TTEC Holdings, Inc. quarterly report, Q1 FY2024

TTEC Holdings, Inc. — Q1 2024 Form 10-Q

Business context and reporting period

Unaudited results cover the three months ended March 31, 2024, compared with the three months ended March 31, 2023. TTEC provides customer experience technology and outsourcing services through TTEC Digital and TTEC Engage. It served approximately 750 clients and operated in 22 countries with approximately 58,000 professionals.

Key financial metrics

Amounts are in millions of dollars except per-share data and percentages.

Metric	Q1 2024	Q1 2023 / comparison
Revenue	$576.6	$633.3; down 8.9%
Operating income / margin	$22.7 / 3.9%	$44.4 / 7.0%
Net income (loss) attributable to TTEC stockholders	$(2.3); $(0.05) per diluted share	$18.6; $0.39 per diluted share
Net cash from operating activities	$(15.6)	$49.1
Capital expenditures / free cash flow	$13.5 / $(29.1)	$13.7 / $35.4
Cash and cash equivalents at period end	$91.5	$172.7 at Dec. 31, 2023
Credit Facility borrowings at period end	$953.0	$995.0 at Dec. 31, 2023

Consolidated net income was $0.5 million, but the net loss attributable to TTEC stockholders was $2.3 million after a $2.8 million allocation to noncontrolling interests. Current assets were $617.5 million and current liabilities $384.2 million, implying working capital of approximately $233.3 million. Debt accrued interest at an average rate of 7.1% in Q1. The company reported approximately $95 million of remaining borrowing capacity under covenant calculations.

By segment, TTEC Digital revenue was $112.0 million, down 4.2%, and operating income was $3.3 million, versus $0.8 million. TTEC Engage revenue was $464.6 million, down 10.0%, and operating income was $19.4 million, down 55.5%.

Material changes versus the prior comparable period

Revenue declined $56.7 million, primarily from TTEC Engage, reflecting a client’s exit from a supported line of business, lower demand among some enterprise clients, and delays starting new awards.
Operating income fell $21.7 million. TTEC Engage was affected by lower revenue, mix changes, growth investments not yet fully utilized, ramp costs and the absence of prior-year nonrecurring insurance proceeds. TTEC Digital improved operating income, principally due to lower restructuring and impairment expenses.
Interest expense rose to $21.1 million from $17.4 million, reflecting higher average line-of-credit utilization and interest rates.
Operating cash flow swung to an outflow of $15.6 million from an inflow of $49.1 million, which management attributed primarily to lower operating cash income and working-capital changes. Cash and cash equivalents decreased $81.2 million from year-end.
The company recorded $0.1 million of impairment losses versus $4.3 million in Q1 2023, and $0.2 million of restructuring charges versus $2.1 million.

Outlook, management commentary, risks and unusual items

No specific full-year revenue or earnings guidance is provided in the filing. Management expects 2024 capital expenditures of 2.7%–2.9% of revenue, approximately 55% for growth and 45% for maintenance.
Management believes cash, operating cash generation and available credit will be sufficient for operating and capital expenditure needs over the next 12 months, while warning that restricted capital access or higher borrowing costs could adversely affect the business.
In February 2024, the company amended its Credit Facility: commitments were reduced from $1.5 billion to $1.3 billion and leverage covenant limits, commitment fees and margins were adjusted for the period through March 31, 2025. TTEC said it was compliant with covenants at March 31, 2024. The facility matures November 23, 2026.
Client concentration remains significant: the five largest clients contributed 35.7% of Q1 revenue, and one automotive client contributed 10.8%. A large financial-services client notified TTEC that it is exiting one supported line of business.
Remaining performance obligations were $354.9 million at March 31, 2024, expected to be delivered and recognized within five years; timing depends in part on client consumption.
Q1 included a $1.2 million benefit from remeasurement of Faneuil acquisition contingent consideration and a $0.8 million expense from writing off an aged VAT receivable. The effective tax rate was 82.3%, reflecting near-break-even income and other tax items; the estimated full-year rate before discrete items was 37.3%.
Goodwill impairment remains a sensitivity, particularly for TTEC Engage: the December 2023 valuation had approximately 13% headroom, and management identified sensitivity to discount rates and projected revenue. No Q1 triggering event was identified.
Management said current legal proceedings, apart from amounts specifically reserved, are not expected to have a material adverse effect. Tax audits are ongoing in several jurisdictions; management does not expect their resolution to be material.
Other disclosed risks include labor costs and retention, macroeconomic conditions, foreign exchange and floating-rate debt exposure, cybersecurity and data privacy, AI adoption and regulation, client renewals, and execution of new programs. Disclosure controls were reported effective; no material changes to internal control were reported.

Important facts for investors to verify

Whether revenue and margins stabilize, especially in TTEC Engage, and how the client line-of-business exit and delayed program launches affect future quarters.
Whether operating cash flow and free cash flow recover, and whether working-capital movements continue to pressure cash generation.
Debt covenant headroom, borrowing availability, variable-rate interest costs and compliance under the amended Credit Facility.
Client concentration, renewal outcomes and the realization and timing of the $354.9 million remaining performance obligations.
Whether TTEC Engage’s goodwill valuation assumptions remain supportable if forecasts, discount rates or market conditions change.
Tax-rate variability, audit developments, and the final amount and settlement of the Serendebyte minority-interest buyout.