TTEC Holdings, Inc. — Q3 2022 Form 10-Q
Business context and reporting period. The filing covers the quarter and nine months ended September 30, 2022. TTEC provides customer-experience technology and managed services through TTEC Digital and TTEC Engage, with approximately 62,700 employees operating in 20 countries. Results are unaudited.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $592.5M | $566.7M | $1,785.4M | $1,660.7M |
| Operating income | $35.6M | $26.0M | $119.8M | $165.3M |
| Operating margin | 6.0% | 4.6% | 6.7% | 10.0% |
| Net income attributable to TTEC stockholders | $22.2M | $14.4M | $80.9M | $112.2M |
| Diluted EPS | $0.47 | $0.30 | $1.71 | $2.37 |
| Operating cash flow | $27.5M | $42.2M | $118.8M | $175.1M |
| Free cash flow (non-GAAP) | $(1.2)M | $25.0M | $54.2M | $134.3M |
- Q3 revenue grew 4.5%; management said foreign exchange reduced revenue by $14.1M. Nine-month revenue rose 7.5%, with acquired businesses contributing $243.6M.
- Q3 TTEC Digital revenue was $117.9M, down 5.0%, and operating income was $8.1M, down 6.9%. TTEC Engage revenue was $474.5M, up 7.2%, and operating income was $27.5M, up 58.7%.
- For the first nine months, Digital revenue increased 17.7% and operating income 12.7%. Engage revenue increased 5.3%, but operating income fell 33.8%; its margin declined to 6.6% from 10.5%, reflecting the mix shift away from COVID-related surge work, new-program ramp costs, investment and impairment/restructuring charges.
- Cash and cash equivalents were $172.3M at September 30. Credit Facility borrowings were $955.0M, up from $791.0M at year-end; approximately $370M of borrowing capacity remained under covenant calculations. The company reported covenant compliance. Q3 average borrowing interest was approximately 3.5%; nine-month interest expense rose to $20.5M from $8.7M.
- Current assets were $741.1M and current liabilities $462.2M. Capital expenditures were $64.6M for the first nine months, versus $40.8M a year earlier.
Changes, outlook, and notable items
- Q3 operating income and attributable net income improved year over year, while nine-month operating income, net income, operating cash flow and free cash flow declined. The nine-month comparison includes a difficult operating mix: COVID-surge work faded, programs were completed, and new work required ramp-up.
- The April 2022 Faneuil asset acquisition cost $142.4M and added public-sector citizen-experience contracts. Acquired businesses contributed $96.0M of Q3 revenue and $6.0M of Q3 net income; nine-month contributions were $243.6M and $16.2M.
- Q3 results included a $6.8M net insurance reimbursement related to the 2021 cybersecurity incident. Faneuil-related fair-value changes included a $2.4M gain on contingent consideration and a $4.4M expense on a contingent receivable. Nine-month impairment losses were $13.3M, compared with $3.9M in 2021.
- Management expects 2022 capital expenditures of 3.0%–3.2% of revenue. It said cash, operating cash flows and available credit should meet operating and capital needs for at least 12 months. No full-year revenue or earnings guidance is provided in the supplied filing text.
- Management reported no material adverse COVID-19 impact through the period and no continuing COVID-related surge work. It cited uncertainty in client buying decisions, employee willingness to return to centers, and possible weather-related disruption to remote work. It expects cybersecurity hardening investment of at least $7M in 2022 and beyond.
- Risks include variable-rate debt and rising interest costs, foreign exchange exposure, client concentration (one client was 10.5% of nine-month revenue; the five largest were 35.3%), staffing and program execution, and potential effects of the Russia-Ukraine conflict on European operations. The company reported a state regulator’s cybersecurity violation finding, subsequent remediation and a likely fine; other incident-related legal, regulatory, reputational and insurance risks remain. Management said it did not expect current legal proceedings to materially affect results, except as otherwise reserved.
- Disclosure controls were assessed as effective at the reasonable-assurance level; no material change in internal control over financial reporting was reported for the quarter.
Important facts for investors to verify
- Whether Engage margins and cash generation stabilize as COVID-related work rolls off and replacement programs ramp.
- Debt, interest expense, covenant headroom and remaining facility availability, particularly if borrowing costs rise.
- Faneuil acquisition performance, integration, contingent payments and final purchase-price accounting.
- Exposure to major clients and contract renewals, and the financial effect of foreign exchange movements.
- Potential cybersecurity-related fines, claims, insurance recoveries and ongoing security spending.
- Execution of the stated capital expenditure plan and whether management updates its outlook; the filing provides no full-year revenue or earnings forecast.