TTEC Holdings, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Unaudited consolidated results; comparisons are with the corresponding 2019 periods. Unless otherwise noted, amounts are in U.S. dollars.
Business context and reporting period
TTEC is a global customer-experience technology and services provider. It reports two segments: TTEC Digital, which provides technology and professional services, and TTEC Engage, which operates customer care, acquisition, and fraud-prevention services. The filing describes disruption from COVID-19, alongside increased demand from certain commercial and public-sector clients.
Financial performance and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $453.1m | $392.5m | $885.3m | $786.9m |
| Income from operations | $49.0m | $22.9m | $89.7m | $55.0m |
| Operating margin | 10.8% | 5.8% | 10.1% | 7.0% |
| Net income attributable to TTEC stockholders | $31.3m | $11.8m | $52.9m | $30.8m |
| Diluted EPS | $0.67 | $0.25 | $1.13 | $0.66 |
| Net cash from operating activities | $43.1m | $41.3m | $105.3m | $121.3m |
| Free cash flow, non-GAAP | $28.0m | $26.1m | $73.4m | $92.8m |
Q2 revenue rose 15.4% year over year; first-half revenue rose 12.5%. Q2 growth was driven by Engage, while Digital revenue declined modestly. For the first half, Engage revenue increased 13.7% and Digital revenue increased 7.2% year over year. Segment operating margins improved: Digital was 18.6% in Q2 (9.8% prior year), and Engage was 9.2% (4.8% prior year).
At June 30, 2020, cash and cash equivalents were $482.3m, compared with $82.4m at year-end 2019; cash, cash equivalents and restricted cash totaled $502.7m. Current assets were $958.9m and current liabilities were $344.8m. Credit-facility borrowings were $700.0m, up from $290.0m at year-end; the company reported approximately $195m of remaining borrowing capacity and compliance with its covenants. Total assets were $1,767.0m and total liabilities were $1,265.0m.
First-half capital expenditures were $31.9m. Cash used in investing activities was $36.3m, including $4.4m of acquisitions. Cash provided by financing activities was $332.8m, primarily reflecting net credit-facility borrowings. First-half dividends paid were $15.8m, or $0.34 per share declared.
Material changes, outlook, and management commentary
- COVID-19 operations: TTEC transitioned more than 43,000 employees, about 80% of its workforce, to work from home between mid-March and mid-April. Management said the pandemic had not materially adversely affected operating or financial results through June 30, 2020. Surge volumes helped drive growth, but management cautioned that future demand, client buying decisions, and operating conditions remained uncertain.
- Cost and liquidity actions: The company implemented hiring and spending controls, furloughs and staff reductions, tighter working-capital management, and capital-spending deferrals. It drew $350m on its revolving credit facility in Q1 as a precaution to strengthen liquidity. Some hiring and incentive activity was being resumed, while cost controls remained in place.
- Capital spending outlook: Management expected 2020 capital expenditures of $55m–$59m, approximately 70% for business growth and 30% for maintenance. The filing did not provide revenue or earnings guidance.
- Acquisitions: Serendebyte, acquired in February 2020, was consolidated in Digital. The 2019 FCR acquisition contributed to Engage growth. On August 5, 2020, TTEC agreed to acquire VoiceFoundry for up to $67.2m, including $48.0m cash at closing and potential earn-outs of up to $19.2m; some regional closing steps remained subject to approval.
- Unusual items: Q2 included a $2.5m loss from dissolving a Ghana subsidiary. First-half results included $4.3m of benefits from fair-value reductions in FCR contingent consideration. Q2 restructuring charges were $0.8m; first-half impairment losses were $0.7m, compared with $3.6m in the first half of 2019.
- Key risks and contingencies: Management highlighted pandemic-related client demand, delivery-site restrictions, added costs and capacity constraints, hiring and retention, cybersecurity, service continuity, foreign-exchange and variable-rate debt exposure, and acquisition integration. About 20% of 2019 revenue came from industries identified as particularly affected by COVID-19, including travel, hospitality, retail, and automotive. The five largest clients represented 39.9% of Q2 revenue; no single client exceeded 10% of first-half revenue. Management did not expect current legal proceedings to have a material adverse effect, based on available information.
Most important facts for investors to verify
- Whether pandemic-related surge volumes persist and offset weakness or reduced demand in affected client industries.
- Whether the improved operating margins are sustainable, particularly as work-from-home costs, site utilization, and acquired-intangible amortization evolve.
- How the $700m credit-facility balance, remaining borrowing capacity, covenant headroom, and variable interest rates change; cash growth included precautionary borrowing.
- Whether operating cash flow and free cash flow recover from their first-half year-over-year declines, and whether capital spending remains within the $55m–$59m outlook.
- Completion, integration, financing, and performance-based payments for VoiceFoundry, as well as final purchase accounting for Serendebyte.
- Client concentration, renewals and volume changes, and any material changes in litigation, tax audits, or other contingencies.