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ACQUISITIONS | 9 Months Ended
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Sep. 30, 2022
ACQUISITIONS [ABSTRACT] |
ACQUISITIONS | (2)ACQUISITIONS AND DIVESTITURES Certain Assets of Faneuil On April 1, 2022, the Company completed an asset acquisition through its subsidiary TTEC Government Solutions LLC, of certain public sector citizen experience contracts in the transportation infrastructure and healthcare exchange industries from Faneuil, Inc., a subsidiary of ALJ Regional Holdings, Inc. (“the Faneuil Transaction”). The business is operated as part of the TTEC Engage segment and was fully consolidated into the financial statements of TTEC. The Faneuil Transaction was recorded as a business combination under ASC 805, Business Combinations, with identifiable assets acquired and liabilities assumed recorded at their estimated fair values as of the acquisition date. Total cash paid at acquisition was $142.4 million. In addition, Faneuil granted to TTEC Government Solutions LLC a three-year call right and right of first offer to purchase certain other assets of Faneuil in its utilities and commercial healthcare verticals as well as certain proprietary technology. The Faneuil Transaction includes two contingent payments anticipated to be paid in early 2024 which are based on the revenue and EBITDA performance of one contract and one potential contract. The fair value of the two contingent payments has been estimated using a Monte Carlo model. The model was based on current expected EBITDA performance for the two specific client programs, a discount rate of 7.6% related to revenue and a discount rate of 19.3% related to EBITDA, a volatility rate of 20%, and an adjusted risk-free rate of 1.7%. The potential payments range from a minimum of zero to an unlimited maximum. Based on the model, a combined $8.8 million expected future payment was calculated and recorded as of the acquisition date. During the third quarter of 2022, a $2.4 million net gain was recorded related to fair value adjustments for the estimated contingent payments based on the timing of cash flows and market interest rates which resulted in an updated discount factor for one contract and a complete reduction for the second contract as it was not awarded to the Company. The benefit was included in Other income (expense) in the Consolidated Statements of Comprehensive Income (Loss). As of September 30, 2022, the contingent payment is accrued at $6.4 million and is included in Other long-term liabilities in the accompanying Consolidated Balance Sheets. The Faneuil Transaction included a call option providing the right but not the obligation to purchase additional assets in the utilities and commercial healthcare verticals based on trailing twelve-month revenue plus an additional earn-out payment based on newly added contracts. A second call option provided the right to purchase a software intangible asset and related support functions based on trailing twelve-month revenue. These call options were valued based on information including the call right and the exclusivity period and a $0.3 million asset was recorded as of the acquisition date which is included in Other long-term assets in the accompanying Consolidated Balance Sheets. The fair value was unchanged as of September 30, 2022. The Faneuil Transaction included an indemnity escrow which was disbursed as a holdback payment on the acquisition date. The indemnity payments relate to real estate and technology funds that will be spent post-close related to various IT upgrades and real estate expenses, and indemnity related to potential future employee wage increases. The indemnity payments were valued based on a weighted average of several current scenarios and a receivable of $10.4 million was recorded as of the acquisition date. During the third quarter of 2022, a reduction in the fair value was calculated and a $4.4 million expense was recorded related to a fair value adjustment for the receivable based on current information reflecting a better outcome with the contract negotiations. The reduction in fair value related expense was included in Other income (expense) in the Consolidated Statements of Comprehensive Income (Loss). As of September 30, 2022, the fair value of the receivable is $0.5 million and is included in Other current assets in the accompanying Consolidated Balance Sheets. A multi-period excess earnings method under the income approach was used to estimate the fair value of the customer relationships intangible assets. The significant assumptions utilized in calculating the fair value of the customer relationships intangible assets were the customer attrition rate, revenue growth rates, forecasted EBITDA, contributory asset charge, and the discount rate. The following summarizes the 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 | ​ | $ | — | ​
Accounts receivable, net | ​ |  | 704 | ​
Prepaid and other assets | ​ |  | 8,420 | ​
Net fixed assets | ​ | ​ | 5,622 | ​
Right of use lease assets | ​ | ​ | 16,526 | ​
Other assets | ​ | ​ | 3,824 | ​
Customer relationships | ​ | ​ | 61,310 | ​
Goodwill | ​ | ​ | 75,902 | ​
​ | ​ | $ | 172,308 | ​
​ | ​ | ​ | ​ | ​
Accrued employee compensation | ​ | $ | 202 | ​
Accrued expenses | ​ |  | 2,763 | ​
Right of use lease liability - current | ​ |  | 3,129 | ​
Right of use lease liability - non-current | ​ | ​ | 13,601 | ​
Deferred income | ​ | ​ | 811 | ​
Other liabilities | ​ |  | 9,382 | ​
​ | ​ | $ | 29,888 | ​
​ | ​ | ​ | ​ | ​
Total purchase price | ​ | $ | 142,420 | ​
​ The estimates of fair value of identifiable assets and liabilities assumed are preliminary, pending finalization of the valuation, lease evaluation, and tax returns, thus are subject to revisions that may result in adjustments to the values presented above. The Faneuil customer relationships have been estimated based on the initial valuation and will be amortized over an estimated useful life of 10 years. The goodwill recognized from the Faneuil acquisition is estimated to be attributable, but not limited to, the acquired workforce and expected synergies with the TTEC Engage segment. The tax basis of the acquired intangibles and goodwill will be materially deductible for income tax purposes. The acquired goodwill and intangibles and operating results of Faneuil are reported within the TTEC Engage segment from the date of acquisition. Avtex On April 8, 2021, the Company acquired, through its subsidiary TTEC Digital, LLC, 100% of the outstanding stock of Avtex Solutions Holdings, LLC (“Avtex”). Avtex is an end-to-end customer experience and CXaaS solutions provider with offerings in Genesys and Microsoft cloud solutions. The business is operated as part of the TTEC Digital segment and was fully consolidated into the financial statements of TTEC. Total cash paid at acquisition was $499.946 million ($490.0 million base purchase price plus cash, less debt and working capital estimate). The Avtex transaction is subject to customary representations and warranties, holdbacks, and a net working capital adjustment. The Company used cash from operations and drew down on its Credit Facility to fund the acquisition. The Company finalized the net working capital adjustment for $0.1 million during the third quarter of 2021 which was paid by Avtex to the Company in the third quarter of 2021. During the fourth quarter of 2021, TTEC implemented ASU 2021-08 which required an accounting modification to the deferred revenue balance as of the acquisition date (see discussion above in Note 1). The deferred revenue balance was evaluated as if TTEC had been the company securing the initial contracts and accounted for these contracts in accordance with ASC 606. Based on this re-assessment, the $4.9 million reduction initially recorded to deferred revenue in connection with the purchase price accounting was eliminated and an offsetting increase to Goodwill was recorded as of the acquisition date. In connection with this modification, revenue of $3.4 million was recorded in the fourth quarter of 2021 related to deferred revenue from the second and third quarters of 2021. A multi-period excess earnings method under the income approach was used to estimate the fair value of the customer relationships intangible asset. The significant assumptions utilized in calculating the fair value of the customer relationships intangible asset were the customer attrition rate, revenue growth rates, forecasted EBITDA, contributory asset charge, and the discount rate. The following summarizes the fair values of the identifiable assets acquired and liabilities assumed as of the acquisition date (in thousands):
​ | ​ | ​ | ​ | ​
​ | ​ | Acquisition Date |
​ | ​ | Fair Value |
Cash | ​ | $ | 18,638 | ​
Accounts receivable, net | ​ |  | 22,214 | ​
Prepaid expenses | ​ |  | 26,389 | ​
Current income tax receivables | ​ | ​ | 93 | ​
Net fixed assets | ​ | ​ | 3,162 | ​
Right of use lease assets | ​ | ​ | 3,614 | ​
Other assets | ​ | ​ | 480 | ​
Tradename | ​ | ​ | 5,300 | ​
Intellectual property intangible | ​ | ​ | 770 | ​
Customer relationships | ​ | ​ | 128,200 | ​
Goodwill | ​ | ​ | 378,882 | ​
​ | ​ | $ | 587,742 | ​
​ | ​ | ​ | ​ | ​
Accounts payable | ​ | $ | 20,580 | ​
Accrued employee compensation | ​ |  | 4,325 | ​
Accrued expenses | ​ | ​ | 250 | ​
Right of use lease liability - current | ​ | ​ | 678 | ​
Deferred revenue | ​ |  | 56,765 | ​
Accrued income taxes | ​ | ​ | 332 | ​
Deferred tax liability | ​ | ​ | 1,930 | ​
Right of use lease liability - noncurrent | ​ |  | 2,936 | ​
​ | ​ | $ | 87,796 | ​
​ | ​ | ​ | ​ | ​
Total purchase price | ​ | $ | 499,946 | ​
​ In the first quarter of 2022, the Company finalized the valuation of Avtex for the acquisition date assets acquired and liabilities assumed and determined that no material adjustments to any of the balances were required. The Avtex customer relationships, intellectual property intangible, and tradename are being amortized over useful lives of 9, 3, and 1 years, respectively. The goodwill recognized from the Avtex acquisition is attributable, but not limited to, the acquired workforce and expected synergies with the TTEC Digital segment. The tax basis of the acquired intangibles and goodwill will be materially deductible for income tax purposes. The acquired goodwill and intangibles and operating results of Avtex are reported within the TTEC Digital segment from the date of acquisition. Financial Impact of Acquired Businesses The acquired businesses purchased in 2021 and 2022 noted above contributed revenues of $96.0 million and net income of $6.0 million to the Company for the three months ended September 30, 2022 and revenues of $243.6 million and net income $16.2 million to the Company for the nine months ended September 30, 2022. The unaudited proforma financial results for the three and nine months ended September 30, 2022 combines the consolidated results of the Company, Avtex and Faneuil assuming the acquisitions had been completed on January 1, 2021. The reported revenue and net income of $592.5 million and $22.2 million would have been $592.5 million and $22.2 million for the three months ended September 30, 2022, respectively, on an unaudited proforma basis. The reported revenue and net income of $1,785.4 million and $80.9 million would have been $1,827.4 million and $85.4 million for the nine months ended September 30, 2022, respectively, on an unaudited proforma basis. The Company did not have any material, nonrecurring proforma adjustments directly attributable to the business combinations included in the reported proforma revenue earnings. These proforma amounts have been calculated after applying the Company’s accounting policies and adjusting the respective acquired businesses’ results to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and equipment, and intangible assets had been applied from the date indicated, with the consequential tax effects. The unaudited proforma consolidated results are not to be considered indicative of the results if these acquisitions occurred in the periods mentioned above, or indicative of future operations or results. Additionally, the proforma consolidated results do not reflect any anticipated synergies expected as a result of the acquisitions.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI https://asc.fasb.org/topic&trid=2303972 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 5 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=128092470&loc=d3e4946-128472 + Details
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