# TTEC Holdings, Inc.: Form 10-Q for the period ended Jun 30, 2021

- Company: [TTEC Holdings, Inc.](/companies/ttec.md) (CIK 1013880)
- Form: 10-Q
- Filed: 2021-08-03
- Accepted by EDGAR: Aug 3, 2021, 16:50 ET
- Period: 2021-06-30
- Accession: 0001558370-21-010012
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1013880/000155837021010012/ttec-20210630x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1013880/000155837021010012/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2021-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2021-04-01 to 2021-06-30 | $554.8m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2021-01-01 to 2021-06-30 | $1.09bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Selling, general and administrative | 3 months, 2021-04-01 to 2021-06-30 | $61.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2021-01-01 to 2021-06-30 | $114.1m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2021-04-01 to 2021-06-30 | $65.8m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2021-01-01 to 2021-06-30 | $139.3m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2021-04-01 to 2021-06-30 | $3.4m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2021-01-01 to 2021-06-30 | $5.2m | us-gaap:InterestExpense |
| Income tax | 3 months, 2021-04-01 to 2021-06-30 | $11.4m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2021-01-01 to 2021-06-30 | $27.3m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2021-04-01 to 2021-06-30 | $47.4m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2021-01-01 to 2021-06-30 | $97.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2021-04-01 to 2021-06-30 | $1.00 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2021-01-01 to 2021-06-30 | $2.06 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2021-04-01 to 2021-06-30 | $1.01 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2021-01-01 to 2021-06-30 | $2.09 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2021-04-01 to 2021-06-30 | 47,409,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2021-01-01 to 2021-06-30 | 47,388,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2021-01-01 to 2021-06-30 | $132.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2021-04-01 to 2021-06-30 | $12.0m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Capital expenditure | 6 months, 2021-01-01 to 2021-06-30 | $23.6m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 6 months, 2021-01-01 to 2021-06-30 | $20.1m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2021-06-30 | $174.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2021-06-30 | $707.1m | us-gaap:AssetsCurrent |
| Total assets | at 2021-06-30 | $2.04bn | us-gaap:Assets |
| Current liabilities | at 2021-06-30 | $410.2m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2021-06-30 | $1.45bn | us-gaap:Liabilities |
| Shareholders' equity | at 2021-06-30 | $532.3m | us-gaap:StockholdersEquityIncludingPortionAttributableToNoncontrollingInterest |

## Management's discussion and analysis

As filed, 36,881 characters.

### RESULTS OF OPERATIONS

### Executive Summary

TTEC Holdings, Inc. (“TTEC”, “the Company”, “we”, “our” or “us”) is a leading global customer experience as a service (“CXaaS”) partner for many of the world’s iconic brands, Fortune 1000 companies, government agencies, and disruptive growth companies. TTEC helps its clients deliver frictionless customer experiences, strengthen customer relationships, brand recognition and loyalty through personalized interactions, improve their Net Promoter Score, customer satisfaction and quality assurance, and lower their total cost to serve by combining innovative digital solutions with best-in-class service capabilities to enable and deliver simplified, consistent and seamless customer experience across channels and phases of the customer lifecycle.

Our CXaaS solutions enhance our clients’ customers experience and help differentiate our clients from their competition.

In the fast expanding direct-to-customer ("DTC") channel where experiences are everything, enterprises must become increasingly more customer-centric, virtualized and digitally enabled to acquire, grow and maintain customers. Our mission is to enable and accelerate our clients' path to virtual and digital transformation. We are focused on improving the experience of our clients' customers by leveraging existing and emerging technologies — cloud, omnichannel, analytics, artificial intelligence ("AI"), machine learning ("ML"), robotic process automation ("RPA"), and real-time conversational messaging.

The Company reports its financial information based on two segments: TTEC Digital and TTEC Engage.

- **TTEC Digital** provides the CX technology services and platforms to support our clients’ customer interaction delivery infrastructure. The segment designs, builds and operates the omnichannel ecosystem in a cloud, on premise, or hybrid environment, inclusive of fully integrating, orchestrating, and administrating highly scalable, feature-rich CX technology applications.
- **TTEC Engage** provides the CX managed services to support our clients’ end-to-end customer interaction delivery, by providing the essential CX omnichannel and application technologies, human resources, recruiting, training and production, at-home or facility-based delivery infrastructure on a global scale, and engagement processes. This segment provides full-service digital, omnichannel customer engagement, supporting customer care, customer acquisition, growth and retention, and fraud detection and prevention services.

TTEC Digital and TTEC Engage strategically come together under our unified offering, Humanify® Customer Experience as a Service, which drives measurable customer results for clients through the delivery of personalized, omnichannel experiences. Our Humanify® cloud platform provides a fully integrated ecosystem of CX offerings, including messaging, AI, ML, RPA, analytics, cybersecurity, customer relationship management ("CRM"), knowledge management, journey orchestration and traditional voice solutions. Our end-to-end platform differentiates us from many competitors by combining design, strategic consulting, best-in-class technology, data analytics, process optimization, system integration and operational excellence. This unified offering is value-oriented, outcome-based and delivered to large enterprises, governments and disruptive growth companies on a global scale.

During 2021, the TTEC global operating platform delivered onshore, nearshore, and offshore services in 20 countries on six continents -- the United States, Australia, Belgium, Brazil, Bulgaria, Canada, Costa Rica, Germany, Greece, India, Ireland, Mexico, the Netherlands, New Zealand, the Philippines, Poland, Singapore, South Africa, Thailand, and the United Kingdom with the help of 58,500 consultants, technologists, and CX professionals.

Our revenue for second quarter 2021 was $554.8 million, approximately $108.0 million, or 19.5% which came from our TTEC Digital segment and $446.8 million, or 80.5%, which came from our TTEC Engage segment.

To improve our competitive position in a rapidly changing market and stay strategically relevant to our clients, we continue to invest in innovation and service offerings for both mainstream and high growth disruptive businesses, diversifying and strengthening our core customer care services with consulting, data analytics, insights, and technology-enabled, outcomes-focused services.

We also invest to broaden our product and service capabilities, increase our global client base and industry expertise, tailor our geographic footprint to the needs of our clients, and further scale our end-to-end integrated solutions platform. To this end we have been highly acquisitive in the last several years, including an acquisition early in the second quarter of 2021 of a provider of Genesys and Microsoft cloud contact center services, an acquisition in the second half of 2020 of a preferred Amazon Connect cloud contact center service provider, an acquisition in the first quarter of 2020 of an autonomous customer experience and intelligent automation solutions provider and an acquisition in the fourth quarter of 2019 of a provider of customer care, social media community management, content moderation, technical support and business process solutions for rapidly growing businesses in early stages of their lifecycle.

We have extensive expertise in the automotive, communications, financial services, national/federal and state and local government, healthcare, logistics, media and entertainment, e-tail/retail, technology, travel and transportation industries. We serve more than 575 diverse clients globally, including many of the world’s iconic brands, Fortune 1000 companies, government agencies, and disruptive growth companies.

### COVID-19 Pandemic

In March 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic. Early in second quarter of 2020, we transitioned approximately 80% of our employee population to a work from home environment. Those employees who were considered essential and could not operate effectively while remote work in our brick-and-mortar sites, but most continue to work from home. For those sites that continue to stay opened during the pandemic, we have taken extensive measures to protect the health and safety of our employees, in accordance with the recommendations and guidelines provided by the World Health Organization, the U.S. and European Centers for Disease Control and Prevention, the U.S. Occupational Safety Association, and local governments in jurisdictions where our customer experience centers are located.

Although our business experienced some impacts of COVID-19 in the first half of 2020, our implementation of business continuity plans, rapid transition of employees to a work from home environment, and the geographic diversification of our delivery centers allowed us to mitigate potentially more severe impacts and positioned us to continue supporting our commercial and public sector clients without interruptions and provide them with additional support as they experienced surge volumes of customer, patient and citizen COVID-19 related engagement. Through the period ended June 30, 2021 the COVID-19 pandemic has not had a material adverse impact on our operational or financial results. While we expect this positive trend to continue and some of our COVID-19 specific work has transitioned to more traditional business activities for the same clients, there continues to be uncertainty about our COVID-19 and non-COVID-19 related business as the pandemic continues around the globe, and some locations where we deliver business are experiencing ongoing COVID-19 infection surges, related lockdown and business interruption. We cannot accurately predict the severity of the economic and operational challenges of a pro-longed COVID-19 pandemic on our clients’ businesses and its effect on the magnitude and timing of their buying decisions. Further, while to date we have been successful in managing service delivery from a highly disbursed employee population working remotely and our delivery sites that could not be replaced with work from home delivery, unpredictable lockdown decisions in some jurisdictions where we do business, certain seasonal weather cycles and their potential impacts on power grid and internet availability for our employees working from home may impact our delivery capability with little notice, thus potentially impacting our results of operations in the future.

### Our Integrated Service Offerings and Business Segments

We provide strategic value and differentiation through our two business segments: TTEC Digital and TTEC Engage.

**TTEC Digital** provides the CX technology services and platforms to support our clients’ customer interaction delivery infrastructure. The segment designs, builds and operates the omnichannel ecosystem in a cloud, on premise, or hybrid environment, and fully integrates, orchestrates, and administers highly scalable, feature-rich CX technology applications. These solutions are critical to enabling and accelerating digital transformation for our clients.

- Technology Services: Our technology services design, integrate and operate highly scalable, digital omnichannel technology solutions in the cloud, on premise, or hybrid environment, including journey orchestration, automation and AI, knowledge management, and workforce productivity.
- Professional Services: Our management consulting practices deliver customer experience strategy, analytics, process optimization, and learning and performance services.

**TTEC Engage** delivers the CX managed services to support our clients’ end-to-end customer interaction delivery, by providing the essential CX omnichannel and application technologies, human resources, recruiting, training and production, at-home or facility-based delivery infrastructure on a global scale, and engagement processes. This segment provides full-service digital, omnichannel customer engagement, supporting customer care, customer acquisition, growth and retention, and fraud detection and prevention services.

- Customer Acquisition Services: Our customer growth and acquisition services optimize the buying journeys for acquiring new customers by leveraging technology and analytics to deliver personal experiences that increase the quantity and quality of leads and customers.
- Customer Care Services: Our customer care services provide turnkey contact center solutions, including digital omnichannel technologies, associate recruiting and training, facilities, and operational expertise to create exceptional customer experiences across all touchpoints.
- Fraud Prevention Services: Our digital fraud detection and prevention services proactively identify and prevent fraud and provide community content moderation and compliance.

Based on our clients’ preference, we provide our services on an integrated cross-business segment and/or on a discrete 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 2021, our revenue increased $101.7 million, or 22.4%, to $554.8 million over the same period in 2020 including an increase of $10.4 million, or 2.3%, due to foreign currency fluctuations. The increase in revenue was comprised of a $70.9 million, or 18.8%, increase for TTEC Engage and a $30.9 million, or 40.0%, increase for TTEC Digital.

Our second quarter 2021 income from operations increased $16.9 million, or 34.5%, to $65.8 million or 11.9% of revenue, compared to $49.0 million or 10.8% of revenue in the second quarter of 2020. The change in operating income is comprised of a number of factors across the segments. The TTEC Engage operating income expanded with a 62.7% improvement over the same period last year primarily based on the increase in revenue including volumes in our financial services, commercial and public sector clients experiencing spikes in customer interactions including COVID-19 specific volumes, a reduction in healthcare expenses, and grant income received to offset salaries and rent expenses. The TTEC Digital operating income decreased 33.5% due to a reduction in the large multi-year government contract and increased amortization of acquisition related intangible assets, partially offset by the 2021 and 2020 acquisitions which accelerated growth in the cloud revenue platform.

Income from operations in the second quarter of 2021 and 2020 included $2.4 million and $0.8 million of restructuring charges and asset impairments, respectively.

Our offshore customer engagement centers spanning six countries, serve clients based in the U.S. and in other countries with 23,650 workstations, representing 59% of our global delivery capability. Revenue for our TTEC Engage segment provided from these offshore locations represented 30% of our revenue for the second quarter of 2021, as compared to 29% of our revenue for the corresponding period in 2020.

Our seat utilization is defined as the total number of utilized workstations compared to the total number of available production workstations. As of June 30, 2021, the total production workstations for our TTEC Engage segment was 40,300 and the overall capacity utilization in our centers was 62% versus 68% in the prior year period. The utilization is lower than the previous year primarily due to COVID-19 protocols requiring the distancing of associates which has reduced the available seat capacity. Adjusted for social distancing protocols, which reduced the available workstations to approximately 20,800, and accounting for all client paid seats as utilized, whether through actual usage or contractual commitments to hold the seats, current utilization is in excess of 120%.

Post COVID-19 we expect our clients to leverage a more diversified geographic footprint and an increased mix of work from home vs. brick and mortar delivery centers. We will continue to refine our site strategy and capacity as we finalize plans with our clients and prospects.

Some of our clients may be subject to regulatory pressures to serve clients onshore. We plan to continue to selectively retain and grow capacity and expand into new offshore markets, while maintaining appropriate capacity onshore. 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 adopted and issued accounting pronouncements.

### 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, 2020.

### Results of Operations

### Three months ended June 30, 2021 compared to three months ended June 30, 2020

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 June 30, 2021 and 2020 (amounts in thousands). All inter-company transactions between the reported segments for the periods presented have been eliminated.

#### TTEC Digital

| ​ ​ ​ | ​ ​ | ​ ​ ​ Three Months Ended June 30, 2021 | ​ ​ ​ ​ 2020 | ​ ​ ​ ​ $ Change | ​ ​ | ​ ​ ​ % Change | ​ ​ ​ |
| --- | --- | ---: | ---: | ---: | --- | ---: | --- |
| Revenue | ​ | $107,995 ​ | $77,143 ​ | $30,852 |  | 40.0% | ​ |
| Operating Income | ​ | 9,565 ​ | 14,376 ​ | (4,811) |  | (33.5)% | ​ |
| Operating Margin | ​ | 8.9% | 18.6% | ​ ​ | ​ | ​ ​ | ​ |

The increase in revenue for the TTEC Digital segment was driven by increases in the cloud platform and the systems integration practice, including the acquisitions of Avtex and Voice Foundry, offset by reductions in the large multi-year government contract. Excluding the large multi-year government contract, the TTEC Digital revenue has increased 107% year over year.

The operating income decrease is primarily attributable to a reduction in the large multi-year government contract, additional amortization of acquisition related intangible assets and $0.9 million of restructuring charges, partially offset by the acquisitions of Avtex and Voice Foundry, increases in the cloud platform and system integration practice. The operating income as a percentage of revenue decreased to 8.9% in the second quarter of 2021 as compared to 18.6% in the prior period. Included in the operating income was amortization expense related to acquired intangibles of $5.7 million and $0.6 million for the quarters ended June 30, 2021 and 2020, respectively.

#### TTEC Engage

| ​ ​ ​ | ​ ​ | ​ ​ ​ Three Months Ended June 30, 2021 | ​ ​ ​ ​ 2020 | ​ ​ ​ ​ $ Change | ​ ​ | ​ ​ ​ % Change | ​ ​ ​ |
| --- | --- | ---: | ---: | ---: | --- | ---: | --- |
| Revenue | ​ | $446,799 ​ | $375,938 ​ | $70,861 |  | 18.8% | ​ |
| Operating Income | ​ | 56,265 ​ | 34,586 ​ | 21,679 |  | 62.7% | ​ |
| Operating Margin | ​ | 12.6% | 9.2% | ​ ​ | ​ | ​ ​ | ​ |

The increase in revenue for the TTEC Engage segment was due to a net increase of $75.0 million in client programs including certain COVID-19 pandemic related programs for several clients and a $9.2 million increase due to foreign currency fluctuations, offset by a decrease for program completions of $13.3 million.

The operating income increased primarily due to the growth in revenue, revenue mix, and increased profitability in several offerings. Included in the second quarter of 2021 is a $2.0 million increase to operating income due to grants received related to COVID-19 relief and a $5.3 million reduction in healthcare expenses, which was offset by $1.6 million of restructuring and impairment charges related to several facilities in the U.S. (see Part I. Item 1. Financial Statements, Note 9 to the Consolidated Financial Statements). As a result, the operating income as a percentage of revenue increased to 12.6% in the second quarter of 2021 as compared to 9.2% in the prior period. Included in the operating income was amortization expense related to acquired intangibles of $3.3 million and $3.3 million for the quarters ended June 30, 2021 and 2020, respectively.

#### Interest Income (Expense)

For the three months ended June 30, 2021 interest income decreased to $0.2 million from $0.5 million in the same period in 2020. Interest expense increased to $3.4 million during 2021 from $3.1 million during 2020 due to higher utilization of the line of credit.

#### Other Income (Expense)

For the three months ended June 30, 2021 Other income (expense), net increased to net income of $1.0 million from net expense of $1.8 million during the prior year quarter.

Included in the three months ended June 30, 2021 and 2020 were a $0.2 million expense and a $1.1 million benefit, respectively, related to the fair value adjustment of contingent consideration for two acquisitions.

Included in the three months ended June 30, 2020 was a $2.5 million expense related to the dissolution of a subsidiary, and the related removal of the Accumulated other comprehensive income (loss).

See Part I. Item 1. Financial Statements, Note 2 to the Consolidated Financial Statements.

#### Income Taxes

The effective tax rate for the three months ended June 30, 2021 was 17.8%. This compares to an effective tax rate of 24.8% for the comparable period of 2020. The effective tax rate for the three months ended June 30, 2021 was influenced by earnings in international jurisdictions currently under an income tax holiday, the distribution of income between the U.S. and international tax jurisdictions and the associated U.S. tax impacts of foreign earnings. Without a $0.5 million benefit related to restructuring, a $2.4 million benefit related to equity compensation, a $2.3 million benefit related to the amortization of purchased intangibles and $0.2 million of expense related to other items, the Company’s normalized tax rate for the second quarter of 2021 was 21.4%.

### Results of Operations

### Six months ended June 30, 2021 compared to six months ended June 30, 2020

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 six months ended June 30, 2021 and 2020 (in thousands). All intercompany transactions between the reported segments for the periods presented have been eliminated.

#### TTEC Digital

| ​ ​ ​ | ​ ​ | ​ ​ ​ Six Months Ended June 30, 2021 | ​ ​ ​ ​ 2020 | ​ ​ ​ ​ $ Change | ​ ​ | ​ ​ ​ % Change | ​ ​ ​ |
| --- | --- | ---: | ---: | ---: | --- | ---: | --- |
| Revenue | ​ | $171,582 ​ | $154,699 ​ | $16,883 |  | 10.9% | ​ |
| Operating Income | ​ | 13,767 ​ | 24,634 ​ | (10,867) |  | (44.1)% | ​ |
| Operating Margin | ​ | 8.0% | 15.9% | ​ ​ | ​ | ​ ​ | ​ |

The increase in revenue for the TTEC Digital segment was driven by significant increases in the cloud platform and the systems integration practice including acquisitions of Avtex and Voice Foundry, offset by reductions in the large multi-year governmental contract, and the legacy facility based training business and the middle east consulting practice, both of which the Company has exited. Excluding the large multi-year government contract, the TTEC Digital revenue has increased 64% year over year.

The operating income reduction is primarily attributable to a reduction in the large multi-year governmental contract and increased amortization of acquisition related intangible assets partially offset by the increased revenue due to the acquisitions and other revenue increases as well as the exit of the less profitable facilities based training and middle east consulting practices. The operating income as a percentage of revenue decreased to 8.0% for the six months ended June 30, 2021 as compared to 15.9% in the prior period. Included in the operating income was amortization expense related to acquired intangibles of $6.9 million and $1.1 million for the six months ended June 30, 2021 and 2020, respectively.

#### TTEC Engage

| ​ ​ ​ | ​ ​ | ​ ​ ​ Six Months Ended June 30, 2021 | ​ ​ ​ ​ 2020 | ​ ​ ​ ​ $ Change | ​ ​ | ​ ​ ​ % Change | ​ ​ ​ |
| --- | --- | ---: | ---: | ---: | --- | ---: | --- |
| Revenue | ​ | $922,431 ​ | $730,595 ​ | $191,836 |  | 26.3% | ​ |
| Operating Income | ​ | 125,487 ​ | 65,044 ​ | 60,443 |  | 92.9% | ​ |
| Operating Margin | ​ | 13.6% | 8.9% | ​ ​ | ​ | ​ ​ | ​ |

The increase in revenue for the TTEC Engage segment was due to a net increase of $214.1 million in client programs including certain COVID-19 pandemic related programs for several clients, and a $15.7 million increase due to foreign currency fluctuations offset by a decrease for program completions of $38.0 million.

The operating income increased in line with improved revenue including growth in revenue, revenue mix, and increased profitability in several offerings. Included in 2021 is a $8.0 million increase to operating income due to grants received related to COVID-19 relief. Partially offsetting these increases was a net $5.5 million in restructuring and impairment charges related to several facilities in the U.S. (see Part I. Item 1, Financial Statements, Note 9 to the Consolidated Financial Statements). As a result, the operating income as a percentage of revenue increased to 13.6% for the six months ended June 30, 2021 as compared to 8.9% in the prior period. Included in the operating income was amortization expense related to acquired intangibles of $6.6 million and $6.6 million for the six months ended June 30, 2021 and 2020, respectively.

#### Interest Income (Expense)

For the six months ended June 30, 2021 interest income decreased to $0.4 million from $0.9 million in the same period in 2020. Interest expense decreased to $5.2 million during 2021 from $12.7 million during 2020 due to higher utilization of the line of credit offset by lower interest rates, and a $6.3 million decrease period over period in the charge related to the future purchase of the remaining 30% interest in Motif, which was finalized during the second quarter of 2020.

#### Other Income (Expense)

For the six months ended June 30, 2021 Other income (expense), net decreased to net income of $0.2 million from net income of $1.6 million during the prior year period.

Included in the six months ended June 30, 2021 was a $0.7 million expense related to the fair value adjustments of contingent consideration for two acquisitions.

Included in the six months ended June 30, 2020 was a $4.3 million benefit related to the fair value adjustments of contingent consideration for an acquisition, offset by a $2.5 million expense related to the deconsolidation of three subsidiaries and the related removal of the Accumulated other comprehensive income (loss).

See Part I. Item 1. Financial Statements, Note 2 to the Consolidated Financial Statements.

Income Taxes

The effective tax rate for the six months ended June 30, 2021 was 20.3%. This compared to an effective tax rate of 26.7% for the comparable period of 2020. The effective tax rate for the six months ended June 30, 2021 was influenced by earnings in international jurisdictions currently under an income tax holiday, the distribution of income between the U.S. and international tax jurisdictions and associated U.S. tax impacts of foreign earnings. Without a $1.6 million benefit from restructuring expenses, $2.4 million of expense related to changes in valuation allowances, a $3.5 million benefit related to the amortization of purchased intangibles, a $5.3 million benefit related to equity-based compensation, and $0.2 million of expense related to other items, the Company’s normalized tax rate for 2021 was 22.6%.

### 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 six months ended June 30, 2021, we generated positive operating cash flows of $132.8 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 safeguarding and optimizing the use of our global cash and cash equivalents. Our cash is held in the U.S. in U.S. dollars, and outside of the U.S. in U.S. dollars and foreign currencies. We expect to use our cash to fund working capital, global operations, dividends, acquisitions, and other strategic activities. While there are no assurances, we believe our global cash is well protected given our cash management practices, banking partners and utilization of diversified bank deposit accounts and other 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 through our cash flow hedging program. Please refer to Item 3. Quantitative and Qualitative Disclosures About Market Risk, Foreign Currency Risk, for further discussion.

In early April 2021, we drew down approximately $500 million of the availability on the Credit Facility in order to provide funding for the acquisition of Avtex Solutions, Holdings LLC.

During the first quarter 2020, we borrowed $350 million under our revolving credit facility as a precautionary measure to provide additional liquidity during the global economic uncertainty and financial market conditions caused by the COVID-19 pandemic. During September 2020, this additional borrowing was repaid.

Although we expect that current cash and cash equivalent balances and cash flows that are generated from operations will be sufficient to meet our domestic and international working capital needs and other capital and liquidity requirements for at least the next 12 months, if our access to capital is restricted or our borrowing costs increase, our operations and financial condition could be adversely impacted.

The following discussion highlights our cash flow activities during the six months ended June 30, 2021 and 2020.

#### 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 $174.7 million and $132.9 million as of June 30, 2021 and December 31, 2020, 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 and to pay dividends.

#### Cash Flows from Operating Activities

For the six months ended June 30, 2021 and 2020, net cash flows provided by operating activities was $132.8 million and $105.3 million, respectively. The increase is primarily due to a $46.9 million increase in net cash income from operations offset by a $19.3 million reduction in net working capital.

#### Cash Flows from Investing Activities

For the six months ended June 30, 2021 and 2020, net cash flows used in investing activities was $505.3 million and $36.3 million, respectively. The increase was due to a $477.3 million increase related to acquisitions offset by a $8.3 million decrease in capital expenditures.

#### Cash Flows from Financing Activities

For the six months ended June 30, 2021 and 2020, net cash flows (used in) provided by financing activities was $400.5 million and $332.8 million, respectively. The change in net cash flows from 2020 to 2021 was primarily due to a $39.0 million net million increase in the line of credit and a $37.2 million decrease in payments of contingent consideration offset by a $4.3 million increase in shareholder dividends.

#### Free Cash Flow

Free cash flow (see “Presentation of Non-GAAP Measurements” below for the definition of free cash flow) increased slightly for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily due to an increase in net cash from operations offset by a decrease in working capital and lower capital expenditures. Free cash flow was $109.2 million and $73.4 million for the six months ended June 30, 2021 and 2020, 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 June 30, 2021 | ​ | ​ ​ 2020 | ​ ​ | ​ ​ Six Months Ended June 30, 2021 | ​ | ​ ​ 2020 | ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- |
| Net cash provided by operating activities | ​ | $63,052 | ​ | $43,113 | ​ | $132,839 | ​ | $105,278 | ​ |
| Less: Purchases of property, plant and equipment | ​ | 12,028 | ​ | 15,102 | ​ | 23,593 | ​ | 31,915 | ​ |
| Free cash flow | ​ | $51,024 | ​ | $28,011 | ​ | $109,246 | ​ | $73,363 | ​ |

### Obligations and Future Capital Requirements

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 2020 Form 10-K filing on March 1, 2021 through the filing of this report.

#### Future Capital Requirements

We expect total capital expenditures in 2021 to be between 2.9% and 3.1% of revenue. Approximately 60% of these expected capital expenditures are to support growth in our business and 40% relate to the maintenance for existing assets. The anticipated level of 2021 capital expenditures is primarily driven by new client contracts and the corresponding requirements for additional customer engagement center capacity as well as enhancements to our technological infrastructure.

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.

### Client Concentration

During the six months ended June 30, 2021, one of our clients represented more than 10% of our total revenue. Our five largest clients, collectively, accounted for 36.4% and 39.9% of our consolidated revenue for the three months ended June 30, 2021 and 2020, respectively and 39.0% and 37.1% of our consolidated revenue for the six months ended June 30, 2021 and 2020, respectively. We have had long-term relationships with our top five TTEC Engage clients, ranging from 15 to 21 years, with all of these clients having completed multiple contract renewals with us. The relative contribution of any single client to consolidated earnings is not always proportional to the relative revenue contribution on a consolidated basis and varies greatly based upon specific contract terms. In addition, clients may adjust business volumes served by us based on their business requirements. We believe the risk of this concentration is mitigated, in part, by the long-term contracts we have with our largest clients. Although certain client contracts may be terminated for convenience by either party, we believe this risk is mitigated, in part, by the service level disruptions and transition/migration costs that would arise for our clients if they terminated our contract for convenience.

Some contracts with our five largest clients expire between 2021 and 2023, but most of our largest clients have multiple contracts with us with different expiration dates for different lines of work. We have historically renewed most of our contracts with our largest clients, but there can be no assurance that future contracts will be renewed or, if renewed, will be on terms as favorable as the existing contracts.

## Market risk

As filed, 8,658 characters.

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 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 and LIBOR and, therefore, is affected by changes in market interest rates. As of June 30, 2021, we had $834.0 million of outstanding borrowings under the Credit Agreement. Based upon average outstanding borrowings during the three months ended June 30, 2021, interest accrued at a rate of approximately 1.3% per annum, respectively. If the Prime Rate or LIBOR increased by 100 basis points, there would be an annualized $1.0 million of additional interest expense per $100.0 million of outstanding borrowing under the Credit Agreement.

### Foreign Currency Risk

Our subsidiaries in 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 six months ended June 30, 2021 and 2020, revenue associated with this foreign exchange risk was 17% and 19% of our consolidated revenue, respectively.

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.

Our cash flow hedging instruments as of June 30, 2021 and December 31, 2020 are summarized as follows (in thousands). All hedging instruments are forward contracts, except as noted.

| ​ ​ ​ ​ As of June 30, 2021 | ​ ​ ​ ​ | ​ Local Currency Notional Amount | ​ ​ ​ ​ | ​ ​ ​ ​ U.S. Dollar Notional Amount | ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ ​ % Maturing ​ in the next ​ 12 months ​ | ​ ​ ​ ​ | ​ ​ Contracts Maturing Through | ​ |
| --- | --- | ---: | --- | ---: | --- | --- | ---: | --- | --- | --- |
| Canadian Dollar |  | 350 | ​ | $265 | ​ | ​ | 100.0% | ​ | July 2021 | ​ |
| Philippine Peso |  | 7,512,000 | ​ | 146,467 | (1) ​ | ​ | 53.3% | ​ | May 2024 | ​ |
| Mexican Peso |  | 1,204,500 | ​ | 53,733 | ​ | ​ | 44.3% | ​ | December 2024 | ​ |
| ​ | ​ | ​ | ​ | $200,465 | ​ | ​ | ​ ​ | ​ | ​ | ​ |

| ​ ​ ​ ​ As of December 31, 2020 | ​ ​ ​ ​ | ​ Local Currency Notional Amount | ​ ​ ​ ​ | ​ ​ ​ ​ U.S. Dollar Notional Amount | ​ | ​ ​ ​ ​ | ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- | --- | --- | --- | --- | --- | --- |
| Canadian Dollar |  | 2,450 | ​ | $1,853 | ​ | ​ | ​ | ​ | ​ | ​ | ​ |
| Philippine Peso |  | 6,725,000 | ​ | 130,468 | (1)​ | ​ | ​ | ​ | ​ | ​ | ​ |
| Mexican Peso |  | 1,159,500 | ​ | 52,398 | ​ | ​ | ​ | ​ | ​ | ​ | ​ |
| ​ | ​ | ​ | ​ | $184,719 | ​ | ​ | ​ | ​ | ​ | ​ | ​ |

(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 June 30, 2021 and December 31, 2020.

The fair value of our cash flow hedges as of June 30, 2021 was assets/(liabilities) (in thousands):

| ​ ​ ​ | ​ ​ | ​ ​ ​ ​ June 30, 2021 | ​ ​ | ​ ​ Maturing in the Next 12 Months | ​ ​ |
| --- | --- | ---: | --- | ---: | --- |
| Canadian Dollar | ​ | $18 | ​ | $18 | ​ |
| Philippine Peso | ​ | ​ 5,256 | ​ | ​ 3,484 | ​ |
| Mexican Peso | ​ | 2,671 | ​ | 1,829 | ​ |
| ​ | ​ | $7,945 | ​ | $5,331 | ​ |

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 decrease in fair value from December 31, 2020 reflects changes in the currency translation between the U.S. dollar and Mexican Peso.

We recorded net gains of $2.4 million and $0.2 million for settled cash flow hedge contracts and the related premiums for the six months ended June 30, 2021 and 2020, respectively. These gains 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 six months ended June 30, 2021 and 2020, approximately 14% and 15%, 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 June 30, 2021 or December 31, 2020.

## Controls and procedures

As filed, 3,283 characters.

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) are designed to provide reasonable assurance that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

We carried out an evaluation under the supervision and with the participation of management, including the CEO and CFO, of the effectiveness of our disclosure controls and procedures, as of June 30, 2021, the end of the period covered by this Form 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 effective at the reasonable assurance level.

### Inherent Limitations of Internal Controls

Our management, including the CEO and CFO, believes that any disclosure controls and procedures or internal 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.

### Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 5,066 characters.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Item 1A, Risk factors, in our 2020 Annual Report on Form 10-K, which could materially affect our business, financial condition or future results. In addition to the risk factors identified in our 2020 Annual Report, please consider the following revised risk factor.

***Cyberattacks, cyber fraud, and unauthorized information disclosure could harm our reputation, result in liability and service outages, any of which could adversely affect our business and results of operations***

Our business involves the use, storage, and transmission of information about our clients, their customers, and our employees. We also monitor and support information systems for certain clients through cloud-based and on-client-premises managed services model. While we take reasonable measures to protect the security of and unauthorized access to our systems and to our clients’ systems; and the privacy of personal and proprietary information that we access and store, our security controls over our systems may not be adequate to prevent the improper access to these systems or disclosure of information stored on these systems. Such unauthorized access or disclosure could subject TTEC to significant liability under relevant law or our contracts and could harm our reputation, resulting in impacts on our results of operations, loss of future revenue and business opportunities. These risks may further increase as our business model now includes higher percentage of work from home delivery, in addition to our traditional delivery through customer experience centers.

In recent years, there have been an increasing number of high-profile security breaches at companies and government agencies, and security experts have warned about the growing risks of hackers, cybercriminals and state actors launching a broad range of ransomware, data exfiltration, and other cyberattacks targeting information technology systems. Information security breaches, computer viruses, service interruption, loss of business data, DDoS (distributed denial of service) attacks, ransomware and other cyberattacks on any of our systems or on our clients’ systems that we manage could disrupt our normal operations of customer experience centers, our remote customer experience service delivery, our cloud platform digital offerings, our clients’ on-premise managed service offerings, and our enterprise services, impeding our ability to provide critical services to our clients.

On July 2, 2021, our subsidiary Avtex Solutions, LLC (“Avtex”) and some of its clients experienced a ransomware attack as part of a global supply chain compromise that impacted thousands of companies worldwide and is believed to have been orchestrated by a Russian-based REvil cybercriminal group. The attack exploited a vulnerability in a Kaseya VSA remote monitoring software that Avtex utilized in its managed services solution (“Kaseya REvil attack”). TTEC systems and TTEC’s client support environments, outside of Avtex, were not impacted by the Kaseya REvil attack. Utilizing its standard cyber incident response protocols, TTEC recovered Avtex’s operating environment within hours of the attack and restored Avtex to full operating capacity by July 3, 2021. Over the course of the following weeks, the Company assisted Avtex’s affected clients in restoring their systems to full operations. While we believe that we have remediated the immediate consequences of the incident, cybersecurity events may have cascading effects that unfold over time and result in additional costs, including costs associated with investigations, contractual claims, performance penalties, litigation, future business cancelations and other losses. Any perception by existing and prospective clients that our systems or the information system environments that we support for our clients are not secure could result in a material loss of business and revenue and damage our reputation and competitiveness.

As others in many industries, we are experiencing an increase in frequency of cyber-fraud attempts, such as so-called “social engineering” attacks and phishing scams, which typically seek unauthorized money transfers or information disclosure. We actively train our employees to recognize these attacks and have implemented proactive risk mitigation measures to curb them. There are no assurances, however, that these attacks, which are growing in sophistication, may not deceive our employees, resulting in a material loss.

While we have taken reasonable measures to protect our systems and processes from unauthorized intrusions and cyber-fraud, we cannot be certain that advances in cyber-criminal capabilities, discovery of new system vulnerabilities, and attempts to exploit such vulnerabilities will not compromise or breach the technology protecting our systems and the information that we manage and control, which could result in damage to our systems, our reputation, and our profitability.

Filed Aug 3, 2021.
Source: SEC EDGAR, the filing index for accession 0001558370-21-010012. Last ingested by Listed: Nov 10, 2026, 04:26 ET. No prices; not investment advice.