What changed in this filing

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Item 1. Financial Statements

2020-08-05 compared with 2020-05-04 · 368 added, 483 removed, 632 unchanged (57% of the section changed)

6 unchanged sentences

Cash and cash equivalents

Accounts receivable, net of allowance of $5,402 and $5,452, respectively

Accounts receivable, net of allowance of $ 5,795 and $ 5,452

Prepaids and other current assets

8 unchanged sentences

Total long-term assets

LIABILITIES AND STOCKHOLDERS’

EQUITY AND MEZZANINE EQUITY

LIABILITIES, STOCKHOLDERS’ EQUITY AND MEZZANINE EQUITY

Current liabilities

17 unchanged sentences

Redeemable noncontrolling interest

Stockholders’

Stockholders’ equity

Preferred stock;

1 unchanged sentence

10,000,000 shares authorized;

zero shares outstanding as of March 31, 2020 and December 31, 2019

zero shares outstanding as of June 30, 2020 and December 31, 2019

Common stock;

1 unchanged sentence

150,000,000 shares authorized;

46,596,873 and 46,488,938 shares outstanding as of March 31, 2020 and December 31, 2019, respectively

46,682,482 and 46,488,938 shares outstanding as of June 30, 2020 and December 31, 2019, respectively

Additional paid-in capital

Treasury stock at cost;

35,455,380 and 35,563,315 shares as of March 31, 2020 and December 31, 2019, respectively

35,369,771 and 35,563,315 shares as of June 30, 2020 and December 31, 2019, respectively

Accumulated other comprehensive income (loss)

1 unchanged sentence

Noncontrolling interest

Total stockholders’

Total liabilities and stockholders’

Total stockholders’ equity

Total liabilities and stockholders’ equity and mezzanine equity

The accompanying notes are an integral part of these consolidated financial statements.

3 unchanged sentences

(Amounts in thousands, except per share amounts)

Three months ended March 31,

Three months ended June 30,

Six months ended June 30,

Operating expenses

23 unchanged sentences

Comprehensive income attributable to noncontrolling interest

Comprehensive income (loss) attributable to TTEC stockholders

Comprehensive income attributable to TTEC stockholders

Weighted average shares outstanding

4 unchanged sentences

AND SUBSIDIARIES

Consolidated Statement of Stockholders’

Equity and Mezzanine Equity

Consolidated Statement of Stockholders’ Equity and Mezzanine Equity

(Amounts in thousands)

Three months ended March 31, 2020 and 2019

Stockholders’

Equity of the Company

Three months ended June 30, 2020 and 2019

Stockholders’ Equity of the Company

Preferred Stock

3 unchanged sentences

Income (Loss)

Balance as of December 31, 2018

Balance as of March 31, 2020

Dividends to shareholders ($ 0.00 per common share)

Acquisition of noncontrolling interest

Dividends distributed to noncontrolling interest

Foreign currency translation adjustments

Derivatives valuation, net of tax

Vesting of restricted stock units

Equity-based compensation expense

Other, net of tax

Balance as of June 30, 2020

Stockholders’ Equity of the Company

Preferred Stock

Comprehensive

Noncontrolling

Paid-in Capital

Income (Loss)

Balance as of March 31, 2019

Cumulative effect of adopting accounting standard updates

6 unchanged sentences

Equity-based compensation expense

Purchases of common stock

Other, net of tax

Balance as of March 31, 2019

Stockholders’

Equity of the Company

Balance as of June 30, 2019

Six months ended June 30, 2020 and 2019

Stockholders’ Equity of the Company

Preferred Stock

11 unchanged sentences

Equity-based compensation expense

Purchases of common stock

Other, net of tax

Balance as of March 31, 2020

Balance as of June 30, 2020

Stockholders’ Equity of the Company

Preferred Stock

Comprehensive

Noncontrolling

Paid-in Capital

Income (Loss)

Balance as of December 31, 2018

Cumulative effect of adopting accounting standard updates

Dividends to shareholders ($ 0.30 per common share)

Capital contribution from noncontrolling interest

Dividends distributed to noncontrolling interest

Foreign currency translation adjustments

Derivatives valuation, net of tax

Vesting of restricted stock units

Equity-based compensation expense

Other, net of tax

Balance as of June 30, 2019

The accompanying notes are an integral part of these consolidated financial statements.

3 unchanged sentences

(Amounts in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities

6 unchanged sentences

(Gain) loss on disposal of assets

Loss on dissolution of subsidiary

Impairment losses

35 unchanged sentences

Acquisition of equipment through increase in accounts payable, net

Dividend declared but not paid

The accompanying notes are an integral part of these consolidated financial statements.

5 unchanged sentences

TTEC Holdings, Inc.

(“TTEC”, “the Company”) is a leading global customer experience technology and services company focused on the design, implementation and delivery of transformative customer experience outcomes for many of the world’s most iconic and disruptive brands.

Since its inception in 1982, the Company has been helping clients deliver frictionless customer experiences, strengthen their customer relationships, brand recognition and loyalty through personalized interactions, significantly improve their Net Promoter Score (“NPS”), and lower their total cost to serve by enabling and delivering simplified, consistent and seamless customer experience across channels and phases of the customer lifecycle.

TTEC’s 48,700 employees serve clients in the automotive, communication, financial services, government, healthcare, logistics, media and entertainment, retail, technology, transportation and travel industries via operations in the United States, Australia, Belgium, Brazil, Bulgaria, Canada, Costa Rica, Germany, Greece, Hong Kong, India, Ireland, Mexico, the Netherlands, New Zealand, the Philippines, Poland, Singapore, South Africa, Thailand, and the United Kingdom.

TTEC’s 51,700 employees serve clients in the automotive, communication, financial services, government, healthcare, logistics, media and entertainment, retail, technology, transportation and travel industries via operations in the United States, Australia, Belgium, Brazil, Bulgaria, Canada, Costa Rica, Germany, Greece, Hong Kong, India, Ireland, Mexico, the Netherlands, New Zealand, the Philippines, Poland, Singapore, South Africa, Thailand, and the United Kingdom.

The Company reports its financial information based on the following two segments:

3 unchanged sentences

● TTEC Engage provides the essential technologies, human resources, infrastructure and processes to operate customer care, acquisition, and fraud detection and prevention services.

TTEC Digital and TTEC Engage come together under our unified offering, Humanify TM Customer Experience as a Service (“CXaas”), which drives measurable customer results for clients through the delivery of personalized, omnichannel experiences.

Our Humanify TM cloud platform provides a fully integrated ecosystem of Customer Experience (“CX”) offerings, including omnichannel, messaging, AI, ML, RPA, analytics, cybersecurity, customer relationship management (“CRM”), knowledge management and journey orchestration.

Basis of Presentation

3 unchanged sentences

The unaudited Consolidated Financial Statements do not include all of the disclosures required by accounting principles generally accepted in the U.S.

(“GAAP”), pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).

The unaudited Consolidated Financial Statements reflect all adjustments which, in the opinion of management, are necessary to state fairly the consolidated financial position of the Company and the consolidated results of operations and comprehensive income (loss) and the consolidated cash flows of the Company.

Operating results for the periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

These unaudited Consolidated Financial Statements should be read in conjunction with the Company’s audited Consolidated Financial Statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

TTEC HOLDINGS, INC.

8 unchanged sentences

Cash and cash equivalents consist of cash and highly liquid short-term investments, primarily held in interest-bearing investments which have original maturities of less than 90 days.

Restricted cash includes cash whereby the Company’s ability to use the funds at any time is contractually limited or is generally designated for specific purposes arising out of certain contractual or other obligations.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the Condensed Consolidated Balance Sheets that sum to the amounts reported in the Condensed Consolidated Statement of Cash Flows (in thousands):

March 31, 2020

June 30, 2020

December 31, 2019

Cash and cash equivalents

Restricted cash included in "Prepaid and other current assets"

Restricted cash included in "Other noncurrent assets"

Restricted cash included in "Prepaid and other current assets"

Restricted cash included in "Other noncurrent assets"

Concentration of Credit Risk

7 unchanged sentences

Notes to Consolidated Financial Statements

Recently Issued Accounting Pronouncements

In January 2016, the FASB issued ASU 2016-13, “Financial Instruments –

Credit Losses”

(ASC 326), which amends the methodology of how and when companies measure credit losses on financial instruments.

Recently Adopted Accounting Pronouncements

In January 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses” (ASC 326), which amends the methodology of how and when companies measure credit losses on financial instruments.

The objective of the ASU is to provide financial statement users more useful information regarding expected credit losses on financial instruments and other commitments.

In November 2018, the FASB issued ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses”

which clarifies the scope of guidance in ASU 2016-13.

In November 2018, the FASB issued ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses” which clarifies the scope of guidance in ASU 2016-13.

In May 2019, the FASB issued ASU No.

2019-05, “Financial Instruments—Credit Losses (Topic 326), Targeted Transition Relief”

which amended the transition guidance for the new credit losses standard (ASC 326).

2019-05, “Financial Instruments—Credit Losses (Topic 326), Targeted Transition Relief” which amended the transition guidance for the new credit losses standard.

The ASU is effective for interim and annual periods beginning on or after December 15, 2019 with early adoption permitted, using a modified retrospective approach.

1 unchanged sentence

See Note 4 for additional disclosures.

In August 2018, the FASB issued ASU 2018-15 “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract”

(“CCA”), which aligns the accounting for the costs of implementing CCA’s with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.

In August 2018, the FASB issued ASU 2018-15 “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract” (“CCA”), which aligns the accounting for the costs of implementing CCA’s with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.

Once these costs have been capitalized, they should be amortized over the term of the hosting arrangement.

2 unchanged sentences

Other Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes”

(ASU 740), which is intended to simplify various aspects related to income tax accounting.

In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes” (ASU 740), which is intended to simplify various aspects related to income tax accounting.

The ASU is effective for interim and annual periods beginning on or after December 15, 2020, with early adoption permitted.

1 unchanged sentence

(2) ACQUISITIONS AND DIVESTITURES

On February 7, 2020, the Company acquired, through its subsidiary TTEC Digital, LLC (“TTEC Digital”), 70% of the outstanding shares of capital stock of Serendebyte Inc., a Delaware corporation (“the Transaction”).

On February 7, 2020 , the Company acquired, through its subsidiary TTEC Digital, LLC (“TTEC Digital”), 70 % of the outstanding shares of capital stock of Serendebyte Inc., a Delaware corporation (“the Transaction”).

Serendebyte is an autonomous customer experience and intelligent automation solutions provider with 125 employees based in India, the United States, and Canada .

2 unchanged sentences

The Transaction is subject to customary representations and warranties, holdbacks, and a net working capital adjustment.

The Company finalized the net working capital adjustment for $0.8 million during the second quarter of 2020 which will be paid from Serendebyte to TTEC Digital in the second quarter of 2020.

The Company finalized the net working capital adjustment for $ 0.8 million during the second quarter of 2020 which was paid from Serendebyte to TTEC Digital in the second quarter of 2020.

TTEC HOLDINGS, INC.

1 unchanged sentence

Notes to Consolidated Financial Statements

As of the closing of the Transaction, Serendebyte’s founder and certain members of its management will continue to hold the remaining 30% interest in Serendebyte, Inc.

(“Remaining Interest”).

Between January 31, 2023 and December 31, 2023, Serendebyte’s founder and the management team shall have an option to sell to TTEC Digital and TTEC Digital shall have an option to purchase the Remaining Interest at a purchase price equal to a multiple of Serendebyte’s adjusted trailing twelve month EBITDA for this particular acquisition.

As of the closing of the Transaction, Serendebyte’s founder and certain members of its management will continue to hold the remaining 30 % interest in Serendebyte, Inc.

(“Remaining Interest”).

The noncontrolling interest was recorded at fair value on the date of acquisition.

1 unchanged sentence

The noncontrolling interest was valued at $ 3.8 million and is shown as Redeemable noncontrolling interest in the accompanying Consolidated Balance Sheets.

As a condition to closing, Serendebyte’s founder and certain members of the management team agreed to continue their affiliation with Serendebyte at least through 2023, and the founder agreed not to compete with TTEC for a period of four years after the disposition of the Remaining Interest.

The following summarizes the estimated fair values of the identifiable assets acquired and liabilities assumed as of the acquisition date (in thousands):

12 unchanged sentences

The estimates of fair value of identifiable assets acquired and liabilities assumed are preliminary, pending finalization of a valuation and tax returns, thus are subject to revisions that may result in adjustments to the values presented above.

At the date of the purchase, an additional $2.2 million of cash was retained in the entity that will be withdrawn by the holders of the Remaining Interest during the second quarter of 2020.

TTEC HOLDINGS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The Serendebyte customer relationships and tradename have been estimated based on the initial valuation and will be amortized over an estimated useful life of 6 and 4 years, respectively.

At the date of the purchase, an additional $ 2.2 million of cash was retained in the entity that was withdrawn by the holders of the Remaining Interest during the second quarter of 2020.

The Serendebyte customer relationships and tradename have been estimated based on the initial valuation and will be amortized over estimated useful lives of 5 and 3 years , respectively.

The goodwill recognized from the Serendebyte acquisition is estimated to be attributable, but not limited to, the acquired workforce and expected synergies with TTEC Digital segment.

1 unchanged sentence

The acquired goodwill and intangibles and operating results of Serendebyte are reported within the TTEC Digital segment from the date of acquisition.

TTEC HOLDINGS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

First Call Resolution

On October 26, 2019, the Company acquired, through its subsidiary TTEC Services Corporation (“TSC”), 70% of the outstanding membership interest in First Call Resolution, LLC (“FCR”), an Oregon limited liability company (“the Transaction”).

On October 26, 2019 , the Company acquired, through its subsidiary TTEC Services Corporation (“TSC”), 70 % of the outstanding membership interest in First Call Resolution, LLC (“FCR”), an Oregon limited liability company (“the Transaction”).

FCR is a customer care, social networking and business process solutions service provider with approximately 2,000 employees based in the U.S .

2 unchanged sentences

The Transaction was subject to customary representations and warranties, holdbacks, and a net working capital adjustment.

The Transaction included a potential contingent payment with a maximum value of $10.9 million based on FCR’s 2020 EBITDA performance.

The Transaction included a potential contingent payment with a maximum value of $ 10.9 million based on FCR’s 2020 EBITDA performance.

The Company finalized the working capital adjustment for $ 0.7 million during the first quarter of 2020 which was paid from FCR to TSC in March 2020.

As of the closing of the Transaction, Ortana Holdings, LLC, an Oregon limited liability company (“Ortana”), owned by the FCR founders, will continue to hold the remaining 30% membership interest in FCR (“Remaining Interest”).

Between January 31, 2023 and December 31, 2023, Ortana shall have an option to sell to TSC and TSC shall have an option to purchase from Ortana the Remaining Interest at a purchase price equal to a multiple of FCR’s adjusted trailing twelve month EBITDA for this particular acquisition and not to compete with the Company for a period of four years after the disposition of the Remaining Interest.

As of the closing of the Transaction, Ortana Holdings, LLC, an Oregon limited liability company (“Ortana”), owned by the FCR founders, will continue to hold the remaining 30 % membership interest in FCR (“Remaining Interest”).

Between January 31, 2023 and December 31, 2023, Ortana shall have an option to sell to TSC and TSC shall have an option to purchase from Ortana the Remaining Interest at a purchase price equal to a multiple of FCR’s adjusted trailing twelve month EBITDA for this particular acquisition, and not to compete with the Company for a period of four years after the disposition of the Remaining Interest.

The noncontrolling interest was recorded at fair value on the date of acquisition.

5 unchanged sentences

As of the acquisition date, the present value of the contingent consideration was $ 6.1 million.

During the first quarter of 2020, a $3.3 million net benefit was recorded related to a fair value adjustment of the estimated contingent consideration based on revised actuals and estimates of EBITDA performance for 2020.

The benefit was included in Other income (expense) in the Consolidated Statements of Comprehensive Income (Loss).

As of March 31, 2020, the value of the contingent consideration was $2.9 million and was included in Other current liabilities in the accompanying Consolidated Balance Sheets.

During the first and second quarters of 2020, $ 3.3 million and $ 1.1 million of net benefits, respectively, were recorded related to fair value adjustments of the estimated contingent consideration based on revised actuals and estimates of EBITDA performance for 2020.

The benefits were included in Other income (expense) in the Consolidated Statements of Comprehensive Income (Loss).

As of June 30, 2020, the value of the contingent consideration was $ 1.8 million and was included in Other current liabilities in the accompanying Consolidated Balance Sheets.

TTEC HOLDINGS, INC.

19 unchanged sentences

The tax basis of the acquired intangibles and goodwill will be deductible for income tax purposes.

The acquired goodwill and intangibles and operating results of FCR are reported within the Engage segment from the date of acquisition.

The acquired goodwill and intangibles and operating results of FCR are reported within the TTEC Engage segment from the date of acquisition.

TeleTech Customer Management (Ghana) Limited

In the second quarter of 2020, the Company dissolved TeleTech Customer Management (Ghana) Limited, a wholly owned subsidiary domiciled in Ghana.

Upon the completed dissolution, a $ 2.5 million loss was included in Other income (expense), net in the Consolidated Statements of Comprehensive Income (Loss) during the quarter ended June 30, 2020.

The majority of the loss related to the removal of the Accumulated other comprehensive income (loss) balance.

Financial Impact of Acquired Businesses

The acquired businesses purchased in 2020 and 2019 noted above contributed revenues of $27.1 million and net income of $2.4 million, inclusive of $1.6 million of acquired intangible amortization, to the Company for the three months ended March 31, 2020.

The unaudited proforma financial results for the three months ended 2020 and 2019 combines the consolidated results of the Company, FCR and Serendebyte, assuming the acquisitions had been completed on January 1, 2019.

The reported revenue and net income of $432.2 million and $21.9 million would have been $433.2 million and $22.1 million for the three months ended March 31, 2020, respectively, on an unaudited proforma basis.

For 2019, the reported revenue and net income of $394.4 million and $19.0 million would have been $415.8 million and $23.4 million for the three months ended March 31, 2019, respectively, on an unaudited proforma basis.

The acquired businesses purchased in 2020 and 2019 noted above contributed revenues of $ 52.2 million and net income of $ 3.7 million, inclusive of $ 3.2 million of acquired intangible amortization, to the Company for the six months ended June 30, 2020.

TTEC HOLDINGS, INC.

1 unchanged sentence

Notes to Consolidated Financial Statements

The unaudited proforma financial results for the six months ended June 30, 2020 and 2019 combines the consolidated results of the Company, FCR and Serendebyte, assuming the acquisitions had been completed on January 1, 2019.

The reported revenue and net income of $ 885.3 million and $ 52.9 million would have been $ 886.3 million and $ 53.1 million for the six months ended June 30, 2020, respectively, on an unaudited proforma basis.

For 2019, the reported revenue and net income of $ 786.9 million and $ 30.8 million would have been $ 830.7 million and $ 39.4 million for the six months ended June 30, 2019, respectively, on an unaudited proforma basis.

The unaudited proforma consolidated results are not to be considered indicative of the results if these acquisitions occurred in the periods mentioned above, or indicative of future operations or results.

Additionally, the proforma consolidated results do not reflect any anticipated synergies expected as a result of the acquisition.

Subsequent Event

On August 5, 2020 , TTEC Digital, LLC (“TTEC Digital”), a subsidiary of the Company, agreed to acquire 100 % of VoiceFoundry, a preferred Amazon Connect cloud contact center services partner (the “VF Transaction”).

The VF Transaction will close in two phases, with the acquisition of VoiceFoundry’s U.S.

and European operations closing contemporaneously with the signing of the purchase agreement and the acquisition of the Australian and ASEAN operations closing as soon as practicable following clearance by the Australian Foreign Investment Review Board.

TTEC Digital agreed to pay up to $ 67.2 million, in aggregate, for the VF Transaction, including aggregate cash consideration at closing of $ 48.0 million and potential earn-out payments over the next two years with a maximum value of up to $ 19.2 million, based on VoiceFoundry’s post-closing performance against agreed 2020 and 2021 EBITDA targets.

The VF Transaction is subject to customary representations and warranties, holdbacks, and working capital adjustments.

(3) SEGMENT INFORMATION

2 unchanged sentences

These solutions are critical to enabling and accelerating digital transformation for our clients.

Technology Services:

o Technology Services:

Our technology services design, integrate and operate highly scalable, digital omnichannel technology solutions in the cloud, on premise, or hybrid, including journey orchestration, automation and AI, knowledge management, and workforce productivity.

Professional Services:

o Professional Services:

Our management consulting practices deliver customer experience strategy, analytics, process optimization, and learning and performance services.

● TTEC Engage provides the essential technologies, human resources, infrastructure and processes to operate customer care, acquisition, and fraud detection and prevention services.

Customer Acquisition Services:

o 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:

o Customer Care Services:

Our customer care services provide turnkey contract 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:

TTEC HOLDINGS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

o Fraud Prevention Services:

Our digital fraud detection and prevention services proactively identify and prevent fraud and provide community content moderation and compliance.

2 unchanged sentences

The following tables present certain financial data by segment (in thousands):

Three Months Ended March 31, 2020

Three Months Ended March 31, 2019

Three Months Ended June 30, 2020

Three Months Ended June 30, 2019

Six Months Ended June 30, 2020

Six Months Ended June 30, 2019

Three Months Ended

Six Months Ended

Capital Expenditures

TTEC HOLDINGS, INC.

1 unchanged sentence

Notes to Consolidated Financial Statements

Three Months Ended

Capital Expenditures

March 31, 2020

June 30, 2020

December 31, 2019

March 31, 2020

June 30, 2020

December 31, 2019

The following table presents revenue based upon the geographic location where the services are provided (in thousands):

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

United States

3 unchanged sentences

(4) SIGNIFICANT CLIENTS AND OTHER CONCENTRATIONS

The Company had no client that contributed in excess of 10% of total revenue for the three months ended March 31, 2020.

The Company had one client that contributed in excess of 10% of total revenue for the three months ended March 31, 2019.

This client operates in the healthcare industry, is included in the Engage segment and contributed 11.1% of total revenue for the three months ended March 31, 2019.

The Company does have clients with aggregate revenue exceeding $100 million annually and the loss of one or more of these clients could have a material adverse effect on the Company’s business, operating results, or financial condition.

The Company had no clients that contributed in excess of 10% of total revenue for the six months ended June 30, 2020 or 2019.

The Company does have clients with aggregate revenue exceeding $ 100 million annually and the loss of one or more of these clients could have a material adverse effect on the Company’s business, operating results, or financial condition.

To mitigate this risk, the Company has multiple contracts with these larger clients, where each individual contract is for an amount below the $100 million aggregate.

To limit the Company’s credit risk with its clients, management performs periodic credit evaluations, maintains allowances for credit losses and may require pre-payment for services from certain clients.

Based on currently available information, management does not believe significant credit risk existed as of March 31, 2020.

TTEC HOLDINGS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Based on currently available information, management does not believe significant credit risk existed as of June 30, 2020.

In connection with the implementation of ASC 326 as of January 1, 2020, the Company analyzed the prior history of credit losses on revenue for TTEC as a whole and separately for each of the two segments.

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The Company will write-off accounts receivable against this allowance when the Company determines a balance is uncollectible.

Activity in the Company’s Allowance for credit losses consists of the following (in thousands):

Balance, beginning of year

TTEC HOLDINGS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Activity in the Company’s Allowance for credit losses consists of the following (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Balance, beginning of period

Provision for credit losses

1 unchanged sentence

Effect of foreign currency

Balance, end of year

On October 15, 2018, Sears Holding Corporation (“Sears”) announced that it had filed a petition for bankruptcy protection in the United States Bankruptcy Court for the Southern District of New York.

As of March 31, 2020 and December 31, 2019, TTEC had approximately $2.7 million in pre-petition accounts receivables exposure related to Sears;

Balance, end of period

As of June 30, 2020 and December 31, 2019, TTEC had approximately $ 2.7 million in pre-petition accounts receivables exposure related to Sears;

during the fourth quarter of 2018 a $ 2.7 million allowance for uncollectible accounts was recorded and included in Selling, general and administrative expenses in the Consolidated Statements of Comprehensive Income (Loss).

1 unchanged sentence

Accounts Receivable Sales Agreement

On March 5, 2019, the Company entered into an Uncommitted Receivables Purchase Agreement (“Agreement”) with Bank of the West (“Bank”), whereby from time-to-time the Company may elect to sell, on a revolving basis, U.S.

accounts receivables of certain clients at a discount to the Bank for cash on a limited recourse basis.

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The cash proceeds from this agreement are included in the change in accounts receivable within the operating activities section of the Consolidated Statements of Cash Flows.

As of March 31, 2020, the Company had factored $41.2 million of accounts receivable;

As of June 30, 2020, the Company had factored $ 40.0 million of accounts receivable;

under the Agreement discounts on these receivables were not material during the quarter.

As of March 31, 2020, the Company had collected $21.6 million of cash from customers which had not been remitted to the Bank.

As of June 30, 2020, the Company had collected $ 20.4 million of cash from customers which had not been remitted to the Bank.

The unremitted cash is Restricted Cash and is included within Prepaid and Other Current Assets with the corresponding liability included in Accrued Expenses on the Consolidated Balance Sheet.

The Company has not recorded any servicing assets or liabilities as of March 31, 2020 as the fair value of the servicing arrangement as well as the fees earned were not material to the financial statements.

TTEC HOLDINGS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The Company has not recorded any servicing assets or liabilities as of June 30, 2020 as the fair value of the servicing arrangement as well as the fees earned were not material to the financial statements.

(5) GOODWILL AND OTHER INTANGIBLE ASSETS

1 unchanged sentence

Acquisitions /

TTEC HOLDINGS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The Company performs a goodwill impairment assessment on at least an annual basis.

The Company conducts its annual goodwill impairment assessment during the fourth quarter, or more frequently, if indicators of impairment exist.

During the quarter ended March 31, 2020, the Company assessed whether any such indicators of impairment existed and concluded there were none.

During the Company’s annual impairment testing as of December 1, 2019, the Company identified triggering events that could lead to impairment of goodwill for the Digital Consulting reporting unit, including lower revenues and profits than had been anticipated over the past two years.

During the quarter ended June 30, 2020, the Company assessed whether any such indicators of impairment existed and concluded there were none.

The carrying value of Digital Consulting was $ 39.7 million at December 1, 2019, including approximately $ 24.3 million of goodwill.

Based on the Company’s assessment, the estimated fair value of the Digital Consulting reporting unit exceeded its carrying value by approximately 26%, but based on additional sensitivity analysis, the amount of cushion could fall to 0% or below if the performance of the business does not improve as expected.

The estimate of fair value was based on generally accepted valuation techniques and information available at the date of the assessment, which incorporated management’s assumptions about expected revenues and future cash flows and available market information for comparable companies.

Based on the Company’s assessment, the estimated fair value of the Digital Consulting reporting unit exceeded its carrying value by approximately 26 %, but based on additional sensitivity analysis, the amount of cushion could fall to 0% or below if the performance of the business does not improve as expected.

During the first six months of 2020, the reporting unit has delivered actual results slightly better than the estimate included in the analysis above.

Other Intangible Assets

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As part of the $2.0 million impairment $ 0.4 million was assigned to the customer relationship intangible asset and $ 0.2 million to the IP intangible asset.

At December 31, 2019 and March 31, 2020, the Company reviewed the evaluation completed as of June 30, 2019, and noted no material changes, thus no additional impairment was required.

TTEC HOLDINGS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

At December 31, 2019 and June 30, 2020, the Company reviewed the evaluation completed as of June 30, 2019, and noted no material changes, thus no additional impairment was required.

(6) DERIVATIVES

1 unchanged sentence

The Company enters into foreign exchange related derivatives.

Foreign exchange derivatives entered into consist of forward and option contracts to reduce the Company’s exposure to foreign currency exchange rate fluctuations that are associated with forecasted revenue earned in foreign locations.

Upon proper qualification, these contracts are designated as cash flow hedges.

It is the Company’s policy to only enter into derivative contracts with investment grade counterparty financial institutions, and correspondingly, the fair value of derivative assets considers, among other factors, the creditworthiness of these counterparties.

Conversely, the fair value of derivative liabilities reflects the Company’s creditworthiness.

As of March 31, 2020, the Company has not experienced, nor does it anticipate, any issues related to derivative counterparty defaults.

The following table summarizes the aggregate unrealized net gain or loss in Accumulated other comprehensive income (loss) for the three months ended March 31, 2020 and 2019 (in thousands and net of tax):

Three Months Ended March 31,

Conversely, the fair value of derivative liabilities reflects the Company’s creditworthiness.

As of June 30, 2020, the Company has not experienced, nor does it anticipate, any issues related to derivative counterparty defaults.

The following table summarizes the aggregate unrealized net gain or loss in Accumulated other comprehensive income (loss) for the three and six months ended June 30, 2020 and 2019 (in thousands and net of tax):

TTEC HOLDINGS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Three Months Ended

Six Months Ended

Aggregate unrealized net gain/(loss) at beginning of period

2 unchanged sentences

Aggregate unrealized net gain/(loss) at end of period

The Company’s foreign exchange cash flow hedging instruments as of March 31, 2020 and December 31, 2019 are summarized as follows (amounts in thousands).

The Company’s foreign exchange cash flow hedging instruments as of June 30, 2020 and December 31, 2019 are summarized as follows (amounts in thousands).

All hedging instruments are forward contracts.

As of March 31, 2020

As of June 30, 2020

Philippine Peso

December 2022

As of December 31, 2019

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(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 March 31, 2020 and December 31, 2019.

dollars on June 30, 2020 and December 31, 2019.

Fair Value Hedges

The Company enters into foreign exchange forward contracts to economically hedge against foreign currency exchange gains and losses on certain receivables and payables of the Company’s foreign operations.

Changes in the fair value of derivative instruments designated as fair value hedges are recognized in earnings in Other income (expense), net.

As of March 31, 2020 and December 31, 2019 the total notional amounts of the Company’s forward contracts used as fair value hedges were $12.1 million and $64.5 million, respectively.

As of June 30, 2020 and December 31, 2019 the total notional amounts of the Company’s forward contracts used as fair value hedges were $ 7.4 million and $ 64.5 million, respectively.

TTEC HOLDINGS, INC.

2 unchanged sentences

Derivative Valuation and Settlements

The Company’s derivatives as of March 31, 2020 and December 31, 2019 were as follows (in thousands):

March 31, 2020

The Company’s derivatives as of June 30, 2020 and December 31, 2019 were as follows (in thousands):

June 30, 2020

Not Designated

17 unchanged sentences

Total fair value of derivatives, net

The effects of derivative instruments on the Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2020 and 2019 were as follows (in thousands):

Three Months Ended March 31,

The effects of derivative instruments on the Consolidated Statements of Comprehensive Income (Loss) for the three months ended June 30, 2020 and 2019 were as follows (in thousands):

Three Months Ended June 30,

Designated as Hedging

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Notes to Consolidated Financial Statements

Three Months Ended March 31,

Three Months Ended June 30,

Not Designated as Hedging Instruments

4 unchanged sentences

Other income (expense), net

The effects of derivative instruments on the Consolidated Statements of Comprehensive Income (Loss) for the six months ended June 30, 2020 and 2019 were as follows (in thousands):

Six Months Ended June 30,

Designated as Hedging

Derivative contract type:

Foreign Exchange

Derivative classification:

Amount of gain or (loss) recognized in Other comprehensive income (loss) - effective portion, net of tax

Amount and location of net gain or (loss) reclassified from Accumulated OCI to income - effective portion:

Six Months Ended June 30,

Not Designated as Hedging Instruments

Derivative contract type:

Foreign Exchange

Derivative classification:

Amount and location of net gain or (loss) recognized in the Consolidated Statement of Comprehensive Income (Loss):

Other income (expense), net

(7) FAIR VALUE

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The three levels of inputs used to measure fair value are as follows:

Level 1 —

Quoted prices in active markets for identical assets or liabilities.

Level 2 —

Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, similar assets and liabilities in markets that are not active or can be corroborated by observable market data.

Level 3 —

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, similar assets and liabilities in markets that are not active or can be corroborated by observable market data.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The following presents information as of March 31, 2020 and December 31, 2019 for the Company’s assets and liabilities required to be measured at fair value on a recurring basis, as well as the fair value hierarchy used to determine their fair value.

TTEC HOLDINGS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The following presents information as of June 30, 2020 and December 31, 2019 for the Company’s assets and liabilities required to be measured at fair value on a recurring basis, as well as the fair value hierarchy used to determine their fair value.

Accounts Receivable and Payable - The amounts recorded in the accompanying balance sheets approximate fair value because of their short-term nature.

Investments –

The Company measures investments, including cost and equity method investments, at fair value on a nonrecurring basis when they are deemed to be other-than-temporarily impaired.

Investments – The Company measures investments, including cost and equity method investments, at fair value on a nonrecurring basis when they are deemed to be other-than-temporarily impaired.

The fair values of these investments are determined based on valuation techniques using the best information available, and may include market observable inputs, and discounted cash flow projections.

An impairment charge is recorded when the cost of the investment exceeds its fair value and this condition is determined to be other-than-temporary.

As of March 31, 2020, the investment in CaféX Communication, Inc., which consisted of the Company’s total $15.6 million investment is fully impaired to zero.

Debt - The Company’s debt consists primarily of the Company’s Credit Agreement, which permits floating-rate borrowings based upon the current Prime Rate or the London Interbank Offered Rate (“LIBOR”) plus a credit spread as determined by the Company’s leverage ratio calculation (as defined in the Credit Agreement).

As of March 31, 2020 and December 31, 2019, the Company had $700.0 million and $290.0 million, respectively, of borrowings outstanding under the Credit Agreement.

During the first quarter of 2020 outstanding borrowings accrued interest at an average rate of 2.5% per annum, excluding unused commitment fees.

As of June 30, 2020, the investment in CaféX Communication, Inc., which consisted of the Company’s total $ 15.6 million investment, is fully impaired to zero .

As of June 30, 2020 and December 31, 2019, the Company had $ 700.0 million and $ 290.0 million, respectively, of borrowings outstanding under the Credit Agreement.

During the second quarter of 2020 outstanding borrowings accrued interest at an average rate of 1.6 % per annum, excluding unused commitment fees.

The amounts recorded in the accompanying Balance Sheets approximate fair value due to the variable nature of the debt based on Level 2 inputs.

TTEC HOLDINGS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Derivatives - Net derivative assets (liabilities) are measured at fair value on a recurring basis.

The portfolio is valued using models based on market observable inputs, including both forward and spot foreign exchange rates, interest rates, implied volatility, and counterparty credit risk, including the ability of each party to execute its obligations under the contract.

As of March 31, 2020, credit risk did not materially change the fair value of the Company’s derivative contracts.

The following is a summary of the Company’s fair value measurements for its net derivative assets (liabilities) as of March 31, 2020 and December 31, 2019 (in thousands):

As of March 31, 2020

As of June 30, 2020, credit risk did not materially change the fair value of the Company’s derivative contracts.

The following is a summary of the Company’s fair value measurements for its net derivative assets (liabilities) as of June 30, 2020 and December 31, 2019 (in thousands):

As of June 30, 2020

Fair Value Measurements Using

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Total net derivative asset (liability)

TTEC HOLDINGS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

As of December 31, 2019

7 unchanged sentences

Total net derivative asset (liability)

The following is a summary of the Company’s fair value measurements as of March 31, 2020 and December 31, 2019 (in thousands):

As of March 31, 2020

The following is a summary of the Company’s fair value measurements as of June 30, 2020 and December 31, 2019 (in thousands):

As of June 30, 2020

Fair Value Measurements Using

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Total liabilities

TTEC HOLDINGS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

As of December 31, 2019

10 unchanged sentences

Total liabilities

Deferred Compensation Plan —

The Company maintains a non-qualified deferred compensation plan structured as a Rabbi trust for certain eligible employees.

Deferred Compensation Plan — The Company maintains a non-qualified deferred compensation plan structured as a Rabbi trust for certain eligible employees.

Participants in the deferred compensation plan select from a menu of phantom investment options for their deferral dollars offered by the Company each year, which are based upon changes in value of complementary, defined market investments.

The deferred compensation liability represents the combined values of market investments against which participant accounts are tracked.

TTEC HOLDINGS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Contingent Consideration - The Company recorded contingent consideration related to the acquisition of FCR.

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The Company will record interest expense each quarter using the effective interest method until the future value of this contingent payment reaches the expected total future value.

During the first quarter of 2020, the Company recorded a fair value adjustment to the contingent consideration associated with the FCR acquisition based on decreased estimates of EBITDA which caused the estimated payable to decrease.

Accordingly, a $3.3 million decrease to the payable was recorded as of March 31, 2020 and was included in Other income (expense), net in the Consolidated Statements of Comprehensive Income (Loss).

As of March 31, 2020, the expected future contingent consideration is $2.9 million.

A rollforward of the activity in the Company’s fair value of the contingent consideration payable is as follows (in thousands):

TTEC HOLDINGS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

During the first and second quarters of 2020, the Company recorded fair value adjustments to the contingent consideration associated with the FCR acquisition based on decreased estimates of EBITDA which caused the estimated payable to decrease.

Accordingly, a $3.3 million decrease and a $1.1 million decrease to the payable were recorded as of March 31, 2020 and June 30, 2020, respectively, and were included in Other income (expense), net in the Consolidated Statements of Comprehensive Income (Loss).

As of June 30, 2020, the expected future contingent consideration is $1.8 million.

A rollforward of the activity in the Company’s fair value of the contingent consideration payable is as follows (in thousands):

(8) INCOME TAXES

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Based on the weight of all available evidence, both positive and negative, the Company records a valuation allowance against deferred tax assets when it is more-likely-than-not that a future tax benefit will not be realized.

The Company’s selection of an accounting policy with respect to both the global intangible low taxed foreign income (“GILTI”) and base erosion and anti-abuse tax (“BEAT”) rules is to compute the related taxes in the period the entity becomes subject to either GILTI or BEAT.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted and signed into law.

The CARES Act includes various provisions designed to support corporations and reduce the impact of COVID-19 pandemic on their liquidity including provisions relating to payroll tax credits, deferment of employer side social security payments, modifications to the net interest deduction limitations, allowing companies to carryback certain Net Operating Losses (“NOLs”) and increasing the amount of NOLs that corporations can use to offset income.

The CARES Act did not materially affect our first-quarter income tax provision, deferred tax assets and liabilities, or related taxes payable.

We are currently assessing the future implications of these provisions within the CARES Act but do not expect there to be a material impact on our financial statements at this time.

As of March 31, 2020, the Company had $10.8 million of gross deferred tax assets (after a $17.2 million valuation allowance) and a net deferred tax liability of $0.1 million (after deferred tax liabilities of $10.9 million) related to the United States and international tax jurisdictions whose recoverability is dependent upon future profitability.

The effective tax rate for the three months ended March 31, 2020 and 2019 was 29.2% and 26.7%, respectively.

The Company’s U.S.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted and signed into law.

The CARES Act did not materially affect our second quarter income tax provision, deferred tax assets and liabilities, or related taxes payable.

We are continuing to assess the future implications of these provisions within the CARES Act but do not expect there to be a material impact on our financial statements at this time.

As of June 30, 2020, the Company had $ 10.5 million of gross deferred tax assets (after a $ 17.0 million valuation allowance) and a net deferred tax asset of $ 0.5 million (after deferred tax liabilities of $ 10.0 million) related to the United States and international tax jurisdictions whose recoverability is dependent upon future profitability.

The effective tax rate for the three and six months ended June 30, 2020 was 24.8 % and 26.7 %, respectively.

The effective tax rate for the three and six months ended June 30, 2019 was 35.0 % and 30.3 %, respectively.

TTEC HOLDINGS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The Company’s U.S.

income tax returns filed for the tax years ending December 31, 2016 to present, remain open tax years .

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and the state of New York for tax years 2015 through 2017 .

Although the outcome of examinations by taxing authorities are always uncertain, it is the opinion of management that the resolution of these audits will not have a material effect on the Company’s Consolidated Financial Statements.

When there is a change in judgment concerning the recovery of deferred tax assets in future periods, a valuation allowance is recorded into earnings during the quarter in which the change in judgment occurred.

In the second quarter of 2019 and the first quarter of 2020, changes to the valuation allowance were recorded in the amounts of $2.3 million and $0.3 million, respectively, for deferred tax assets that did not meet the “more-likely-than-not”

The Company has been granted “Tax Holidays”

as an incentive to attract foreign investment by the government of the Philippines.

In the second quarter of 2019 and the first quarter of 2020, changes to the valuation allowance were recorded in the amounts of $ 2.3 million and $ 0.3 million, respectively, for deferred tax assets that did not meet the “more-likely-than-not” standard.

In the second quarter of 2020, changes to the valuation allowance were recorded in the amount of $0.9 million for assets that were redetermined to meet the “more-likely-than-not” standard.

The Company has been granted “Tax Holidays” as an incentive to attract foreign investment by the government of the Philippines.

Generally, a Tax Holiday is an agreement between the Company and a foreign government under which the Company receives certain tax benefits in that country, such as exemption from taxation on profits derived from export-related activities.

In the Philippines, the Company has been granted multiple agreements with an initial period of four years and additional periods for varying years, expiring at various times between 2019 and 2022 .

The aggregate effect on income tax expense for the three months ended March 31, 2020 and 2019 was approximately $1.4 million and $2.1 million, respectively, which had a favorable impact on diluted net income per share of $0.03 and $0.05, respectively.

TTEC HOLDINGS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The aggregate effect on income tax expense for the three months ended June 30, 2020 and 2019 was approximately $( 0.3 ) million expense and $ 1.9 million benefit, respectively, which had an impact on diluted net income per share of $( 0.01 ) and $ 0.04 , respectively.

The aggregate effect on income tax expense for the six months ended June 30, 2020 and 2019 was approximately $ 1.2 million and $ 4.0 million, respectively, which had a favorable impact on diluted net income per share of $ 0.02 and $ 0.09 , respectively.

(9) RESTRUCTURING CHARGES AND IMPAIRMENT LOSSES

Restructuring Charges

During 2020 and 2019, the Company continued restructuring activities primarily associated with reductions in the Company’s capacity, workforce and related management in both segments to better align the capacity and workforce with current business needs.

A summary of the expenses recorded in Restructuring charges, net in the accompanying Consolidated Statements of Comprehensive Income (Loss) for the three and three months ended March 31, 2020 and 2019, respectively, is as follows (in thousands):

Three Months Ended March 31 ,

During the three and six months ended June 30, 2020 and 2019, the Company continued restructuring activities primarily associated with reductions in the Company’s capacity, workforce and related management in both segments to better align the capacity and workforce with current business needs.

A summary of the expenses recorded in Restructuring charges, net in the accompanying Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2020 and 2019, respectively, is as follows (in thousands):

Three Months Ended

Six Months Ended

Reduction in force

Three Months Ended March 31,

TTEC HOLDINGS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Three Months Ended

Six Months Ended

Facility exit and other charges

A rollforward of the activity in the Company’s restructuring accrual is as follows (in thousands):

Facility Exit and

3 unchanged sentences

Change in estimates

Balance as of March 31, 2020

Balance as of June 30, 2020

The remaining restructuring and other accruals are expected to be paid or extinguished during the next twelve months and are all classified as current liabilities within Other accrued expenses in the Consolidated Balance Sheets.

Severance Charges

In the normal course of business, the Company will pay severance to terminated employees related to programs that are ending who are no longer needed and cannot be repurposed to a new program.

During the second quarter of 2020, a $2.9 million accrual was recorded with the expense included in Cost of services during the quarter ended June 30, 2020.

The accrual is expected to be paid or extinguished during the next six months and thus is classified as current liabilities within Other accrued expenses in the Consolidated Balance Sheets.

Impairment Losses

During each of the periods presented, the Company evaluated the annual recoverability of its leasehold improvement assets at certain customer engagement centers.

An asset is considered to be impaired when the anticipated undiscounted future cash flows of its asset group are estimated to be less than the asset group’s carrying value.

The amount of impairment recognized is the difference between the carrying value of the asset group and its fair value.

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Assumptions included the amount and timing of estimated future cash flows and assumed discount rates.

During the three months ended March 31, 2020 and 2019 the Company recognized impairment losses related to leasehold improvement assets and right of use lease assets of $0.7 million and $1.5 million, respectively, in its TTEC Digital and TTEC Engage segments.

During the three and six months ended June 30, 2020, the Company recognized impairment losses related to leasehold improvement assets and right of use lease assets of zero and $ 0.7 million, respectively, for the TTEC Digital segment.

During the three and six months ended June 30, 2019, the Company recognized impairment losses related to leasehold improvement assets and right of use lease assets of $ 1.1 million and $ 2.6 million, respectively, across the TTEC Digital and TTEC Engage segments.

TTEC HOLDINGS, INC.

3 unchanged sentences

Credit Facility

On February 14, 2019, the Company entered into a Fourth Amendment to its Amended and Restated Credit Agreement and Amended and Restated Security Agreement originally dated as of June 3, 2013 (collectively the “Credit Agreement”) for a senior secured revolving credit facility with a syndicate of lenders led by Wells Fargo Bank, National Association, as agent, swing line and fronting lender which matures on February 14, 2024 (the “Credit Facility”).

The maximum commitment under the Credit Facility is $ 900.0 million, with an accordion feature of up to $ 1.2 billion in the aggregate, if certain conditions are satisfied.

The Credit Facility commitment fees are payable to the lenders in an amount equal to the unused portion of the Credit Facility multiplied by a rate per annum as determined by reference to the Company’s net leverage ratio.

The Credit Agreement contains customary affirmative, negative, and financial covenants, which remained unchanged from the 2016 Credit Facility, except that the Company is now obligated to maintain a maximum net leverage ratio of 3.50 to 1.00, and a minimum Interest coverage Ratio of 2.50 to 1.00.

The Credit Agreement permits accounts receivable factoring up to the greater of $ 75 million or 25 percent of the average book value of all accounts receivable over the most recent twelve-month period.

Base rate loans bear interest at a rate equal to the greatest of (i) Wells Fargo’s prime rate, (ii) one half of 1% in excess of the federal funds effective rate, and (iii) 1.25% in excess of the one month London Interbank Offered Rate (“LIBOR”);

plus in each case a margin of 0% to 0.75% based on the Company’s net leverage ratio.

Eurodollar loans bear interest at LIBOR plus a margin of 1.0% to 1.75% based on the Company’s net leverage ratio.

Base rate loans bear interest at a rate equal to the greatest of (i) Wells Fargo’s prime rate, (ii) one half of 1% in excess of the federal funds effective rate, and (iii) 1.25 % in excess of the one month London Interbank Offered Rate (“LIBOR”);

plus in each case a margin of 0 % to 0.75 % based on the Company’s net leverage ratio.

Eurodollar loans bear interest at LIBOR plus a margin of 1.0 % to 1.75 % based on the Company’s net leverage ratio.

Alternate currency loans bear interest at rates applicable to their respective currencies.

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The Company primarily utilizes its Credit Agreement to fund working capital, general operations, dividends and other strategic activities, such as the acquisitions described in Note 2.

As of March 31, 2020 and December 31, 2019, the Company had borrowings of $700.0 million and $290.0 million, respectively, under its Credit Agreement, and its average daily utilization was $397.7 million and $335.9 million for the three months ended March 31, 2020 and 2019, respectively.

The increased borrowings under the Credit Agreement at March 31, 2020 relate to precautionary measures taken to proactively strengthen the Company’s cash reserves and financial flexibility in response to COVID-19 related uncertainties.

Based on the current level of availability based on the covenant calculations, the Company’s remaining borrowing capacity was approximately $195 million as of March 31, 2020.

As of March 31, 2020, the Company was in compliance with all covenants and conditions under its Credit Agreement.

As of June 30, 2020 and December 31, 2019, the Company had borrowings of $700.0 million and $290.0 million, respectively, under its Credit Agreement, and its average daily utilization was $ 548.8 million and $ 324.0 million for the six months ended June 30, 2020 and 2019, respectively.

The increased borrowings under the Credit Agreement at June 30, 2020 relate to precautionary measures taken to proactively strengthen the Company’s cash reserves and financial flexibility in response to COVID-19 related uncertainties.

Based on the current level of availability based on the covenant calculations, the Company’s remaining borrowing capacity was approximately $ 195 million as of June 30, 2020.

As of June 30, 2020, the Company was in compliance with all covenants and conditions under its Credit Agreement.

Letters of Credit

As of March 31, 2020, outstanding letters of credit under the Credit Agreement totaled $3.0 million and primarily guaranteed workers’

compensation and other insurance related obligations.

As of March 31, 2020, letters of credit and contract performance guarantees issued outside of the Credit Agreement totaled $0.5 million.

As of June 30, 2020, outstanding letters of credit under the Credit Agreement totaled $ 2.6 million and primarily guaranteed workers’ compensation and other insurance related obligations.

As of June 30, 2020, letters of credit and contract performance guarantees issued outside of the Credit Agreement totaled $ 0.4 million.

Legal Proceedings

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Notes to Consolidated Financial Statements

Based on currently available information and advice received from counsel, the Company believes that the disposition or ultimate resolution of any current legal proceedings, except as otherwise specifically reserved for in its financial statements, will not have a material adverse effect on the Company’s financial position, cash flows or results of operations.

Operating leases are included in our Consolidated Balance Sheet as Operating lease assets, Current operating lease liabilities and Non-current operating lease liabilities.

Finance leases are included in Property, plant and equipment, Other current liabilities and Other long-term liabilities in our Consolidated Balance Sheet.

The Company primarily leases real estate and equipment under various arrangements that provide the Company the right of use for the underlying asset that require lease payments over the lease term.

Operating leases are included in the Consolidated Balance Sheet as Operating lease assets, Current operating lease liabilities and Non-current operating lease liabilities.

Finance leases are included in Property, plant and equipment, Other current liabilities and Other long-term liabilities in the Consolidated Balance Sheet.

The Company primarily leases real estate and equipment under various arrangements that provide the Company the right of use for the underlying asset which require lease payments over the lease term.

The Company determines the value of each lease by computing the present value of each lease payment using the interest rate implicit in the lease, if available;

otherwise the Company estimates its incremental borrowing rate over the lease term.

The Company determines its incremental borrowing rate based on its estimated credit risk with adjustments for each individual leases’

geographical risk and lease term.

Operating lease assets also include prepaid rent, initial direct costs less any tenant improvements.

The Company’s real estate portfolio typically includes one or more options to renew, with renewal terms that generally can extend the lease term from one to 10 years.

The exercise of these lease renewal options is at the Company’s discretion and is included in the lease term only if the Company is reasonably certain to exercise.

The Company determines its incremental borrowing rate based on its estimated credit risk with adjustments for each individual leases’ geographical risk and lease term.

Operating lease assets also include prepaid rent and initial direct costs less any tenant improvements.

The Company’s real estate portfolio typically includes one or more options to renew , with renewal terms that generally can extend the lease term from one to 10 years .

The exercise of these lease renewal options is at the Company’s discretion and is included in the lease term only if the Company is reasonably certain to exercise.

The Company also has service arrangements whereby it controls specific space provided by a third-party service provider.

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Rent expense for operating leases is recognized on a straight-line basis over the lease term and is included in the Consolidated Statements of Comprehensive Income (Loss).

The Company’s lease agreements do not contain any material residual value guarantees or restrictive guarantees.

The components of lease expense for the three months ended March 31, 2020 and 2019 are as follows (in thousands):

The Company’s lease agreements do not contain any material residual value guarantees or restrictive guarantees.

The components of lease expense for the three and six months ended June 30, 2020 and 2019 are as follows (in thousands):

Location in Statements of

Three Months Ended March 31,

Three Months Ended June 30,

Comprehensive Income (Loss)

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Cost of services

Variable lease cost (cost excluded from lease payments)

Cost of services

Sublease income

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Notes to Consolidated Financial Statements

Other supplementary information for the three months ended March 31, 2020 and 2019 are as follows (dollar values in thousands):

Three Months Ended March 31,

Location in Statements of

Six Months Ended June 30,

Comprehensive Income (Loss)

Amortization of ROU assets - finance leases

Depreciation and amortization

Interest on lease liabilities - finance leases

Interest expense

Operating lease cost (cost resulting from lease payments)

Cost of services

Operating lease cost (cost resulting from lease payments)

Selling, general and administrative

Operating lease cost (cost resulting from lease payments)

Other income (expense), net

Short-term lease cost

Cost of services

Variable lease cost (cost excluded from lease payments)

Cost of services

Sublease income

Selling, general and administrative

Sublease income

Other income (expense), net

Total lease cost

Other supplementary information for the three and six months ended June 30, 2020 and 2019 are as follows (dollar values in thousands):

Three Months Ended June 30,

Finance lease - operating cash flows

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New ROU assets - finance leases

March 31, 2020

Six Months Ended June 30,

Finance lease - operating cash flows

Finance lease - financing cash flows

Operating lease - operating cash flows (fixed payments)

New ROU assets - operating leases

Modified ROU assets - operating leases

New ROU assets - finance leases

June 30, 2020

December 31, 2019

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Weighted average discount rate - operating leases

Operating and financing lease right-of-use assets and lease liabilities within our Consolidated Balance Sheet as of March 31, 2020 and December 31, 2019 are as follows (in thousands):

TTEC HOLDINGS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Operating and financing lease right-of-use assets and lease liabilities within the Consolidated Balance Sheet as of June 30, 2020 and December 31, 2019 are as follows (in thousands):

Location in Balance Sheet

March 31, 2020

June 30, 2020

December 31, 2019

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Total lease liabilities

The future minimum operating lease and finance lease payments required under non-cancelable leases as of March 31, 2020 and December 31, 2019 are as follows (in thousands):

March 31, 2020

The future minimum operating lease and finance lease payments required under non-cancelable leases as of June 30, 2020 and December 31, 2019 are as follows (in thousands):

June 30, 2020

Total minimum lease payments

1 unchanged sentence

Total lease liability

TTEC HOLDINGS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2019

2 unchanged sentences

Total lease liability

In 2008, the Company sub-leased one of its customer engagement centers to a third party for the remaining term of the original lease.

The sub-lease began on January 1, 2009 and rental income is recognized on a straight-line basis over the term of the sub-lease through 2021.

TTEC HOLDINGS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

In 2008, the Company sub-leased one of its customer engagement centers to a third party for the remaining term of the lease.

The sub-lease began on January 1, 2009 and rental income will be recognized on a straight-line basis over the term of the sub-lease through 2026 .

In 2017, the Company sub-leased one of its office spaces for the remaining term of the original lease.

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(12) OTHER LONG-TERM LIABILITIES

The components of Other long-term liabilities as of March 31, 2020 and December 31, 2019 are as follows (in thousands):

March 31, 2020

The components of Other long-term liabilities as of June 30, 2020 and December 31, 2019 are as follows (in thousands):

June 30, 2020

December 31, 2019

2 unchanged sentences

(13) NONCONTROLLING INTEREST

The following table reconciles equity attributable to noncontrolling interest in the Company’s subsidiary (in thousands):

Three Months Ended March 31,

The following table reconciles equity attributable to noncontrolling interest in the Company’s subsidiary (in thousands):

Six Months Ended June 30,

Noncontrolling interest, January 1

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Foreign currency translation adjustments

Noncontrolling interest, March 31

Noncontrolling interest, June 30

TTEC HOLDINGS, INC.

8 unchanged sentences

Net current period other comprehensive income (loss)

Accumulated other comprehensive income (loss) at March 31, 2019

Accumulated other comprehensive income (loss) at June 30, 2019

Accumulated other comprehensive income (loss) at December 31, 2019

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Net current period other comprehensive income (loss)

Accumulated other comprehensive income (loss) at March 31, 2020

Accumulated other comprehensive income (loss) at June 30, 2020

The following table presents the classification and amount of the reclassifications from Accumulated other comprehensive income (loss) to the statement of comprehensive income (loss) (in thousands):

For the Three Months Ended March 31,

For the Three Months Ended June 30,

Comprehensive Income

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Notes to Consolidated Financial Statements

(15) NET INCOME PER SHARE

For the Six Months Ended June 30,

Comprehensive Income

(Loss) Classification

Derivative valuation

Gain (loss) on foreign currency forward exchange contracts

Provision for income taxes

Net income (loss)

Actuarial loss on defined benefit plan

Cost of services

Provision for income taxes

Net income (loss)

(15) WEIGHTED AVERAGE SHARE COUNTS

The following table sets forth the computation of basic and diluted shares for the periods indicated (in thousands):

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Shares used in basic earnings per share calculation

Effect of dilutive securities:

Stock options

Restricted stock units

2 unchanged sentences

Shares used in dilutive earnings per share calculation

For the three months ended March 31, 2020 and 2019, there were no options to purchase shares of common stock outstanding that were excluded from the computation of diluted net income per share because the exercise price exceeded the value of the shares and the effect would have been anti-dilutive.

For the three months ended March 31, 2020 and 2019, there were restricted stock units (“RSUs”) of 66 and 331 thousand, respectively, outstanding which were excluded from the computation of diluted net income per share because the effect would have been anti-dilutive.

For the three months ended June 30, 2020 and 2019, there were restricted stock units (“RSUs”) of 64 thousand and 10 thousand, respectively, outstanding which were excluded from the computation of diluted net income per share because the effect would have been anti-dilutive.

For the six months ended June 30, 2020 and 2019, there were RSUs of 64 thousand and 20 thousand, respectively, outstanding which were excluded from the computation of diluted net income per share because the effect would have been anti-dilutive.

(16) EQUITY-BASED COMPENSATION PLANS

All equity-based awards to employees are recognized in the Consolidated Statements of Comprehensive Income (Loss) at the fair value of the award on the grant date.

During the three months ended March 31, 2020 and 2019, the Company recognized total equity-based compensation expense of $2.9 million and $3.2 million, respectively.

Of this total compensation expense, $1.0 million and $1.2 million were recognized in Cost of services and $1.9 million and $2.0 million were recognized in Selling, general and administrative during the three months ended March 31, 2020 and 2019, respectively.

During the three and six months ended June 30, 2020 and 2019, the Company recognized total equity-based compensation expense of $ 3.1 million and $ 6.0 million and $ 3.3 million and $ 6.5 million, respectively.

Of this total compensation expense, $ 1.1 million and $ 2.0 million were recognized in Cost of services and $ 2.0 million and $ 4.0 million were recognized in Selling, general and administrative during the three and six months ended June 30, 2020, respectively.

During the three and six months ended June 30, 2019, the Company recognized compensation expense of $ 1.4 million and $ 2.6 million in Cost of services and $ 1.9 million and $ 3.9 million in Selling, general and administrative, respectively.

TTEC HOLDINGS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Restricted Stock Unit Grants

During the three months ended March 31, 2020 and 2019, the Company granted 112,915 and 10,693 RSUs, respectively, to new and existing employees, which vest over four or five years.

The Company recognized compensation expense related to RSUs of $2.6 million and $3.2 million for the three months ended March 31, 2020 and 2019, respectively.

As of March 31, 2020, there was approximately $16.1 million of total unrecognized compensation cost (including the impact of expected forfeitures) related to RSUs granted under the Company’s equity plans.

During the six months ended June 30, 2020 and 2019, the Company granted 130,885 and 40,246 RSUs, respectively, to new and existing employees, which vest over four to five years .

The Company recognized compensation expense related to RSUs of $ 2.7 million and $ 5.3 million for the three and six months ended June 30, 2020, respectively.

The Company recognized compensation expense related to RSUs of $ 3.1 million and $ 6.3 million for the three and six months ended June 30, 2019, respectively.

As of June 30, 2020, there was approximately $ 13.9 million of total unrecognized compensation cost (including the impact of expected forfeitures) related to RSUs granted under the Company’s equity plans.

Performance Based Restricted Stock Unit Grants

During 2019, the Company awarded performance restricted stock units (“PRSUs”) that are subject to service and performance vesting conditions.

If defined minimum targets are met, the annual value of the PRSUs issued will be between $0.4 million and $1.4 million and vest immediately.

If the defined minimum targets are not met, then no shares will be issued.

The award amounts are based on the Company’s annual adjusted operating income for the fiscal years 2019, 2020, 2021.

Each fiscal year’s adjusted operating income will determine the award amount.

The Company recognized compensation expense related to PRSUs of $0.35 million for the three months ended March 31, 2020.

TTEC HOLDINGS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

During 2020, the Company awarded performance restricted stock units (“PRSUs”) that are subject to service and performance vesting conditions.

The award amounts are based on the Company’s annual adjusted operating income for the fiscal years 2019, 2020, 2021.

Each fiscal year’s adjusted operating income will determine the award amount.

The Company recognized compensation expense related to PRSUs of $ 0.35 million and $0.70 million for the three and six months ended June 30, 2020.

During 2020, the Company awarded PRSUs that are subject to service and performance vesting conditions.

If defined minimum targets are met, Company shares will be issued that vest immediately.

If the defined minimum targets are not met, then no shares will be issued.

The number of shares awarded are based on the Company’s annual revenue and adjusted operating income for the fiscal years 2021 and 2022.

Each fiscal year’s revenue and adjusted operating income will determine the award amount.

The number of shares awarded are based on the Company’s annual revenue and adjusted operating income for the fiscal years 2021 and 2022.

Each fiscal year’s revenue and adjusted operating income will determine the award amount.

Expense for these awards will begin at the start of the requisite service period, beginning January 1, 2021.

(17) RELATED PARTY

The Company entered into an agreement under which Avion, LLC (“Avion”) and Airmax LLC (“Airmax”) provide certain aviation flight services as requested by the Company.

Such services include the use of an aircraft and flight crew.

Tuchman, Chairman and Chief Executive Officer of the Company, has an indirect 100% beneficial ownership interest in Avion and Airmax.

During the three months ended March 31, 2020 and 2019, the Company expensed $0.1 million and $0.3 million, respectively, to Avion and Airmax for services provided to the Company.

There were $80 thousand in payments due and outstanding to Avion and Airmax as of March 31, 2020.

During 2015, the Company entered into a contract to purchase software from CaféX, in which the Company holds a 17.8% equity investment.

During the three months ended March 31, 2020 and 2019, the Company purchased zero and $16 thousand, respectively, of software from CaféX.

During the six months ended June 30, 2020 and 2019, the Company expensed $ 0.2 million and $ 0.6 million, respectively, to Avion and Airmax for services provided to the Company.

There were $ 50 thousand in payments due and outstanding to Avion and Airmax as of June 30, 2020.

During 2015, the Company entered into a contract to purchase software from CaféX, in which the Company holds a 17.8% equity investment.

During the six months ended June 30, 2020 and 2019, the Company purchased zero and $ 33 thousand, respectively, of software from CaféX.

Paolillo, Chief Financial and Administrative Officer of the Company, is a member of the board of directors of Welltok, Inc., a consumer health SaaS company, and partner of the Company in a joint venture.

During the three months ended March 31, 2020 and 2019, the Company recorded revenue of $0.9 million and $1.4 million, respectively, in connection with work performed through the joint venture.

During the six months ended June 30, 2020 and 2019, the Company recorded revenue of $ 1.8 million and $ 2.8 million, respectively, in connection with work performed through the joint venture.

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements”

within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995, relating to our operations, expected financial position, results of operation, and other business matters that are based on our current expectations, assumptions, and projections with respect to the future, and are not a guarantee of performance.

In this report, when we use words such as “may,”

“believe,”

“plan,”

“will,”

“anticipate,”

“estimate,”

“expect,”

“intend,”

“project,”

“would,”

“could,”

“target,”

or similar expressions, or when we discuss our strategy, plans, goals, initiatives, or objectives, we are making forward-looking statements.

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995, relating to our operations, expected financial position, results of operation, and other business matters that are based on our current expectations, assumptions, and projections with respect to the future, and are not a guarantee of performance.

In this report, when we use words such as “may,” “believe,” “plan,” “will,” “anticipate,” “estimate,” “expect,” “intend,” “project,” “would,” “could,” “target,” or similar expressions, or when we discuss our strategy, plans, goals, initiatives, or objectives, we are making forward-looking statements.

We caution you not to rely unduly on any forward-looking statements.

Actual results may differ materially from the forward-looking statements, and you should review and consider carefully the risks, uncertainties and other factors that affect our business and may cause such differences, including but not limited to factors discussed in the “Risk Factors”

section found in Item 1A.

Risk Factors in this Report on Form 10-Q and in the Report on Form 10-K for the year ended December 31, 2019.

11 unchanged sentences

and our equity structure including our controlling shareholder risk, the limited market float of our stock, and the potential volatility of our stock price resulting therefrom.

Our forward-looking statements are based on information available as of the date that this Report on Form 10-Q is filed with the United States Securities and Exchange Commission (“SEC”).

We undertake no obligation to update them, except as may be required by applicable law.

Although we believe that our forward-looking statements are reasonable, they depend on many factors outside of our control and we can provide no assurance that they will prove to be correct.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Executive Summary

TTEC Holdings, Inc.

(“TTEC”, “the Company”, “we”, “our”

or “us”) is a leading global customer experience technology and services company focused on the design, implementation and delivery of transformative customer experience outcomes for many of the world’s most iconic and disruptive brands.

Since our inception in 1982, we have been helping clients deliver frictionless customer experiences, strengthen their customer relationships, brand recognition and loyalty through personalized interactions, significantly improve their Net Promoter Score ("NPS"), and lower their total cost to serve by enabling and delivering simplified, consistent and seamless customer experience across channels and phases of the customer lifecycle.

Our customer experience thought leadership is substantiated, with innovative programs that differentiate our clients from their competition.

In March 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic.

Within weeks of this announcement, travel bans, the state of emergency, quarantines, lockdowns, “shelter in place”

orders, and business restrictions and shutdowns were issued in most countries where TTEC does business.

The need to comply with these measures, which came into effect with little notice, has impacted our day-to-day operations and disrupted our business.

Although we activated our business continuity plans, we have experienced temporary suspension of operations in some of our TTEC Engage customer experience delivery sites;

and some of our employees were not able to get to work because their mobility was restricted by government restrictions.

While some of our operations were deemed essential and could have continued operating, to support the health and well-being of our employees and communities and to provide a stable service delivery platform to our clients, we made a business decision to transition as many employees as was reasonably possible to work from home environment.

Between mid-March and mid-April 2020, we transitioned over 43,000 employees, or 80%, to our work from home environment.

For those sites that continued to operate, 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 where our customer experience centers delivering essential services are located.

We began to see the financial effects of COVID-19 at the end of the first quarter.

Although COVID-19 pandemic disruptions did not have a material adverse impact on our financial results for the first quarter of fiscal 2020, we are expecting negative impacts in our second and third quarter results of operations and financial position as our clients respond to the economic conditions by reducing their budgets and volumes, which may affect the demand for our services, and as the incremental costs of our work from home delivery, not otherwise offset by a reduction in the cost of our brick and mortar facilities, impacts our cost structure.

The extent of the impact will vary depending on the Company’s ability to execute against COVID-19 surge volumes and the duration and severity of the economic and operational impacts of COVID-19.

In March 2020, we launched multiple cost reduction, optimization and liquidity preservation initiatives to align our expenses with anticipated changes in revenue and increased costs related to COVID-19 pandemic and government mandated restriction measures.

These initiatives include freezes on hiring, major cuts in non-essential spending, reduction and deferral in spend on third-party service providers and vendors, suspension of merit increases, contributions to tax deferred saving plans and other retirement plans, where permitted by law, suspension of incentive programs, staff reductions and furloughs in markets where that option is available.

We also intensified our cash flow discipline, including working capital management, deferral of capital expenditures, where possible, and engaged in negotiations for rent abatement and deferral for those facilities that we are unable to use during the government restrictions related to the COVID-19 pandemic.

We have also taken steps to strengthen our financial position during this period of heightened uncertainty including a proactive draw down on our line of credit in late March 2020.

For further discussion of this matter, refer “Item 1A.

Risk Factors”

in Part II of this Form 10-Q.

The Company reports its financial information based on two segments:

TTEC Digital and TTEC Engage.

TTEC Digital designs, builds and delivers tech-enabled, insight-based and outcome-driven customer experience solutions through our professional services and suite of technology offerings.

These solutions are critical to enabling and accelerating digital transformation for our clients.

TTEC Engage provides the essential technologies, human resources, infrastructure and processes to operate customer care, acquisition, and fraud detection and prevention services.

TTEC Digital and TTEC Engage come together under our unified offering, Humanify™

Customer Experience as a Service ("CXaas"), which drives measurable customer results for clients through the delivery of personalized, omnichannel experiences.

Our Humanify™

cloud platform provides a fully integrated ecosystem of Customer Experience ("CX") offerings, including omnichannel, messaging, artificial intelligence (“AI”), machine learning (“ML”), robotic process automation (“RPA”), analytics, cybersecurity, customer relationship management ("CRM"), knowledge management and journey orchestration.

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 enterprise and governments on a global scale.

Our revenue for the three months ended March 31, 2020 was $432 million.

Approximately $355 million, or 82%, came from our TTEC Engage segment and $77 million, or 18%, came from our TTEC Digital 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 mainstream and high growth disruptive businesses, diversifying and strengthening our core customer care services with consulting, data analytics, insights ,and technology-enabled, outcome-focused services.

We also invest to expand our geographic footprint, broaden our product and service capabilities, increase our global client base and industry expertise, 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 in the first quarter of 2020 of a U.S.

based autonomous customer experience and intelligent automation solutions provider and an acquisition in the fourth quarter of 2019 of a U.S.

based provider of customer care, social media community management, content moderation, technical support and business process solutions.

We have extensive expertise in the automotive, communications, financial services, government, healthcare, logistics, media and entertainment, retail, technology, travel and transportation industries.

We serve more than 300 diverse clients globally, including many iconic blue-chip brands, Fortune 1000 companies, and disruptive growth companies.

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 designs, builds and delivers tech-enabled, insight-based and outcome-driven customer experience solutions through our professional services and suite of technology offerings.

These solutions are critical to enabling and accelerating digital transformation for our clients.

Technology Services:

Professional Services:

Our management consulting practices deliver customer experience strategy, analytics, process optimization, and learning and performance services.

TTEC Engage provides the essential technologies, human resources, infrastructure and processes to operate customer care, acquisition, and fraud detection and prevention services.

Customer Acquisition Services:

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.

Financial Statements, Note 3 to the Consolidated Financial Statements.

Financial Highlights

In the first quarter of 2020, our revenue increased $37.9, or 9.6%, to $432.2 million over the same period in 2019 including a decrease of $1.4 million, or 0.3%, due to foreign currency fluctuations.

The increase in revenue was comprised of an $11.7 million, or 17.8%, increase for TTEC Digital and a $26.2 million, or 8.0%, increase for TTEC Engage.

Our first quarter 2020 income from operations increased $8.6 million, or 26.9%, to $40.7 million or 9.4% of revenue, compared to $32.1 million or 8.1% of revenue in the first quarter of 2019.

The change in operating income is comprised of a number of factors across the segments.

The TTEC Digital operating income expanded with a 32.2% improvement over the same period last year primarily on the growth of its higher margin cloud business.

The TTEC Engage operating income increased 25.2% compared to the prior year quarter based on the increase in revenue including the acquisition of FCR.

Income from operations in the first quarter of 2020 and 2019 included $1.2 million and $2.5 million of restructuring and integration charges and asset impairments, respectively.

Our offshore customer engagement centers serve clients based in the U.S.

and in other countries and spans six countries with 24,600 workstations, representing 56% of our global delivery capability.

Revenue for our TTEC Engage segment provided from these offshore locations represented 34% of our revenue for the first quarter of 2020, as compared to 36% of our revenue for the corresponding period in 2019.

As of March 31, 2020, the total production workstations for our TTEC Engage segment was 43,912 and the overall capacity utilization in our centers was 73%.

The utilization is lower than the previous year due to decreases in the Company’s seasonal healthcare in combination with an increase in seats at sites that are less than one year old, both of which are in the process of being optimized.

The table below presents workstation data for all of our centers as of March 31, 2020 and 2019.

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

March 31, 2020

March 31, 2019

Total centers

Sites open >1 year

Sites open <1 year

Total workstations

We continue to see demand from all geographic regions to utilize our offshore delivery capabilities and expect this trend to continue.

Some of our clients may be subject to regulatory pressures to bring more services onshore to the United States.

In light of these trends we plan to continue to selectively retain and grow capacity in and expand into new offshore markets, while maintaining appropriate capacity in the United States.

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 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, 2019.

Results of Operations

Three months ended March 31, 2020 compared to three months ended March 31, 2019

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 March 31, 2020 and 2019 (amounts in thousands).

All inter-company transactions between the reported segments for the periods presented have been eliminated.

Three Months Ended March 31,

Operating Income

Operating Margin

The increase in revenue for the TTEC Digital segment was related to significant increases in the cloud platform, including a large multi-year governmental contract and the acquisition of Serendebyte, offset by reductions in the legacy facility based training business which the Company is in the process of winding down.

Within the core Digital business and excluding the large shorter term government contract, for the quarters ended March 31, 2020 and 2019 revenue from the cloud offering represented $18.8 million and $12.9 million, respectively, and the systems integration offering represented $11.9 million and $11.5 million, respectively.

The operating income expansion is primarily attributable to the increased revenue and continued improved utilization of technology and people assets as the business scales its cloud and system integration revenue.

The operating income as a percentage of revenue increased to 13.2% in the first quarter of 2020 as compared to 11.8% in the prior period.

Included in the operating income was amortization expense related to acquired intangibles of $0.6 million and $0.7 million for the quarters ended March 31, 2020 and 2019, respectively.

Three Months Ended March 31,

Operating Income

Operating Margin

The increase in revenue for the TTEC Engage segment was due to a net increase of $46.9 million in client programs including the acquisition of FCR in the fourth quarter of 2019, offset by a decrease for program completions of $19.5 million, and a $1.2 million decrease due to foreign currency fluctuations.

The operating income increased in line with improved revenue including the acquisition of FCR as well as continued improved profitability in our @Home, fraud prevention and detection and customer acquisition offerings and auto and hypergrowth portfolios, offset by increases in amortization for acquired intangibles.

As a result, the operating income as a percentage of revenue increased to 8.6% in the first quarter of 2020 as compared to 7.4% in the prior period.

Included in the operating income was amortization expense related to acquired intangibles of $3.3 million and $2.0 million for the quarters ended March 31, 2020 and 2019, respectively.

Interest Income (Expense)

For the three months ended March 31, 2020 interest income increased to $0.4 million from $0.3 million in the same period in 2019.

Interest expense increased to $9.6 million during 2020 from $5.3 million during 2019 due to higher utilization of the line of credit, and a $5.2 million increase in the charge related to the future purchase of the remaining 30% interest in Motif versus the prior year period.

Other Income (Expense)

For the three months ended March 31, 2020 Other income (expense), net increased to net income of $3.4 million from net income of $0.8 million during the prior year quarter.

Included in the three months ended March 31, 2020 was a $3.3 million benefit related to the fair value adjustment of contingent consideration for an acquisition (see Part I.

Financial Statements, Note 2 to the Consolidated Financial Statements).

The effective tax rate for the three months ended March 31, 2020 was 29.2%.

This compares to an effective tax rate of 26.7% for the comparable period of 2019.

The effective tax rate for the three months ended March 31, 2020 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 increased foreign earnings.

Without $0.9 million of expense related to adjustments to contingent consideration, a $0.3 million benefit related to restructuring, a $0.3 million expense related to changes in valuation allowances, and $0.2 million of other expense, the Company’s effective tax rate for the first quarter of 2020 would have been 23.2%.

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 three months ended March 31, 2020, we generated positive operating cash flows of $62.2 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 concentrating and safeguarding our global cash and cash equivalents.

The majority of our cash is in U.S.

dollars, primarily held in the U.S and to a lesser extent outside of the U.S., in addition to cash held in local currencies of our foreign subsidiaries.

We expect to use our cash to support working capital, global operations and strategic investments.

While there are no assurances, we believe our global cash is protected given our cash management practices, banking partners and utilization of diversified, high 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.

During the first quarter 2020, we borrowed $350.0 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.

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 three months ended March 31, 2020 and 2019.

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 $520.4 million and $82.4 million as of March 31, 2020 and December 31, 2019, 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 three months ended March 31, 2020 and 2019, net cash flows provided by operating activities was $62.2 million and $80.0 million, respectively.

The decrease is primarily due to a $14.4 million increase in net cash income from operations offset by a $32.2 million reduction in net working capital.

Cash Flows from Investing Activities

For the three months ended March 31, 2020 and 2019, net cash flows used in investing activities was $22.0 million and $13.2 million, respectively.

The increase was due to a $3.6 million increase in capital expenditures and a $5.2 million increase related to acquisitions.

Cash Flows from Financing Activities

For the three months ended March 31, 2020 and 2019, net cash flows provided by (used in) financing activities was $403.7 million and ($53.1) million, respectively.

The change in net cash flows from 2019 to 2020 was primarily due to a $450.0 million net million additional draw on the line of credit, which included the $350 million discussed above, and a $5.5 million reduction in holdback payment for an acquisition.

Free Cash Flow

Free cash flow (see “Presentation of Non-GAAP Measurements”

below for the definition of free cash flow) decreased for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to an increase in net cash from operations offset by a decrease in working capital and higher outflow related to acquisitions .

Free cash flow was $45.4 million and $66.8 million for the three months ended March 31, 2020 and 2019, 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 March 31,

Net cash provided by operating activities

Purchases of property, plant and equipment

Free cash flow

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 2019 Form 10-K filing on March 4, 2020 through the filing of this report.

Future Capital Requirements

We currently expect total capital expenditures in 2020 to be between $38 million and $42 million.

Approximately 70% of these expected capital expenditures are to support growth in our business and 30% relate to the maintenance for existing assets.

The anticipated level of 2020 capital expenditures is primarily driven by new client contracts and the corresponding requirements for additional delivery 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 three months ended March 31, 2020, none of our clients represented more than 10% of our total revenue.

During the three months ended March 31, 2019, one of our clients represented 11.1% of our total revenue.

Our five largest clients, collectively, accounted for 36.0% and 36.1% of our consolidated revenue for the three months ended March 31, 2020 and 2019, respectively.

We have had long-term relationships with our top five Engage clients, ranging from 13 to 23 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.

The contracts with our five largest clients expire between 2020 and 2023.

Additionally, a particular client may have multiple contracts with different expiration dates.

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.

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 1. Financial Statements