TTEC Holdings, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; financial statements are unaudited and compared with Q1 2019. TTEC provides customer-experience technology and services through TTEC Digital and TTEC Engage.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Revenue | $432.2 million | $394.4 million |
| Operating income / margin | $40.7 million / 9.4% | $32.1 million / 8.1% |
| Net income attributable to TTEC stockholders | $21.5 million; diluted EPS $0.46 | $19.0 million; diluted EPS $0.41 |
| Net cash from operating activities | $62.2 million | $80.0 million |
| Capital expenditures | $16.8 million | $13.2 million |
| Free cash flow (non-GAAP) | $45.4 million | $66.8 million |
- Revenue increased 9.6% year over year; management attributed the increase to growth in both segments, acquisitions and a large government contract, partly offset by foreign-exchange effects and completed programs.
- Digital revenue was $77.6 million, up 17.8%, with a 13.2% operating margin versus 11.8%. Engage revenue was $354.7 million, up 8.0%, with an 8.6% margin versus 7.4%.
- Net income increased, but comprehensive loss attributable to TTEC stockholders was $14.5 million, versus comprehensive income of $23.7 million a year earlier, largely reflecting foreign currency translation and derivative valuation losses.
- Cash and cash equivalents were $520.4 million at quarter-end, versus $82.4 million at year-end 2019. Restricted cash was an additional $21.6 million. The company drew $350 million on its revolving facility as a precaution amid COVID-19 uncertainty.
- Credit-facility borrowings were $700 million, up from $290 million at year-end; remaining borrowing capacity was approximately $195 million. TTEC reported compliance with covenants. Current assets were $958.1 million and current liabilities $380.4 million.
- Interest expense rose to $9.6 million from $5.3 million, mainly due to higher credit-facility utilization and charges related to the future purchase of Motif’s remaining interest.
Material changes and notable items
- Serendebyte, an intelligent-automation provider, was acquired in February 2020 for 70% ownership; its preliminary purchase accounting included $8.7 million of goodwill. TTEC also recorded $27.1 million of revenue from businesses acquired in 2020 and 2019 during the quarter.
- A $3.3 million benefit from reducing estimated contingent consideration for the FCR acquisition was recorded in other income. Restructuring charges were $0.5 million; impairment losses were $0.7 million.
- Declared dividends were $0.34 per share, compared with $0.30 in Q1 2019. The $15.8 million Q1 2020 dividend was declared but unpaid at March 31.
- Five largest clients generated 36.0% of revenue. No individual client exceeded 10% in Q1 2020; one healthcare client represented 11.1% in Q1 2019.
Outlook, risks and contingencies
- Management said COVID-19 had not materially adversely affected Q1 results, but expected negative effects on Q2 and Q3 results and financial position as clients potentially reduce budgets and volumes and remote delivery adds costs. The duration and magnitude were uncertain.
- Between mid-March and mid-April, TTEC transitioned over 43,000 employees, or about 80%, to work from home. Management cited operational disruption, extra costs, cybersecurity and compliance risks, and possible facility reconfiguration and lower utilization requirements.
- The company launched cost controls, including hiring and spending freezes, workforce reductions or furloughs, deferred capital expenditures, tighter working-capital management and rent-relief negotiations.
- Management expected 2020 capital expenditures of $38–$42 million and believed cash, operating cash flow and available credit would cover expected needs for at least 12 months. This outlook is subject to pandemic, client-demand and financing uncertainties.
- Key exposures include variable-rate debt, foreign-exchange movements, client volume reductions or defaults, labor availability and cost, contract renewals, acquisition integration, and cyber and service-delivery risks. Legal proceedings were described as ordinary-course matters; management did not expect a material adverse resolution based on information then available.
Investor verification points
- Track subsequent-quarter revenue, margins, cash flow and the realized effects of COVID-19, including remote-work costs and client demand.
- Verify debt utilization, borrowing availability, covenant headroom and interest-rate exposure after the precautionary draw.
- Review acquisition performance and final purchase accounting, including Serendebyte’s remaining-interest options and FCR contingent consideration.
- Monitor major-client renewals and concentration, workforce and workstation utilization, and capital spending against the stated range.
- Assess currency-hedge results and the effect of foreign-exchange movements on comprehensive income and operating margins.