TTEC (TTEC) - 2023 Q4 - Annual Report

Part I Business The company is a global customer experience partner operating through TTEC Digital and TTEC Engage segments Fiscal Year 2023 Revenue Breakdown | Segment | Revenue (billions) | Percentage of Total | | :--- | :--- | :--- | | TTEC Digital | $0.487 | 20% | | TTEC Engage | $1.976 | 80% | | Total | $2.463 | 100% | - As of December 31, 2023, TTEC served over 750 clients across various industries with a global team of over 60,000 employees[32][35] - The company's growth strategy focuses on deepening client relationships, strategic acquisitions, and investing in tech-driven innovation[37][44] Client Concentration and Retention (2023) | Client Group | % of Total Revenue | TTEC Engage Revenue Retention Rate | | :--- | :--- | :--- | | Top 5 Clients | 36% | 95% | | Top 10 Clients | 50% | 95% | - As of December 31, 2023, TTEC had over 60,000 employees, with 49% in Asia-Pacific, 38% in North America, and 61% working remotely[74] Risk Factors The company faces significant risks from client concentration, technology evolution, debt, and a controlling shareholder - A large portion of TTEC Engage revenue comes from a few clients, with the top five representing 36% of total revenue in 2023[95][97] - The business is highly competitive and failure to adapt to rapid technological changes like AI could harm its competitive position[88][90][92] - The remote work model introduces risks such as fraud, compliance challenges, and potential disruptions from residential-grade utilities[102][104][106] - The company experienced two significant cybersecurity incidents in 2021, and future incidents remain a significant risk[128] - As of December 31, 2023, the company had $995.0 million of borrowings outstanding, with a recent credit facility amendment to provide more flexibility[139][140] - The Chairman and CEO beneficially owns approximately 59% of the company's common stock, giving him significant control[192] Unresolved Staff Comments The company reports that there are no unresolved staff comments - Not applicable[196] Cybersecurity Cybersecurity risk is managed through an ERM program overseen by the Board's Security & Technology Committee - The company has a formal cybersecurity program focused on risk assessment, mitigation, incident response, and employee training[199][200] - Governance is managed by the Board's Security & Technology Committee, which receives regular reports from the CSO and CIO[207] - The company has previously experienced significant cybersecurity incidents but states they have not materially affected the company to date[213] Properties The company operates 70 customer engagement centers globally, with the largest concentrations in the US and the Philippines Customer Engagement Centers by Country (as of Dec 31, 2023) | Country | Total Centers | | :--- | :--- | | United States of America | 30 | | Philippines | 15 | | United Kingdom | 4 | | Australia | 2 | | Brazil | 1 | | Bulgaria | 2 | | Canada | 2 | | Colombia | 2 | | Egypt | 1 | | Greece | 1 | | Germany | 1 | | Honduras | 1 | | India | 2 | | Mexico | 2 | | Poland | 1 | | South Africa | 2 | | Thailand | 1 | | Total | 70 | - The centers are classified as Multi-Client, Dedicated, or Managed, based on leasing and operational structure[217] Legal Proceedings The company is involved in various legal actions and accrues for losses deemed probable and estimable - The company accrues for legal exposures when losses are probable and estimable[220] - Management does not expect current legal proceedings to have a material adverse effect on the company's financial condition[221] Mine Safety Disclosures This item is not applicable to the company - Not applicable[223] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock trades on NASDAQ, with a history of dividends and an underperforming five-year total return - In 2023, the company paid two semi-annual dividends of $0.52 per share; for 2024, a dividend of $0.06 per share was authorized[225][226] - Approximately $26.6 million remains authorized under the stock repurchase program, but no shares were purchased in 2022 or 2023[227] 5-Year Cumulative Total Return Comparison | Year | TTEC Holdings, Inc. | NASDAQ Composite | Russell 2000 | Peer Group | | :--- | :--- | :--- | :--- | :--- | | 2018 | $100 | $100 | $100 | $100 | | 2019 | $141 | $137 | $126 | $138 | | 2020 | $278 | $198 | $151 | $178 | | 2021 | $349 | $242 | $173 | $268 | | 2022 | $173 | $163 | $138 | $173 | | 2023 | $88 | $236 | $161 | $218 | This item is reserved - This item is reserved and contains no information[232] Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue grew slightly in 2023, but operating income declined significantly due to investments and higher costs Consolidated Financial Results (2023 vs. 2022) | Metric | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Revenue | $2,462.8M | $2,443.7M | +0.8% | | Income from Operations | $118.0M | $168.5M | -30.0% | | Operating Margin | 4.8% | 6.9% | -2.1 pts | - TTEC Digital's operating income decreased by 14.5% to $29.8 million due to investments in leadership, sales, and engineering[287][288] - TTEC Engage's operating income decreased by 34.0% to $88.2 million, driven by investments, higher healthcare costs, and restructuring[289][290] - Interest expense increased significantly to $78.3 million in 2023 from $36.1 million in 2022 due to higher interest rates[291] - The company generated $144.8 million in cash from operations and $76.9 million in free cash flow in 2023[305][308] - As of Dec 31, 2023, the company had $995.0 million in borrowings and amended its credit facility in Feb 2024 for more flexibility[300] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from interest rate changes on its debt and foreign currency fluctuations - The company has significant interest rate risk due to its $995.0 million in variable-rate borrowings[332] - The company faces foreign currency risk as revenue is often in USD while operating costs are in local currencies[333] Cash Flow Hedging Program (as of Dec 31, 2023) | Currency Pair | Notional Amount (USD Equivalent) | | :--- | :--- | | Canadian Dollar | $1.7M | | Philippine Peso | $165.8M | | Mexican Peso | $44.2M | | Total | $211.7M | Financial Statements and Supplementary Data This section references the location of the company's consolidated financial statements and supplementary data - The financial statements required by this item are located beginning on page F-1 of this report[344] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This item is not applicable to the company - Not applicable[345] Controls and Procedures Management and the independent auditor concluded that disclosure controls and internal controls were effective - Based on an evaluation as of December 31, 2023, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[349] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2023[353] - The effectiveness of internal control over financial reporting has been audited by PricewaterhouseCoopers LLP, which issued an unqualified opinion[354][386] Other Information The company amended its Credit Facility in February 2024 to increase financial flexibility - On February 26, 2024, the company amended its credit agreement to increase the net leverage ratio covenant for Q1 2024 through Q1 2025[358] - As part of the amendment, the total lenders' commitment under the credit facility was reduced from $1.5 billion to $1.3 billion[358] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[359] Part III Directors, Executive Officers and Corporate Governance Information is incorporated by reference from the company's 2024 Definitive Proxy Statement - The information required for this item is incorporated by reference from the registrant's 2024 annual meeting proxy statement[8][361] Executive Compensation Information regarding executive compensation is incorporated by reference from the 2024 Definitive Proxy Statement - The information required for this item is incorporated by reference from the registrant's 2024 annual meeting proxy statement[8][365] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership is incorporated by reference from the 2024 Definitive Proxy Statement - The information required for this item is incorporated by reference from the registrant's 2024 annual meeting proxy statement[8][366] Certain Relationships and Related Transactions, and Director Independence Information on related transactions is incorporated by reference from the 2024 Definitive Proxy Statement - The information required for this item is incorporated by reference from the registrant's 2024 annual meeting proxy statement[8][367] Principal Accountants Fees and Services Information on accountant fees is incorporated by reference from the 2024 Definitive Proxy Statement - The information required for this item is incorporated by reference from the registrant's 2024 annual meeting proxy statement[8][368] Part IV Exhibits and Financial Statement Schedules This section lists the documents filed as part of the report, including financial statements and exhibits - This section contains the index to the Consolidated Financial Statements (located at F-1) and the Exhibit Index[370][371] Form 10-K Summary The company indicates that there is no Form 10-K summary - None[379] Financial Statements and Notes Report of Independent Registered Public Accounting Firm The auditor issued an unqualified opinion on financial statements and internal controls, citing two Critical Audit Matters - The auditor, PricewaterhouseCoopers LLP, issued an unqualified (clean) opinion on both the financial statements and internal controls[386] - The audit identified two Critical Audit Matters (CAMs): Revenue Recognition and the Goodwill Impairment Assessment for TTEC Engage[392][394][397] Consolidated Financial Statements Financials show flat revenue, a sharp decline in net income, and an increase in total liabilities for 2023 Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $681,203 | $749,970 | | Goodwill | $808,988 | $807,845 | | Total Assets | $2,185,598 | $2,153,962 | | Total Current Liabilities | $403,027 | $411,364 | | Line of Credit (Long-term) | $995,000 | $960,000 | | Total Liabilities | $1,570,056 | $1,520,212 | | Total Stockholders' Equity | $615,542 | $578,105 | Consolidated Income Statement Highlights (in thousands, except per share) | Metric | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Revenue | $2,462,817 | $2,443,707 | $2,273,062 | | Income from Operations | $118,021 | $168,543 | $217,192 | | Net Income Attributable to TTEC | $8,428 | $103,240 | $140,970 | | Diluted EPS | $0.18 | $2.18 | $2.97 | Consolidated Cash Flow Highlights (in thousands) | Cash Flow | 2023 | 2022 | | :--- | :--- | :--- | | From Operating Activities | $144,765 | $137,048 | | From Investing Activities | $(67,578) | $(226,203) | | From Financing Activities | $(68,234) | $89,036 | Notes to the Consolidated Financial Statements Notes detail segment performance, goodwill risk, debt structure, and a significantly higher effective tax rate - In April 2023, TTEC finalized the buyout of the remaining 30% interest in First Call Resolution, LLC (FCR) for $22.4 million[464][465] - The TTEC Engage reporting unit's fair value exceeded its carrying value by 13.0%, indicating a risk of future goodwill impairment[518] - The company's effective tax rate was 55.2% in 2023, compared to 18.8% in 2022, due to changes in valuation allowances[554] - As of December 31, 2023, the company had $995.0 million in borrowings under its credit facility[576] - Related party transactions in 2023 included $1.0 million for aviation services from companies owned by the CEO[619][621]