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Item 2. Management’s Discussion and Analysis

2026-05-07 compared with 2025-11-06 · 60 added, 81 removed, 97 unchanged (59% of the section changed)

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Executive Summary

Founded in 1982, TTEC is a global customer experience (“CX”) outsourcing partner for marquee and disruptive brands and public sector clients.

The Company designs, builds, and operates technology-enabled customer experiences across live interaction channels and provides data-driven digital solutions to help clients improve customer satisfaction and loyalty, increase customer revenue and profitability, and optimize overall cost to serve.

As of September 30, 2025, TTEC served approximately 660 clients across targeted industry verticals including financial services, healthcare, public sector, communications, technology, media, entertainment, travel and hospitality, automotive and retail.

Founded in 1982, TTEC is a global customer experience (“CX”) technology and services outsourcing partner for marquee and disruptive brands and public sector clients.

The Company designs, builds, and operates AI-enabled customer experiences across live interaction channels and provides data-driven, AI-enabled digital solutions to help clients improve customer satisfaction and loyalty, increase customer revenue and profitability, and optimize overall cost to serve.

As of March 31, 2026, TTEC served approximately 750 clients across targeted industry verticals including financial services, healthcare, public sector, communications, technology, media, entertainment, travel and hospitality, automotive and retail.

TTEC operates and reports its financial results of operations through two business segments:

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TTEC Digital serves clients across enterprise and small and medium-sized business segments and has a dedicated unit with government technology certifications serving the public sector.

• TTEC Engage provides the digitally enabled CX operational and managed services to support large, complex enterprise clients’ end-to-end customer interactions at scale across the world.

• TTEC Engage provides the digital first, AI-enabled CX operational and managed services to support large, complex enterprise clients’ end-to-end customer interactions at scale across the world.

Tailored to meet industry-specific business needs, this segment delivers data-driven omnichannel customer care, customer acquisition, growth, and retention services, tech support, fraud mitigation and back-office solutions.

The segment’s technology-enabled delivery model covers the entire solution lifecycle including associate recruitment, onboarding, training, delivery, workforce management and quality assurance.

The segment’s digital first delivery model covers the entire solution lifecycle including associate recruitment, onboarding, training, delivery, workforce management and quality assurance.

TTEC pursues its CX market leadership through strategic collaboration across TTEC Digital and TTEC Engage.

Together, TTEC’s ability to deliver comprehensive and transformational customer experience solutions to its clients is a marketplace differentiation, including integrated CX technology and service solutions, go-to-market strategies, and innovative offerings.

During 2025, the TTEC global operating platform delivered onshore, nearshore, and offshore services in 22 countries on six continents -- the United States, Australia, Belgium, Brazil, Bulgaria, Canada, Colombia, Costa Rica, Egypt, Germany, Greece, Honduras, India, Ireland, Mexico, the Netherlands, New Zealand, the Philippines, Poland, South Africa, Thailand, and the United Kingdom with contributions from approximately 52,000 customer care associates, consultants, technologists, and CX professionals.

Our revenue for third quarter 2025 was $519.1 million, of which approximately $121.9 million, or 23% was generated from our TTEC Digital segment and $397.2 million, or 77%, was generated from our TTEC Engage segment.

Together, TTEC’s ability to deliver comprehensive and transformational customer experience solutions to its clients is a marketplace differentiation, including integrated AI-enabled, CX technology and service solutions, go-to-market strategies, and innovative offerings.

During 2026, the TTEC global operating platform delivered onshore, nearshore, and offshore services in 21 countries on six continents -- the United States, Australia, Brazil, Bulgaria, Canada, Colombia, Costa Rica, Egypt, Germany, Greece, India, Ireland, Malaysia, Mexico, the Netherlands, New Zealand, the Philippines, Poland, South Africa, Thailand, and the United Kingdom, with contributions from approximately 47,200 customer care associates, consultants, technologists, and CX professionals.

Our revenue for first quarter 2026 was $496.2 million, of which approximately $101.9 million, or 20.5%, was generated from our TTEC Digital segment and $394.3 million, or 79.5%, was generated from our TTEC Engage segment.

To advance our competitive position in a rapidly changing market and to provide our clients with modernized CX technology and service solutions, 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 technology-enabled, outcomes-focused services, data analytics, insights, and consulting.

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Financial Highlights

In the third quarter of 2025, our revenue decreased $10.3 million, or 1.9%, to $519.1 million over the same period in 2024 including an increase of $2.2 million, or 0.4%, due to foreign currency fluctuations.

The decrease in revenue was comprised of a $6.2 million, or 5.4%, increase for TTEC Digital and a decrease of $16.5 million, or 4.0%, for TTEC Engage.

Our third quarter 2025 income (loss) from operations decreased $0.6 million to $12.3 million or 2.4% of revenue, compared to $12.9 million or 2.4% of revenue in the third quarter of 2024.

The TTEC Digital operating margin decreased 2.5% over the same period last year primarily due to lower margins in our recurring business and higher one-time on-premise revenue that yields lower margins.

The TTEC Engage operating margin increased 0.6% over the same period last year due to lower impairment expenses.

Income (loss) from operations in the third quarter of 2025 and 2024 included $2.2 million and $5.7 million of restructuring charges and asset impairments, respectively.

In the first quarter of 2026, our revenue decreased $38.1 million, or 7.1%, to $496.2 million over the same period in 2025 including an increase of $7.8 million, or 1.6%, due to foreign currency fluctuations.

The decrease in revenue was comprised of a $6.2 million, or 5.7%, decrease for TTEC Digital and a decrease of $31.9 million, or 7.5%, for TTEC Engage.

Our first quarter 2026 income (loss) from operations decreased $5.7 million to $18.5 million or 3.7% of revenue, compared to $24.2 million, or 4.5% of revenue in the first quarter of 2025.

The TTEC Digital operating margin decreased 4.1% over the same period last year primarily due to lower margins in our recurring and professional services business.

The TTEC Engage operating margin was flat over the same period last year.

Income (loss) from operations in the first quarter of 2026 and 2025 included $2.0 million and $2.8 million, respectively, of restructuring charges and asset impairments.

Our offshore customer experience centers spanning 13 countries serve clients based in the U.S.

and in other countries with 22,000 workstations, representing 83% of our global delivery capability.

Revenue for our TTEC Engage segment provided in these offshore locations represented 39% of our revenue for the third quarter of 2025, as compared to 35% of our revenue for the corresponding period in 2024.

Revenue for our TTEC Engage segment provided in these offshore locations represented 40% of our revenue for the first quarter of 2026, as compared to 34% of our revenue for the corresponding period in 2025.

Our seat utilization is defined as the total number of utilized workstations compared to the total number of available production workstations.

As of September 30, 2025, the total production workstations for our TTEC Engage segment was 26,600, a net decrease of 3,600 workstations over the same period last year, with an overall capacity utilization 73% versus 70% in the prior year period, The increase was due to seat reductions in the U.S.

and Philippines, partially offset by reduced client forecasts.

As of March 31, 2026, the total production workstations for our TTEC Engage segment was 26,850, a net decrease of 2,290 workstations over the same period last year, with an overall capacity utilization 72% versus 71% in the prior year period, The increase was due to targeted seat reductions in the United States and Philippines along with country exits in Honduras and Rwanda.

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 fluctuation increases, we will continue to actively manage this risk via a multi-currency hedging program designed to minimize operating margin volatility.

As we grow our offshore delivery capabilities and our exposure to foreign currency fluctuation increases, we plan to continue to actively manage this risk via a multi-currency hedging program designed to minimize operating margin volatility.

Recent Developments

Change in the Principal Place of Business.

In February 2025, the Company moved its principal place of business and principal executive offices to Austin, Texas.

TTEC made the decision to relocate its principal place of business from Colorado to Austin, Texas after careful consideration of how it can best support its strategic goals, serve its global clients, and position itself for future success.

Texas has been an important part of TTEC’s operations for decades, and this move provides the Company with additional access to a business-friendly environment, a strong economy, a skilled workforce, and a dynamic technology and innovation hub.

Redomestication to Texas.

As part of its 2026 Annual Meeting, the Company is seeking approval from its stockholders to redomesticate to Texas from the Company’s current state of incorporation in Delaware.

The TTEC Board’s determined that the redomestication to Texas is in the best interests of the Company and its stockholders.

The Board’s decision to recommend that the Company’s stockholders vote to approve the redomestication was the result of extensive deliberations and consideration, including evaluation by the Company’s fully independent Nominating and Governance Committee and discussions with management and legal counsel.

The Company and its Board believe that the redomestication is in the best interests of the Company and its stockholders because of the Company's strong operational nexus to the state of Texas and because the Company believes that the move would reduce the potential for opportunistic and frivolous litigation, reduce operational costs for the Company, while preserving and potentially even enhancing shareholder rights and providing operational flexibility.

If the shareholders vote to approve redomestication at the Annual Meeting on May 21, 2026, the Company plans to affect the redomestication via conversion from a corporation organized under the laws of the State of Delaware to a corporation under the laws of the State of Texas in the second quarter of 2026.

Smaller Reporting Company Status

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Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of our Financial Condition and Results of Operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with GAAP.

Management’s Discussion and Analysis of our Financial Condition and Results of Operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the U.S.

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.

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Results of Operations

Three months ended September 30, 2025 compared to three months ended September 30, 2024

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 30, 2025 and 2024 (amounts in thousands).

Three months ended March 31, 2026 compared to three months ended March 31, 2025

All intercompany transactions between the reported segments for the periods presented have been eliminated.

Three Months Ended September 30,

Three Months Ended March 31,

Operating Income

Operating Margin

The increase in revenue for the TTEC Digital segment was driven by higher one-time on-premise related revenue.

The operating income decrease was primarily related to lower margins in our recurring business and higher one-time on-premise revenue that yields lower margins.

Operating income as a percentage of revenue decreased to 4.0% in the third quarter of 2025 as compared to 6.5% in the prior period.

Included in operating income was amortization expense related to acquired intangibles of $3.7 million and $4.1 million for the quarters ended September 30, 2025 and 2024, respectively.

Three Months Ended September 30,

Operating Income (loss)

The decrease in revenue for the TTEC Digital segment was driven by lower recurring and professional services revenue.

The operating income decrease was primarily related to lower margins in our recurring and professional services business.

Operating income as a percentage of revenue decreased to 1.3% in the first quarter of 2026 as compared to 5.4% in the prior period.

Included in operating income was amortization expense related to acquired intangibles of $3.7 million and $3.7 million for the quarters ended March 31, 2026 and 2025, respectively.

Three Months Ended March 31,

Operating Income

Operating Margin

The decrease in revenue for the TTEC Engage segment is explained by lower demand from select large onshore enterprise clients due to clients’ continued conservative cost management by moderating the level of customer support to address cost pressures.

The operating income increase was primarily attributable to lower impairment expenses.

Operating income as a percentage of revenue increased to 1.9% in the third quarter of 2025 as compared to 1.3% in the prior period.

Included in operating income was amortization expense related to acquired intangibles of $4.1 million and $4.1 million for the quarters ended September 30, 2025 and 2024, respectively.

The decrease in revenue for the TTEC Engage segment is primarily due to the completion of a prior year short-term contract and Management’s continuous evaluation of its remaining portfolio.

TTEC Engage’s operating income as a percentage of revenue was flat at 4.3% over the same period last year.

Included in operating income was amortization expense related to acquired intangibles of $4.0 million and $4.1 million for the quarters ended March 31, 2026 and 2025, respectively.

Interest Income (Expense)

For the three months ended September 30, 2025 interest income increased to $0.5 million from $0.3 million in the same period in 2024 due to $0.3 million of interest income on an aged VAT receivable.

For the three months ended March 31, 2026 interest income decreased to $0.5 million from $4.6 million in the same period in 2025 due to lower interest income on an aged VAT receivable.

Interest expense decreased to $17.0 million during 2026 from $19.8 million during 2025 due to lower utilization and lower rates.

Other Income (Expense)

For the three months ended September 30, 2025 Other income (expense), net increased to income of $3.8 million from expense of $1.0 million during the prior year quarter.

Included in the three months ended September 30, 2025 was a $1.7 million gain related to a recovery of an aged VAT receivable.

Included in the three months ended September 30, 2024 was a $0.5 million gain related to the fair value adjustment of a contingent consideration accrual.

The effective tax rate for the three months ended September 30, 2025 was 21,930.3%.

For the three months ended March 31, 2026 Other income (expense), net decreased to income of $0.7 million from income of $3.6 million during the prior year quarter.

Included in the three months ended March 31, 2025 was a $3.9 million gain related to a recovery of an aged VAT receivable.

The effective tax rate for the three months ended March 31, 2026 was 297.6%.

This compares to an effective tax rate of 74.2% for the comparable period of 2025.

The effective tax rate for the three months ended September 30, 2025 is primarily driven by the distribution of income between the U.S.

and international tax jurisdictions, earnings in international jurisdictions currently under an income tax holiday, foreign currency gains and losses, and the impact of valuation allowances in the United States and several other jurisdictions.

Nine months ended September 30, 2025 compared to nine months ended September 30, 2024

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 months ended September 30, 2025 and 2024 (in thousands).

All intercompany transactions between the reported segments for the periods presented have been eliminated.

Nine Months Ended September 30,

Operating Income

Operating Margin

The slight decrease in revenue for the TTEC Digital segment was driven by lower recurring revenue offset by higher one-time on-premise related revenue.

The operating income increase is primarily attributable to the sale of software, lower employee related costs, improved utilization, and lower impairment expenses.

Operating income as a percentage of revenue increased to 6.4% for the nine months ended September 30, 2025 as compared to 4.9% in the prior period.

Included in operating income was amortization expense related to acquired intangibles of $11.0 million and $12.7 million for the nine months ended September 30, 2025 and 2024, respectively.

Nine Months Ended September 30,

Operating Income (loss)

Operating Margin

The decrease in revenue for the TTEC Engage segment is explained by a long tenured client exiting a large line of business supported by TTEC and lower demand from select large onshore enterprise clients due to clients’ continued conservative cost management by moderating the level of customer support to address cost pressures.

The operating income (loss) change was primarily attributable to the Q2 2024 goodwill impairment of $233.5 million and lower impairment expenses.

As a result, operating income (loss) as a percentage of revenue increased to 2.7% for the nine months ended September 30, 2025 as compared to (15.9)% in the prior period.

Included in operating income was amortization expense related to acquired intangibles of $12.2 million and $12.3 million for the nine months ended September 30, 2025 and 2024, respectively.

Interest Income (Expense)

For the nine months ended September 30, 2025 interest income increased to $8.3 million from $1.7 million in the same period in 2024 due to $7.6 million of interest income on an aged VAT receivable.

Interest expense decreased to $54.7 million during 2025 from $63.2 million during 2024 due to the termination of the factoring agreement, lower utilization and lower rates.

Other Income (Expense)

For the nine months ended September 30, 2025 Other income (expense), net increased to net income of $7.1 million from net income of $1.0 million during the prior year period.

Included in the nine months ended September 30, 2025 was a $8.3 million gain related to a recovery of an aged VAT receivable.

Included in the nine months ended September 30, 2024 was a $1.5 million gain related to the fair value adjustment of a contingent consideration accrual.

The effective tax rate for the nine months ended September 30, 2025 was 189.9%.

This compared to an effective tax rate of (26.4)% for the comparable period of 2024.

The effective tax rate for the nine months ended September 30, 2025 is primarily driven by the distribution of income between the U.S.

The effective tax rate for the three months ended March 31, 2026 is primarily driven by the distribution of income between the U.S.

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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 months ended September 30, 2025, we generated operating cash flows of $118.5 million.

During the three months ended March 31, 2026, we generated operating cash flows of $27.5 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.

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The increased pricing, reduced size of the Credit Facility, and more restrictive covenants may limit the Company’s ability to pursue certain strategic initiatives, including acquisitions.

Management expects to continue to monitor the credit markets and, starting in 2026, to actively seek alternative credit arrangements designed to provide the Company with greater flexibility.

Management expects to continue to monitor the credit markets and, it is actively seeking alternative credit arrangements designed to provide the Company with greater flexibility.

Pending any refinancing of the Credit Facility, management will continue to evaluate the impact of these changes on the Company’s financial position and results of operations.

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We are also exposed to interest rate fluctuations associated with our variable rate debt.

The following discussion highlights our cash flow activities during the nine months ended September 30, 2025 and 2024.

The following discussion highlights our cash flow activities during the three months ended March 31, 2026 and 2025.

Cash and Cash Equivalents

We consider all liquid investments purchased within three months of their original maturity to be cash equivalents.

Our cash and cash equivalents totaled $73.5 million and $85.0 million as of September 30, 2025 and December 31, 2024, respectively.

Our cash and cash equivalents totaled $88.7 million and $82.9 million as of March 31, 2026 and December 31, 2025, respectively.

We reinvest our cash flows to grow our client base, expand our infrastructure, invest in research and development, make strategic acquisitions and to pay dividends.

Cash Flows from Operating Activities

For the nine months ended September 30, 2025 and 2024, net cash flows provided by/(used in) operating activities was $118.5 million and $ (57.7) million, respectively.

The increase is primarily due to a $171.8 million increase in net working capital and a $4.4 million increase in net cash income from operations.

For the three months ended March 31, 2026 and 2025, net cash flows provided by operating activities was $27.5 million and $21.6 million, respectively.

The increase is primarily due to a $18.3 million increase in net working capital offset by $12.4 million decrease in net cash income from operations.

Cash Flows from Investing Activities

For the nine months ended September 30, 2025 and 2024, net cash flows used in investing activities was $21.9 million and $36.3 million, respectively.

The decrease was due to a $10.1 million decrease in capital expenditures as we rephased our timing of capital expenditures.

For the three months ended March 31, 2026 and 2025, net cash flows used in investing activities was $4.9 million and $5.3 million, respectively.

The decrease was due to a $1.3 million increase in asset sales offset by a $1.0 million increase in capital expenditures.

Cash Flows from Financing Activities

For the nine months ended September 30, 2025 and 2024, net cash flows provided by/(used in) financing activities was $(102.9) million and $14.8 million, respectively.

For the three months ended March 31, 2026 and 2025, net cash flows used in financing activities was $18.4 million and $13.7 million, respectively.

The change in net cash flows from 2025 to 2026 was primarily due to a $5.0 million net change in the line of credit.

Free Cash Flow

Free cash flow (see “Presentation of Non-GAAP Measurements” below for the definition of free cash flow) increased for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024 primarily due to an increase in net working capital and cash from operations.

Free cash flow was $92.1 million and ($94.2) million for the nine months ended September 30, 2025 and 2024, respectively.

Free cash flow (see “Presentation of Non-GAAP Measurements” below for the definition of free cash flow) increased for the three months ended March 31, 2026 compared to the three months ended March 31, 2025 primarily due to an increase in net working capital and cash from operations.

Free cash flow was $21.1 million and $16.2 million for the three months ended March 31, 2026 and 2025, respectively.

Presentation of Non-GAAP Measurements

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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 March 31,

Net cash provided by operating activities

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Client Concentration

During the nine months ended September 30, 2025 and 2024, one of our clients represented more than 10% of our total revenue.

Our five largest clients, collectively, accounted for 31.8% and 31.5% of our consolidated revenue for the three months ended September 30, 2025 and 2024, respectively and 31.0% and 32.6% of our consolidated revenue for the nine months ended September 30, 2025 and 2024, respectively.

During the three months ended March 31, 2026 and 2025, one of our clients represented more than 10% of our total revenue.

Our five largest clients, collectively, accounted for 33.4% and 31.2% of our consolidated revenue for the three months ended March 31, 2026 and 2025, respectively.

We have had long-term relationships with our top five TTEC Engage clients, ranging from 6 to 26 years, with all of these clients having completed multiple contract renewals with us.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis