TTEC Holdings Inc
For the period ended Dec 31, 2024. Filed Feb 27, 2025.
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A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2024 · Filed Feb 27, 2025
TTEC$1.38-6.8%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2023-12-31; filed 2024-02-29.
0001558370-24-002207
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-K
Period ended 2024-12-31; filed 2025-02-27.
0001558370-25-001823
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 138 previous paragraphs and 137 current paragraphs.
91 unchanged; 37 reworded; 9 added; 9 removed; 1 previous and 0 current paragraphs rearranged.
Tables are not compared: 5 previous and 5 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (9)
Current report
Recent Developments
Current report
As previously disclosed in the Company’s press release of September 30, 2024, the Company’s Board of Directors has established a special committee consisting of independent directors (the “Special Committee”) to evaluate the unsolicited, preliminary, non-binding proposal from TTEC founder, Chairman and Chief Executive Officer, Kenneth Tuchman, to take the Company private at a proposed purchase price of $6.85 per share to the Company’s other shareholders. Mr. Tuchman beneficially owns approximately 58% of the Company’s common stock. As set forth in Amendment No. 3 to Schedule 13D filed with the SEC by Mr. Tuchman and certain entities affiliated with Mr. Tuchman on September 30, 2024, the proposal is conditioned on, among other things, the receipt of financing for the transaction, the negotiation and execution of a divine agreement, approval and recommendation of the proposal by the Special Committee, and approval by holders of a majority of the shares of the Company’s common stock not owned by Mr. Tuchman, his affiliates, and the Company’s executive management. The Special Committee with its own advisors is evaluating the proposal and will determine the appropriate course of action and process.
Current report
The decrease in revenue for the TTEC Digital segment was driven by lower one-time on-premise related revenue and professional services revenue. It was partially offset by an increase of 9.1% in recurring revenue.
Current report
The decrease in revenue for the TTEC Engage segment is explained by a long tenured client exiting a large line of business supported by TTEC, lower demand from select large onshore enterprise clients due to clients’ continued conservative management of discretionary spending influenced by a challenging macro-economic environment and delays attributable to launching new and larger awarded contracts.
Current report
Included in the year ended December 31, 2024 was a net $15.5 million gain related to the sale of our real estate asset in Englewood, CO.
Current report
We primarily utilize our Credit Facility to fund working capital, general operations, 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. On August 8, 2024, the Company entered into a Ninth Amendment to the Credit Agreement (the “Ninth Amendment”) to, among other things, provide for less restrictive financial covenants in respect of the leverage ratio and the interest coverage ratio for the period beginning with the third quarter of 2024 through the first quarter of 2026 (the “Covenant Adjustment Period”). Specifically, the revisions permit a maximum leverage ratio of up to 5.15 to 1.00 and a minimum interest coverage ratio of not less than 2.00 to 1.00 as of the end the third quarter of 2024, with such levels gradually becoming more restrictive during subsequent quarters of the Covenant Adjustment Period and returning to a leverage ratio of 3.50 to 1.00 as of the end of the first quarter of 2026. Pursuant to the Ninth Amendment, the Company agreed to permanently reduce the total lenders’ commitment from $1.3 billion to $1.2 billion and to provide certain additional assets as collateral, with the effect that the facility is now secured by substantially all personal property assets of the Company and its subsidiaries. In addition, the Company agreed to certain other changes, including, among others, (i) increased pricing on borrowings and increased facility fees, in each case, determined according to the Company’s leverage ratio, (ii) more restrictive limitations in respect of debt, liens, investments, acquisitions, asset sales and restricted payments, and (iii) requirements to apply certain equity and debt issuances and asset sale proceeds to the prepayment of the facility and permanent reduction of the total facility commitment amount. The term of the Credit Facility remains unchanged through November 23, 2026. As of December 31, 2024 and 2023, we had borrowings of $975.0 million and $995.0 million, respectively, under our Credit Facility, and our average daily utilization was $1,050.3 million and $1,072.4 million for the years ended December 31, 2024 and 2023, respectively. After consideration for the current level of availability based on the covenant calculations, our remaining borrowing capacity was approximately $225 million as of December 31, 2024. As of December 31, 2024, we were in compliance with all covenants and conditions under our Credit Facility.
Current report
On August 8, 2024, the Company entered into a Ninth Amendment to the Credit Agreement (the “Ninth Amendment”) to, among other things, provide for less restrictive financial covenants in respect of the leverage ratio and the interest coverage ratio for the period beginning with the third quarter of 2024 through the first quarter of 2026 (the “Covenant Adjustment Period”). Specifically, the revisions permit a maximum leverage ratio of up to 5.15 to 1.00 and a minimum interest coverage ratio of not less than 2.00 to 1.00 as of the end the third quarter of 2024, with such levels gradually becoming more restrictive during subsequent quarters of the Covenant Adjustment Period and returning to a leverage ratio of 3.50 to 1.00 as of the end of the first quarter of 2026.* *Pursuant to the Ninth Amendment, the Company agreed to permanently reduce the total lenders’ commitment from $1.3 billion to $1.2 billion and to provide certain additional assets as collateral, with the effect that the facility is now secured by substantially all personal property assets of the Company and its subsidiaries. In addition, the Company agreed to certain other changes, including, among others, (i) increased pricing on borrowings and increased facility fees, in each case, determined according to the Company’s leverage ratio, (ii) more restrictive limitations in respect of debt, liens, investments, acquisitions, asset sales and restricted payments, and (iii) requirements to apply certain equity and debt issuances and asset sale proceeds to the prepayment of the facility and permanent reduction of the total facility commitment amount. The term of the Credit Facility will remain unchanged through November 23, 2026.
Current report
The maximum commitment under the Credit Facility is $1.2 billion in the aggregate, if certain conditions are satisfied. The Credit Facility commitment fees are payable to the lenders in an amount equal to the unused portion of the Credit Facility multiplied by a rate per annum as determined by reference to the Company’s net leverage ratio. The Credit Agreement contains customary affirmative, negative, and financial covenants. The Credit Agreement also permits the utilization of up to $100 million in letters of credit to be used in the business.
Current report
The Credit Agreement includes a number of financial covenants and operating restrictions of which failure to comply could result in a default under the Credit Agreement. As of the date of this Annual Report on Form 10-K, the Company believes it has sufficient cash on hand, positive working capital, and availability to access additional cash under the Credit Facility to meet its business operating requirements and its capital expenditures and to continue to comply with the amended debt covenants for the next 12 months. In the event that the Company does not remain in compliance with the financial covenants under the Credit Facility, it may need to negotiate additional amendments to or waivers of the terms of such credit facilities, refinance its debt, or raise additional capital.
Removed paragraphs (9)
Previous report
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.
Previous report
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.
Previous report
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.
Previous report
The increase in revenue for TTEC Digital was driven by increases in the recurring revenue offerings, professional services, and one-time product sales.
Previous report
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.
Previous report
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.
Previous report
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.
Previous report
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.
Previous report
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.
Reworded paragraphs (37)
Previous wording
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.
Current wording
Founded in 1982, TTEC is a global CX outsourcing partner for marquee and high-growth brands and public sector clients. The Company designs, builds, and operates technology-enabled customer experiences across live interaction channels and provides data-driven digital solutions to help clients improve customer satisfaction and loyalty, increase customer revenue and profitability, and optimize overall cost to serve. As of December 31, 2024, TTEC served over 715 clients across targeted industry verticals, including financial services, healthcare, public sector, communications, technology, media, entertainment, travel and hospitality, automotive and retail.
Previous wording
TTEC operates through two business segments.
Current wording
TTEC operates and reports its financial results of operations through two business segments.
Previous wording
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.
Current wording
TTEC pursues its CX market leadership through strategic collaboration across TTEC Digital and TTEC Engage. Together, TTEC’s ability to deliver comprehensive and transformational customer experience solutions to its clients is a marketplace differentiator, including integrated CX technology and service solution, go-to-market strategies, and innovative offerings.
Previous wording
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.
Current wording
During 2024, TTEC Digital and TTEC Engage 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 contributions from approximately 52,000 customer care associates, consultants, technologists, and CX professionals.
Previous wording
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.
Current wording
Our revenue for fiscal 2024 was $2,208 billion, of which approximately $459 million, or 21%, was generated from our TTEC Digital segment and $1,749 billion, or 79%, was generated from our TTEC Engage segment.
Previous wording
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.
Current wording
To advance our competitive position in a rapidly changing market and to provide our clients with modernized CX technology and service solutions, 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.
Previous wording
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.
Current wording
We also invest to broaden our CX product and service capabilities, increase our global client base and industry expertise, expand our geographic footprint to the needs of our global clientele, and further scale our integrated solutions within and between our TTEC Digital and TTEC Engage segments.
Previous wording
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.
Current wording
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.
Previous wording
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.
Current wording
The temporary operational disruptions that occurred due to these incidents did not have a long-term impact on our results of operations. During 2022, 2023 and 2024, TTEC has made 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.
Previous wording
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.
Current wording
We aim to 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. Beginning in 2015, the Company paid 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 declared a dividend of $0.06 per share which was paid on April 30, 2024. On November 4, 2024, the Board of Directors suspended the Company's semi-annual cash dividend as part of its ongoing shift to prioritize debt reduction associated with strategic acquisitions and other investments in the business. The Board of Directors currently does not intend to reconsider that decision until after the Special Committee completes its consideration of a possible Take Private Transaction.
Previous wording
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.
Current wording
In 2024, our revenue decreased 10.4% over 2023 to $2,208 million, including a decrease of 0.1%, or $2.6 million due to foreign currency fluctuations. The decrease in revenue was comprised of a $27.9 million, or 5.7%, decrease for TTEC Digital and a $227.4 million, or 11.5%, decrease for TTEC Engage.
Previous wording
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.
Current wording
Our 2024 income/(loss) from operations decreased $291.5 million to ($173.5) million, or (7.9)% of revenue, from $118.0 million which was 4.8% of revenue for 2023. The change in operating income is attributable to an impairment of goodwill and a number of different factors across the segments. The TTEC Digital segment’s operating income declined 20.6%, or $6.2 million over last year primarily attributable to the lower revenue, revenue mix and investment in talent to support the diversifications of our offerings. The TTEC Engage operating income decreased 323.7%, $285.4 million, compared to the prior year primarily related to impairment of goodwill, higher restructuring charges and lower revenue.
Previous wording
Income from operations in 2023 and 2022 included a total of $19.8 million and $19.4 million of restructuring and asset impairments, respectively.
Current wording
Income from operations in 2024 and 2023 included a total of $254.2 million and $19.8 million of restructuring and asset impairments, respectively.
Previous wording
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.
Current wording
Our offshore customer experience centers spanning 15 countries serve clients based in the U.S. and in other countries with 24,000 workstations representing 80% of our global delivery capabilities. Revenue for TTEC Engage provided in these offshore locations represented 34% of our 2024 revenue, as compared to 31% of our 2023 revenue.
Previous wording
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.
Current wording
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, 2024, the total production workstations for TTEC Engage was 30,075 and the overall capacity utilization in our centers was 70% versus 76% in the prior year period. The decline was primarily driven by decreased seat reservations in the Philippines and U.S., partially offset by footprint reductions in the U.S.
Previous wording
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.
Current wording
During 2024, 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, estimated working capital, guideline public company revenue and EBITDA multiples, guideline transaction revenue multiples, market participation acquisition premiums and discount rates.
Previous wording
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.
Current wording
The operating income reduction is primarily attributable to the lower revenue, revenue mix and talent to support the diversifications of our offerings. The operating income as a percentage of revenue decreased to 5.2% in 2024 as compared to 6.1% in 2023. Included in the operating income was amortization related to acquired intangibles of $16.6 million and $17.4 million for the years ended December 31, 2024 and 2023, respectively.
Previous wording
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.
Current wording
The operating income decrease is primarily attributable to a goodwill impairment charge, decreased revenue, incremental growth-oriented investments (ex: geographic expansion), ramp costs for new programs, training costs related to existing programs and restructuring charges. As a result, the operating income as a percentage of revenue decreased to (11.3)% in 2024 as compared to 4.5% in the prior period. Included in the operating income was amortization expense related to acquired intangibles of $16.4 million and $18.2 million for the years ended December 31, 2024 and 2023, respectively.
Previous wording
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.
Current wording
Interest income decreased to $2.7 million in 2024 from $5.2 million in 2023. Interest expense increased to $84.3 million during 2024 from $78.3 million during 2023, primarily due to higher interest rates.
Previous wording
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.
Current wording
For the year ended December 31, 2024 Other income (expense), net increased to a net income of $18.6 million from a net expense of $4.1 million during the prior year.
Previous wording
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%.
Current wording
The reported effective tax rate for 2024 was (31.3)% as compared to 55.2% for 2023. The effective tax rate for 2024 was impacted by earnings in international jurisdictions currently under an income tax holiday, $0.6 million of expense related to changes in tax contingent liabilities, $82.5 million of expense related to changes in valuation allowances and related deferred tax liabilities, $0.4 million of expense related to acquisitions, a $38.2 million benefit related to restructuring and impairment charges, $5.1 million of expense related to the amortization of purchased intangibles, and $0.4 million of other tax expense. Without these items our effective tax rate for the year ended December 31, 2024 would have been 40.9%.
Previous wording
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%.
Current wording
For the year ended December 31, 2023, our effective tax rate was 55.2%. 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%.
Previous wording
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.
Current wording
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, 2024, we generated negative operating cash flows of ($58.8) million. The termination of the accounts receivable factoring agreement negatively impacted our cash flows by $(101.2) million for the year ended December 31, 2024. 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, however, our operations and financial condition could be adversely impacted.
Previous wording
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.
Current wording
We consider all liquid investments purchased within 90 days of their original maturity to be cash equivalents. Our cash and cash equivalents totaled $85.0 million and $172.7 million as of December 31, 2024 and 2023, respectively. We diversify the holdings of such cash and cash equivalents considering the financial condition and stability of the counterparty institutions.
Previous wording
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.
Current wording
For the years 2024 and 2023 we reported net cash flows (used in)/provided by operating activities of ($58.8) million and $144.8 million, respectively. The decrease of $203.6 million from 2023 to 2024 was due to a $146.8 million decrease in net working capital primarily due to the termination of the accounts receivable factoring agreement and a $56.8 million decrease in net cash income from operations.
Previous wording
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.
Current wording
For the years 2024 and 2023, we reported net cash flows (used in)/provided by investing activities of $0.5 million and ($67.6) million, respectively. The net decrease in cash used in investing activities from 2023 to 2024 was due to the $45.5 million sale of a real estate asset and a $22.7 million decrease in capital expenditures.
Previous wording
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.
Current wording
For the years 2024 and 2023, we reported net cash flows (used in)/provided by financing activities of ($38.3) million and ($68.2) million, respectively. The change in net cash flows from 2023 to 2024 was primarily due to a $46.4 million reduction in dividends paid and $37.7 million reduction related to payments of contingent consideration offset by a $55.0 million net change in the line of credit.
Previous wording
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.
Current wording
Free cash flow (see “Presentation of Non-GAAP Measurements” below for the definition of free cash flow) was ($104.0) million and $76.9 million for the years 2024 and 2023, respectively. The decrease from 2023 to 2024 was primarily due to a decrease in working capital due to the termination of the accounts receivable factoring agreement and a decrease in net cash income offset by lower capital expenditures.
Previous wording
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.
Current wording
We expect total capital expenditures in 2025 to be between 2.2% and 2.4% of revenue. Approximately 51% of these expected capital expenditures are to support growth in our business and 49% relate to the maintenance of existing assets. The anticipated level of 2025 expenditures are primarily driven by facilities refreshes and maintenance, site optimizations, IT network modernization and PC refreshes, digital product development and ongoing site expansions/new sites but not at the same level as the prior year.
Previous wording
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.
Current wording
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.
Previous wording
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.
Current wording
On April 3, 2023, we entered into a Seventh Amendment to the Credit Agreement which replaced the use of LIBOR with SOFR as of the date of the amendment and therefore, affects the interest rates paid on a portion of the outstanding principal amount of the Credit Facility starting in the second quarter of 2023.
Previous wording
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.
Current wording
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 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 if certain conditions are satisfied.
Previous wording
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.
Current wording
As defined in the Credit Agreement, base rate loans bear interest at a rate equal to the highest of (a) the prime rate, (b) the federal funds rate plus 0.50%, and (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 0.375% to 2.5% 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 1.375% to 3.5% 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.
Previous wording
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.
Current wording
Indebtedness under the Credit Agreement is guaranteed by most domestic and foreign subsidiaries and is secured by security interests (subject to permitted liens) in intellectual property, U.S. accounts receivable and cash of our Company and certain of its subsidiaries. The indebtedness may also be secured by certain assets of our Company and its 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.
Previous wording
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.
Current wording
As of December 31, 2024 and 2023, we had borrowings of $975.0 million and $995.0 million, respectively, under the Credit Facility. During 2024, 2023 and 2022, borrowings accrued interest at an average rate of approximately 7.5%, 6.7%, and 3.1% per annum, respectively, excluding unused commitment fees. Our daily average borrowings during 2024, 2023 and 2022 were $1,050.3 million, $1,072.4 million and $1,037.4 million, respectively. As of December 31, 2024, and 2023, based on the current level of availability based on the covenant calculations, the remaining borrowing capacity was approximately $225 million and $90 million, respectively.
Previous wording
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.
Current wording
During 2024, only one of our clients represented more than 10% of our total annual revenue. Our five largest clients accounted for 32% and 36% of our annual revenue for each of the two years ended December 31, 2024 and 2023, respectively. We have long-term relationships with our top five Engage clients, ranging from 5 to 25 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.
Previous wording
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.
Current wording
We have made and continue to make significant financial investments in technologies and processes to mitigate cybersecurity threats. 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 cybersecurity incident. Any cybersecurity incident 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 cybersecurity 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 cybersecurity incident could timely be detected or thwarted. For additional information about our cybersecurity risk management and governance see, Part I, Item 1C. Cybersecurity.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
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.