TTEC 10Q 2023 Q3 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-11919

TTEC Holdings, Inc.

(Exact name of registrant as specified in its charter)


Delaware		84-1291044
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

6312 South Fiddler’s Green Circle, Suite 100N

Greenwood Village, Colorado 80111

(Address of principal executive offices)

Registrant’s telephone number, including area code: (303) 397-8100

Securities registered pursuant to Section 12(b) of the Act:


Title of each Class	Trading Symbol	Name of each exchange on which registered
Common stock of TTEC Holdings, Inc., $0.01 par value per share	TTEC	NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large Accelerated Filer ☑	Accelerated Filer ☐	Non-accelerated Filer ☐	Smaller Reporting Company ☐
			Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☑

As of October 31, 2023, there were 47,424,371 shares of the registrant’s common stock outstanding.

Table of Contents

TTEC HOLDINGS, INC. AND SUBSIDIARIES

SEPTEMBER 30, 2023 FORM 10-Q

TABLE OF CONTENTS


		Page No.

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022 (unaudited)	1

	Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2023 and 2022 (unaudited)	2

	Consolidated Statements of Stockholders’ Equity and Mezzanine Equity as of and for the three and nine months ended September 30, 2023 and 2022 (unaudited)	3

	Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022 (unaudited)	4

	Notes to the Consolidated Financial Statements (unaudited)	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	37

Item 4.	Controls and Procedures	39

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	39

Item 1A.	Risk Factors	39

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40

Item 5.	Other Information	40

Item 6.	Exhibits	40

SIGNATURES		41

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TTEC HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Amounts in thousands, except share amounts)

(Unaudited)


	September 30,		December 31,
	2023		2022
ASSETS
Current assets
Cash and cash equivalents	$	151,583	$	153,435
Accounts receivable, net of allowance of $2,502 and $3,524		379,755		417,637
Prepaids and other current assets		118,956		133,365
Income and other tax receivables		11,832		45,533
Total current assets		662,126		749,970

Long-term assets
Property, plant and equipment, net		192,554		183,360
Operating lease assets		119,544		92,431
Goodwill		806,400		807,845
Deferred tax assets, net		44,474		18,713
Other intangible assets, net		206,800		233,909
Other long-term assets		96,697		67,734
Income and other tax receivables, long-term		39,595		—
Total long-term assets		1,506,064		1,403,992
Total assets	$	2,168,190	$	2,153,962

LIABILITIES, STOCKHOLDERS’ EQUITY AND MEZZANINE EQUITY
Current liabilities
Accounts payable	$	105,519	$	93,937
Accrued employee compensation and benefits		128,731		145,096
Other accrued expenses		53,975		34,451
Income tax payable		9,055		7,166
Deferred revenue		82,529		87,846
Current operating lease liabilities		37,297		35,271
Other current liabilities		5,691		7,597
Total current liabilities		422,797		411,364

Long-term liabilities
Line of credit		964,000		960,000
Deferred tax liabilities, net		3,284		3,829
Non-current income tax payable		2,880		9,140
Non-current operating lease liabilities		97,899		69,575
Other long-term liabilities		69,845		66,304
Total long-term liabilities		1,137,908		1,108,848
Total liabilities		1,560,705		1,520,212

Commitments and contingencies (Note 10)

Redeemable noncontrolling interest		4,310		55,645

Stockholders’ equity
Preferred stock; $0.01 par value; 10,000,000 shares authorized; zero shares outstanding as of September 30, 2023 and December 31, 2022		—		—
Common stock; $0.01 par value; 150,000,000 shares authorized; 47,418,697 and 47,224,074 shares outstanding as of September 30, 2023 and December 31, 2022, respectively		474		472
Additional paid-in capital		398,384		367,673
Treasury stock at cost; 34,633,556 and 34,828,179 shares as of September 30, 2023 and December 31, 2022, respectively		(589,948)		(593,164)
Accumulated other comprehensive income (loss)		(103,039)		(126,301)
Retained earnings		880,328		911,233
Noncontrolling interest		16,976		18,192
Total stockholders’ equity		603,175		578,105
Total liabilities, stockholders’ equity and mezzanine equity	$	2,168,190	$	2,153,962

The accompanying notes are an integral part of these consolidated financial statements.

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TTEC HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss)

(Amounts in thousands, except per share amounts)

(Unaudited)


	Three months ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022
Revenue	$	602,956	$	592,453	$	1,836,636	$	1,785,429

Operating expenses
Cost of services (exclusive of depreciation and amortization presented separately below)		479,699		450,454		1,427,064		1,361,179
Selling, general and administrative		66,781		75,226		216,129		206,831
Depreciation and amortization		25,595		27,117		76,368		80,061
Restructuring charges, net		1,369		1,113		4,895		4,261
Impairment losses		4,124		2,939		11,083		13,299
Total operating expenses		577,568		556,849		1,735,539		1,665,631

Income from operations		25,388		35,604		101,097		119,798

Other income (expense)
Interest income		1,342		519		3,632		990
Interest expense		(20,327)		(10,565)		(56,709)		(20,525)
Other income (expense), net		687		3,946		(2,232)		11,317
Total other income (expense)		(18,298)		(6,100)		(55,309)		(8,218)

Income before income taxes		7,090		29,504		45,788		111,580

Provision for income taxes		(5,294)		(4,489)		(19,318)		(19,797)

Net income		1,796		25,015		26,470		91,783

Net income attributable to noncontrolling interest		(3,326)		(2,766)		(8,142)		(10,896)

Net income (loss) attributable to TTEC stockholders	$	(1,530)	$	22,249	$	18,328	$	80,887

Other comprehensive income (loss)
Net income	$	1,796	$	25,015	$	26,470	$	91,783
Foreign currency translation adjustments		(10,312)		(23,123)		18,453		(46,197)
Derivative valuation, gross		(3,752)		(4,430)		5,821		(12,096)
Derivative valuation, tax effect		976		1,150		(1,521)		3,138
Other, net of tax		119		70		299		424
Total other comprehensive income (loss)		(12,969)		(26,333)		23,052		(54,731)
Total comprehensive income (loss)		(11,173)		(1,318)		49,522		37,052

Less: Comprehensive income attributable to noncontrolling interest		(2,620)		(2,929)		(7,005)		(8,678)

Comprehensive income (loss) attributable to TTEC stockholders	$	(13,793)	$	(4,247)	$	42,517	$	28,374

Weighted average shares outstanding
Basic		47,415		47,207		47,305		47,087
Diluted		47,488		47,314		47,417		47,354

Net income (loss) per share attributable to TTEC stockholders
Basic	$	(0.03)	$	0.47	$	0.39	$	1.72
Diluted	$	(0.03)	$	0.47	$	0.39	$	1.71

The accompanying notes are an integral part of these consolidated financial statements.

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TTEC HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity and Mezzanine Equity

(Amounts in thousands)

(Unaudited)

Three months ended September 30, 2022 and 2023


	Stockholders’ Equity of the Company
								Accumulated
								Other
	Common Stock			Treasury		Additional		Comprehensive		Retained		Noncontrolling				Mezzanine
	Shares	Amount		Stock		Paid-in Capital		Income (Loss)		Earnings		interest		Total Equity		Equity
Balance as of June 30, 2022	47,093	$	471	$	(595,331)	$	364,251	$	(125,450)	$	891,185	$	15,913	$	551,039	$	55,752
Net income	—		—		—		—		—		22,249		2,808		25,057		(42)
Dividends to shareholders ($0.52 per common share)	—		—		—		—		—		(24,554)		—		(24,554)		—
Dividends distributed to noncontrolling interest	—		—		—		—		—		—		(2,329)		(2,329)		(14)
Foreign currency translation adjustments	—		—		—		—		(23,244)		—		121		(23,123)		—
Derivatives valuation, net of tax	—		—		—		—		(3,280)		—		—		(3,280)		—
Vesting of restricted stock units	121		1		1,994		(5,910)		—		—		—		(3,915)		—
Equity-based compensation expense	—		—		—		5,358		—		—		—		5,358		—
Other, net of tax	—		—		—		—		70		—		—		70		—
Balance as of September 30, 2022	47,214	$	472	$	(593,337)	$	363,699	$	(151,904)	$	888,880	$	16,513	$	524,323	$	55,696


	Stockholders’ Equity of the Company
								Accumulated
								Other
	Common Stock			Treasury		Additional		Comprehensive		Retained		Noncontrolling				Mezzanine
	Shares	Amount		Stock		Paid-in Capital		Income (Loss)		Earnings		interest		Total Equity		Equity
Balance as of June 30, 2023	47,276	$	473	$	(592,306)	$	396,444	$	(90,463)	$	906,518	$	16,876	$	637,542	$	3,997
Net income	—		—		—		—		—		(1,530)		3,013		1,483		313
Dividends to shareholders ($0.52 per common share)	—		—		—		—		—		(24,660)		—		(24,660)		—
Dividends distributed to noncontrolling interest	—		—		—		—		—		—		(2,520)		(2,520)		—
Foreign currency translation adjustments	—		—		—		—		(9,919)		—		(393)		(10,312)		—
Derivatives valuation, net of tax	—		—		—		—		(2,776)		—		—		(2,776)		—
Vesting of restricted stock units	143		1		2,358		(4,668)		—		—		—		(2,309)		—
Equity-based compensation expense	—		—		—		6,608		—		—		—		6,608		—
Other, net of tax	—		—		—		—		119		—		—		119		—
Balance as of September 30, 2023	47,419	$	474	$	(589,948)	$	398,384	$	(103,039)	$	880,328	$	16,976	$	603,175	$	4,310

Nine months ended September 30, 2022 and 2023


	Stockholders’ Equity of the Company
								Accumulated
								Other
	Common Stock			Treasury		Additional		Comprehensive		Retained		Noncontrolling				Mezzanine
	Shares	Amount		Stock		Paid-in Capital		Income (Loss)		Earnings		interest		Total Equity		Equity
Balance as of December 31, 2021	46,990	$	470	$	(597,031)	$	361,135	$	(98,426)	$	856,065	$	15,812	$	538,025	$	56,316
Net income	—		—		—		—		—		80,887		9,931		90,818		964
Dividends to shareholders ($1.02 per common share)	—		—		—		—		—		(48,072)		—		(48,072)		—
Dividends distributed to noncontrolling interest	—		—		—		—		—		—		(7,977)		(7,977)		(1,584)
Foreign currency translation adjustments	—		—		—		—		(44,944)		—		(1,253)		(46,197)		—
Derivatives valuation, net of tax	—		—		—		—		(8,958)		—		—		(8,958)		—
Vesting of restricted stock units	224		2		3,694		(10,676)		—		—		—		(6,980)		—
Equity-based compensation expense	—		—		—		13,240		—		—		—		13,240		—
Other, net of tax	—		—		—		—		424		—		—		424		—
Balance as of September 30, 2022	47,214	$	472	$	(593,337)	$	363,699	$	(151,904)	$	888,880	$	16,513	$	524,323	$	55,696


	Stockholders’ Equity of the Company
								Accumulated
								Other
	Common Stock			Treasury		Additional		Comprehensive		Retained		Noncontrolling				Mezzanine
	Shares	Amount		Stock		Paid-in Capital		Income (Loss)		Earnings		interest		Total Equity		Equity
Balance as of December 31, 2022	47,224	$	472	$	(593,164)	$	367,673	$	(126,301)	$	911,233	$	18,192	$	578,105	$	55,645
Noncontrolling interest adjustment due to buyout	—		—		—		20,457		—		—		—		20,457		(20,457)
Net income	—		—		—		—		—		18,328		7,215		25,543		927
Dividends to shareholders ($1.04 per common share)	—		—		—		—		—		(49,233)		—		(49,233)		—
Buyout of noncontrolling interest	—		—		—		—		—		—		—		—		(31,619)
Dividends distributed to noncontrolling interest	—		—		—		—		—		—		(8,221)		(8,221)		(186)
Foreign currency translation adjustments	—		—		—		—		18,663		—		(210)		18,453		—
Derivatives valuation, net of tax	—		—		—		—		4,300		—		—		4,300		—
Vesting of restricted stock units	195		2		3,216		(6,156)		—		—		—		(2,938)		—
Equity-based compensation expense	—		—		—		16,410		—		—		—		16,410		—
Other, net of tax	—		—		—		—		299		—		—		299		—
Balance as of September 30, 2023	47,419	$	474	$	(589,948)	$	398,384	$	(103,039)	$	880,328	$	16,976	$	603,175	$	4,310

The accompanying notes are an integral part of these consolidated financial statements.

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TTEC HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Amounts in thousands)

(Unaudited)


	Nine Months Ended September 30,
	2023		2022
Cash flows from operating activities
Net income	$	26,470	$	91,783
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		76,368		80,061
Amortization of contract acquisition costs		1,596		1,345
Amortization of debt issuance costs		801		735
Imputed interest expense and fair value adjustments to contingent consideration		6,864		2,070
Provision for credit losses		1,677		1,561
Loss on disposal of assets		1,176		1,587
Loss on dissolution of subsidiary		301		—
Impairment losses		11,083		13,299
Deferred income taxes		(12,288)		(8,216)
Excess tax benefit from equity-based awards		1,807		(1,256)
Equity-based compensation expense		16,410		13,240
Loss on foreign currency derivatives		552		269
Changes in assets and liabilities, net of acquisitions:
Accounts receivable		34,995		(37,987)
Prepaids and other assets		(1,620)		38,594
Accounts payable and accrued expenses		(8,453)		1,483
Deferred revenue and other liabilities		(44,508)		(79,755)
Net cash provided by operating activities		113,231		118,813

Cash flows from investing activities
Proceeds from sale of long-lived assets		246		189
Purchases of property, plant and equipment, net of acquisitions		(54,722)		(64,564)
Acquisitions, net of cash acquired of zero and zero, respectively		—		(142,420)
Net cash used in investing activities		(54,476)		(206,795)

Cash flows from financing activities
Proceeds from/(repayments of) line of credit, net		4,000		164,000
Payments on other debt		(1,929)		(2,568)
Payments of contingent consideration and hold back payments to acquisitions		(37,676)		(9,600)
Dividends paid to shareholders		(24,572)		(23,518)
Payments to noncontrolling interest		(8,407)		(9,562)
Tax payments related to issuance of restricted stock units		(2,938)		(6,980)
Net cash (used in)/provided by financing activities		(71,522)		111,772

Effect of exchange rate changes on cash, cash equivalents and restricted cash		3,889		(22,226)

(Decrease)/increase in cash, cash equivalents and restricted cash		(8,878)		1,564
Cash, cash equivalents and restricted cash, beginning of period		167,064		180,682
Cash, cash equivalents and restricted cash, end of period	$	158,186	$	182,246

Supplemental disclosures
Cash paid for interest	$	55,810	$	19,699
Cash paid for income taxes	$	35,542	$	32,705
Non-cash investing and financing activities
Acquisition of long-lived assets through finance leases	$	1,560	$	461
Acquisition of equipment through increase in accounts payable, net	$	3,534	$	6,625
Dividend declared but not paid	$	24,660	$	24,554

The accompanying notes are an integral part of these consolidated financial statements.

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TTEC HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

(1)OVERVIEW AND BASIS OF PRESENTATION

Summary of Business

TTEC Holdings, Inc. (“TTEC”, “the Company”; pronounced “T-TEC”) is a leading global customer experience (“CX”) as a service (“CXaaS”) partner for many of the world’s most iconic companies, disruptive hypergrowth brands, and large public sector agencies. TTEC designs, builds, orchestrates, and delivers seamless digitally-enabled customer experiences that increase brand value, customer loyalty, revenue and profitability through personalized, outcome-based interactions. The Company helps clients improve their customer satisfaction while lowering their total cost to serve by combining innovative digital solutions with service capabilities that deliver a frictionless CX across numerous real-time digital and live interaction channels and different phases of the customer lifecycle. TTEC’s 64,400 employees serve clients in the automotive, communication, financial services, national/federal and state and local governments, healthcare, logistics, media and entertainment, e-tail/retail, technology, and travel and transportation industries via operations in the United States, Australia, Belgium, Brazil, Bulgaria, Canada, Colombia, Costa Rica, Germany, Greece, India, Ireland, Mexico, the Netherlands, New Zealand, the Philippines, Poland, South Africa, Thailand, and the United Kingdom.

The Company operates and reports its financial results of operation through two business segments: TTEC Digital and TTEC Engage.

●

TTEC Digital is one of the largest pure-play CX technology service providers with expertise in CX strategy, digitization, analytics, process optimization, system integration, cloud-based technology solutions, and transformation enabled by the Company’s proprietary CX applications and technology partnerships. TTEC Digital designs, builds, and operates robust digital experiences for clients and their customers through the contextual integration and orchestration of customer relationship management (“CRM”), data, analytics, CXaaS technology, and intelligent automation to ensure high-quality, scalable CX outcomes.

●

TTEC Engage provides the digitally enabled CX managed services to support our clients’ end-to-end customer interaction delivery at scale. The segment delivers omnichannel customer care, technology support, order fulfillment, customer acquisition, growth, and retention services with industry specialization and distinctive CX capabilities for hypergrowth brands. TTEC Engage also delivers digitally enabled back office and industry specific specialty services including artificial intelligence (“AI”) operations, and fraud management services.

TTEC Digital and TTEC Engage strategically come together under our unified offering, Humanify^® CXaaS, which drives measurable customer results for clients through the delivery of personalized and seamless, omnichannel experiences. Our Humanify^® cloud platform provides a fully integrated ecosystem of CX offerings including messaging, AI, machine learning, robotic process automation, analytics, cybersecurity, CRM, knowledge management, journey orchestration, and traditional voice solutions. Our end-to-end CXaaS platform differentiates us from competitors by combining design, strategic consulting, technology, data analytics, process optimization, system integration, and operational excellence along with our decades of industry know-how. This unified offering is value-oriented, outcome-based and delivered to large enterprises, hypergrowth companies and public sector agencies on a global scale.

Basis of Presentation

The Consolidated Financial Statements are comprised of the accounts of TTEC, its wholly owned subsidiaries, its 55% equity owned subsidiary Percepta, LLC, its 70% equity owned subsidiary First Call Resolution, LLC through March 31, 2023 and then 100% owned subsequently, and its 70% equity owned subsidiary Serendebyte, Inc. (see Note 2). All intercompany balances and transactions have been eliminated in consolidation.

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TTEC HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The unaudited Consolidated Financial Statements do not include all of the disclosures required by accounting principles generally accepted in the U.S. (“GAAP”), pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The unaudited Consolidated Financial Statements reflect all adjustments which, in the opinion of management, are necessary to state fairly the consolidated financial position of the Company and the consolidated results of operations and comprehensive income (loss) and the consolidated cash flows of the Company. All such adjustments are of a normal, recurring nature. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

These unaudited Consolidated Financial Statements should be read in conjunction with the Company’s audited Consolidated Financial Statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Use of Estimates

The preparation of the Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions in determining the reported amounts of assets and liabilities, disclosure of contingent liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates including those related to derivatives and hedging activities, income taxes including the valuation allowance for deferred tax assets, litigation reserves, restructuring reserves, allowance for credit losses, contingent consideration, redeemable noncontrolling interest, and valuation of goodwill, long-lived and intangible assets. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ materially from these estimates under different assumptions or conditions.

Out-of-period Adjustment

The Consolidated Financial Statements for the three months ended June 30, 2023 included an adjustment of $13.8 million to other comprehensive income and deferred tax assets, to correct for an error identified by management during the preparation of the financial statements. This adjustment was to reflect the deferred tax impact of currency translation adjustments, of which $0.5 million related to the three months ended March 31, 2023, and the remaining $13.3 million related to prior annual fiscal periods. Management has determined that this error was not material to the historical financial statements in any individual period or in the aggregate and did not result in the previously issued financial statements being materially misstated. The impact to the three and six month periods ended June 30, 2023 is not material. As such, management recorded the correction as an out-of-period adjustment in the three months ended June 30, 2023.

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents consist of cash, primarily held in interest-bearing investments, and liquid short-term investments, which have original maturities of three months or less. Restricted cash includes cash whereby the Company’s ability to use the funds at any time is contractually limited or is generally designated for specific purposes arising out of certain contractual or other obligations.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the Consolidated Balance Sheets that sum to the amounts reported in the Consolidated Statement of Cash Flows (in thousands):


	September 30, 2023		December 31, 2022

Cash and cash equivalents	$	151,583	$	153,435
Restricted cash included in "Prepaid and other current assets"		6,603		13,629
Total	$	158,186	$	167,064

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TTEC HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Concentration of Credit Risk

The Company is exposed to credit risk in the normal course of business, primarily related to accounts receivable and derivative instruments. Historically, the losses related to credit risk have been immaterial. The Company regularly monitors its credit risk to mitigate the possibility of current and future exposures resulting in a loss. The Company evaluates the creditworthiness of its clients prior to entering into an agreement to provide services and as necessary through the life of the client relationship. The Company does not believe it is exposed to more than a nominal amount of credit risk in its derivative hedging activities, as the Company diversifies its activities across eight investment-grade financial institutions.

Recently Adopted Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform” (Topic 848), which provides optional expedients and exceptions for contracts, hedging relationships, and other transactions affected by reference rate reform due to the anticipated cessation of the London Interbank Offered Rate (”LIBOR”). The ASU is effective from March 12, 2020, may be applied prospectively and could impact the accounting for LIBOR provisions in the Company’s credit facility agreement. In addition, in January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform – Scope,” which clarified the scope of ASC 848 relating to contract modifications. The Company adopted the standard effective April 1, 2023 and the adoption of this guidance did not have a material impact on the Company’s financial position, results of operations or cash flows.

(2)ACQUISITIONS AND DIVESTITURES

FCR

Pursuant to the Membership Interest Purchase Agreement of October 26, 2019 between Ortana Holdings, Inc. and TTEC Services Corporation for the acquisition by TTEC of 70% interest in First Call Resolution, LLC (“FCR” and “FCR MIPA”, respectively), Ortana Holdings exercised its put rights in January 2023, which required TTEC to acquire Ortana Holdings’ remaining 30% interest in FCR. The purchase price for the remaining 30% interest was determined based on the express provisions of the FCR MIPA and was based on FCR’s performance during 2022. The buyout agreement was signed on April 4, 2023 and reflected a buyout purchase of $22.4 million.

In connection with the triggering of the option, as of March 31, 2023, the $22.4 million purchase price was reclassified from Redeemable noncontrolling interest to Accrued expenses and the remaining balance of $20.5 million was reclassified to Additional paid in capital. In February 2023, a $9.2 million payment related to excess cash distribution was completed and in April 2023 the final payment of $22.4 million was completed.

Certain Assets of Faneuil

On April 1, 2022, the Company completed an asset acquisition through its subsidiary TTEC Government Solutions LLC, of certain public sector citizen experience contracts in the transportation infrastructure and healthcare exchange industries from Faneuil, Inc., a subsidiary of ALJ Regional Holdings, Inc. (“the Faneuil Transaction”). The acquired business is operated as part of the TTEC Engage segment and was fully consolidated into the financial statements of TTEC. The Faneuil Transaction was recorded as a business combination under ASC 805, Business Combinations, with identifiable assets acquired and liabilities assumed recorded at their estimated fair values as of the acquisition date.

Total cash paid at the time of acquisition was $142.4 million. In addition, Faneuil granted to TTEC Government Solutions LLC a three-year call right and right of first offer to purchase certain other assets of Faneuil in its utilities and commercial healthcare verticals as well as certain proprietary technology. The Faneuil Transaction includes two contingent payments which were anticipated to be paid in early 2024 which are based on the revenue and EBITDA performance of one contract and one potential contract.

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TTEC HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The fair value of the two contingent payments was estimated using a Monte Carlo model. The model was based on current expected EBITDA performance for the two specific client programs, a discount rate of 7.6% related to revenue and a discount rate of 19.3% related to EBITDA, a volatility rate of 20%, and an adjusted risk-free rate of 1.7%. The potential payments ranged from a minimum of zero to an unlimited maximum. Based on the model, a combined $8.8 million expected future payment was calculated and recorded as of the acquisition date. During the third quarter of 2022, a $2.4 million net gain was recorded related to fair value adjustments for the estimated contingent payments based on the timing of cash flows and market interest rates which resulted in an updated discount factor for one contract, and a complete reduction for the second contract as it was not awarded to the Company. During the fourth quarter of 2022, a $0.5 million net gain was recorded related to a fair value adjustment for the estimated contingent payment based on changes in estimated EBITDA and the timing of cash flows. During the first quarter of 2023, a $0.6 million net expense was recorded related to a fair value adjustment for the estimated contingent payment based on the timing of cash flows and market interest rate changes. During the second quarter of 2023, an amendment to the agreement was signed which modified the contingent payment for a minimum payment of $7.4 million and a maximum payment of $10.4 million. Based on this modification, an updated estimated EBITDA and the revised timing of cash flows, a $1.7 million expense was recorded as of June 30, 2023. An initial payment of $7.4 million was completed in May 2023. During the third quarter of 2023, a $0.1 million net expense was recorded related to a fair value adjustment for the estimated contingent payment based on the timing of cash flows and market interest rate changes. These benefits (expenses) were included in Other income (expense) in the Consolidated Statements of Comprehensive Income (Loss). As of September 30, 2023, the contingent payment is accrued at $0.9 million and is included in Other long-term liabilities in the accompanying Consolidated Balance Sheets.

The Faneuil Transaction included a call option providing the right but not the obligation to purchase additional assets in the utilities and commercial healthcare verticals based on trailing twelve-month revenue plus an additional earn-out payment based on newly added contracts. A second call option provided the right to purchase a software intangible asset and related support functions based on trailing twelve-month revenue. These call options were valued based on information including the call right and the exclusivity period and a $270 thousand asset was recorded as of the acquisition date which is included in Other long-term assets in the accompanying Consolidated Balance Sheets. During the fourth quarter of 2022 and the first quarter of 2023, reductions in fair value of $52 thousand and $140 thousand, respectively, were recorded due to changes in estimated revenue, which were included in Other income (expense) in the Consolidated Statements of Comprehensive Income (Loss). During the second quarter of 2023, an amendment to the agreement was signed which cancelled the option to purchase the additional assets in certain verticals, and thus the remaining $78 thousand accrual was removed and included in Other income. As of September 30, 2023, the fair value is zero.

The Faneuil Transaction included an indemnity escrow which was disbursed as a holdback payment on the acquisition date. The indemnity payments relate to real estate and technology funds that will be spent post-close related to various IT upgrades and real estate expenses, and indemnity related to potential future employee wage increases. The indemnity payments were valued based on a weighted average of several current scenarios and a receivable of $10.4 million was recorded as of the acquisition date. During the third and fourth quarters of 2022 and the first quarter of 2023, reductions in the fair value were calculated and a $4.4 million expense, a $0.2 million expense and a $2.5 million expense, respectively, were recorded related to fair value adjustments for the receivable based on current information reflecting a better outcome with the contract negotiations and lower anticipated IT and facilities spending. During the second quarter of 2023, the payout value related to the IT and Facilities reimbursement was finalized at $1.3 million, and an expense of $1.9 million was recorded. The payment was received by TTEC in May 2023 and as of June 30, 2023, the receivables were reduced to zero on the Consolidated Balance Sheet. The reductions in fair value related expenses were included in Other income (expense) in the Consolidated Statements of Comprehensive Income (Loss).

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TTEC HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

A multi-period excess earnings method under the income approach was used to estimate the fair value of the customer relationships intangible assets. The significant assumptions utilized in calculating the fair value of the customer relationships intangible assets were the customer attrition rate, revenue growth rates, forecasted EBITDA, contributory asset charge, and the discount rate.

The following summarizes the fair values of the identifiable assets acquired and liabilities assumed as of the acquisition date (in thousands):


	Acquisition Date
	Fair Value
Cash	$	—
Accounts receivable, net		704
Prepaid and other assets		8,420
Net fixed assets		5,622
Right of use lease assets		17,778
Other assets		2,572
Customer relationships		61,310
Goodwill		75,902
	$	172,308

Accrued employee compensation	$	202
Accrued expenses		2,763
Right of use lease liability – current		3,129
Right of use lease liability – non-current		14,092
Deferred income		811
Other liabilities		8,891
	$	29,888

Total purchase price	$	142,420

In the first quarter of 2023, the Company finalized the valuation of Faneuil for the acquisition date assets acquired and liabilities assumed and determined that no material adjustments to any of the balances were required.

The Faneuil customer relationships are being amortized over a useful life of 10 years. The goodwill recognized from the Faneuil acquisition is attributable to, but not limited to, the acquired workforce and expected synergies with the TTEC Engage segment. The tax basis of the acquired intangibles and goodwill will be materially deductible for income tax purposes. The acquired goodwill and intangibles and operating results of Faneuil are reported within the TTEC Engage segment from the date of acquisition.

Financial Impact of Acquired Businesses

The acquired business purchased in 2022 noted above contributed revenues of $45.3 million and net income of $0.4 million to the Company for the three months ended September 30, 2023, and revenues of $138.2 million and net income of $4.3 million to the Company for the nine months ended September 30, 2023.

The unaudited proforma financial results for the three and nine months ended September 30, 2022 combines the consolidated results of the Company and Faneuil assuming the acquisition had been completed on January 1, 2021. The reported revenue and net income of $592.5 million and $22.2 million would have been $592.5 million and $22.2 million for the three months ended September 30, 2022, respectively, on an unaudited proforma basis. The reported revenue and net income of $1,785.4 million and $80.9 million would have been $1,827.4 million and $84.3 million for the nine months ended September 30, 2022, respectively, on an unaudited proforma basis.

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TTEC HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The Company did not have any material, nonrecurring proforma adjustments directly attributable to the business combination included in the reported proforma revenue earnings. These proforma amounts have been calculated after applying the Company’s accounting policies and adjusting the acquired business results to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and equipment, and intangible assets had been applied from the date indicated, with the consequential tax effects.

The unaudited proforma consolidated results are not to be considered indicative of the results if the acquisition occurred in the periods mentioned above, or indicative of future operations or results. Additionally, the proforma consolidated results do not reflect any anticipated synergies expected as a result of the acquisition.

(3)SEGMENT INFORMATION

The Company reports the following two segments:

TTEC Digital is one of the largest pure-play CX technology service providers with expertise in CX strategy, digitization, analytics, process optimization, systems integration, cloud-based technology solutions, and transformation enabled by the Company’s proprietary CX applications and technology partnerships. TTEC Digital designs, builds, and operates robust digital experiences for clients and their customers through the contextual integration and orchestration of CRM, data, analytics, CXaaS technology, and intelligent automation to ensure high-quality, scalable CX outcomes.

●

Technology Services: The technology services design, build, and operate highly scalable, digital omnichannel technology solutions in the cloud, on premise, or hybrid environment, including journey orchestration, automation and AI, knowledge management, and workforce productivity, among others.

●

Professional Services: The management consulting practices deliver customer experience strategy, analytics, process optimization, and system integration, among others.

●

Customer Acquisition, Growth, and Retention Services: The customer growth and acquisition services optimize the buying journeys for acquiring new customers by leveraging technology and analytics to deliver personal experiences that we believe increase the quantity and quality of leads and customers.

●

Customer Care, Technology Support, and Order Fulfillment Services: The customer care, technology support, and order fulfillment services provide turnkey contact center solutions, including digital omnichannel technologies, associate recruiting and training, facilities, and operational expertise to create exceptional customer experiences across all touchpoints.

●

Digitally Enabled Back Office and Specialty Services: The digital AI operations and fraud detection and prevention services provide clients with data tagging and annotation capabilities to train and enable AI platforms, community content moderation, and compliance to meet client content standards, and proactive fraud solutions to assist our clients in the detection and prevention of fraud.

The Company allocates to each segment its portion of corporate operating expenses. All intercompany transactions between the reported segments for the periods presented have been eliminated.

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TTEC HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following tables present certain financial data by segment (in thousands):

Three Months Ended September 30, 2023


							Depreciation		Income
	Gross		Intersegment		Net		&		from
	Revenue		Sales		Revenue		Amortization		Operations
TTEC Digital	$	133,252	$	—	$	133,252	$	6,801	$	11,925
TTEC Engage		469,704		—		469,704		18,794		13,463
Total	$	602,956	$	—	$	602,956	$	25,595	$	25,388

Three Months Ended September 30, 2022


							Depreciation		Income
	Gross		Intersegment		Net		&		from
	Revenue		Sales		Revenue		Amortization		Operations
TTEC Digital	$	116,208	$	(35)	$	116,173	$	7,340	$	8,015
TTEC Engage		476,280		—		476,280		19,777		27,589
Total	$	592,488	$	(35)	$	592,453	$	27,117	$	35,604

Nine months Ended September 30, 2023


							Depreciation		Income
	Gross		Intersegment		Net		&		from
	Revenue		Sales		Revenue		Amortization		Operations
TTEC Digital	$	367,764	$	—	$	367,764	$	20,384	$	19,864
TTEC Engage		1,468,872		—		1,468,872		55,984		81,233
Total	$	1,836,636	$	—	$	1,836,636	$	76,368	$	101,097

Nine Months Ended September 30, 2022


							Depreciation		Income
	Gross		Intersegment		Net		&		from
	Revenue		Sales		Revenue		Amortization		Operations
TTEC Digital	$	342,055	$	(35)	$	342,020	$	24,023	$	24,971
TTEC Engage		1,443,409		—		1,443,409		56,038		94,827
Total	$	1,785,464	$	(35)	$	1,785,429	$	80,061	$	119,798

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TTEC HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Capital Expenditures
TTEC Digital	$	1,461	$	3,408	$	6,087	$	6,880
TTEC Engage		20,307		25,366		48,635		57,684
Total	$	21,768	$	28,774	$	54,722	$	64,564


	September 30, 2023		December 31, 2022
Total Assets
TTEC Digital	$	809,741	$	807,247
TTEC Engage		1,358,449		1,346,715
Total	$	2,168,190	$	2,153,962

The following table presents revenue based upon the geographic location where the services are provided (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenue
United States / Canada	$	415,463	$	416,815	$	1,274,353	$	1,262,559
Philippines / Asia Pacific / India		117,204		110,381		354,981		336,658
Europe / Middle East / Africa		37,095		34,507		107,574		100,307
Latin America		33,194		30,750		99,728		85,905
Total	$	602,956	$	592,453	$	1,836,636	$	1,785,429

(4)SIGNIFICANT CLIENTS AND OTHER CONCENTRATIONS

The Company had one client that contributed in excess of 10% of total revenue for the nine months ended September 30, 2023; this client operates in the automotive industry and is included in the TTEC Engage segment. This client contributed 10.1% and 10.5% of total revenue for the nine months ended September 30, 2023 and 2022, respectively. In addition, the Company has other clients with aggregate revenue exceeding $100 million annually and the loss of one or more of these clients could have a material adverse effect on the Company’s business, operating results, or financial condition. To mitigate this risk, the Company’s business arrangements with these larger clients are structured as multiple contracts with different statements of work that are specific to a different line of business or service; each of these contracts have different durations and renewal dates and a revenue opportunity below the $100 million aggregate.

To limit the Company’s credit risk with its clients, management performs periodic credit evaluations, maintains allowances for credit losses and may require pre-payment for services from certain clients whose financial stability or payment practices raise concern. Based on currently available information, management does not believe significant credit risk existed as of September 30, 2023.

Activity in the Company’s Allowance for credit losses consists of the following (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Balance, beginning of period	$	2,347	$	5,406	$	3,524	$	5,409
Provision for credit losses		(27)		1,363		1,677		1,561
Uncollectible receivables written-off		183		(890)		(2,702)		(1,110)
Effect of foreign currency		(1)		(24)		3		(5)
Balance, end of period	$	2,502	$	5,855	$	2,502	$	5,855

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TTEC HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Accounts Receivable Factoring Agreement

The Company is party to an Uncommitted Receivables Purchase Agreement (“Agreement”) with BMO Bank, N.A. (“Bank”), whereby from time-to-time the Company may elect to sell, on a revolving basis, U.S. accounts receivables of certain clients at a discount to the Bank for cash on a limited recourse basis. The maximum amount of receivables that the Company may sell to the Bank at any given time shall not exceed $100 million. The sales of accounts receivable in accordance with the Agreement are reflected as a reduction of Accounts Receivable, net on the Consolidated Balance Sheets. The Company has retained no interest in the sold receivables but retains all collection responsibilities on behalf of the Bank. The discount on the accounts receivable sold will be recorded within Other expense, net in the Consolidated Statements of Comprehensive Income (Loss). The cash proceeds from this Agreement are included in the change in accounts receivable within the operating activities section of the Consolidated Statements of Cash Flow.

The balances related to the Agreement are as follows (in thousands):


	September 30, 2023		December 31, 2022
Total accounts receivable factored	$	91,526	$	99,503

Total amounts collected from clients not yet remitted to Bank	$	6,577	$	13,602

The unremitted cash is restricted cash and is included within Prepaid and other current assets with the corresponding liability included in Accrued expenses on the Consolidated Balance Sheet. The Company has not recorded any servicing assets or liabilities as of September 30, 2023 as the fair value of the servicing arrangement as well as the fees earned were not material to the financial statements.

Effective November 1, 2022, the Company amended the arrangement to modify the list of eligible clients whose accounts receivable may be sold pursuant to the Agreement, and to memorialize the transition from LIBOR to SOFR for discount calculation purposes.

On July 21, 2023, BMO Financial Group completed its acquisition of the Bank from PNB Bank Paribas. The Agreement transitioned with the acquisition and TTEC has no reason to believe that the new owner of the Bank would not wish to continue its business arrangements with the Company.

(5)GOODWILL

Goodwill consisted of the following (in thousands):


							Effect of
	December 31,		Acquisitions /				Foreign		September 30,
	2022		Adjustments		Impairments		Currency		2023

TTEC Digital	$	502,806	$	(2,763)	$	—	$	(1,058)	$	498,985
TTEC Engage		305,039		2,763		—		(387)		307,415
Total	$	807,845	$	—	$	—	$	(1,445)	$	806,400

The Company performs a goodwill impairment assessment on at least an annual basis. The Company conducts its annual goodwill impairment assessment during the fourth quarter, or more frequently, if indicators of impairment exist. During the quarter ended September 30, 2023, the Company assessed whether any such indicators of impairment existed and concluded there were none.

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TTEC HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Effective January 1, 2023, the Company completed a small reorganization of the internal reporting structure and one component from the TTEC Digital segment was reclassified and will now be included in the TTEC Engage segment. Given the modification in reporting units, the Company conducted an impairment test before and after the change, and it was concluded that the fair value of the reporting units exceeded the carrying value on both testing dates. With the change in reporting units, the Company performed a relative fair value valuation calculation to allocate a portion of the Company’s historical goodwill to this specific component, which was then reallocated from the TTEC Digital segment to the TTEC Engage segment.

(6)DERIVATIVES

Cash Flow Hedges

The Company enters into foreign exchange related derivatives. Foreign exchange derivatives entered into consist of forward and option contracts to reduce the Company’s exposure to foreign currency exchange rate fluctuations that are associated with forecasted revenue earned in foreign locations. Upon proper qualification, these contracts are designated as cash flow hedges. It is the Company’s policy to only enter into derivative contracts with investment grade counterparty financial institutions, and correspondingly, the fair value of derivative assets considers, among other factors, the creditworthiness of these counterparties. Conversely, the fair value of derivative liabilities reflects the Company’s creditworthiness. As of September 30, 2023, the Company has not experienced, nor does it anticipate, any issues related to derivative counterparty defaults. The following table summarizes the aggregate unrealized net gain or loss in Accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2023 and 2022 (in thousands and net of tax):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022

Aggregate unrealized net gain/(loss) at beginning of period	$	7,164	$	(5,718)	$	89	$	(40)
Add: Net gain/(loss) from change in fair value of cash flow hedges		(3,764)		(2,004)		2,288		(7,774)
Less: Net (gain)/loss reclassified to earnings from effective hedges		989		(1,276)		2,012		(1,184)
Aggregate unrealized net gain/(loss) at end of period	$	4,389	$	(8,998)	$	4,389	$	(8,998)

The Company’s foreign exchange cash flow hedging instruments as of September 30, 2023 and December 31, 2022 are summarized as follows (amounts in thousands). All hedging instruments are forward contracts.


	Local
	Currency	U.S. Dollar			% Maturing		Contracts
	Notional	Notional			in the next		Maturing
As of September 30, 2023	Amount	Amount			12 months		Through
Canadian Dollar	5,250	$	3,893		100.0	%	September 2024
Philippine Peso	8,466,000		150,988	⁽¹⁾	57.7	%	July 2026
Mexican Peso	863,000		38,700		60.8	%	April 2026
		$	193,581

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TTEC HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)


	Local
	Currency	U.S. Dollar
	Notional	Notional
As of December 31, 2022	Amount	Amount
Canadian Dollar	12,000	$	9,177
Philippine Peso	8,617,000		157,855	⁽¹⁾
Mexican Peso	1,024,500		44,690
		$	211,722

(1)	Includes contracts to purchase Philippine pesos in exchange for New Zealand dollars and Australian dollars, which are translated into equivalent U.S. dollars on September 30, 2023 and December 31, 2022.

Fair Value Hedges

The Company enters into foreign exchange forward contracts to economically hedge against foreign currency exchange gains and losses on certain receivables and payables of the Company’s foreign operations. Changes in the fair value of derivative instruments designated as fair value hedges are recognized in earnings in Other income (expense), net. As of September 30, 2023 and December 31, 2022 the total notional amounts of the Company’s forward contracts used as fair value hedges were $76.4 million and $80.8 million, respectively.

Derivative Valuation and Settlements

The Company’s derivatives as of September 30, 2023 and December 31, 2022 were as follows (in thousands):


	September 30, 2023
	Designated		Not Designated
	as Hedging		as Hedging
Designation:	Instruments		Instruments
	Foreign		Foreign
Derivative contract type:	Exchange		Exchange
Derivative classification:	Cash Flow		Fair Value

Fair value and location of derivative in the Consolidated Balance Sheet:
Prepaids and other current assets	$	7,003	$	72
Other long-term assets		2,683		—
Other current liabilities		(3,184)		(419)
Other long-term liabilities		(565)		—
Total fair value of derivatives, net	$	5,937	$	(347)

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TTEC HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)


	December 31, 2022
	Designated		Not Designated
	as Hedging		as Hedging
Designation:	Instruments		Instruments
	Foreign		Foreign
Derivative contract type:	Exchange		Exchange
Derivative classification:	Cash Flow		Fair Value

Fair value and location of derivative in the Consolidated Balance Sheet:
Prepaids and other current assets	$	4,001	$	281
Other long-term assets		3,019		—
Other current liabilities		(5,157)		(76)
Other long-term liabilities		(1,748)		—
Total fair value of derivatives, net	$	115	$	205

The effects of derivative instruments on the Consolidated Statements of Comprehensive Income (Loss) for the three months ended September 30, 2023 and 2022 were as follows (in thousands):


	Three Months Ended September 30,
	2023		2022

	Designated as Hedging
Designation:	Instruments
Derivative contract type:	Foreign Exchange
Derivative classification:	Cash Flow

Amount of gain or (loss) recognized in Other comprehensive income (loss) - effective portion, net of tax	$	989	$	(1,276)

Amount and location of net gain or (loss) reclassified from Accumulated OCI to income - effective portion:
Revenue	$	1,336	$	(1,724)


	Three Months Ended September 30,
	2023		2022

Designation:	Not Designated as Hedging Instruments
Derivative contract type:	Foreign Exchange
Derivative classification:	Fair Value

Amount and location of net gain or (loss) recognized in the Consolidated Statement of Comprehensive Income (Loss):
Other income (expense), net	$	(369)	$	15

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TTEC HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The effects of derivative instruments on the Consolidated Statements of Comprehensive Income (Loss) for the nine months ended September 30, 2023 and 2022 were as follows (in thousands):


	Nine Months Ended September 30,
	2023		2022

	Designated as Hedging
Designation:	Instruments
Derivative contract type:	Foreign Exchange
Derivative classification:	Cash Flow

Amount of gain or (loss) recognized in Other comprehensive income (loss) - effective portion, net of tax	$	2,012	$	(1,184)

Amount and location of net gain or (loss) reclassified from Accumulated OCI to income - effective portion:
Revenue	$	2,719	$	(1,598)


	Nine Months Ended September 30,
	2023		2022

Designation:	Not Designated as Hedging Instruments
Derivative contract type:	Foreign Exchange
Derivative classification:	Fair Value

Amount and location of net gain or (loss) recognized in the Consolidated Statement of Comprehensive Income (Loss):
Other income (expense), net	$	1,017	$	273

(7)FAIR VALUE

The authoritative guidance for fair value measurements establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires that the Company maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, similar assets and liabilities in markets that are not active or can be corroborated by observable market data.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The following presents information as of September 30, 2023 and December 31, 2022 for the Company’s assets and liabilities required to be measured at fair value on a recurring basis, as well as the fair value hierarchy used to determine their fair value.

Accounts Receivable and Payable - The amounts recorded in the accompanying balance sheets approximate fair value because of their short-term nature.

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TTEC HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Investments – The Company measures investments, including cost and equity method investments, at fair value on a nonrecurring basis when they are deemed to be other-than-temporarily impaired. The fair values of these investments are determined based on valuation techniques using the best information available, and may include market observable inputs, and discounted cash flow projections. An impairment charge is recorded when the cost of the investment exceeds its fair value and this condition is determined to be other-than-temporary.

Debt - The Company’s debt consists primarily of the Company’s Credit Facility, which permits floating-rate borrowings based upon the current Prime Rate or SOFR plus a credit spread as determined by the Company’s leverage ratio calculation (as defined in the Credit Agreement). As of September 30, 2023 and December 31, 2022, the Company had $964.0 million and $960.0 million, respectively, of borrowings outstanding under the Credit Facility. During the third quarter of 2023 outstanding borrowings accrued interest at an average rate of 6.9% per annum, excluding unused commitment fees. The amounts recorded in the accompanying Balance Sheets approximate fair value due to the variable nature of the debt based on Level 2 inputs.

Derivatives - Net derivative assets (liabilities) are measured at fair value on a recurring basis. The portfolio is valued using models based on market observable inputs, including both forward and spot foreign exchange rates, interest rates, implied volatility, and counterparty credit risk, including the ability of each party to execute its obligations under the contract. As of September 30, 2023, credit risk did not materially change the fair value of the Company’s derivative contracts.

The following is a summary of the Company’s fair value measurements for its net derivative assets (liabilities) as of September 30, 2023 and December 31, 2022 (in thousands):

As of September 30, 2023


	Fair Value Measurements Using
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		At Fair Value
Cash flow hedges	$	—	$	5,937	$	—	$	5,937
Fair value hedges		—		(347)		—		(347)
Total net derivative asset (liability)	$	—	$	5,590	$	—	$	5,590

As of December 31, 2022


	Fair Value Measurements Using
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		At Fair Value
Cash flow hedges	$	—	$	115	$	—	$	115
Fair value hedges		—		205		—		205
Total net derivative asset (liability)	$	—	$	320	$	—	$	320

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TTEC HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following is a summary of the Company’s fair value measurements as of September 30, 2023 and December 31, 2022 (in thousands):

As of September 30, 2023


	Fair Value Measurements Using
	Quoted Prices in				Significant
	Active Markets for		Significant Other		Unobservable
	Identical Assets		Observable Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)
Assets
Derivative instruments, net	$	—	$	—	$	—
Deferred compensation plan asset		28,341		—		—
Contingent consideration		—		—		—
Total assets	$	28,341	$	—	$	—

Liabilities
Derivative instruments, net	$	—	$	5,590	$	—
Contingent consideration		—		—		(880)
Total liabilities	$	—	$	5,590	$	(880)

Redeemable noncontrolling interest	$	—	$	—	$	(4,310)

As of December 31, 2022


	Fair Value Measurements Using
	Quoted Prices in				Significant
	Active Markets for		Significant Other		Unobservable
	Identical Assets		Observable Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)
Assets
Derivative instruments, net	$	—	$	320	$	—
Deferred compensation plan asset		25,046		—		—
Contingent consideration		—		—		5,724
Total assets	$	25,046	$	320	$	5,724

Liabilities
Derivative instruments, net	$	—	$	—	$	—
Contingent consideration		—		—		(5,916)
Total liabilities	$	—	$	—	$	(5,916)

Redeemable noncontrolling interest	$	—	$	—	$	(55,645)

Deferred Compensation Plan — The Company maintains a non-qualified deferred compensation plan structured as a Rabbi trust for certain eligible employees. The plan assets are invested in a variety of equity and bond mutual funds. The deferred compensation asset represents the combined fair value of all the funds based on quoted values and market observable inputs.

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TTEC HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Contingent Consideration - The Company recorded contingent consideration payable related to the acquisition of Faneuil that closed in 2022. The contingent payables for Faneuil were calculated using a Monte Carlo simulation including a discount rate of 19.3%. The measurements were based on significant inputs not observable in the market. The Company records interest expense each period using the effective interest method until the future value of these contingent payments reaches the expected total future value.

During the third and fourth quarters of 2022, and the first, second and third quarters of 2023, fair value adjustments of a $2.4 million benefit, a $0.5 million benefit, $0.6 million expense, $1.7 million expense and $0.1 million expense, respectively, were recorded related to fair value adjustments of the estimated contingent payments associated with the Faneuil acquisition based on updated discount factors, the passage of time, updated EBITDA estimates and a modification to the agreement (see Note 2) for one contract, and a complete reduction for the second contract as it was not awarded to the Company. The fair value adjustment benefits(expenses) were included in Other income (expense) in the Consolidated Statements of Comprehensive Income (Loss).

Contingent Receivables – The Company recorded a contingent receivable related to the Faneuil acquisition. During the third and fourth quarters of 2022, and the first and second quarters of 2023, the Company recorded fair value adjustments for the receivable based on current information which caused the receivable to decrease, and a $4.4 million expense, a $0.2 million expense, a $2.5 million expense, and a $1.9 million expense, respectively, were included in Other income (expense), net in the Consolidated Statements of Comprehensive Income (Loss).

A rollforward of the activity in the Company’s fair value of the contingent consideration payable is as follows (in thousands):


							Imputed
	December 31,						Interest /		September 30,
	2022		Acquisitions		Payments		Adjustments		2023

Faneuil	$	(5,916)	$	—	$	7,400	$	(2,364)	$	(880)
Total	$	(5,916)	$	—	$	7,400	$	(2,364)	$	(880)

A rollforward of the activity in the Company’s fair value of the contingent consideration receivable is as follows (in thousands):


							Imputed
	December 31,						Interest /		September 30,
	2022		Acquisitions		Payments		Adjustments		2023

Faneuil	$	5,724	$	—	$	(1,343)	$	(4,381)	$	—
Total	$	5,724	$	—	$	(1,343)	$	(4,381)	$	—

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TTEC HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

(8)IMPAIRMENT OF ASSETS

During each of the periods presented, the Company evaluated the recoverability of its leasehold improvement assets at certain customer engagement centers, building and land assets, as well as all internally developed software projects. An asset group is considered to be impaired when the anticipated undiscounted future cash flows of its asset group is estimated to be less than the asset group’s carrying value. The amount of impairment recognized is the difference between the carrying value of the asset group and its fair value. To determine fair value, the Company used Level 3 inputs in its discounted cash flows analysis. Assumptions included the amount and timing of estimated future cash flows and assumed discount rates. During the three and nine months ended September 30, 2023, the Company recognized impairment losses, net related to leasehold improvements assets, right of use lease assets, internally developed software and certain computer equipment of $4.1 million and $11.1 million, respectively, across the TTEC Digital and TTEC Engage segments.

(9)INCOME TAXES

The Company accounts for income taxes in accordance with the accounting literature for income taxes, which requires recognition of deferred tax assets and liabilities for the expected future income tax consequences of transactions that have been included in the Consolidated Financial Statements. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using tax rates in effect for the year in which the differences are expected to reverse. Quarterly, the Company assesses the likelihood that its net deferred tax assets will be recovered. Based on the weight of all available evidence, both positive and negative, the Company records a valuation allowance against deferred tax assets when it is more-likely-than-not that a future tax benefit will not be realized. The Company’s selection of an accounting policy with respect to both the global intangible low taxed foreign income (“GILTI”) and base erosion and anti-abuse tax (“BEAT”) rules is to compute the related taxes in the period the entity becomes subject to either GILTI or BEAT.

As of September 30, 2023, the Company had $44.5 million of net deferred tax assets (after a $34.0 million valuation allowance) and a net deferred tax asset of $41.2 million (after deferred tax liabilities of $3.3 million) related to the United States and international tax jurisdictions whose recoverability is dependent upon future profitability.

The effective tax rate for the three and nine months ended September 30, 2023 was 74.7% and 42.2%, respectively. The effective tax rate for the three and nine months ended September 30, 2022 was 15.2% and 17.7%, respectively.

The Company’s U.S. income tax returns filed for the tax years ending December 31, 2017 to present, remain open tax years. The Company has been notified of the intent to audit or is currently under audit of income taxes for the United States for tax year 2017 and 2018, the Philippines for tax year 2020, the state of California in the United States for tax years 2017 and 2018, the State of Illinois in the United States for tax year 2020, Canada for tax year 2021, and India for tax years 2017 through 2022. Although the outcome of examinations by taxing authorities are always uncertain, it is the opinion of management that the resolution of these audits will not have a material effect on the Company’s Consolidated Financial Statements.

When there is a change in judgment concerning the recovery of deferred tax assets in future periods, a valuation allowance is recorded into earnings during the quarter in which the change in judgment occurred. In the first, second and third quarters of 2022, $1.3 million, $0.6 million and $2.5 million, respectively, were released from the valuation allowance for assets that are expected to be recognized in the future. During the first, second and third quarters of 2023, a $1.3 million, a $3.1 million and a $4.4 million valuation allowance were recorded, respectively, for assets that are not expected to be recovered in future periods. Additionally, during the third quarter 2023, a valuation allowance in the amount of $1.7 million was released for assets now expected to be recovered in future periods.

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TTEC HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The Company has been granted “Tax Holidays” as an incentive to attract foreign investment by the governments of the Philippines and Costa Rica. Generally, a Tax Holiday is an agreement between the Company and a foreign government under which the Company receives certain tax benefits in that country, such as exemption from taxation on profits derived from export-related activities. In the Philippines, the Company has been granted multiple agreements under local laws which result in an overall reduced tax rate. These incentives have varying benefit year over year and expire at various times beginning in 2030. The aggregate benefit to income tax expense for the three months ended September 30, 2023 and 2022 was approximately $0.8 million and $0.3 million, respectively, which had an impact on diluted net income per share of $0.02 and $0.01, respectively. The aggregate benefit to income tax expense for the nine months ended September 30, 2023 and 2022 was approximately $1.8 million and $1.3 million, respectively, which had an impact on diluted net income per share of $0.04 and $0.03, respectively.

(10)COMMITMENTS AND CONTINGENCIES

Credit Facility

On November 23, 2021, the Company entered into a Sixth Amendment to the Amended and Restated Credit Agreement (the “Credit Agreement”) originally dated June 3, 2013, (collectively, the “Credit Facility”) to convert the $300 million term loan included in the total Credit Facility commitments, that was previously agreed on March 25, 2021 as part of the Fifth Amendment to the Credit Agreement, into a $1.5 billion senior secured revolving Credit Facility with a syndicate of lenders led by Wells Fargo, National Association, as agent, swingline and fronting lender. The Credit Facility matures on November 23, 2026.

On April 3, 2023, the Company entered into a Seventh Amendment to the Credit Agreement which replaces the use of LIBOR with SOFR as of the date of the amendment, thus will affect the interest rates paid for a portion of the Credit Facility starting in the second quarter of 2023.

The maximum commitment under the Credit Facility is $1.5 billion in the aggregate, if certain conditions are satisfied. The Credit Facility commitment fees are payable to the lenders in an amount equal to the unused portion of the Credit Facility multiplied by a rate per annum as determined by reference to the Company’s net leverage ratio. The Credit Agreement contains customary affirmative, negative, and financial covenants. The Credit Agreement permits accounts receivable factoring up to the greater of $100 million or 25 percent of the average book value of all accounts receivable over the most recent twelve-month period. The Credit Agreement also permits the utilization of up to $100 million of limits within the Credit Facility for letters of credit to be used in the business.

As defined in the Credit Agreement, base rate loans bear interest at a rate equal to the highest of (a) the prime rate, (b) the federal funds rate plus 0.50%, or (c) SOFR in effect on such day plus 1.0%. Base rate loans shall be based on the base rate, plus the applicable credit margin which ranges from 0% to 0.875% based on the Company’s net leverage ratio. SOFR loans bear interest at a rate equal to the applicable spread adjusted SOFR plus applicable credit margin which ranges from 1.0% to 1.875% based on the Company’s net leverage ratio. Alternative currency loans (not denominated in U.S. Dollars) bear interest at rates applicable to their respective currencies.

Letter of credit fees are one eighth of 1% of the stated amount of the letter of credit on the date of issuance, renewal or amendment, plus an annual fee equal to the borrowing margin for SOFR loans.

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TTEC HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The Company primarily utilizes its Credit Facility to fund working capital, general operations, dividends and other strategic activities, such as the acquisitions described in Note 2. As of September 30, 2023 and December 31, 2022, the Company had borrowings of $964.0 million and $960.0 million, respectively, under its Credit Facility, and its average daily utilization was $1,057.6 million and $1,023.6 million for the nine months ended September 30, 2023 and 2022, respectively. Based on the current level of availability based on the covenant calculations, the Company’s remaining borrowing capacity was approximately $215 million as of September 30, 2023. As of September 30, 2023, the Company was in compliance with all covenants and conditions under its Credit Agreement.

Letters of Credit

As of September 30, 2023, outstanding letters of credit under the Credit Facility totaled $0.2 million and primarily guaranteed workers’ compensation and other insurance related obligations. As of September 30, 2023, letters of credit and contract performance guarantees issued outside of the Credit Agreement totaled $0.3 million.

Guarantees

Indebtedness under the Credit Agreement is guaranteed by certain of the Company’s present and future domestic subsidiaries.

Legal Proceedings

From time to time, the Company has been involved in legal actions, both as plaintiff and defendant, which arise in the ordinary course of business. The Company accrues for exposures associated with such legal actions to the extent that losses are deemed both probable and reasonably estimable. To the extent specific reserves have not been made for certain legal proceedings, their ultimate outcome, and consequently, an estimate of possible loss, if any, cannot reasonably be determined at this time.

Based on currently available information and advice received from counsel, the Company believes that the disposition or ultimate resolution of any current legal proceedings, except as otherwise specifically reserved for in its financial statements, will not have a material adverse effect on the Company’s financial position, cash flows or results of operations.

(11)DEFERRED REVENUE AND REMAINING PERFORMANCE OBLIGATIONS

Revenue recognized for the nine months ended September 30, 2023 from amounts included in deferred revenue as of December 31, 2022 was $230.0 million. Revenue recognized for the nine months ended September 30, 2022 from amounts included in deferred revenue as of December 31, 2021 was $196.5 million.

Remaining performance obligations (RPO) represent the amount of contracted future revenue that has not yet been recognized, including both deferred revenue and non-cancelable contracted amounts that will be invoiced and recognized as revenue in future periods. The Company’s RPO excludes performance obligations from on-demand arrangements as there are no minimum purchase commitments associated with these arrangements, and certain time and materials contracts that are billed in arrears.

As of September 30, 2023, the Company’s RPO was $337.0 million, which will be delivered and recognized within the next nine years. However, the amount and timing of revenue recognition are generally driven by customer consumption, which can extend beyond the original contract term in cases where customers are permitted to roll over unused capacity to future periods, generally upon the purchase of additional capacity at renewal.

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TTEC HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

(12)ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table presents changes in the accumulated balance for each component of Other comprehensive income (loss), including current period other comprehensive income (loss) and reclassifications out of accumulated other comprehensive income (loss) (in thousands):


	Foreign
	Currency		Derivative
	Translation		Valuation, Net		Other, Net
	Adjustment		of Tax		of Tax		Totals

Accumulated other comprehensive income (loss) at December 31, 2021	$	(95,547)	$	(40)	$	(2,839)	$	(98,426)

Other comprehensive income (loss) before reclassifications		(44,944)		(7,774)		627		(52,091)
Amounts reclassified from accumulated other comprehensive income (loss)		—		(1,184)		(203)		(1,387)
Net current period other comprehensive income (loss)		(44,944)		(8,958)		424		(53,478)

Accumulated other comprehensive income (loss) at September 30, 2022	$	(140,491)	$	(8,998)	$	(2,415)	$	(151,904)

Accumulated other comprehensive income (loss) at December 31, 2022	$	(123,734)	$	89	$	(2,656)	$	(126,301)

Other comprehensive income (loss) before reclassifications		18,362		2,288		566		21,216
Amounts reclassified from accumulated other comprehensive income (loss)		301		2,012		(267)		2,046
Net current period other comprehensive income (loss)		18,663		4,300		299		23,262

Accumulated other comprehensive income (loss) at September 30, 2023	$	(105,071)	$	4,389	$	(2,357)	$	(103,039)

The following table presents the classification and amount of the reclassifications from Accumulated other comprehensive income (loss) to the Statement of Comprehensive Income (Loss) (in thousands):


					Statement of
	For the Three Months Ended September 30,				Comprehensive Income
	2023		2022		(Loss) Classification

Derivative valuation
Gain on foreign currency forward exchange contracts	$	1,336	$	(1,724)	Revenue
Tax effect		(347)		448	Provision for income taxes
	$	989	$	(1,276)	Net income (loss)

Other
Actuarial loss on defined benefit plan	$	(69)	$	(75)	Cost of services
Tax effect		7		8	Provision for income taxes
	$	(62)	$	(67)	Net income (loss)

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TTEC HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)


					Statement of
	For the Nine Months Ended September 30,				Comprehensive Income
	2023		2022		(Loss) Classification

Derivative valuation
Gain on foreign currency forward exchange contracts	$	2,719	$	(1,598)	Revenue
Tax effect		(707)		414	Provision for income taxes
	$	2,012	$	(1,184)	Net income (loss)

Other
Actuarial loss on defined benefit plan	$	(297)	$	(226)	Cost of services
Tax effect		30		23	Provision for income taxes
	$	(267)	$	(203)	Net income (loss)

(13)WEIGHTED AVERAGE SHARE COUNTS

The following table sets forth the computation of basic and diluted shares for the periods indicated (in thousands):


	Three Months Ended September 30,		Nine Months Ended September 30,
	2023	2022	2023	2022

Shares used in basic earnings per share calculation	47,415	47,207	47,305	47,087
Effect of dilutive securities:
Restricted stock units	73	107	104	258
Performance-based restricted stock units	—	—	8	9
Total effects of dilutive securities	73	107	112	267
Shares used in dilutive earnings per share calculation	47,488	47,314	47,417	47,354

For the three months ended September 30, 2023 and 2022, there were Restricted Stock Units (“RSUs”) of 950 thousand and 542 thousand, respectively, outstanding which were excluded from the computation of diluted net income per share because the effect would have been anti-dilutive. For the nine months ended September 30, 2023 and 2022, there were RSUs of 992 thousand and 377 thousand, respectively, outstanding which were excluded from the computation of diluted net income per share because the effect would have been anti-dilutive.

(14)EQUITY-BASED COMPENSATION PLANS

All equity-based awards to employees are recognized in the Consolidated Statements of Comprehensive Income (Loss) at the fair value of the award on the grant date.

The following tables present the total equity-based compensation expense (stock options and RSUs) for the three and nine months ended September 30, 2023 and 2022 (in thousands):


	Three Months Ended September 30,
	2023		2022

Equity-based compensation expense recognized in Cost of services	$	3,009	$	2,155
Equity-based compensation expense recognized in Selling, general and administrative		3,599		3,202
Total equity-based compensation expense	$	6,608	$	5,357

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TTEC HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)


	Nine Months Ended September 30,
	2023		2022

Equity-based compensation expense recognized in Cost of services	$	7,407	$	5,390
Equity-based compensation expense recognized in Selling, general and administrative		9,003		7,850
Total equity-based compensation expense	$	16,410	$	13,240

Restricted Stock Unit Grants

During the nine months ended September 30, 2023 and 2022, the Company granted 587,490 and 365,515 RSUs, respectively, to new and existing employees, which vest over four to five years. The Company recognized compensation expense related to RSUs of $6.5 million and $15.8 million for the three and nine months ended September 30, 2023, respectively. The Company recognized compensation expense related to RSUs of $5.0 million and $12.4 million for the three and nine months ended September 30, 2022, respectively. As of September 30, 2023, there was approximately $41.2 million of total unrecognized compensation cost (including the impact of expected forfeitures) related to RSUs granted under the Company’s equity plans.

Performance Based Restricted Stock Unit Grants

During 2020, the Company awarded Performance Restricted Stock Units (“PRSUs“) that are subject to service and performance vesting conditions. If defined minimum targets are met, the annual value of the PRSUs issued will be between $0.2 million and $2.0 million and vest immediately. If the defined minimum targets are not met, then no shares will be issued. The number of shares awarded are based on the Company’s annual revenue and adjusted operating income for the fiscal years 2021 and 2022. Each fiscal year’s revenue and adjusted operating income will determine the award amount. The Company recognized compensation expense related to the 2020 PRSUs of $0.0 million and $0.1 million, respectively, for the three and nine months ended September 30, 2023, The Company recognized compensation expense related to the 2020 PRSUs of $0.3 million and $0.8 million, respectively, for the three and nine months ended September 30, 2022.

During 2021, the Company awarded PRSUs that are subject to service and performance vesting conditions. If defined minimum targets are met, the annual value of the PRSUs issued will be between $1.2 million and $4.9 million and vest immediately in 2024. If the defined minimum targets are not met, then no shares will be issued. The number of shares that will be awarded will be based on the Company’s annual revenue and adjusted operating income for the fiscal year 2023. The Company recognized compensation expense related to the 2021 PRSUs of $0.1 million and $0.5 million for the three and nine months ended September 30, 2023, respectively.

During 2022, the Company made awards of two different PRSU programs that are subject to service and performance vesting conditions: ordinary course annual PRSUs and one-time stretch financial goals PRSUs. For the ordinary course annual PRSUs, if defined minimum targets are met, the annual value of the PRSUs issued will be between $0.9 million and $3.5 million and vest immediately in March 2025. If the defined minimum targets are not met, then no shares will be issued. The number of shares that will be awarded will be based on the Company’s annual revenue and adjusted EBITDA for the fiscal year 2024. For the one-time stretch financial goals PRSUs, if defined minimum targets at TTEC Engage and TTEC Digital business segments’ levels are met, the number of shares of PRSUs issued will be between 0.0 million shares and 0.5 million shares and will vest immediately in March 2026. If the defined minimum targets are not met, then no shares will be issued. The number of shares to be awarded will be based on the TTEC Engage and TTEC Digital business segments’ annual revenue and adjusted EBITDA for the fiscal year 2025. Expense for these awards will begin at the start of the requisite service period, beginning January 1, 2024 and January 1, 2025, respectively.

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TTEC HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

During 2023, the Company awarded PRSUs that are subject to service and performance vesting conditions. If defined minimum targets are met, the annual value of the PRSUs issued will be between zero and $8.9 million and vest immediately. If the defined minimum targets are not met, then no shares will be issued. The number of shares that will be awarded will be based on the Company’s annual revenue and adjusted EBITDA for the fiscal year 2025. Expense for these awards will begin at the start of the requisite service period, beginning January 1, 2025.

(15)RELATED PARTY TRANSACTIONS

The Company entered into an agreement under which Avion, LLC (“Avion”) and Airmax LLC (“Airmax”) provide certain aviation flight services as requested by the Company. Such services include the use of an aircraft and flight crew. Kenneth D. Tuchman, Chairman and Chief Executive Officer of the Company, has an indirect 100% beneficial ownership interest in Avion and Airmax. During the nine months ended September 30, 2023 and 2022, the Company expensed $0.8 million and $0.4 million, respectively, to Avion and Airmax for services provided to the Company. There was $104 thousand in payments due and outstanding to Avion and Airmax as of September 30, 2023.

Ms. Michelle Swanback, President of the Company, is a member of the board of directors of WTW (NYSE: WTW) (fka “Willis Towers Watson”), that provides compensation consulting and insurance brokerage services to the Company. During the nine months ended September 30, 2023 and 2022, the Company expensed $2.8 million and $2.2 million, respectively, for these services.

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CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995, relating to our operations, expected financial position, results of operation, and other business matters that are based on our current expectations, assumptions, and projections with respect to the future, and are not a guarantee of performance. In this report, when we use words such as “may,” “believe,” “plan,” “will,” “anticipate,” “estimate,” “expect,” “intend,” “project,” “would,” “could,” “target,” or similar expressions, or when we discuss our strategy, plans, goals, initiatives, or objectives, we are making forward-looking statements.

We caution you not to rely unduly on any forward-looking statements. Actual results may differ materially from those expressed in the forward-looking statements, and you should review and consider carefully the risks, uncertainties and other factors that affect our business and may cause such differences as outlined in Part II. Item 1A Risk Factors of this report and Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022. Important factors that could cause our actual results to differ materially from those indicated in the forward looking statements include, among others: the risks related to our business operations and strategy in a competitive market; our ability to innovate and introduce disruptive technologies that would allow us to maintain and grow our market share (e.g., effective adoption of artificial intelligence into our solutions); risks that may arise in connection with events outside of our control (e.g. macroeconomic conditions, geopolitical tensions, outbreaks of infectious diseases); risks inherent in a disruption and cybersecurity of our information technology systems, including as a result of criminal or other unauthorized activity, which can impact our ability to consistently deliver uninterrupted service to our clients or unauthorized access to data, any of which may result in government investigations and enforcement actions, and private legal actions; risks inherent in the delivery of services by employees working from home; our ability to attract and retain qualified personnel at a price point that we can afford and our clients are willing to pay; our M&A activity, including our ability to properly integrate acquired businesses; our reliance on a relatively small number of TTEC Engage clients to generate the majority of our revenue and our reliance on technology partners to generate a large portion of TTEC Digital’s revenue; changes in laws and regulations that impact our and our clients’ businesses, including rapidly changing data privacy and data protection laws, healthcare business regulations, and financial and public sector specific regulations; the cost of labor and data privacy litigation and other class action litigation; the risks related to our international operations including the stress that geographic expansion may have on our business, the impact if we are unable to expand geographically to meet our clients’ demand or our clients’ reluctance to expand the delivery of their services in certain parts of the world due to conflict or other disruptions; and risks inherent in our equity structure including our controlling shareholder risk, and Delaware choice of dispute resolution risks.

Our forward-looking statements speak only as of the date that this report is filed with the United States Securities and Exchange Commission (“SEC”). We undertake no obligation to update them, except as may be required by applicable law. Although we believe that our forward-looking statements are reasonable, they depend on many factors outside of our control and we can provide no assurance that they will prove to be correct.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Executive Summary

TTEC Holdings, Inc. (“TTEC”, “the Company”, “we”, “our” or “us”; pronounced “T-TEC”) is a leading global customer experience (“CX”) as a service (“CXaaS”) partner for many of the world’s most iconic companies, disruptive hypergrowth brands, and large public sector agencies. TTEC designs, builds, orchestrates, and delivers seamless digitally enabled customer experiences that increase brand value, customer loyalty, revenue, and profitability through personalized, outcome-based interactions. We help clients improve their customer satisfaction while lowering their total cost to serve by combining innovative digital solutions with service capabilities that deliver a frictionless CX across numerous real-time digital and live interaction channels and different phases of the customer lifecycle.

The Company operates and reports its financial results of operation through two business segments: TTEC Digital and TTEC Engage.

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TTEC Digital is one of the largest pure-play CX technology service providers with expertise in CX strategy, digitization, analytics, process optimization, system integration, cloud-based technology solutions, and transformation enabled by our proprietary CX applications and technology partnerships. TTEC Digital designs, builds, and operates robust digital experiences for clients and their customers through the contextual integration and orchestration of customer relationship management (“CRM”), data, analytics, CXaaS technology, and intelligent automation to ensure high-quality, scalable CX outcomes.

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TTEC Digital and TTEC Engage strategically come together under our unified offering, Humanify^® CXaaS, which drives measurable customer results for clients through the delivery of personalized and seamless omnichannel experiences. Our Humanify^® cloud platform provides a fully integrated ecosystem of CX offerings including messaging, AI, machine learning, robotic process automation, analytics, cybersecurity, CRM, knowledge management, journey orchestration, and traditional voice solutions. Our end-to-end CXaaS platform differentiates us from competitors by combining design, strategic consulting, technology, data analytics, process optimization, system integration, and operational excellence along with our decades of industry know-how. This unified offering is value-oriented, outcome-based and delivered to large enterprises, hypergrowth companies and public sector agencies on a global scale.

During 2023, the TTEC global operating platform delivered onshore, nearshore, and offshore services in 20 countries on six continents -- the United States, Australia, Belgium, Brazil, Bulgaria, Canada, Colombia, Costa Rica, Germany, Greece, India, Ireland, Mexico, the Netherlands, New Zealand, the Philippines, Poland, South Africa, Thailand, and the United Kingdom with the help of 64,400 consultants, technologists, and CX professionals.

Our revenue for third quarter 2023 was $603.0 million, approximately $133.3 million, or 22% which came from our TTEC Digital segment and $469.7 million, or 78%, which came from our TTEC Engage segment.

To improve our competitive position in a rapidly changing market and to lead our clients with emerging CX methodologies, we continue to invest in innovation and service offerings for both mainstream and high-growth disruptive businesses, diversifying and strengthening our core customer care services with technology-enabled, outcomes-focused services, data analytics, insights and consulting.

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We also invest to broaden our product and service capabilities, increase our global client base and industry expertise, tailor our geographic footprint to the needs of our clients, and further scale our end-to-end integrated solutions platform. To this end we were highly acquisitive in the last several years, including our acquisition in April 2022 of certain public sector assets of Faneuil, Inc. that included healthcare exchange and transportation services contracts. The acquisition expanded our capabilities in the growing public sector market by adding the building and operating of technology-enabled citizen engagement solutions to our offerings. We also completed an acquisition early in the second quarter of 2021 of a provider of Genesys and Microsoft cloud contact center services.

We have extensive expertise in the healthcare, automotive, national/federal and state and local government, financial services, communications, technology, travel, logistics, media and entertainment, e-tail/retail, and transportation industries. We serve more than 760 diverse clients globally, including many of the world’s iconic brands, Fortune 1000 companies, government agencies, and disruptive growth companies.

Our Integrated Service Offerings and Business Segments

We provide strategic value and differentiation through our two business segments: TTEC Digital and TTEC Engage.

TTEC Digital is one of the largest pure-play CX technology service providers with expertise in CX strategy, digitization, analytics, process optimization, system integration, cloud-based technology solutions, and transformation enabled by our proprietary CX applications and technology partnerships. TTEC Digital designs, builds, and operates robust digital experiences for clients and their customers through the contextual integration and orchestration of CRM, data, analytics, CXaaS technology, and intelligent automation to ensure high-quality, scalable CX outcomes.

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Technology Services: Our technology services design, build, and operate highly scalable, digital omnichannel technology solutions in the cloud, on premise, or hybrid environment, including journey orchestration, automation and AI, knowledge management, and workforce productivity, among others.

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Professional Services: Our management consulting practices deliver customer experience strategy, analytics, process optimization, and system integration, among others.

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Customer Acquisition, Growth, and Retention Services: Our customer growth and acquisition services optimize the buying journeys for acquiring new customers by leveraging technology and analytics to deliver personal experiences that we believe increase the quantity and quality of leads and customers.

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Customer Care, Technology Support, and Order Fulfillment Services: Our customer care, technology support, and order fulfillment services provide turnkey contact center solutions, including digital omnichannel technologies, associate recruiting and training, facilities, and operational expertise to create exceptional customer experiences across all touchpoints.

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Digitally enabled back office and specialty services: Our digital AI operations, and fraud detection and prevention services provide clients with data tagging and annotation capabilities to train and enable AI platforms, community content moderation, and compliance to meet client content standards, and proactive fraud solutions to assist our clients in the detection and prevention of fraud.

Based on our clients’ preference, we provide our services on an integrated cross-business segment and/or on a discrete basis.

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Additional information with respect to our segments and geographic footprint is included in Part I, Item 1. Financial Statements, Note 3 to the Consolidated Financial Statements.

Financial Highlights

In the third quarter of 2023, our revenue increased $10.5 million, or 1.8%, to $603.0 million over the same period in 2022 including an increase of $6.0 million, or 1.1%, due to foreign currency fluctuations. The increase in revenue was comprised of a $17.1 million, or 14.7%, increase for TTEC Digital offset by a decrease of $6.6 million, or 1.4%, for TTEC Engage.

Our third quarter 2023 income from operations decreased $10.2 million, or 28.7%, to $25.4 million or 4.2% of revenue, compared to $35.6 million or 6.0% of revenue in the third quarter of 2022. The decrease in operating income is comprised of a number of factors across the segments. The TTEC Digital operating income increased 48.8% over the same period last year primarily driven by increased revenue, increased offshore footprint in the center for excellence contributing to a healthier margin percentage, one-time product sales, and reductions in overhead expenses. The TTEC Engage operating income decreased 51.2% over the same period last year primarily driven by lower revenue, training costs related to existing programs, geographic expansion, and the impairment of real estate leases.

Income from operations in the third quarter of 2023 and 2022 included $5.5 million and $4.1 million of restructuring charges and asset impairments, respectively.

Our offshore customer experience centers spanning nine countries serve clients based in the U.S. and in other countries with 21,550 workstations, representing 68% of our global delivery capability. Revenue for our TTEC Engage segment provided in these offshore locations represented 32% of our revenue for the third quarter of 2023, as compared to 28% of our revenue for the corresponding period in 2022.

Our seat utilization is defined as the total number of utilized workstations compared to the total number of available production workstations. As of September 30, 2023, the total production workstations for our TTEC Engage segment was 31,600, a net decrease of 2,500 workstations over the same period last year, with an overall capacity utilization 76% versus 72% in the prior year period. This significant improvement was driven by the Company’s site optimization strategy as more and more clients are adopting the @Home operational platform on a permanent basis and a gradual return to sites in certain locations.

Post COVID-19, our clients started to leverage a more diversified geographic footprint and an increased mix of work from home versus brick and mortar seats in comparison to pre-COVID. We will continue to refine our site strategy and capacity as we finalize plans with our clients and prospects.

We plan to continue to selectively retain and grow capacity and expand into new offshore markets, while maintaining appropriate capacity onshore. As we grow our offshore delivery capabilities and our exposure to foreign currency fluctuation increases, we will continue to actively manage this risk via a multi-currency hedging program designed to minimize operating margin volatility.

Recently Issued Accounting Pronouncements

Refer to Part I, Item I, Financial Statements, Note 1 to the Consolidated Financial Statements for a discussion of recently adopted and issued accounting pronouncements.

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of our Financial Condition and Results of Operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses as well as the disclosure of contingent assets and liabilities. We regularly review our estimates and assumptions. These estimates and assumptions, which are based upon historical experience and on various other factors believed to be reasonable under the circumstances, form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Reported amounts and disclosures may have been different had management used different estimates and assumptions or if different conditions had occurred in the periods presented. For further

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information, please refer to the discussion of all critical accounting policies in Note 1 of the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2022.

Results of Operations

Three months ended September 30, 2023 compared to three months ended September 30, 2022

The tables included in the following sections are presented to facilitate an understanding of Management’s Discussion and Analysis of Financial Condition and Results of Operations and present certain information by segment for the three months ended September 30, 2023 and 2022 (amounts in thousands). All inter-company transactions between the reported segments for the periods presented have been eliminated.

TTEC Digital


	Three Months Ended September 30,
	2023			2022			$ Change		% Change
Revenue	$	133,252		$	116,173		$	17,079	14.7	%
Operating Income		11,925			8,015			3,910	48.8	%
Operating Margin		8.9	%		6.9	%

The increase in revenue for the TTEC Digital segment was driven by an increase in recurring revenue offerings and one-time product sales.

The operating income increase is primarily attributable to the higher percentage of offshore delivery and decreased overhead expenses. Operating income as a percentage of revenue increased to 8.9% in the third quarter of 2023 as compared to 6.9% in the prior period. Included in operating income was amortization expense related to acquired intangibles of $4.3 million and $4.4 million for the quarters ended September 30, 2023 and 2022, respectively.

TTEC Engage


	Three Months Ended September 30,
	2023			2022			$ Change		% Change
Revenue	$	469,704		$	476,280		$	(6,576)	(1.4)	%
Operating Income		13,463			27,589			(14,126)	(51.2)	%
Operating Margin		2.9	%		5.8	%

The decrease in revenue for the TTEC Engage segment was due to a net increase of $8.6 million in client programs and a $5.8 million increase due to foreign currency fluctuations offset by a decrease for program completions of $21.0 million.

The operating income decreased primarily attributable to decreased revenue, training costs related to existing programs, incremental growth-oriented investments, geographic expansion, and $4.8 million of restructuring and impairment charges. As a result, operating income as a percentage of revenue decreased to 2.9% in the third quarter of 2023 as compared to 5.8% in the prior period. Included in operating income was amortization expense related to acquired intangibles of $4.6 million and $4.6 million for the quarters ended September 30, 2023 and 2022, respectively.

Interest Income (Expense)

For the three months ended September 30, 2023 interest income increased to $1.3 million from $0.5 million in the same period in 2022. Interest expense increased to $20.3 million during 2023 from $10.6 million during 2022 due to higher utilization of the line of credit and higher interest rates.

Other Income (Expense)

For the three months ended September 30, 2023 Other income (expense), net decreased to income of $0.7 million from income of $3.9 million during the prior year quarter.

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Included in the three months ended September 30, 2023 was a $0.1 million expense related to the fair value adjustments of contingent consideration for the Faneuil acquisition (see Part I. Item 1. Financial Statements, Note 2 to the Consolidated Financial Statements).

Included in the three months ended September 30, 2022 was a gain of $2.0 million due to insurance recovery related to property damages and a net $2.1 million expense related to the fair value adjustments of contingent consideration accruals and receivables for one acquisition.

Income Taxes

The effective tax rate for the three months ended September 30, 2023 was 74.7%. This compares to an effective tax rate of 15.2% for the comparable period of 2022. The effective tax rate for the three months ended September 30, 2023 was influenced by earnings in international jurisdictions currently under an income tax holiday, the distribution of income between the U.S. and international tax jurisdictions and the associated U.S. tax impacts of foreign earnings. After Non-GAAP adjustments, the Company’s normalized tax rate for the third quarter of 2023 was 20.5%.

Nine months ended September 30, 2023 compared to nine months ended September 30, 2022

The tables included in the following sections are presented to facilitate an understanding of Management’s Discussion and Analysis of Financial Condition and Results of Operations and present certain information by segment for the nine months ended September 30, 2023 and 2022 (in thousands). All intercompany transactions between the reported segments for the periods presented have been eliminated.

TTEC Digital


	Nine Months Ended September 30,
	2023			2022			$ Change		% Change
Revenue	$	367,764		$	342,020		$	25,744	7.5	%
Operating Income		19,864			24,971			(5,107)	(20.5)	%
Operating Margin		5.4	%		7.3	%

The increase in revenue for the TTEC Digital segment was driven by increases in the recurring revenue offerings, professional services, and one-time product sales.

The operating income decrease is primarily attributable to continued investments in CX leadership, engineering talent, sales and marketing, product engineering, and $5.3 million of restructuring and impairment charges. These additional expenses more than offset the higher revenue, favorable revenue mix from the growing professional services, higher percentage of offshore delivery, and decreased amortization expense. Operating income as a percentage of revenue decreased to 5.4% for the nine months ended September 30, 2023 as compared to 7.3% in the prior period. Included in operating income was amortization expense related to acquired intangibles of $13.0 million and $15.5 million for the nine months ended September 30, 2023 and 2022, respectively.

TTEC Engage


	Nine Months Ended September 30,
	2023			2022			$ Change		% Change
Revenue	$	1,468,872		$	1,443,409		$	25,463	1.8	%
Operating Income		81,233			94,827			(13,594)	(14.3)	%
Operating Margin		5.5	%		6.6	%

The increase in revenue for the TTEC Engage segment was due to a net increase of $102.9 million in client programs including the acquisition of Faneuil offset by a $0.3 million decrease due to foreign currency fluctuations and a decrease for program completions of $77.1 million.

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Operating income decreased due to the ramp costs for new programs, training costs related to existing programs, incremental growth-oriented investments, geographic expansion, increase in amortization expense, and $10.7 million of restructuring and impairment charges. These were partially offset by the acquisition of Faneuil, other revenue increases, a reduction in total facility costs and a net reimbursement from insurance of $7.3 million from the cybersecurity incident. As a result, operating income as a percentage of revenue decreased to 5.5% for the nine months ended September 30, 2023 as compared to 6.6% in the prior period. Included in operating income was amortization expense related to acquired intangibles of $14.0 million and $12.6 million for the nine months ended September 30, 2023 and 2022, respectively.

Interest Income (Expense)

For the nine months ended September 30, 2023 interest income increased to $3.6 million from $1.0 million in the same period in 2022. Interest expense increased to $56.7 million during 2023 from $20.5 million during 2022 due to higher utilization of the line of credit and higher interest rates.

Other Income (Expense)

For the nine months ended September 30, 2023 Other income (expense), net decreased to net expense of $2.2 million from net income of $11.3 million during the prior year period.

Included in the nine months ended September 30, 2023 was a gain of $4.5 million due to insurance recovery related to property damages and a net $6.9 million expense related to the fair value adjustments of contingent consideration accruals and receivables for one acquisition.

Included in the nine months ended September 30, 2022 was a gain of $4.1 million due to insurance recovery related to property damages and a net $2.1 million expense related to the fair value adjustments of contingent consideration accruals and receivables for one acquisition.

Income Taxes

The effective tax rate for the nine months ended September 30, 2023 was 42.2%. This compared to an effective tax rate of 17.7% for the comparable period of 2022. The effective tax rate for the nine months ended September 30, 2023 was influenced by earnings in international jurisdictions currently under an income tax holiday, the distribution of income between the U.S. and international tax jurisdictions and associated U.S. tax impacts of foreign earnings. After Non-GAAP adjustments, the Company’s normalized tax rate for 2023 was 23.5%.

Liquidity and Capital Resources

Our principal sources of liquidity are our cash generated from operations, our cash and cash equivalents, and borrowings under our Credit Facility. During the nine months ended September 30, 2023, we generated positive operating cash flows of $113.2 million. We believe that our cash generated from operations, existing cash and cash equivalents, and available credit will be sufficient to meet expected operating and capital expenditure requirements for the next 12 months, however, if our access to capital is restricted or our borrowing costs increase, our operations and financial condition could be adversely impacted.

We manage a centralized global treasury function in the United States with a focus on safeguarding and optimizing the use of our global cash and cash equivalents. Our cash is held in the U.S. in U.S. dollars, and outside of the U.S. in U.S. dollars and foreign currencies. We expect to use our cash to fund working capital, global operations, dividends, acquisitions, and other strategic activities. While there are no assurances, we believe our global cash is well protected given our cash management practices, banking partners and utilization of diversified bank deposit accounts and other high quality investments.

We have global operations that expose us to foreign currency exchange rate fluctuations that may positively or negatively impact our liquidity. To mitigate these risks, we enter into foreign exchange forward and option contracts through our cash flow hedging program. Please refer to Part I. Item 3. Quantitative and Qualitative Disclosures About Market Risk, Foreign Currency Risk, for further discussion. We are also exposed to higher interest rates associated with our variable rate debt.

The following discussion highlights our cash flow activities during the nine months ended September 30, 2023 and 2022.

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Cash and Cash Equivalents

We consider all liquid investments purchased within three months of their original maturity to be cash equivalents. Our cash and cash equivalents totaled $151.6 million and $153.4 million as of September 30, 2023 and December 31, 2022, respectively. We diversify the holdings of such cash and cash equivalents considering the financial condition and stability of the counterparty institutions.

We reinvest our cash flows to grow our client base, expand our infrastructure, invest in research and development, for strategic acquisitions and to pay dividends.

Cash Flows from Operating Activities

For the nine months ended September 30, 2023 and 2022, net cash flows provided by operating activities was $113.2 million and $118.8 million, respectively. The decrease is primarily due to a $63.7 million decrease in net cash income from operations offset by a $58.1 million variance in net working capital.

Cash Flows from Investing Activities

For the nine months ended September 30, 2023 and 2022, net cash flows used in investing activities was $54.5 million and $206.8 million, respectively. The decrease was due to a $142.4 million decrease in acquisitions and a $9.8 million decrease in capital expenditures.

Cash Flows from Financing Activities

For the nine months ended September 30, 2023 and 2022, net cash flows (used in)/provided by financing activities was ($71.5) million and $111.8 million, respectively. The change in net cash flows from 2022 to 2023 was primarily due to a $160.0 million net change in the line of credit and an increase of $28.1 million related to payments of contingent consideration offset by a $4.0 million decrease in tax payments related to restricted stock units.

Free Cash Flow

Free cash flow (see “Presentation of Non-GAAP Measurements” below for the definition of free cash flow) increased for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to a decrease in net cash from operations, an increase in working capital and lower capital expenditures. Free cash flow was $58.5 million and $54.2 million for the nine months ended September 30, 2023 and 2022, respectively.

Presentation of Non-GAAP Measurements

Free Cash Flow

Free cash flow is a non-GAAP liquidity measurement. We believe that free cash flow is useful to our investors because it measures, during a given period, the amount of cash generated that is available for debt obligations and investments other than purchases of property, plant and equipment. Free cash flow is not a measure determined by GAAP and should not be considered a substitute for “income from operations,” “net income,” “net cash provided by operating activities,” or any other measure determined in accordance with GAAP. We believe this non-GAAP liquidity measure is useful, in addition to the most directly comparable GAAP measure of “net cash provided by operating activities,” because free cash flow includes investments in operational assets. Free cash flow does not represent residual cash available for discretionary expenditures, since it includes cash required for debt service. Free cash flow also includes cash that may be necessary for acquisitions, investments and other needs that may arise.

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The following table reconciles net cash provided by operating activities to free cash flow for our consolidated results (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net cash (used in) provided by operating activities	$	(31,718)	$	27,542	$	113,231	$	118,813
Less: Purchases of property, plant and equipment		21,768		28,774		54,722		64,564
Free cash flow	$	(53,486)	$	(1,232)	$	58,509	$	54,249

Obligations and Future Capital Requirements

There were no material changes to the Company’s contractual obligations and future capital requirements outside the normal course of business from the date of our 2022 Form 10-K filing on February 28, 2023 through the filing of this report.

Future Capital Requirements

We expect total capital expenditures in 2023 to be between 3.0% and 3.2% of revenue. Approximately 65% of these expected capital expenditures are to support growth in our business and 35% relate to the maintenance for existing assets. The anticipated level of 2023 capital expenditures is primarily driven by new client contracts and the corresponding requirements for additional customer experience center capacity as well as enhancements to our technological infrastructure.

The amount of capital required over the next 12 months will depend on our levels of investment in infrastructure necessary to maintain, upgrade or replace existing assets. Our working capital and capital expenditure requirements could also increase materially in the event of acquisitions or joint ventures, among other factors. These factors could require that we raise additional capital through future debt or equity financing. We can provide no assurance that we will be able to raise additional capital upon commercially reasonable terms acceptable to us.

Client Concentration

During the nine months ended September 30, 2023, one of our clients represented more than 10% of our total revenue. Our five largest clients, collectively, accounted for 34.5% and 34.3% of our consolidated revenue for the three months ended September 30, 2023 and 2022, respectively and 35.1% and 35.3% of our consolidated revenue for the nine months ended September 30, 2023 and 2022, respectively. We have had long-term relationships with our top five TTEC Engage clients, ranging from 17 to 24 years, with all of these clients having completed multiple contract renewals with us. The relative contribution of any single client to consolidated earnings is not always proportional to the relative revenue contribution on a consolidated basis and varies greatly based upon specific contract terms. In addition, clients may adjust business volumes served by us based on their business requirements. We believe the risk of this concentration is mitigated, in part, by the long-term contracts we have with our largest clients. Although certain client contracts may be terminated for convenience by either party, we believe this risk is mitigated, in part, by the service level disruptions and transition/migration costs that would arise for our clients if they terminated our contract for convenience.

Some contracts with our five largest clients expire between 2023 and 2025, but many of our largest clients have multiple contracts with us with different expiration dates for different lines of work. We have historically renewed most of our contracts with our largest clients, but there can be no assurance that future contracts will be renewed or, if renewed, will be on terms as favorable as the existing contracts.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk represents the risk of loss that may impact our consolidated financial position, consolidated results of operations, or consolidated cash flows due to adverse changes in financial and commodity market prices and rates. Market risk also includes credit and non-performance risk by counterparties to our various financial instruments. We are exposed to market risk due to changes in interest rates and foreign currency exchange rates (as measured against the U.S. dollar); as well as credit risk associated with potential non-performance of our counterparty banks. These exposures are directly related to our normal operating and funding activities. We enter into derivative instruments to manage and reduce the impact of currency exchange rate changes, primarily between the U.S. dollar/Philippine peso, the U.S. dollar/Mexican peso, and the Australian dollar/Philippine peso. To mitigate against credit and non-performance risk, it is our policy to only enter into derivative contracts and other financial instruments with investment grade counterparty financial institutions and, correspondingly, our derivative valuations reflect the creditworthiness of our counterparties. As of the date of this report, we have not experienced, nor do we anticipate, any issues related to derivative counterparty defaults.

Interest Rate Risk

The interest rate on our Credit Agreement is variable based upon the Prime Rate and SOFR and, therefore, is affected by changes in market interest rates. As of September 30, 2023, we had $964.0 million of outstanding borrowings under the Credit Agreement. Based upon average outstanding borrowings during the three months ended September 30, 2023, interest accrued at a rate of approximately 6.9% per annum. If the Prime Rate or SOFR increased by 100 basis points, there would be an annualized $1.0 million of additional interest expense per $100.0 million of outstanding borrowing under the Credit Agreement.

Foreign Currency Risk

Our subsidiaries in the Philippines, Mexico, India, Bulgaria and Poland use the local currency as their functional currency for paying labor and other operating costs. Conversely, revenue for these foreign subsidiaries is derived principally from client contracts that are invoiced and collected in U.S. dollars or other foreign currencies. As a result, we may experience foreign currency gains or losses, which may positively or negatively affect our results of operations attributed to these subsidiaries. For the nine months ended September 30, 2023 and 2022, revenue associated with this foreign exchange risk was 19% and 21% of our consolidated revenue, respectively.

In order to mitigate the risk of these non-functional foreign currencies weakening against the functional currencies of the servicing subsidiaries, which thereby decreases the economic benefit of performing work in these countries, we may hedge a portion, though not 100%, of the projected foreign currency exposure related to client programs served from these foreign countries through our cash flow hedging program. While our hedging strategy can protect us from adverse changes in foreign currency rates in the short term, an overall weakening of the non-functional foreign currencies would adversely impact margins in the segments of the servicing subsidiary over the long term.

Cash Flow Hedging Program

To reduce our exposure to foreign currency exchange rate fluctuations associated with forecasted revenue in non-functional currencies, we purchase forward and/or option contracts to acquire the functional currency of the foreign subsidiary at a fixed exchange rate at specific dates in the future. We have designated and account for these derivative instruments as cash flow hedges for forecasted revenue in non-functional currencies.

While we have implemented certain strategies to mitigate risks related to the impact of fluctuations in currency exchange rates, we cannot ensure that we will not recognize gains or losses from international transactions, as this is part of transacting business in an international environment. Not every exposure is or can be hedged and, where hedges are put in place based on expected foreign exchange exposure, they are based on forecasts for which actual results may differ from the original estimate. Failure to successfully hedge or anticipate currency risks properly could adversely affect our consolidated operating results.

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Our cash flow hedging instruments as of September 30, 2023 and December 31, 2022 are summarized as follows (in thousands). All hedging instruments are forward contracts, except as noted.


	Local
	Currency	U.S. Dollar			% Maturing		Contracts
	Notional	Notional			in the next		Maturing
As of September 30, 2023	Amount	Amount			12 months		Through
Canadian Dollar	5,250	$	3,893		100.0	%	September 2024
Philippine Peso	8,466,000		150,988	⁽¹⁾	57.7	%	July 2026
Mexican Peso	863,000		38,700		60.8	%	April 2026
		$	193,581


	Local
	Currency	U.S. Dollar
	Notional	Notional
As of December 31, 2022	Amount	Amount
Canadian Dollar	12,000	$	9,177
Philippine Peso	8,617,000		157,855	⁽¹⁾
Mexican Peso	1,024,500		44,690
		$	211,722

(1)	Includes contracts to purchase Philippine pesos in exchange for New Zealand dollars and Australian dollars, which are translated into equivalent U.S. dollars on September 30, 2023 and December 31, 2022.

The fair value of our cash flow hedges as of September 30, 2023 was assets/(liabilities) (in thousands):


			Maturing in the
	September 30, 2023		Next 12 Months
Canadian Dollar	$	(18)	$	(19)
Philippine Peso		(2,094)		(2,356)
Mexican Peso		8,049		6,194
	$	5,937	$	3,819

Our cash flow hedges are valued using models based on market observable inputs, including both forward and spot foreign exchange rates, implied volatility, and counterparty credit risk. The increase in fair value from December 31, 2022 reflects changes in the currency translation between the U.S. dollar and Mexican peso and U.S. dollar and Philippine pesos.

We recorded net gains/(losses) of $2.7 million and $(1.6) million for settled cash flow hedge contracts and the related premiums for the nine months ended September 30, 2023 and 2022, respectively. These gains were reflected in Revenue in the accompanying Consolidated Statements of Comprehensive Income (Loss). If the exchange rates between our various currency pairs were to increase or decrease by 10% from current period-end levels, we would incur a material gain or loss on the contracts. However, any gain or loss would be mitigated by corresponding increases or decreases in our underlying exposures.

Other than the transactions hedged as discussed above and in Part I, Item 1. Financial Statements, Note 6 to the Consolidated Financial Statements, the majority of the transactions of our U.S. and foreign operations are denominated in their respective local currency. However, transactions are denominated in other currencies from time-to-time. We do not currently engage in hedging activities related to these types of foreign currency risks because we believe them to be insignificant as we endeavor to settle these accounts on a timely basis. For the nine months ended September 30, 2023 and 2022, approximately 14% and 14%, respectively, of revenue was derived from contracts denominated in currencies other than the U.S. dollar. Our results from operations and revenue could be adversely affected if the U.S. dollar strengthens significantly against foreign currencies.

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Fair Value of Debt and Equity Securities

We did not have any investments in marketable debt or equity securities as of September 30, 2023 or December 31, 2022.

ITEM 4. CONTROLS AND PROCEDURES

This report includes the certifications of our Chief Executive Officer (the “CEO”) and Chief Financial Officer (the “CFO”) required by Rule 13a-14 of the Securities Exchange Act of 1934 (the “Exchange Act”). See Exhibits 31.1 and 31.2. This Item 4 includes information concerning the controls and control evaluations referred to in those certifications.

Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to provide reasonable assurance that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

We carried out an evaluation under the supervision and with the participation of management, including the CEO and CFO, of the effectiveness of our disclosure controls and procedures, as of September 30, 2023, the end of the period covered by this Form 10-Q. Based on this evaluation, our CEO and CFO have concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level.

Inherent Limitations of Internal Controls

Our management, including the CEO and CFO, believes that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of internal control are met. Further, the design of internal controls must consider the benefits of controls relative to their costs. Inherent limitations within internal controls include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by unauthorized override of controls. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with associated policies or procedures. While the objective of the design of any system of controls is to provide reasonable assurance of the effectiveness of controls, such design is also based in part upon certain assumptions about the likelihood of future events, and such assumptions, while reasonable, may not take into account all potential future conditions. Thus, even effective internal control over financial reporting can only provide reasonable assurance of achieving their objectives. Therefore, because of the inherent limitations in cost effective internal controls, misstatements due to error or fraud may occur and may not be prevented or detected.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Part I, Item 1. Financial Statements, Note 10 to the Consolidated Financial Statements of this Form 10-Q is hereby incorporated by reference.

ITEM 1A. RISK FACTORS

There were no material changes to the Risk Factors described in Item 1A. Risk Factors included in our Annual Report on Form 10-K for the year ended December 31, 2022.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

In November 2001, our Board of Directors (“Board”) authorized a stock repurchase program with the objective of increasing stockholder returns. The Board periodically authorizes additional increases to the program. The most recent Board authorization to purchase additional common stock occurred in February 2017, whereby the Board increased the program allowance by $25.0 million. Since inception of the program through September 30, 2023, the Board has authorized the repurchase of shares up to a total value of $762.3 million, of which we have purchased 46.1 million shares on the open market for $735.8 million. The Company did not repurchase any of its shares during the three months ended September 30, 2023. As of September 30, 2023 the remaining amount authorized for repurchases under the program was approximately $26.6 million. The stock repurchase program does not have an expiration date.

ITEM 5. OTHER INFORMATION

During the three months ended September 30, 2023, none of the Company's directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted, terminated or modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement, as such terms are defined in Item 408 of Regulation S-K.

ITEM 6. EXHIBITS


Exhibit			Incorporated Herein by Reference
No.		Exhibit Description	Form	Exhibit	Filing Date

10.33*		Form of Indemnification Agreement with Directors and Officers

10.83*		Amendment #1 to Employment Agreement between David Seybold and TTEC Digital, LLC

31.1*		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)

31.2*		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)

32.1*		Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)

32.2*		Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)

101.INS		XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)

101.SCH		XBRL Taxonomy Extension Schema

101.CAL		XBRL Taxonomy Extension Calculation Linkbase

101.DEF		XBRL Taxonomy Extension Definition Linkbase

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101.PRE		XBRL Taxonomy Extension Presentation Linkbase

104		The cover page from TTEC Holdings, Inc’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in Inline XBRL


	*	Filed or furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		TTEC HOLDINGS, INC.
		(Registrant)

Date: November 8, 2023	By:	/s/ Kenneth D. Tuchman
		Kenneth D. Tuchman
		Chairman and Chief Executive Officer

Date: November 8, 2023	By:	/s/ Francois Bourret
		Francois Bourret
		Interim Chief Financial Officer

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TTEC (TTEC) 10-Q2023 Q3 Quarterly report

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