TTEC (TTEC) - 2019 Q4 - Annual Report

Part I Item 1. Business TTEC Holdings, Inc. is a global customer experience technology and services company, restructured into TTEC Digital and TTEC Engage in 2019, reporting $1.644 billion in total revenue FY 2019 Revenue by Business Segment | Segment | Revenue (USD) | Percentage of Total | | :--- | :--- | :--- | | TTEC Digital | $305 million | 19% | | TTEC Engage | $1.338 billion | 81% | | Total | $1.644 billion | 100% | - The company restructured its reporting segments in the second quarter of 2019 from four segments (CSS, CTS, CGS, CMS) to two new segments: TTEC Digital and TTEC Engage[21] - TTEC's core strategy includes deepening relationships with existing clients, pursuing new industry-leading clients, executing strategic acquisitions, and investing in technology platforms and partnerships[36] - The company operates globally in 22 countries with 49,500 employees as of fiscal year-end 2019, serving over 300 clients in industries such as automotive, communications, financial services, and healthcare[23][27] - The company's top five and ten clients represented 37% and 50% of total revenue in 2019, respectively. Relationships with its top five clients have ranged from 13 to 23 years[46][47] Item 1A. Risk Factors The company faces significant risks including intense competition, rapid technological change, cybersecurity threats, client concentration (top ten clients 50% of 2019 revenue), labor challenges, international operational risks, and the controlling influence of its CEO who owns 61% of common stock - The company faces significant competition from large multinational providers, offshore service providers, and niche solution providers. The trend of industry consolidation may create new, larger competitors[59][60] - A large portion of revenue comes from a limited number of clients. In 2019, the top five and ten clients accounted for 37% and 50% of revenue, respectively. The loss of a major client could materially impact financial results[69] - The business is exposed to significant cybersecurity risks, including data breaches, cyber-fraud (such as phishing scams), and DDoS attacks, which could disrupt operations and harm the company's reputation[64][65][66] - The company's operational delivery is geographically concentrated in locations like the Philippines and Mexico, exposing it to risks from natural disasters, political unrest, and health epidemics[75] - Chairman and CEO Kenneth D. Tuchman beneficially owns approximately 61% of the company's common stock, giving him control over all matters requiring stockholder approval, which may create conflicts of interest[116] Item 1B. Unresolved Staff Comments The company has no unresolved written comments from the SEC staff as of the 2019 fiscal year-end - There are no unresolved staff comments from the SEC[120] Item 2. Properties As of December 31, 2019, TTEC operated 89 global customer engagement centers, primarily in the United States, Philippines, and Canada, with lease terms up to 13 years Customer Engagement Centers by Country (as of Dec 31, 2019) | Country | Total Centers | | :--- | :--- | | United States of America | 46 | | Philippines | 18 | | Canada | 6 | | Australia | 3 | | Mexico | 3 | | Brazil | 2 | | Bulgaria | 2 | | United Kingdom | 2 | | Other | 7 | | Total | 89 | - The company's customer engagement centers are classified into three types: Multi-Client Centers (leased by TTEC for multiple clients), Dedicated Centers (leased by TTEC for a single client), and Managed Centers (owned/leased by clients but managed by TTEC)[127] Item 3. Legal Proceedings The company is involved in various legal actions, but management expects no material adverse effect on its financial position or operations beyond existing reserves - The company accrues for legal exposures when losses are deemed probable and reasonably estimable[124] - Management does not expect current legal proceedings to have a material adverse effect on the company's financial condition[125] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[127] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities TTEC common stock trades on NASDAQ, paid $0.62 per share in dividends in 2019, and has $26.6 million remaining for stock repurchases as of December 31, 2019 Dividends Per Common Share | Year | Dividend per Share (USD) | | :--- | :--- | | 2019 | $0.62 | | 2018 | $0.55 | - On February 27, 2020, the Board of Directors authorized a semi-annual dividend of $0.34 per common share, payable on April 16, 2020[130] - No shares were repurchased during 2019. As of December 31, 2019, approximately $26.6 million remained authorized for future repurchases under the existing program[131][132] Item 6. Selected Financial Data The company's 2019 financial performance showed revenue growth to $1.64 billion, income from operations increasing to $123.7 million, and diluted EPS rising to $1.65 Selected Financial Data (Years Ended December 31, in thousands, except per share data) | Metric | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Revenue | $1,643,704 | $1,509,171 | $1,477,365 | | Income from operations | $123,709 | $92,054 | $100,489 | | Net income attributable to TTEC stockholders | $77,164 | $35,817 | $7,256 | | Diluted EPS | $1.65 | $0.77 | $0.16 | | Dividends per common share | $0.62 | $0.55 | $0.47 | | Total assets | $1,376,788 | $1,054,508 | $1,078,736 | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations In 2019, TTEC's revenue grew 8.9% to $1.64 billion, with operating income rising to $123.7 million, and strong liquidity supported by $238.0 million in cash from operations and a $530 million available credit facility Results of Operations In FY 2019, TTEC Digital revenue grew 27.9% to $305.3 million with operating income up 17.8%, while TTEC Engage revenue increased 5.4% to $1.34 billion with operating income up 43.7% TTEC Digital Segment Performance (FY 2019 vs. FY 2018) | Metric | 2019 | 2018 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $305,346 | $238,799 | $66,547 | 27.9% | | Operating Income | $38,927 | $33,054 | $5,873 | 17.8% | | Operating Margin | 12.7% | 13.8% | - | - | TTEC Engage Segment Performance (FY 2019 vs. FY 2018) | Metric | 2019 | 2018 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $1,338,358 | $1,270,372 | $67,986 | 5.4% | | Operating Income | $84,782 | $59,000 | $25,782 | 43.7% | | Operating Margin | 6.3% | 4.6% | - | - | - The effective tax rate for 2019 was 23.3%, a decrease from 29.3% in 2018. The change was influenced by earnings in jurisdictions with tax holidays and various tax benefits and expenses[211] Liquidity and Capital Resources The company's liquidity is strong, with $238.0 million in cash from operations and $177.2 million in free cash flow in 2019, alongside $530.0 million in available credit facility capacity Cash Flow Summary (in millions) | Cash Flow Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $238.0 | $168.3 | | Net cash used in investing activities | ($162.9) | ($47.6) | | Net cash used in financing activities | ($47.4) | ($102.1) | Free Cash Flow Reconciliation (in thousands) | | Year Ended December 31, | | :--- | :--- | | | 2019 | 2018 | | Net cash provided by operating activities | $237,989 | $168,345 | | Less: Purchases of property, plant and equipment | 60,776 | 43,450 | | Free cash flow | $177,213 | $124,895 | - As of December 31, 2019, the company had $290.0 million in borrowings under its credit facility and a remaining borrowing capacity of approximately $530.0 million[218] - Total capital expenditures for 2020 are expected to be between 3.6% and 3.8% of revenue, with approximately 65% allocated to support business growth[233] Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rate fluctuations on its variable-rate debt and foreign currency exposure on 22% of 2019 revenue, mitigated by $209.2 million in cash flow hedging instruments - The company is exposed to interest rate risk on its $290.0 million of outstanding variable-rate debt. A 1% (100 basis points) increase in interest rates would increase annual interest expense by $1.0 million for every $100 million borrowed[254] - Foreign currency risk is significant, as 22% of 2019 consolidated revenue was associated with foreign exchange risk, where revenue is collected in U.S. dollars but costs are incurred in local currencies like the Philippine Peso and Mexican Peso[256] Cash Flow Hedging Instruments (as of Dec 31, 2019) | Currency Pair | Notional Amount (USD) | | :--- | :--- | | Philippine Peso | $147,654,000 | | Mexican Peso | $61,529,000 | | Total | $209,183,000 | Item 8. Financial Statements and Supplementary Data The company's consolidated financial statements and supplementary data are included in the report, starting on page F-1 - The financial statements required by this item are located beginning on page F-1 of this report[267] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This item is not applicable to the company - Not applicable[268] Item 9A. Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2019, excluding the recently acquired FCR - The CEO and CFO concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2019[272] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2019[275] - The assessment of internal control over financial reporting excluded First Call Resolution, LLC (FCR), which was acquired in 2019[276] Item 9B. Other Information There is no other information to report under this item - None[280] Part III Item 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2020 Definitive Proxy Statement - Required information is incorporated by reference from the 2020 Proxy Statement[282][283] Item 11. Executive Compensation Information regarding executive compensation is incorporated by reference from the 2020 Definitive Proxy Statement - Required information is incorporated by reference from the 2020 Proxy Statement[285] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership is incorporated by reference from the 2020 Definitive Proxy Statement - Required information is incorporated by reference from the 2020 Proxy Statement[286] Item 13. Certain Relationships and Related Transactions, and Director Independence Information regarding related party transactions and director independence is incorporated by reference from the 2020 Definitive Proxy Statement - Required information is incorporated by reference from the 2020 Proxy Statement[287] Item 14. Principal Accountants Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the 2020 Definitive Proxy Statement - Required information is incorporated by reference from the 2020 Proxy Statement[288] Part IV Item 15. Exhibits and Financial Statement Schedules This section lists the documents filed as part of the Form 10-K report, including Consolidated Financial Statements and an Exhibit Index - This section contains the index to the Consolidated Financial Statements (located at page F-1) and the Exhibit Index[290][291] Item 16. Form 10-K Summary No Form 10-K summary is provided - None[297]