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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to          

Commission File Number 001-11919

TTEC Holdings, Inc.

(Exact name of registrant as specified in its charter)

Delaware

84-1291044

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

6312 South Fiddler’s Green Circle, Suite 100N

Greenwood Village, Colorado 80111

(Address of principal executive offices)

Registrant’s telephone number, including area code: (303) 397-8100

Securities registered pursuant to Section 12(b) of the Act:

Title of each Class

Trading Symbol

Name of each exchange on which registered

Common stock of TTEC Holdings, Inc.,
$0.01 par value per share

TTEC

NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ   No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes    No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer 

Accelerated Filer 

Non-accelerated Filer 

Smaller Reporting Company 

Emerging Growth Company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes   No

As of May 1, 2024, there were 47,557,165 shares of the registrant’s common stock outstanding.

TTEC HOLDINGS, INC. AND SUBSIDIARIES

MARCH 31, 2024 FORM 10-Q

TABLE OF CONTENTS

Page No.

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023 (unaudited)

1

Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2024 and 2023 (unaudited)

2

Consolidated Statements of Stockholders’ Equity and Mezzanine Equity as of and for the three months ended March 31, 2024 and 2023 (unaudited)

3

Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023 (unaudited)

4

Notes to the Consolidated Financial Statements (unaudited)

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

29

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

34

Item 4.

Controls and Procedures

36

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

37

Item 1A.

Risk Factors

37

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

37

Item 5.

Other Information

37

Item 6.

Exhibits

38

SIGNATURES

39

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TTEC HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Amounts in thousands, except share amounts)

(Unaudited)

March 31,

December 31,

 

    

2024

    

2023

 

ASSETS

Current assets

Cash and cash equivalents

$

91,514

$

172,747

Accounts receivable, net of allowance of $2,065 and $2,248, respectively

 

404,651

 

394,868

Prepaids and other current assets

 

104,985

 

95,064

Income and other tax receivables

16,328

18,524

Total current assets

 

617,478

 

681,203

Long-term assets

Property, plant and equipment, net

 

185,242

 

191,003

Operating lease assets

113,060

121,574

Goodwill

 

807,134

 

808,988

Deferred tax assets, net

 

52,059

 

38,151

Other intangible assets, net

189,814

198,433

Income and other tax receivables, long-term

 

41,501

 

44,673

Other long-term assets

 

108,766

 

101,573

Total long-term assets

 

1,497,576

 

1,504,395

Total assets

$

2,115,054

$

2,185,598

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities

Accounts payable

$

90,473

$

96,577

Accrued employee compensation and benefits

 

120,340

 

146,184

Other accrued expenses

 

40,314

 

32,217

Income tax payable

 

5,444

 

4,909

Deferred revenue

 

87,787

 

81,171

Current operating lease liabilities

36,457

38,271

Other current liabilities

3,400

3,698

Total current liabilities

 

384,215

 

403,027

Long-term liabilities

Line of credit

 

953,000

 

995,000

Deferred tax liabilities, net

 

3,122

 

3,137

Non-current income tax payable

Non-current operating lease liabilities

90,218

96,809

Other long-term liabilities

 

72,090

 

72,083

Total long-term liabilities

 

1,118,430

 

1,167,029

Total liabilities

 

1,502,645

 

1,570,056

Commitments and contingencies (Note 10)

Stockholders’ equity

Preferred stock; $0.01 par value; 10,000,000 shares authorized; zero shares outstanding as of March 31, 2024 and December 31, 2023

 

 

Common stock; $0.01 par value; 150,000,000 shares authorized; 47,447,289 and 47,427,200 shares outstanding as of March 31, 2024 and December 31, 2023, respectively

 

474

 

474

Additional paid-in capital

 

412,768

 

407,415

Treasury stock at cost: 34,604,964 and 34,625,053 shares as of March 31, 2024 and December 31, 2023, respectively

 

(589,475)

 

(589,807)

Accumulated other comprehensive income (loss)

 

(93,733)

 

(89,876)

Retained earnings

 

865,277

 

870,429

Noncontrolling interest

 

17,098

 

16,907

Total stockholders’ equity

 

612,409

 

615,542

Total liabilities and stockholders’ equity

$

2,115,054

$

2,185,598

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

1

TTEC HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss)

(Amounts in thousands, except per share amounts)

(Unaudited)

Three months ended March 31,

 

    

2024

    

2023

 

Revenue

$

576,638

$

633,286

Operating expenses

Cost of services (exclusive of depreciation and amortization presented separately below)

 

453,818

 

482,678

Selling, general and administrative

 

74,575

 

74,010

Depreciation and amortization

 

25,145

 

25,827

Restructuring charges, net

249

2,053

Impairment losses

 

140

 

4,307

Total operating expenses

 

553,927

 

588,875

Income from operations

 

22,711

 

44,411

Other income (expense)

Interest income

 

983

 

1,164

Interest expense

 

(21,071)

 

(17,391)

Other income (expense), net

 

206

 

655

Total other income (expense)

 

(19,882)

 

(15,572)

Income before income taxes

 

2,829

 

28,839

Provision for income taxes

 

(2,329)

 

(7,922)

Net income

 

500

 

20,917

Net income (loss) attributable to noncontrolling interest

 

(2,805)

 

(2,270)

Net (loss) income attributable to TTEC stockholders

$

(2,305)

$

18,647

Other comprehensive income (loss)

Net income

$

500

$

20,917

Foreign currency translation adjustments

 

(3,837)

 

9,398

Derivative valuation, gross

 

(310)

 

8,861

Derivative valuation, tax effect

 

75

 

(2,310)

Other, net of tax

 

121

 

72

Total other comprehensive income (loss)

 

(3,951)

 

16,021

Total comprehensive income (loss)

 

(3,451)

 

36,938

Less: Comprehensive income attributable to noncontrolling interest

 

(2,711)

 

(1,825)

Comprehensive (loss) income attributable to TTEC stockholders

$

(6,162)

$

35,113

Weighted average shares outstanding

Basic

 

47,432

 

47,234

Diluted

47,587

 

47,401

Net (loss) income per share attributable to TTEC stockholders

Basic

$

(0.05)

$

0.39

Diluted

$

(0.05)

$

0.39

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

2

TTEC HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity and Mezzanine Equity

(Amounts in thousands)

(Unaudited)

Three months ended March 31, 2023 and 2024

Stockholders’ Equity of the Company

 

    

    

    

    

    

    

    

    

    

Accumulated

    

    

    

    

    

    

 

Other

 

Common Stock

Treasury

Additional

Comprehensive

Retained

Noncontrolling

Mezzanine

 

Shares

Amount

Stock

Paid-in Capital

Income (Loss)

Earnings

interest

Total Equity

Equity

 

Balance as of December 31, 2022

 

47,224

$

472

$

(593,164)

$

367,673

$

(126,301)

$

911,233

$

18,192

$

578,105

$

55,645

Noncontrolling interest adjustment due to buyout

20,457

20,457

(20,457)

Net income

 

 

 

 

 

18,648

 

1,716

 

20,364

553

Dividends to shareholders ($0.52 per common share)

 

 

 

 

 

(24,572)

(24,572)

Buyout of noncontrolling interest

(31,619)

Dividends distributed to noncontrolling interest

 

 

 

 

 

 

 

(3,181)

 

(3,181)

(186)

Foreign currency translation adjustments

 

 

 

 

 

9,289

 

 

109

 

9,398

Derivatives valuation, net of tax

 

 

 

 

 

6,551

 

 

 

6,551

Vesting of restricted stock units

 

28

 

1

 

479

 

(990)

 

 

 

 

(510)

Equity-based compensation expense

 

 

 

 

4,154

 

 

 

 

4,154

Other, net of tax

 

 

 

 

 

72

 

 

 

72

Balance as of March 31, 2023

 

47,252

$

473

$

(592,685)

$

391,294

$

(110,389)

$

905,309

$

16,836

$

610,838

$

3,936

Stockholders’ Equity of the Company

 

    

    

    

    

    

    

    

    

    

Accumulated

    

    

    

    

    

    

 

Other

 

Common Stock

Treasury

Additional

Comprehensive

Retained

Noncontrolling

Mezzanine

 

Shares

Amount

Stock

Paid-in Capital

Income (Loss)

Earnings

interest

Total Equity

Equity

 

Balance as of December 31, 2023

 

47,427

$

474

$

(589,807)

$

407,415

$

(89,876)

$

870,429

$

16,907

$

615,542

$

Noncontrolling interest adjustment due to buyout

Net (loss) income

 

 

 

 

 

 

(2,305)

 

2,805

 

500

Dividends to shareholders ($0.06 per common share)

 

 

 

 

 

(2,847)

(2,847)

Dividends distributed to noncontrolling interest

 

 

 

 

 

 

 

(2,520)

 

(2,520)

Foreign currency translation adjustments

 

 

 

 

 

(3,743)

 

 

(94)

 

(3,837)

Derivatives valuation, net of tax

 

 

 

 

 

(235)

 

 

 

(235)

Vesting of restricted stock units

 

20

 

 

332

 

(459)

 

 

 

 

(127)

Equity-based compensation expense

 

 

 

 

5,812

 

 

 

 

5,812

Other, net of tax

 

 

 

 

 

121

 

 

 

121

Balance as of March 31, 2024

 

47,447

$

474

$

(589,475)

$

412,768

$

(93,733)

$

865,277

$

17,098

$

612,409

$

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

3

TTEC HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Amounts in thousands)

(Unaudited)

Three Months Ended March 31,

    

2024

    

2023

    

Cash flows from operating activities

Net income

$

500

$

20,917

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

 

25,145

 

25,827

Amortization of contract acquisition costs

 

283

 

716

Amortization of debt issuance costs

 

643

 

268

Imputed interest expense and fair value adjustments to contingent consideration

 

(1,240)

 

3,178

Provision for credit losses

 

(31)

 

2,263

Loss on disposal of assets

 

510

 

605

Impairment losses

140

4,307

Loss on dissolution of subsidiary

301

Deferred income taxes

 

(12,628)

 

(4,994)

Excess tax benefit from equity-based awards

 

292

 

(1)

Equity-based compensation expense

 

5,812

 

4,154

Loss (gain) on foreign currency derivatives

 

77

 

(493)

Changes in assets and liabilities, net of acquisitions:

Accounts receivable

 

(11,301)

 

11,089

Prepaids and other assets

 

3,094

 

13,325

Accounts payable and accrued expenses

 

(25,845)

 

(22,352)

Deferred revenue and other liabilities

 

(1,080)

 

(10,052)

Net cash (used in) provided by operating activities

 

(15,629)

 

49,058

Cash flows from investing activities

Proceeds from sale of long-lived assets

 

25

 

26

Purchases of property, plant and equipment, net of acquisitions

 

(13,473)

 

(13,669)

Net cash used in investing activities

 

(13,448)

 

(13,643)

Cash flows from financing activities

Net proceeds (borrowings) from line of credit

 

(42,000)

 

(30,000)

Payments on other debt

 

(741)

 

(600)

Payments of contingent consideration and hold-back payments to acquisitions

 

 

(9,162)

Dividends paid to shareholders

Payments of debt issuance costs

(1,100)

Payments to noncontrolling interest

(2,520)

(3,367)

Tax payments related to issuance of restricted stock units

(127)

(510)

Net cash used in financing activities

 

(46,488)

 

(43,639)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

1,847

 

878

Decrease in cash, cash equivalents and restricted cash

 

(73,718)

 

(7,346)

Cash, cash equivalents and restricted cash, beginning of period

 

173,905

 

167,064

Cash, cash equivalents and restricted cash, end of period

$

100,187

$

159,718

Supplemental disclosures

Cash paid for interest

$

19,755

$

17,097

Cash paid for income taxes

$

17,561

$

4,793

Non-cash investing and financing activities

Acquisition of long-lived assets through finance leases

$

200

$

197

Acquisition of equipment through increase in accounts payable, net

$

(2,426)

$

5,079

Dividend declared but not paid

$

2,847

$

24,572

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

4

Table of Contents

TTEC HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

(1)OVERVIEW AND BASIS OF PRESENTATION

Summary of Business

Founded in 1983, TTEC Holdings, Inc. (“TTEC”, “the Company”; pronounced “T-TEC”) 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 digital and live interaction channels to help clients increase customer loyalty, revenue, and profitability. By combining digital solutions with data-driven service capabilities, the Company helps 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.

The Company operates and reports its financial results of operation 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 (“AWS”), 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 and medium sized 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 the Company’s integrated solutions. This partnership is central to the Company’s ability to deliver comprehensive and transformational customer experience solutions to its clients, including integrated delivery, go-to-market and innovation for truly differentiated, market leading CX solutions.

During the first quarter of 2024, the combined TTEC Digital and TTEC Engage 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 customer care associates, consultants, technologists, and CX professionals.

Basis of Presentation

The Consolidated Financial Statements are comprised of the accounts of TTEC, its wholly owned subsidiaries, its 55% equity owned subsidiary Percepta, LLC, its 70% equity owned subsidiary First Call Resolution, LLC through March 31, 2023 and then 100% owned subsequently, and its 70% equity owned subsidiary Serendebyte, Inc. through December 31, 2023 and then 100% owned subsequently (see Note 2). All intercompany balances and transactions have been eliminated in consolidation.

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Table of Contents

TTEC HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The unaudited Consolidated Financial Statements do not include all of the disclosures required by accounting principles generally accepted in the U.S. (“GAAP”), pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The unaudited Consolidated Financial Statements reflect all adjustments which, in the opinion of management, are necessary to state fairly the consolidated financial position of the Company and the consolidated results of operations and comprehensive income (loss) and the consolidated cash flows of the Company. All such adjustments are of a normal, recurring nature. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.

These unaudited Consolidated Financial Statements should be read in conjunction with the Company’s audited Consolidated Financial Statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

Use of Estimates

The preparation of the Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions in determining the reported amounts of assets and liabilities, disclosure of contingent liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates including those related to derivatives and hedging activities, income taxes including the valuation allowance for deferred tax assets, litigation reserves, restructuring reserves, allowance for credit losses, contingent consideration, redeemable noncontrolling interest, and valuation of goodwill, long-lived and intangible assets. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ materially from these estimates under different assumptions or conditions.

Out-of-period Adjustment

The Consolidated Financial Statements for the three months ended June 30, 2023 included an adjustment of $14.2 million to other comprehensive income and deferred tax assets, to correct for an error identified by management during the preparation of the financial statements. This adjustment was to reflect the deferred tax impact of currency translation adjustments, of which $14.2 million related to prior annual fiscal periods. Management has determined that this error was not material to the historical financial statements in any individual period or in the aggregate and did not result in the previously issued financial statements being materially misstated. The impact to the three and six month periods ended June 30, 2023 was not material. As such, management recorded the correction as an out-of-period adjustment in the three months ended June 30, 2023.

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents consist of cash, primarily held in interest-bearing investments, and liquid short-term investments, which have original maturities of three months or less. Restricted cash includes cash whereby the Company’s ability to use the funds at any time is contractually limited or is generally designated for specific purposes arising out of certain contractual or other obligations.

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

March 31, 2024

    

December 31, 2023

Cash and cash equivalents

$

91,514

 

$

172,747

Restricted cash included in "Prepaid and other current assets"

 

8,673

 

1,158

Total

$

100,187

 

$

173,905

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Table of Contents

TTEC HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Concentration of Credit Risk

The Company is exposed to credit risk in the normal course of business, primarily related to accounts receivable and derivative instruments. Historically, the losses related to credit risk have been immaterial. The Company regularly monitors its credit risk to mitigate the possibility of current and future exposures resulting in a loss. The Company evaluates the creditworthiness of its clients prior to entering into an agreement to provide services and as necessary through the life of the client relationship. The Company does not believe it is exposed to more than a nominal amount of credit risk in its derivative hedging activities, as the Company diversifies its activities across eight investment-grade financial institutions.

Recently Adopted Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04, “Reference Rate Reform” (Topic 848), which provides optional expedients and exceptions for contracts, hedging relationships, and other transactions affected by reference rate reform due to the anticipated cessation of the London Interbank Offered Rate (”LIBOR”). The ASU is effective from March 12, 2020, may be applied prospectively and could impact the accounting for LIBOR provisions in the Company’s credit facility agreement. In addition, in January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform – Scope,” which clarified the scope of ASC 848 relating to contract modifications. The Company adopted the standard effective April 1, 2023 and the adoption of this guidance did not have a material impact on the Company’s financial position, results of operations or cash flows.

Other Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting - Improvements to Reportable Segment Disclosures” which relates to disclosures regarding a public entity’s reportable segments and provides more detailed information about a reportable segment’s expenses. The ASU is effective for fiscal years beginning after December 15, 2023 and interim periods beginning after December 15, 2024, with retrospective application required. The Company is assessing the effect on its annual consolidated financial statement disclosures; however, adoption is not expected to have a material impact the Company’s financial statements.

In December 2023, the FASB issued ASU 2023-09, “Improvements to Income Tax Disclosures” to enhance the transparency and decision usefulness of income tax disclosures. The ASU is effective for fiscal years beginning after December 15, 2024, with retrospective application permitted. The Company is assessing the effect on its annual consolidated financial statement disclosures; however, adoption is not expected to have a material impact the Company’s consolidated balance sheets or income statements.

(2)ACQUISITIONS AND DIVESTITURES

Serendebyte

In connection with the acquisition by TTEC Digital, LLC of a 70% interest in Serendebyte Inc. (“Serendebyte”), Serendebyte’s founder exercised his put rights on December 8, 2023, which required TTEC to acquire the remaining 30% interest in Serendebyte. As part of the exercise, the Serendebyte founder failed to fulfill the agreed provisions of the sale and purchase agreement that parties executed on February 7, 2020. Pending completion of the put exercise formalities by Serendebyte’s founder, TTEC Digital is not able to determine the final purchase price for the remaining 30% buyout agreement.

In connection with triggering the option, on December 8, 2023, a $0.3 million accrual was reclassified from Redeemable noncontrolling interest to Accrued expenses and the remaining balance was reclassified to Additional paid in capital.

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Table of Contents

TTEC HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

FCR

Pursuant to the Membership Interest Purchase Agreement of October 26, 2019 between Ortana Holdings, Inc. and TTEC Services Corporation for the acquisition by TTEC of 70% interest in First Call Resolution, LLC (“FCR” and “FCR MIPA”, respectively), Ortana Holdings exercised its put rights in January 2023, which required TTEC to acquire Ortana Holdings’ remaining 30% interest in FCR. The purchase price for the remaining 30% interest was determined based on the express provisions of the FCR MIPA and was based on FCR’s performance during 2022. The buyout agreement was signed on April 4, 2023 and reflected a buyout purchase of $22.4 million.

In connection with the triggering of the option, as of March 31, 2023, the $22.4 million purchase price was reclassified from Redeemable noncontrolling interest to Accrued expenses and the remaining balance of $20.5 million was reclassified to Additional paid in capital. In February 2023, a $9.2 million payment related to excess cash distribution was completed and in April 2023 the final payment of $22.4 million was completed.

Certain Assets of Faneuil

On April 1, 2022, the Company completed an asset acquisition through its subsidiary TTEC Government Solutions LLC, of certain public sector citizen experience contracts in the transportation infrastructure and healthcare exchange industries from Faneuil, Inc., a subsidiary of ALJ Regional Holdings, Inc. (“the Faneuil Transaction”). The acquired business is operated as part of the TTEC Engage segment and was fully consolidated into the financial statements of TTEC. The Faneuil Transaction was recorded as a business combination under ASC 805, Business Combinations, with identifiable assets acquired and liabilities assumed recorded at their estimated fair values as of the acquisition date.

Total cash paid at the time of acquisition was $142.4 million. In addition, Faneuil granted to TTEC Government Solutions LLC a three-year call right and right of first offer to purchase certain other assets of Faneuil in its utilities and commercial healthcare verticals as well as certain proprietary technology. The Faneuil Transaction includes two contingent payments which were anticipated to be paid in early 2024 which are based on the revenue and EBITDA performance of one contract and one potential contract.

The fair value of the two contingent payments was estimated using a Monte Carlo model. The model was based on current expected EBITDA performance for the two specific client programs, a discount rate of 7.6% related to revenue and a discount rate of 19.3% related to EBITDA, a volatility rate of 20%, and an adjusted risk-free rate of 1.7%. The potential payments ranged from a minimum of zero to an unlimited maximum. Based on the model, a combined $8.8 million expected future payment was calculated and recorded as of the acquisition date. During 2022, a $2.9 million net gain was recorded related to fair value adjustments for the estimated contingent payments based on changes in estimated EBITDA, the timing of cash flows and market interest rates which resulted in an updated discount factor for one contract, and a complete reduction for the second contract as it was not awarded to the Company. During the second quarter of 2023, an amendment to the agreement was signed which modified the contingent payment to a minimum payment of $7.4 million and a maximum payment of $10.4 million. An initial payment of $7.4 million was completed in May 2023. During 2023, a combined $3.0 million net expense was recorded related to fair value adjustments for the estimated contingent payment based on changes in estimated EBITDA, the timing of cash flows and market interest rate changes. These benefits (expenses) were included in Other income (expense) in the Consolidated Statements of Comprehensive Income (Loss). As of March 31, 2024, the contingent payment is accrued at $0.3 million and is included in Other long-term liabilities in the accompanying Consolidated Balance Sheets.

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Table of Contents

TTEC HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The Faneuil Transaction included a call option providing the right but not the obligation to purchase additional assets in the utilities and commercial healthcare verticals based on trailing twelve-month revenue plus an additional earn-out payment based on newly added contracts.  A second call option provided the right to purchase a software intangible asset and related support functions based on trailing twelve-month revenue. These call options were valued based on information including the call right and the exclusivity period and a $270 thousand asset was recorded as of the acquisition date which was included in Other long-term assets in the Consolidated Balance Sheets. During the fourth quarter of 2022 and the first quarter of 2023, reductions in fair value of $52 thousand and $140 thousand, respectively, were recorded due to changes in estimated revenue, which were included in Other income (expense) in the Consolidated Statements of Comprehensive Income (Loss). During the second quarter of 2023, an amendment to the agreement was signed which cancelled the option to purchase the additional assets in certain verticals, and thus the remaining $78 thousand accrual was removed and included in Other income. As of March 31, 2024, the fair value is zero.

The Faneuil Transaction included an indemnity escrow which was disbursed as a holdback payment on the acquisition date. The indemnity payments related to real estate and technology funds that were spent post-close related to various IT upgrades and real estate expenses, and indemnity related to potential future employee wage increases. The indemnity payments were valued based on a weighted average of several current scenarios and a receivable of $10.4 million was recorded as of the acquisition date. During the third and fourth quarters of 2022 and the first quarter of 2023, reductions in the fair value were calculated and a $4.4 million expense, a $0.2 million expense and a $2.5 million expense, respectively, were recorded related to fair value adjustments for the receivable based on current information reflecting a better outcome with the contract negotiations and lower anticipated IT and facilities spending. During the second quarter of 2023, the payout value related to the IT and Facilities reimbursement was finalized at $1.3 million, and an expense of $1.9 million was recorded. The payment was received by TTEC in May 2023 and as of June 30, 2023, the receivables were reduced to zero on the Consolidated Balance Sheet. The reductions in fair value related expenses were included in Other income (expense) in the Consolidated Statements of Comprehensive Income (Loss).

A multi-period excess earnings method under the income approach was used to estimate the fair value of the customer relationships intangible assets. The significant assumptions utilized in calculating the fair value of the customer relationships intangible assets were the customer attrition rate, revenue growth rates, forecasted EBITDA, contributory asset charge, and the discount rate.

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Table of Contents

TTEC HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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

Acquisition Date

 

Fair Value

 

Cash

$

Accounts receivable, net

 

704

Prepaid and other assets

 

8,420

Net fixed assets

5,622

Right of use lease assets

17,778

Other assets

2,572

Customer relationships

61,310

Goodwill

75,902

$

172,308

Accrued employee compensation

$

202

Accrued expenses