TTEC Holdings, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. TTEC provides customer-experience-as-a-service through TTEC Digital and TTEC Engage.
Financial highlights
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $633.3 million | $588.7 million |
| Operating income / margin | $44.4 million / 7.0% | $48.3 million / 8.2% |
| Net income | $20.9 million | $38.0 million |
| Net income attributable to TTEC stockholders | $18.6 million | $33.4 million |
| Diluted EPS | $0.39 | $0.71 |
| Operating cash flow | $49.1 million | $13.7 million |
| Capital expenditures | $13.7 million | $16.7 million |
| Free cash flow (non-GAAP) | $35.4 million | $(3.0) million |
- Revenue grew 7.6% year over year; foreign currency movements reduced growth by approximately $6.1 million.
- TTEC Digital revenue was $116.9 million, up 4.9%, while operating income fell 87.3% to $0.8 million; its operating margin declined to 0.7% from 5.6%.
- TTEC Engage revenue was $516.4 million, up 8.2%; operating income rose 3.6% to $43.6 million, while margin eased to 8.4% from 8.8%.
- Interest expense increased to $17.4 million from $3.8 million, reflecting higher debt utilization and interest rates. The effective tax rate rose to 27.5% from 17.5%.
- At March 31, cash and cash equivalents were $151.4 million; current assets were $721.0 million and current liabilities $435.4 million. Credit-facility borrowings were $930.0 million, down from $960.0 million at year-end. Remaining borrowing capacity was approximately $335 million; the company reported compliance with its covenants.
Material changes and unusual items
- Operating income declined 8.1% despite higher revenue. Company-wide restructuring charges and asset impairments totaled $6.4 million, versus $1.7 million in the prior-year quarter. Impairment losses alone were $4.3 million versus $1.1 million.
- Digital results were pressured by impairments, sales and marketing and product-engineering investment, and one-time contractual cost acceleration. Engage benefited from Faneuil-related and other revenue growth and a $5.1 million cybersecurity-insurance reimbursement, partly offset by new-program ramp costs and other investments.
- Q1 2023 included $3.2 million of expense related to Faneuil contingent-consideration fair-value adjustments. Faneuil contributed $46.2 million of revenue and $1.1 million of net income in the quarter.
- FCR’s minority owner exercised put rights requiring TTEC to acquire the remaining 30% interest for $22.4 million. The agreement was finalized in April; the company disclosed that the final payment was made in April. A separate $9.2 million excess-cash distribution was paid in February.
- The company declared a $0.52-per-share dividend, totaling $24.6 million, recorded as declared but unpaid at quarter-end. No shares were repurchased during the quarter.
Outlook, liquidity and risks
- Management said operating cash, existing cash and available credit should cover expected operating and capital needs for the next 12 months, while cautioning that restricted capital access or higher borrowing costs could adversely affect the business.
- 2023 capital expenditures were expected to equal 3.4%–3.6% of revenue, approximately 65% for growth and 35% for maintenance. The filing provides no specific revenue or earnings guidance.
- The credit facility matures in November 2026. An April 3, 2023 amendment replaced LIBOR with spread-adjusted SOFR for affected borrowings.
- Key disclosed risks include client concentration (one client represented 10.0% of quarterly revenue; the five largest represented 34.6%), reliance on technology partners, competition and execution of technology and AI initiatives, cybersecurity and service disruption, labor availability and costs, regulatory and litigation exposure, acquisition integration, foreign-exchange exposure, and variable-rate debt. Management reported no material change to the risk factors in its 2022 Form 10-K.
- Remaining performance obligations were $301.5 million at quarter-end, expected to be delivered and recognized within five years; timing depends partly on customer consumption.
Important facts for investors to verify
- Whether the Digital segment’s sharp operating-margin decline is temporary, and whether planned investment and restructuring translate into improved returns.
- How much of revenue growth reflects underlying client demand versus the Faneuil acquisition, and the impact of program completions and foreign exchange.
- Debt, interest expense, covenant headroom and borrowing availability as rates and working-capital needs change.
- Faneuil contingent payments and receivable valuations, and the completed FCR minority-interest buyout and related cash outflows.
- Client renewals and concentration, particularly contracts expiring between 2023 and 2025, alongside RPO conversion and customer-consumption patterns.