TTEC (TTEC) - 2019 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents TTEC Holdings, Inc.'s unaudited consolidated financial statements, including Balance Sheets, Income, Equity, and Cash Flows, with detailed notes Item 1. Financial Statements This section presents TTEC Holdings, Inc.'s unaudited consolidated financial statements, including Balance Sheets, Income, Equity, and Cash Flows, with detailed notes Consolidated Balance Sheets The company's total assets increased to $1.18 billion as of September 30, 2019, from $1.05 billion at year-end 2018, primarily driven by the adoption of the new lease accounting standard | Balance Sheet Items | September 30, 2019 ($ thousands) | December 31, 2018 ($ thousands) | | :--- | :--- | :--- | | Total current assets | 515,610 | 526,477 | | Total long-term assets | 666,256 | 528,031 | | Total assets | 1,181,866 | 1,054,508 | | Total current liabilities | 358,306 | 235,418 | | Total long-term liabilities | 436,417 | 466,241 | | Total liabilities | 794,723 | 701,659 | | Total stockholders' equity | 387,143 | 352,849 | - The company adopted the new lease accounting standard (ASC 842) as of January 1, 2019, resulting in the recognition of $146.1 million in operating lease assets and $167.5 million in operating lease liabilities on the balance sheet[10][38][136] Consolidated Statements of Comprehensive Income (Loss) For Q3 2019, TTEC reported significant profitability growth, with revenue up 8.4% to $395.5 million and net income more than tripling to $18.1 million | Metric | Q3 2019 ($ thousands) | Q3 2018 ($ thousands) | YTD 2019 ($ thousands) | YTD 2018 ($ thousands) | | :--- | :--- | :--- | :--- | :--- | | Revenue | 395,507 | 364,936 | 1,182,378 | 1,090,038 | | Income from operations | 25,981 | 14,657 | 80,946 | 53,101 | | Net income attributable to TTEC stockholders | 18,101 | 5,375 | 48,901 | 15,484 | | Diluted EPS | $0.39 | $0.12 | $1.05 | $0.33 | Consolidated Statements of Cash Flows For the nine months ended September 30, 2019, the company generated $184.4 million in cash from operating activities, an increase from $166.1 million in the prior year | Cash Flow Activity | Nine Months Ended Sep 30, 2019 ($ thousands) | Nine Months Ended Sep 30, 2018 ($ thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | 184,397 | 166,109 | | Net cash used in investing activities | (44,083) | (35,966) | | Net cash used in financing activities | (119,603) | (95,782) | | Increase in cash, cash equivalents and restricted cash | 17,560 | 19,442 | Notes to Consolidated Financial Statements The notes detail the company's accounting policies and financial results, highlighting the Q2 2019 strategic shift to two new reporting segments: TTEC Digital and TTEC Engage - Effective Q2 2019, the company realigned its reporting structure from four segments (CSS, CTS, CGS, CMS) into two new segments: TTEC Digital and TTEC Engage[23][24][28] - On October 26, 2019, subsequent to the quarter end, the company acquired a 70% interest in First Call Resolution, LLC (FCR) for $104.2 million in cash[58][59] Segment Performance (Q3 2019) | Segment Performance (Q3 2019) | Revenue ($ thousands) | Operating Income ($ thousands) | | :--- | :--- | :--- | | TTEC Digital | 78,620 | 11,704 | | TTEC Engage | 316,887 | 14,277 | | Total | 395,507 | 25,981 | - The company utilizes foreign exchange forward and option contracts to hedge against currency fluctuations, primarily for the Philippine Peso and Mexican Peso, with a total notional amount of $175.4 million as of September 30, 2019[84][85] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting the strategic shift to two new segments, TTEC Digital and TTEC Engage, and strong Q3 2019 growth - In Q2 2019, the company changed its strategy and market approach, leading to a new two-segment reporting structure: TTEC Digital and TTEC Engage[165][171] Financial Highlights | Financial Highlights | Q3 2019 ($ millions) | Q3 2018 ($ millions) | % Change | | :--- | :--- | :--- | :--- | | Revenue | $395.5M | $364.9M | 8.4% | | Income from Operations | $26.0M | $14.7M | 77.3% | | Operating Margin | 6.6% | 4.0% | N/A | - TTEC Digital's Q3 revenue grew 17.9% YoY, driven by its cloud platform and systems integration practice, with operating margin expanding from 12.7% to 14.9%[185][186] - TTEC Engage's Q3 revenue grew 6.2% YoY due to new client programs, with operating income increasing 130.7% and margin expanding from 2.1% to 4.5%[187][188] - The company expects total capital expenditures for 2019 to be between $60 million and $65 million, with approximately 65% allocated to support business growth[218] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company is primarily exposed to market risks from changes in interest rates on variable-rate debt and foreign currency exchange rates, mitigated by hedging programs - The company's primary market risks are interest rate fluctuations on its variable-rate debt and foreign currency exchange rate volatility[223] - As of September 30, 2019, the company had $199.0 million of outstanding variable-rate borrowings, where a 100 basis point interest rate increase would result in an additional $1.0 million of annualized interest expense per $100 million borrowed[224] - To mitigate foreign currency risk, particularly for the Philippine peso and Mexican peso, the company uses a cash flow hedging program with a notional value of $175.4 million as of September 30, 2019[227][230] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2019, with no material changes in internal control over financial reporting - Based on an evaluation as of September 30, 2019, the CEO and CFO concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level[239] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[241] PART II. OTHER INFORMATION This section covers other information, including legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings The company is involved in various legal actions in the ordinary course of business, with management expecting no material adverse effect on its financial position - The company accrues for legal exposures that are probable and reasonably estimable, and management does not expect current proceedings to have a material adverse effect on its financial statements[128][129] Item 1A. Risk Factors This section outlines key risks including intense market competition, challenges in adapting to technological changes, cybersecurity threats, client concentration, and operational risks from geographic concentration - Competition: The market is highly competitive, with pressure from large multinationals, offshore providers, and niche players, where consolidation could create stronger competitors[246][247] - Technology Adaptation: Failure to adapt to new technologies like automation, AI, and chatbots could reduce business volumes and make service offerings obsolete[249][250] - Cybersecurity: The business faces risks from cyber-attacks, fraud, and data breaches, which could harm its reputation, cause liability, and result in service outages[251][252] - Client Concentration: A large portion of revenue comes from a limited number of clients, with the top five clients accounting for 37% of revenue in the first nine months of 2019, making the loss of a major client materially adverse[256][257] - Geographic Concentration: The business model is dependent on customer engagement centers in a few key locations, with significant concentration in the Philippines, exposing the company to natural disasters, political instability, and other operational risks[261][262] - Controlling Shareholder: The Chairman and CEO, Kenneth D. Tuchman, beneficially owns approximately 68% of the company's common stock, giving him significant control over all matters requiring stockholder action[307] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2019, the company did not repurchase any equity securities, with approximately $26.6 million remaining authorized for future repurchases - No shares were repurchased by the company during the three months ended September 30, 2019[311] - As of September 30, 2019, the remaining authorized amount for stock repurchases under the company's program was approximately $26.6 million[311] Item 5. Other Information There is no other information to report for this item Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL data files