What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-08 compared with 2023-11-08 · 69 added, 130 removed, 78 unchanged (72% of the section changed)

2 unchanged sentences

Executive Summary

TTEC Holdings, Inc.

(“TTEC”, “the Company”, “we”, “our” or “us”;

pronounced “T-TEC”) is a leading global customer experience (“CX”) as a service (“CXaaS”) partner for many of the world’s most iconic companies, disruptive hypergrowth brands, and large public sector agencies.

TTEC designs, builds, orchestrates, and delivers seamless digitally enabled customer experiences that increase brand value, customer loyalty, revenue, and profitability through personalized, outcome-based interactions.

We help clients improve their customer satisfaction while lowering their total cost to serve by combining innovative digital solutions with service capabilities that deliver a frictionless CX across numerous real-time digital and live interaction channels and different phases of the customer lifecycle.

The Company operates and reports its financial results of operation through two business segments:

TTEC Digital and TTEC Engage.

● TTEC Digital is one of the largest pure-play CX technology service providers with expertise in CX strategy, digitization, analytics, process optimization, system integration, cloud-based technology solutions, and transformation enabled by our proprietary CX applications and technology partnerships.

TTEC Digital designs, builds, and operates robust digital experiences for clients and their customers through the contextual integration and orchestration of customer relationship management (“CRM”), data, analytics, CXaaS technology, and intelligent automation to ensure high-quality, scalable CX outcomes.

● TTEC Engage provides the digitally enabled CX managed services to support our clients’ end-to-end customer interaction delivery at scale.

The segment delivers omnichannel customer care, technology support, order fulfillment, customer acquisition, growth, and retention services with industry specialization and distinctive CX capabilities for hypergrowth brands.

TTEC Engage also delivers digitally enabled back office and industry specific specialty services including artificial intelligence (“AI”) operations, and fraud management services.

TTEC Digital and TTEC Engage strategically come together under our unified offering, Humanify ® CXaaS, which drives measurable customer results for clients through the delivery of personalized and seamless omnichannel experiences.

Our Humanify ® cloud platform provides a fully integrated ecosystem of CX offerings including messaging, AI, machine learning, robotic process automation, analytics, cybersecurity, CRM, knowledge management, journey orchestration, and traditional voice solutions.

Our end-to-end CXaaS platform differentiates us from competitors by combining design, strategic consulting, technology, data analytics, process optimization, system integration, and operational excellence along with our decades of industry know-how.

This unified offering is value-oriented, outcome-based and delivered to large enterprises, hypergrowth companies and public sector agencies on a global scale.

During 2023, 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, Colombia, Costa Rica, Germany, Greece, India, Ireland, Mexico, the Netherlands, New Zealand, the Philippines, Poland, South Africa, Thailand, and the United Kingdom with the help of 64,400 consultants, technologists, and CX professionals.

Our revenue for third quarter 2023 was $603.0 million, approximately $133.3 million, or 22% which came from our TTEC Digital segment and $469.7 million, or 78%, which came from our TTEC Engage segment.

Founded in 1983, TTEC is a global CX outsourcing partner for marquee and disruptive brands and public sector clients.

The Company designs, builds, and operates technology-enabled customer experiences across digital and live interaction channels to help clients increase customer loyalty, revenue, and profitability.

By combining digital solutions with data-driven service capabilities, we help clients improve their customer satisfaction while lowering their total cost to serve.

As of March 31, 2024, TTEC served approximately 750 clients across targeted industry verticals including financial services, healthcare, public sector, telecom, technology, media, travel and hospitality, automotive and retail.

TTEC operates through two business segments.

• TTEC Digital is one of the largest CX technology providers and is focused exclusively on the intersection of Contact Center as a Service (CCaaS), Customer Relationship Management (CRM), and Artificial Intelligence (AI) and Analytics.

A professional services organization comprised of software engineers, systems architects, data scientists and CX strategists, this segment creates and implements strategic CX transformation roadmaps;

sells, operates, and provides managed services for cloud platforms and premise based CX technologies including Amazon Web Services, Cisco, Genesys, Google, and Microsoft;

and creates proprietary IP to support industry specific and custom client needs.

TTEC Digital serves clients across Enterprise and Small & Medium Sized (SMB) business segments and has a dedicated unit with government technology certifications serving the public sector.

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

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

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

TTEC demonstrates its market leadership through strategic collaboration across TTEC Digital and TTEC Engage when there is client demand and fit for our integrated solutions.

This partnership is central to our ability to deliver comprehensive and transformational customer experience solutions to our clients, including integrated delivery, go-to-market and innovation for truly differentiated, market leading CX solutions.

During 2024, the TTEC global operating platform delivered onshore, nearshore, and offshore services in 22 countries on six continents -- the United States, Australia, Belgium, Brazil, Bulgaria, Canada, Colombia, Costa Rica, Egypt, Germany, Greece, Honduras, India, Ireland, Mexico, the Netherlands, New Zealand, the Philippines, Poland, South Africa, Thailand, and the United Kingdom with the help of approximately 58,000 consultants, technologists, and CX professionals.

Our revenue for first quarter 2024 was $576.6 million, approximately $112.0 million, or 19.0% which came from our TTEC Digital segment and $464.6 million, or 81.0%, which came from our TTEC Engage segment.

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

We also invest to broaden our product and service capabilities, increase our global client base and industry expertise, tailor our geographic footprint to the needs of our clients, and further scale our end-to-end integrated solutions platform.

To this end we were highly acquisitive in the last several years, including our acquisition in April 2022 of certain public sector assets of Faneuil, Inc.

that included healthcare exchange and transportation services contracts.

The acquisition expanded our capabilities in the growing public sector market by adding the building and operating of technology-enabled citizen engagement solutions to our offerings.

We also completed an acquisition early in the second quarter of 2021 of a provider of Genesys and Microsoft cloud contact center services.

We have extensive expertise in the healthcare, automotive, national/federal and state and local government, financial services, communications, technology, travel, logistics, media and entertainment, e-tail/retail, and transportation industries.

We serve more than 760 diverse clients globally, including many of the world’s iconic brands, Fortune 1000 companies, government agencies, 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 is one of the largest pure-play CX technology service providers with expertise in CX strategy, digitization, analytics, process optimization, system integration, cloud-based technology solutions, and transformation enabled by our proprietary CX applications and technology partnerships.

TTEC Digital designs, builds, and operates robust digital experiences for clients and their customers through the contextual integration and orchestration of CRM, data, analytics, CXaaS technology, and intelligent automation to ensure high-quality, scalable CX outcomes.

● Technology Services:

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

● Professional Services:

Our management consulting practices deliver customer experience strategy, analytics, process optimization, and system integration, among others.

TTEC Engage provides the digitally enabled CX managed services to support our clients’ end-to-end customer interaction delivery at scale.

TTEC Engage also delivers digitally enabled back office and industry specific specialty services including AI operations, and fraud management services.

● Customer Acquisition, Growth, and Retention 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 we believe increase the quantity and quality of leads and customers.

● Customer Care, Technology Support, and Order Fulfillment Services:

Our customer care, technology support, and order fulfillment 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.

● Digitally enabled back office and specialty services:

Our digital AI operations, and fraud detection and prevention services provide clients with data tagging and annotation capabilities to train and enable AI platforms, community content moderation, and compliance to meet client content standards, and proactive fraud solutions to assist our clients in the detection and prevention of fraud.

Based on our clients’ preference, we provide our services on an integrated cross-business segment and/or on a discrete basis.

Additional information with respect to our segments and geographic footprint is included in Part I, Item 1.

Financial Statements, Note 3 to the Consolidated Financial Statements.

We serve approximately 750 diverse clients globally, including many of the world’s iconic brands, Fortune 1000 companies, government agencies, and disruptive growth companies.

Financial Highlights

In the third quarter of 2023, our revenue increased $10.5 million, or 1.8%, to $603.0 million over the same period in 2022 including an increase of $6.0 million, or 1.1%, due to foreign currency fluctuations.

The increase in revenue was comprised of a $17.1 million, or 14.7%, increase for TTEC Digital offset by a decrease of $6.6 million, or 1.4%, for TTEC Engage.

Our third quarter 2023 income from operations decreased $10.2 million, or 28.7%, to $25.4 million or 4.2% of revenue, compared to $35.6 million or 6.0% of revenue in the third quarter of 2022.

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

The TTEC Digital operating income increased 48.8% over the same period last year primarily driven by increased revenue, increased offshore footprint in the center for excellence contributing to a healthier margin percentage, one-time product sales, and reductions in overhead expenses.

The TTEC Engage operating income decreased 51.2% over the same period last year primarily driven by lower revenue, training costs related to existing programs, geographic expansion, and the impairment of real estate leases.

Income from operations in the third quarter of 2023 and 2022 included $5.5 million and $4.1 million of restructuring charges and asset impairments, respectively.

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

In the first quarter of 2024, our revenue decreased $56.7 million, or 8.9%, to $576.6 million over the same period in 2023 including an increase of $1.8 million, or 0.3%, due to foreign currency fluctuations.

The decrease in revenue was comprised of a $4.9 million, or 4.2%, decrease for TTEC Digital and a decrease of $51.8 million, or 10.0%, for TTEC Engage.

Our first quarter 2024 income from operations decreased $21.7 million, or 48.9%, to $22.7 million or 3.9% of revenue, compared to $44.4 million or 7.0% of revenue in the first quarter of 2023.

The decrease in operating income is due to several factors across both segments.

The TTEC Digital operating income increased 318.9% over the same period last year primarily due to lower impairment and restructuring expenses partially offset by a change in the revenue mix and delays with launching new projects.

The TTEC Engage operating income decreased 55.5% over the same period last year due to lower revenue, a change in the revenue mix, growth-oriented investments that have not yet fully been utilized, and ramp costs associated with new programs.

Income from operations in the first quarter of 2024 and 2023 included $0.4 million and $6.4 million of restructuring charges and asset impairments, respectively.

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

and in other countries with 22,500 workstations, representing 73% of our global delivery capability.

Revenue for our TTEC Engage segment provided in these offshore locations represented 32% of our revenue for the third quarter of 2023, as compared to 28% of our revenue for the corresponding period in 2022.

Revenue for our TTEC Engage segment provided in these offshore locations represented 32% of our revenue for the first quarter of 2024, as compared to 29% of our revenue for the corresponding period in 2023.

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, 2023, the total production workstations for our TTEC Engage segment was 31,600, a net decrease of 2,500 workstations over the same period last year, with an overall capacity utilization 76% versus 72% in the prior year period.

This significant improvement was driven by the Company’s site optimization strategy as more and more clients are adopting the @Home operational platform on a permanent basis and a gradual return to sites in certain locations.

Post COVID-19, our clients started to leverage a more diversified geographic footprint and an increased mix of work from home versus brick and mortar seats in comparison to pre-COVID.

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

As of March 31, 2024, the total production workstations for our TTEC Engage segment was 30,800, a net decrease of 2,500 workstations over the same period last year, with an overall capacity utilization 76% in line with the prior year period.

We plan to continue to selectively retain and grow capacity and expand into new offshore markets, while maintaining appropriate capacity onshore.

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

As we grow our offshore delivery capabilities and our exposure to foreign currency fluctuation increases, we will continue to actively manage this risk via a multi-currency hedging program.

Recently Issued Accounting Pronouncements

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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.

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, 2022.

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, 2023.

Results of Operations

Three months ended September 30, 2023 compared to three months ended September 30, 2022

The tables included in the following sections are presented to facilitate an understanding of Management’s Discussion and Analysis of Financial Condition and Results of Operations and present certain information by segment for the three months ended September 30, 2023 and 2022 (amounts in thousands).

Three months ended March 31, 2024 compared to three months ended March 31, 2023

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

Three Months Ended September 30,

Three Months Ended March 31,

Operating Income

Operating Margin

The increase in revenue for the TTEC Digital segment was driven by an increase in recurring revenue offerings and one-time product sales.

The operating income increase is primarily attributable to the higher percentage of offshore delivery and decreased overhead expenses.

Operating income as a percentage of revenue increased to 8.9% in the third quarter of 2023 as compared to 6.9% in the prior period.

Included in operating income was amortization expense related to acquired intangibles of $4.3 million and $4.4 million for the quarters ended September 30, 2023 and 2022, respectively.

Three Months Ended September 30,

The decrease in revenue for the TTEC Digital segment was driven by the temporary lower bookings in early 2023 attributable to the macro-economic uncertainty.

The operating income increase was primarily related to lower impairment and restructuring expenses, partially offset by a change in the revenue mix and delays with launching new projects.

Operating income as a percentage of revenue increased to 2.9% in the first quarter of 2024 as compared to 0.7% in the prior period.

Included in operating income was amortization expense related to acquired intangibles of $4.3 million and $4.4 million for the quarters ended March 31, 2024 and 2023, respectively.

Three Months Ended March 31,

Operating Income

Operating Margin

The decrease in revenue for the TTEC Engage segment was due to a net increase of $8.6 million in client programs and a $5.8 million increase due to foreign currency fluctuations offset by a decrease for program completions of $21.0 million.

The operating income decreased primarily attributable to decreased revenue, training costs related to existing programs, incremental growth-oriented investments, geographic expansion, and $4.8 million of restructuring and impairment charges.

As a result, operating income as a percentage of revenue decreased to 2.9% in the third quarter of 2023 as compared to 5.8% in the prior period.

Included in operating income was amortization expense related to acquired intangibles of $4.6 million and $4.6 million for the quarters ended September 30, 2023 and 2022, respectively.

The decrease in revenue for the TTEC Engage segment was explained by a long tenured client exiting a line of business supported by TTEC, lower demand of select enterprise clients due to budget constraints driven by the macro-economic uncertainty and delays attributable to launching new and larger awards.

The operating income decrease was primarily attributable to lower revenue, change in the revenue mix, prior year non-recurring insurance proceeds, and incremental growth-oriented investments.

As a result, operating income as a percentage of revenue decreased to 4.2% in the first quarter of 2024 as compared to 8.4% in the prior period.

Included in operating income was amortization expense related to acquired intangibles of $4.1 million and $4.7 million for the quarters ended March 31, 2024 and 2023, respectively.

Interest Income (Expense)

For the three months ended September 30, 2023 interest income increased to $1.3 million from $0.5 million in the same period in 2022.

Interest expense increased to $20.3 million during 2023 from $10.6 million during 2022 due to higher utilization of the line of credit and higher interest rates.

For the three months ended March 31, 2024 interest income decreased to $1.0 million from $1.2 million in the same period in 2023.

Interest expense increased to $21.1 million during 2024 from $17.4 million during 2023 due to higher average utilization of the line of credit and higher interest rates.

Other Income (Expense)

For the three months ended September 30, 2023 Other income (expense), net decreased to income of $0.7 million from income of $3.9 million during the prior year quarter.

Included in the three months ended September 30, 2023 was a $0.1 million expense related to the fair value adjustments of contingent consideration for the Faneuil acquisition (see Part I.

For the three months ended March 31, 2024 Other income (expense), net decreased to income of $0.2 million from income of $0.7 million during the prior year quarter.

Included in the three months ended March 31, 2024 was a $1.2 million gain related to the fair value adjustments of contingent consideration for the Faneuil acquisition and ($0.8) million of expense related to a write-off of an aged VAT receivable (see Part I.

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

Included in the three months ended September 30, 2022 was a gain of $2.0 million due to insurance recovery related to property damages and a net $2.1 million expense related to the fair value adjustments of contingent consideration accruals and receivables for one acquisition.

The effective tax rate for the three months ended September 30, 2023 was 74.7%.

Included in the three months ended March 31, 2023 was a $3.2 million expense related to the fair value adjustments of contingent consideration for the Faneuil acquisition (see part I.

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

The effective tax rate for the three months ended March 31, 2024 was 82.3%.

This compares to an effective tax rate of 27.5% for the comparable period of 2023.

The effective tax rate for the three months ended September 30, 2023 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 March 31, 2024 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.

After Non-GAAP adjustments, the Company’s normalized tax rate for the third quarter of 2023 was 20.5%.

Nine months ended September 30, 2023 compared to nine months ended September 30, 2022

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, 2023 and 2022 (in thousands).

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

Nine Months Ended September 30,

Operating Income

Operating Margin

The increase in revenue for the TTEC Digital segment was driven by increases in the recurring revenue offerings, professional services, and one-time product sales.

The operating income decrease is primarily attributable to continued investments in CX leadership, engineering talent, sales and marketing, product engineering, and $5.3 million of restructuring and impairment charges.

These additional expenses more than offset the higher revenue, favorable revenue mix from the growing professional services, higher percentage of offshore delivery, and decreased amortization expense.

Operating income as a percentage of revenue decreased to 5.4% for the nine months ended September 30, 2023 as compared to 7.3% in the prior period.

Included in operating income was amortization expense related to acquired intangibles of $13.0 million and $15.5 million for the nine months ended September 30, 2023 and 2022, respectively.

Nine Months Ended September 30,

Operating Income

Operating Margin

The increase in revenue for the TTEC Engage segment was due to a net increase of $102.9 million in client programs including the acquisition of Faneuil offset by a $0.3 million decrease due to foreign currency fluctuations and a decrease for program completions of $77.1 million.

Operating income decreased due to the ramp costs for new programs, training costs related to existing programs, incremental growth-oriented investments, geographic expansion, increase in amortization expense, and $10.7 million of restructuring and impairment charges.

These were partially offset by the acquisition of Faneuil, other revenue increases, a reduction in total facility costs and a net reimbursement from insurance of $7.3 million from the cybersecurity incident.

As a result, operating income as a percentage of revenue decreased to 5.5% for the nine months ended September 30, 2023 as compared to 6.6% in the prior period.

Included in operating income was amortization expense related to acquired intangibles of $14.0 million and $12.6 million for the nine months ended September 30, 2023 and 2022, respectively.

Interest Income (Expense)

For the nine months ended September 30, 2023 interest income increased to $3.6 million from $1.0 million in the same period in 2022.

Interest expense increased to $56.7 million during 2023 from $20.5 million during 2022 due to higher utilization of the line of credit and higher interest rates.

Other Income (Expense)

For the nine months ended September 30, 2023 Other income (expense), net decreased to net expense of $2.2 million from net income of $11.3 million during the prior year period.

Included in the nine months ended September 30, 2023 was a gain of $4.5 million due to insurance recovery related to property damages and a net $6.9 million expense related to the fair value adjustments of contingent consideration accruals and receivables for one acquisition.

Included in the nine months ended September 30, 2022 was a gain of $4.1 million due to insurance recovery related to property damages and a net $2.1 million expense related to the fair value adjustments of contingent consideration accruals and receivables for one acquisition.

The effective tax rate for the nine months ended September 30, 2023 was 42.2%.

This compared to an effective tax rate of 17.7% for the comparable period of 2022.

The effective tax rate for the nine months ended September 30, 2023 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.

After Non-GAAP adjustments, the Company’s normalized tax rate for 2023 was 23.5%.

tax impacts of foreign earnings, the tax effects of stock-based compensation, and United States Federal Tax Credits.

After Non-GAAP adjustments, the Company’s normalized tax rate for the first quarter of 2024 was 32.7%.

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 nine months ended September 30, 2023, we generated positive operating cash flows of $113.2 million.

During the three months ended March 31, 2024, we generated negative operating cash flows of $15.6 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, however, if our access to capital is restricted or our borrowing costs increase, our operations and financial condition could be adversely impacted.

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

The following discussion highlights our cash flow activities during the nine months ended September 30, 2023 and 2022.

The following discussion highlights our cash flow activities during the three months ended March 31, 2024 and 2023.

Cash and Cash Equivalents

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

Our cash and cash equivalents totaled $151.6 million and $153.4 million as of September 30, 2023 and December 31, 2022, respectively.

Our cash and cash equivalents totaled $91.5 million and $172.7 million as of March 31, 2024 and December 31, 2023, 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 nine months ended September 30, 2023 and 2022, net cash flows provided by operating activities was $113.2 million and $118.8 million, respectively.

The decrease is primarily due to a $63.7 million decrease in net cash income from operations offset by a $58.1 million variance in net working capital.

For the three months ended March 31, 2024 and 2023, net cash flows (used in)/provided by operating activities was ($15.6) million and $49.1 million, respectively.

The decrease is primarily due to a $37.5 million decrease in net cash income from operations and a $27.2 million decrease in net working capital.

Cash Flows from Investing Activities

For the nine months ended September 30, 2023 and 2022, net cash flows used in investing activities was $54.5 million and $206.8 million, respectively.

The decrease was due to a $142.4 million decrease in acquisitions and a $9.8 million decrease in capital expenditures.

For the three months ended March 31, 2024 and 2023, net cash flows used in investing activities was $13.4 million and $13.6 million, respectively.

The decrease was due to a $0.2 million decrease in capital expenditures.

Cash Flows from Financing Activities

For the nine months ended September 30, 2023 and 2022, net cash flows (used in)/provided by financing activities was ($71.5) million and $111.8 million, respectively.

The change in net cash flows from 2022 to 2023 was primarily due to a $160.0 million net change in the line of credit and an increase of $28.1 million related to payments of contingent consideration offset by a $4.0 million decrease in tax payments related to restricted stock units.

For the three months ended March 31, 2024 and 2023, net cash flows provided by financing activities was $46.5 million and $43.6 million, respectively.

The change in net cash flows from 2023 to 2024 was primarily due to a $12.0 million net change in the line of credit and offset by $9.2 million related to payments of contingent consideration made in 2023.

Free Cash Flow

Free cash flow (see “Presentation of Non-GAAP Measurements” below for the definition of free cash flow) increased for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to a decrease in net cash from operations, an increase in working capital and lower capital expenditures.

Free cash flow was $58.5 million and $54.2 million for the nine months ended September 30, 2023 and 2022, respectively.

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, 2024 compared to the three months ended March 31, 2023 primarily due to a decrease in net cash from operations and a decrease in working capital.

Free cash flow was ($29.1) million and $35.4 million for the three months ended March 31, 2024 and 2023, respectively.

Presentation of Non-GAAP Measurements

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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 September 30,

Nine Months Ended September 30,

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

Three Months Ended March 31,

Net cash (used in) provided by operating activities

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Approximately 55% of these expected capital expenditures are to support growth in our business and 45% relate to the maintenance for existing assets.

The anticipated level of 2023 capital expenditures is primarily driven by new client contracts and the corresponding requirements for additional customer experience center capacity as well as enhancements to our technological infrastructure.

The anticipated level of 2024 capital expenditures is primarily driven by site expansions, new builds in emerging geographies, enhancements and modernization to our technological infrastructure and ongoing digital integration and product development.

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.

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Client Concentration

During the nine months ended September 30, 2023, one of our clients represented more than 10% of our total revenue.

Our five largest clients, collectively, accounted for 34.5% and 34.3% of our consolidated revenue for the three months ended September 30, 2023 and 2022, respectively and 35.1% and 35.3% of our consolidated revenue for the nine months ended September 30, 2023 and 2022, respectively.

During the three months ended March 31, 2024 and 2023, one of our clients represented more than 10% of our total revenue.

Our five largest clients, collectively, accounted for 35.7% and 34.6% of our consolidated revenue for the three months ended March 31, 2024 and 2023, respectively.

We have had long-term relationships with our top five TTEC Engage clients, ranging from 18 to 24 years, with all of these clients having completed multiple contract renewals with us.

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Although certain client contracts may be terminated for convenience by either party, we believe this risk is mitigated, in part, by the service level disruptions and transition/migration costs that would arise for our clients if they terminated our contract for convenience.

Some contracts with our five largest clients expire between 2023 and 2025, but many of our largest clients have multiple contracts with us with different expiration dates for different lines of work.

Some of the contracts with our five largest clients expire between 2024 and 2027, but many of our largest clients have multiple contracts with us with different expiration dates for different lines of work.

We have historically renewed most of our contracts with our largest clients, but there can be no assurance that future contracts will be renewed or, if renewed, will be on terms as favorable as the existing contracts.

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