been integrated into the Company’s TTEC Engage segment.

The total ~~potential~~cash paid was $1. In connection with the purchase, Percepta assumed the lease for the customer engagement center and entered into a transitional services agreement with BH to facilitate the transfer of the employees and business. Fair values were assigned to each purchased asset including $257 thousand for customer relationships, $330 thousand as a lease subsidy and $98 thousand for fixed assets. Based on the $1 purchase price, a gain on purchase of $685 thousand was $34.4 million, subject to certain working capital adjustments, and consisted of $18.1 million in cash at closing and an estimated $14.5 million in three earn-out payments, contingent on the acquired companies and TeleTech’s CSS segment achieving certain agreed earnings before interest, taxes, depreciation and amortization (“EBITDA”) targets, as definedrecorded in the ~~sale~~quarter ended March 31, 2018 and ~~purchase agreement. Additionally, the estimated purchase price~~was included ~~a $1.8 million hold-back for contingencies as defined~~in Other income (expense) in the ~~sale and purchase agreement which was released to the sellers in the first quarter~~Consolidated Statements of 2016. The total contingent consideration possible per the sale and purchase agreement ranged from zero to $17.6 million and the earn-out payments were payable in early 2015, 2016 and 2017, based on July 1, 2014 through December 31, 2014, and full year 2015 and 2016 performance, respectively. As of December 31, 2016, the contingent consideration has been finalized and a total of $12.0 million was earned and paid.

~~Table of Contents~~

~~TELETECH HOLDINGS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

~~The fair value of the contingent consideration was measured by applying a probability weighted discounted cash flow model based on significant inputs not observable in the market (Level 3 inputs)~~Comprehensive Income (Loss). Key assumptions include a discount rate of 4.6% and expected future value of payments of $15.3 million. The $15.3 million of expected future payments was calculated using a probability weighted EBITDA assessment with the highest probability associated with rogenSi achieving the targeted EBITDA for each earn-out year. As of the acquisition date, the fair value of the contingent consideration was approximately $14.5 million. During the fourth quarter of 2014, the third quarter of 2015, the fourth quarter of 2015, and the third quarter of 2016, the Company recorded fair value adjustments of the contingent consideration of $0.5 million, $0.8 million, $(0.3) million, and $(4.3) million, respectively, based on revised estimates noting higher or lower probability of exceeding the EBITDA targets (see Note 7). As of September 30, 2016, the fair value of the remaining contingent consideration was reduced from $4.3 million to zero given the remote possibility of achieving targeted EBITDA for 2016. As of December 31, 2016, the payment was finalized at a value of zero and thus no additional expense was required.

Financial Impact of Acquired Businesses

The acquired businesses purchased in ~~2016 and 2017~~2018 noted above contributed revenues of ~~$43.6 million and $101.9~~$1.9 million and a net loss of ~~$(4.1) million and $(6.3)~~$0.4 million, inclusive of ~~$0.9 million and $2.1~~$0.2 million of acquired intangible amortization, to the Company for the ~~three and nine~~six months ended ~~September~~June 30, ~~2017,~~2019, respectively.

The unaudited proforma ~~financial results for~~impact of the ~~third quarter and first nine months of 2017 and 2016 combines~~2018 acquisitions on the consolidated results of operations of the Company ~~Connextions and Atelka assuming~~for the ~~Connextions acquisition had been completed~~first six months of 2018 as though the acquisitions occurred on January 1 2016 and the Atelka acquisition on January 1, 2015. The reported revenue and net income of $312.8 million and $11.5 million would have been $362.3 million and $9.4 million for the three months ended September 30, 2016, respectively, on an unaudited proforma basis. The reported revenue and net income of $930.3 million and $34.3 million would have been $1,071.7 million and $27.8 million for the nine months ended September 30, 2016, respectively, on an unaudited proforma basis.was not material.

For 2017, the reported revenue and net income of $359.0 million and $14.8 million would have been $359.0 million and $14.8 million for the three months ended September 30, 2017, respectively. The reported revenue and net income of $1,050.7 million and $48.7 million would have been $1,090.0 million and $46.9 million for the nine months ended September 30, 2017, 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.

~~Assets 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 continue to meet the criteria to be classified as held for sale. The Company had engaged a broker for both business units and is working with potential buyers for both business units. The Company anticipates the transactions will be finalized during the next three to six months. The Company has taken 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 has 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 September 30, 2016 in Loss on assets held for sale in the Consolidated Statements of Comprehensive Income (Loss). As of September 30, 2017, for the business unit in CSS, this loss continues to be the best estimate and no additional charge has been recorded. For the business unit in CGS, based on further discussion and initial offers, management determined that the estimated selling price assumed should be

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~~TELETECH~~TTEC HOLDINGS, INC. AND SUBSIDIARIES

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~Notes to Consolidated Financial Statements

~~(UNAUDITED)~~(Unaudited)

revised. Based on this and further analysis, an additional $3.2 million loss was recorded as of June 30, 2017 and included in Loss on assets held for sale in the Consolidated Statements of Comprehensive Income (Loss). As of September 30, 2017, for the business unit in CGS, the aggregate loss continues to be the best estimate and no additional charge has been recorded.

~~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 September 30, 2017.~~

As of

September 30, 2017

Cash

$
—

Accounts receivable, net

8,240

Allowance for doubtful accounts

(51)

Other assets

589

Property, plant and equipment

1,229

Customer relationships

3,946

Goodwill

3,033

Other intangible assets

771

Allowance for reduction of assets held for sale

(8,478)

Total assets

$
9,279

Accounts payable

$
1,046

Accrued employee compensation and benefits

817

Accrued expenses

316

Other

312

Total liabilities

$
2,491

Investments

CaféX

In the first quarter of 2015, the Company invested $9.0 million in ~~CafeX~~CaféX Communications, Inc. (“CaféX”) through the purchase of a portion of ~~the~~its outstanding Series B Preferred Stock of CaféX. CaféX is a provider of omni-channel web-based real time communication (WebRTC) solutions that enhance mobile applications and websites with in-app video communication and screen share technology to increase customer satisfaction and enterprise efficiency. ~~TeleTech has deployed the CaféX technology as part of the TeleTech customer experience offerings within the CMS business segment and as part 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~~Stock of ~~2016 and $1.1 million was paid in~~CaféX. During the first quarter of ~~2017.~~2019, the Company purchased a portion of the common shares from another investor for $1. At ~~September~~June 30, ~~2017,~~2019, 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. ~~The~~

During the first quarter of 2018, the Company ~~tested~~provided a $2.1 million bridge loan which accrues interest at a rate of 12% per year until maturity or conversion, which will be no later than June 30, 2020.

As of March 31, 2018, the Company evaluated the investment in CaféX for impairment due to a large anticipated sale of IP not being completed as planned during the first quarter of 2018, a shift in the strategy of the company, an ongoing default by CaféX of its loan agreement with its bank, and ~~concluded~~a lack of potential additional funding options as of March 31, 2018. Based on this evaluation, the Company determined that the fair value of its investment was zero and thus the investment was ~~not~~ impaired ~~at September 30, 2017 or December~~as of March 31, ~~2016.~~

~~Table~~2018. The Company recorded a $15.6 million write-off of ~~Contents~~

~~TELETECH HOLDINGS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

~~Divestitures~~

~~Technology Solutions Group (“TSG”)~~

~~Effective June 30, 2017,~~ the ~~Company sold~~equity investment and 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~~bridge loan which was 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~~Other income (expense) 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, and the gain was included in the Consolidated Statements of Comprehensive Income (Loss).

~~TeleTech Spain Holdings SL~~

In the third quarter of 2017, the Company dissolved TeleTech Spain Holdings SL, a fully owned foreign subsidiary domiciled in Spain. Upon complete liquidation, $3.2 million attributable to the accumulated translation adjustment component of equity has been removed from Accumulated other comprehensive income (loss) and recognized as part of the gain on liquidation. The $3.2 million gain is included in Other income (expense), net in the Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2017.

~~Subsequent Event~~

On November 8, 2017, the Company agreed to acquire all of the outstanding shares in Motif, Inc., a California corporation (“Motif”). Motif is a digital trust and safety services company serving eCommerce marketplaces, online retailers, travel agencies 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 2,800 employees. The acquisition will be implemented through two separate transactions. In November 2017, the Company will complete the acquisition of 70% of all outstanding shares in Motif from private equity and certain individual investors for $46.9 million, subject to customary representations and warranties, and working capital adjustments. The Company also agreed to purchase the remaining 30% interest in Motif from Motif’s founders (“founders’ shares”) by no later than May 2020 (“30% buyout period”). The Company agreed to pay for the founders’ shares at a purchase price contingent on Motif’s fiscal year 2020’s adjusted normalized EBITDA, and 30% of the excess cash present in the business at the time 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 and 30% of the excess cash in the business at that point. As a condition to the acquisition, the Motif founders agreed to continue to stay as executives in the acquired business, at least through the 30% buyout period, as part of the Company’s CMS segment, and not to compete with the Company with respect to the acquired business.

(3)SEGMENT INFORMATION

During the second quarter of 2019, the Company finalized changes to the Company’s operating strategy and the way in which the Company assesses performance. In accordance with this change, the Company adjusted certain reporting relationships between the Chief Operating Decision Maker (“CODM”) and other members of management, updated the compensation metrics for senior management, and modified the internal financial reporting provided to the CODM and his direct reports consistent with this revised management and measurement structure. Accordingly, during the second quarter of 2019, the Company reevaluated the definition of the operating segments, reportable segments, and reporting units which resulted in a change to the reportable segments. Effective June 30, 2019, the segment information will be reported consistent with these updated reportable segments comprised of TTEC Digital and TTEC Engage.

The Company reports the following ~~four~~two segments:

~~the CMS segment includes the~~TTEC Digital designs, builds and delivers tech-enabled, insight-based and outcome-driven customer experience ~~delivery~~ solutions ~~which integrate innovative~~through our professional services and suite of technology ~~with highly-trained customer experience professionals~~offerings. These solutions are critical to ~~optimize the customer experience across all channels~~enabling and ~~all stages of the customer lifecycle from an onshore, offshore or work-from-home environment;~~accelerating digital transformation for our clients.

·o

Professional Services: Our management consulting practices deliver customer experience strategy, analytics, process optimization, and learning and performance services.

Technology Services: Our technology services design, integrate and operate highly scalable, digital omnichannel technology solutions in the ~~CGS segment provides technology-enabled sales~~cloud, on premise, or hybrid, including journey orchestration, automation and ~~marketing solutions that support revenue generation across the customer lifecycle, including sales advisory, search engine optimization, digital demand generation, lead qualification,~~AI, knowledge management, and ~~acquisition sales, growth and retention services;~~workforce productivity.

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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~Notes to Consolidated Financial Statements

~~(UNAUDITED)~~(Unaudited)

TTEC Engage provides the ~~CTS segment includes system design consulting,~~essential technologies, human resources, infrastructure and processes to operate customer ~~experience technology product, implementation~~care, acquisition, and ~~integration consulting services,~~fraud detection and ~~management of clients’ cloud and on-premise solutions; and~~prevention services.

·o

~~the CSS segment provides professional~~Customer Care Services: Our customer care services ~~in customer experience strategy~~provide turnkey contact center solutions, including digital omnichannel technologies, associate recruiting and ~~operations, insights, system~~training, facilities, and operational ~~process optimization,~~expertise to create exceptional customer experiences across all touchpoints.

Customer Acquisition Services: Our customer growth and ~~culture development~~acquisition services optimize the buying journeys for acquiring new customers by leveraging technology and ~~knowledge management.~~analytics to deliver personal experiences to increase the quantity and quality of leads and customers.

Fraud Prevention Services: Our digital fraud detection and prevention services provide the ability to proactively identify and prevent fraud, and ensure 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.

The following tables present certain financial data by segment (in thousands):

Three Months Ended ~~September~~June 30, ~~2017~~

2019

Depreciation

Income

Gross

Intersegment

Net

&

(Loss) from

Revenue

Sales

Revenue

Amortization

Operations

Customer Management Services

$
277,373

$
—

$
277,373

$
13,455

$
9,133

Customer Growth Services

30,829

—

30,829

717

1,564

Customer Technology Services

34,658

(95)

34,563

1,772

4,158

Customer Strategy Services

16,271

—

16,271

571

945

Total

$
359,131

$
(95)

$
359,036

$
16,515

$
15,800


							Depreciation		Income
	Gross		Intersegment		Net		&		from
	Revenue		Sales		Revenue		Amortization		Operations
TTEC Digital	$	78,580	$	(61)	$	78,519	$	3,235	$	7,709
TTEC Engage		313,996		—		313,996		13,815		15,164
Total	$	392,576	$	(61)	$	392,515	$	17,050	$	22,873

Three Months Ended ~~September~~June 30, ~~2016~~

2018

Depreciation

Income

Gross

Intersegment

Net

&

(Loss) from

Revenue

Sales

Revenue

Amortization

Operations

Customer Management Services

$
223,742

$
(78)

$
223,664

$
11,891

$
12,255

Customer Growth Services

35,301

—

35,301

1,561

161

Customer Technology Services

36,871

(291)

36,580

2,457

3,776

Customer Strategy Services

17,251

—

17,251

902

(3,666)

Total

$
313,165

$
(369)

$
312,796

$
16,811

$
12,526


							Depreciation		Income
	Gross		Intersegment		Net		&		from
	Revenue		Sales		Revenue		Amortization		Operations
TTEC Digital	$	52,619	$	(119)	$	52,500	$	2,082	$	6,764
TTEC Engage		297,353		—		297,353		14,729		6,739
Total	$	349,972	$	(119)	$	349,853	$	16,811	$	13,503

~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2019

Depreciation

Income

Gross

Intersegment

Net

&

(Loss) from

Revenue

Sales

Revenue

Amortization

Operations

Customer Management Services

$
798,527

$
(19)

$
798,508

$
37,843

$
43,804

Customer Growth Services

96,890

—

96,890

2,249

6,295

Customer Technology Services

105,337

(283)

105,054

5,377

11,034

Customer Strategy Services

50,290

—

50,290

1,804

2,746

Total

$
1,051,044

$
(302)

$
1,050,742

$
47,273

$
63,879


							Depreciation		Income
	Gross		Intersegment		Net		&		from
	Revenue		Sales		Revenue		Amortization		Operations
TTEC Digital	$	144,621	$	(249)	$	144,372	$	5,543	$	15,468
TTEC Engage		642,499		—		642,499		28,250		39,497
Total	$	787,120	$	(249)	$	786,871	$	33,793	$	54,965

Six Months Ended June 30, 2018


							Depreciation		Income
	Gross		Intersegment		Net		&		from
	Revenue		Sales		Revenue		Amortization		Operations
TTEC Digital	$	102,687	$	(119)	$	102,568	$	4,234	$	12,110
TTEC Engage		622,534		—		622,534		30,501		26,334
Total	$	725,221	$	(119)	$	725,102	$	34,735	$	38,444

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~~TELETECH~~TTEC HOLDINGS, INC. AND SUBSIDIARIES

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~Notes to Consolidated Financial Statements

~~(UNAUDITED)~~(Unaudited)

~~Nine Months Ended September 30, 2016~~


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Capital Expenditures
TTEC Digital	$	5,655	$	1,187	$	9,396	$	1,342
TTEC Engage		9,573		8,188		19,032		15,541
Total	$	15,228	$	9,375	$	28,428	$	16,883

Depreciation

Income

Gross

Intersegment

Net

&

(Loss) from

Revenue

Sales

Revenue

Amortization

Operations

Customer Management Services

$
664,647

$
(255)

$
664,392

$
36,024

$
36,189

Customer Growth Services

105,713

��

105,713

4,943

4,138

Customer Technology Services

109,720

(522)

109,198

8,187

9,932

Customer Strategy Services

51,008

—

51,008

2,607

(3,752)

Total

$
931,088

$
(777)

$
930,311

$
51,761

$
46,507


	June 30, 2019		December 31, 2018
Total Assets
TTEC Digital	$	249,291	$	222,977
TTEC Engage		930,050		831,531
Total	$	1,179,341	$	1,054,508

	June 30, 2019		December 31, 2018
Goodwill
TTEC Digital	$	66,155	$	66,158
TTEC Engage		139,603		138,475
Total	$	205,758	$	204,633

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

Capital Expenditures

Customer Management Services

$
12,732

$
8,515

$
36,701

$
29,751

Customer Growth Services

346

375

708

3,546

Customer Technology Services

1,180

1,864

6,025

4,877

Customer Strategy Services

85

366

498

689

Total

$
14,343

$
11,120

$
43,932

$
38,863

September 30, 2017

December 31, 2016

Total Assets

Customer Management Services

$
713,377

$
585,679

Customer Growth Services

60,086

71,540

Customer Technology Services

106,372

115,537

Customer Strategy Services

69,683

73,548

Total

$
949,518

$
846,304

September 30, 2017

December 31, 2016

Goodwill

Customer Management Services

$
79,391

$
42,589

Customer Growth Services

24,439

24,439

Customer Technology Services

40,839

41,500

Customer Strategy Services

21,915

21,120

Total

$
166,584

$
129,648

The following table presents revenue based upon the geographic location where the services are provided (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016		2019		2018		2019		2018
Revenue
United States	$	197,664	$	166,993	$	570,305	$	507,819	$	235,733	$	188,744	$	472,700	$	398,592
Philippines		86,938		90,692		258,360		259,898		91,401		85,442		184,580		174,647
Latin America		31,361		30,832		96,301		90,154		25,054		27,224		49,190		57,722
Europe / Middle East / Africa										15,610		18,469		31,651		34,440
Asia Pacific / India										14,155		14,139		26,980		27,576
Canada		18,937		891		56,035		3,020		10,562		15,835		21,770		32,125
Europe / Middle East / Africa		14,892		15,604		45,555		49,100
Asia Pacific		9,244		7,784		24,186		20,320
Total	$	359,036	$	312,796	$	1,050,742	$	930,311	$	392,515	$	349,853	$	786,871	$	725,102

~~Table of Contents~~

~~TELETECH HOLDINGS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

(4)SIGNIFICANT CLIENTS AND OTHER CONCENTRATIONS

The Company had no clients that contributed in excess of 10% of total revenue for the ~~nine~~six months ended ~~September~~June 30, 2017. The Company had one client that contributed in excess of 10% of total revenue for the nine months ended September 30, 2016. This client operates in the communications industry and is included in the CMS segment. This client contributed 9.5% and 10.4% of total revenue for the nine months ended September 30, 2017 and 2016, respectively.2019 or 2018. The Company does have ~~several other~~ clients with aggregate revenue exceeding $100 million annually and the loss of one or more of these clients could have a material adverse effect on the Company’s business, operating results, or financial condition. To mitigate this risk, the Company 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 accounts and may require pre-payment for services from certain clients. Based on currently available information, management does not believe significant credit risk existed as of ~~September~~June 30, ~~2017.~~2019.

Table of Contents

TTEC HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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, 2018, TTEC had approximately $2.7 million in pre-petition accounts receivables exposure related to Sears, and 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). As of June 30, 2019, the pre-petition accounts receivable balance is $2.5 million. During the first quarter of 2019, Sears sold a substantial part of its business, including the business that TTEC serves, to Transform SR Holdings Management LLC (“new Sears”). TTEC now provides services to new Sears pursuant to the terms of a new contract that parties signed in April 2019.

Accounts Receivable Sales 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 June 30, 2019, the Company had factored $36.9 million of accounts receivable; under the Agreement discounts on these receivables were not material during the quarter. As of June 30, 2019, the Company had collected $11.4 million of cash from customers which has not been remitted to the Bank and thus is included in Accrued Expenses on the Consolidated Balance Sheet. The Company has not recorded any servicing assets or liabilities as of June 30, 2019 as the fair value of the servicing arrangement as well as the fees earned were not material to the financial statements.

(5)GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill consisted of the following (in thousands):

Effect of


December 31,

Acquisitions /

Foreign

September 30,

2016

Adjustments

Impairments

Currency

2017

Customer Management Services

$
42,589

$
34,662

$
—

$
2,140

$
79,391

Customer Growth Services

24,439

—

—

—

24,439

Customer Technology Services

41,500

(661)

—

—

40,839

Customer Strategy Services

21,120

—

—

795

21,915

Total

$
129,648

$
34,001

$
—
��
$
2,935

$
166,584


							Effect of
	December 31,		Acquisitions /				Foreign		June 30,
	2018		Adjustments		Impairments		Currency		2019

TTEC Digital	$	66,158	$	—		—		(3)	$	66,155
TTEC Engage		138,475		—		—		1,128		139,603
Total	$	204,633	$	—	$	—	$	1,125	$	205,758

The Company performs a goodwill impairment assessment on at least an annual basis. The Company conducts its annual goodwill impairment assessment during the fourth quarter, or more frequently, if indicators of impairment exist. ~~During the quarter ended September 30, 2017, the Company assessed whether any such indicators of impairment existed and concluded there were none.~~

During the quarter ended ~~September~~June 30, ~~2016,~~2019, the Company identified negative indicators such as lower financial performance and the ~~reversal~~impairment of ~~contingent consideration~~intangibles and other long-lived assets for one component of the ~~CSS reporting unit~~TTEC Digital segment and thus the Company updated its quantitative assessment for the ~~CSS~~TTEC Digital Consulting reporting unit fair value using an ~~income based~~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

Table of Contents

TTEC HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

conclusions on goodwill impairment for each reporting unit. At ~~September~~June 30, ~~2016,~~2019, the fair value for the ~~CSS~~TTEC Digital Consulting reporting unit exceeded the carrying value, and thus no impairment was required.

During the second quarter of 2019, in connection with the change in operating segments, the Company also reassessed the reporting units. After evaluation, the Company has reduced the reporting units to four from five based on the combination of the previous CMS (Customer Management) and CGS (Customer Growth) reporting units.

Other Intangible Assets

In connection with reduced profitability of the rogenSi component of the TTEC Digital segment, an interim impairment analysis was completed during the second quarter of 2019. The long-lived assets reviewed for impairment consisted of the customer relationship intangible, intellectual property, and right of use assets. The Company ~~has also determined that effective September 30, 2016~~completed an asset group recoverability evaluation based on 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.

~~Table of Contents~~

~~TELETECH HOLDINGS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

~~CSS – component held-for-sale~~

~~The Company calculated the fair value of the trade name using a relief from royalty method~~current estimated cash flow based on forecasted revenues ~~sold under the trade name~~and operating income 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,~~this calculation, the Company recorded an impairment expense of ~~$3.3~~$2.0 million in the three months ended ~~September~~June 30, ~~2016~~2019, which was included in Impairment losses in the Consolidated Statements of Comprehensive Income (Loss).

~~Other Intangible Assets~~

~~In connection with reduced profitability for the Avaya component~~ As part of the ~~CTS segment an interim~~$2.0 million impairment ~~analysis~~$0.4 million was ~~completed during~~assigned to the ~~third quarter of 2016. The Company will modify the sales focus of the Avaya component away from premise product and services towards cloud solutions. The indefinite-lived~~customer relationship 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 specificand $0.2 million to the trade name of 19.0%, which is 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, the Company recorded impairment expense of $0.7 million in the three months ended September 30, 2016 which was included in Impairment losses in the Consolidated Statements of Comprehensive Income (Loss).

~~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~~IP 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 is 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).asset.

(6)DERIVATIVES

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 ~~September~~June 30, ~~2017,~~2019, the Company has 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 three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018 (in thousands and net of tax):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018

Aggregate unrealized net gain/(loss) at beginning of period	$	(5,217)	$	(15,753)	$	(8,278)	$	(15,746)
Add: Net gain/(loss) from change in fair value of cash flow hedges		5,190		2,059		10,096		5,945
Less: Net (gain)/loss reclassified to earnings from effective hedges		(738)		(3,565)		(2,583)		(7,458)
Aggregate unrealized net gain/(loss) at end of period	$	(765)	$	(17,259)	$	(765)	$	(17,259)

1614

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~~TELETECH~~TTEC HOLDINGS, INC. AND SUBSIDIARIES

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~Notes to Consolidated Financial Statements

~~(UNAUDITED)~~(Unaudited)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

Aggregate unrealized net gain/(loss) at beginning of period

$
(19,730)

$
(25,007)

$
(32,393)

$
(26,885)

Add: Net gain/(loss) from change in fair value of cash flow hedges

5,420

631

25,290

9,519

Less: Net (gain)/loss reclassified to earnings from effective hedges

(3,487)

(4,179)

(10,694)

(11,189)

Aggregate unrealized net gain/(loss) at end of period

$
(17,797)

$
(28,555)

$
(17,797)

$
(28,555)

The Company’s foreign exchange cash flow hedging instruments as of ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016~~2018 are summarized as follows (amounts in thousands). All hedging instruments are forward contracts.

Local

Currency

U.S. Dollar

% Maturing

Contracts

Currency

U.S. Dollar

% Maturing

Contracts

Notional

in the next

Maturing

Notional

in the next

Maturing

As of September 30, 2017

Amount

12 months

Through

As of June 30, 2019

Amount

12 months

Through

Philippine Peso

10,490,000

218,413

(1)

53.2

August 2021

6,237,000

120,528

(1)

62.2

April 2022

Mexican Peso

1,774,000

104,652

37.2

May 2021

1,119,500

55,183

52.7

August 2022

323,065

175,711


	Local				Local
	Currency	U.S. Dollar			Currency	U.S. Dollar
	Notional	Notional			Notional	Notional
As of December 31, 2016	Amount	Amount
As of December 31, 2018					Amount	Amount
Philippine Peso	14,315,000		301,134	(1)	6,710,000		130,957	(1)
Mexican Peso	2,089,000		129,375		1,091,500		57,708
		$	430,509			$	188,665

⁽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 ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016.~~

~~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:~~

~~Contract~~

~~Notional~~

~~Variable Rate~~

~~Fixed Rate~~

~~Commencement~~

~~Maturity~~

~~December 31, 2016~~

~~Amount~~

~~Received~~

~~Paid~~

~~Date~~

~~Swap~~

~~15 million~~

~~1 - month LIBOR~~

~~3.14~~

~~May 2012~~

~~May 2017~~

2018.

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 ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016~~2018 the total notional amounts of the Company’s forward contracts used as fair value hedges were ~~$167.1~~$97.8 million and ~~$227.8~~$70.4 million, respectively.

~~Table of Contents~~

~~TELETECH HOLDINGS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

Derivative Valuation and Settlements

The Company’s derivatives as of ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016~~2018 were as follows (in thousands):


	September 30, 2017							June 30, 2019
	Designated					Not Designated		Designated		Not Designated
	as Hedging					as Hedging		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	$	55		$	—	$	355	$	1,366	$	287
Other long-term assets		594			—		—		1,830		—
Other current liabilities		(17,071)			—		(447)		(3,512)		(96)
Other long-term liabilities		(13,051)			—		—		(739)		—
Total fair value of derivatives, net	$	(29,473)		$	—	$	(92)	$	(1,055)	$	191

December 31, 2016

Designated

Not Designated

as Hedging

as Hedging

Designation:

Instruments

Instruments


Foreign

Interest

Foreign

Derivative contract type:

Exchange

Rate

Exchange

Derivative classification:

Cash Flow

Cash Flow

Fair Value

Fair value and location of derivative in the Consolidated Balance Sheet:

Prepaids and other current assets

$
1,178

$
—

$
1,606

Other long-term assets

—

—

—

Other current liabilities

(23,503)

(147)

(866)

Other long-term liabilities

(31,714)

—

—

Total fair value of derivatives, net

$
(54,039)

$
(147)

$
740

1815

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~~TELETECH~~TTEC HOLDINGS, INC. AND SUBSIDIARIES

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~Notes to Consolidated Financial Statements

~~(UNAUDITED)~~(Unaudited)


	December 31, 2018
	Designated		Not Designated
	as Hedging		as Hedging
Designation:	Instruments		Instruments
	Foreign		Foreign
Derivative contract type:	Exchange		Exchange
Derivative classification:	Cash Flow		Fair Value

Fair value and location of derivative in the Consolidated Balance Sheet:
Prepaids and other current assets	$	814	$	60
Other long-term assets		215		—
Other current liabilities		(8,861)		(104)
Other long-term liabilities		(3,484)		—
Total fair value of derivatives, net	$	(11,316)	$	(44)

The effects of derivative instruments on the Consolidated Statements of Comprehensive Income (Loss) for the three months ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018 were as follows (in thousands):


	Three Months Ended September 30,								Three Months Ended June 30,
	2017				2016				2019		2018
	Designated as Hedging				Designated as Hedging				Designated as Hedging
Designation:	Instruments				Instruments				Instruments
	Foreign		Interest		Foreign		Interest
Derivative contract type:	Exchange		Rate		Exchange		Rate		Foreign Exchange
Derivative classification:	Cash Flow		Cash Flow		Cash Flow		Cash Flow		Cash Flow

Amount of gain or (loss) recognized in Other comprehensive income (loss) - effective portion, net of tax	$	(3,487)	$	—	$	(4,119)	$	(60)	$	(738)	$	(3,565)

Amount and location of net gain or (loss) reclassified from Accumulated OCI to income - effective portion:
Revenue	$	(5,812)	$	—	$	(7,103)	$	—	$	(1,011)	$	(4,883)
Interest expense		—		—		—		(104)


	Three Months Ended September 30,								Three Months Ended June 30,
	2017				2016				2019		2018
Designation:	Not Designated as Hedging Instruments				Not Designated as Hedging Instruments				Not Designated as Hedging Instruments
Derivative contract type:	Foreign Exchange				Foreign Exchange				Foreign Exchange

Derivative classification:	Forward Contracts		Fair Value		Forward Contracts		Fair Value		Fair Value

Amount and location of net gain or (loss) recognized in the Consolidated Statement of Comprehensive Income (Loss):
Costs of services	$	—	$	—	$	—	$	—
Other income (expense), net	$	—	$	(1,186)	$	—	$	(3,674)	$	(1,465)	$	(2,343)

1916

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~~TELETECH~~TTEC HOLDINGS, INC. AND SUBSIDIARIES

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~Notes to Consolidated Financial Statements

~~(UNAUDITED)~~(Unaudited)

The effects of derivative instruments on the Consolidated Statements of Comprehensive Income (Loss) for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018 were as follows (in thousands):


	Nine Months Ended September 30,								Six Months Ended June 30,
	2017				2016				2019		2018
	Designated as Hedging				Designated as Hedging				Designated as Hedging
Designation:	Instruments				Instruments				Instruments
	Foreign		Interest		Foreign		Interest
Derivative contract type:	Exchange		Rate		Exchange		Rate		Foreign Exchange
Derivative classification:	Cash Flow		Cash Flow		Cash Flow		Cash Flow		Cash Flow

Amount of gain or (loss) recognized in Other comprehensive income (loss) - effective portion, net of tax	$	(10,625)	$	(69)	$	(10,939)	$	(252)	$	(2,583)	$	(7,458)

Amount and location of net gain or (loss) reclassified from Accumulated OCI to income - effective portion:
Revenue	$	(17,709)	$	—	$	(18,860)	$	—	$	(3,538)	$	(10,215)
Interest expense		—		(115)		—		(435)


	Nine Months Ended September 30,									Six Months Ended June 30,
	2017				2016				2019			2018
Designation:	Not Designated as Hedging Instruments				Not Designated as Hedging Instruments				Not Designated as Hedging Instruments
Derivative contract type:	Foreign Exchange				Foreign Exchange				Foreign Exchange

Derivative classification:	Forward Contracts		Fair Value		Forward Contracts		Fair Value			Fair Value

Amount and location of net gain or (loss) recognized in the Consolidated Statement of Comprehensive Income (Loss):
Costs of services	$	—	$	—	$	—	$	—
Other income (expense), net	$	—	$	(1,545)	$	—	$	(3,616)		$	(1,217)		$	(5,695)

(7)FAIR VALUE

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.

~~Table of Contents~~

~~TELETECH HOLDINGS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

The following presents information as of ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016~~2018 for 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.

Table of Contents

TTEC HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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 ~~September~~June 30, ~~2017,~~2019, the investment in CaféX Communication, Inc., which ~~consists~~consisted of the Company’s ~~first quarter 2015 $9.0 million investment, the fourth quarter 2016 $3.2 million investment and the first quarter 2017 $1.1~~total $15.6 million investment is ~~recorded at $13.3 million which approximates fair value.~~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 ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016,~~2018, the Company had ~~$255.0~~$228.0 million and ~~$217.3~~$282.0 million, respectively, of borrowings outstanding under the Credit Agreement. During the ~~third~~second quarter of ~~2017~~2019 outstanding borrowings accrued interest at an average rate of ~~2.3%~~3.6% per annum, 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 ~~September~~June 30, ~~2017,~~2019, 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 ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016~~2018 (in thousands):

As of ~~September~~June 30, ~~2017~~2019


	Fair Value Measurements Using								Fair Value Measurements Using
	Quoted Prices in		Significant						Quoted Prices in		Significant
	Active Markets		Other		Significant				Active Markets		Other		Significant
	for Identical		Observable		Unobservable				for Identical		Observable		Unobservable
	Assets		Inputs		Inputs				Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		At Fair Value		(Level 1)		(Level 2)		(Level 3)		At Fair Value
Cash flow hedges	$	—	$	(29,473)	$	—	$	(29,473)	$	—	$	(1,055)	$	—	$	(1,055)
Interest rate swaps		—		—		—		—
Fair value hedges		—		(92)		—		(92)		—		191		—		191
Total net derivative asset (liability)	$	—	$	(29,565)	$	—	$	(29,565)	$	—	$	(864)	$	—	$	(864)

As of December 31, 2018


	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	$	—	$	(11,316)	$	—	$	(11,316)
Fair value hedges		—		(44)		—		(44)
Total net derivative asset (liability)	$	—	$	(11,360)	$	—	$	(11,360)

2118

Table of Contents

~~TELETECH~~TTEC HOLDINGS, INC. AND SUBSIDIARIES

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~Notes to Consolidated Financial Statements

~~(UNAUDITED)~~(Unaudited)

~~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 ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016~~2018 (in thousands):

As of ~~September~~June 30, ~~2017~~2019

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

$
—

$
(12,624)

$
—

Derivative instruments, net

—

(29,565)

—

Contingent consideration

—

—

(1,178)

Total liabilities

$
—

$
(42,189)

$
(1,178)


	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	$	—	$	(17,973)	$	—
Derivative instruments, net		—		(864)		—
Contingent consideration		—		—		—
Total liabilities	$	—	$	(18,837)	$	—

As of December 31, ~~2016~~2018


	Fair Value Measurements Using						Fair Value Measurements Using
	Quoted Prices in				Significant		Quoted Prices in				Significant
	Active Markets for		Significant Other		Unobservable		Active Markets for		Significant Other		Unobservable
	Identical Assets		Observable Inputs		Inputs		Identical Assets		Observable Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		(Level 1)		(Level 2)		(Level 3)
Assets
Derivative instruments, net	$	—	$	—	$	—	$	—	$	—	$	—
Total assets	$	—	$	—	$	—	$	—	$	—	$	—

Liabilities
Deferred compensation plan liability	$	—	$	(10,841)	$	—	$	—	$	(14,836)	$	—
Derivative instruments, net		—		(53,446)		—		—		(11,360)		—
Contingent consideration		—		—		(1,808)		—		—		(2,363)
Total liabilities	$	—	$	(64,287)	$	(1,808)	$	—	$	(26,196)	$	(2,363)

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.

~~Table of Contents~~

~~TELETECH HOLDINGS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

Contingent Consideration —- The Company recorded contingent consideration related to the ~~acquisitions~~acquisition of ~~rogenSi and Atelka. These~~SCS. This contingent ~~payables were~~payable was recognized at fair value using a discounted cash flow approach and a discount rate of ~~4.6% and 0%, respectively.~~4.7%. The discount rates vary dependent on the specific risks of each acquisition including the country of operation, the nature of services and complexity of the acquired business, and other similar factors. These measurements were based on significant inputs not observable in the market. The Company ~~recorded~~will record interest expense each ~~period~~quarter using the effective interest method until the future value of ~~these~~this contingent ~~payables reached their~~payment reaches the expected total future value. ~~Interest expense related~~

During the second quarter of 2019, the Company recorded a fair value adjustment to ~~all~~the contingent consideration associated with the SCS acquisition based on decreased estimates of EBITDA which has caused the estimated payable to be zero for both future payments. Accordingly, a $2.5 million decrease to the payable was recorded ~~contingent payables is~~as of June 30, 2019 and was included in ~~Interest expense~~Other income (expense), net in the Consolidated Statements of Comprehensive Income (Loss).

~~The Company recorded contingent consideration related~~

Table of Contents

TTEC 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. As required, the first payment of $435 thousand was completed during the second quarter of 2017. As required, the second payment of $239 thousand was completed during the third quarter of 2017.Consolidated Financial Statements

(Unaudited)

A rollforward of the activity in the Company’s fair value of the contingent consideration payable is as follows (in thousands):

Imputed


December 31,

Interest /

September 30,

2016

Acquisitions

Payments

Adjustments

2017

Welltok

$
1,250

$
—

$
(674)

$
—

$
576

Atelka

558

—

—

44

602

Total

$
1,808

$
—

$
(674)

$
44

$
1,178


							Imputed
	December 31,						Interest /		June 30,
	2018		Acquisitions		Payments		Adjustments		2019

SCS	$	2,363	$	—	$	—	$	(2,363)	$	—
Total	$	2,363	$	—	$	—	$	(2,363)	$	—

(8)INCOME TAXES

The Company accounts for income taxes in accordance with the accounting literature for income taxes, which 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. 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. Quarterly, the Company assesses the likelihood 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.

~~In accordance~~ The Company’s selection of an accounting policy with ~~ASC 740,~~respect to both the ~~Company recorded a liability during~~global intangible low taxed foreign income (“GILTI”) and base erosion and anti-abut tax (“BEAT”) rules is to compute the ~~first quarter of 2016 of $1.1 million, inclusive of penalties and interest, for uncertain tax positions. See Note 1 for further information on this item.~~

~~During~~related taxes in the ~~second quarter of 2016, $0.3 million of liability was released due~~period the entity becomes subject to ~~the closing of a statute of limitations.~~

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.~~either GILTI or BEAT.

As of ~~September~~June 30, ~~2017,~~2019, the Company had ~~$31.0~~$15.1 million of gross deferred tax assets (after a ~~$10.5~~$15.0 million valuation allowance) and net deferred tax assets (after deferred tax liabilities) of ~~$30.8~~$3.8 million related to the ~~U.S.~~United States and international tax jurisdictions whose recoverability is dependent upon future profitability.

~~Table of Contents~~

~~TELETECH HOLDINGS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

The effective tax rate for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 was ~~11.7%~~35.0% and ~~15.0%~~30.3%, respectively. The effective tax rate for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2018 was ~~(6.9)%~~9.4% and ~~15.2%~~18.4%, respectively.

The Company’s U.S. income tax returns filed for the tax years ending December 31, ~~2014~~2015 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 Canada for tax years 2009 and 2010, the Philippines for tax years 2015 and 2017, Belgium for tax years 2016 and 2017, Canada GST for tax years 2014 through 2018, the state of ~~Michigan~~Arkansas in the United States for tax years ~~2012~~2015 through ~~2015, for~~2017, and the ~~Philippines branch~~state of New York in the United States for tax ~~year~~years 2015 ~~for Belgium~~through 2017. During the second quarter of 2019, the Company closed an audit with the state of Minnesota in the United States for tax years 2014 ~~and 2015, and for eLoyalty~~through 2016 with no material changes. During the third quarter of 2018, the Company closed an audit in Ireland for the year 2016 with no material changes. In the first quarter of 2019, the Company received a report of initial deficiency tax ~~year 2016.~~findings from the Philippines Bureau of Internal Revenue (“BIR”) related to the 2015 tax year. The Company does not agree with the amount in question and is working closely with the BIR to clarify and resolve the outstanding discrepancies. 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. ~~During~~

When there is a change in judgment concerning the ~~third~~recovery of deferred tax assets in future periods, a valuation allowance is recorded into earnings during the quarter ~~of 2017,~~in which the ~~Company closed the audit~~change in ~~Hong Kong for 2014 with no changes. Additionally, during~~judgment occurred. In the second quarter of ~~2016,~~2019 a change to the ~~Company successfully closed the audit~~valuation allowance was recorded in the ~~U.S.~~amount of $2.3 million for deferred tax assets that do not meet the ~~acquired entity Technology Solutions Group for the tax year 2012 (prior~~“more-likely-than-not” standard.

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TTEC HOLDINGS, INC. AND SUBSIDIARIES

Notes to ~~acquisition) with no changes. The Company also closed in the fourth quarter of 2016 the audit in New Zealand for tax years 2013 and 2014 with no changes.~~Consolidated Financial Statements

(Unaudited)

The Company has been granted “Tax Holidays” as an incentive to attract foreign investment by the government of the Philippines. 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 ~~2011~~2019 and 2020. The aggregate effect on income tax expense for the three months ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018 was approximately ~~$2.8~~$1.9 million and ~~$2.0~~$2.2 million, respectively, which had a favorable impact on diluted net income per share of ~~$0.06~~$0.04 and ~~$0.04,~~$0.05, respectively. The aggregate effect on income tax expense for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018 was approximately ~~$8.9~~$4.0 million and ~~$4.5~~$4.0 million, respectively, which had a favorable impact on diluted net income per share of ~~$0.19~~$0.09 and ~~$0.10,~~$0.09, respectively.

(9)RESTRUCTURING CHARGES, INTEGRATION CHARGES AND IMPAIRMENT LOSSES

Restructuring Charges

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, the Company continued restructuring activities primarily associated with reductions in the Company’s capacity, workforce and related management in ~~several of the~~both segments to better align the capacity and workforce with current business needs.

During the three and nine months ended September 30, 2017, several restructuring activities were completed regarding the purchase of Connextions (see Note 2). Several of the delivery centers that were included in the purchase will be closed over the next few quarters. During the second quarter of 2017, a $1.7 million severance accrual was recorded in relation to these closures and included in the Consolidated Statements of Comprehensive Income (Loss) for the quarter ended June 30, 2017. In conjunction with closing one delivery center, a $0.6 million termination fee was recorded in the third quarter of 2017. During the third quarter of 2017, the severance accrual was reviewed and a reversal of $0.7 million was recorded as of September 30, 2017. These charges and reversals were included in the Consolidated Statements of Comprehensive Income (Loss) during the quarter ended September 30, 2017.

~~Table of Contents~~

~~TELETECH HOLDINGS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

A summary of the expenses recorded in Restructuring and integration charges, net in the accompanying Consolidated Statements of Comprehensive Income (Loss) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, respectively, is as follows (in thousands):

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016


Reduction in force

Customer Management Services

$
(213)

$
2,485

$
1,548

$
2,482

Customer Growth Services

—

108

—

108

Customer Technology Services

—

314

93

324

Customer Strategy Services

13

82

13

92

Total

$
(200)

$
2,989

$
1,654

$
3,006


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018

Reduction in force
TTEC Digital	$	—	$	—	$	—	$	51
TTEC Engage		308		187		770		340
Total	$	308	$	187	$	770	$	391

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016


Facility exit and other charges

Customer Management Services

$
600

$
699

$
642

$
852

Customer Growth Services

—

—

—

—

Customer Technology Services

—

—

84

33

Customer Strategy Services

21

—

21

—

Total

$
621

$
699

$
747

$
885


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018

Facility exit and other charges
TTEC Digital	$	—	$	—	$	—	$	—
TTEC Engage		120		847		619		1,492
Total	$	120	$	847	$	619	$	1,492

Table of Contents

TTEC HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

A rollforward of the activity in the Company’s restructuring ~~accruals~~accrual is as follows (in thousands):


	Reduction		Facility Exit and				Reduction		Facility Exit and
	in Force		Other Charges		Total		in Force		Other Charges		Total

Balance as of December 31, 2016	$	1,468	$	98	$	1,566
Balance as of December 31, 2018							$	416	$	3,226	$	3,642
Expense		2,384		747		3,131		774		619		1,393
Payments		(987)		(841)		(1,828)		(1,020)		(567)		(1,587)
Change due to foreign currency		(23)		—		(23)		(16)		16		—
Change in estimates		(730)		—		(730)		(4)		—		(4)
Balance as of September 30, 2017	$	2,112	$	4	$	2,116
Reclassifications due to ASU 842 implementation								—		(2,917)		(2,917)
Balance as of June 30, 2019							$	150	$	377	$	527

The remaining restructuring and other accruals are expected to be paid or extinguished during the next twelve months and are all classified as current liabilities within Other accrued expenses in the Consolidated Balance Sheets.

~~Integration Charges~~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 the three and six months ended ~~September~~June 30, ~~2017, as a result of~~2019, the Connextions acquisition, certain integration activities were completed and $5.6 million of additional expenses were incurred and paid. 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 closed during the third quarter of 2017 and one of the acquired centers will be closed during the fourth quarter of 2017. The Company ~~has also incurred significant expenses~~recognized impairment losses related to leasehold improvement assets and right of use lease assets of $1.1 million and $2.6 million, respectively, across the ~~integration~~TTEC Digital and TTEC Engage segments. During the three and six months ended June 30, 2018, the Company recognized impairment losses related to leasehold improvement assets of ~~the IT systems~~zero and ~~has paid duplicative software costs and facilities expenses for several areas during the transition period.~~

~~Table of Contents~~

~~TELETECH HOLDINGS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

$1.1 million, respectively, in its TTEC Engage segment.

(10)COMMITMENTS AND CONTINGENCIES

Credit Facility

On February ~~11, 2016,~~14, 2019, the Company entered into a ~~First~~Fourth Amendment to its ~~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. The Credit Agreement provides for a secured revolving credit facility that~~Association, as agent, swing line and fronting lender which matures on February ~~11, 2021 with an initial~~14, 2024 (the “Credit Facility”).

The maximum ~~aggregate~~ commitment ofunder the Credit Facility is $900.0 million, ~~and~~with 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 exercised~~lenders in an amount equal to the ~~Credit Facility’s accordion feature to increase the total commitment under~~unused portion of the Credit Facility multiplied by 0.150% per annum from the Credit Facility inception date until a compliance certificate is provided by the Company in connection with its quarterly financial statements for the quarter ended March 31, 2019, and thereafter as previously disclosed and as determined by reference to ~~$1.2 billion. All other material terms~~the 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% of the ~~Credit Agreement remained unchanged.~~average book value of all accounts receivable over the most recent twelve-month period.

Table of Contents

TTEC HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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%~~1.0% in excess of the one month ~~London Interbank Offered Rate (“LIBOR”);~~Eurodollar rate; 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~~London Interbank Offered Rate (“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 and other strategic activities, such as the acquisitions described in Note 2. As of ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016,~~2018, the Company had borrowings of ~~$255.0~~$228.0 million and ~~$217.3~~$282.0 million, respectively, under its Credit Agreement, and its average daily utilization was ~~$474.3~~$324.0 million and ~~$359.5~~$554.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, respectively. Based on the current level of availability based on the covenant calculations, the Company’s remaining borrowing capacity was approximately ~~$390.0~~$510 million as of ~~September~~June 30, ~~2017.~~2019. As of ~~September~~June 30, ~~2017,~~2019, the Company was in compliance with all covenants and conditions under its Credit Agreement.

Letters of Credit

As of ~~September~~June 30, ~~2017,~~2019, outstanding letters of credit under the Credit Agreement totaled ~~$3.9~~$3.7 million and primarily guaranteed workers’ compensation and other insurance related obligations. As of ~~September~~June 30, ~~2017,~~2019, letters of credit and contract performance guarantees issued outside of the Credit Agreement totaled ~~$7.6~~$0.6 million.

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.

~~Table of Contents~~

~~TELETECH HOLDINGS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

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.

(11)LEASES

The Company adopted ASU 842, Leases, as of January 1, 2019 using the effective date as the date of initial application. As a result, prior year financials were not recast under the new standard and therefore, those amounts are not presented below.

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. Operating lease assets also include prepaid rent, initial direct costs less any tenant improvements.

Table of Contents

TTEC HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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 service 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. Rent expense for operating leases is recognized on a straight-line basis over the lease term and is included in the Consolidated Statements of Comprehensive Income (Loss). The Company’s lease agreements do not contain any material residual value guarantees or restrictive guarantees.

The components of lease expense for the three and six months ended June 30, 2019 are as follows (in thousands):


	Location in Statements of	Three Months Ended
Description	Comprehensive Income (Loss)	June 30, 2019
Amortization of ROU assets - finance leases	Depreciation and amortization	$	1,798
Interest on lease liabilities - finance leases	Interest expense		32
Operating lease cost (cost resulting from lease payments)	Cost of services		12,647
Operating lease cost (cost resulting from lease payments)	Selling, general and administrative		1,363
Operating lease cost (cost resulting from lease payments)	Other income (expense), net		242
Short-term lease cost	Cost of services		1,247
Less: Sublease income	Selling, general and administrative		(126)
Less: Sublease income	Other income (expense), net		(496)
Total lease cost		$	16,707


	Location in Statements of	Six Months Ended
Description	Comprehensive Income (Loss)	June 30, 2019
Amortization of ROU assets - finance leases	Depreciation and amortization	$	3,405
Interest on lease liabilities - finance leases	Interest expense		40
Operating lease cost (cost resulting from lease payments)	Cost of services		23,346
Operating lease cost (cost resulting from lease payments)	Selling, general and administrative		2,630
Operating lease cost (cost resulting from lease payments)	Other income (expense), net		484
Short-term lease cost	Cost of services		2,312
Less: Sublease income	Selling, general and administrative		(193)
Less: Sublease income	Other income (expense), net		(992)
Total lease cost		$	31,032

Other supplementary information for the three and six months ended June 30, 2019 are as follows (dollar values in thousands):


	Three Months Ended
	June 30, 2019
Finance lease - operating cash flows	$	32
Finance lease - financing cash flows	$	2,202
Operating lease - operating cash flows (fixed payments)	$	13,741
New ROU assets - operating leases	$	5,368
Modified ROU assets - operating leases	$	10,202
New ROU assets - finance leases	$	1,657

Table of Contents

TTEC HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)


	Six Months Ended
	June 30, 2019
Finance lease - operating cash flows	$	40
Finance lease - financing cash flows	$	5,985
Operating lease - operating cash flows (fixed payments)	$	26,075
New ROU assets - operating leases	$	7,057
Modified ROU assets - operating leases	$	23,201
New ROU assets - finance leases	$	4,247


	June 30, 2019
Weighted average remaining lease term - finance leases		3.12 yrs
Weighted average remaining lease term - operating leases		4.61 yrs
Weighted average discount rate - finance leases		1.00%
Weighted average discount rate - operating leases		7.73%

Operating and financing lease right-of-use assets and lease liabilities within our Consolidated Balance Sheet as of June 30, 2019 and January 1, 2019 (date of adoption of ASU 842) are as follows (in thousands):


				January 1, 2019
Description	Location in Balance Sheet	June 30, 2019		(date of adoption)
Assets
Operating lease assets	Operating lease assets	$	137,260	$	129,894
Finance lease assets	Property, plant and equipment, net		19,883		18,261
Total leased assets		$	157,143	$	148,155

Liabilities
Current
Operating	Current operating lease liabilities	$	38,719	$	35,535
Finance	Other current liabilities		7,861		8,770
Non-current
Operating	Non-current operating lease liabilities		118,350		112,754
Finance	Other long-term liabilities		10,776		10,765
Total lease liabilities		$	175,706	$	167,824

The future minimum operating lease and finance lease payments required under non-cancelable leases as of June 30, 2019 are as follows (in thousands):


	Operating		Sub-lease		Finance
	Leases		Income		Leases
Year 1	$	48,647	$	(2,972)	$	7,909
Year 2		42,142		(1,936)		6,134
Year 3		35,454		(345)		3,453
Year 4		30,414		(345)		1,042
Year 5		14,753		(29)		398
Thereafter		19,896		—		—
Total minimum lease payments	$	191,306	$	(5,627)	$	18,936
Less imputed interest		(34,237)				(299)
Total lease liability	$	157,069			$	18,637

Table of Contents

TTEC HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The future minimum rental and capital lease payments under non-cancelable leases as of December 31, 2018 are as follows (in thousands):


	Operating		Sub-lease		Capital
	Leases		Income		Leases
Year 1	$	47,379	$	(2,624)	$	8,770
Year 2		36,045		(2,631)		5,548
Year 3		30,678		(276)		3,798
Year 4		26,584		—		1,005
Year 5		17,226		—		414
Thereafter		25,362		—		—
Total minimum lease payments	$	183,274	$	(5,531)	$	19,535
Less imputed interest						—
Total lease liability					$	19,535

(12)OTHER LONG-TERM LIABILITIES

The components of Other long-term liabilities as of June 30, 2019 and December 31, 2018 are as follows (in thousands):


	June 30, 2019		December 31, 2018

Deferred revenue	$	31,331	$	33,247
Deferred compensation plan		17,973		14,836
Payable for remaining portion of acquisition		—		37,756
Other		30,684		40,693
Total	$	79,988	$	126,532

(13)NONCONTROLLING INTEREST

The following table reconciles equity attributable to noncontrolling interest in the Company’s subsidiary (in thousands):


	Nine Months Ended September 30,				Six Months Ended June 30,
	2017		2016		2019		2018
Noncontrolling interest, January 1	$	6,981	$	7,201	$	7,677	$	6,978
Net income attributable to noncontrolling interest		2,828		2,804		3,290		2,120
Dividends distributed to noncontrolling interest		(2,745)		(2,745)		(2,250)		(1,125)
Equity contribution						3,362		—
Foreign currency translation adjustments		325		(70)		—		(162)
Equity-based compensation expense		(291)		96
Other		—		10
Noncontrolling interest, September 30	$	7,098	$	7,296
Noncontrolling interest, June 30					$	12,079	$	7,811

~~(12)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 TeleTech 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 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 were recorded in retained earnings. Since the EBITDA multiples as defined in the purchase and sale agreement were below the current market multiple, the Company determined that there was 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 included in the table below (in thousands).~~

Nine Months Ended September 30,

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, September 30

$
—

$
—

2726

Table of Contents

~~TELETECH~~TTEC HOLDINGS, INC. AND SUBSIDIARIES

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~Notes to Consolidated Financial Statements

~~(UNAUDITED)~~(Unaudited)

~~(13)~~(14)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								Foreign
	Currency		Derivative						Currency		Derivative
	Translation		Valuation, Net		Other, Net				Translation		Valuation, Net		Other, Net
	Adjustment		of Tax		of Tax		Totals		Adjustment		of Tax		of Tax		Totals

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, 2017									$	(84,100)	$	(15,746)	$	(2,458)	$	(102,304)

Other comprehensive income (loss) before reclassifications		(7,999)		9,519		2,330		3,850		(25,722)		5,945		415		(19,362)
Amounts reclassified from accumulated other comprehensive income (loss)		—		(11,189)		(1,128)		(12,317)		—		(7,458)		(201)		(7,659)
Net current period other comprehensive income (loss)		(7,999)		(1,670)		1,202		(8,467)		(25,722)		(1,513)		214		(27,021)
		��
Accumulated other comprehensive income (loss) at September 30, 2016	$	(79,195)	$	(28,555)	$	(2,082)	$	(109,832)
Accumulated other comprehensive income (loss) at June 30, 2018									$	(109,822)	$	(17,259)	$	(2,244)	$	(129,325)

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, 2018									$	(114,168)	$	(8,278)	$	(2,150)	$	(124,596)

Other comprehensive income (loss) before reclassifications		8,089		25,290		738		34,117		6,380		10,096		116		16,592
Amounts reclassified from accumulated other comprehensive income (loss)		—		(10,694)		(352)		(11,046)		—		(2,583)		(99)		(2,682)
Net current period other comprehensive income (loss)		8,089		14,596		386		23,071		6,380		7,513		17		13,910

Accumulated other comprehensive income (loss) at September 30, 2017	$	(83,919)	$	(17,797)	$	(2,177)	$	(103,893)
Accumulated other comprehensive income (loss) at June 30, 2019									$	(107,788)	$	(765)	$	(2,133)	$	(110,686)

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					Statement of
	For the Three Months Ended September 30,				Comprehensive Income	For the Three Months Ended June 30,				Comprehensive Income
	2017		2016		(Loss) Classification	2019		2018		(Loss) Classification

Derivative valuation
Loss on foreign currency forwards	$	(5,812)	$	(7,103)	Revenue
Loss on interest rate swaps		—		(104)	Interest expense
Gain (loss) on foreign currency forward exchange contracts						$	(1,011)	$	(4,883)	Revenue
Tax effect		2,325		3,028	Provision for income taxes		273		1,318	Provision for income taxes
	$	(3,487)	$	(4,179)	Net income (loss)	$	(738)	$	(3,565)	Net income (loss)

Other
Actuarial loss on defined benefit plan	$	(130)	$	(804)	Cost of services	$	(55)	$	(112)	Cost of services
Tax effect		13		80	Provision for income taxes		6		11	Provision for income taxes
	$	(117)	$	(724)	Net income (loss)	$	(49)	$	(101)	Net income (loss)

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~~TELETECH~~TTEC HOLDINGS, INC. AND SUBSIDIARIES

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~Notes to Consolidated Financial Statements

~~(UNAUDITED)~~(Unaudited)


					Statement of					Statement of
	For the Nine Months Ended September 30,				Comprehensive Income	For the Six Months Ended June 30,				Comprehensive Income
	2017		2016		(Loss) Classification	2019		2018		(Loss) Classification

Derivative valuation
Loss on foreign currency forwards	$	(17,709)	$	(18,860)	Revenue
Loss on interest rate swaps		(115)		(435)	Interest expense
Gain (loss) on foreign currency forward exchange contracts						$	(3,538)	$	(10,215)	Revenue
Tax effect		7,130		8,106	Provision for income taxes		955		2,757	Provision for income taxes
	$	(10,694)	$	(11,189)	Net income (loss)	$	(2,583)	$	(7,458)	Net income (loss)

Other
Actuarial loss on defined benefit plan	$	(391)	$	(1,252)	Cost of services	$	(110)	$	(223)	Cost of services
Tax effect		39		124	Provision for income taxes		11		22	Provision for income taxes
	$	(352)	$	(1,128)	Net income (loss)	$	(99)	$	(201)	Net income (loss)

~~(14)~~(15)NET INCOME PER SHARE

The following table sets forth the computation of basic and diluted shares for the periods indicated (in thousands):


	Three Months Ended September 30,		Nine Months Ended September 30,		Three Months Ended June 30,		Six Months Ended June 30,
	2017	2016	2017	2016	2019	2018	2019	2018

Shares used in basic earnings per share calculation	45,838	47,081	45,816	47,771	46,318	46,016	46,261	45,944
Effect of dilutive securities:
Stock options	10	6	9	11	—	9	—	9
Restricted stock units	517	214	513	292	366	374	375	469
Performance-based restricted stock units	2	14	10	15	—	2	—	2
Total effects of dilutive securities	529	234	532	318	366	385	375	480
Shares used in dilutive earnings per share calculation	46,367	47,315	46,348	48,089	46,684	46,401	46,636	46,424

For the three months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, there were no options to purchase ~~0.0 million and 0.1 million~~ shares of common stock ~~respectively,~~outstanding that were ~~outstanding, but not included in~~excluded from 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 ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, there were no options to purchase ~~0.0 million and 0.1 million~~ shares of common stock ~~respectively,~~outstanding that were ~~outstanding, but not included in~~excluded from 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 three months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, there were restricted stock units (“RSUs”) of ~~0.0 million~~10 thousand and ~~0.1 million,~~113 thousand, respectively, outstanding which were ~~outstanding, but not included in~~excluded from the computation of diluted net income per share because the effect would have been anti-dilutive. For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, there were RSUs of ~~0.0 million~~20 thousand and ~~0.1 million,~~64 thousand, respectively, outstanding which were ~~outstanding, but not included in~~excluded from the computation of diluted net income per share because the effect would have been anti-dilutive.

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~~TELETECH~~TTEC HOLDINGS, INC. AND SUBSIDIARIES

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~Notes to Consolidated Financial Statements

~~(UNAUDITED)~~(Unaudited)

~~(15)~~(16)EQUITY-BASED COMPENSATION PLANS

All equity-based awards to employees are recognized in the Consolidated Statements of Comprehensive Income (Loss) at the fair value of the award on the grant date. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, the Company recognized total equity-based compensation expense of ~~$3.5~~$3.3 million and ~~$8.4~~$6.5 million and ~~$2.7~~$2.6 million and ~~$7.3~~$6.2 million, respectively. Of ~~the~~this total compensation expense, $1.4 million and ~~$2.9~~$2.6 million ~~was~~were recognized in Cost of services and ~~$2.1~~$1.9 million and ~~$5.5~~$3.9 million ~~was~~were recognized in Selling, general and administrative during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2019, respectively. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2018, the ~~Company~~company recognized compensation expense of $1.0 million and ~~$2.3~~$2.4 million in Cost of services and ~~$1.7~~$1.6 million and ~~$5.0~~$3.8 million in Selling, general and administrative, respectively.

Restricted Stock Unit Grants

During the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, the Company granted ~~724,951~~40,246 and ~~443,875~~466,102 RSUs, respectively, to new and existing employees, which typically vest ~~in equal installments~~ over four or five years. The Company recognized compensation expense related to RSUs of ~~$3.5~~$3.1 million and ~~$8.7~~$6.3 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, respectively. The Company recognized compensation expense related to RSUs of $2.6 million and ~~$7.2~~$6.2 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2018, respectively. As of ~~September~~June 30, ~~2017,~~2019, there was approximately ~~$25.0~~$18.1 million of total unrecognized compensation cost (including the impact of expected forfeitures) related to RSUs granted under the Company’s equity plans.

Performance Based Restricted Stock ~~Options~~Unit Grants

During the six months ended June 30, 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, 2021. Each fiscal year’s adjusted operating income will determine the award amount. The Company recognized compensation expense related to ~~subsidiary performance options~~PRSUs of ~~zero and $(0.3)~~$0.2 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, respectively. The option benefit for 2017 resulted from the Company concluding that the performance targets of the subsidiary will not be achieved.~~2019.

~~(16)~~(17)RELATED PARTY

~~The~~During 1999, 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 a direct 100% beneficial ownership interest in Avion and Airmax. During the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, the Company expensed $0.6 million and $0.7 million, respectively, to Avion and Airmax for services provided to the Company. There ~~was $114~~were $257 thousand in payments due and outstanding to Avion and Airmax as of ~~September~~June 30, ~~2017.~~2019.

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 for the global helpline solution only, after an arms-length market pricing review, in the fourth quarter of ~~2016. The majority~~2016 and is currently scheduled to expire at the end of 2019. A minority owner of Convercent is a company which is owned and controlled by Kenneth D. Tuchman, Chairman and Chief Executive Officer of the Company. During the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, the Company ~~paid $55~~expensed $30 thousand and ~~$75~~$30 thousand, ~~respectively.~~respectively, for these services.

During 2015, the Company entered into a contract to purchase software from CaféX, in which ~~is a company that TeleTech~~the Company holds a ~~17.2%~~17.8% equity ~~investment in.~~investment. During the ~~three and nine~~six months ended ~~September~~June 30, ~~2017,~~2019 and 2018, the Company purchased ~~$0.0 million~~$33 thousand and ~~$0.1 million,~~$29 thousand, respectively, of software from CaféX. See Note 2 for further information regarding this investment.

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TTEC HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

During 2017, in connection with the Motif acquisition, the Company became a party to a real estate lease for a building that is owned, in part, by one of the Motif Founders. The lease expired in March 2019.

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 the six months ended June 30, 2019 and 2018, the Company recorded revenue of $2.8 million and $2.0 million, respectively, in connection with work performed through the joint venture.

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CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995, ~~(“Litigation Reform Act”),~~ relating to our ~~future~~current expectations about our results of operations, expected financial ~~condition and prospects, results of operation, continuation of client relationships, and other~~position, business ~~matters that are based on our current expectations,~~strategy, assumptions, ~~business strategy,~~ and projections with respect to the future, and are not a guarantee of performance. Forward-looking statements may appear throughout this ~~report, including without limitation, the following sections: Part I, Item 2, “Management’s Discussion~~report; and ~~Analysis of Financial Condition and Results of Operations” and Part II, Item 1A, “Risk Factors.” Forward-looking statements generally can be identified by~~we use words such as ~~“anticipates,~~“may,” ~~“believes,~~“believe,” ~~“estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,~~“plan,” “will, ~~be,~~” ~~“will continue,~~“anticipate,” ~~“will likely result,~~“estimate,” ~~and~~“expect,” “intend,” “project,” “would,” “could,” “target,” or similar ~~expressions. When~~expressions when discussing forward-looking statements. Further, when we discuss our strategy, plans, goals, initiatives, or objectives, we are making forward-looking statements. ~~For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the Litigation Reform Act.~~

We caution you not to rely unduly on any forward-looking ~~statements.~~statements that we make. Actual results may differ materially from ~~what is expressed in~~ the forward-looking statements, and you should review and consider carefully the risks, uncertainties and other factors that affect our business and may cause such differences, ~~as outlined~~including but not limited to factors discussed in the “Risk Factors” section offound in our ~~2016~~2018 Annual Report on Form ~~10-K. The risk factors~~10-K. Specifically, we ~~wish for~~believe you ~~to be aware of in particular include but are not limited to~~should note the risk inherent in the volatile and uncertain economic conditions, the fact that a large portion of our revenue is generated from a limited number of clients and the loss of one or more of these clients or a large portion of one client’s business could adversely affect our results of operations, the risk of client consolidation, the possibility that the current trend among clients to outsource their customer care may not continue, the competitiveness of our markets, the risk of information systems breach and the related impact on our clients and their data, our geographic concentration, the risk inherent in the terms of our contracts that we do not always have the opportunity to negotiate, the riskrisks related to our ~~international footprint, how~~strategy execution; our ~~foreign currency exchange risk can adversely impact~~ability to innovate and introduce technologies that are sufficiently disruptive to allow us to maintain and grow our ~~results~~market share; cybersecurity; consolidation activities undertaken by our clients; geographic concentration of ~~operations, the risk of~~our brick and mortar delivery platform and our global footprint; changes in ~~law~~laws that impact our business and our ability to comply with ~~all the~~those and other laws ~~that relate to~~governing our ~~operations, the risk related to~~operations; the reliability of ~~the~~our information technology infrastructure ~~that we use~~ and our ability to consistently deliver uninterrupted service to our ~~clients,~~clients; the ~~risk of not being able~~need to forecast demand for services accurately and the ~~related~~ impact of such forecasts on our capacity ~~utilization,~~utilization; our ~~inability~~ability to attract and retain qualified and skilled personnel ~~impact of changing technologies on~~at a price point that we can afford and our ~~services and solutions, the restrictive covenants contained in our credit facility that may impact our ability~~clients are willing to ~~execute our strategy and operate our business, the supply chain disruption related risk, the risk to innovation due to unforeseen intellectual property infringement, the risk related to~~pay; our M&A activity, ~~and~~including our ability to identify, acquire and properly integrate acquired businesses in accordance with our ~~strategy, the~~strategy; and our equity structure including our controlling shareholder risk, the limited market float of our stock, and the potential volatility of our stock price ~~that may result in loss of investment.~~ resulting therefrom.

~~The~~Our forward-looking statements are based on information available as of the date that this Report on Form 10-Q is filed with the United States Securities and Exchange Commission (“SEC”) ~~and we~~. We undertake no obligation to update them, except as may be required by applicable ~~laws. They are based on numerous assumptions and developments that are not within our control.~~law. Although we believe ~~these~~that our forward-looking statements are reasonable, they depend on many factors outside of our control and we ~~cannot assure you~~can provide no assurance that they will ~~turn out~~prove to be correct.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Executive Summary

~~TeleTech~~TTEC Holdings, Inc. (“~~TeleTech”~~TTEC”, “the Company”, “we”, “our” or “us”)is a leading global ~~provider of technology enabled~~ customer experience ~~services.~~ technology and services company focused on the design, implementation and delivery of transformative solutions for many of the world’s most iconic and disruptive brands.We help ~~leading brands improve~~large global companies increase revenue and reduce costs by delivering personalized customer experiences and operational effectiveness through a unique combination of technological innovation and operational expertise. Our portfolio of solutions includes consulting, technology, operations and analytics to enable a seamless customer experience across every ~~interaction~~interactional channel and phase of the customer ~~lifecycle.~~lifecycle as an end-to-end provider of customer engagement services, technologies, insights and innovations.

Through the first quarter of 2019, we were reporting on four segments known as Customer Strategy Services (CSS), Customer Technology Services (CTS), Customer Growth Services (CGS) and Customer Management Services (CMS).

Starting in the second quarter of 2019, we have changed our strategy, how we go to market, how our clients and potential clients evaluate and consume our services and how we assess our performance. Based on these changes, we will now report our financial information based on the following two segments: TTEC Digital and TTEC Engage.

We do not believe that this segment change results in any material impact on our financial results of operations.

TTEC Digital and TTEC Engage come together under our unified offering, HumanifyTM Customer Experience as a Service, which drives measurable results for clients through delivery of personalized omnichannel interactions that are seamless and relevant. Our ~~solutions are~~business is supported by ~~49,500~~48,000 employees delivering services in 23 countries from 9281 customer engagement centers on six continents. Our end-to-end approach differentiates the Company by combining service design, strategic consulting, data analytics, process optimization, system integration, operational excellence, and technology solutions and services. This unified offering is value-oriented, outcome-based, and delivered on a global scale across both our business segments.

Our revenue for the ~~quarter~~three months ended ~~September~~June 30, ~~2017~~2019 was ~~$359.0~~$392.5 million. Approximately $314 million, or 80%, came from our TTEC Engage segment and $79 million, or 20%, came from our TTEC Digital segment.

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, ~~technology and~~through innovation in programs that ~~create customer strategies designed to~~ differentiate our clients from their ~~competition; data analytics that personalize interactions~~competition.

To improve our competitive position in a rapidly changing market and ~~increase~~stay strategically relevant to our clients, we continue to invest in innovation and growth businesses, diversifying and strengthening our core customer ~~value; and integration~~care services ~~that connect clients’ customer relationship management (“CRM”) system to a cloud-based collaboration platform, leading to customer interactions that are seamless and relevant.~~

Our services are value-oriented, outcome-based, and delivered on a global scale across all of our business segments: Customer Management Services (“CMS”), Customer Growth Services (“CGS”), Customer Technology Services (“CTS”) and Customer Strategy Services (“CSS”). Our integrated customer experience managed services platform differentiates the Company by combining strategicwith consulting, data analytics, ~~process optimization, system design~~ and ~~integration, operational excellence, and technology solutions and~~technology-enabled, outcome-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, and further scale our end-to-end integrated solutions platform. In 2018, we acquired Strategic Communications Services, a system integrator for multichannel contact center platforms based in the United Kingdom.

We deliver industry specific solutions and have developed tailored expertise in the automotive, communications, financial services, government, healthcare, logistics, media and entertainment, retail, technology, travel and transportation industries. We target customer-focused industry leaders in the Global 1000 and serve approximately ~~300 global clients.~~

~~To improve our competitive position in a rapidly changing market and stay strategically relevant to our~~275 clients we continue to invest in innovation and growth businesses, diversifying our heritage business process outsourcing services of our CMS segment into higher-value consulting, data analytics, digital marketing and technology-enabled services. Of the $359.0 million in revenue we reported in the current period, approximately 23% or $81.7 million came from the CGS, CTS and CSS segments, focused on customer-centric strategy, growth and technology-based services, with the remainder of our revenue coming from the heritage business process outsourcing focused CMS segment.

Our strong balance sheet, cash flows from operations and access to debt and capital markets have historically provided us the financial flexibility to effectively fund our organic growth, capital expenditures, strategic acquisitions and incremental investments. Additionally, we continue to return capital to our shareholders via an ongoing stock repurchase program and regular semi-annual dividends. As of September 30, 2017, our cumulative authorized repurchase allowance was $762.3 million, of which we repurchased 46.1 million shares for $735.8 million. For the period from September 30, 2017 through October 31, 2017, we did not repurchase any additional shares. The stock repurchase program does not have an expiration date.globally.

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On February 24, 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, TeleTech’s performance, cash flows, capital needs and liquidity factors. Given our cash flow generation and balance sheet strength, we believe cash dividends and early returns to shareholders through share repurchases, in balance with our investments in innovation and strategic acquisitions, align shareholder interests with the needs of the Company. The initial dividend of $0.18 per common share was paid on March 16, 2015 to shareholders of record as of March 6, 2015. Thereafter, the Company has been paying a semi-annual dividend in October and April of each year in amount ranging between $0.18 and $0.22 per common share. On September 21, 2017, the Board of Directors authorized a dividend of $0.25 per common share, which was paid on October 17, 2017 to shareholders of record as of October 5, 2017.

Our Integrated Service Offerings and Business Segments

~~We have four~~Our integrated service offering Humanify Customer Experience as a service (CXaas) is delivered through our two operating and reportable segments, ~~which provide an integrated set~~TTEC Digital and TTEC Engage.

TTEC Digitaldesigns, builds and delivers tech-enabled, insight-based and outcome-driven customer experience solutions through our professional services and suite of ~~services including:~~

~~Customer Strategy Services~~

~~We typically begin by engaging our clients at a strategic level. Through our strategy~~technology offerings. These solutions are critical to enabling and operations, analytics, learning and performance, change management and consulting expertise, we help our clients design, build and execute their customer engagement strategies. We help our clients 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, to better optimize their marketing spend and then work alongside them to help implement our recommendations. A key component of this segment involves instilling a high performance culture through management and leadership alignment and process optimization.

~~Customer Technology Services~~

Once the design of the customer engagement is completed, our ability to architect, deploy and host or manage the client’s customer management environment becomes a key enabler to achieving and sustaining the client’s customer engagement vision. Given the proliferation of mobile communication technologies and devices, we enable our clients’ operations to interact with their customers across the growing array of channels including email, social networks, mobile, web, SMS text, voice and chat. We design, implement and manage cloud, on-premise or hybrid customer management environments to deliver a consistent and superior experience across all touch points on a global scale that we believe result in higher quality, lower costs and reduced riskaccelerating digital transformation for our clients. ~~Through our Humanify™ platform, we also provide data-driven context aware software-as-a-service (“SaaS”) based solutions that link customers seamlessly~~

We help our clients design, build and execute their customer experience (CX) vision by leveraging expertise in CX technologies, strategy, operations, analytics, learning and performance. We design, implement and manage cloud, on-premise or hybrid CX environments to deliver a consistent and superior experience across all touch points on a global scale that results in higher quality, lower costs and reduced risk for our clients. Through our Humanify™ Technology platform, we provide omnichannel contact center software-as-a-service (“SaaS”) solutions that enable clients to integrate their existing CX tech stack, orchestrate data and interactions across disparate technologies and contextually link customers directly to appropriate resources, anywhere and using any channel. We leverage proprietary capabilities in AI, machine learning, and robotics to automate low-value tasks and continuously improve the customer journey. Our platform enables clients to interact with their customers across the growing array of channels including voice, chat, email, mobile, web, SMS text, social networks, and video. Our ability to architect, deploy and host or manage the client’s customer experience environments is a differentiator and becomes a key enabler to achieving and sustaining the client’s CX objectives.

TTEC Engageprovides the essential technologies, human resources, infrastructure and ~~directly to appropriate resources, any time and across any channel.~~

~~Customer Management Services~~

~~We design and manage clients’ front-to-back office~~ processes to ~~deliver just-in-time, personalized, multi-channel interactions. Our front-office solutions seamlessly integrate voice, chat, email, e-commerce~~operate customer care, acquisition, 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~~fraud detection and maximize operating efficiencies. 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~~

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 approximately $3 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 our proprietary Revana Analytic Multichannel PlatformTM~~. This platform continuously aggregates individual customer information across all channels into one holistic view so as to ensure more relevant and personalized communications.~~prevention services.

We design and manage clients’ front-to-back office processes to deliver personalized, protected, omnichannel interactions. Our front-office solutions seamlessly integrate voice, chat, email, mobile, web, SMS text, social networks, and video to optimize the customer experience for our clients. In addition, we manage client back-office processes to enhance their customer-centric view of relationships, maximize operating efficiencies and prevent fraud. Our delivery of integrated business processes via our highly trained professional 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.

Based on our clients’ requirements, we can provide our services on an integrated, cross-business segment basis or discretely, on an as needed basis.

Additional information with respect to our segments and geographic footprint is included in Part I. Item 1. Financial Statements, Note 3 to the Consolidated Financial Statements.

Financial Highlights

In the second quarter of 2019, our revenue increased $42.6 million, or 12.2%, to $392.5 million over the same period in 2018 despite a decrease of $1.1 million, or 0.3%, due to foreign currency fluctuations and a decrease of $2.2 million, or 0.6%, due to the initial adoption of ASC 606 for revenue in the first quarter of 2018. The increase in revenue was comprised of a $26.0 million increase for TTEC Digital and a $16.6 million increase for TTEC Engage.

Our second quarter 2019 income from operations increased $9.4 million, or 69.4%, to $22.9 million or 5.8% of revenue, compared to $13.5 million or 3.9% of revenue in the second quarter of 2018. The change in operating income is comprised of a number of factors across the segments. The TTEC Digital operating income expanded with a 14% improvement over the same period last year primarily on the growth of its higher margin cloud business and its system integration business which provides services pre and post the buildout of each client’s cloud platform. The TTEC Engage operating income increased 125% compared to the prior year quarter based on the increase in revenue and a ~~discrete basis.~~$1.2 million benefit related to foreign currency fluctuations which was offset by a $1.5 million decrease related to the initial adoption of ASC 606 during the first quarter of 2018.

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~~Financial Highlights~~

In the third quarter of 2017, our revenue increased 14.8% to $359.0 million over the same period in 2016 including an increase of 0.5% or $1.7 million due to foreign currency fluctuations. This increase in revenue is comprised of an increase from the Atelka and Connextions acquisitions and organic growth in the CMS and CTS segments. Revenue, adjusted for the $1.7 million increase related to foreign exchange, increased by $44.5 million, or 14.2%, over the prior year.

Our third quarter 2017 income from operations increased 26.1% to $15.8 million or 4.4% of revenue, from $12.5 million or 4.0% of revenue in the third quarter of 2016. This increase is primarily due to increases in CMS organic and inorganic volumes, a $3.8 million increase due to foreign currency fluctuations and a deprioritization of certain non-essential businesses and activities, offset by investments to build out, hire and train for the increased fourth quarter 2017 seasonal volumes, which increased third quarter 2017 CMS costs. In addition, incomeIncome from operations in the ~~third~~second quarter of ~~2017~~2019 and ~~2016~~2018 included ~~$6.0~~$2.5 million ~~($5.6 million of which related to the planned integration of the Connextions acquisition)~~ and ~~$9.3~~$1.0 million of restructuring and integration charges and asset impairments, respectively.

Our offshore customer engagement centers serve clients based in the U.S. and in other countries and spans five countries with ~~23,000~~24,200 workstations, representing 56% of our global delivery capability. Revenue for our ~~CMS and CGS segments that is~~TTEC Engage segment provided infrom these offshore locations was ~~$111~~$110 million and represented 35% of our revenue for the second quarter of 2019, as compared to $107 million and 36% of our revenue for the ~~third quarter of 2017, as compared to $111 million and 43% of our revenue for 2016.~~corresponding period in 2018.

~~Our cash flow from operations and available credit allowed us to finance a significant portion of our capital needs through internally generated cash flows.~~ As of ~~September~~June 30, ~~2017, we had $78.8 million of cash~~2019, the total production workstations for our TTEC Engage segment was 43,000 and ~~cash equivalents, total debt of $270.8 million, and a total debt to total capitalization ratio of 40.4%.~~

~~We internally target capacity utilization in our customer engagement centers at 80% to 90% of our available workstations. As of September 30, 2017,~~ the overall capacity utilization in our centers was ~~78%, up from 71%,~~72%. The utilization is slightly lower than the previous year as we expand and shift capacity in ~~the prior period.~~certain countries to accommodate our increased bookings. The table below presents workstation data for all of our centers as of ~~September~~June 30, ~~2017~~2019 and ~~2016.~~2018. Our utilization percentage is defined as the total number of utilized production workstations compared to the total number of available production workstations.


	September 30, 2017				September 30, 2016				June 30, 2019				June 30, 2018
	Total				Total				Total				Total
	Production		% In		Production		% In		Production		% In		Production		% In
	Workstations	In Use	Use		Workstations	In Use	Use		Workstations	In Use	Use		Workstations	In Use	Use

Total centers
Sites open >1 year	39,856	30,916	78	%	34,538	24,284	70	%	40,493	29,144	72	%	40,947	30,875	75	%
Sites open <1 year	969	949	98	%	1,104	967	88	%	2,560	1,704	67	%	2,101	2,020	96	%
Total workstations	40,825	31,865	78	%	35,642	25,251	71	%	43,053	30,848	72	%	43,048	32,895	76	%

~~While we~~We continue to see demand from all geographic regions to utilize our offshore delivery capabilities and expect this trend to ~~continue with our clients,~~continue. On the other hand, some of our clients ~~have~~may be subject to regulatory pressures to bring ~~the~~more services onshore to the United States. In light of these trends we plan to continue to selectively retain and grow capacity in and expand into new offshore markets, while maintaining appropriate capacity in the United States. As we grow our offshore delivery capabilities and our exposure to foreign currency fluctuations increases, we will continue to actively manage this risk via a multi-currency hedging program designed to minimize operating margin volatility.

Recently Issued Accounting Pronouncements

Refer to Part I, Item I, Financial Statements, Note 1 to the Consolidated Financial Statements for a discussion of recently issued accounting pronouncements.

~~Table of Contents~~

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 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. For further information, please refer to the discussion of all critical accounting policies in Note 1 of the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018.

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Results of Operations

During the second quarter of 2019, we finalized changes to our operating strategy and the way in which we assess performance. In accordance with this change, we adjusted certain reporting relationships between our Chief Operating Decision Maker (“CODM”) and other members of management, updated the compensation metrics for senior management, and modified the internal financial reporting provided to the CODM and his direct reports to be consistent with this revised management and measurement structure. Accordingly, during the second quarter of 2019, we reevaluated the definition of the operating segments, reportable segments, and reporting units which resulted in a change to the reportable segments. Effective June 30, 2019, the segment information will be reported consistent with these updated reportable segments comprised of TTEC Digital and TTEC Engage.

Three months ended ~~September~~June 30, ~~2017~~2019 compared to three months ended ~~September~~June 30, ~~2016~~2018

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 three months ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018 (amounts in thousands). All inter-company transactions between the reported segments for the periods presented have been eliminated.

~~Customer Management Services~~

TTEC Digital


	Three Months Ended September 30,										Three Months Ended June 30,
	2017			2016			$ Change		% Change		2019			2018			$ Change		% Change
Revenue	$	277,373		$	223,664		$	53,709	24.0	%	$	78,519		$	52,500		$	26,019	49.6	%
Operating Income		9,133			12,255			(3,122)	(25.5)	%		7,709			6,764			945	14.0	%
Operating Margin		3.3	%		5.5	%						9.8	%		12.9	%

The increase in revenue for the ~~Customer Management Services~~TTEC Digital segment was related to significant increases in the cloud platform and the systems integration practice including a large multi-year governmental contract and increases in the digital learning and insights practices, offset by reductions in legacy facility based training and lower volumes primarily in the Middle East business which the Company is in the process of winding down.

The operating income expansion is primarily attributable to ~~a $55.3 million net increase in organic~~the increased revenue and ~~inorganic client programs including~~improved utilization of technology and people assets as the ~~Atelka~~business scales its cloud and ~~Connextions acquisitions and a $1.4 million increase due to foreign currency fluctuations, offset by program completions of $3.0 million.~~

system integration revenue. The operating income as a percentage of revenue decreased to ~~3.3%~~9.8% in the ~~third~~second quarter of ~~2017~~2019 as compared to ~~5.5%~~12.9% in the prior period. The decline in the operating margin ~~decreased due~~percentage is primarily attributable to ~~$5.6~~the $2.0 million impairment of ~~planned restructuring~~intangible and ~~integration charges~~other long-lived assets for ~~the Connextions acquisition related to severance, center closure costs, the hiring, training and licensing of employees in new delivery centers and the integration~~one of the ~~IT systems, as well as investments~~consulting components in this segment (see Part I. Item 1. Financial Statements, Notes 5 and 9 to ~~buildout, hire, and train for~~ the increased fourth quarter 2017 seasonal volumes, which necessitated increased third quarter 2017 costs. These were partially offset by higher revenue, a $3.7 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.Consolidated Financial Statements). Included in the operating income was amortization expense related to acquired intangibles of ~~$1.2~~$0.6 million and ~~$0.2~~$0.7 million for the quarters ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, respectively.

~~Customer Growth Services~~

TTEC Engage


	Three Months Ended September 30,										Three Months Ended June 30,
	2017			2016			$ Change		% Change		2019			2018			$ Change		% Change
Revenue	$	30,829		$	35,301		$	(4,472)	(12.7)	%	$	313,996		$	297,353		$	16,643	5.6	%
Operating Income		1,564			161			1,403	871.4	%		15,164			6,739			8,425	125.0	%
Operating Margin		5.1	%		0.5	%						4.8	%		2.3	%

The ~~decrease~~increase in revenue for the ~~Customer Growth Services~~TTEC Engage segment was due to a ~~$1.6~~net increase of $32.9 million ~~increase~~ in client programs ~~and~~offset by a decrease for program completions of ~~$6.1 million.~~$13.4 million, a decrease of $2.1 million due to the initial adoption of ASC 606 for revenue in 2018, and an $0.8 million decrease due to foreign currency fluctuations.

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The operating income increased in line with improved revenue, pricing increases related to rising wages, lower healthcare costs and improved profitability in our healthcare and auto client portfolios. Additionally, the operating income was positively affected by $1.1 million of foreign currency fluctuation and negatively impacted by a $1.5 million decrease due to the initial adoption of ASC 606 in 2018. As a result, the operating income as a percentage of revenue increased to ~~5.1%~~4.8% in the ~~third~~second quarter of ~~2017~~2019 as compared to ~~0.5%~~2.3% in the prior period. This increase in margin is related to pricing improvements and other profit optimization actions, along with a reduction in the operating losses for the Digital Marketing unit which we are holding for sale. Included in the operating income was amortization expense related to acquired intangibles of ~~zero~~$2.0 million and ~~$0.5~~$2.0 million for the quarters ended ~~September~~June 30, ~~2017~~2019 and ~~2016, respectively.~~

~~Customer Technology Services~~

Three Months Ended September 30,


2017

2016

$ Change

% Change

Revenue

$
34,563

$
36,580

$
(2,017)

(5.5)
%
Operating Income

4,158

3,776

382

10.1
%
Operating Margin

12.0
%

10.3
%

The decrease in revenue for the Customer Technology Services segment was driven by a decrease in the Avaya offerings as we wound down and then sold the business unit in the second quarter of 2017, offset by revenue increases in the CISCO offerings.

The operating income as a percentage of revenue increased to 12.0% in the third quarter of 2017 as compared to 10.3% in the prior period. This increase is primarily due to a decrease in amortization. Included in the operating income was amortization expense related to acquired intangibles of $0.3 million and $1.2 million for the quarters ended September 30, 2017 and 2016, respectively.

~~Customer Strategy Services~~

Three Months Ended September 30,


2017

2016

$ Change

% Change

Revenue

$
16,271

$
17,251

$
(980)

(5.7)
%
Operating Income

945

(3,666)

4,611

125.8
%
Operating Margin

5.8
%

(21.3)
%

The decrease in revenue for the Customer Strategy Services segment was related to growth in the Content and Collaboration practice 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 increased to 5.8% in the third quarter of 2017 as compared to an operating loss of (21.3)% in the prior period. The increase is primarily related to the $4.5 million charge for the impairment of two trade name intangibles recorded during the third quarter of 2016. Included in the operating income was amortization expense of $0.5 million and $0.8 million for the quarters ended September 30, 2017 and 2016,2018, respectively.

Interest Income (Expense)

For the three months ended ~~September~~June 30, ~~2017~~2019 interest income ~~increased~~decreased to ~~$0.9~~$0.4 million from ~~$0.4~~$1.5 million in the same period in ~~2016.~~2018. Interest expense ~~increased~~decreased to ~~$3.5~~$4.2 million during ~~2017~~2019 from ~~$2.0~~$7.8 million during ~~2016~~2018 due to ~~larger outstanding balances on~~lower utilization of the line of credit ~~primarily due to acquisitions, and~~offset by higher interest ~~rates.~~rates, and a $2.6 million reduction in the charge related to the future purchase of the remaining 30% of the Motif acquisition.

Other Income (Expense)

For the three months ended June 30, 2019 Other income (expense), net increased to net income of $1.9 million from a net expense of $0.3 million during the prior year quarter.

Included in the three months ended ~~September~~June 30, ~~2017~~2019 was a ~~$3.2 million gain related to dissolution of a foreign entity and a release of its cumulative translation adjustment.~~

~~Included in the three months ended September 30, 2016 was a $4.3~~$2.4 million benefit related to a fair value adjustment of contingent consideration for ~~one of our acquisitions (see~~an acquisition.

For further information on the above items, see Part I. Item 1. Financial Statements, ~~Note~~Notes 2 and 7 to the Consolidated Financial ~~Statements).~~

~~Table of Contents~~

Statements.

Income Taxes

The effective tax rate for the three months ended ~~September~~June 30, ~~2017~~2019 was ~~11.7%~~35.0%. This compares to an effective tax rate of ~~(6.9)%~~9.4% for the comparable period of ~~2016.~~2018. The effective tax rate for the three months ended ~~September~~June 30, ~~2017~~2019 was influenced by earnings in international jurisdictions currently under an income tax holiday, ~~and~~ the distribution of income between the U.S. and international tax ~~jurisdictions.~~jurisdictions and the associated U.S. tax impacts of increased foreign earnings. Without ~~a $1.0 million benefit related to excess taxes on equity compensation, $0.2~~$0.3 million of ~~expense~~benefit from restructuring and impairment expenses, $0.1 million of benefit related to return to provision adjustments, ~~$2.4~~a $0.1 million ~~of benefit from restructuring expenses,~~expense related to tax contingencies, a $2.3 million expense related to changes in valuation allowances, and $0.1 million of other expense, the Company’s effective tax rate for the ~~third~~second quarter of ~~2017~~2019 would have been ~~22.1%~~24.7%.

Results of Operations

~~Nine~~Six months ended ~~September~~June 30, ~~2017~~2019 compared to ~~nine~~six months ended ~~September~~June 30, ~~2016~~2018

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 ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018 (in thousands). All intercompany transactions between the reported segments for the periods presented have been eliminated.

~~Customer Management Services~~

TTEC Digital


	Nine Months Ended September 30,										Six Months Ended June 30,
	2017			2016			$ Change		% Change		2019			2018			$ Change		% Change
Revenue	$	798,508		$	664,392		$	134,116	20.2	%	$	144,372		$	102,568		$	41,804	40.8	%
Operating Income		43,804			36,189			7,615	21.0	%		15,468			12,110			3,358	27.7	%
Operating Margin		5.5	%		5.4	%						10.7	%		11.8	%

The increase in revenue for the ~~Customer Management Services~~TTEC Digital segment was related to significant increases in the cloud platform and the systems integration practice including a large multi-year governmental contract and increases in the digital learning and insights practices, offset by reductions in legacy facility based training and lower volumes primarily in the Middle East business, which the Company is in the process of winding down.

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The operating income expansion is primarily attributable to ~~a $145.9 million net~~the revenue growth, improved utilization of technology and people assets as the business scales its cloud and system integration revenue. The operating income increase ~~in organic and inorganic client programs including Atelka and Connextions~~was offset by ~~program completions~~a $2.0 million impairment of ~~$12.1 million. Revenue was further impacted by a $0.3 million increase due to foreign currency fluctuations.~~

intangible and other long-lived assets for one of the consulting components in this segment. The operating income as a percentage of revenue ~~increased~~decreased to ~~5.5%~~10.7% for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 as compared to ~~5.4%~~11.8% in the prior period. The operating margin increased due to higher revenue, a $10.6 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. These increases were partially offset by $9.0 million of 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, as well as investments to buildout, hire and train for the increased fourth quarter 2017 seasonal volumes. Included in the operating income was amortization expense related to acquired intangibles of ~~$3.0~~$1.3 million and ~~$0.6~~$1.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, respectively.

~~Customer Growth Services~~

TTEC Engage


	Nine Months Ended September 30,										Six Months Ended June 30,
	2017			2016			$ Change		% Change		2019			2018			$ Change		% Change
Revenue	$	96,890		$	105,713		$	(8,823)	(8.3)	%	$	642,499		$	622,534		$	19,965	3.2	%
Operating Income		6,295			4,138			2,157	52.1	%		39,497			26,334			13,163	50.0	%
Operating Margin		6.5	%		3.9	%						6.1	%		4.2	%

The ~~decrease~~increase in revenue for the ~~Customer Growth Services~~TTEC Engage segment was due to a ~~$10.2~~net increase of $76.5 million ~~increase~~ in client programs ~~and~~offset by a decrease for program completions of ~~$19.0 million.~~

~~Table~~$35.6 million, a $16.0 million reduction due to the initial adoption of ~~Contents~~

ASC 606 related to revenue in 2018, and a $4.9 million decrease due to foreign currency fluctuations.

The operating income increased in line with the improved revenue, pricing increases related to rising wages, lower healthcare costs, improved profitability in our healthcare and auto client portfolios, and a $6.4 million volume commitment payment. Additionally, the operating income was positively affected by $2.2 million of foreign currency fluctuations and negatively impacted by an $8.8 million decrease due to the initial adoption of ASC 606 in 2018. As a result, the operating income as a percentage of revenue increased to ~~6.5%~~6.1% for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 as compared to ~~3.9%~~4.2% in the prior period. This was attributable to pricing improvements and other profit optimization actions, along with reductions in amortization expenses and a reduction in the operating loss for the Digital Marketing unit which we are holding for sale. Included in the operating income was amortization expense related to acquired intangibles of ~~zero~~$4.0 million and ~~$1.8~~$4.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016, respectively.~~

~~Customer Technology Services~~

Nine Months Ended September 30,


2017

2016

$ Change

% Change

Revenue

$
105,054

$
109,198

$
(4,144)

(3.8)
%
Operating Income

11,034

9,932

1,102

11.1
%
Operating Margin

10.5
%

9.1
%

The decrease in revenue for the Customer Technology Services segment was driven by an increase for 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 10.5% for the nine months ended September 30, 2017 as compared to 9.1% in the prior period. The increase is due to increased profitability in the CISCO offerings and a reduction in amortization. Included in the operating income was amortization expense related to acquired intangibles of $0.8 million and $3.4 million for the nine months ended September 30, 2017 and 2016, respectively.

~~Customer Strategy Services~~

Nine Months Ended September 30,


2017

2016

$ Change

% Change

Revenue

$
50,290

$
51,008

$
(718)

(1.4)
%
Operating Income (Loss)

2,746

(3,752)

6,498

173.2
%
Operating Margin

5.5
%

(7.4)
%

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 5.5% for the nine months ended September 30, 2017 as compared to a loss of (7.4)% in the prior period. The operating income increased primarily due to the $4.5 million charge for the impairment of two trade name intangibles recorded during the third quarter of 2016, as well as expense rationalization, decreased amortization and reduced losses for the PRG Middle East unit which we are holding for sale. Included in the operating income was amortization expense of $1.5 million and $2.3 million for the nine months ended September 30, 2017 and 2016,2018, respectively.

Interest Income (Expense)

For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 interest income ~~increased~~decreased to ~~$2.0~~$0.8 million from ~~$0.8~~$2.5 million in the same period in ~~2016.~~2018 due to lower average cash balances. Interest expense ~~increased~~decreased to ~~$8.7~~$9.5 million during ~~2017~~2019 from ~~$5.8~~$14.2 million during ~~2016~~2018 due to ~~larger outstanding balances on~~lower utilization of the line of credit ~~primarily due~~offset by higher interest rates, and a $3.2 million reduction in the charge related to the ~~acquisitions, and higher average interest rates.~~future purchase of the remaining 30% of the Motif acquisition.

Other Income (Expense)

For the six months ended June 30, 2019 Other income (expense), ~~Net~~net increased to net income of $2.7 million from a net expense of $11.8 million during the prior year quarter.

Included in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 was a ~~$3.2~~$2.4 million benefit related to the fair value adjustment of contingent consideration for an acquisition.

Included in the six months ended June 30, 2018 was a $15.6 million impairment of the full value of an equity investment and the related bridge loan, an $1.1 million gain related to ~~dissolution~~the quarterly royalty payment for the June 30, 2017 divestiture of ~~a foreign entity~~TSG, and a ~~release of its cumulative translation adjustment.~~

~~Included in the nine months ended September 30, 2017 was $3.2~~$0.7 million ~~of estimated losses~~gain related to ~~a business unit which has been classified as assets held~~the bargain purchase for ~~sale (see~~the Percepta acquisition closed on March 31, 2018.

For further information on the above items, see Part I. Item 1. Financial Statements, Note 2 to the Consolidated Financial ~~Statements).~~Statements.

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Included in the nine months ended September 30, 2016 was a $4.3 million benefit related to a fair value adjustment of contingent consideration for one of our acquisitions (see Part I. Item 1. Financial Statements, Note 7 to the Consolidated Financial Statements for further details).

Income Taxes

The effective tax rate for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 was ~~15.0%~~30.3%. This ~~compares~~compared to an effective tax rate of ~~15.2%~~18.4% for the comparable period of ~~2016.~~2018. The effective tax rate for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 was influenced by earnings in international jurisdictions currently under an income tax holiday, ~~and~~ the distribution of income between the U.S. and international tax ~~jurisdictions.~~jurisdictions and associated U.S. tax impacts of increased foreign earnings. Without $1.0 million of benefit from restructuring expenses, a ~~$2.0~~$0.3 million ~~benefit~~expense related to ~~excess taxes on equity compensation,~~tax contingencies, and a $2.3 million expense related to changes in valuation allowances, and $0.2 million ~~benefit related to return to provision, $3.9 million benefit related to restructuring expenses and $1.3 million benefit related to businesses held for sale,~~other expense, the Company’s effective tax rate for the ~~nine~~six months ~~ended September 30, 2017~~of 2019 would have been ~~22.3%~~24.7%.

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. During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, we generated positive operating cash flows of ~~$149.6~~$121.3 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 concentrating and safeguarding our global cash and cash equivalents. While the majority of our cash is held outside the U.S., we prefer to hold U.S. Dollars in addition to the local currencies of our foreign subsidiaries. We expect to use our offshore cash to support working capital and growth of our foreign operations. While there are no assurances, we believe our global cash is protected given our cash management practices, banking partners and utilization of diversified, 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 3. Quantitative and Qualitative Disclosures About Market Risk, Foreign Currency Risk, for further discussion.

The following discussion highlights our cash flow activities during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016.~~2018.

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 ~~$78.8~~$75.5 million and ~~$55.3~~$78.2 million as of ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016,~~2018, 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 ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, net cash flows provided by operating activities was ~~$149.6~~$121.3 million and ~~$110.8~~$104.7 million, respectively. The increase ~~was~~is primarily due to a ~~$41.9~~$16.8 million ~~decrease~~improvement in ~~payments made for operating expenses, an $18.8 million increase in collections for deferred revenue, offset by a $10.3 million decrease in cash collected from accounts receivable.~~working capital due to higher current liability balances.

Cash Flows from Investing Activities

For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016, we reported~~2018, net cash flows used in investing activities ~~of $126.3~~was $28.1 million and ~~$39.2~~$21.0 million, respectively. The increase was due to a ~~$5.1~~$11.5 million increase in capital expenditures ~~and an additional $81.7~~offset by a $4.1 million decrease related to ~~funding for an acquisition.~~acquisitions.

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Table of Contents

Cash Flows from Financing Activities

For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016, we reported~~2018, net cash flows used in financing activities ~~of $1.4~~was $84.7 million and ~~$61.0~~$74.5 million, respectively. The change in net cash flows from ~~2016~~2018 to ~~2017~~2019 was primarily due to a ~~$8.7~~$5.1 million increase in the Credit Facility, a $39.0 million decrease in purchases of our outstanding common stock, a $12.9 million decrease in contingent consideration and purchase of non-controlling interest payments and a decrease of $1.9 millionpayment related to the ~~2016 payment~~hold-back for an acquisition, and a $4.2 million of ~~debt issuance costs.~~increased payments on other debt.

Free Cash Flow

Free cash flow (see “Presentation of Non-GAAP Measurements” below for the definition of free cash flow) increased for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2018 primarily due to an increase in cash flow from working ~~capital.~~capital offset by higher capital expenditures. Free cash flow was ~~$105.7~~$92.8 million and ~~$72.0~~$87.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, respectively.

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):


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016		2019		2018		2019		2018
Net cash provided by operating activities	$	24,188	$	55,793	$	149,643	$	110,838	$	41,303	$	37,319	$	121,266	$	104,706
Less: Purchases of property, plant and equipment		14,343		11,120		43,932		38,863		15,228		9,375		28,428		16,883
Free cash flow	$	9,845	$	44,673	$	105,711	$	71,975	$	26,075	$	27,944	$	92,838	$	87,823

Obligations and Future Capital Requirements

~~Future maturities~~Other than changes related to the adoption of lease accounting standard ASC 842 as described in Note 1 and Note 11 to the Consolidated Financial Statements, there were no material changes to the Company’s contractual obligations and future capital requirements outside the normal course of business from the date of our ~~outstanding debt and contractual obligations as~~2018 Form 10-K filing on March 6, 2019 through the filing of ~~September 30, 2017 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)

$
6,702

13,405

257,793

—

$
277,900

Equipment financing arrangements

3,216

4,675

1,378

—

9,269

Contingent consideration

1,178

—

—

—

1,178

Purchase obligations

10,761

8,589

1,007

—

20,357

Operating lease commitments

44,438

59,522

36,894

25,661

166,515

Other debt

2,763

3,388

387

—

6,538

Total

$
69,058

$
89,579

$
297,459

$
25,661

$
481,757

⁽¹⁾

~~Includes estimated interest payments based on the weighted-average interest rate, unused commitment fees, current interest rate swap arrangements, and outstanding debt as of September 30, 2017.~~

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~~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 $4.0 million related to uncertain tax positions because we cannot reliably estimate the timing of cash payments.~~

Our outstanding debt is primarily associated with the use of funds under our Credit Agreement to fund working capital, repurchase our common stock, pay dividends, and for other cash flow needs across our global operations.this report.

Future Capital Requirements

We currently expect total capital expenditures in ~~2017~~2019 to be ~~approximately 4.4% of revenue.~~between $60 million and $65 million. Approximately ~~70%~~65% of these expected capital expenditures are to support growth in our business and ~~30%~~35% relate to the maintenance for existing assets. The anticipated level of ~~2017~~2019 capital expenditures is primarily driven by new client contracts and the corresponding requirements for additional delivery center capacity as well as enhancements to our technological infrastructure.

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 upon commercially reasonable terms acceptable to us.

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Client Concentration

During the ~~nine~~six months ended ~~September~~June 30, ~~2017, one~~2019, none of our clients represented ~~9.5%~~more than 10% of our total revenue. Our five largest clients, collectively, accounted for ~~35.2%~~37.4% and ~~36.4%~~34.7% of our consolidated revenue for the three months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, respectively. Our five largest clients ~~collectively,~~ accounted for ~~34.3%~~36.7% and ~~35.8%~~35.6% of our consolidated revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, respectively. We have ~~experienced~~had long-term relationships with our top five clients, ranging from 10one to 2122 years, with ~~the majority~~most 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.~~terms, our scope of service and where the services are delivered. 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.~~clients and the fact that most of these relationships are based on multiple smaller contracts with different termination dates. 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 when they terminate relationships with limited notice.

The contracts with our five largest clients expire between ~~2018~~2020 and ~~2020.~~2023. Additionally, a particular client may have multiple contracts with different expiration dates. We have historically renewed most of our contracts with our largest ~~clients. However,~~clients, but there iscan be no assurance that future contracts will be renewed or, if renewed, will be on terms as favorable as the existing contracts.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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 risk 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~~

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~~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 issues related to derivative counterparty defaults.

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 ~~the Federal Funds rate, or~~and LIBOR and, therefore, is affected by changes in market interest rates. As of ~~September~~June 30, ~~2017,~~2019, we had ~~$255.0~~$228.0 million of outstanding borrowings under the Credit Agreement. Based upon average outstanding borrowings during the three ~~and nine~~ months ended ~~September~~June 30, ~~2017,~~2019, interest accrued at a rate of approximately ~~2.3% and 2.1%~~3.6% per annum, respectively. If the Prime Rate or LIBOR increased by 100 basis points, ~~during the quarter,~~ there would be aan annualized $1.0 million of additional interest expense per $100.0 million of outstanding borrowing under the Credit Agreement.

The Company’s interest rate swap arrangement has 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:

~~Contract~~

~~Notional~~

~~Variable Rate~~

~~Fixed Rate~~

~~Commencement~~

~~Maturity~~

~~December 31, 2016~~

~~Amount~~

~~Received~~

~~Paid~~

~~Date~~

~~Swap~~

~~15 million~~

~~1 - month LIBOR~~

~~3.14~~

~~May 2012~~

~~May 2017~~

Foreign Currency Risk

Our subsidiaries in ~~Bulgaria, Costa Rica, Mexico, Poland, and~~ the Philippines, Mexico, India, 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 ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, revenue associated with this foreign exchange risk was ~~27%~~22% and ~~33%~~24% of our consolidated revenue, respectively.

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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 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.

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Our cash flow hedging instruments as of ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016~~2018 are summarized as follows (in thousands). All hedging instruments are forward contracts, except as noted.

Local

Currency

U.S. Dollar

% Maturing

Contracts

Currency

U.S. Dollar

% Maturing

Contracts

Notional

in the next

Maturing

Notional

in the next

Maturing

As of September 30, 2017

Amount

12 months

Through

As of June 30, 2019

Amount

12 months

Through

Philippine Peso

10,490,000

218,413

(1)

53.2

August 2021

6,237,000

120,528

(1)

62.2

April 2022

Mexican Peso

1,774,000

104,652

37.2

May 2021

1,119,500

55,183

52.7

August 2022

323,065

175,711


	Local				Local
	Currency	U.S. Dollar			Currency	U.S. Dollar
	Notional	Notional			Notional	Notional
As of December 31, 2016	Amount	Amount
As of December 31, 2018					Amount	Amount
Philippine Peso	14,315,000		301,134	(1)	6,710,000		130,957	(1)
Mexican Peso	2,089,000		129,375		1,091,500		57,708
		$	430,509			$	188,665

⁽¹⁾

The fair value of our cash flow hedges at ~~September~~June 30, ~~2017~~2019 was assets/(liabilities) (in thousands):


			Maturing in the				Maturing in the
	September 30, 2017		Next 12 Months		June 30, 2019		Next 12 Months
Philippine Peso		(15,688)		(9,399)	$	(588)	$	(914)
Mexican Peso		(13,785)		(7,617)		(467)		(1,233)
	$	(29,473)	$	(17,016)	$	(1,055)	$	(2,147)

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 increase in fair value from

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December 31, ~~2016 largely~~2018 reflects fewer outstanding cash flow hedges, partially offset by a ~~broad weakening in~~strong U.S. dollar against the ~~U.S. dollar.~~Mexican Peso and Philippine Peso.

We recorded net losses of approximately ~~$17.7~~$3.5 million and ~~$18.9~~$10.2 million for settled cash flow hedge contracts and the related premiums for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, respectively. These 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 I, Item 1. Financial Statements, Note 6 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 ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, approximately ~~25%~~21% and ~~22%~~25%, respectively, of revenue was derived from contracts denominated in currencies other than the U.S. Dollar. Our results from operations and revenue could be adversely affected if the U.S. Dollar strengthens significantly against foreign currencies.

Fair Value of Debt and Equity Securities

We did not have any investments in marketable debt or equity securities as of ~~September~~June 30, ~~2017~~2019 or December 31, ~~2016.~~2018.

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ITEM 4. CONTROLS AND PROCEDURES

This report 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 (the “Exchange Act”). See Exhibits 31.1 and 31.2. This Item 4 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, as amended)~~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 ~~disclosures.~~disclosure.

~~Management of~~We carried out an evaluation under the ~~Company,~~supervision and with the participation of ~~its~~management, including the CEO and CFO, ~~evaluated~~of the effectiveness of ~~the Company’s~~our disclosure controls and procedures, as of ~~September~~June 30, ~~2017. Based on that evaluation, as of~~2019, the end of the period covered by this Form ~~10-Q, the Company’s~~10-Q. 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 ~~not~~ effective ~~to provide~~at the reasonable assurance ~~because~~level.

Table of ~~the material weaknesses in our internal control over financial reporting.~~Contents

At the year ended December 31, 2016, material weaknesses existed in the Company’s internal control over financial reporting. Certain material weaknesses that existed at the year ended December 31, 2016 continued to exist as of September 30, 2017. These material weaknesses are fully described in our Annual Report on Form 10-K for the year ended December 31, 2016.

While these material weaknesses did not result in errors that were material to our annual or interim financial statements, they could result in misstatements of our consolidated financial statements and disclosures which would result in material misstatement of our consolidated financial statements and disclosures which would not be prevented or detected.

Notwithstanding such material weaknesses in internal control over financial reporting, our CEO and CFO have concluded that our consolidated financial statements included in this Form 10-Q present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States.

Inherent Limitations of Internal Controls

Our management, including the CEO and CFO, believes that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of internal control 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 errors or mistakes. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by unauthorized override of controls. Over time, controls 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.

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~~Remediation of Prior Material Weakness~~

~~The following captures the progress made by management related to the revenue material weakness that has 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, management has concluded that the controls are adequately designed and have operated effectively for a sufficient period of time during 2017. Accordingly, the revenue material weakness is remediated.

~~Remediation Efforts and Status of Remaining Material Weaknesses~~

~~Impairments~~: During 2016, management has taken 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, TeleTech has engaged a third-party valuation expert to assist management with the underlying valuation models supporting the goodwill and intangible impairment assessments. Management has completed the design and implementation of the control framework and has tested the impairment controls in the quarter ending December 31, 2016. Management will continue to test the controls for impairment in 2017 to ensure they have operated for a sufficient period of time before concluding on remediation.

~~Control Environment:~~ During 2016 TeleTech 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; create a culture of accountability and control. These programs have significantly improved the stability of our global accounting organization. In order to consider this material weakness to be fully remediated, we believe additional time is needed to demonstrate sustainability as it relates to our internal control over financial reporting and improvements made to our complement of resources.

Changes in Internal Control over Financial Reporting

There ~~have been~~were no changes in our internal control over financial reporting ~~during the quarter ended September 30, 2017~~ that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Part I, Item 1. Financial Statements, Note 10 to the Consolidated Financial Statements of this Form 10-Q is hereby incorporated by reference.

ITEM 1A. RISK FACTORS

There were no material changes to the risk factors described in Item 1A. Risk Factors described in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

Following is the detail of the issuer purchases made during the quarter ended ~~September~~June 30, ~~2017:~~2019:

Total Number of

Approximate Dollar

Shares

Value of Shares that

Purchased as

May Yet Be

Part of Publicly

Purchased Under

Total Number

Announced

the Plans or

of Shares

Average Price

Plans or

Programs (In

Period

Purchased

Paid per Share

Programs

thousands)(1)

June 30, 2017

$
26,580

July 1, 2017 - July 31, 2017

—

$
—

—

$
26,580

August 1, 2017 - August 31, 2017

—

$
—

—

$
26,580

September 1, 2017 - September 30, 2017

—

$
—

—

$
26,580

Total

—

—


				Total Number of	Approximate Dollar
				Shares	Value of Shares that
				Purchased as	May Yet Be
				Part of Publicly	Purchased Under
	Total Number			Announced	the Plans or
	of Shares	Average Price		Plans or	Programs (In
Period	Purchased	Paid per Share		Programs	thousands)(1)
March 31, 2019					$	26,580
April 1, 2019 - April 30, 2019	—	$	—	—	$	26,580
May 1, 2019 - May 31, 2019	—	$	—	—	$	26,580
June 1, 2019 - June 30, 2019	—	$	—	—	$	26,580
Total	—			—

⁽¹⁾

In November 2001, our Board of Directors (“Board”) authorized a stock repurchase program with the objective of increasing stockholder returns. The Board periodically authorizes additional increases to the program. The most recent Board authorization to purchase additional common stock occurred in February 2017, whereby the Board increased the program allowance by $25.0 million. Since inception of the program through ~~September~~June 30, ~~2017,~~2019, the Board has authorized the repurchase of shares up to a total value of $762.3 million, of which we have purchased 46.1 million shares on the open market for $735.8 million. As of ~~September~~June 30, ~~2017~~2019 the remaining amount authorized for repurchases under the program was approximately $26.6 million. The stock repurchase program does not have an expiration date.

ITEM 5. OTHER INFORMATION

None

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ITEM 6. EXHIBITS


Exhibit		Incorporated Herein by Reference
No.	Exhibit Description	Form	Exhibit	Filing Date

10.8510.25	~~Employment~~Form of TTEC Holdings, Inc. Performance Restricted Stock Unit Agreement ~~between Anthony Y. Tsai and TeleTech Services Corporation~~(Executive Committee Members) effective ~~as of September~~July 5, ~~2017.~~2019

~~10.92~~	Third Amendment to Amended and Restated Credit Agreement and Incremental Increase Agreement for a senior secured revolving credit facility with a syndicate of lenders, led by Wells Fargo Bank, National Association, as agent, swing line and fronting lender, effective as of October 31, 2017 (incorporated by reference as Exhibit 10.92 to TeleTech’s Current Report on Form 8-K filed on November 1, 2017).

10.97*	Stock Purchase Agreement of November 8, 2017 by and among TeleTech Services Corporation, Motif, Inc. (“Motif”), Kaushal Mehta and Parul Mehta (referred to collectively as the “Founders”), the shareholders of Motif (other than Founders, referred to as “Sellers”), and Outforce LLC (the Sellers’ Agent).

10.98*	Share Purchase Agreement of November 8, 2017 by and among TeleTech Services Corporation, the Founders, The Anishi Mehta Irrevocable Trust, The Ishan Mehta Irrevocable Trust, Anishi Mehta, and Ishan Mehta.

31.1*	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)

31.2*	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)

32.1*	Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)

32.2*	Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)

101.INS**	XBRL Instance Document

101.SCH**	XBRL Taxonomy Extension Schema Document

101.CAL**	XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB**	XBRL Taxonomy Extension Label Linkbase Document

101.PRE**	XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF**	~~XBRL Taxonomy Extension Definition Linkbase Document~~

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101.DEF**		XBRL Taxonomy Extension Definition Linkbase Document



	*	Filed or furnished herewith.

**		Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) Notes to the Consolidated Financial Statements, (ii) Consolidated Balance Sheets as of ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016~~2018 (unaudited), (iii) Consolidated Statements of Comprehensive Income (Loss) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018 (unaudited), (iv) Consolidated Statements of Stockholders’ Equity as of and for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017~~2019 and 2018 (unaudited), and (v) Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018 (unaudited).

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SIGNATURES

Pursuant to the requirements 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.


		~~TELETECH~~TTEC HOLDINGS, INC.
		(Registrant)

Date: ~~November 8, 2017~~August 7, 2019	By:	/s/ Kenneth D. Tuchman
		Kenneth D. Tuchman
		Chairman and Chief Executive Officer

Date: ~~November 8, 2017~~August 7, 2019	By:	/s/ Regina M. Paolillo
		Regina M. Paolillo
		Chief Financial Officer

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	Preliminary
	Estimate of
	Acquisition Date
	Fair Value
Cash	$	—
Accounts receivable, net		15,959
Prepaid expenses		241
Other current assets		51
Property, plant and equipment		7,594
Customer relationships		35,000
Goodwill		35,272
	$	94,117

Accounts payable	$	1
Accrued employee compensation and benefits		346
Accrued expenses		386
Deferred tax liabilities		15,273
Deferred revenue		399
	$	16,405

Total purchase price	$	77,712


	As of
	September 30, 2017
Cash	$	—
Accounts receivable, net		8,240
Allowance for doubtful accounts		(51)
Other assets		589
Property, plant and equipment		1,229
Customer relationships		3,946
Goodwill		3,033
Other intangible assets		771
Allowance for reduction of assets held for sale		(8,478)
Total assets	$	9,279

Accounts payable	$	1,046
Accrued employee compensation and benefits		817
Accrued expenses		316
Other		312
Total liabilities	$	2,491


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016
Capital Expenditures
Customer Management Services	$	12,732	$	8,515	$	36,701	$	29,751
Customer Growth Services		346		375		708		3,546
Customer Technology Services		1,180		1,864		6,025		4,877
Customer Strategy Services		85		366		498		689
Total	$	14,343	$	11,120	$	43,932	$	38,863


	September 30, 2017		December 31, 2016
Total Assets
Customer Management Services	$	713,377	$	585,679
Customer Growth Services		60,086		71,540
Customer Technology Services		106,372		115,537
Customer Strategy Services		69,683		73,548
Total	$	949,518	$	846,304

	September 30, 2017		December 31, 2016
Goodwill
Customer Management Services	$	79,391	$	42,589
Customer Growth Services		24,439		24,439
Customer Technology Services		40,839		41,500
Customer Strategy Services		21,915		21,120
Total	$	166,584	$	129,648


	Less than		1 to 3		3 to 5		Over 5
	1 Year		Years		Years		Years		Total

Credit Facility(1)	$	6,702		13,405		257,793		—	$	277,900
Equipment financing arrangements		3,216		4,675		1,378		—		9,269
Contingent consideration		1,178		—		—		—		1,178
Purchase obligations		10,761		8,589		1,007		—		20,357
Operating lease commitments		44,438		59,522		36,894		25,661		166,515
Other debt		2,763		3,388		387		—		6,538
Total	$	69,058	$	89,579	$	297,459	$	25,661	$	481,757