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ACQUISITIONS AND DIVESTITURES | 3 Months Ended
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Mar. 31, 2018
ACQUISITIONS [ABSTRACT] |
ACQUISITIONS | (2)ACQUISITIONS AND DIVESTITURES Berkshire Hathaway Specialty Concierge On March 31, 2018, the Company, through its subsidiary Percepta, acquired certain assets from Berkshire Hathaway Specialty Concierge, LLC (“BH”) related to a customer engagement center and the related customer contracts. This acquisition is being accounted for as a business combination. These assets will be integrated into the Customer Management Services (“CMS”) segment. The total cash paid was $1. In connection with the purchase, Percepta assumed the lease for the customer engagement center and entered into a transitional services agreement with BH to facilitate the transfer of the employees and business. Fair values were assigned to each purchased asset including $257 thousand for customer relationships, $330 thousand as a lease subsidy and $98 thousand for fixed assets. Based on the $1 purchase price, a gain on purchase of $685 thousand was recorded in the quarter ended March 31, 2018 and was included in Other income (expense) in the Consolidated Statements of Comprehensive Income (Loss). Motif On November 8, 2017, the Company agreed to acquire all of the outstanding shares in Motif, Inc., a California corporation (“Motif”). Motif is a digital trust and safety services company serving eCommerce marketplaces, online retailers, travel agencies and financial services companies. Motif provides omni-channel community moderation services via voice, email and chat from delivery centers in India and the Philippines via approximately 2,700 employees. Motif will be integrated into the Customer Management Services (“CMS”) segment. The acquisition will be implemented through two separate transactions. In November 2017, the Company completed the acquisition of 70% of all outstanding shares in Motif from private equity and certain individual investors for $46.8 million, subject to customary representations and warranties, and working capital adjustments. The Company also agreed to purchase the remaining 30% interest in Motif from Motif’s founders (“founders’ shares”) no later than May 2020 (“30% buyout period”). The Company agreed to pay for the founders’ shares at a purchase price based on Motif’s fiscal year 2020’s adjusted normalized EBITDA, $5.0 million in cash, and 30% of the excess cash present in the business at the time of the buyout; or if the buyout occurs prior to May 2020, based on the trailing twelve months EBITDA, calculated from the most recently completed full monthly period ending prior to the date of the buyout triggering event, $5.0 million in cash, and 30% of the excess cash in the business at that point. In connection with this mandatory buyout, the Company has recorded a $29.8 million liability as of March 31, 2018 which is included in Other long-term liabilities in the Consolidated Balance Sheet. As a part of the transition, the Motif founders agreed to continue to stay as executives in the acquired business, at least through the 30% buyout period, as part of the Company’s CMS segment, and not to compete with the Company with respect to the acquired business. The following summarizes the preliminary estimated fair values of the identifiable assets acquired and liabilities assumed as of the acquisition date (in thousands):
|  | Preliminary |
|  | Estimate of |
|  | Acquisition Date |
|  | Fair Value |
Cash |  | $ | 5,997 |
Accounts receivable, net |  |  | 5,187 |
Prepaid expenses |  |  | 1,248 |
Other current assets |  |  | 670 |
Property, plant and equipment |  |  | 2,182 |
Income tax receivable |  |  | 1,691 |
Customer relationships |  |  | 37,200 |
Goodwill |  |  | 39,272 |
|  | $ | 93,447 |
Accounts payable |  | $ | 2,914 |
Accrued employee compensation and benefits |  |  | 5,249 |
Accrued expenses |  |  | 104 |
Deferred tax liability |  |  | 11,402 |
Other |  |  | 340 |
|  | $ | 20,009 |
Total purchase price |  | $ | 73,438 |
The estimates of fair value of identifiable assets acquired and liabilities assumed are preliminary, pending finalization of a valuation and tax returns, thus are subject to revisions that may result in adjustments to the values presented above. The Motif customer relationships have been estimated based on the initial valuation and are amortized over an estimated useful life of 11 years. The goodwill recognized from the Motif acquisition is estimated to be attributable, but not limited to, the acquired workforce and expected synergies with CMS. None of the tax basis of the acquired intangibles and goodwill will be deductible for income tax purposes. The acquired goodwill and intangibles, and operating results of Motif are reported within the CMS segment from the date of acquisition. Connextions On April 3, 2017, the Company acquired all of the outstanding shares of Connextions, Inc., a health care customer service provider company, from OptumHealth Holdings, LLC. Connextions is being integrated into the health care vertical of the CMS segment of the Company. Connextions employed approximately 2,000 at several centers in the U.S. The total cash paid at acquisition was $80 million. The purchase price was subject to customary representations and warranties, indemnities, and net working capital adjustment. In connection with the acquisition, the Company and OptumHealth (directly and through affiliates) also entered into long-term technology and customer services agreements, and into transition services agreements to facilitate the transfer of the business. The Company was required to pay an additional $1.8 million for the working capital adjustment, which was paid during the third quarter of 2017. Additionally, fair value adjustments related to the transition services agreements reduced the purchase price by $4.1 million resulting in a net purchase price of $77.7 million. The following summarizes the fair values of the identifiable assets acquired and liabilities assumed as of the acquisition date (in thousands):
|  | Acquisition Date |
|  | Fair Value |
Cash |  | $ | — |
Accounts receivable, net |  |  | 15,959 |
Prepaid expenses |  |  | 241 |
Other current assets |  |  | 51 |
Property, plant and equipment |  |  | 7,594 |
Customer relationships |  |  | 35,000 |
Goodwill |  |  | 35,272 |
|  | $ | 94,117 |
Accounts payable |  | $ | 1 |
Accrued employee compensation and benefits |  |  | 346 |
Accrued expenses |  |  | 386 |
Deferred tax liabilities |  |  | 15,273 |
Deferred revenue |  |  | 399 |
|  | $ | 16,405 |
Total purchase price |  | $ | 77,712 |
In the fourth quarter of 2017, the Company finalized its valuation of Connextions for the acquisition date assets acquired and liabilities assumed and determined that no material adjustments to any of the balances were required. The Connextions customer relationships will be amortized over a useful life of 12 years. The goodwill recognized from the Connextions acquisition is attributable, but not limited to, the acquired work force and expected synergies with CMS. None of the tax basis of the acquired intangibles and goodwill will be deductible for income tax purposes. The acquired goodwill and the operating results of Connextions are reported within the CMS segment from the date of acquisition. Financial Impact of Acquired Businesses 2018 Acquisition The acquired business purchased in the first three months of 2018 was not material to the Company's consolidated financial position or results of operations. The pro forma impact of the 2018 acquisition on the consolidated results of operations of the Company for the first three months of 2018 and 2017 as though the acquisitions occurred on January 1 was also not material. 2017 Acquisitions The acquired businesses purchased in 2017 did not contribute any revenue and net income to the Company for the three months ended March 31, 2017. The unaudited proforma financial results for the three months ended March 31, 2017 combines the consolidated results of the Company and its 2017 acquisitions assuming they had been completed on January 1, 2017. The reported revenue and net income of $338.3 million and $19.2 million would have been $384.0 million and $19.0 million for the three months ended March 31, 2017 on an unaudited proforma basis. The unaudited pro forma consolidated results are not to be considered indicative of the results if these acquisitions occurred in the periods mentioned above, or indicative of future operations or results. Additionally, the pro forma consolidated results do not reflect any anticipated synergies expected as a result of the acquisition. Assets and Liabilities Held for Sale During the third quarter of 2016, the Company determined that one business unit from the Customer Growth Services (“CGS”) segment and one business unit from the Customer Strategy Services (“CSS”) segment would be divested from the Company’s operations. These business units met the criteria to be classified as held for sale. The Company had engaged a broker for both business units and was working with potential buyers for both business units. The Company took into consideration the discounted cash flow models, management input based on early discussions with brokers and potential buyers, and third-party evidence from similar transactions to complete the fair value analysis as there had not been a selling price determined at this point for either unit. For the two business units in CGS and CSS losses of $2.6 million and $2.7 million, respectively, were recorded as of December 31, 2016 in Loss on assets held for sale in the Consolidated Statements of Comprehensive Income (Loss). No adjustments have been made for the CSS business unit as this continues to be reflective of the fair value at March 31, 2018. For the business unit in CGS, based on further discussion and initial offers, management determined that the estimated selling price assumed should be revised and an additional $3.2 million loss was recorded in June 30, 2017 and included in Loss on assets held for sale in the Consolidated Statements of Comprehensive Income (Loss). Effective December 22, 2017, the business unit was sold to The Search Agency (“TSA”) for an up-front payment of $245 thousand and future contingent earnout on the one year anniversary of the closing date. During the fourth quarter of 2017, a net $0.6 million gain was recorded in Loss on assets held for sale in the Consolidated Statements of Comprehensive Income (Loss). The following table presents information related to the major components of assets and liabilities that were classified as held for sale in the Consolidated Balance Sheet as of March 31, 2018.
|  | As of |
|  | March 31, 2018 |
Cash |  | $ | — |
Accounts receivable, net |  |  | 5,834 |
Other assets |  |  | 230 |
Property, plant and equipment |  |  | 58 |
Customer relationships |  |  | 957 |
Goodwill |  |  | 3,033 |
Allowance for reduction of assets held for sale |  |  | (2,700) |
Total assets |  | $ | 7,412 |
Accounts payable |  | $ | 495 |
Accrued employee compensation and benefits |  |  | 931 |
Accrued expenses |  |  | 44 |
Other |  |  | 11 |
Total liabilities |  | $ | 1,481 |
Investments CaféX In the first quarter of 2015, the Company invested $9.0 million in CafeX Communications, Inc. (“CaféX”) through the purchase of a portion of the Series B Preferred Stock of CaféX. CaféX is a provider of omni-channel web-based real time communication (WebRTC) solutions that enhance mobile applications and websites with in-app video communication and screen share technology to increase customer satisfaction and enterprise efficiency. TTEC anticipated deploying the CaféX technology as part of the TTEC customer experience offerings within the CMS business segment and as part of its Humanify platform. At December 31, 2015, the Company owned 17.2% of the total equity of CaféX. During the fourth quarter of 2016, the Company invested an additional $4.3 million to purchase a portion of the Series C Preferred Stock; $3.2 million was paid in the fourth quarter of 2016 and $1.1 million was paid in the first quarter of 2017. At March 31, 2018, the Company owns 17.2% of the total equity of CaféX. The investment is accounted for under the cost method of accounting. The Company evaluates its investments for possible other-than-temporary impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. During the first quarter of 2018, the Company provided to CaféX $2.1 million in the form of a bridge loan which accrues interest at a rate of 12% until maturity or conversion, which will be no later than June 30, 2020. Based on certain events, the loan could convert into Series D preferred stock. As of March 31, 2018, the Company evaluated the investment in CaféX for impairment due to a large anticipated sale of IP not being completed as planned during the first quarter, a shift in the strategy of the company, the loan balance with the external bank is now in default, and the lack of potential additional funding options as of March 31, 2018. It was determined that the fair value of the investment was zero and thus the investment should be impaired as of March 31, 2018. The Company recorded a $15.6 million write-off of the equity investment and the bridge loan which was included in Other income (expense) in the Consolidated Statements of Comprehensive Income (Loss). Divestitures Technology Solutions Group (“TSG”) Effective June 30, 2017, the Company sold the Technology Solutions Group to SKC Communication Products, LLC (“SKC”) for an upfront payment of $250 thousand and future contingent royalty payments over the next 3 years. TSG had been included in the CTS segment. During the second quarter of 2017, a $30 thousand gain, which included the write-off of $0.7 million of goodwill, was recorded and included in the Consolidated Statements of Comprehensive Income (Loss). During the third quarter of 2017, a $141 thousand gain was recorded as a result of TSG delivering to SKC working capital in excess of the target set forth in the stock purchase agreement, and the gain was included in the Consolidated Statements of Comprehensive Income (Loss). During the fourth quarter of 2017 and first quarter of 2018, TTEC received $259 thousand and $794 thousand, respectively, related to royalty payments which were included in Other Income (expense) in the Consolidated Statements of Comprehensive Income (Loss) in the respective periods. TTEC Spain Holdings SL In the third quarter of 2017, the Company dissolved TTEC Spain Holdings SL, a fully owned foreign subsidiary domiciled in Spain. Upon complete liquidation, $3.2 million attributable to the accumulated translation adjustment component of equity has been removed from Accumulated other comprehensive income (loss) and recognized as part of the gain on liquidation. The $3.2 million gain is included in Other income (expense), net in the Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2017. Subsequent Event On April 30, 2018, the Company agreed to acquire all of the outstanding shares in Strategic Communications Services, Ltd (“SCS”). SCS provides services as a system integrator for omnichannel contact center platforms, including CISCO. The Company offers in-house, managed and outsourced network, information, communications and contact center services to leading brands throughout Europe. Total cash paid at acquisition was £4.4 million ($6.2 million USD) (inclusive of £3.3 million related to cash balances). The purchase price was subject to customary representations and warranties, indemnities, and a net working capital adjustment. The agreement includes potential earn-out payments over the next three years with a maximum value of £3.0 million ($4.2 million USD) contingent on EBITDA performance over the next three years

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