What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-08-03 compared with 2021-05-04 · 83 added, 46 removed, 149 unchanged (46% of the section changed)

20 unchanged sentences

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

Our revenue for first quarter 2021 was $539.2 million, approximately $63.6 million, or 12% which came from our TTEC Digital segment and $475.6 million, or 88%, which came from our TTEC Engage segment.

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

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

11 unchanged sentences

Although our business experienced some impacts of COVID-19 in the first half of 2020, our implementation of business continuity plans, rapid transition of employees to a work from home environment, and the geographic diversification of our delivery centers allowed us to mitigate potentially more severe impacts and positioned us to continue supporting our commercial and public sector clients without interruptions and provide them with additional support as they experienced surge volumes of customer, patient and citizen COVID-19 related engagement.

Through the period ended March 31, 2021 the COVID-19 pandemic has not had a material adverse impact on our operational or financial results.

Through the period ended June 30, 2021 the COVID-19 pandemic has not had a material adverse impact on our operational or financial results.

While we expect this positive trend to continue and some of our COVID-19 specific work has transitioned to more traditional business activities for the same clients, there continues to be uncertainty about our COVID-19 and non-COVID-19 related business as the pandemic continues around the globe, and some locations where we deliver business are experiencing ongoing COVID-19 infection surges, related lockdown and business interruption.

We cannot accurately predict the severity of the economic and operational challenges of a pro-longed COVID-19 pandemic on our clients’ businesses and its effect on the magnitude and timing of their buying decisions.

Further, while to date we have been successful in managing service delivery from highly disbursed employee population working remotely and our delivery sites that could not be replaced with work from home delivery, unpredictable lockdown decisions in some jurisdictions where we do business, certain seasonal weather cycles and their potential impacts on power grid and internet availability for our employees working from home may impact our delivery capability with little notice, thus potentially impacting our results of operations in the future.

Further, while to date we have been successful in managing service delivery from a highly disbursed employee population working remotely and our delivery sites that could not be replaced with work from home delivery, unpredictable lockdown decisions in some jurisdictions where we do business, certain seasonal weather cycles and their potential impacts on power grid and internet availability for our employees working from home may impact our delivery capability with little notice, thus potentially impacting our results of operations in the future.

Our Integrated Service Offerings and Business Segments

20 unchanged sentences

Financial Highlights

In the first quarter of 2021, our revenue increased $107.0 million, or 24.8%, to $539.2 million over the same period in 2020 including an increase of $7.1 million, or 1.7%, due to foreign currency fluctuations.

The increase in revenue was comprised of a $121.0 million, or 34.1%, increase for TTEC Engage offset by a $14.0 million, or 18.0%, decrease for TTEC Digital.

Our first quarter 2021 income from operations increased $32.7 million, or 80.3%, to $73.4 million or 13.6% of revenue, compared to $40.7 million or 9.4% of revenue in the first quarter of 2020.

In the second quarter of 2021, our revenue increased $101.7 million, or 22.4%, to $554.8 million over the same period in 2020 including an increase of $10.4 million, or 2.3%, due to foreign currency fluctuations.

The increase in revenue was comprised of a $70.9 million, or 18.8%, increase for TTEC Engage and a $30.9 million, or 40.0%, increase for TTEC Digital.

Our second quarter 2021 income from operations increased $16.9 million, or 34.5%, to $65.8 million or 11.9% of revenue, compared to $49.0 million or 10.8% of revenue in the second quarter of 2020.

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

The TTEC Engage operating income expanded with a 127.3% improvement over the same period last year primarily based on the increase in revenue including volumes in our financial services, commercial and public sector clients experiencing spikes in customer interactions related to COVID-19, and grant income received to offset salaries and rent expenses.

The TTEC Digital operating income decreased 59% due to the reduction in the large multi-year government contract offset by increases from the 2020 acquisitions and continued growth in the cloud revenue platform.

Income from operations in the first quarter of 2021 and 2020 included $3.9 million and $1.2 million of restructuring charges and asset impairments, respectively.

The TTEC Engage operating income expanded with a 62.7% improvement over the same period last year primarily based on the increase in revenue including volumes in our financial services, commercial and public sector clients experiencing spikes in customer interactions including COVID-19 specific volumes, a reduction in healthcare expenses, and grant income received to offset salaries and rent expenses.

The TTEC Digital operating income decreased 33.5% due to a reduction in the large multi-year government contract and increased amortization of acquisition related intangible assets, partially offset by the 2021 and 2020 acquisitions which accelerated growth in the cloud revenue platform.

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

Our offshore customer engagement centers spanning six countries, serve clients based in the U.S.

and in other countries with 23,650 workstations, representing 59% of our global delivery capability.

Revenue for our TTEC Engage segment provided from these offshore locations represented 29% of our revenue for the first quarter of 2021, as compared to 34% of our revenue for the corresponding period in 2020.

Revenue for our TTEC Engage segment provided from these offshore locations represented 30% of our revenue for the second quarter of 2021, as compared to 29% of our revenue for the corresponding period in 2020.

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

As of March 31, 2021, the total production workstations for our TTEC Engage segment was 41,458 and the overall capacity utilization in our centers was 64% versus 73% in the prior year period.

As of June 30, 2021, the total production workstations for our TTEC Engage segment was 40,300 and the overall capacity utilization in our centers was 62% versus 68% in the prior year period.

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

1 unchanged sentence

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

brick and mortar seats.

brick and mortar delivery centers.

We will continue to refine our site strategy and capacity as we finalize plans with our clients and prospects.

12 unchanged sentences

Results of Operations

Three months ended March 31, 2021 compared to three months ended March 31, 2020

The tables included in the following sections are presented to facilitate an understanding of Management’s Discussion and Analysis of Financial Condition and Results of Operations and present certain information by segment for the three months ended March 31, 2021 and 2020 (amounts in thousands).

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

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

Three Months Ended March 31,

Three Months Ended June 30,

Operating Income

Operating Margin

The decrease in revenue for the TTEC Digital segment was related to increases in the cloud platform and the systems integration practice, including the acquisitions of Voice Foundry and Serendebyte, offset by reductions in the large multi-year government contract and in the legacy facility based training business, which the Company has exited.

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

Excluding the large multi-year government contract, the TTEC Digital revenue has increased 107% year over year.

The operating income decline is primarily attributable to the reduction in the large multi-year government contract offset by increases in the cloud platform and system integration practice and the exit of the legacy facility based training business.

The operating income as a percentage of revenue decreased to 6.6% in the first quarter of 2021 as compared to 13.2% in the prior period.

Included in the operating income was amortization expense related to acquired intangibles of $1.2 million and $0.6 million for the quarters ended March 31, 2021 and 2020, respectively.

Three Months Ended March 31,

The operating income decrease is primarily attributable to a reduction in the large multi-year government contract, additional amortization of acquisition related intangible assets and $0.9 million of restructuring charges, partially offset by the acquisitions of Avtex and Voice Foundry, increases in the cloud platform and system integration practice.

The operating income as a percentage of revenue decreased to 8.9% in the second quarter of 2021 as compared to 18.6% in the prior period.

Included in the operating income was amortization expense related to acquired intangibles of $5.7 million and $0.6 million for the quarters ended June 30, 2021 and 2020, respectively.

Three Months Ended June 30,

Operating Income

Operating Margin

The increase in revenue for the TTEC Engage segment was due to a net increase of $127.2 million in client programs including certain surge programs for several clients in connection with the COVID-19 pandemic and a $6.5 million increase due to foreign currency fluctuations, offset by a decrease for program completions of $12.7 million.

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

The operating income increased primarily due to the growth in revenue, revenue mix, and increased profitability in several offerings.

Included in the first quarter of 2021 is a $6.0 million increase to operating income due to grants received related to COVID-19 relief, which was offset by $3.0 million of restructuring and impairment charges related to several facilities in the U.S.

Included in the second quarter of 2021 is a $2.0 million increase to operating income due to grants received related to COVID-19 relief and a $5.3 million reduction in healthcare expenses, which was offset by $1.6 million of restructuring and impairment charges related to several facilities in the U.S.

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

As a result, the operating income as a percentage of revenue increased to 14.6% in the first quarter of 2021 as compared to 8.6% in the prior period.

Included in the operating income was amortization expense related to acquired intangibles of $3.3 million and $3.3 million for the quarters ended March 31, 2021 and 2020, respectively.

As a result, the operating income as a percentage of revenue increased to 12.6% in the second quarter of 2021 as compared to 9.2% in the prior period.

Included in the operating income was amortization expense related to acquired intangibles of $3.3 million and $3.3 million for the quarters ended June 30, 2021 and 2020, respectively.

Interest Income (Expense)

For the three months ended March 31, 2021, interest income decreased to $0.2 million from $0.4 million in the same period in 2020.

Interest expense decreased to $1.8 million during 2021 from $9.6 million during 2020 due to higher utilization of the line of credit, offset by lower interest rates and a $6.5 million decrease in the charge related to the future purchase of the remaining 30% interest in Motif, Inc.

versus the prior year period, which was finalized during the second quarter of 2020.

For the three months ended June 30, 2021 interest income decreased to $0.2 million from $0.5 million in the same period in 2020.

Interest expense increased to $3.4 million during 2021 from $3.1 million during 2020 due to higher utilization of the line of credit.

Other Income (Expense)

For the three months ended March 31, 2021, Other income (expense), net decreased to net expense of $0.8 million from net income of $3.4 million during the prior year quarter.

Included in the three months ended March 31, 2021 and 2020 were a $0.9 million expense and a $3.3 million benefit, respectively, related to the fair value adjustment of contingent consideration for two acquisitions (see Part I.

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

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

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

Financial Statements, Note 2 to the Consolidated Financial Statements.

The effective tax rate for the three months ended March 31, 2021 was 22.5%.

The effective tax rate for the three months ended June 30, 2021 was 17.8%.

This compares to an effective tax rate of 24.8% for the comparable period of 2020.

The effective tax rate for the three months ended March 31, 2021 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 June 30, 2021 was influenced by earnings in international jurisdictions currently under an income tax holiday, the distribution of income between the U.S.

and international tax jurisdictions and the associated U.S.

tax impacts of foreign earnings.

Without a $1.0 million benefit related to restructuring, $2.4 million of expense related to changes in valuation allowances, a $2.8 million benefit related to equity compensation, and a $1.2 million benefit related to the amortization of purchased intangibles, the Company’s effective tax rate for the first quarter of 2021 would have been 23.7%.

Without a $0.5 million benefit related to restructuring, a $2.4 million benefit related to equity compensation, a $2.3 million benefit related to the amortization of purchased intangibles and $0.2 million of expense related to other items, the Company’s normalized tax rate for the second quarter of 2021 was 21.4%.

Results of Operations

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

The tables included in the following sections are presented to facilitate an understanding of Management’s Discussion and Analysis of Financial Condition and Results of Operations and present certain information by segment for the six months ended June 30, 2021 and 2020 (in thousands).

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

Six Months Ended June 30,

Operating Income

Operating Margin

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

Excluding the large multi-year government contract, the TTEC Digital revenue has increased 64% year over year.

The operating income reduction is primarily attributable to a reduction in the large multi-year governmental contract and increased amortization of acquisition related intangible assets partially offset by the increased revenue due to the acquisitions and other revenue increases as well as the exit of the less profitable facilities based training and middle east consulting practices.

The operating income as a percentage of revenue decreased to 8.0% for the six months ended June 30, 2021 as compared to 15.9% in the prior period.

Included in the operating income was amortization expense related to acquired intangibles of $6.9 million and $1.1 million for the six months ended June 30, 2021 and 2020, respectively.

Six Months Ended June 30,

Operating Income

Operating Margin

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

The operating income increased in line with improved revenue including growth in revenue, revenue mix, and increased profitability in several offerings.

Included in 2021 is a $8.0 million increase to operating income due to grants received related to COVID-19 relief.

Partially offsetting these increases was a net $5.5 million in restructuring and impairment charges related to several facilities in the U.S.

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

As a result, the operating income as a percentage of revenue increased to 13.6% for the six months ended June 30, 2021 as compared to 8.9% in the prior period.

Included in the operating income was amortization expense related to acquired intangibles of $6.6 million and $6.6 million for the six months ended June 30, 2021 and 2020, respectively.

Interest Income (Expense)

For the six months ended June 30, 2021 interest income decreased to $0.4 million from $0.9 million in the same period in 2020.

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

Other Income (Expense)

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

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

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

Financial Statements, Note 2 to the Consolidated Financial Statements.

The effective tax rate for the six months ended June 30, 2021 was 20.3%.

This compared to an effective tax rate of 26.7% for the comparable period of 2020.

The effective tax rate for the six months ended June 30, 2021 was influenced by earnings in international jurisdictions currently under an income tax holiday, the distribution of income between the U.S.

and international tax jurisdictions and associated U.S.

tax impacts of foreign earnings.

Without a $1.6 million benefit from restructuring expenses, $2.4 million of expense related to changes in valuation allowances, a $3.5 million benefit related to the amortization of purchased intangibles, a $5.3 million benefit related to equity-based compensation, and $0.2 million of expense related to other items, the Company’s normalized tax rate for 2021 was 22.6%.

Liquidity and Capital Resources

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

During the three months ended March 31, 2021, we generated positive operating cash flows of $69.8 million.

During the six months ended June 30, 2021, we generated positive operating cash flows of $132.8 million.

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

4 unchanged sentences

We expect to use our cash to fund working capital, global operations, dividends, acquisitions, and other strategic activities.

While there are no assurances, we believe our global cash is well protected given our cash management practices, banking partners and utilization of diversified bank deposit accounts and other high quality investments.

We have global operations that expose us to foreign currency exchange rate fluctuations that may positively or negatively impact our liquidity.

7 unchanged sentences

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, 2021 and 2020.

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

Cash and Cash Equivalents

We consider all liquid investments purchased within 90 days of their original maturity to be cash equivalents.

Our cash and cash equivalents totaled $144.2 million and $132.9 million as of March 31, 2021 and December 31, 2020, respectively.

Our cash and cash equivalents totaled $174.7 million and $132.9 million as of June 30, 2021 and December 31, 2020, respectively.

We diversify the holdings of such cash and cash equivalents considering the financial condition and stability of the counterparty institutions.

1 unchanged sentence

Cash Flows from Operating Activities

For the three months ended March 31, 2021 and 2020, net cash flows provided by operating activities was $ 69.8 million and $62.2 million, respectively.

For the six months ended June 30, 2021 and 2020, net cash flows provided by operating activities was $132.8 million and $105.3 million, respectively.

The increase is primarily due to a $46.9 million increase in net cash income from operations offset by a $19.3 million reduction in net working capital.

Cash Flows from Investing Activities

For the three months ended March 31, 2021 and 2020, net cash flows used in investing activities was $11.8 million and $22.0 million, respectively.

The decrease was due to a $5.2 million decrease in capital expenditures and a $5.0 million decrease related to acquisitions.

For the six months ended June 30, 2021 and 2020, net cash flows used in investing activities was $505.3 million and $36.3 million, respectively.

The increase was due to a $477.3 million increase related to acquisitions offset by a $8.3 million decrease in capital expenditures.

Cash Flows from Financing Activities

For the three months ended March 31, 2021 and 2020, net cash flows (used in) provided by financing activities was $(54.2) million and $403.7 million, respectively.

The change in net cash flows from 2020 to 2021 was primarily due to a $456.0 million net million reduction in the line of credit.

For the six months ended June 30, 2021 and 2020, net cash flows (used in) provided by financing activities was $400.5 million and $332.8 million, respectively.

The change in net cash flows from 2020 to 2021 was primarily due to a $39.0 million net million increase in the line of credit and a $37.2 million decrease in payments of contingent consideration offset by a $4.3 million increase in shareholder dividends.

Free Cash Flow

Free cash flow (see “Presentation of Non-GAAP Measurements” below for the definition of free cash flow) increased slightly for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 primarily due to an increase in net cash from operations offset by a decrease in working capital and lower capital expenditures.

Free cash flow was $58.2 million and $45.4 million for the three months ended March 31, 2021 and 2020, respectively.

Free cash flow (see “Presentation of Non-GAAP Measurements” below for the definition of free cash flow) increased slightly for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily due to an increase in net cash from operations offset by a decrease in working capital and lower capital expenditures.

Free cash flow was $109.2 million and $73.4 million for the six months ended June 30, 2021 and 2020, respectively.

Presentation of Non-GAAP Measurements

7 unchanged sentences

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,

Three Months Ended June 30,

Six Months Ended June 30,

Net cash provided by operating activities

12 unchanged sentences

Client Concentration

During the three months ended March 31, 2021, one of our clients represented more than 10% of our total revenue.

Our five largest clients, collectively, accounted for 41.8% and 36.0% of our consolidated revenue for the three months ended March 31, 2021 and 2020, respectively.

During the six months ended June 30, 2021, one of our clients represented more than 10% of our total revenue.

Our five largest clients, collectively, accounted for 36.4% and 39.9% of our consolidated revenue for the three months ended June 30, 2021 and 2020, respectively and 39.0% and 37.1% of our consolidated revenue for the six months ended June 30, 2021 and 2020, respectively.

We have had long-term relationships with our top five TTEC Engage clients, ranging from 15 to 21 years, with all of these clients having completed multiple contract renewals with us.

6 unchanged sentences

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