EDGAR 10-K Filing

Company CIK: 1013880
Filing Year: 2024
Filename: 1013880_10-K_2024_0001558370-24-002207.json

---

ITEM 1. BUSINESS
ITEM 1.
BUSINESS
Our Business
Founded in 1983, TTEC Holdings, Inc. (“TTEC”, “the Company”, “we”, “our”, or “us”; pronounced “T-TEC”) is a global customer experience (“CX”) outsourcing partner for marquis and disruptive brands and public sector clients. The Company designs, builds, and operates technology-enabled customer experiences across digital and live interaction channels to help clients increase customer loyalty, revenue, and profitability. By combining digital solutions with data-driven service capabilities, we help clients improve their customer satisfaction while lowering their total cost to serve. As of December 31, 2023, TTEC served over 750 clients across targeted industry verticals including financial services, healthcare, public sector, telecom, technology, media, travel and hospitality, automotive and retail.
TTEC operates through two business segments.
• TTEC Digital is one of the largest CX technology providers and is focused exclusively on the intersection of Contact Center As a Service (CCaaS), Customer Relationship Management (CRM), and Artificial Intelligence (AI) and Analytics. A professional services organization comprised of software engineers, systems architects, data scientists and CX strategists, this segment creates and implements strategic CX transformation roadmaps; sells, operates, and provides managed services for cloud platforms and premise based CX technologies including Amazon Web Services, Cisco, Genesys, Google, and Microsoft; and creates proprietary IP to support industry specific and custom client needs. TTEC Digital serves clients across Enterprise and Small & Medium Sized (SMB) business segments and has a dedicated unit with government technology certifications serving the public sector.
• TTEC Engage provides the digitally enabled CX operational and managed services to support large, complex enterprise clients’ end-to-end customer interactions at scale. Tailored to meet industry specific and business needs, this segment delivers data-driven omnichannel customer care, customer acquisition, growth, and retention services, tech support, trust and safety and back-office solutions. The segment’s technology-enabled delivery model covers the entire associate lifecycle including recruitment, onboarding, training, delivery, workforce management and quality assurance.
TTEC demonstrates its market leadership through strategic collaboration across TTEC Digital and TTEC Engage when there is client demand and fit for our integrated solutions. This partnership is central to our ability to deliver comprehensive and transformational customer experience solutions to our clients, including integrated delivery, go-to-market and innovation for truly differentiated, market leading CX solutions.
During 2023, the combined TTEC Digital and TTEC Engage global operating platform delivered onshore, nearshore and offshore services in 22 countries on six continents -- the United States, Australia, Belgium, Brazil, Bulgaria, Canada, Colombia, Costa Rica, Egypt, Germany, Greece, Honduras, India, Ireland, Mexico, the Netherlands, New Zealand, the Philippines, Poland, South Africa, Thailand, and the United Kingdom - with the help of over 60,000 customer care associates, consultants, technologists, and CX professionals.
Our revenue for fiscal 2023 was $2.463 billion, approximately $487 million, or 20%, which came from our TTEC Digital segment and $1.976 billion, or 80%, 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.
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 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. We also completed an acquisition early in the second quarter of 2021 of a provider of Genesys and Microsoft cloud contact center services, which followed an acquisition in the second half of 2020 of a preferred Amazon Connect cloud contact center service and implementation provider.
We have extensive expertise in the healthcare, automotive, national/federal and state and local government, financial services, communications, technology, travel and logistics, media and entertainment, e-tail/retail, and transportation industries. We serve more than 750 diverse clients globally, including many of the world’s iconic brands, Fortune 1000 companies, public sector clients, and disruptive hypergrowth companies.
Our Industry - Key Emerging Themes
The CX landscape is undergoing a dynamic transformation, fueled by technological advancements and evolving customer expectations.
AI-powered CX: As brands endeavor to integrate artificial intelligence into customer experience, many stumble by failing to apply AI strategically for true personalization and insightful automation.
Cloud Migration and Security Are Board Level Imperatives: In the arena of customer experience, the migration to cloud-based platforms is rapidly becoming a fulcrum for transformation, offering unprecedented scalability, flexibility, and cost efficiency.
Industry Consolidation Driven by a Highly Fragmented Market: The CX market is highly fragmented with no single provider dominating the market.
Enterprise-Level Vendor Consolidation: Multinational corporations are increasingly favoring a consolidation of vendors within the CX domain.
Cybersecurity as a Critical Differentiator: Clients expect their service providers to make investments in sophisticated information security controls to protect CX operating environments where attempts at unauthorized access are common and where expansion of solutions that rely on staff who work remotely increases risks to the stability of service delivery.
Impact Sourcing Boosts Communities and Fuels CX Diversity: The practice of Impact Sourcing, hiring and training talent in underserved communities, is swiftly gaining traction in the domain of customer experience, particularly among discerning Fortune 1000 companies.
Evolving Customer Expectations and Delivery Models: In today's customer experience landscape, evolving customer expectations present a distinct market opportunity for brands that can adeptly navigate and capitalize on evolving customer demands.
Our Growth Strategy
As a leader and innovator in the global customer experience technology services and business process outsourcing (BPO) landscape, our strategy is directed towards sustainable growth in revenue and profitability. Our approach is to leverage our operational excellence in customer engagement with high-margin, technology-infused platforms and managed services. Our strategic imperatives include:
• Deepening Client Relationships
• Targeting Industry Leaders as Clients
• Enhancing Global Sales and Marketing Synergies
• Geographic Market Expansion
• Strategic Acquisitions
• Investment in Tech-Driven Innovation
• Leveraging our Technology Partner Ecosystem
• Delivering with Purpose through Impact Sourcing
By integrating these strategic pillars, we are setting a course to not only lead in the CX BPO sector but also to drive responsible and inclusive growth that benefits all stakeholders.
Our Integrated Service Offerings and Business Segments
TTEC Digital and the CX Technology Services Industry
TTEC Digital buyers are seeking solutions in several areas including cost optimization, migration from outdated legacy platforms to more agile cloud environments, lack of CX talent and expertise and a need for a practical way forward with AI. TTEC Digital takes a technology agnostic approach to these challenges and focuses on designing and delivering solutions specific to each client’s specifications. TTEC Digital enters into strategic partnerships with the leading CX software vendors including Genesys, Microsoft, Cisco, AWS and Google which positions TTEC Digital to support the majority of CX platform requirements.
TTEC Digital’s solutions are built to respond to market needs for both enterprise and small and medium-sized business clients. AI design and delivery capabilities are woven across all four pillars.
• Managed Services: Cloud application and premise support
• CX Consulting: Transformation strategy and design
• CX Analytics: Data science, engineering, and visualization
• IP & Software: Custom software engineering through TTEC Digital’s IP and Software division
The segment has a three-pronged go to market strategy that includes growing existing client relationships, partner channel motions and general market development. In 2023, TTEC Digital expanded its Hyderabad Innovation Studio in India with the goal of continuing to expand its offshore delivery capabilities, and currently approximately 40% of the staff are located in one of several offshore locations.
TTEC Engage and the CX BPO Services Industry
The TTEC Engage segment’s solutions are built to respond to the following market needs for clients.
• Customer Support
• Tech Support
• Revenue Generation and Growth Services
• Trust & Safety
• AI Operations, including data annotation and labeling
• Back-office Support
TTEC Engage goes to market through a vertical approach with customized solutions that include industry specific talent, technology, certifications, and capabilities. For example, in the Banking, Financial Services and Insurance (BFSI) vertical, we support several lines of business with customized offerings for retail banking, online banking, credit card, property and casualty and loans. In healthcare, the segment supports care, technical support, revenue generation and back-office capabilities to meet the needs of payer, provider, clinical and pharma clients.
Our Competitive Strengths
Approach to Next-Generation Customer Engagement
We tailor our services to meet the diverse needs of our clients, providing both comprehensive, cross-segment integrated solutions and specialized, discrete engagements. Detailed insights into our operational segments and global reach are included in Part II, Item 8. Financial Statements and Supplementary Data.
Our stature as an industry trailblazer in customer engagement is underpinned by an innovative strategy and a forward-looking vision. Our strengths crystallize in the following areas:
• AI-Driven Technology Infrastructure: Our state-of-the-art technology infrastructure and global data center network unite to form a powerful foundation for AI-driven solutions.
• Deep Industry Expertise: Our competitive advantage is further enhanced by our deep industry expertise, which allows us to tailor solutions that are not only technologically advanced but also intricately aligned with the specific nuances and regulatory requirements of the industries we serve.
• Strategic Technology Partnerships: Our robust partner ecosystem includes key players in digital channels, enhancing our ability to deliver efficient, high-impact personalized customer experiences.
• Globally Deployed Operating Best Practices: We can deliver a consistent, scalable, high-quality experience to our clients' customers from any of our 70 global customer delivery centers and geographically disbursed work from home associate base.
• Innovative Talent Development and Impact Sourcing: Our talent development strategy seamlessly merges cutting-edge innovation with a commitment to social responsibility.
Clients
We develop long-term relationships with clients globally, including many of the worlds’ iconic brands, Fortune 1000 companies, public sector agencies, and hypergrowth companies. These organizations are in customer intensive industries or sectors, whose complexities and customer focus require a partner that can quickly design and build integrated technology and data-enabled services, often on a global scale. In 2023, our top five and 10 clients represented 36% and 50% of total revenue, respectively. In early 2024, one of our larger financial services clients notified us that it is exiting one of the lines of business that we support.
In several of our offerings across TTEC Digital and TTEC Engage, we enter into long-term relationships that provide us with a more predictable recurring revenue stream. In our TTEC Digital segment, our CX cloud and managed services technology solution contracts have an average three-year term with penalties in the case a client terminates for convenience. In our TTEC Engage segment, most of our contracts can be terminated for convenience by either party, but our relationships with our top five clients have ranged from 17 to 24 years including multiple programs and contract renewals for most of these clients. In 2023, we had a 95% revenue retention rate for TTEC Engage, versus 97% in 2022.
Certain of our communications clients provide us with telecommunication services through arm’s length negotiated transactions. These clients currently represent approximately 6% of our total annual revenue. Expenditures under these supplier contracts represent less than 1% of our total operating costs.
Competition
We are a leading global customer experience outsourcing partner for many of the world’s marquis and disruptive brands, Fortune 1000 companies, and public sector clients. Our competitors vary by geography and business segment, and range from large multinational corporations to smaller, narrowly focused enterprises. Across our lines of business, principal competitive factors include: client relationships, technology and process innovation, integrated solutions, digital and virtual delivery capabilities, operational performance and efficiencies, pricing, brand recognition, and financial strength.
Our strategy in maintaining market leadership is to invest, innovate, and provide integrated value-driven services, all centered around customer engagement management. Today, we are executing on a more expansive, holistic strategy by transforming our business into higher-value offerings through organic investments and strategic acquisitions. As we execute, we are differentiating ourselves in the marketplace and entering new markets that introduce us to an expanded competitive landscape.
For TTEC Digital our main competitors include global systems integration firms, niche and large-scale technology consulting service providers, and technology companies whose solutions we integrate, deploy and maintain for clients, including Deloitte, Accenture, Infosys, Cognizant, Hitachi Data Systems, Slalom, Globant, ConvergeOne, Nice/Incontact and Five9, among others.
For TTEC Engage, we primarily compete with in-house customer management captive business units and other companies that provide customer experience services, including Teleperformance, Foundever, Telus International, Concentrix, TaskUs, Intouch CX, Conduent, Genpact, Alorica, Ibex and EXL, among others.
Regulations Relevant to Our Business
TTEC is subject to various domestic and international laws and regulations, permitting and licensing regimes (collectively, “Regulations”). These Regulations often change and require TTEC to devote considerable resources and make investments to stay in consistent compliance. The narrative that follows summarizes some of the more important Regulations that impact our business; it is not intended as an all-inclusive list. In jurisdictions where we do business, TTEC has processes in place to monitor regulatory requirements and take reasonable steps to assure compliance.
Data Privacy: We are subject to data protection and privacy regulations in many of the countries where we operate, including the European General Data Protection Regulation ("GDPR"), the California Consumer Protection Act ("CCPA") and other similar U.S. state-level data protection legislation, the Philippine Data Privacy Act (“Republic Act No. 10173”) and other country data protection laws. Certain of our systems, that support clients with special regulatory requirements, also require compliance with Health Information Trust Alliance (“HITRUST”) requirements and Health Insurance Portability and Accountability Act (“HIPAA”) regulations for clients in the healthcare industry; the Payment Card Industry Data Security Standard (“PCI-DSS”) for financial services clients and other clients where we have access to their customers’ payment card information; Federal Information Security Management Act GSA (“FISMA”) and Federal Risk and Authorization Management Program (“FedRamp”) requirements for U.S. federal government clients; and other similar requirements.
TTEC maintains a cybersecurity and data privacy program designed to protect our clients’, their customers’, and our employees’ confidential personal and sensitive information. We have invested in our cybersecurity capabilities to identify, detect, respond to and recover from cyber threats and attacks. These investments help us reduce our vulnerabilities to cyber incidents and minimize their impacts on our operations. They also support compliance with our contractual obligations and the laws and regulations governing our activities. We engage independent auditors to conduct general controls and business process (SOC1 and SOC2) assessments for technology solutions we use in our banking, financial services, and insurance (“BFSI”) and healthcare verticals. We also engage third parties to conduct vulnerability assessment and penetration testing of our technology environments. See "Risk Factors - Uncertainty and inconsistency in relevant privacy and data protection laws, the high cost of compliance with such laws, and the failure to comply with related contractual obligations may impact our ability to deliver services and our results of operations.”
Work From Home Regulations: Regulations specific to work from home, which vary among jurisdictions and range from requirements to reimburse costs associated with remote work, to special health and safety mandates, and special government reporting requirements apply to part of our workforce. To comply with these Regulations, TTEC updated its payroll practices and adopted new ways of working, including the use of virtual private networks to access service delivery applications, and remote monitoring and coaching of employees. In the work from home environment, we are not always able to replicate the physical controls we have in place at our delivery centers; therefore, we agree with our clients to implement certain additional controls appropriate to the work from home environment to achieve compliance similar to our delivery centers’ environment. Employees that work from home are required to attest to their understanding and compliance with these controls and with TTEC’s enhanced remote work policy that is designed to address new Regulations and the modified contractual requirements. TTEC works diligently with specialists to stay current on the rapidly changing regulatory environment, but the distributed nature of remote service delivery continues to represent heightened risks of security threats and compliance challenges and there can be no assurance that these risks can be fully contained. See "Risk Factors - Services delivered by employees working from home represent a large portion of our delivery for some of our clients and this change in the operating model may subject us to new untested risks which we cannot always mitigate”.
Other Regulations: TTEC is a labor-intensive business that is subject to complex labor and employment laws established by the U.S. Department of Labor, state and local regulatory bodies, and similar regulators in jurisdictions outside of the U.S. These Regulations govern working conditions, paid time off, workplace safety, wage and hour standards, and hiring and employment practices.
Our public sector work is secured and delivered in compliance with various jurisdiction-specific government procurement regulations, like the Federal Acquisition Regulations (known as “FAR”) and government agency specific supplemental regulations that we comply with when we bid and deliver work for the U.S. federal government.
Our global operations are subject to various domestic and foreign anti-corruption mandates, such as the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, and similar anti-bribery laws in other jurisdictions where we do business. As a U.S. company operating through non-U.S. subsidiaries, TTEC is subject to foreign exchange control, transfer pricing, cross-border tax Regulations, immigration and customs Regulations that prescribe how funds, goods, and people traverse between TTEC and our foreign subsidiaries. See "Risk Factors - Risks Related to Our Operations Outside of the United States.”
Work we do for some of our clients is subject to special licensing requirements, e.g., insurance producer and gaming licenses. The granting of these licenses can be discretionary on the part of regulatory authorities. As part of the licensing requirements, we may also be subject to extensive and expensive cybersecurity regulations or subject to heightened disclosure requirements that impact our companies or our executives. See, “Risk Factors -- Our financial results may be impacted by changes in laws/regulations and our failure to comply with laws/regulations relevant to our business.”
We believe that our operations are in substantial compliance with relevant Regulations; but our compliance with Regulations may cause us to make additional capital and operational expenditures, the cost of which we may not always be able to pass to our clients through our pricing structures, and such additional investments could be material to our results of operations, financial position, or cash flows. See "Risk Factors - Risks Related to Our Operations Outside of the United States.”
Research, Innovation, Intellectual Property and Proprietary Technology
We recognize the value of innovation in our business and are committed to developing leading-edge technologies and proprietary solutions. Research and innovation have been a major factor in our success and we believe that they will continue to contribute to our growth in the future. We use our investment in research and development to create, commercialize, and deploy innovative business strategies and high-value technology solutions.
We deliver value to our clients through, and our success in part depends on, certain proprietary technologies and methodologies. We leverage U.S. and foreign patent, trade secret, copyright, and trademark laws as well as confidentiality, proprietary information, non-disclosure agreements, and key staff non-competition agreements to protect our proprietary technology.
As of December 31, 2023, we had 5 patent applications pending in 5 jurisdictions; and also held 102 U.S. and non-U.S. patents in 9 jurisdictions that we leverage in our operations and as marketplace differentiation for our service offerings. Our trade name, logos, and names of our proprietary solution offerings are protected by their historic use and, in addition, by trademarks and service marks registered in 33 jurisdictions.
Our People
As of December 31, 2023, TTEC had over 60,000 employees, approximately 2,400 of whom are CX professionals serving TTEC Digital clients and approximately 57,600 of whom serve TTEC Engage clients. Approximately 49% of our employees are based in the Asia-Pacific region, 38% in North America (with 37% in the United States), 8% in Central and South America, and 5% in the Europe, Middle East and Africa (EMEA) region. Approximately 61% of our employees were in a work-at-home environment and 39% worked onsite.
For over 40 years, TTEC has championed exceptional customer experiences by prioritizing exceptional employee experiences. We empower our people through investments in their health, wellness, and career growth. It is this commitment that has earned us recognition as a Forbes’ “best place to work” for three consecutive years.
Attracting, developing, and retaining top talent starts with a focus on meaningful engagement and purposeful development. That is why our People Strategy empowers our employees to not only keep pace with the rapidly changing workplace, but also thrive in it.
Talent Development: To support the advancement of our employees and prepare them for the demands of rapidly changing workplace and client requirements, we offer career development-focused programs, technologies, and resources. We invest in career development, providing targeted programs, technologies, and resources centered on developing capabilities from fundamental business skills to AI and digital transformation. In 2023, we launched a Negotiation Learning Center of Excellence and TTEC Digital Talent programs. Further underscoring our commitment to development, our teams completed over 100,000 hours of professional development in 2023. Our iAspire™ platform drives our internal mobility program where employees share their ambitions and look for potential job matches within the Company.
Our commitment to development has yielded results: 71% of our 2023 open positions were filled internally, 80% of our leaders have been promoted from within, and we have thousands of employees around the globe with over 5 years of tenure.
Pay for Performance: Our performance management system fosters both professional growth and company success. Our focus on a holistic performance management approach yields award winning employee engagement and satisfaction, improved alignment with company goals, enhanced individual and team performance, and a culture of continuous learning and development.
Our philosophy, closely aligned with our operating rhythm and our Company values, emphasizes:
● Clear Goal Setting: Regular collaborative goal setting ensures everyone is aligned with strategic objectives and individual development.
● Consistent Check-Ins, Feedback, and Recognition: Frequent touchpoints provide timely feedback and support, keeping employees engaged and on track. Formal feedback and recognition are encouraged both formally and informally.
● Quarterly Reviews: In-depth discussions assess progress, identify opportunities for improvement, and celebrate achievements.
● Targeted Development: We invest in employee growth through personalized development plans and resources.
● Transparent Compensation: Our "pay for performance" program directly links rewards to contributions, motivating excellence and reflects our commitment to reward short and long-term performance that aligns with and drives long-term stockholder value.
● In 2023, we made several improvements to more closely link our pay for performance, including Redesigned Empower™, our proprietary performance management tool. The enhanced platform has improved performance and employee retention.
Leadership Development: Our comprehensive talent development strategy can be easily customized and launched by segment and/or department and enables leaders and teams to plan and build talent capability. Talent planning and development for executive roles is accomplished through a talent review and succession planning process which includes consulting, training, data analytics, calibration, and development recommendations. We evaluate all mid-level managers and above roles, determine top talent and successors, invest in managers’ and their successors’ development, and align their compensation to meet our growth goals. In 2023, we created and launched a People Leader Center of Excellence, a one-stop-shop for onboarding, training and development resources to ensure success of front-line leaders.
Diversity Equity & Inclusion (DEI): TTEC believes that our differences are one of our greatest strengths, and that the diversity of our employees enables us to innovate how we serve our clients and their diverse customers on six continents. We outline our commitment and the specific actions we take with respect to DEI in our annual Impact and Sustainability (aka ESG) Report and make that information publicly available.
Employee Health and Wellbeing: Investing in employee health and wellbeing leads to a happier, healthier, and more productive workforce, contributing to the success of both our employees and the Company. We offer a comprehensive benefits program that includes health insurance and important wellness programs, including mental health support, and other offerings that support the physical, emotional and financial health of people. In 2023, in addition to our paid time off programs, we held ‘Recharge Week’ to encourage employees to take additional time off to focus on their personal life and wellbeing.
Workplace Safety: The health and safety of our employees is one of our top priorities. TTEC’s success depends on protecting our employees, visitors, clients and facilities, and our goal is to provide everyone who works for us and with us, a safe and healthy work environment. TTEC employees are required to complete health and safety training when they join the Company and are encouraged to report any concerns they have about health and safety in their work environment. Our Health and Safety management committee tracks employee concerns raised about the state of our facilities anywhere in the world, oversees the trends in reported injuries and post recovery return to work programs. Employees who work from home have access to extensive resources to help them set up and maintain a safe and comfortable work environment at home.
Retention and Turnover: Employee experience and retention remain a top priority for TTEC and are a key driver of financial results of our operations. Our turnover reduction efforts focus on market pay, trained management teams, development programs, career mobility, communication and the work environment and company culture that make employees feel engaged, rewarded, appreciated, informed, and fulfilled in our organization.
Employee Engagement: We continuously assess employee engagement by gathering employees’ sentiment. We have achieved recognition from Forbes, Newsweek and other organizations that benchmark our employee experience. We develop and execute annual action plans to adapt and increase employee engagement and the overall employee experience.

---

ITEM 1A. RISK FACTORS
ITEM 1A. RISK FACTORS
This section discusses the most significant factors that could affect our business, results of operations and financial condition. In evaluating our company and our common stock, you should carefully consider the risks and uncertainties discussed in this and the other information contained in this Annual Report on Form 10-K. If any of the risks or uncertainties discussed below actually occur, our business, financial condition, results of operations, or liquidity could be materially adversely affected, and the market price of our stock could decline. The risks described below are not the only risks that our business faces. Additional risks not presently known to us or that we currently deem immaterial may also harm our business, results of operations, or financial condition.
We have grouped these risk factors into six categories:
•risks related to our business, our strategy, and our industry;
•risks related to our use of technology;
•risks related to our financial operations;
•risks related to contracting practices, legal and regulatory matters that impact our business;
•risks related to our operations outside of the United States; and
•risks related to ownership of our common stock.
Risks Related to Our Business, Our Strategy and Our Industry
If our business strategy is not successful, our business and financial prospects will be affected
Our growth strategy is based on delivering our contact center outsourcing expertise with our innovative and disruptive AI-enabled technologies, CX consulting, data analytics, client growth solutions, and customer experience focused system design and integration enabled through industry specific client relationships, scaled global delivery footprint, CX partner ecosystem, and strategic M&A. Failure to successfully implement our business strategy and effectively respond to changes in market dynamics may impact our financial results of operations. Our investments in technologies and integrated solution development may not lead to increased revenue and profitability. If we are not successful in creating value from these investments, there could be a negative impact on our operating results and financial condition.
Our market is highly competitive, and we may not be able to compete effectively
Our business performance is dependent on our ability to compete successfully in markets we currently serve, while expanding into new, profitable markets. Our industry is highly competitive, fragmented, and is experiencing changes. We compete with larger multinational and offshore low-cost service providers that offer similar services, often at highly competitive prices and aggressive contract terms; niche solution providers that compete with us in specific geographies, industry segments or service areas; companies that utilize new, disruptive technologies or delivery models, including AI-powered solutions; and in-house operations of existing and potential clients. The recent consolidation trend in our industry resulted in new competitors with greater scale and broader geographic footprint. They have access to greater financial resources, may have proprietary technology solutions, may be able to absorb more risk in their contract terms, or offer greater efficiencies that may be attractive to our clients and impact our business. The opportunity for new competitors in our industry may expand as new technology emerges and increases in importance. New competitors, new strategies by existing competitors or clients, and consolidation among clients or competitors could adversely impact our market share and profitability.
Based on our forty years of experience in the industry, we believe that key competitive factors in our markets are the quality of service offerings tailored to clients and their customers’ needs, reliable delivery processes and technology and cybersecurity infrastructure, the ability to attract, train, and retain qualified employees, global delivery capabilities, competitive pricing, willingness and ability to accept risks specific to our service delivery, and our ability to differentiate our service offerings. If we are unable to respond to these market factors and compete successfully by providing clients with differentiated services at competitive prices, we could lose market share, which would materially adversely affect our business.
If we cannot adapt our service offerings to changes in technology and market expectations, including effective use of artificial intelligence (AI) in our solutions, our ability to grow may be affected
Our growth and profitability depend on our ability to develop and adopt new solutions that expand our existing service offerings by leveraging new technologies and cost efficiencies in our operations, while meeting rapidly evolving client expectations. We utilize new and emerging technologies, including various AI and GenAI tools, in our service offerings, and as these technologies evolve, some tasks currently performed by our employees may be replaced by automation, chatbots and AI and GenAI tools. These technology innovations have potential to significantly disrupt our business, reduce business volumes and related revenue unless we are successful in adapting and deploying these technologies profitably and adding new services that profit from these technologies. Specifically, some of the chatbot AI solutions have the potential to replace some of our lower tier service offerings and, if we are unable to adopt and timely deploy this AI in our offerings and bring to market new offerings that help clients utilize AI/GenAI, our results of operations will be adversely impacted.
We may not be successful in anticipating or responding to our clients’ expectations in adopting evolving technology solutions, and their integration in our offerings may not achieve the intended enhancements or cost reductions. Services and technologies offered by our competitors may make our service offerings not competitive, or even obsolete, and may negatively impact our clients’ interest in our services. Our failure to innovate, maintain technological advantage, or respond effectively and timely to transformational changes in technology could have a material adverse effect on our business, financial condition, and results of operations.
Inability to effectively and rapidly adopt AI/GenAI into our offerings could materially impact our ability to compete, while its use may result in reputational harm and liability
The pressure on ‘speed to market’ for AI and GenAI deployment presents risks and challenges to the business. The rapid evolution of AI/GenAI require us to expend resources to develop new service offerings and implement controls that allow us to utilize GenAI effectively, including investing in processes and professionals with the skills necessary to execute our AI strategy. If we are too slow to market or are otherwise unable to deploy AI and GenAI quickly and effectively into our offerings, we could fall behind our competitors and our ability to win and retain business could be materially impacted, negatively affecting our results of operations and our reputation as innovators. Deploying AI too rapidly without appropriate controls may result in poor client adoption, liability, and reputational damage.
Leveraging AI to potentially improve the internal functions and operations of our business presents further opportunities and risks. The use of AI to support business operations carries inherent risks related to data privacy and security, inadvertent discrimination or other unintended consequences that could result in liability and harm to our reputation.
A large portion of our revenue in our TTEC Engage business is generated from a limited number of clients and the loss of one or more of these clients or significant reduction in their business volumes with us could adversely affect our business
Our TTEC Engage business relies on strategic, long-term relationships with large, global companies in targeted industries and certain government agencies. As a result, our Engage business derives a substantial portion of its revenue from relatively few clients. Our five and ten largest clients, collectively, represented 36% and 50% of our revenue in 2023, respectively, with one client representing over 10% of our revenue.
While we have multiple engagements with our largest clients and all contracts are unlikely to terminate at the same time, the contracts with our five largest clients expire between 2024 and 2027; and there can be no assurance that these contracts will continue to be renewed at all or be renewed on favorable terms. While our ongoing sales and marketing activities aim to add new commercial and public sector clients and new opportunities with existing clients, there can be no assurance that such additional work can be secured or that it would yield financial benefits comparable to expiring contracts. The loss of all or part of major clients’ business could have a material adverse effect on our financial condition, and results of operations, if the loss of revenue is not replaced with profitable business from other clients.
For example, in early 2024, one of our larger financial services clients notified us that it is exiting one of the lines of business that we support. This decision may have a material impact on our future results of operations, if we are unable to replace these service volumes with work for other financial services clients or with different work for this client.
We serve clients in industries that have historically experienced a significant level of consolidation. If one of our clients is acquired (by a new owner or by another of our clients) our business volumes and revenue may materially decrease due to the termination or phase out of an existing client contract, volume discounts, or other contract concessions which could have an adverse effect on our business, financial condition, and results of operations.
A large portion of our revenue in our TTEC Digital business is generated from technology partners whose products’ reliability and risk allocation practices may adversely impact our business
A large portion of our TTEC Digital revenue is tied to our partnerships with providers of customer management technology solutions. These partners designate us as their preferred system integrator, and implementation and maintenance partner, recommending us to their technology platform customers, and providing us with sales leads for services and technology resale opportunities. Our profitability, therefore, often depends on the health of these partnerships, and the effectiveness and stability of these third-party technology platforms, as well as on how these solutions are perceived by the market.
Clients, who buy these third-party solutions and related services from the Company, hold us responsible for the stability and reliability of these platforms, as well as for any losses or damages arising from system outages and cybersecurity incidents, involving these third-party solutions. Because we do not have control over the stability or the reliability of these technology solutions, we seek back-to-back indemnifications from the technology partners for liabilities caused by their systems that we cannot control or mitigate. If our technology partners’ solutions lag in innovation, do not meet customer expectations in functionality, or have stability or reliability issues, or if our back-to-back indemnities with technology partners for exposures that we cannot control or mitigate fail to fully cover our liabilities to our clients, or if these partners do not honor their indemnity obligations our results of operations may be materially impacted.
As our Digital business clients transition from on premises information technology solutions to public cloud and SaaS services, our business may be impacted
Some of our TTEC Digital clients are rapidly transitioning their IT functions from on premises platforms that we help them support to public cloud solutions and SaaS services. They rely on us for these transitions, which contribute to the growth of our higher margin consulting services, while at the same time impacting our future revenue from managed IT services, and system hardware and software resales. If we cannot continue to replace our resale and maintenance revenue with higher margin Digital consulting services, our results of operations in the Digital business may be impacted.
Services delivered by employees working from home represent a large portion of our delivery for some of our clients and this change in the operating model may subject us to new untested risks which we cannot always mitigate
Over the last several years, we significantly expanded our work from home remote delivery. Some of the services we provide are subject to stringent regulatory requirements, and our inability to continuously monitor how our employees deliver services, when working remotely, may impact our compliance in certain lines of business. Remote service delivery, in certain lines of our business, may also expose us, our clients, and their customers to a heightened risk of fraud, because early detection of inappropriate behavior could be impaired, when employees work outside of our delivery centers.
For example, in 2023, we discovered what we believe to be an isolated wage arbitrage scheme: a few remote employees held multiple jobs, used non-employees to perform their work, and shared wages. Our investigation did not uncover evidence that this unauthorized access to clients’ systems and customer data resulted in harm, as the goal of the scheme appeared to be access to wages and not misuse of data; but notifications to affected clients, their customers, and relevant regulatory agencies resulted in litigation. In response to the incident, we implemented enhanced employee identification and geolocation measures to monitor identity and work location for employees who work remotely, and to expedite detection and mitigation of potential similar schemes in the future. While we believe these mitigation measures to be sufficient, there can be no assurances that our detection and prevention measures will always be adequate to eliminate other possible schemes.
Employees who work from home rely on residential communication and internet providers that may not be as resilient as commercial providers and may be more susceptible to service interruptions and cyberattacks, which may also make our information technology systems vulnerable, when interfacing with these residential environments. Although we have continuously evolved our business continuity and disaster recovery plans and processes to focus beyond our delivery centers to include remote delivery, these plans and processes may not work effectively in a distributed remote delivery model, where weather impacts, internet access and power grid downtime may be difficult to manage and where system redundancies are not possible.
Over the years, we have established strong operational and administrative controls over our business that focused on our physical locations; and although these controls are evolving to reflect our growing mix of delivery centers and remote delivery, they may not always provide effective safeguards for a large-scale work from home delivery model. We may not be effective in timely updating our existing controls nor implementing new controls tailored to the work from home environment. For these and other reasons, our clients may be unwilling to continue to allow us to deliver our services remotely. If we are unable to manage our work from home environment effectively to address these and other risks unique to remote service delivery, or if we cannot maintain client confidence in our work from home environment, our reputation and results of operations may be impacted.
Remote work for an extended period of time may impact our culture and employee engagement within our Company, which could affect productivity and our ability to retain employees critical to our operations. Certain jurisdictions where we do business have regulations specific to work from home, which adds complexity and cost to our service delivery. All these various risks and uncertainties can have impacts on our operations and financial results.
If our clients are unable to accurately forecast demand for our services, we may not be able to forecast the level of effort and delivery center capacity required to support their businesses which could impact our delivery and results of operations
We rely on client demand forecasts to make timely staffing level decisions and investments in our delivery centers and work from home technologies. This information is critical to our successful execution and profitability maximization. We can provide no assurance that our clients will continue to provide us with reliable demand forecasts; nor that we will continue to be able to maintain desired delivery center capacity utilization and work from home delivery mix. If we are unable to dynamically adjust to changes in clients’ demand forecasts, if our facilities and staff utilization rates are below expectations or if unexpected shifts in demand make it difficult to right size our real estate and staffing commitments quickly, our high-fixed costs of operation or the loss of business because we cannot support capacity may cause our financial conditions and results of operations to be adversely affected.
Pricing of our services in our Digital business is contingent on our ability to accurately forecast the level of effort necessary to deliver our services, which is sometimes dependent on information that can be inaccurate or developments outside of our control. The errors in our level of effort estimations could yield lower profit margins or cause projects to become unprofitable, resulting in adverse impacts on our results of operations.
If we cannot recruit and retain qualified employees to respond to client demands at the right price point, our business will be adversely affected
Our business is labor intensive and our ability to recruit, train, and retain employees with the right skills, at the right price point, and in the timeframe required by our client and project schedule commitments is critical to achieving our growth objectives. Demand for qualified personnel with multi-lingual capabilities and fluency in English may exceed supply. Demand for highly skill technical staff with experience that reflects emerging technologies can also be limited. While we invest in employee retention, our industry is known for high employee turnover, and we are continuously recruiting and training replacement staff.
We sign multi-year client contracts that are priced based on prevailing labor rates in jurisdictions where we deliver services. In the United States, however, our Engage business is confronted with a patchwork of ever-changing minimum wage, mandatory time off, paid medical leave, and rest and meal break laws at the state and local levels. As these jurisdiction-specific laws change with little notice or grace period for transition, we often have no opportunity to adjust how we do business or pass cost increases to our clients.
Inflationary wage pressures, recently tempered with recessionary fears but still ongoing, in many jurisdictions where we hire may continue to make it difficult for us to meet our contractual commitments on multi-year client contracts that do not have wage escalation provisions or may make such contracts not profitable.
Our employees may fail to adhere to operational controls or may engage in fraud, which could subject us to liability and negatively impact our client relationships and reputation
We depend on our employees to follow strict processes and controls when delivering services to our clients and their customers. Although we believe our controls are effective and our employees are trained in their responsibilities before they have access to our and our clients’ environments and data, when managing a team of over 60,000, we cannot prevent all misconduct. When our employees disregard or intentionally breach our or our client’s established controls, acting alone or in collusion with others, we are responsible to our clients for resulting impacts, and could be subject to significant liability, fines, and penalties that could impact our financial performance and our reputation.
Unauthorized access to or through our information systems to clients’ operating environments and/or disclosure of sensitive or confidential information of our clients or our clients’ customers, other losses resulting from acts or failure to act by our employees and our failure to quickly detect and deter negligence, fraud, criminal activity or other misconduct could lead to negative publicity and damage to our reputation, loss of our clients’ trust, contractual and regulatory liability, loss of business and market share, impacting results of our operations and financial condition.
Long sales cycles in some parts of our business can lead to a long lead time before we receive some of our revenue
We often face a long selling cycle to secure contracts with new clients or contracts for new lines of business with existing clients. When we are successful in securing a new client engagement, it often starts with small volumes and the prospect of growing over time. New client engagements are generally followed by a long implementation period when clients must give notice to incumbent service providers or transfer in-house operations to us. There may also be a long ramp-up period before we commence our services, and under most of our contracts we receive no revenue until we start performing the work. Prolonged ramp-ups require investment that may not be recovered until future performance periods. If we are not successful in winning work after a prolonged sales cycle, or in maintaining the contractual relationship for a period of time necessary to offset new project investment costs and appropriate return on that investment, the investments we make into onboarding new clients may have a material adverse effect on our results of operations.
Our growth strategy includes further expansion of our offerings to public sector clients. The procurement process for government entities can often be more challenging and longer than contracting in the private sector, including upfront investment to position for opportunities and respond to requests for proposal. If we are unable to manage our public sector business development effectively and are not successful in winning and renewing that work, despite the investments we make, our public sector work could adversely impact our profitability and results of operations.
Our growth and geographic expansion could strain our resources and negatively impact our business
We plan to continue growing our business through the growth of clients’ wallet share, increasing sales efforts, geographic expansion, and strategic acquisitions, while maintaining tight controls on our expenses and overhead. Lean overhead functions combined with significant growth targets may place a strain on our management systems, infrastructure, and resources, resulting in internal control failures, missed opportunities, and staff attrition. If we fail to manage our growth effectively, our business, financial condition, and results of operations could be adversely affected.
If we are unable to maintain a geographically diverse footprint, our profitability may be adversely affected
Our business is labor-intensive and therefore cost of wages, benefits, and related taxes constitute a large component of our operating expenses. Our growth is, therefore, dependent upon our ability to maintain and expand our operations in cost-effective locations, in and outside of the United States.
Our clients often dictate locations from where they wish for us to serve their customers, such as “near shore” jurisdictions located in close proximity to the clients’ U.S.-based headquarter locations, or in specific locations around the globe. There is no assurance that we will be able to effectively launch operations in jurisdictions which meet our cost, labor availability, and security standards. Our inability to expand our operations to such locations, however, may impact our ability to secure new clients and additional business from existing clients, and could adversely affect our growth and results of operations.
The current outsourcing trend may not continue and the prices that clients are willing to pay for the services may diminish, adversely affecting our business
Our growth depends, in large part, on the willingness of clients to outsource customer care and management services to companies like us. There can be no assurance that the customer care outsourcing trend will continue especially in the current economic climate; and clients may elect to perform these services in-house or rely on emerging technologies for some of the services they currently outsource to us. Reduction in demand for our services and increased competition from other providers, technologies and in-house service alternatives could create pricing pressures and excess capacity that would have an adverse effect on our business, financial condition, and results of operations.
Our business can be disproportionately adversely impacted by events outside of our control that impact our clients, such as economic conditions, geopolitical tensions, and outbreaks of infectious diseases
If global economic conditions continue to deteriorate, we could experience reduction in demand for our services and increased pressure on revenue and profit margins. Our business volumes are impacted by consumer sentiment, and the current inflationary and recessionary pressures are impacting consumer demand for our clients’ products and services, which can have direct impact on the demand for our offerings. The cost increases of our services due to growing labor costs and social pressures on our clients to utilize their own staff for services, instead of laying off employees, while outsourcing work, may cause clients to bring the previously outsourced services in-house.
Current geopolitical tensions could continue to escalate, which could have unpredictable consequences on our business. For example, our business could be negatively affected by further escalation in the Russian-Ukrainian conflict, as it can impact our European operations and our European clients’ demand for our services; the regional escalation of the Gaza Israeli conflict and other escalations in the Middle East, including Iranian strikes on U.S. targets, may impact our operations in Africa; continuing tensions with China could impact our delivery centers in the Asia-Pacific region, especially in the Philippines; while ongoing tensions between India and Pakistan can impact our operations in the Indian provinces near the Pakistani border. Natural disasters in locations where we have employees and operations, like the Philippines, Mexico, and the east, west and gulf coasts of the United States, can also have significant negative impacts on our ability to deliver services and our reputation for stable service delivery. Finally, widespread outbreaks of infectious diseases, like the COVID-19 pandemic, would impact our global operations, our delivery capabilities and our clients’ demand for services.
We routinely consider strategic mergers, acquisitions and business combination transactions and may enter into such transactions any time; and such transactions may negatively impact our business and create unanticipated risks
We continuously analyze strategic opportunities that we believe could provide value for our stockholders, and have acquisitions, divestitures, and potential business combinations in various stages of active review. There can be no assurances, however, that we will be able to identify strategic transaction opportunities that complement our strategy and are available at valuation levels accretive to our business. Even if we are successful in identifying and executing these transactions, they may subject our business to risks that could impact our results of operation, including:
• Inability to integrate acquired companies effectively and realize anticipated acquisition benefits;
• Diversion of management’s attention to the integration of the acquired businesses at the expense of delivering results for the legacy business;
• Inability to appropriately scale critical resources to support the business of the expanded enterprise;
• Inability to retain key employees of the acquired businesses and/or inability of such key employees to be effective as part of our operations;
• Impact of liabilities, compliance failures, or ethical issues of the acquired businesses undiscovered or underestimated as part of the acquisition due diligence;
• Failure to realize anticipated growth opportunities from a combined business, because existing and potential clients may be unwilling to consolidate business with a single service provider or to stay with the acquirer post-acquisition;
• Impacts of cash on hand and debt incurred to finance acquisitions, thus reducing liquidity for other significant strategic objectives;
• Inadequate or ineffective internal controls, disclosure controls, corruption prevention policies, human resources and other key policies and practices of the acquired companies; and
• Reduced revenue and income and resultant stock price impact due to divestiture transactions.
While we consider these transactions to improve our business, financial results, and shareholder value over time, there can be no assurance that our goals will be realized.
Risks Related to Our Use of Technology
A disruption to our information technology systems could adversely affect our business and reputation
Our business relies extensively on cloud and on-premises technology platforms and third-party software solutions to serve our clients and to conduct our business. These information technology systems are complex and may, from time to time, get damaged or be subject to performance interruptions from power outages, telecommunications failures, cybersecurity failures and malicious attacks, or other catastrophic events. They may also have design defects, configuration or coding errors, and other vulnerabilities that may be difficult to detect or correct, and which may be outside of our control. If the Company’s information technology systems fail to function properly, the Company could incur substantial repair, recovery or replacement costs and experience data loss and significant liability for disruption of clients’ operations, all or any of which could result in material impediments to our ability to conduct business and would damage the market’s perception of the reliability and stability of the Company and our service offerings.
In addition, an information system disruption could result in us failing to meet our contractual performance standards and obligations, which could subject us to liability, penalties, and contract termination. Our agreements with third-party technology and software providers often have limitations of liability that do not fully protect us against liability to our clients that we may incur due to the technology failures. Any of these events or a combination of several may adversely affect our reputation and financial results.
Cyberattacks, cyber fraud, or unauthorized data access could harm us or our clients and result in liability, and could adversely affect our business and results of operations
Cyberattacks. Our business involves the use, storage, and transmission of clients’, their customers’, and our employees’ information. We also monitor and support information technology systems for certain clients through cloud-based and on-client-premises managed services model. While we believe that we take reasonable security measures to prevent the unauthorized access to our information technology systems and to our clients’ systems, and to protect the privacy of personal and proprietary information that we access and store, our security controls over our systems have not prevented in the past and may not prevent in the future improper access to these systems or unauthorized disclosure of this information. Such unauthorized access or disclosure could subject, and in the past has subjected us to significant liability under relevant laws, our contracts, and our licenses to perform certain regulated services; and could harm our reputation, resulting in material impacts to our operations, loss of future revenue and business opportunities. These risks may further increase as our business model now relies on a higher percentage of work delivered from home, in addition to our traditional delivery center model. The risks may also increase, as we expand geographically into new locations, where cybersecurity is difficult to assure.
In recent years, there have been an increasing number of high-profile security breaches at companies and government agencies, when hackers, cyber criminals and state actors launch a broad range of ransomware, data exfiltration, and other cyberattacks targeting information technology systems. Information security breaches, computer viruses, service interruption, loss of business data, DDoS (distributed denial of service) attacks, ransomware and other cyberattacks on any of our systems or on our clients’ systems, through our channels, have and in the future could disrupt our normal operations, our cloud platform digital offerings, our clients’ on-premise managed service offerings, and our corporate functions, impeding our ability to provide critical services to our clients and financial reporting of our results of operations. Techniques used by cyber criminals to obtain unauthorized access, disable or degrade services, or sabotage systems evolve frequently and may not immediately be detected, and we may be unable to implement adequate preventative measures.
For example, in 2021, we experienced two significant cybersecurity incidents. One involved a global supply chain compromise that impacted thousands of companies worldwide, including a TTEC Digital subsidiary and its managed services clients. Another involved a ransomware attack that temporarily disrupted the TTEC Engage business. Although neither of these incidents resulted in material impact on our results of operations in 2021, there can be no assurances that future cybersecurity incidents, which are unavoidable, would not have material impact on our results of operations. Following these cybersecurity incidents, we have made and continue to make significant investments to enhance our information technology environment, but there can be no assurances that investments made to date and the investments planned to be made in the future would be sufficient to prevent future cybersecurity incidents.
Cybersecurity events may have cascading effects that unfold over time and result in additional costs, including costs associated with investigations, government enforcement actions, regulatory investigations, fines and penalties, contractual claims, performance penalties, litigation, financial judgement or settlements in excess of insurance, disputes with insurance carriers concerning coverage and the availability of cyber insurance in the future, loss of clients’ trust, future business cancelations and other losses. Any client perceptions that our systems or the information system environments that we support for our clients are not secure could result in a material loss of business and revenue and could damage our reputation and competitiveness.
Cyber fraud. As others, we are experiencing an increase in frequency of cyber fraud attempts, including phishing attempts, and so-called “social engineering” attacks, which typically seek unauthorized access into the environment, money transfers or unauthorized information disclosure. We train our employees to recognize these attacks and have implemented proactive risk mitigation measures to curb them. There are no assurances, however, that these attacks, which are growing in sophistication and frequency, would not deceive our employees, resulting in a material loss and impacts to our operations and corporate functions.
While we believe we have taken reasonable measures to protect our systems and processes from unauthorized intrusions and cyber fraud, we cannot be certain that advances in cybercriminal capabilities, discovery of new system vulnerabilities, and attempts to exploit such vulnerabilities will not compromise or breach the technologies protecting our systems and the information that we manage and control, which could result in damage to our systems, our reputation, and our profitability.
Significant interruptions in communication and utility services provided to us by third-party vendors could adversely impact our business
Our business is dependent on third parties for communications services, information technology systems, access to cloud networks, electric and other domestic and foreign third-party utility service providers. Any disruption of these services could adversely affect our business. We have taken steps to mitigate our exposure to service disruptions through procurement rigor in how we select these partners and by investing in multi-layered redundancies, but there can be no assurances that the mitigation strategies and redundancies we have in place would be sufficient to maintain operations without disruptions, especially as we deliver more services remotely, because conventional redundancy strategies are less effective in work from home environments.
Rapid adoption of AI/GenAI technology into our offerings could result in reputational harm and liability
We are increasingly incorporating AI technologies into our business and have endeavored to stand up appropriate governance and controls for their use. As with many disruptive technologies, however, AI presents risks and unintended consequences that could affect its adoption. Social, ethical and regulatory issues related to the use of AI/GenAI in our offerings may result in reputational harm, liability impacts on our results of operations.
Most AI solutions are evolving and are not infallible, and issues with data sourcing, technology integration, decision-making bias of AI algorithms, security challenges, protection of privacy for personal identifiable information, content labeling and an effective use governance has not yet been perfected. While efforts are being made to deploy AI/GenAI responsibly with appropriate controls, our ability to do so effectively cannot be guaranteed. If our solutions incorporating AI/GenAI are flawed, they may cause harm to our clients or their customers and could impact our reputation and results of operations.
The regulatory landscape surrounding AI and GenAI technologies is rapidly evolving, and how these technologies will be regulated remains uncertain. Such regulations may result in significant risks and operational costs which would impact our profitability and results of operations.
Our growing reliance on third parties for data, cloud and SaaS services could adversely impact our business
As we continue to transition and consolidate our information technology and data repositories from on premises IT and data centers controlled by us to public cloud and SaaS providers, the vulnerability of our business to the reliability of these third parties is increasing. We have taken steps to mitigate our exposure to service disruptions from these third-party providers but there can be no assurance that these service providers can maintain security, confidentiality, availability and integrity of products and services on which we rely. The failures of these third parties to meet their service level commitments to us because of cybersecurity or data breaches, inadequate information technology infrastructure, insufficient updates to software, non-conformance to servicing standards and other reasons for their business operations’ disruption can damage our reputation and cause financial losses to us, impacting our results of operations.
Risks Related to Our Financial Operations
Our profitability could suffer if our cost-management strategies are unsuccessful
Our ability to improve or maintain our profitability is dependent on our continuous management of our costs. Our cost management strategies include optimizing the alignment between the demand for our services and our resource capacity, including our delivery centers’ utilization; investment in our work from home environment; the costs of service delivery; the cost of sales and general and administrative costs as a percentage of revenues; offshoring of certain corporate functions; and the use of automation for standard tasks. Our ongoing cost management measures must be balanced against the need for investment to support our growth, technology transformation in our business, and increasing cybersecurity threats. The cost management measures are also being impacted by inflationary pressures in the economies where we do business. If we are not effective in managing our operating and administrative costs in response to changes in demand and pricing for our services, if we manage our costs at the expense of investments necessary to grow and protect our business, or if we are unable to absorb or pass on to our clients the increases in our costs of operations, our results of operations could be materially adversely affected.
Our leverage and debt service obligations may adversely affect our business and financial condition
As of December 31, 2023, we had $995.0 million of borrowings outstanding and a maximum borrowing capacity of up to $1.5 billion in the aggregate under our credit facility.
On February 26, 2024, we amended our credit facility to increase the net leverage ratio covenant, for a period starting with the quarter ending March 31, 2024 through the quarter ending March 31, 2025, from the current 3.5 to 1 to between 4.0 to 1 and 4.5 to 1, as may be applicable in different quarters; and reduced the total lenders’ commitment from $1.5 billion to $1.3 billion. See, disclosure under Item 9B. Other Information, in this Annual Report on Form10-K.
Our indebtedness could have adverse consequences on our business and financial condition, including:
• requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness;
• exposing us to increased interest expense;
• limiting our ability to obtain additional financing for working capital, capital expenditures, strategic acquisitions and general corporate or other purposes;
• limiting our ability to pay dividends and make other distributions;
• increasing our vulnerability to adverse economic, industry or competitive developments; and
• placing us at a competitive disadvantage compared to our competitors who may be better positioned to take advantage of opportunities that our leverage prevents us from exploiting.
Our ability to satisfy our debt obligations will depend on our future performance, which will be affected by financial, business, economic and other factors. Furthermore, our operations may not generate sufficient cash flows to enable us to service our debt and satisfy our other obligations. As a result, we may need to enter into additional financing arrangements to obtain the necessary funds. If we determine it is necessary to seek additional funding for any reason, we may not be able to obtain such funding or, if funding is available, obtain it on acceptable terms. If we fail to make a payment on our debt, we could be in default on such debt and the lenders could declare such debt due and payable, which would have a material adverse effect on our business, financial condition and results of operations.
We are subject to customary financial and operating restrictions built into our credit agreement
Our credit agreement includes a number of financial and operating restrictions. For example, our credit agreement requires us to meet financial ratios, including leverage ratios and an interest coverage ratio, among others. Our credit agreement also contains provisions that restrict our ability to, among other things, create liens on our assets; dispose of assets; engage in mergers or consolidations, and pay dividends or to make other distributions to our stockholders, or repurchase shares of our common stock. These provisions may competitively disadvantage us relative to other companies, and adversely impact our ability to conduct our business. Potential important opportunities or transactions, such as significant acquisitions, may require the consent of our lenders. In addition, our failure to comply with these covenants could result in a default under the credit agreement.
Inflation and changes in the cost or availability of labor, telecommunication services, energy, and other operational necessities could adversely affect our results of operations
We have experienced increases in labor costs due to inflationary pressures and due to the competition for labor in many jurisdictions where we do business continuing to be acute. Inflation is also causing notable increases in our other critical operating costs. Many of our long-term contracts do not allow for escalation of fees, as our operating costs increase; and those that do allow for escalations do not always provide for rate increases comparable to cost increases that we are experiencing now and likely to experience in the future. There is no assurance that we will be able to fully offset cost increases through cost management or price increases, especially given the current highly competitive environment in our industry. Our clients are also experiencing economic pressures, and faced with cost increases from us, may take over the delivery of the services we historically performed for them or engage less expensive providers. If we are not able to increase our pricing or otherwise offset our increased costs while maintaining our market share, our operating results and profitability could be adversely affected.
Our results of operations may be adversely impacted by foreign currency exchange rate risk
Many contracts that we service from delivery centers or with remote employees based outside of the United States are typically priced, invoiced, and paid in U.S. and Australian dollars, British pounds, or Euros, while the costs incurred to deliver these services are incurred in the functional currencies of the country of operations. The fluctuations between the currencies of the contract and operating currencies present foreign currency exchange risks. Furthermore, because our financial statements are denominated in U.S. dollars, but approximately 14% of our revenue is derived from contracts denominated in other currencies, our results of operations could be adversely affected if the U.S. dollar strengthens significantly against foreign currencies.
While we hedge at various levels against the effect of exchange rate fluctuations, we can provide no assurance that we will be able to continue to successfully manage this foreign currency exchange risk and avoid adverse impacts on our business, financial condition, and results of operations.
Increases in income tax rates, changes in income tax laws or disagreements with tax authorities could adversely affect our business
We are subject to income taxes in the United States and in certain foreign jurisdictions where we operate or where clients benefit from our services. Increases in income tax rates or other changes in income tax laws could reduce our after-tax income from the relevant jurisdictions and could adversely affect our business, financial condition or results of operations. Our operations outside the United States generate a significant portion of our income, and many of the other countries where we have significant operations have recently made or are actively considering changes to existing tax laws that could significantly impact how U.S. multinational corporations are taxed on foreign earnings.
The Biden administration and many European governments have called for changes to fiscal and tax policies, which may include comprehensive tax reform. Many of these proposed changes to the taxation of our activities, if enacted, could increase our effective tax rate or adversely affect our business, financial condition, or results of operations.
There are no assurances that we will be able to implement effective tax planning strategies that are necessary to optimize our tax position following changes in tax laws globally. If we are unable to implement a cost-effective contracting structure and other changes in how we do business to mitigate these changes, our effective tax rate and our results of operations would be impacted.
Our ability to use our net operating losses or U.S. federal tax credits to offset future taxable income may be subject to certain limitations.
If our transfer pricing arrangements are ineffective, our tax liability may increase
Transfer pricing regulations in the United States, Australia, India, Mexico, the Netherlands, the Philippines, and other countries where we operate, require that cross-border transactions between affiliates be on arm’s-length terms. We carefully consider pricing for operations delivery, marketing, sales, and other services among our domestic and foreign subsidiaries to assure that they are at arm’s-length. If tax authorities determine that the transfer prices and terms that we have applied are not appropriate, our tax liability may increase, including accrued interest and penalties, thereby impacting our profitability and cash flows, and potentially resulting in a material adverse effect to our operations, effective tax rate and financial condition.
We have incurred, and may in the future incur, impairments to goodwill, long-lived assets or strategic investments, which impacts our financial results of operations
As a result of past acquisitions, as of December 31, 2023, we have approximately $809.0 million of goodwill and $198.4 million of intangible assets included on our Consolidated Balance Sheet. We review our goodwill and intangible assets for impairment at least once annually, and more often when events or changes in circumstances indicate the carrying value may not be recoverable. We perform an assessment of qualitative and quantitative factors to determine whether the existence of events or circumstances lead to a determination that it is more likely than not that the fair value of the goodwill or intangible asset is less than its carrying amount. In the event that the book value of goodwill or intangible asset is impaired, such impairment would be charged to earnings in the period when such impairment is determined. We have recorded goodwill and intangible impairments in the past, and there can be no assurance that we will not incur impairment charges in the future, which could have material adverse effects on our financial condition or results of operations.
Risks Related to Contracting Practices, Legal and Regulatory Matters that Impact Our Business
Our financial results may be impacted by changes in laws/regulations, and our failure to comply with laws/regulations relevant to our business
Our business is subject to extensive, and at times conflicting, regulations by the U.S. federal, state, local, foreign national, and provincial authorities relating to confidential client and customer data, data privacy, customer communications, and telemarketing practices; licensed healthcare, financial services, collections, insurance, and gaming/gambling support activities; trade restrictions and sanctions, tariffs, import/export controls; taxation; labor regulations, mandatory healthcare and wellness regulations, wages, breaks and severance regulations; health and safety regulations; disclosure obligations; and immigration laws, among other areas.
As we provide services to clients’ customers residing in countries where we do not have in-country operations or if we use telecommunication channels and airways in countries where we do not have physical presence, we may also be subject to laws and regulations of these countries. Costs and complexity of compliance with existing and future regulations that could apply to our business may adversely affect our profitability; and if we fail to comply with these mandates, we could be subject to contractual, civil and even criminal liability, monetary damages and fines. Enforcement actions by regulatory agencies could also materially increase our costs of operations and impact our ability to serve our clients.
Adverse changes in laws or regulations that impact our business may negatively affect the sale of our services, slow the growth of our operations, or mandate changes to how we deliver our services, including our ability to use and how we use offshore resources. These changes could threaten our ability to continue to serve certain markets.
Uncertainty and inconsistency in relevant privacy and data protection laws, the high cost of compliance with such laws, and the failure to comply with related contractual obligations may impact our ability to deliver services and our results of operations
During the last several years, there has been a significant increase in data protection and privacy regulations and enforcement activity in many jurisdictions where we and our clients do business. These regulations are often complex and at times they impose conflicting requirements among different jurisdictions that we serve. For example, the European Union’s General Data Protection Regulation (GDPR) imposes data protection requirements for controllers and processers of personally identifiable information collected in Europe, while the California Consumer Privacy Protection Act (CCPA), and other similar acts in other U.S. states imposed similar regulations protecting state residents with a different reach. We are also subject to the terms of our privacy policies and client contractual obligations related to privacy, data protection, and information security. There is an increased focus on automated processing and services delivered with the use of AI and GenAI tools that may lead to increased regulatory oversight and restrictions that could have an impact on our business.
The scope of these laws, regulations and policies is subject to differing interpretations, and may be inconsistent among, or conflict with other laws and regulations. The regulatory framework for privacy and data protection worldwide is, and is likely to remain for the foreseeable future, uncertain and complex, and it is possible that these varied obligations may be interpreted and applied in a manner that currently we do not anticipate or that they are inconsistent from one jurisdiction to another and may conflict with other rules or our practices.
For example, the New York Department of Financial Services, which regulates some of our licensed activity, issues its own cybersecurity mandates in addition to those issued by the state of New York and other states that oversee our activities; while the U.S. federal government is considering new national data privacy mandates which would overlap with, contradict or supersede certain state requirements. Our public sector clients also established and continue to evolve certain cybersecurity and technology resilience mandates, such as FedRamp and StateRamp, that impact our business and cost of our business delivery. Failure to comply with all privacy, data protection and cybersecurity laws and regulations that are relevant to different parts of our business have resulted in, and may result in future legal claims, significant fines, sanctions, or penalties, or loss of licenses; and may increase our cost of operations, make it difficult for us to secure business or efficiently serve our clients. Compliance with these evolving regulations requires significant investment which impacts our financial results of operations.
Well publicized security breaches have led to enhanced government and regulatory scrutiny of the measures being taken by companies to protect against cyberattacks and have resulted in heightened cybersecurity requirements, including additional regulatory expectations and the oversight of vendor activity for licensed service providers, and service providers to public sector clients. Unauthorized disclosure of sensitive or confidential client, their customers’, and our employees’ data, whether through third party breach of our systems or due to negligence or intentional acts of insiders, has exposed us in the past and could expose us in the future to costly litigation and regulatory enforcement. It could also impact our reputation and cause us to lose clients, which could adversely affect our financial condition and results of operations.
Wage and hour class action lawsuits can expose us to costly litigation and damage our reputation
The customer care business process outsourcing industry in the United States is a target of plaintiffs’ law firms that specialize in wage and hour class action lawsuits against large employers by soliciting potential plaintiffs (current and former employees) with billboard and social media advertising. The plaintiffs’ law firms seek large settlements based entirely on the number of potential plaintiffs in a class, whether or not there is any basis for the claims that they make on behalf of their clients, most of whom do not believe themselves to be aggrieved nor seek recourse until solicited. The cost of defending litigation for these large class action lawsuits has been and will continue to be significant. Because we hire large numbers of employees in the United States and our industry has large turnover, the potential size of plaintiffs’ classes in these wage and hour lawsuits can be considerable, creating potential material risks to the cost of our operations. As we continue to hire more employees in the United States, and grow our operations in California, where the number of wage and hour class action lawsuits is larger than in many other states combined and where verdicts in these lawsuits are very large, our results of operations may be material impacted by these lawsuits.
Contract terms typical in our industry can lead to volatility in our revenue and profitability
Many of our Engage business contracts require clients to provide monthly forecasts of volumes, but no guaranteed or minimum volumes or revenue levels. Such forecasts vary from month to month, which can impact our staff and space utilizations, our cost structure, and our profitability.
Many of our contracts, although long term, have termination for convenience clauses with short notice periods and no guarantees of minimum revenue levels or profitability, which could have a material adverse effect on our results of operation, if clients terminate a contract or materially reduce customer interaction volumes on short notice.
We may not always offset increased costs with increased fees under long-term contracts. The pricing and other terms of our client contracts, particularly on our long-term service agreements, are based on estimates and assumptions we make at contract inception. These estimates reflect our best judgment, at the time, regarding the nature of the engagement and our expected costs to provide the contracted services, but these judgments could differ from actual results, especially with conflicting inflationary and recessionary pressures.
Not all our contracts allow for escalation of fees as our cost of operations increase. Moreover, those that do allow for such escalations do not always allow increases at rates comparable to the increases that we experience due to rising minimum wage mandates, related payroll cost increases, increased technology costs of work from home environments, and the increasing costs of evolving regulatory requirements. If and to the extent we do not negotiate long-term contract terms that provide for fee adjustments to reflect increases in our cost of service, our business, financial conditions, and results of operation could be materially impacted.
We provide service level commitments to certain customers. If we do not meet these contractual commitments, we could be subject to penalties, credits, refunds or contract terminations, which could adversely affect our revenue and harm our reputation.
Broad Indemnification obligations required in some of our contracts for losses or damages outside of our control in the clients’ environment that can be tied indirectly to our services may make some of our contracts unprofitable and may materially impact our results of operations.
The trend of clients seeking to transfer growing cybersecurity, data privacy and emerging technologies related risks to service providers could significantly impact our operations and profitability
As cybersecurity incidents and data breaches are becoming more common and often impossible to avoid, clients are looking to their service providers, like us, to cover their cost of these incidents. Many of the services we provide are performed in the clients’ and not in our information technology environments and security incidents that clients experience may have many causes and many contributory factors, most of which are unrelated to our activities or involve situations that we cannot control or mitigate. Yet, clients are increasingly seeking for service providers, like us, to accept unlimited liability for incidents that we did not cause but which our errors or omissions may have contributed to, in part. While clients expect the inclusion of emerging technologies, including AI and GenAI in our services offerings, they often are not positioned to nor wish to mitigate or assume responsibility for the often uncertain risks associated with such technologies, expecting us
to assume that risk. Potential liability and related cost in connection with these risk transfers are often unpredictable, cannot be easily quantified or priced, and cannot always be insured. If we are unable to negotiate reasonable contractual terms with our clients where liabilities for our services are reasonably allocated to events that we can impact, control or mitigate, we may have to decline business opportunities or incur significant liability that would have impact on our results of operations.
The growing use of AI/GenAI in our offerings and evolving uncertainty of regulatory environments impacting such offerings may impact our costs of doing business and reputation
Regulations on the use of AI/GenAI technologies are rapidly evolving across jurisdictions where we do business. The uncertainty and inconsistencies of these evolving regulatory environments may increase costs and our liability related to our use of AI and the use of AI by our clients. While we have taken a responsible approach to how AI/GenAI is included in our offerings and in our business, there can be no assurances that future AI regulations would not adversely impact us or conflict with our approach to AI, including affecting our ability to offer AI/GenAI in our service offerings without costly investments in modifications to our offerings and additional compliance requirements, impacting our results of operations or our reputation.
Challenges in protecting our intellectual property and its infringement by others may adversely impact our ability to innovate and compete
Our intellectual property may not always receive favorable treatment from the United States Patent and Trademark Office, the European Patent Office, or similar foreign intellectual property adjudication and registration agencies; and our “patent pending” intellectual property may not receive a patent or may be subject to prior art limitations. Our trademarks may be challenged, and have been challenged, by others with similar marks.
The lack of an effective legal system in certain countries where we do business or lack of commitment to protection of intellectual property rights, may prevent us from being able to defend our intellectual property and related technology against infringement by others, leading to a material adverse effect on our business, results of operations and financial condition.
As our reliance on technology for services that we provide increases, so is the risk of infringement or claims of infringement of intellectual property rights of others. If we are not successful in defending against such claims, our results of operations may be impacted.
Our inability to timely secure or maintain licensing required to perform certain regulated services may significantly impact our results of operations
Some of the services we provide for our healthcare, financial services, gaming, and other highly regulated clients require for some of our legal entities, directors and officers of these entities, and employees who perform the services to be licensed by authorities that oversee these regulated activities. These licensing requirements vary among jurisdictions where we provide services; and the ongoing compliance requirements to maintain and renew these licenses also varies and change often. Our ability to maintain these licenses and to comply with various evolving regulations that underpin the licensing requirements depends on many factors, not all of which we control; and the cost of this compliance can be significant. Failure to comply with all regulations in one jurisdiction may impact our licensing status with regulators in other jurisdictions. Our ability to secure and maintain these licenses and to do so timely cannot always be assured and depends on many factors, some of which we cannot control. If we are unable to maintain these licenses, if we fail to comply with ever evolving regulations in all the jurisdictions where we deliver regulated services, or if we are unable to meet the regulatory requirements, we may lose significant business opportunities or breach ongoing contractual obligations, which could have material advice impact on our results of operations.
Risks Related to Our Operations Outside of the United States
We face special risks associated with international operations
An important component of our business strategy is our global delivery model and our continuous international expansion. In 2023, we derived approximately 30% of our revenue from operations outside of the United States. We deliver services to clients from 22 countries on six continents and the expansion to at least five additional countries is being considered in coming years. Conducting business outside of the United States and in many global locations at the same time is subject to a variety of risks, including:
• inconsistent regulations, licensing requirements, prescriptive labor rules, corrupt business practices, restrictive export control and immigration laws, which may result in inadvertent violation of laws that we may not be able to immediately detect or correct; and which may increase our cost of operations as we endeavor to comply with laws that differ from one country to another;
• uncertainty of tax regulations in countries where we do business may affect our costs of operation;
• longer payment cycles, especially during economic downturn, could impact our cash flows and results of operations;
• political and economic instability, and unexpected changes in regulatory regimes could adversely affect our ability to deliver services and our ability to repatriate cash;
• currency exchange rate fluctuations and restrictions on currency movement or negative tax consequences triggered by such movement could adversely affect our results of operations, if we are forced to maintain assets in currencies other than U.S. dollars, while our financial results are reported in U.S. dollars; and if we are forced to maintain assets in currencies other than those that we use for payment of our operating expenses;
• infrastructure challenges and lack of sophisticated disaster and pandemic preparedness in some countries where we do business may impact our service delivery; and
• armed conflicts, terrorist attacks or civil unrest in some of the regions where we do business, and the resulting need for enhanced security measures may impact our ability to deliver services, threaten the safety of our employees, and increase our costs of operations.
While we monitor and endeavor to mitigate in a timely manner the relevant regulatory, geopolitical, and other risks related to our operations outside of the United States, we cannot assess with certainty what impact such risks are likely to have over time on our business, and we can provide no assurance that we will always be able to mitigate these risks successfully and avoid adverse impact on our business and results of operations.
Our delivery model involves geographic concentration outside of the United States, exposing us to significant operational risks
Our business model is dependent on our ability to locate a significant portion of our delivery and corporate functions in low-cost jurisdictions around the globe. Our dependence on our delivery centers and corporate support functions in areas subject to frequent severe weather, natural disasters, health and security threats, and arbitrary government actions represents a particular risk. Natural disasters (floods, winds, and earthquakes), terrorist attacks, pandemics, large-scale utilities outages, telecommunication and transportation disruptions, labor or political unrest, and restriction on repatriation of funds at some of the locations where we do business may interrupt or limit our ability to operate or may increase our costs. Our business continuity and disaster recovery plans, while extensive, may not always be effective, particularly if catastrophic events occur; and business interruption insurance that we procure to address some of these risks may not always be available or may not be affordable.
For these and other reasons, our geographic concentration in locations outside of the United States, especially in the Philippines, India, Mexico, and Bulgaria could result in a material adverse effect on our business, financial condition and results of operations.
We may face new risks as we expand into countries where we have no prior experience
Our clients demand service providers who can support them anywhere in the world and sometimes, to maintain competitiveness, we must establish new operations, quickly, in countries where we previously have not done business. New market entry is fraught with operational, security, regulatory compliance, safety, and corruption risks, and these risks are exacerbated when new operations are launched quickly. We have experience in new market entry around the globe, but there can be no assurance that new operations in new countries would not result in financial losses, operational instability and reputational impact. If we elect not to follow our clients to markets where they wish to have services, we may lose lucrative contracts, including contracts in multiple jurisdictions where we have experience, or to competitors who are already established in the markets new to us, which would impact our financial results of operations.
Risks Related to Ownership of Our Common Stock
The price and trading volumes of our common stock may fluctuate significantly due to many factors, some of which we cannot control
Our common stock trades on Nasdaq under the symbol “TTEC.” In recent years, the market value of our stock has fluctuated significantly due to many unrelated factors. Our results of operations directly impact the value of our stock, but many developments affecting the CX solutions industry in general, and not directly related to us or controlled by us, may also have material impact on our stock value. For example, our stock value may be impacted by:
• the performance of others who offer similar services and how their performance is perceived by investors and analysts in comparison to our performance;
• general economic, industry and market conditions;
• acquisitions or consolidation in our industry;
• our capital structure, including the amount of our indebtedness, as it compares to others in our industry;
• changes in key personnel;
• changes in market valuations of similar companies;
• the depth and liquidity of the market for our common stock;
• fluctuations in currency exchange rates;
• our dividend policy as it compares to the dividend policies of other similar companies;
• investors’ perception about our industry in general, and about our business and our management team;
• the adequacy of our ESG practices;
• the passage of adverse legislation or other regulatory developments in countries where we do business;
• the stock market fluctuations due to geopolitical events, energy prices or terrorist activities; and
• the impact of the factors referred to elsewhere in “Risk Factors.”
Our stock value may also be impacted by financial projections that we provide to the public and whether these projections align with the expectations of our current investors, potential investors, and financial analysts who follow and comment on our stock. Any changes in our projections of our results of operations, or our failure to meet or exceed these projections and the investors’ and analysts’ expectations about our results of operations could result in material impact on our stock value.
While many of these factors impact the stock value of all companies in and outside of our industry, we may be more significantly impacted because of the relatively small trading volume of our shares.
There can be no assurance that we will continue to declare dividends or repurchase our shares or the cadence or levels of these activities
Our Board of Directors has declared biannual dividends since 2015; and from time to time, in the past, we repurchased our shares, as an alternative method of providing returns to our stockholders. Our Board’s decisions regarding the payment of dividends or share repurchases are made in the best interest of all stockholders in compliance with relevant laws, and depend on many factors, including our financial condition and earnings from operations; capital requirements for operation and technology investments and acquisitions; debt service obligations; market price of our shares; industry practice; legal and regulatory requirements; changes in U.S. federal, state, and international tax or corporate laws; covenant restrictions in our credit facility; changes to our business model, and other factors that our Board may deem relevant.
Our dividend policy and share repurchase practices may change from time to time, and there are no assurances that we will continue to declare dividends or repurchase shares. A reduction or suspension in our dividend payments could have a negative impact on the price of our common stock.
Exclusive forum for dispute resolution in our bylaws could limit our stockholders’ ability to obtain a favorable judicial forum for their disputes
Our bylaws designate Delaware’s state courts as the exclusive forum for most disputes between us and our stockholders, including U.S. federal claims and derivative actions. We believe that this provision may benefit us by providing increased consistency in the application of Delaware law and federal securities laws by chancellors and judges who are particularly experienced in resolving corporate disputes, efficient administration of cases relative to other forums, and protection against the burdens of multi-forum litigation. This choice of forum provision does not have the effect of causing our stockholders to waive our obligation to comply with the federal securities laws.
This bylaw forum selection provision is not uncommon for companies incorporated in the State of Delaware, but it could limit our stockholders’ ability to select a more favorable judicial forum for disputes with us, our directors, officers or other employees and may therefore discourage litigation. It is important to note, however, that our choice of forum provision would (i) not be enforceable with respect to any suits brought to enforce any liability or duty created by the Securities Exchange Act of 1934, as amended, and (ii) have uncertain enforceability with respect to claims under the Securities Act of 1933, as amended.
Delaware law and provisions in our certificate of incorporation and bylaws might discourage, delay or prevent a change in control of our Company, potentially depressing the price of our common stock
Our restated certificate of incorporation and amended and restated bylaws contain provisions that could depress the market price of our common stock by acting to discourage, delay or prevent a change in control of our Company or changes in our management that the stockholders of our Company may deem advantageous. These provisions, among other things:
• authorize the issuance of “blank check” preferred stock that our board of directors could use to implement a stockholder rights plan;
• provide that special meetings of our stockholders may be called only by our Chairman, TTEC President or our board of directors;
• establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings;
• permit the board of directors to establish the number of directors on our board; and
• provide that the board of directors is expressly authorized to make, alter or repeal our amended and restated bylaws.
In addition, Section 203 of the Delaware General Corporation Law may discourage, delay or prevent a change in control of our Company, as it imposes certain restrictions on mergers, business combinations and other transactions between us and holders of 15% or more of our common stock.
Our Chairman and Chief Executive Officer controls a majority of our stock and has control over all matters requiring action by our stockholders; and his interest may conflict with the interests of our other stockholders
Kenneth D. Tuchman, our Chairman and Chief Executive Officer, directly and beneficially owns approximately 59% of our common stock. As a result, Mr. Tuchman could and does exercise significant influence and control over our business practices and strategy. He can elect all of the members of our board of directors, effect stockholder actions by written consent in lieu of stockholder meetings, and determine the outcome of all matters submitted to a vote of our stockholders, including matters involving mergers or other business combinations, the acquisition or disposition of assets, the occurrence of indebtedness, the issuance of any additional shares of common stock or other equity securities and the payment of dividends on our common stock.
The interest of Mr. Tuchman may not always coincide with the interest of our other stockholders, and Mr. Tuchman may seek to cause the Company to take actions that might involve risks to our business or adversely affect us or our other stockholders. For example, Mr. Tuchman’s control of TTEC could delay or prevent a change in control, merger, consolidation, or sale of all or substantially all our assets that our other stockholders support, or conversely, Mr. Tuchman’s control could result in the consummation of a transaction that not all of our other stockholders support. As a controlling stockholder, Mr. Tuchman is generally entitled to vote his shares as he sees fit, which may not always be in the interest of our other stockholders. This concentrated control could also discourage investors from acquiring our common stock or initiating change of control transactions, which could depress the trading price of our common stock.
Our status as a “controlled company” could make our common stock less attractive to investors or otherwise harm our stock price
Because we qualify as a “controlled company” under the listing rules of the NASDAQ Stock Market, we are not required to have a majority of our board of directors be independent, nor are we required to have an independent compensation committee or an independent nominating committee of the board. While the Company has elected not to avail itself of these governance exceptions available to “controlled companies,” in the future, the Company may elect to do so. Accordingly, because of our “controlled company” status, our other stockholders may not have the same protections that are available to stockholders of companies that are subject to all of the corporate governance rules for NASDAQ-listed companies. Our status as a “controlled company” could make our common stock less attractive to some investors or otherwise harm our stock price.

---

ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.

---

ITEM 2. PROPERTIES
ITEM 2. PROPERTIES
Our corporate headquarters are located in Greenwood Village, Colorado. In addition to our headquarters and the customer engagement centers used by our TTEC Engage segment discussed below, we also maintain sales and consulting offices in several countries around the world which serve our TTEC Digital segment.
Our old headquarters building in Englewood, Colorado, which we own, is currently not occupied.
As of December 31, 2023, we operated 70 customer engagement centers that are classified as follows:
● Multi-Client Center - We lease space for these centers and serve multiple clients in each facility;
● Dedicated Center - We lease space for these centers and dedicate the entire facility to one client; and
● Managed Center - These facilities are leased or owned by our clients and we staff and manage these sites on behalf of our clients in accordance with facility management contracts.
As of December 31, 2023, our customer engagement centers were located in the following countries:
Total
Number of
Multi-Client
Dedicated
Managed
Delivery
Centers
Centers
Centers
Centers
Australia
-
-
Brazil
-
-
Bulgaria
-
-
Canada
-
Colombia
-
-
Egypt
-
-
Greece
-
-
Germany
-
-
Honduras
-
-
India
-
-
Mexico
-
-
Philippines
-
-
Poland
-
-
South Africa
-
Thailand
-
-
United Kingdom
-
United States of America
Total
The leases for our customer engagement centers have remaining terms ranging from one to 10 years and generally contain renewal options. We believe that our existing customer engagement centers are suitable and adequate for our current operations, and we have plans to build additional centers to accommodate future business.

---

ITEM 3. LEGAL PROCEEDINGS
ITEM 3. 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.

---

ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II

---

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the NASDAQ Global Select Market under the symbol “TTEC.”
As of December 31, 2023, we had 212 holders of record of our common stock and during 2023 we declared and paid two $0.52 per share semi-annual dividends on our common stock. During 2022 we declared and paid a $0.50 per share semi-annual dividend and a $0.52 per share semi-annual dividend on our common stock.
In 2015, our Board of Directors adopted a dividend policy, with the intent to distribute a periodic cash dividend to stockholders of our common stock, after consideration of, among other things, TTEC’s performance, cash flows, capital needs and liquidity factors. The Company paid the initial dividend in 2015 and has continued to pay a semi-annual dividend in October and April of each year in amounts ranging between $0.18 per common share in 2015 and $0.52 per common share in October 2023. On February 27, 2024, the Board of Directors authorized a $0.06 dividend per common share, payable on April 30, 2024, to shareholders of record as of April 3, 2024. While it is our intention to continue to pay semi-annual dividends in 2024 and beyond, any decision to pay future cash dividends will be made by our Board of Directors. In addition, our credit facility restricts our ability to pay dividends in the event we are in default or do not satisfy certain covenants.
Stock Repurchase Program
We continue to have the opportunity to return capital to our shareholders via a stock repurchase program (originally authorized by the Board of Directors in 2001). As of December 31, 2023, the cumulative authorized repurchase allowance was $762.3 million, of which we have used $735.8 million to purchase 46.1 million shares. The Board most recently authorized additional funds under the repurchase program in 2017 and of the total amount authorized, approximately $26.6 million continues to be authorized for repurchase as of December 31, 2023. During 2022 and 2023, and year to date in 2024, we did not purchase any shares under the program. Although the stock repurchase program does not have an expiration date, we would seek a re-authorization of repurchases from the Board of Directors, if we decide to make repurchases during 2024.
Stock Performance Graph
The graph depicted below compares the performance of TTEC common stock with the performance of the NASDAQ Composite Index; the Russell 2000 Index; and customized peer group over the period beginning on December 31, 2018 and ending on December 31, 2023. We have chosen the Peer Group comprised of Accenture Plc (NASDAQ: ACN), Cognizant Technology Solutions Corp. (NASDAQ: CTSH), Concentrix (NASDAQ: CNXC), Globant S.A. (NYSE: GLOB), Teleperformance (NYSE Euronext: RCF) and Telus International (NYSE: TIXT). We believe that the companies in the Peer Group are relevant to our current business model, market capitalization and our two segments Digital and Engage.
The graph assumes that $100 was invested on December 31, 2018 in our common stock and in each comparison index, and that all dividends were reinvested. We declared per share dividends on our common stock of $0.90 during 2021, $1.02 during 2022 and $1.04 during 2023. Stock price performance shown on the graph below is not necessarily indicative of future price performance.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Among TTEC Holdings, Inc., The NASDAQ Composite Index,
The Russell 2000 Index, And Peer Groups
December 31,
TTEC Holdings, Inc.
$
$
$
$
$
$
NASDAQ Composite
$
$
$
$
$
$
Russell 2000
$
$
$
$
$
$
Peer Group
$
$
$
$
$
$

---

ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. <RESERVED>

---

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Executive Summary
Founded in 1983, TTEC is a global CX outsourcing partner for marquis and disruptive brands and public sector clients. The Company designs, builds, and operates technology-enabled customer experiences across digital and live interaction channels to help clients increase customer loyalty, revenue, and profitability. By combining digital solutions with data-driven service capabilities, we help clients improve their customer satisfaction while lowering their total cost to serve. As of December 31, 2023, TTEC served over 750 clients across targeted industry verticals including financial services, healthcare, public sector, telecom, technology, media, travel and hospitality, automotive and retail.
TTEC operates through two business segments.
• TTEC Digital is one of the largest CX technology providers and is focused exclusively on the intersection of Contact Center as a Service (CCaaS), Customer Relationship Management (CRM), and Artificial Intelligence (AI) and Analytics. A professional services organization comprised of software engineers, systems architects, data scientists and CX strategists, this segment creates and implements strategic CX transformation roadmaps; sells, operates, and provides managed services for cloud platforms and premise based CX technologies including Amazon Web Services, Cisco, Genesys, Google, and Microsoft; and creates proprietary IP to support industry specific and custom client needs. TTEC Digital serves clients across Enterprise and Small & Medium Sized (SMB) business segments and has a dedicated unit with government technology certifications serving the public sector.
• TTEC Engage provides the digitally enabled CX operational and managed services to support large, complex enterprise clients’ end-to-end customer interactions at scale. Tailored to meet industry specific and business needs, this segment delivers data-driven omnichannel customer care, customer acquisition, growth, and retention services, tech support, trust and safety and back-office solutions. The segment’s technology-enabled delivery model covers the entire associate lifecycle including recruitment, onboarding, training, delivery, workforce management and quality assurance.
TTEC demonstrates its market leadership through strategic collaboration across TTEC Digital and TTEC Engage when there is client demand and fit for our integrated solutions. This partnership is central to our ability to deliver comprehensive and transformational customer experience solutions to our clients, including integrated delivery, go-to-market and innovation for truly differentiated, market leading CX solutions.
During 2023, the combined TTEC Digital and TTEC Engage global operating platform delivered onshore, nearshore, and offshore services in 22 countries on six continents -- the United States, Australia, Belgium, Brazil, Bulgaria, Canada, Colombia, Costa Rica, Egypt, Germany, Greece, Honduras, India, Ireland, Mexico, the Netherlands, New Zealand, the Philippines, Poland, South Africa, Thailand, and the United Kingdom with the help of over 60,000 customer care associates, consultants, technologists, and CX professionals.
Our revenue for fiscal 2023 was $2.463 billion, approximately $487 million, or 20%, which came from our TTEC Digital segment and $1.976 billion, or 80%, 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.
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 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. We also completed an acquisition early in the second quarter of 2021 of a provider of Genesys and Microsoft cloud contact center services, which followed an acquisition in the second half of 2020 of a preferred Amazon Connect cloud contact center service and implementation provider.
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 750 diverse clients globally, including many of the world’s iconic brands, Fortune 1000 companies, public sector clients, and disruptive hypergrowth companies.
Cybersecurity Incident
In 2021, TTEC experienced two significant cybersecurity incidents. One involved a global supply chain compromise that impacted thousands of companies worldwide, including a TTEC Digital subsidiary and its managed services clients. Another involved a ransomware attack that temporarily disrupted the TTEC Engage business. With support from outside forensic experts, in the fourth quarter of 2021 TTEC completed its investigation of root causes and impacts of the cybersecurity incident and has been working to harden the security of its information technology environment and has taken the measures it believes to be appropriate to protect its systems and its data.
In connection with these incidents, we also exercised reasonable efforts to identify data that may have been exfiltrated and found no credible evidence that exfiltrated data was publicly released, nevertheless, we provided appropriate regulatory and individual notices about the incident and its potential impacts.
The Company performed appropriate procedures to validate the accuracy and completeness of information involved in its financial reporting, and we had no indication that the accuracy and completeness of any financial information was impacted as a result of the incident.
During 2021, 2022 and 2023, the incident also resulted in certain government enforcement actions, regulatory investigations, fines, penalties, and private legal actions, which although significant, are typical under these circumstances and did not materially impact our results of operations. Other actual and potential consequences of the incident included and may include negative publicity, loss of client trust, reputational damage, litigation, contractual claims, financial judgement or settlements in excess of insurance, and disputes with insurance carriers concerning coverage. See, Part I, Item 1A Risk Factors. The temporary operational disruptions that occurred due to these incidents did not have a long-term impact on our results of operations. During 2022 and 2023, TTEC has made and will continue to make in 2024, significant investments to enhance our information technology environment, our operational governance of our information technology system, and our data governance practices. See Part I, Item 1C Cybersecurity.
Capital and Financing Availability
Our balance sheet, cash flow from operations and access to debt and capital markets have historically provided us the financial flexibility to effectively fund our organic growth, capital expenditures, strategic acquisitions, incremental investments, and capital distributions.
We return capital to our shareholders through our dividend program. Given our cash flow generation and balance sheet strength, we believe cash dividends, in balance with our investments in product and service innovations, organic growth, and strategic acquisitions, align shareholder interests with the needs of the Company. After consideration of TTEC’s performance, cash flow from operations, capital needs and the overall liquidity of the Company, the Company’s Board of Directors adopted a dividend policy in 2015, with the intent to distribute a periodic cash dividend to stockholders of our common stock. Since inception in 2015, the Company has continued to pay a semi-annual dividend in October and April of each year in gradually increasing amounts from $0.18 per common share in 2015 to $0.52 per common share in October 2023. On February 27, 2024, the Board of Directors authorized a semi-annual dividend of $0.06 per common share, payable on April 30, 2024 to shareholders of record as of April 3, 2024.
Additional information with respect to our segments and geographic footprint is included in Part II, Item 8. Financial Statements and Supplementary Data, Note 3 to the Consolidated Financial Statements.
Our 2023 Financial Results
In 2023, our revenue increased 0.8% over 2022 to $2,462.8 million, including an increase of 0.2% or $4.4 million due to foreign currency fluctuations. The increase in revenue was comprised of a $23.2 million, or 5.0%, increase for TTEC Digital and a $4.1 million, or 0.2%, decrease for TTEC Engage.
Our 2023 income from operations decreased $50.5 million to $118.0 million, or 4.8% of revenue, from $168.5 million which was 6.9% of revenue for 2022. The change in operating income is attributable to a number of different factors across the segments. The TTEC Digital segment’s operating income declined 14.5%, or $5.0 million over last year primarily due to continued investments in CX leadership, sales and marketing, product engineering, and geographic expansion offset by an increase in revenue and program gross margins. TTEC Engage’s operating income decreased 34.0%, or $45.5 million, compared to the prior year primarily related to incremental growth-oriented investments, higher employee healthcare costs, ramp costs for new programs, training costs related to existing programs, litigation expenditures and restructuring expenses, offset partially by the acquisition of Faneuil, other revenue increases and reimbursement from insurance related to the cybersecurity incident.
Income from operations in 2023 and 2022 included a total of $19.8 million and $19.4 million of restructuring and asset impairments, respectively.
Our offshore customer experience centers spanning six countries serve clients based in the U.S. and in other countries with 21,500 workstations representing 69% of our global delivery capabilities. Revenue for TTEC Engage provided in these offshore locations represented 30% of our 2023 revenue, as compared to 29% of our 2022 revenue.
Our seat utilization is defined as the total number of utilized workstations compared to the total number of available production workstations. As of December 31, 2023, the total production workstations for TTEC Engage was 31,325 and the overall capacity utilization in our centers was 76% versus 78% in the prior year period. The decline was primarily driven by expansion into new geographies offshore not yet fully ramped, partially offset by improvements in the U.S. due to the Company’s site optimization strategy.
We 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.
Critical Accounting Policies and Estimates
Management’s Discussion and Analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. (“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. Below is a discussion of the policies that we believe may involve a high degree of judgment and complexity.
Revenue Recognition
The Company recognizes revenue from contracts and programs when control of the promised goods or services is transferred to the customers, in an amount that reflects the consideration it expects to be entitled to in exchange for those goods or services. Revenue is recognized when or as performance obligations are satisfied by transferring control of a promised good or service to a customer. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. Performance obligation is the unit of accounting for revenue recognition under the provisions of ASC Topic 606, “Revenue from Contracts with Customers” and all related amendments (“ASC 606”). A contract’s transaction price is allocated to each distinct performance obligation in recognizing revenue.
The business process outsourcing (“BPO”) inbound and outbound service fees are based on either a per minute, per hour, per FTE, per transaction or per call basis, which represents the majority of our contracts. These contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct. With the exception of training, which is not considered to have value to the customer on a stand-alone basis, and is typically billed upfront and deferred, the remainder of revenue is invoiced on a monthly or quarterly basis as services are performed and does not create a contract asset or liability.
In addition to revenue from BPO services, revenue also consists of fees from services for program launch, professional consulting, fully-hosted or managed technology and learning innovation services. The contracts containing these service offerings may contain multiple performance obligations. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using the best estimate of the standalone selling price of each distinct good or service in the contract. For these services, the point at which the transfer of control occurs determines when revenue is recognized in a specific reporting period. The majority of the Company’s services are recognized over time using the input method in which revenue is recognized on the basis of efforts or inputs toward satisfying a performance obligation (for example, resources consumed, labor hours expended, costs incurred, or time elapsed) relative to the total expected inputs to satisfy the performance obligation. Deferred revenues for these services represent amounts collected from, or invoiced to, customers in excess of revenues recognized. The Company records amounts billed and received, but not earned, as deferred revenue. Costs directly associated with revenue deferred, consisting primarily of labor and related expenses, are also deferred and recognized in proportion to the expected future revenue from the contract.
Variable consideration exists in contracts for certain client programs that provide for adjustments to monthly billings based upon whether the Company achieves, exceeds or fails certain performance criteria. Adjustments to monthly billings consist of contractual bonuses/penalties, holdbacks and other performance based conditions. Variable consideration is estimated at contract inception at its most likely value and updated at the end of each reporting period as additional performance data becomes available. Revenue related to such variable consideration is recognized only to the extent that a significant reversal of any incremental revenue is not considered probable.
Contract modifications are routine in the performance of the customer contracts. Contracts are often modified to account for customer mandated changes in the contract specifications or requirements, including service level changes. In most instances, contract modifications relate to goods or services that are incremental and distinctly identifiable, and, therefore, are accounted for prospectively.
Direct and incremental costs to obtain or fulfill a contract are capitalized, and the capitalized costs are amortized over the corresponding period of benefit, determined on a contract by contract basis. The Company recognizes an asset for the incremental costs of obtaining a contract with a customer if it expects to recover those costs. Costs to obtain a contract that would have been incurred regardless of whether the contract was obtained are recognized as an expense when incurred, unless those costs are explicitly chargeable to the customer regardless of whether the contract is obtained.
In certain cases, the Company negotiates an upfront payment to a customer in conjunction with the execution of a contract. Such upfront payments are critical to acquisition of new business and are often used as an incentive to negotiate favorable rates from the clients and are accounted for as upfront discounts for future services. Payments to customers are capitalized as contract acquisition costs and are amortized as a reduction to revenue in proportion to the expected future revenue from the contract, which in most cases results in straight-line amortization over the life of the contract. Such capitalized contract acquisition costs are periodically reviewed for impairment taking into consideration ongoing future cash flows expected from the contract and estimated remaining useful life of the contract.
Income Taxes
Accounting for income taxes 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 or tax returns. 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. When circumstances warrant, we assess the likelihood that our net deferred tax assets will more likely than not be recovered from future projected taxable income.
We continuously review the likelihood that deferred tax assets will be realized in future tax periods under the “more-likely-than-not” criteria. In making this judgment, we consider all available evidence, both positive and negative, in determining whether, based on the weight of that evidence, a valuation allowance is required.
We follow a two-step approach to recognizing and measuring uncertain tax positions. The first step is to determine if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained on audit. The second step is to estimate and measure the tax benefit as the amount that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority. We evaluate these uncertain tax positions on a quarterly basis. This evaluation is based on the consideration of several factors including changes in facts or circumstances, changes in applicable tax law, and settlement of issues under audit.
Interest and penalties relating to income taxes and uncertain tax positions are accrued net of tax in the Provision for income taxes in the accompanying Consolidated Statements of Comprehensive Income (Loss).
In the future, our effective tax rate could be adversely affected by several factors, many of which are outside our control. Our effective tax rate is affected by the proportion of revenue and income before taxes in the various domestic and international jurisdictions in which we operate. Further, we are subject to changing tax laws, regulations and interpretations in multiple jurisdictions in which we operate, as well as the requirements, pronouncements and rulings of certain tax, regulatory and accounting organizations. We estimate our annual effective tax rate each quarter based on a combination of actual and forecasted results of subsequent quarters. Consequently, significant changes in our actual quarterly or forecasted results may impact the effective tax rate for the current or future periods.
Business Combinations
We account for business combinations under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations, which requires an allocation of the consideration we paid to the identifiable assets, intangible assets and liabilities based on the estimated fair values as of the closing date of the acquisition. The excess of the fair value of the purchase price over the fair values of these identifiable assets, intangible assets and liabilities is recorded as goodwill.
Purchased intangibles other than goodwill are initially recognized at fair value and amortized over their useful lives unless those lives are determined to be indefinite. The valuation of acquired assets will impact future operating results. The fair value of identifiable intangible assets is determined using an income approach on an individual asset basis. Specifically, we use the multi-period excess earnings method to determine the fair value of customer relationships and the relief-from-royalty approach to determine the fair value of the trade name. Determining the fair value of acquired intangibles involves significant estimates and assumptions, including forecasted revenue growth rates, EBITDA margins, customer attrition rate, and market-participant discount rates.
The determination of the useful life of an intangible asset other than goodwill is based on factors including historical tradename performance with respect to consumer name recognition, geographic market presence, market share, plans for ongoing trade name support and promotion, customer attrition rate, and other relevant factors.
Goodwill and Indefinite-Lived Intangible Assets
We evaluate goodwill and indefinite-lived intangible assets for possible impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.
We use a two-step process to assess the realizability of goodwill. The first step, Step 0, is a qualitative assessment that analyzes current economic indicators associated with a particular reporting unit. For example, we analyze changes in economic, market and industry conditions, business strategy, cost factors, and financial performance, among others, to determine if there would be a significant decline to the fair value of a particular reporting unit. A qualitative assessment also includes analyzing the excess fair value of a reporting unit over its carrying value from impairment assessments performed in previous years. If the qualitative assessment indicates the fair value of the reporting unit is in excess of its carrying value, no further testing is required.
If a qualitative assessment indicates that a significant decline to fair value of a reporting unit is more likely than not, or if a reporting unit’s fair value has historically been closer to its carrying value, we will proceed to Step 1 testing where we calculate the fair value of a reporting unit based on discounted future probability-weighted cash flows. If Step 1 indicates that the carrying value of a reporting unit is in excess of its fair value, we will record an impairment equal to the amount by which a reporting unit’s carrying value exceeds its fair value.
During 2023, we completed a Step 1 goodwill analysis and determined that for all three reporting units the estimated fair value exceeds the carrying value. The calculation of fair value is based on estimates including revenue projections, EBITDA margin projections, estimated tax rates, estimated capital expenditures and discount rates.
We estimate fair value using discounted cash flows of the reporting units. The most significant assumptions used in these analyses are those made in estimating future cash flows. In estimating future cash flows, we use financial assumptions in our internal forecasting model such as projected capacity utilization, projected changes in the prices we charge for our services, projected labor costs, as well as contract negotiation status. The financial and credit market volatility directly impacts our fair value measurement through our weighted average cost of capital that we use to determine our discount rate. We use a discount rate we consider appropriate for the country where the business unit is providing services.
Contingencies
We record a liability for pending litigation and claims where losses are both probable and reasonably estimable. Each quarter, management reviews all litigation and claims on a case-by-case basis and assigns probability of loss and range of loss.
Other Components of Results of Operations
Cost of Services
Cost of services principally include costs incurred in connection with our customer experience services and technology services, including direct labor and related taxes and benefits, telecommunications, technology costs, sales and use tax and certain fixed costs associated with the customer engagement centers. In addition, cost of services includes income related to grants we may receive from local or state governments as an incentive to locate customer engagement centers in their jurisdictions which reduce the cost of services for those facilities.
Selling, General and Administrative
Selling, general and administrative expenses primarily include costs associated with administrative services such as sales, marketing, product development, legal, information systems (including core technology and telephony infrastructure), accounting and finance. It also includes outside professional fees (i.e., legal and accounting services), building expense for non-engagement center facilities and other items associated with general business administration.
Restructuring Charges, Net
Restructuring charges, net primarily include costs incurred in conjunction with reductions in force or decisions to exit facilities, including termination benefits and lease liabilities, net of expected sublease rentals.
Impairment Losses
Impairment losses include costs related to impairment of right-of-use assets, leasehold improvement assets, internally developed software, and certain computer equipment.
Interest Expense
Interest expense includes interest expense, amortization of debt issuance costs associated with our Credit Facility, and the accretion of deferred payments associated with our acquisitions.
Other Income
The main components of other income are miscellaneous income not directly related to our operating activities, such as foreign exchange gains and reductions in our contingent consideration.
Other Expenses
The main components of other expenses are expenditures not directly related to our operating activities, such as foreign exchange losses and increases in our contingent consideration.
RESULTS OF OPERATIONS
Year Ended December 31, 2023 Compared to December 31, 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 years ended December 31, 2023 and 2022 (amounts in thousands). All inter-company transactions between the reported segments for the periods presented have been eliminated.
TTEC Digital
Year Ended December 31,
$ Change
% Change
Revenue
$
486,882
$
463,670
$
23,212
5.0
%
Operating Income
29,846
34,895
(5,049)
(14.5)
%
Operating Margin
6.1
%
7.5
%
The increase in revenue for TTEC Digital was driven by increases in the recurring revenue offerings, professional services, and one-time product sales.
The operating income reduction is primarily attributable to continued investments in CX leadership, engineering talent, sales and marketing, product engineering, and $6.6 million of restructuring and impairment charges. These additional expenses more than offset the increase in revenue, favorable revenue mix from the growing professional services, higher percentage of offshore delivery and decreased amortization expense. The operating income as a percentage of revenue decreased to 6.1% in 2023 as compared to 7.5% in 2022. Included in the operating income was amortization related to acquired intangibles of $17.4 million and $19.9 million for the years ended December 31, 2023 and 2022, respectively.
TTEC Engage
Year Ended December 31,
$ Change
% Change
Revenue
$
1,975,935
$
1,980,037
$
(4,102)
(0.2)
%
Operating Income
88,175
133,648
(45,473)
(34.0)
%
Operating Margin
4.5
%
6.7
%
The decrease in revenue for TTEC Engage was due to a net increase of $106.4 million in client programs, including the acquisition of Faneuil and a $4.9 million increase due to foreign currency fluctuations offset by a decrease for program completions of $115.4 million, more concentrated in our hypergrowth clients.
The operating income decrease is primarily attributable to decreased revenue, incremental growth-oriented investments (ex: geographic expansion), higher employee healthcare costs of $7.0 million due to an increase in high claims, ramp costs for new programs, training costs related to existing programs, increased litigation expenditures, and $13.2 million of restructuring and impairment charges. These were partially offset by the acquisition of Faneuil, a reduction in total facility costs and a net reimbursement from insurance of $7.3 million from the cybersecurity incident. As a result, the operating income as a percentage of revenue decreased to 4.5% in 2023 as compared to 6.7% in the prior period. Included in the operating income was amortization expense related to acquired intangibles of $18.2 million and $17.2 million for the years ended December 31, 2023 and 2022, respectively.
Interest Income (Expense)
Interest income increased to $5.2 million in 2023 from $1.8 million in 2022. Interest expense increased to $78.3 million during 2023 from $36.1 million during 2022, primarily due to higher interest rates.
Other Income (Expense), Net
For the year ended December 31, 2023 Other income (expense), net decreased to a net expense of $4.1 million from net income of $10.2 million during the prior year.
Included in the year ended December 31, 2023 was a net $7.5 million expense related to the fair value of contingent consideration accruals and receivables for one acquisition partially offset by a gain of $4.5 million due to insurance recovery related to property damages.
Included in the year ended December 31, 2022 was a gain of $4.1 million due to insurance recovery related to property damages and a net $1.8 million expense related to the fair value adjustments of contingent consideration accruals and receivables for one acquisition.
Income Taxes
The reported effective tax rate for 2023 was 55.2% as compared to 18.8% for 2022. The effective tax rate for 2023 was impacted by earnings in international jurisdictions currently under an income tax holiday, $1.8 million of expense related to changes in tax contingent liabilities, $11.6 million of expense related to changes in valuation allowances and related deferred tax liabilities, a $1.9 million benefit related to acquisitions, a $5.1 million benefit related to restructuring charges, a $4.2 million benefit related to equity based compensation, a $9.3 million benefit related to the amortization of purchased intangibles, and $0.7 million of other tax benefits. Without these items our effective tax rate for the year ended December 31, 2023 would have been 22.7%.
For the year ended December 31, 2022, our effective tax rate was 18.8%. The effective tax rate for 2022 was impacted by earnings in international jurisdictions currently under an income tax holiday, a $1.4 million benefit related to changes in tax contingent liabilities, a $0.4 million benefit related to provision to return adjustments, $0.9 million of expense related to the cybersecurity incident, a $0.5 million benefit related to changes in valuation allowances and related deferred tax liabilities, a $5.0 million benefit related to restructuring charges, a $0.7 million benefit related to tax rate changes, a $5.7 million benefit related to equity-based compensation, a $9.7 million benefit related to the amortization of purchased intangibles, and a $2.2 million benefit related to accelerated amortization of software. Without these items our effective tax rate for the year ended December 31, 2022 would have been 22.9%.
Year Ended December 31, 2022 compared to December 31, 2021
For a discussion of our results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021, please see Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on February 28, 2023 and is incorporated herein by reference.
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 (as defined below). During the year ended December 31, 2023, we generated positive operating cash flows of $144.8 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. We are also exposed to higher interest rates associated with our variable rate debt. To mitigate these risks, we enter into foreign exchange forward and option contracts through our cash flow hedging program. Please refer to Item 7A. Quantitative and Qualitative Disclosures About Market Risk, Foreign Currency Risk, for further discussion.
We primarily utilize our Credit Facility to fund working capital, general operations, dividends, and other strategic activities, such as the acquisitions described in Part II. Item 8. Financial Statements and Supplementary Data, Note 2 to the Consolidated Financial Statements. During 2021, the Credit Facility was amended including an increase to $1.5 billion of total commitments (see discussion below in the Debt Instruments and Related Covenants). On February 26, 2024, the Company entered into an Eighth Amendment to the Credit Agreement to increase the net leverage ratio covenant, for a period starting with the quarter ending March 31, 2024 through quarter ending March 31, 2025, from the current 3.5 to 1 to between 4.0 to 1 and 4.5 to 1, as may be applicable in different quarters; and reduced the total lenders’ commitment from $1.5 billion to $1.3 billion. As of December 31, 2023 and 2022, we had borrowings of $995.0 million and $960.0 million, respectively, under our Credit Facility, and our average daily utilization was $1,072.4 million and $1,037.4 million for the years ended December 31, 2023 and 2022, respectively. After consideration for the current level of availability based on the covenant calculations, our remaining borrowing capacity was approximately $90 million as of December 31, 2023. As of December 31, 2023, we were in compliance with all covenants and conditions under our Credit Facility.
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 with commercially reasonable terms acceptable to us.
The following discussion highlights our cash flow activities during the years ended December 31, 2023 and 2022.
Cash and Cash Equivalents
We consider all liquid investments purchased within 90 days of their original maturity to be cash equivalents. Our cash and cash equivalents totaled $172.7 million and $153.4 million as of December 31, 2023 and 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, for investment in research and development, for strategic acquisitions, and to pay dividends.
Cash Flows from Operating Activities
For the years 2023 and 2022 we reported net cash flows provided by operating activities of $144.8 million and $137.0 million, respectively. The increase of $7.7 million from 2022 to 2023 was due to a $101.5 million decrease in net cash income from operations offset by a $109.2 million increase in net working capital.
Cash Flows from Investing Activities
For the years 2023 and 2022, we reported net cash flows used in investing activities of $67.6 million and $226.2 million, respectively. The net decrease in cash used in investing activities from 2022 to 2023 was due to a $142.4 million decrease in acquisitions and a $16.2 million decrease in capital expenditures.
Cash Flows from Financing Activities
For the years 2023 and 2022, we reported net cash flows (used in)/provided by financing activities of $(68.2) million and $89.0 million, respectively. The change in net cash flows from 2022 to 2023 was primarily due to a $134.0 million net change in the line of credit and an increase of $28.1 million related to payments of contingent consideration offset by a $4.1 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) was $76.9 million and $53.0 million for the years 2023 and 2022, respectively. The increase from 2022 to 2023 was primarily due to a decrease in net cash income from operations offset by an increase in working capital and lower capital expenditures.
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.
The following table reconciles net cash provided by operating activities to free cash flow for our consolidated results (in thousands):
Year Ended December 31,
Net cash provided by operating activities
$
144,766
$
137,048
Less: Purchases of property, plant and equipment
67,839
84,012
Free cash flow
$
76,927
$
53,036
Obligations and Future Capital Requirements
At December 31, 2023, our future contractual obligations were related primarily to debt, leases and income taxes. See the following footnotes in Part II. Item 8. Financial Statements and Supplementary Data: Note 10 Income Taxes, Note 12 Indebtedness, Note 13 Commitments and Contingencies and Note 15 Leases for a discussion of the obligation and timing of required payments.
Purchase Obligations
Occasionally we contract with certain of our communications clients to provide us with telecommunication services. These clients currently represent approximately 6% of our total annual revenue. We believe these contracts are negotiated on an arm’s-length basis and may be negotiated at different times and with different legal entities.
Future Capital Requirements
We expect total capital expenditures in 2024 to be between 2.7% and 2.9% of revenue. Approximately 55% of these expected capital expenditures are to support growth in our business and 45% relate to the maintenance of existing assets. The anticipated level of 2024 capital expenditures is primarily driven by site expansions, new builds in emerging geographies, enhancements and modernization to our technological infrastructure and ongoing digital integration and product development.
We may consider restructurings, dispositions, mergers, acquisitions and other similar transactions. Such transactions could include the transfer, sale or acquisition of significant assets, businesses or interests, including joint ventures or the incurrence, assumption, or refinancing of indebtedness and could be material to the consolidated financial condition and consolidated results of our operations. Our capital expenditures requirements could also increase materially in the event of an acquisition or joint venture. In addition, as of December 31, 2023, we were authorized to purchase an additional $26.6 million of common stock under our stock repurchase program (see Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities). Our stock repurchase program does not have an expiration date.
The launch of large client contracts may result in short-term negative working capital because of the time period between incurring the costs for training and launching the program and the beginning of the accounts receivable collection process. As a result, we may sometimes generate negative cash flows from operating activities.
Debt Instruments and Related Covenants
On November 23, 2021, we entered into a Sixth Amendment to our 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. We primarily use our Credit Facility to fund working capital, general operations, dividends, acquisitions and other strategic activities.
On April 3, 2023, we entered into a Seventh Amendment to the Credit Agreement which replaces the use of LIBOR with SOFR as of the date of the amendment and therefore, will affect the interest rates paid on a portion of the outstanding principal amount of the Credit Facility starting in the second quarter of 2023.
On February 26, 2024, we entered into an Eighth Amendment to the Credit Agreement to increase the net leverage ratio covenant, for a period starting with the quarter ending March 31, 2024 through quarter ending March 31, 2025, from the current 3.5 to 1 to between 4.0 to 1 and 4.5 to 1, as may be applicable in different quarters; and reduced the total lenders’ commitment from $1.5 billion to $1.3 billion if certain conditions are satisfied.
The Credit Facility commitment fees are payable to the lenders as previously disclosed and as determined by reference to our net leverage ratio. The Credit Agreement contains customary affirmative, negative, and financial covenants, which primarily remained unchanged from the 2019 Credit Facility. 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.
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 1% 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 2% 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.
Indebtedness under the Credit Agreement is guaranteed by certain of our domestic subsidiaries and is secured by security interests (subject to permitted liens) in the U.S. accounts receivable and cash of our Company and certain of its domestic subsidiaries. The indebtedness may also be secured by tangible assets of our Company and its domestic subsidiaries, if borrowings by foreign subsidiaries exceed 7.5% of our Company’s consolidated total assets and the total net leverage ratio is greater than 3.25 to 1.00. We also pledged 65% of the voting stock and all of the non-voting stock, if any, of certain of our material foreign subsidiaries.
The Credit Facility also contains certain customary information and reporting requirements, and events of default, including without limitation events of default based on payment obligations, material inaccuracies of representations and warranties, covenant defaults, cross defaults to certain other debt, certain ERISA events, changes in control, monetary judgments, and insolvency proceedings. Upon the occurrence of an event of default, the lenders may accelerate the maturity of all amounts outstanding under the Credit Facility.
As of December 31, 2023 and 2022, we had borrowings of $995.0 million and $960.0 million, respectively, under the Credit Facility. During 2023, 2022 and 2021, borrowings accrued interest at an average rate of approximately 6.7%, 3.1%, and 1.3% per annum, respectively, excluding unused commitment fees. Our daily average borrowings during 2023, 2022 and 2021 were $1,072.4 million, $1,037.4 million and $797.2 million, respectively. As of December 31, 2023, and 2022, based on the current level of availability based on the covenant calculations, the remaining borrowing capacity was approximately $90 million and $335 million, respectively.
Client Concentration
During 2023, only one of our clients represented more than 10% of our total annual revenue. Our five largest clients accounted for 36% and 35% of our annual revenue for each of the two years ended December 31, 2023 2022, respectively. We have long-term relationships with our top five 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. For instance, in early 2024, one of our top five clients notified us that it is exiting one of the lines of business that we support. 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 of the contracts with our five largest clients expire between 2024 and 2027, 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.
Cybersecurity Investments
We have made and continue to make significant financial investments in technologies and processes to mitigate cyber risks. We have a number of complex information systems used for a variety of functions ranging from services we deliver to our clients and their customers to support for our operations. The effective operation of our business depends on the proper functioning of these information systems. Like any information system, our systems are susceptible to cyber-attack. Any cyber-attack could impact the availability, reliability, speed, accuracy, or other proper functioning of these systems or result in our data, our employees’ data and our clients’ data that we retain for the provision of our services being compromised, which could have a significant impact on our reputation, results of operations, and financial condition. Our information systems are protected through physical and technological safeguards as well as backup systems and protocols considered appropriate by management. We also provide role-based employee cybersecurity risk awareness training about phishing, malware, social engineering, data protection, and other cyber risks. We continuously monitor and develop our information technology networks and infrastructure to prevent, detect, address, and mitigate the risk of unauthorized access, distributed denial of service attacks, malware attacks, computer viruses, cyber fraud, and other events intended to disrupt information systems, unauthorized access to confidential information, or other types of malicious events that may result in harm to our business. Our investment in cybersecurity is not expected to decrease in the foreseeable future, and despite our on-going efforts to improve our cybersecurity, there can be no assurance that a sophisticated cyber-attack could timely be detected or thwarted. For additional information about our cybersecurity risk management and governance see, Part I, Item 1C. Cybersecurity.
Recently Issued Accounting Pronouncements
We discuss the potential impact of recent accounting pronouncements in Part II, Item 8. Financial Statements and Supplementary Data, Note 1 to the Consolidated Financial Statements.
Changes in Accounting Principle
See discussion of adopted accounting standards in Part II, Item 8. Financial Statements and Supplementary Data, Note 1 to the Consolidated Financial Statements.

---

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. 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 risks 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 issue 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 December 31, 2023, we had $995.0 million of outstanding borrowings under the Credit Agreement. Based upon average daily outstanding borrowings during the years ended December 31, 2023 and 2022, interest accrued at a rate of approximately 6.7% and 3.1% per annum, respectively. If the Prime Rate or SOFR increased by 100 basis points, there would be $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 years ended December 31, 2023, 2022 and 2021, revenue associated with this foreign exchange risk was 19%, 20% and 17% of our consolidated revenue, respectively.
The following summarizes relative (weakening) strengthening of local currencies that are relevant to our business:
Year Ended December 31,
Canadian Dollar vs. U.S. Dollar
2.2
%
(6.6)
%
0.3
%
Philippine Peso vs. U.S. Dollar
1.0
%
(9.2)
%
(6.4)
%
Mexican Peso vs. U.S. Dollar
12.9
%
4.8
%
(2.9)
%
Australian Dollar vs. U.S. Dollar
(0.0)
%
(6.5)
%
(6.1)
%
Euro vs. U.S. Dollar
3.0
%
(5.9)
%
(8.1)
%
Indian Rupee vs. U.S. Dollar
(0.5)
%
(11.3)
%
(1.8)
%
Philippine Peso vs. Australian Dollar
1.0
%
(2.5)
%
(0.2)
%
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 revenue 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.
Our cash flow hedging instruments as of December 31, 2023 and 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 December 31, 2023
Amount
Amount
12 months
Through
Canadian Dollar
2,250
$
1,670
100.0
%
September 2024
Philippine Peso
9,324,000
165,842
(1)
58.7
%
December 2026
Mexican Peso
938,000
44,155
60.8
%
December 2026
$
211,667
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 December 31, 2023 and December 31, 2022.
The fair value of our cash flow hedges at December 31, 2023 was a net asset (in thousands):
Maturing in the
December 31, 2023
Next 12 Months
Canadian Dollar
$
$
Philippine Peso
1,921
Mexican Peso
6,578
5,753
$
8,531
$
6,313
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 fair value of our cash flow hedges increased by $8.4 million from December 31, 2022 to December 31, 2023. The increase in fair value from December 31, 2022 primarily reflects changes in the currency translation between the U.S. dollar and Mexican Peso and U.S. dollar and Philippines Peso.
We recorded net gains/(losses) of $4.0 million, $(2.9) million, and $4.9 million for settled cash flow hedge contracts for the years ended December 31, 2023, 2022, and 2021, respectively. These gains/(losses) 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 II. Item 8. Financial Statements and Supplementary Data, Note 8 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 years ended 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 of operations and revenue could be adversely affected if the U.S. Dollar strengthens significantly against foreign currencies.
Fair Value of Debt and Equity Securities
We did not have any investments in marketable debt or equity securities as of December 31, 2023 or 2022.

---

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item are located beginning on page of this report and incorporated herein by reference.

---

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.

---

ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A. CONTROLS AND PROCEDURES
This Form 10-K includes the certifications of our Chief Executive Officer (the “CEO”) and Interim Chief Financial Officer (the “CFO”) required by Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). See Exhibits 31.1 and 31.2. This Item 9A 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 December 31, 2023, the end of the period covered by this Form 10-K. Based on this evaluation, our CEO and CFO have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) 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 control over financial reporting, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of internal controls 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 error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by unauthorized override of the control. Over time, control 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.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures which (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets, (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, (c) provide reasonable assurance that receipts and expenditures are being made only in accordance with appropriate authorization of management and the Board of Directors, and (d) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements.
In connection with the preparation of this Annual Report on Form 10-K, our management, under the supervision and with the participation of our CEO and CFO, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2023 based on the framework established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). As a result of that evaluation, our management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2023, the end of the period covered by this Form 10-K.
The effectiveness of our internal control over financial reporting as of December 31, 2023 has been audited by PricewaterhouseCoopers LLP, our independent registered public accounting firm, as stated in their report, which is included herein.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the most recent quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

---

ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION
During the quarter ended December 31, 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.
On February 26, 2024, TTEC entered into the Eighth Amendment (the “Amendment”) to its Amended and Restated Credit Agreement dated as of June 3, 2013 (the “Credit Facility”) to amend its net leverage ratio covenant, the lenders’ commitment fee rate and margin, and the lenders’ total commitment, among other items. Pursuant to the Amendment, for a period starting with the quarter ending March 31, 2024 through quarter ending March 31, 2025, the permitted maximum net leverage ratio will change from the current 3.5 to 1 to between 4.0 to 1 and 4.5 to 1, as may be applicable in different quarters; the lenders’ commitment fee rate and margin would adjust each relevant quarter based on the effective net leverage ratio for that quarter; and the total lenders’ commitment will reduce from $1.5 billion to $1.3 billion. At TTEC’s option for any quarter during the Amendment period, the net leverage ratio and the corresponding lenders’ commitment fee rate and margin can revert to pre-Amendment levels. The term of the Credit Facility will remain unchanged through November 23, 2026. This description of the material terms of the Amendment is qualified in its entirety by reference to the full text of the Amendment attached as Exhibit 10.98 to this Annual Report on Form 10-K.

---

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information in our 2024 Definitive Proxy Statement on Schedule 14A, which will be filed no later than 120 days after December 31, 2023 (the “2024 Proxy Statement”) regarding our executive officers under the heading “Information Regarding Executive Officers” is incorporated herein by reference. We have both the Ethics Code for Senior Executive and Financial Officers and the Ethics Code defining rules of conduct for our employees, partners and suppliers. Our Ethics Code for Senior Executive and Financial Officers applies to our Chief Executive Officer, President, Chief Financial Officer, lead executives of our business segments, Controller, Treasurer, the General Counsel, Chief Audit executive, senior financial officers of each operating segment and other persons performing similar functions. The Ethics Code defines conduct for all directors, officers, employees, partners and suppliers (as applicable). Both the Ethics Code for Senior Executive and Financial Officers and the Ethics Code are posted on our website at www.ttec.com on the Corporate Governance page. We will post on our website any amendments to or waivers under the Ethics Code for Senior Executive and Financial Officers in accordance with applicable laws and regulations.
There have been no material changes to the procedures by which stockholders may recommend nominees to the board of directors. The remaining information called for by this Item 10 is incorporated by reference herein from our 2024 Proxy Statement.

---

ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION
The information in our 2024 Proxy Statement is incorporated herein by reference.

---

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information regarding these matters is included in Part II, Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Also the information in our 2024 Proxy Statement is incorporated herein by reference.

---

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information in our 2024 Proxy Statement is incorporated herein by reference.

---

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTANTS FEES AND SERVICES
The information in our 2024 Proxy Statement is incorporated herein by reference.
PART IV

---

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
The following documents are filed as part of this report:
1. Consolidated Financial Statements.
The Index to Consolidated Financial Statements is set forth on page of this report.
2. Financial Statement Schedules.
All schedules for TTEC have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information is included in the respective Consolidated Financial Statements or notes thereto.
3. Exhibits.
EXHIBIT INDEX
Exhibit
Incorporated Herein by Reference
No.
Exhibit Description
Form
Exhibit
Filing Date
2.01**
Asset Purchase Agreement dated December 22, 2021, by and among TTEC Government Solutions LLC, Faneuil, Inc. and AJL Holdings, Inc.
8-K
2.01
12/27/2021
3.01**
Restated Certificate of Incorporation of TeleTech Holdings, Inc. filed with the State of Delaware on August 1, 1996
S-1/A
3.01
7/5/1996
3.03**
Certificate of Amendment of Incorporation of TTEC Holdings, Inc. (reflecting name change) with an effective date of January 1, 2018
8-K
3.03
1/9/2018
3.04**
Amended and Restated Bylaws of TTEC Holdings, Inc. (reflecting name change)
8-K
3.04
1/9/2018
4.01**
Description of Securities of TTEC Holdings, Inc. registered pursuant to Section 12 of the Securities Act of 1934
10-K
4.01
3/4/2020
10.01**
Equity Purchase Agreement, dated as of March 1, 2021, by and among NEPAS Holdings, LLC, Avtex Solutions Holdings, LLC and TTEC Digital, LLC (incorporated by reference as Exhibit 10.1 to TTEC’s Form 8-K filed on March 3, 2021)
8-K
10.1
3/3/2021
10.06**
TeleTech Holdings, Inc. 2010 Equity Incentive Plan
DEF 14A
A
4/12/2010
10.07**
TTEC Holdings, Inc. 2020 Equity Incentive Plan
DEF 14A
A
4/3/2020
10.26**
Form of TTEC Holdings, Inc. Performance Restricted Stock Unit Agreement (Executive Committee Members) effective March 6, 2020
10-Q
10.26
5/4/2020
10.27**
Form of TTEC Holdings. Inc. Performance Restricted Stock Unit Agreement (Executive Committee Members) effective March 3, 2021
10-Q
10.27
8/3/2021
10.28**
Form of TTEC Holdings, Inc. Restricted Stock Unit Award Agreement effective July 1, 2021
10-Q
10.28
8/3/2021
10.29**
Form of TeleTech Holdings, Inc. Restricted Stock Unit Award Agreement (non-executive employees) effective July 1, 2014
10-K
10.29
3/9/2015
10.30**
Form of TeleTech Holdings, Inc. Restricted Stock Unit Award Agreement (Directors and Executive Committee Members) effective July 1, 2014
10-K
10.30
3/9/2015
10.31**
Independent Director Restricted Stock Unit Award Agreement (effective May 14, 2020)
10-Q
10.31
8/5/2020
10.33**
Form of Indemnification Agreement with Directors and Executive Officers
10-Q
10.33
11/8/2023
10.34*
Independent Director Compensation Arrangements (effective for the May 2023 - May 2024 Board Cycle)
10-K
10.34
2/29/2024
10.35**
Form of TTEC Holdings, Inc. Performance Restricted Stock Unit Agreement (Value Creation Program) effective March 15, 2022
10-Q
10.35
5/5/2022
10.40**
Employment Agreement between Kenneth D. Tuchman and TeleTech Holdings, Inc. dated October 15, 2001
10-K
10.68
4/1/2002
10.41**
Amendment to Employment Agreement between Kenneth D. Tuchman and TeleTech Holdings, Inc. dated December 31, 2008
10-K
10.17
2/23/2009
10.60**
Separation Agreement between Regina M. Paolillo and TTEC Services Corporation effective December 31, 2022
10-Q
10.60
11/09/2022
10.81**
Employment Agreement between David Seybold and TTEC Digital, LLC effective November 28, 2022
10-Q
10.81
11/09/2022
10.82**
Employment Agreement for Francois Bourret, Chief Accounting Officer and Interim CFO
8-K
10.82
1/5/2024
10.83**
Amendment #1 to Employment Agreement between David Seybold and TTEC Digital, LLC dated to be effective September 28, 2023
10-Q
10.83
11/08/2023
10.84**
Employment agreement between Michelle Swanback and TTEC Services Corporation effective May 2, 2022
10-Q
10.84
5/5/2022
10.85**
Amendment #1 to the Executive Employment Agreement between TTEC Holdings, Inc. and Michelle “Shelly” Swanback dated to be effective January 1, 2023
8-K
10.85
1/6/2023
10.86**
Amended and Restated Executive Employment Agreement between Margaret B. McLean and TTEC Services Corporation effective December 12, 2018
10-K
10.86
3/6/2019
10.87**
Executive Employment Agreement dated as of February 12, 2024, by and among TTEC Services Corporation and Kenneth R. Wagers, III
8-K
10.87
2/15/2024
10.90
Amended and Restated Credit Agreement, dated as of June 3, 2013, among TeleTech Holdings, Inc., the foreign borrowers party thereto, the lenders party thereto, Wells Fargo Bank, National Association, as Administrative Agent, Swing Line Lender and Fronting Lender, KeyBank National Association, Bank of America, N.A., BBVA Compass, and HSBC Bank USA, National Association, each as Documentation Agent and Wells Fargo Securities, LLC, KeyBank National Association, Merrill Lynch, Pierce, Fenner & Smith Incorporated, BBVA Compass and HSBC Bank USA, National Association, as Joint Lead Arrangers
8-K
10.1
6/7/2013
10.91
First Amendment to Amended and Restated Credit Agreement and First Amendment to Amended and Restated Security Agreement for the senior secured revolving credit facility with a syndicate of lenders led by Wells Fargo Bank, National Association, as agent, swing line and fronting lender.
8-K
10.90
2/16/2016
10.96
Sixth Amendment to Amended and Restated Credit Agreement and Restated Security Agreement for a senior secured revolving credit facility with a syndicate of lenders led by Wells Fargo Bank, National Association, as agent, swing line and fronting lender
8-K
10.96
11/29/2021
10.97
Seventh Amendment to Amended and Restated Credit Agreement for a senior secured revolving credit facility with a syndicate of lenders led by Wells Fargo Bank, National Association, as agent, swing line and fronting lender
10-Q
10.97
5/5/2023
10.98*
Eighth Amendment to Amended and Restated Credit Agreement and Restated Security Agreement for a senior secured revolving credit facility with a syndicate of lenders led by Wells Fargo Bank, National Association, as agent, swing line and fronting lender
10-K
10.98
02/29/2024
21.1*
List of subsidiaries
23.1*
Consent of Independent Registered Public Accounting Firm
24.1*
Power of Attorney
31.1*
Rule 13a-14(a) Certification of CEO of TTEC
31.2*
Rule 13a-14(a) Certification of CFO of TTEC
32.1*
Written Statement of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
32.2*
Written Statement of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
97.1*
TTEC Incentives Recoupment Policy
10-K
97.1
2/29/2024
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
101.LAB
XBRL Taxonomy Extension Label Linkbase
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
The cover page from TTEC Holdings, Inc’s Annual Report on Form 10-K for the year ended December 31, 2023, formatted in Inline XBRL
* Filed or furnished herewith.
** Identifies exhibit that consists of or includes a management contract or compensatory plan or arrangement.