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Item 2. Management’s Discussion and Analysis

2025-08-07 compared with 2025-05-08 · 87 added, 60 removed, 97 unchanged (60% of the section changed)

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Executive Summary

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

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

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

As of March 31, 2025, TTEC served approximately 700 clients across targeted industry verticals including financial services, healthcare, public sector, communications, technology, media, entertainment, travel and hospitality, automotive and retail.

As of June 30, 2025, TTEC served approximately 690 clients across targeted industry verticals including financial services, healthcare, public sector, communications, technology, media, entertainment, travel and hospitality, automotive and retail.

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

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

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

During 2025, the TTEC global operating platform delivered onshore, nearshore, and offshore services in 22 countries on six continents -- the United States, Australia, Belgium, Brazil, Bulgaria, Canada, Colombia, Costa Rica, Egypt, Germany, Greece, Honduras, India, Ireland, Mexico, the Netherlands, New Zealand, the Philippines, Poland, South Africa, Thailand, and the United Kingdom with the help of approximately 50,000 customer care associates, technologists, and CX professionals.

Our revenue for first quarter 2025 was $534.2 million, of which approximately $108.0 million, or 20.2% was generated from our TTEC Digital segment and $426.2 million, or 79.8%, was generated from our TTEC Engage segment.

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

During 2025, the TTEC global operating platform delivered onshore, nearshore, and offshore services in 22 countries on six continents -- the United States, Australia, Belgium, Brazil, Bulgaria, Canada, Colombia, Costa Rica, Egypt, Germany, Greece, Honduras, India, Ireland, Mexico, the Netherlands, New Zealand, the Philippines, Poland, South Africa, Thailand, and the United Kingdom with contributions from approximately 50,000 customer care associates, consultants, technologists, and CX professionals.

Our revenue for second quarter 2025 was $513.6 million, of which approximately $113.7 million, or 22% was generated from our TTEC Digital segment and $399.8 million, or 78%, was generated from our TTEC Engage segment.

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

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Financial Highlights

In the first quarter of 2025, our revenue decreased $42.4 million, or 7.4%, to $534.2 million over the same period in 2024 including a decrease of $6.0 million, or 1.0%, due to foreign currency fluctuations.

In the second quarter of 2025, our revenue decreased $20.5 million, or 3.8%, to $513.6 million over the same period in 2024 including an increase of $2.4 million, or 0.4%, due to foreign currency fluctuations.

The decrease in revenue was comprised of a $2.6 million, or 2.3%, decrease for TTEC Digital and a decrease of $17.9 million, or 4.3%, for TTEC Engage.

Our first quarter 2025 income (loss) from operations increased $1.5 million, or 6.6%, to $24.2 million or 4.5% of revenue, compared to $22.7 million or 3.9% of revenue in the first quarter of 2024.

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

The TTEC Digital operating margin increased 2.5% over the same period last year primarily due to lower employee-related costs and improved utilization.

The TTEC Engage operating margin increased 0.1% over the same period last year due to improved operational performance partially offset by lower revenue and higher restructuring and impairment expenses.

Income (loss) from operations in the first quarter of 2025 and 2024 included $2.8 million and $0.4 million of restructuring charges and asset impairments, respectively.

Our second quarter 2025 income (loss) from operations increased $243.3 million to $18.9 million or 3.7% of revenue, compared to $(224.4) million or (42.0)% of revenue in the second quarter of 2024.

The increase in operating income margin is due to the Q2 2024 goodwill impairment of $233.5 million and other factors across both segments.

The TTEC Digital operating margin increased 4.8% over the same period last year primarily due to the sale of software, lower employee-related costs and improved utilization.

The TTEC Engage operating margin increased 57.1% over the same period last year due to lower impairment and restructuring expenses.

Income (loss) from operations in the second quarter of 2025 and 2024 included $1.9 million and $241.8 million of restructuring charges and asset impairments, respectively.

Our offshore customer experience centers spanning 15 countries serve clients based in the U.S.

and in other countries with 22,938 workstations, representing 83% of our global delivery capability.

Revenue for our TTEC Engage segment provided in these offshore locations represented 34% of our revenue for the first quarter of 2025, as compared to 32% of our revenue for the corresponding period in 2024.

Revenue for our TTEC Engage segment provided in these offshore locations represented 37% of our revenue for the second quarter of 2025, as compared to 33% of our revenue for the corresponding period in 2024.

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, 2025, the total production workstations for our TTEC Engage segment was 29,140, a net decrease of 1,600 workstations over the same period last year, with an overall capacity utilization 71% versus 76% in the prior year period, The decline was primarily driven by decreased seat reservations in the Philippines and U.S., partially offset by footprint increases in other geographies.

As of June 30, 2025, the total production workstations for our TTEC Engage segment was 27,700, a net decrease of 3,300 workstations over the same period last year, with an overall capacity utilization 71% versus 72% in the prior year period, The slight decline was due to reduced client forecasts and ramp up of production seats in offshore geographies, partially offset by seat reductions in the U.S.

and Philippines.

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

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Recent Developments

As previously disclosed in the Company’s press release of September 30, 2024, the Company’s Board of Directors has established a special committee consisting of independent directors (the “Special Committee”) to evaluate the unsolicited, preliminary, non-binding proposal from TTEC founder, Chairman and Chief Executive Officer, Kenneth Tuchman, to take the Company private at a proposed purchase price of $6.85 per share to the Company’s other shareholders (“Non-Binding Proposal”).

As previously disclosed in the Company’s press release of September 30, 2024, TTEC founder, Chairman and Chief Executive Officer, Kenneth Tuchman sent to the Company’s Board of Directors (the “Board”) the unsolicited, preliminary, non-binding proposal to take the Company private at a proposed purchase price of $6.85 per share, subject to various conditions (“Non-Binding Proposal”).

The Board established a special committee consisting of independent directors to evaluate the Non-Binding Proposal.

On July 31, 2025, the Board received a letter from Mr.

Tuchman, advising that due to market conditions, he has decided not to pursue the Non-Binding Proposal.

Tuchman beneficially owns approximately 58% of the Company’s common stock, as set forth in Amendment No.

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Tuchman and certain entities affiliated with Mr.

Tuchman on September 30, 2024.

The Non-Binding Proposal is conditioned on, among other things, the receipt of financing for the transaction, the negotiation and execution of a definitive agreement, approval and recommendation of the proposal by the Special Committee, and approval by holders of a majority of the shares of the Company’s common stock not owned by Mr.

Tuchman, his affiliates, and the Company’s executive management.

On April 1, 2025 the Special Committee issued a press release reporting that it has completed its review of the Non-Binding Proposal and its preliminary valuation analysis of the Company and remains ready to consider and engage with Mr.

Tuchman with respect to a definitive transaction proposal.

Tuchman on August 1, 2025.

Smaller Reporting Company Status

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Recently Issued Accounting Pronouncements

Refer to Part I, Item I, Financial Statements, Note 1 to the Consolidated Financial Statements for a discussion of recently adopted and issued accounting pronouncements.

Refer to Part I, Item I.

Financial Statements, Note 1 to the Consolidated Financial Statements for a discussion of recently adopted and issued accounting pronouncements.

Critical Accounting Policies and Estimates

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Results of Operations

Three months ended March 31, 2025 compared to three months ended March 31, 2024

The tables included in the following sections are presented to facilitate an understanding of Management’s Discussion and Analysis of Financial Condition and Results of Operations and present certain information by segment for the three months ended March 31, 2025 and 2024 (amounts in thousands).

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

All intercompany 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 driven by the non-recurring and large one-time on-premise related revenue in the prior year.

The remaining TTEC Digital portfolio was up 2.8% year over year.

The operating income increase was primarily related to lower employee related costs and improved utilization.

Operating income as a percentage of revenue increased to 5.4% in the first quarter of 2025 as compared to 2.9% in the prior period.

Included in operating income was amortization expense related to acquired intangibles of $3.7 million and $4.3 million for the quarters ended March 31, 2025 and 2024, respectively.

Three Months Ended March 31,

Operating Income

The decrease in revenue for the TTEC Digital segment was driven by a slight decrease in both recurring and non-recurring revenue.

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

Operating income as a percentage of revenue increased to 10.0% in the second quarter of 2025 as compared to 5.2% in the prior period.

Included in operating income was amortization expense related to acquired intangibles of $3.7 million and $4.3 million for the quarters ended June 30, 2025 and 2024, respectively.

Three Months Ended June 30,

Operating Income (loss)

Operating Margin

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

The operating income decrease was primarily attributable to lower revenue and higher restructuring and impairment expenses, partially offset by improved operational performance.

Operating income as a percentage of revenue increased to 4.3% in the first quarter of 2025 as compared to 4.2% in the prior period.

Included in operating income was amortization expense related to acquired intangibles of $4.1 million and $4.1 million for the quarters ended March 31, 2025 and 2024, respectively.

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

The operating income increase was primarily attributable to the Q2 2024 goodwill impairment of $233.5 million and lower restructuring expenses.

Operating income as a percentage of revenue increased to 1.9% in the second quarter of 2025 as compared to (55.2)% in the prior period.

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

Interest Income (Expense)

For the three months ended March 31, 2025 interest income increased to $4.6 million from $1.0 million in the same period in 2024 due to interest income on an aged VAT receivable.

Interest expense decreased to $19.8 million during 2025 from $21.1 million during 2024 due to the termination of the Company’s accounts receivable factoring agreement.

For the three months ended June 30, 2025 interest income increased to $3.2 million from $0.4 million in the same period in 2024 due to $3.0 million of interest income on an aged VAT receivable.

Interest expense decreased to $18.0 million during 2025 from $20.4 million during 2024 due to the termination of the factoring agreement, lower utilization and lower rates.

Other Income (Expense)

For the three months ended March 31, 2025 Other income (expense), net increased to income of $3.6 million from income of $0.2 million during the prior year quarter.

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

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).

The effective tax rate for the three months ended March 31, 2025 was 74.2%.

For the three months ended June 30, 2025 Other income (expense), net decreased to income of $0.3 million from income of $1.8 million during the prior year quarter.

Included in the three months ended June 30, 2025 was a $2.7 million gain related to a recovery of an aged VAT receivable.

Included in the three months ended June 30, 2024 was a $0.8 million gain related to recovery of a social security tax credit related to 2008-2012.

The effective tax rate for the three months ended June 30, 2025 was 288.7%.

This compares to an effective tax rate of (22.3)% for the comparable period of 2024.

The effective tax rate for the three months ended March 31, 2025 is primarily driven by the distribution of income between the U.S.

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

After Non-GAAP adjustments, the Company’s normalized tax rate for the first quarter of 2025 was 37.9%.

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

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

Six months ended June 30, 2025 compared to six months ended June 30, 2024

The tables included in the following sections are presented to facilitate an understanding of Management’s Discussion and Analysis of Financial Condition and Results of Operations and present certain information by segment for the six months ended June 30, 2025 and 2024 (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 decrease in revenue for the TTEC Digital segment was driven by lower one-time on-premise related revenue.

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

Operating income as a percentage of revenue increased to 7.8% for the six months ended June 30, 2025 as compared to 4.1% in the prior period.

Included in operating income was amortization expense related to acquired intangibles of $7.3 million and $8.7 million for the six months ended June 30, 2025 and 2024, respectively.

Six Months Ended June 30,

Operating Income (loss)

Operating Margin

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

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

As a result, operating income (loss) as a percentage of revenue increased to 3.1% for the six months ended June 30, 2025 as compared to (23.9)% in the prior period.

Included in operating income was amortization expense related to acquired intangibles of $8.1 million and $8.2 million for the six months ended June 30, 2025 and 2024, respectively.

Interest Income (Expense)

For the six months ended June 30, 2025 interest income increased to $7.8 million from $1.4 million in the same period in 2024 due to $7.3 million of interest income on an aged VAT receivable.

Interest expense decreased to $38.0 million during 2025 from $41.5 million during 2024 due to the termination of the factoring agreement, lower utilization and lower rates.

Other Income (Expense)

For the six months ended June 30, 2025 Other income (expense), net increased to net income of $3.3 million from net income of $2.0 million during the prior year period.

Included in the six months ended June 30, 2025 was a $6.6 million gain related to a recovery of an aged VAT receivable.

Included in the six months ended June 30, 2024 was a $1.0 million gain related to the fair value adjustment of a contingent consideration accrual.

The effective tax rate for the six months ended June 30, 2025 was 121.6%.

This compared to an effective tax rate of (23.5)% for the comparable period of 2024.

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

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, 2025, we generated operating cash flows of $21.6 million.

During the six months ended June 30, 2025, we generated operating cash flows of $114.3 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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To mitigate these risks, we enter into foreign exchange forward and option contracts through our cash flow hedging program.

Please refer to Part I.

Please refer to Part I, Item 3.

Quantitative and Qualitative Disclosures About Market Risk, Foreign Currency Risk, for further discussion.

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

The following discussion highlights our cash flow activities during the three months ended March 31, 2025 and 2024.

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

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 $85.1 million and $85.0 million as of March 31, 2025 and December 31, 2024, respectively.

Our cash and cash equivalents totaled $82.6 million and $85.0 million as of June 30, 2025 and December 31, 2024, respectively.

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

Cash Flows from Operating Activities

For the three months ended March 31, 2025 and 2024, net cash flows (used in) provided by operating activities was $21.6 million and $(15.6) million, respectively.

The increase is primarily due to a $14.1 million increase in net cash income from operations and a $23.1 million increase in net working capital.

For the six months ended June 30, 2025 and 2024, net cash flows provided by operating activities was $114.3 million and $33.6 million, respectively.

The increase is primarily due to a $68.6 million increase in net working capital and a $12.1 million increase in net cash income from operations.

Cash Flows from Investing Activities

For the three months ended March 31, 2025 and 2024, net cash flows used in investing activities was $5.3 million and $13.4 million, respectively.

For the six months ended June 30, 2025 and 2024, net cash flows used in investing activities was $12.4 million and $27.6 million, respectively.

The decrease was due to a $15.1 million decrease in capital expenditures as we rephased our timing of capital expenditures.

Cash Flows from Financing Activities

For the three months ended March 31, 2025 and 2024, net cash flows used in financing activities was $13.7 million and $46.5 million, respectively.

For the six months ended June 30, 2025 and 2024, net cash flows used in financing activities was $98.9 million and $75.7 million, respectively.

The change in net cash flows from 2024 to 2025 was primarily due to a $27.5 million net change in the line of credit.

Free Cash Flow

Free cash flow (see “Presentation of Non-GAAP Measurements” below for the definition of free cash flow) increased for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 primarily due to an increase in net cash from operations and working capital.

Free cash flow was $16.2 million and ($29.1) million for the three months ended March 31, 2025 and 2024, respectively.

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

Free cash flow was $101.7 million and $6.0 million for the six months ended June 30, 2025 and 2024, 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 (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

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,

Net cash provided by operating activities

Purchases of property, plant and equipment

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Approximately 53% of these expected capital expenditures are to support growth in our business and 47% relate to the maintenance for existing assets.

The anticipated level of 2025 capital expenditures is primarily driven by facility refreshes and maintenance, site optimizations, IT network modernization and PC refreshes, digital product development and ongoing site expansions/new sites but not at the same level as the prior year.

The anticipated level of 2025 capital expenditures are primarily driven by facility refreshes and maintenance, site optimizations, IT network modernization and PC refreshes, digital product development and ongoing site expansions/new sites but not at the same level as the prior year.

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 three months ended March 31, 2025 and 2024, one of our clients represented more than 10% of our total revenue.

Our five largest clients, collectively, accounted for 31.2% and 35.7% of our consolidated revenue for the three months ended March 31, 2025 and 2024, respectively.

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

Our five largest clients, collectively, accounted for 32.2% and 31.7% of our consolidated revenue for the three months ended June 30, 2025 and 2024, respectively and 31.3% and 33.8% of our consolidated revenue for the six months ended June 30, 2025 and 2024, respectively.

We have had long-term relationships with our top five TTEC Engage clients, ranging from 5 to 25 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