What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-04 compared with 2020-08-05 · 82 added, 82 removed, 163 unchanged (50% of the section changed)

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(“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.

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, 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 offers innovative programs that differentiate our clients from their competition.

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Although our business began to experience the effects of COVID-19 at the end of the first quarter 2020, our rapid implementation of business continuity plans and our geographic diversification of delivery centers allowed us to mitigate potentially more severe impacts.

Through the period ended June 30, 2020 the COVID-19 pandemic has not had a material adverse impact on our operational or financial results.

While approximately 20% of our business is comprised of clients in industries that have been negatively impacted by the COVID-19 pandemic, significant surge volumes from commercial and public sector clients who have realized spikes in customer, patient and citizen engagement have contributed to a12.5% increase in revenue when comparing the six months ended June 30, 2020 to the six months ended June 30, 2019.

Through the period ended September 30, 2020 the COVID-19 pandemic has not had a material adverse impact on our operational or financial results.

Despite 20% of our business being comprised of clients in industries that have been negatively impacted by the COVID-19 pandemic, i.e.

automotive, retail and travel and hospitality, the September 30, 2020 year to date revenue derived from these clients has increased approximately 15% over the prior year period.

We have also seen significant surge volumes from commercial and public sector clients who have realized spikes in customer, patient and citizen engagement related to COVID-19 which has contributed an approximate 11% of the total year to date revenue for 2020.

While we expect this positive trend to continue for the remainder of 2020, there is uncertainty about our COVID-19 surge volumes and our non-COVID-19 related business beyond 2020.

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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.

Our results of operations for the first two quarters of 2020 is permitting us to reverse some of these decisions, and we are resuming strategic hiring on a limited basis, returning furloughed employees to work where it is possible, and reinstating certain incentive plans.

We also took 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, which was subsequently repaid in September 2020.

Our results of operations for the first three quarters of 2020 is permitting us to reverse some of these decisions, and we are resuming strategic hiring on a limited basis, returning furloughed employees to work where it is possible, and reinstating certain incentive plans.

In light of the continued COVID-19 related uncertainties, however, we remain vigilant in our cost management.

With the greater adoption of our work at home solution during the COVID-19 pandemic, we are also reviewing our global footprint model and working to balance our commitments to physical facilities around the globe against evolving client preferences with respect to traditional physical delivery centers and work from home delivery mix.

With the greater adoption of our work at home solution during the COVID-19 pandemic, we are also reviewing our global real estate footprint and working to balance our commitments to physical facilities around the globe against evolving client preferences with respect to traditional physical delivery centers and work from home delivery.

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

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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 Humanify ® cloud platform provides a fully integrated ecosystem of Customer Experience ("CX") offerings, including omnichannel, messaging, artificial intelligence, machine learning, robotic process automation, 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 June 30, 2020 was $453.1 million.

This unified offering is value-oriented, outcome-based and delivered to large enterprise and governments on a global basis at scale.

Our revenue for the three months ended September 30, 2020 was $493.0 million.

Approximately $416.4 million, or 84%, came from our TTEC Engage segment and $76.6 million, or 16%, came from our TTEC Digital segment.

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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.

To this end we have been highly acquisitive in the last several years, including an acquisition in the third quarter of 2020 of a U.S.

based preferred Amazon Connect cloud contact center service provider, 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.

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Financial Highlights

In the second quarter of 2020, our revenue increased $60.6, or 15.4%, to $453.1 million over the same period in 2019 including a decrease of $3.5 million, or 0.9%, due to foreign currency fluctuations.

In the third quarter of 2020, our revenue increased $97.5, or 24.6%, to $493.0 million over the same period in 2019 including an increase of $2.0 million, or 0.5%, due to foreign currency fluctuations.

The increase in revenue was comprised of a $99.5 million, or 31.4%, increase for TTEC Engage offset by a $2.0 million, or 2.6%, decrease for TTEC Digital.

Our second quarter 2020 income from operations increased $26.1 million, or 114.1%, to $ 49.0 million or 10.8% of revenue, compared to $22.9 million or 5.8% of revenue in the second quarter of 2019.

Our third quarter 2020 income from operations increased $27.4 million, or 105.5%, to $53.4 million or 10.8% of revenue, compared to $26.0 million or 6.6% of revenue in the third quarter of 2019.

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

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The TTEC Engage operating income increased 182.7% compared to the prior year quarter based on the increase in revenue including, but not limited to, the acquisition of FCR and significant surge volumes in our commercial and public sector clients experiencing spikes in customer interactions related to COVID-19.

Income from operations in the second quarter of 2020 and 2019 included $0.8 million and $2.5 million of restructuring and integration charges and asset impairments, respectively.

Income from operations in the third quarter of 2020 and 2019 included $2.2 million and $0.2 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 spanning six countries with 23,000 workstations, representing 53% of our global delivery capability.

Revenue for our TTEC Engage segment provided from these offshore locations represented 29% of our revenue for the second quarter of 2020, as compared to 38% of our revenue for the corresponding period in 2019.

As of June 30, 2020, the total production workstations for our TTEC Engage segment was 43,432 and the overall capacity utilization in our centers was 68%.

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.

During COVID-19 utilized seats include all seats currently generating revenue either through actual usage or contractually committed to clients who plan, at some level, to return to brick and mortar sites.

The table below presents workstation data for all of our centers as of June 30, 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.

June 30, 2020

June 30, 2019

Total centers

Sites open >1 year

Sites open <1 year

Total workstations

Revenue for our TTEC Engage segment provided from these offshore locations represented 26% of our revenue for the third quarter of 2020, as compared to 34% of our revenue for the corresponding period in 2019.

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

As of September 30, 2020, the total production workstations for our TTEC Engage segment was 42,996 and the overall capacity utilization in our centers was 58% versus 70% in the prior year period.

The utilization is lower than the previous year primarily due to COVID-19 protocols requiring the distancing of associates which has reduced the available seat capacity.

Adjusted for social distancing protocols, which reduced the available workstations to approximately 21,850, and accounting for all client paid seats as utilized, whether through actual usage or contractual commitments to hold the seats, current utilization is in excess of 113%.

Post COVID-19 we expect our clients to leverage a more diversified geographic footprint and an increased mix of work from home vs.

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Results of Operations

Three months ended June 30, 2020 compared to three months ended June 30, 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 June 30, 2020 and 2019 (amounts in thousands).

Three months ended September 30, 2020 compared to three months ended September 30, 2019

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

Three Months Ended June 30,

Three Months Ended September 30,

Operating Income

Operating Margin

The decrease in revenue for the TTEC Digital segment was related to significant increases in the cloud platform and the acquisition of Serendebyte, offset by reductions in the legacy facility based training business and the middle east consulting practice, both of which the Company has exited.

Within the core Digital business and excluding a large multi-year term government contract, for the quarters ended June 30, 2020 and 2019 revenue from the cloud offering represented $19.5 million and $13.9 million, respectively, and the systems integration offering represented $11.2 million and $13.0 million, respectively.

The decrease in revenue for the TTEC Digital segment was related to significant increases in the cloud platform and the acquisitions of Serendebyte and Voice Foundry US during 2020, offset by reductions in the legacy facility based training business and the middle east consulting practice, both of which the Company has exited.

Within the core Digital business and excluding a large multi-year term government contract, for the quarters ended September 30, 2020 and 2019 revenue from the cloud offering represented $20.0 million and $16.5 million, respectively, and the systems integration offering represented $10.8 million and $13.2 million, respectively.

The operating income expansion is primarily attributable to the continued improved utilization of technology and people assets as the business scales its cloud and system integration revenue as well as the exit of the less profitable facilities based training and middle east consulting practices.

Also the second quarter of 2019 included a $2.0 million impairment of intangible and other long-lived assets (See Part I.

Financial Statements, Notes 5 and 9 to the Consolidated Financial Statements).

The operating income as a percentage of revenue increased to 18.6% in the second quarter of 2020 as compared to 9.8% in the prior period.

Included in the operating income was amortization expense related to acquired intangibles of $0.6 million and $0.6 million for the quarters ended June 30, 2020 and 2019, respectively.

Three Months Ended June 30,

The operating income as a percentage of revenue increased to 17.0% in the third quarter of 2020 as compared to 14.9% in the prior period.

Included in the operating income was amortization expense related to acquired intangibles of $0.8 million and $0.6 million for the quarters ended September 30, 2020 and 2019, respectively.

Three Months Ended September 30,

Operating Income

Operating Margin

The increase in revenue for the TTEC Engage segment was due to a net increase of $85.2 million in client programs including the acquisition of FCR in the fourth quarter of 2019 and certain surge programs for several clients in connection with the COVID-19 pandemic, offset by a decrease for program completions of $20.0 million and a $3.3 million decrease due to foreign currency fluctuations.

The increase in revenue for the TTEC Engage segment was due to a net increase of $120.3 million in client programs including the acquisition of FCR in the fourth quarter of 2019 and certain surge programs for several clients in connection with the COVID-19 pandemic, offset by a decrease for program completions of $22.7 million and a $1.9 million increase 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 9.2% in the second quarter of 2020 as compared to 4.8% 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 June 30, 2020 and 2019, respectively.

Partially offsetting these increases was a net $1.7 million in restructuring and impairment charges related to several facilities in the U.S.

Financial Statements, Note 9 to the Consolidated Financial Statements).

As a result, the operating income as a percentage of revenue increased to 9.7% in the third quarter of 2020 as compared to 4.5% 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 September 30, 2020 and 2019, respectively.

Interest Income (Expense)

For the three months ended June 30, 2020 interest income increased to $0.5 million from $0.4 million in the same period in 2019.

For the three months ended September 30, 2020 interest income increased to $0.6 million from $0.5 million in the same period in 2019.

Interest expense decreased to $2.8 million during 2020 from $4.0 million during 2019 due to higher utilization of the line of credit, offset by lower interest rates and a $0.8 million decrease in the charge related to the future purchase of the remaining 30% interest in Motif versus the prior year period, which was finalized during the second quarter of 2020.

Other Income (Expense)

For the three months ended June 30, 2020 Other income (expense), net decreased to net expense of $1.8 million from net income of $1.9 million during the prior year quarter.

Included in the three months ended June 30, 2020 was a $1.1 million benefit related to the fair value adjustment of contingent consideration for an acquisition (see Part I.

Financial Statements, Notes 2 and 7 to the Consolidated Financial Statements), offset by a $2.5 million expense related to the dissolution of a subsidiary.

Included in the three months ended June 30, 2019 was a $2.4 million benefit related to a fair value adjustment of contingent consideration for an acquisition.

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

For the three months ended September 30, 2020 Other income (expense), net decreased to net expense of $18.7 million from net income of $2.7 million during the prior year quarter.

Included in the three months ended September 30, 2020 was a $17.4 million expense related to the deconsolidation of two subsidiaries and the removal of the related Currency Translation Adjustment (see Part I.

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

Included in the three months ended September 30, 2019 was a $1.4 million gain on recovery of receivables in connection with the Consulting business that was wound down, and a $0.7 million gain on the sale of trademarks.

The effective tax rate for the three months ended September 30, 2020 was 25.9%.

This compares to an effective tax rate of 20.6% for the comparable period of 2019.

The effective tax rate for the three months ended June 30, 2020 was influenced by earnings in international jurisdictions currently under an income tax holiday, the distribution of income between the U.S.

The effective tax rate for the three months ended September 30, 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 $0.3 million of expense related to adjustments to contingent consideration, a $0.2 million benefit related to restructuring, a $0.9 million benefit related to changes in valuation allowances, $0.4 million of expense related to provision to return adjustments, and $0.2 million of other expense, the Company’s effective tax rate for the second quarter of 2020 would have been 24.2%.

tax impacts of foreign earnings.

Without $2.5 million benefit related to the deconsolidation of a subsidiary, a $0.6 million benefit related to restructuring, $1.9 million of expense related to tax contingencies, and $0.1 million of other expense, the Company’s effective tax rate for the third quarter of 2020 would have been 18.3%.

Results of Operations

Six months ended June 30, 2020 compared to six months ended June 30, 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 six months ended June 30, 2020 and 2019 (in thousands).

Nine months ended September 30, 2020 compared to nine months ended September 30, 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 nine months ended September 30, 2020 and 2019 (in thousands).

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

Six Months Ended June 30,

Nine Months Ended September 30,

Operating Income

Operating Margin

The increase in revenue for the TTEC Digital segment was related to significant increases in the cloud platform and the systems integration practice including a large multi-year governmental contract and the acquisition of Serendebyte, offset by reductions in the legacy facility based training business and the middle east consulting practice, both of which the Company has exited.

Within the core Digital business and excluding the large multi-year government contract, for the six months ended June 30, 2020 and 2019, revenue from the cloud offering represented $38.4 million and $26.9 million, respectively, and the systems integration offering represented $24.2 million and $25.8 million, respectively.

The increase in revenue for the TTEC Digital segment was related to significant increases in the cloud platform and the systems integration practice including a large multi-year governmental contract and the acquisitions of Serendebyte and Voice Foundry US during 2020, offset by reductions in the legacy facility based training business and the middle east consulting practice, both of which the Company has exited.

Within the core Digital business and excluding the large multi-year government contract, for the nine months ended September 30, 2020 and 2019, revenue from the cloud offering represented $58.3 million and $43.3 million, respectively, and the systems integration offering represented $36.4 million and $33.6 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, as well as the exit of the less profitable facilities based training and middle east consulting practices.

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Financial Statements, Notes 5 and 9 to the Consolidated Financial Statements) recorded during 2019.

The operating income as a percentage of revenue increased to 15.9% for the six months ended June 30, 2020 as compared to 10.7% in the prior period.

Included in the operating income was amortization expense related to acquired intangibles of $1.1 million and $1.3 million for the six months ended June 30, 2020 and 2019, respectively.

Six Months Ended June 30,

The operating income as a percentage of revenue increased to 16.3% for the nine months ended September 30, 2020 as compared to 12.2% in the prior period.

Included in the operating income was amortization expense related to acquired intangibles of $1.9 million and $1.9 million for the nine months ended September 30, 2020 and 2019, respectively.

Nine Months Ended September 30,

Operating Income

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As a result, the operating income as a percentage of revenue increased to 8.9% for the six months ended June 30, 2020 as compared to 6.1% in the prior period.

Included in the operating income was amortization expense related to acquired intangibles of $6.6 million and $4.0 million for the six months ended June 30, 2020 and 2019, respectively.

Partially offsetting these increases was a net $2.8 million in restructuring and impairment charges related to several facilities in the U.S.

Item 1, Financial Statements, Note 9 to the Consolidated Financial Statements).

As a result, the operating income as a percentage of revenue increased to 9.2% for the nine months ended September 30, 2020 as compared to 5.6% in the prior period.

Included in the operating income was amortization expense related to acquired intangibles of $9.9 million and $6.0 million for the nine months ended September 30, 2020 and 2019, respectively.

Interest Income (Expense)

For the six months ended June 30, 2020 interest income increased to $0.9 million from $0.8 million in the same period in 2019.

Interest expense increased to $12.7 million during 2020 from $9.5 million during 2019 due to higher utilization of the line of credit offset by lower interest rates and a $4.5 million period over period increase in the charge related to the future purchase of the remaining 30% interest in Motif, which was finalized during the second quarter of 2020.

For the nine months ended September 30, 2020 interest income increased to $1.4 million from $1.3 million in the same period in 2019.

Interest expense increased to $15.5 million during 2020 from $13.5 million during 2019 due to higher utilization of the line of credit offset by lower interest rates, and a $3.9 million increase period over period in the charge related to the future purchase of the remaining 30% interest in Motif, which was finalized during the second quarter of 2020.

Other Income (Expense)

For the six months ended June 30, 2020 Other income (expense), net decreased to net income of $1.6 million from net income of $2.7 million during the prior year quarter.

Included in the six months ended June 30, 2020 was a $4.3 million benefit related to the fair value adjustments of contingent consideration for an acquisition (see Part I.

Financial Statements, Notes 2 and 7 to the Consolidated Financial Statements), offset by a $2.5 million expense related to the dissolution of a subsidiary.

Included in the six months ended June 30, 2019 was a $2.4 million benefit related to the fair value adjustment of contingent consideration for an acquisition.

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

For the nine months ended September 30, 2020 Other income (expense), net decreased to net expense of $17.0 million from net income of $5.4 million during the prior year quarter.

Included in the nine months ended September 30, 2020 was a $4.4 million benefit related to the fair value adjustments of contingent consideration for an acquisition, offset by a $19.9 million expense related to the deconsolidation of three subsidiaries and the related removal of the Currency Translation Adjustments (see Part I.

Financial Statements, Notes 2 and 7 to the Consolidated Financial Statements).

Included in the nine months ended September 30, 2019 was a $2.4 million benefit related to the fair value adjustment of contingent consideration for an acquisition, a $1.4 million gain on recovery of receivables in connection with the Consulting business that was wound down, and a $0.7 million gain on the sale of trademarks.

The effective tax rate for the nine months ended September 30, 2020 was 26.5%.

This compared to an effective tax rate of 27.0% for the comparable period of 2019.

The effective tax rate for the six months ended June 30, 2020 was influenced by earnings in international jurisdictions currently under an income tax holiday, the distribution of income between the U.S.

The effective tax rate for the nine months ended September 30, 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 associated U.S.

tax impacts of increased foreign earnings.

Without a $0.5 million benefit from restructuring expenses, $0.5 million of expense related to provision to return adjustments, a $0.6 million benefit related to changes in valuation allowances, $1.2 million of expense related to changes to contingent consideration and $0.4 million other expense, the Company’s effective tax rate for the six months ended June 30, 2020 would have been 23.7%.

tax impacts of foreign earnings.

Without a $1.0 million benefit from restructuring expenses, $0.5 million of expense related to provision to return adjustments, a $0.6 million benefit related to changes in valuation allowances, $1.2 million of expense related to changes to contingent consideration, a $2.5 million benefit related to the deconsolidation of subsidiaries, $2.2 million of expense related to tax contingencies, and $0.1 million of other expense, the Company’s effective tax rate for the 2020 would have been 21.7%.

Liquidity and Capital Resources

Our principal sources of liquidity are our cash generated from operations, our cash and cash equivalents, and borrowings under our Credit Facility.

During the six months ended June 30, 2020, we generated positive operating cash flows of $105.3 million.

During the nine months ended September 30, 2020, we generated positive operating cash flows of $186.8 million.

We believe that our cash generated from operations, existing cash and cash equivalents, and available credit will be sufficient to meet expected operating and capital expenditure requirements for the next 12 months.

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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.

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.

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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.

During September 2020, this additional borrowing was repaid.

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

The following discussion highlights our cash flow activities during the six months ended June 30, 2020 and 2019.

The following discussion highlights our cash flow activities during the nine months ended September 30, 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 $482.3 million and $82.4 million as of June 30, 2020 and December 31, 2019, respectively.

Our cash and cash equivalents totaled $135.3 million and $82.4 million as of September 30, 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.

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Cash Flows from Operating Activities

For the six months ended June 30, 2020 and 2019, net cash flows provided by operating activities was $105.3 million and $121.3 million, respectively.

The decrease is primarily due to a $35.9 million increase in net cash income from operations offset by a $51.9 million reduction in net working capital.

For the nine months ended September 30, 2020 and 2019, net cash flows provided by operating activities was $186.8 million and $184.4 million, respectively.

The increase is primarily due to a $55.0 million increase in net cash income from operations offset by a $52.6 million reduction in net working capital.

Cash Flows from Investing Activities

For the six months ended June 30, 2020 and 2019, net cash flows used in investing activities was $36.3 million and $28.1 million, respectively.

For the nine months ended September 30, 2020 and 2019, net cash flows used in investing activities was $86.6 million and $44.1 million, respectively.

The increase was due to a $3.4 million increase in capital expenditures and a $38.7 million increase related to acquisitions.

Cash Flows from Financing Activities

For the six months ended June 30, 2020 and 2019, net cash flows provided by (used in) financing activities was $332.8 million and ($84.7) million, respectively.

The change in net cash flows from 2019 to 2020 was primarily due to a $464.0 million net million additional draw on the line of credit, which included the $350 million discussed above, offset by a $42.8 million increase related to payments of contingent consideration and hold-back payments related to several acquisitions.

For the nine months ended September 30, 2020 and 2019, net cash flows used in financing activities was $48.9 million and $119.6 million, respectively.

The change in net cash flows from 2019 to 2020 was primarily due to a $118.0 million net million additional draw on the line of credit, offset by a $42.8 million increase related to payments of contingent consideration and hold-back payments related to several acquisitions.

Free Cash Flow

Free cash flow (see “Presentation of Non-GAAP Measurements” below for the definition of free cash flow) decreased for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to an increase in net cash from operations offset by a decrease in working capital and higher outflow related to acquisitions including payments of contingent consideration.

Free cash flow was $73.4 million and $92.8 million for the six months ended June 30, 2020 and 2019, respectively.

Free cash flow (see “Presentation of Non-GAAP Measurements” below for the definition of free cash flow) decreased slightly for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 primarily due to an increase in net cash from operations offset by a decrease in working capital and higher outflow related to capital expenditures.

Free cash flow was $139.0 million and $140.0 million for the nine months ended September 30, 2020 and 2019, respectively.

Presentation of Non-GAAP Measurements

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The following table reconciles net cash provided by operating activities to free cash flow for our consolidated results (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Net cash provided by operating activities

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Client Concentration

During the six months ended June 30, 2020 and 2019, none of our clients represented more than 10% of our total revenue.

Our five largest clients, collectively, accounted for 39.9% and 37.4% of our consolidated revenue for the three months ended June 30, 2020 and 2019, respectively and 37.1% and 36.7% of our consolidated revenue for the six months ended June 30, 2020 and 2019, respectively.

During the nine months ended September 30, 2020, one of our clients represented more than 10% of our total revenue.

Our five largest clients, collectively, accounted for 42.6% and 37.1% of our consolidated revenue for the three months ended September 30, 2020 and 2019, respectively and 39.1% and 36.9% of our consolidated revenue for the nine months ended September 30, 2020 and 2019, respectively.

We have had long-term relationships with our top five Engage clients, ranging from 14 to 21 years, with all of these clients having completed multiple contract renewals with us.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis