Startek Inc (SRT) 2008 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2008 StarTek Earnings Conference Call. My name is Shaquana and I will be your coordinator for today. (Operator Instructions.) I would now like to turn the presentation over to your host for today's call, Ms. Julie Pierce, Director of SEC Reporting and Investor Relations. Please proceed, ma'am.

Thanks, Shaquana. Good morning, everyone, and thanks for calling in. I'm Julie Pierce, StarTek's Director of SEC Reporting and Investor Relations. And it is my pleasure to welcome everyone to StarTek's Fourth Quarter 2008 Earnings Call. I am joined on the call today by StarTek's President and Chief Executive Officer, Larry Jones, and Chief Financial Officer, David Durham. Larry and David will deliver prepared remarks today with some brief comments about this morning's release. At the conclusion of their prepared remarks they will conduct a question and answer session. For those of you who have not yet received a copy of today's earnings press release, please go to www.startek.com where you can download a copy from the Investor Relations section of our website.

Please note that the discussion today may contain certain statements, which are forward-looking in nature pursuant to the Safe Harbor provisions of the federal securities laws. These statements are subject to various risks and uncertainties and actual results may vary materially from these projections.

StarTek advises all those listening to this call to review our 2007 Form 10-K posted on our website for a summary of these risks and uncertainties. StarTek does not undertake the responsibility to update these projections. Further, our discussion today includes some non-GAAP measures. In accordance with Regulation G, we have reconciled these amounts back to the closest GAAP basis measurements. These reconciliations can be found in a table at the end of this morning's release as well as on the Investors page of our website under Regulation G.

I will now turn the call over to Larry Jones, StarTek's President and CEO.

Thank you, Julie. Good morning, everyone, and thank you for joining us. First, I'll start with a few comments about our fourth quarter and highlight our key accomplishments and disappointments for 2008. Then Dave will discuss our financial results. I'll then wrap it up with comments on our industry and review our plans for 2009.

The fourth quarter was one of continued growth, expansion, and site optimization. Revenues were $74 million, up 11% over 2007. Our double-digit revenue growth was driven by continued growth from existing customers. Gross margins were 12% and our earnings per share loss before impairment and restructuring charges was $0.07. Both were lower than the fourth quarter of 2007, due primarily to lower utilization in our ramping sites. Dave will provide a lot more color on this later.

During the quarter, we continued to ramp the three new U.S. sites launched earlier this year and continue to fill our Philippine site opened in September. We also announced the closure of two nonperforming sites, one in the U.S., one in Canada, as part of our ongoing site optimization program. These efforts along with improved Canadian FX rates will have a dramatic effect on margins as we enter 2009. I will talk more about this later.

The fourth quarter was a big hiring quarter as we staffed up to meet holiday support demands. During the quarter, we observed improved recruiting levels and lower attrition as a result of the HR programs that we initiated early this year and a weakening economy. We have seen this trend continue into 2009 as well.

Now, let me discuss our key accomplishments and disappointments for 2008. At the beginning of the year, we set out with five key goals. First, to grow revenue double digits; second, to add three new sites; third, to optimize our North America operations; four, to expand offshore; and finally, to invest in new technology HR programs and new services.

At the onset we knew that this would mean more spending and more CapEx than usual, depressing short term margins. But we also knew that these programs and investments were required to support our continued growth program, improve our operating margins, and deliver long-term sustainable profitability. Let me discuss in a little more detail all five of these initiatives, our accomplishments in 2008, and how they'll affect 2009.

First, in 2008, we wanted to continue the revenue growth trends that we started in late 2007. Throughout 2008, we saw strong customer demand for more seats, particularly from our largest clients, AT&T and T-Mobile. Revenues for these customers grew 21% and 36%, respectively, over 2007. This growth was driven by their subscriber growth and our continued reputation for delivering quality service. As a result of their growth and additional programs secured in other clients, we reported quarterly revenue growth of 12%, 12%, 9%, and 12% in Q1, 2, 3, and 4 of '08, and an overall growth rate for 2008 of 11%.

Second, we started a U.S. site expansion plan to support our growth. In January, we opened Victoria, Texas; in March, Mansfield, Ohio; and in July, Jonesboro, Arkansas, each with a capacity of roughly 500 seats. These sites ramped throughout the year and we ended the year with a combined 74% utilization in these three sites. Seats in all three of these sites are committed to existing customers and should be fully ramped in the second half and the first half of 2009.

Third, we continued our site optimization strategy, which began in 2007. This program had three key initiatives. First was to identify sites where the labor markets were depleted and develop a plan to close these sites with minimal client disruption. During 2008, we closed Big Spring, Texas; Petersburg, Virginia; and announced the closure of Regina, Saskatchewan for the first quarter of 2009.

The second site optimization initiative was to instill improved accountability and operating metrics in all of our remaining sites. In June, with the departure of our COO, we reorganized our team, instituted new operational reporting, and the results have been significant. The final site optimization initiative was to reduce our Canadian footprint, given the rising wage rates and FX exposure. During 2007 and 2008, we closed two Canadian sites, reducing our revenues from our Canadian operation from 39% in the fourth quarter of '07 to 28% in the fourth quarter of 2008. The closure of Regina this month -- this percentage will continue to fall. All three of these efforts will result in a more productive and profitable operations in North America as we enter 2009.

The fourth key initiative in 2008 was to expand offshore and January of last year it was clear that our clients, who traditionally had no interest in offshore seats, were beginning to migrate lower end work offshore where labor rates were low and the quality of service was comparable to that of the U.S. In March, we made the decision to open an 1,100 seat center in Makati, Philippines. That center went live in September with an existing client. Today, we have two clients representing approximately 350 seats and have another client that will ramp an additional 400 seats by the end of the third quarter. This will fill the center to two-thirds capacity. In addition, we have several active offshore prospects and believe that we can fill the site to capacity by the end of the year.

Finally, we made another--a number of other investments in 2008 in technology, HR, and new services. On the technology front, we continued our voice-over-IP migration, initiated an ERP/HRIS system migration to Lawson, and implemented a new learning management system for training our employees online. In our continued effort to invest in our people, we launched several new benefits programs, a new leadership development program, and several programs to improve recruiting and reduce attrition. We are seeing these programs pay off as we enter 2009. During 2008, we also launched our StarTek at Home program. We ran two pilot programs and believe that we can grow this program in 2009 as client demand dictates.

No year is perfect, and we had our share of disappointments as well. Our biggest appointment--disappointment was our inability to close any sizeable new contracts, but we were successful in signing new business from our existing clients and closed two smaller accounts that we expect to grow over the next several years. We had limited success in closing any sizeable new named contracts. Late in 2008, we made several management changes and restructured our sales operation and expect to be able to turn this situation around in 2009. All in all, 2008 was a very successful year where the management team continued to produce revenue growth and make key investments to position the Company for an even better 2009.

With that, I'll turn it over to Dave, who will talk a little bit about the financial results.

Thanks, Larry, and thanks to everybody for calling in. Before I get into our results, I'd like to remind everyone that this morning we published a financial scorecard on the Investor Relations section of our website. The report, which provides a metric breakdown for our established U.S. sites, our new U.S. sites, our Canadian operations, and our Philippines operation, hopefully will offer useful insight into our progress on site optimization and site expansion strategies. With that, my remarks today will be at a fairly high level and hopefully the scorecard will help fill in the gaps for those that are interested in another level of detail.

Moving on to the results, as Larry mentioned, overall we accomplished quite a bit in 2008, particularly in the area of site optimization where we began ramping up four new locations while making the hard decision to close three. Opening four new sites had a positive impact on revenue and we achieved what we had hoped to there, but the drag on gross margin was significant and site openings and closures plus hedge transactions that worked against us in the second half of the year caused overall gross margins at the end of the year to be lower than planned. We will talk more about it later, but the expected turn in gross margin in 2009 should be significant, based solely on a change in our effective foreign exchange rate against the Canadian dollar and the absence of the non--of the closed nonperforming sites.

For the quarter, revenue grew to $73.5 million, an 11.9% increase compared to the fourth quarter of 2007, and a 6.4% increase compared to last quarter. For the year, revenue totaled $272.9 million, an 11.2% increase compared to calendar 2007. The current quarter growth compared to 2007 was due to an 8% increase in full-time agent equivalent headcount from approximately 5,450 in the fourth quarter of 2007 to just under 6,100 in the fourth quarter of 2008. Our growth in FTE this quarter was the largest in several years. Approximately 71% of revenue came from our U.S. locations, up from approximately 61% in 2007, due to incremental revenue of $13.3 million from new sites. Revenue from our Canadian sites fell from 39% of the total in 2007 to 28% in 2008 and in dollars declined by $4.7 million. The announced closure of our Regina, Saskatchewan site, as well as declines in other Canadian markets where we had difficulty recruiting, accounted for the decline. Since year-end, we have seen improvements in our ability to recruit in Canada and we expect our remaining sites there as a group to begin growing again in 2009.

Our offshore operation in Manila began contributing revenue in the current quarter as two programs began to ramp, contributing $600,000 in revenue this quarter, a $500,000 increase compared to the third quarter of 2008. Compared to last quarter, revenue increased by 6.4%, impressive given that we announced the closure of our Petersburg, Virginia and Regina sites, which both began to ramp down. And we felt the full effect of our August 2008 closure of our Big Spring, Texas site. The increase was made up of a $3.7 million incremental increase from new U.S. sites and a $2.3 million increase in our existing U.S. locations, excluding Petersburg and Big Spring.

Recognizing that many of you track our client concentration, second quarter revenue from our largest client, AT&T, represented 61% of our total, compared to 48% in the fourth quarter of 2007. T-Mobile revenue increased to 25% for the current quarter, up from 24% in the fourth quarter of 2007. It's worth noting that while these clients represent a significant percentage of our overall revenue, each of these accounts have numerous programs serving multiple lines of business within both accounts with multiple service types.

While revenue for the quarter and year to date was solid, gross profit fell in dollars and as a percentage of revenue compared to the prior quarter, compared to last quarter, and for the year. Current quarter gross profit totaled $8.1 million or 11% of revenue, but included $1.3 million of losses associated with announced site closures and continued investment in the Philippines. For the year, gross margins dropped from 16% in 2007 to 12.6% in 2008.

Approximately 200 basis points and $5.2 million of that decline was due to negative FX impact. Our U.S. to Canadian dollar exchange rate net of hedges, dropped from approximately 1.10 in 2007 to approximately 1.01 in 2008. New site investments and losses from site closures cost us another approximately 200 basis points in margins. As we look out into 2009 from an FX perspective, based upon forward contracts already locked in, we expect our U.S. to Canadian exchange rate in 2009 to be no worse than 1.17, which will translate into a positive year-over-year swing in gross profit of approximately $10 million, based on current expense levels.

Needles to say, based on FX and on the expected 2009 payoff of our new sites, and the absence of a drag on those that we closed, we are optimistic that our gross margin picture will improve substantially in 2009.

SG&A this quarter totaled 10.3 million, pretty much the same as the last three quarters as we continue to closely watch our costs. We again realized healthy SG&A operating leverage this quarter, reducing expense as a percentage of revenue to 14%, compared to 14.8% last quarter, and 16.5% in Q4 of 2007. We incurred impairment and restructuring charges again this quarter, which totaled $3.3 million, all related to the closure of our Petersburg site. We had previously impaired the assets in our Regina location and will record the restructuring charge associated with that site's lease obligation in the first quarter of 2009.

Our loss for the quarter totaled $3.1 million or $0.21 per share. Excluding impairment and restructuring charges, we lost $0.07 per share for the quarter. For the year, our net loss totaled $9.9 million or $0.67 per share. Excluding impairment and restructuring charges for the year, we lost $0.28 per share.

Our balance sheet remains strong though our cash and investment balance did drop from $30.6 million at the end of September to $18 million at year-end. A $4 million increase in accounts receivable due mainly to increased revenue plus a $3 million decrease in accounts payable associated with Philippine CapEx from Q3 accounted for much of the decrease. In addition, CapEx totaled $5 million this quarter, exceeding depreciation expense of $4.3 million, plus we reduced long-term debt by approximately $800,000.

As we've discussed previously, protecting our balance sheet in this environment is a huge priority and we expect to begin building our cash balance back up in 2009 now that the CapEx associated with our current site expansion effort is substantially complete. To put that in perspective, we expect CapEx to decrease in 2009 to approximately $13 million, down from $28 million spent in 2008, with depreciation expense in the $16 million range for 2009.

With that, I will turn the call back over to Larry.

Thanks, Dave. I'd like to now comment on some industry trends before I talk about 2009. First, I think we'll all (inaudible) that these are treacherous times. Forget the stock market. A lot of businesses are feeling the pain of lower consumer spending and tighter credit markets. Therefore, it's prudent for all businesses to be cautious and conservative and StarTek is no exception. The difference at StarTek is that we're in the outsourcing business that serves the communications sector. If you were ever [lucky] time to be in two areas, it's now. Our customers are still growing, albeit at a little slower rate and they're looking to protect their subscriber base and cross sell more valuable services.

Whether it's a wireless carrier trying to reduce churn and increase ARPU, a telco or cable provider trying to hold on to subscribers and sell high speed Internet and VoIP products, our clients' view of customers service is as a strategic tool, not a "nice to have" or a cost cutting opportunity. Therefore, demand for most of our clients is on the rise. Sure, they're all looking to cut costs in a big way. But to do this, most are interested in using more outsourcing and moving noncritical call types offshore. Both of these strategies bode well for StarTek, at least so far. I think the most we can say about the future is that we just don't know about the long term. But for now, it looks like the demand is holding and are happy--our clients are happy with our ability to deliver high quality customer care and sales programs that deliver results.

Let me now turn to our business objectives for 2009. First, we're keenly focused on producing positive operating net income excluding impairment and restructuring charges in every quarter of 2009. As Dave and I have said throughout this call, this is a very realistic goal given better FX rates that will improve our Canadian margins, our site optimization efforts that have eliminated nonperforming sites and improved margins [at] many of the others, and by driving utilization rates above 80% by the end of 2009 as we complete ramping of our new sites. At the same time, we're scrutinizing our SG&A and CapEx spending to drive higher profitability and cash flow.

Our second objective is to continue to push our growth initiative and expect to be able to deliver revenue growth rates for 2009 in the high single digits, if the current trends continue. To accomplish this we'll need not only to grow revenues in our existing accounts as we have in the past, but also add new logos through a restructured sales organization. Our sales efforts will continue to focus on telco, wireless, and the cable industries as we have in the past, but also consumer technology. I'm hopeful that in this quarter we'll be able to announce not only a new sales leader, but also several new signed contracts.

Third goal is our site optimization and expansion efforts, which are not complete. In fact, they'll be ongoing for quite some time. We'll continue to push site level performance and reassess nonperforming sites to ensure that our gross margin targets are met. At the same time, we'll continue to assess new site locations and offshore expansion opportunities, particularly in Latin America. While our current plans do not include opening any new sites in 2009, primarily to insure profitability and conserve cash, we have the resources to add sites in the second half of the year should there be sufficient client demand. In that case, we would focus on adding offshore locations to drive toward the goal of increasing our offshore revenue mix.

Fourth goal during 2009 will be to continue to focus on our people through a number of new and existing HR programs. We are upgrading our corporate and site level management talent, rolling out phase two of our leadership development programs, beginning a formal process standardization and improvement initiatives, and are continuing efforts to improve recruiting and reduce attrition.

Our final goal for 2009 will be to continue to expand our service offering. We'll grow our at home initiative that we started in 2008 and develop a service automation technology offering that helps our small and medium size clients deploy technology to better service their customers. These services will include call routing, interactive voice response, and email and chat platforms.

In closing, let me say I am extremely proud of the team and their accomplishments in 2008, but I'm even more excited about our plans for 2009.

With that, Dave and I would like to open up the line for questions.

(OPERATOR INSTRUCTIONS.) Your first question comes from the line of Arnold Ursaner with CJS Securities. Please proceed.

Arnie?

Yes, hi, good morning. I want to first applaud you for the very thorough rundown in your fact sheet, which is great. The scorecard is terrific. It leads me to my first question. On gross margin in your U.S. based sites.

Yes.

We've seen a pretty--again, I know most of your actions are improving international and again I think you did a very thorough job reviewing that. But your overall domestic gross profit in the base sites is down several hundred basis points. What actions, if any, can you take to improve that in the upcoming year and is it being driven down by some specific factor that we should be more aware of?

I can take that, Larry. First of all, the gross profit for the fourth quarter was 18.2% and you're correct that it is down from the 23% that was recorded in the first quarter of 2008. The thing that I would keep--have you keep in mind is number one, the Petersburg site, which we did announce closing in the fourth quarter, that contributed actually negative gross profit in the current quarter and that will be out of the mix as we enter '09.

Our target overall for that group of sites is to have gross profit of at least 20%. So I do think based upon Petersburg being out of the mix, plus we transitioned one client out of the site and another into a site that is ramping nicely in the fourth quarter or did ramp nicely and we expect that to contribute as we enter into '09. So I think it's realistic to expect that number to get back north of 20% pretty quickly.

And staying on that general topic for one additional question, if I can, you broadly have talked about a margin you can achieve in the U.S., broadly spoke about a margin in Canada, and have talked preliminarily about the kinds of margins you can achieve in the Philippines and there is roughly a 10-percentage-point difference between each of those three. Is that still the type of magnitude we should be focused on?

I think with respect to Canada and the number that we have said in the past is that we believe that that gross profit level will normalize around 10%. I think today we're probably a little bit more optimistic at least for '09 given the FX picture and would target that number a little closer to 15%. But I think the other segments play out pretty much as we've discussed in the past.

And the Philippines can still achieve a 30% margin in your view?

Yes.

Okay, thank you very much.

Your next question comes from the line of Tom Carpenter with Hilliard Lyons. Please proceed.

Good morning.

Good morning, Tom.

Hi, Tom.

Dave, were there any cash payments in the first week or two of the quarter from your large customers that pushed cash back above $20 million?

Well, cash was about $18 million for--well, it was 18 million at the end of the quarter and it was a little over $30 million at the end of September. And as I mentioned--so that's a $12 million decline. $4 million of that was due to an increase in accounts receivable, mainly due to just higher revenue levels.

We had extremely high payables at the end of September, which were unusual due to some CapEx expenditures that were associated with our Philippine operation. We paid those payables in early Q4. That was about a $3 million swing. We paid down some debt. We had other CapEx expenses that exceeded depreciation. So overall, that accounted for the bulk of that decline. If anything, I would argue that our cash balance was a little overstated at the end of September. I do view--we do view the $18 million that we reported at the end of this quarter as a low point.

Okay.

And we do very much expect to build that cash balance back up as we progress through 2009.

As we look at the margin increase this year, based on the FX, this is kind of excluding the new sites on the FX, you said a $10 million swing. Is that going to be a linear increase throughout the year or with some of the hedging programs you have in place, is there going to be more of an impact perhaps mid-year than the first or second quarter?

Yes, the FX overall for 2009, based upon the instruments that we have in place now, is projected to be at about 1.17, assuming our expenses are at levels that we've hedged against. That will ramp throughout the year because we did have a little bit of lingering hangover from some old FX instruments that negatively impacted the first quarter. So I would think about it in the context of Q1 being in the 1.13 range, Q2 being in the 1.17, 1.18 range, and the second half being in the 1.20 range.

Good. And then, in the fourth quarter--I just want to make sure I heard you correctly. Your Canadian margins on the scorecard are listed as 1.8%. Did you have some--do you have an FX hedge that you unwound that you had to pay some money out that's impacted--?

--We did have hedge losses in the fourth quarter, so that definitely contributed to that decline. And we also had a little bit larger loss out of our Regina location, which we announced its closure.

Okay. And real quick, do you have any idea of the restructuring charge this quarter for Regina?

The aggregate lease liability is about $6.5 million, and depending upon our success in either subleasing that facility between now and the time that we report our Q1 results or negotiating some discounted buyout that number may come down. But if neither happens, we would expect to report a restructuring charge of approximately $6.5 million, which is not a cash charge, obviously, if we don't choose to buy our way out of the lease. It's a charge that would bleed out over the course of the remaining lease life.

Okay. And it sounds like that's your preference given your intention to grow cash this year.

Yes, I don't think we're motivated to write a big check at the moment to satisfy that.

Okay. Thanks for the answers. I'll jump back in the queue.

Your next question comes from the line of Tobey Sommer with SunTrust Robinson Humphrey. Please proceed.

Thanks. I was wondering if you could give us a little bit more color on where you think you're going to be from a cash flow perspective in 2009. You said you thought the cash balance was at a low point at 18. Does that suggest you're going to be able to swing to a profitability level here in the first quarter?

Yes. As Larry mentioned in his remarks, our goal is to have positive operating income in every quarter before any--taking into account any impairment charges. So yes, we are hopeful that at the end of Q3--or excuse me, at the end of Q1, we will be reporting a cash balance higher than that reported at the end of Q4.

And I think one of the ways to look at it is that net income isn't the only metric here, but really, what's the cash generation capabilities of the Company. And with lower CapEx and higher margins that means that you have incremental cash flow that you can put into the business on the balance sheet.

Okay. Can you comment on the timing of the CapEx for 2009? Is it particularly loaded in any half of the year?

It's very low in the first half and we have some second half investments planned that some are related to potential client requirements and some are related to just discretionary investments in technology. So we do have some discretion in the second half to pull that number back, if we need to.

Okay, and that back half weighting probably contributing to the cash margin in the first half. Did--do you have a sense for a tax rate in 2009?

The number that--or the rate that we've been using for modeling purposes is 37.5% and I think assuming we get back to a level of normalized profitability that that's a fair percentage to use.

Okay, thanks. And one last question. I was wondering from a just looking at 2009 and 2010 global perspective, you've done a good job transitioning out of some underperforming centers. And I was wondering how far through that process you think we are at this stage or whether you still have things on your short list to adjust for the business.

I think we're through the majority of that. We've got a couple others we're watching. And it really depends on--most of the ones that are left that we are watching are a matter of filling them up rather than labor market problems. So we'll just have to deal with it through the next two years really, and then it's an ongoing--there will be centers as we go over the next two or three years that may deplete and may have to be adjusted. So at this point there's no aggressive plan. I think we're pretty far through it.

Okay, thank you. Very helpful.

(OPERATOR INSTRUCTIONS.) Your next question comes from the line of Melissa Moran with Thomas Weisel Partners. Please proceed.

Hey, guys. Good morning.

Good morning.

You talked a little bit about the efforts you're making to restructure your sales team. I was wondering if you could just give us a little more color on what you're hearing from customers, their level of interest, sales cycles, and how you think the pricing is trending out there?

On the level of interest, I think it's on the rise, because of the outsourcing and cost focus. I think it's hard to tell. We are seeing a lot of interest right now in this quarter and it's hard to tell whether it's just an annual cycle where everybody is in the decision making process, but we've got a lot of deals that are in the final throes of decision making. So I think that's healthy right now, but I can't tell you it's a trend for the next couple of quarters.

From a pricing point of view, in our industry that we're serving, it's not about price, it's about quality. And all the deals we're chasing because of our market position are based on quality. A little more sensitivity to pricing, but not as--not crazy. And as we look at contracts coming up for renegotiation, we're seeing the same thing. It's not about price. It's about can you give me the seats and can you deliver the quality.

Okay. And then, on--let me just make sure I've got the numbers right. You said AT&T was 61% and T-Mobile was 25% of revenue?

I'll let Dave --.

--I'm sorry, Melissa, would you mind repeating that?

Was--did you say AT&T was 61% of revenue?

Yes.

Okay. And T-Mobile was 25%?

Correct.

Melissa Moran. Okay. Was there--it looks like the other clients, other than those two, went down slightly sequentially. Was there anything unusual in those numbers or was that just kind of normal variation in volume?

Nothing significant. We did--yes, I wouldn't say that--there was certainly no lost client that contributed to that. But there were some fairly small sequential declines in a few accounts.

And most of those were around programs, not overall kind of economic driven issues.

Okay. So looking forward, is that a good run rate to project then?

For percentage of revenue?

Just for the other client category. Is it going to be around $10 million to $11 million, or was there something that would shift that?

Nothing big other than new accounts coming in and new programs that were added in the third and fourth quarter. So I think you'll see growth rates there as well.

Okay, great. Thank you.

You have a follow-up question from the line of Tom Carpenter with Hilliard Lyons. Please proceed.

Larry, a question for you.

Sure.

I wanted to make sure I heard correctly. When you were talking about Latin America, I believe you used the word "sites" versus "site" and I wanted to make sure you were purposely using the plural when talking about the second half for 2010.

No, I really--if I did it, was totally by accident. I think we're being very conservative this year, as I said, and have no plans to open a site. But if we did, Latin America or another Philippine site based on client demand would be where we would focus. We're doing a lot of exploratory work in Latin America to try to figure out where and what we would do.

We would not greenfield the site. We would only do it if we had a client committed. And even then, typically in Latin America the sites are smaller. They tend to be 250 as opposed to 500 in size. So again, whether we open a bigger site in 2010 or something smaller in the second half will totally be driven by contracts that we secure.

Sure. It sounds like Latin America, because the Spanish language would almost totally be a new program, when in the Philippines if the demands there, do you think it would be new programs or transferring some of the existing ones?

I think so far it's been about 50/50. And I think last quarter we said the same thing and I think that's what it will probably end up is 50% migration and 50% new client contracts.

And then, you talked about some wins--potential wins in consumer technology. This year, talk about how easy--how hard it is to win in that area. And if there are some other ways you can add business by maybe buying a small mom and pop shop.

Right. First of all, the consumer technology arena is pretty adjacent to what we're doing. It's usually got a lot of subscriber kind of characteristics where churn and tech support are all bundled in. So we feel pretty comfortable that we're--we have a good story and good capabilities in that arena. From an acquisition point of view, we're still very inquisitive on acquisitions. With the current state of the turmoil of the marketplace, there is a little more opportunity, but also harder to get deals done. So I made no comments in my prepared remarks just because as before if we see something that makes sense that isn't--doesn't disrupt our plans, we would do it. But our focus right now is on profitability, growth, and expansion.

Okay, sounds good. Thank you.

You have a follow up question from the line of Arnold Ursaner with CJS Securities. Please proceed.

Sure. A couple of follow ups. One is, can you comment--obviously you had 21% growth with AT&T, 36% growth with T-Mobile. What do you attribute--what are the factors you see driving this particularly good growth with those two clients?

I think they're in the wireless business, they have a huge appetite for seats. We continue to perform. Some of the new sites we build--built were for them. I think all of those things factor into it.

But the industry is not growing anywhere near those levels. You're either gaining share because they're outsourcing more to you or you're gaining share from some other provider. Which is it?

Well, I think if you--they are pruning bottom performers. They are rewarding top performers. They are moving the needle from probably five or 10 points increment in outsourcing, particularly T-Mobile more than AT&T. But AT&T with the iPhone and the subscriber base are growing. Remember, our seat count isn't proportional to the number of phones they sell. It's really tied to the subscriber base and the complexity and programs that are driven there. So if they're doing a lot of billing rate programs or they're introducing more complex phones, the number of phone calls goes up. So I think you really can't tie it to the number of phones they're selling or the absolute subscriber base growth, but that is one of the factors.

Given your 86% client concentration with two major clients, can you comment on the agreement? I know they're not contractual obligations. But can you comment on the agreement, how long they last, and how you can help us understand the risks you have in these various agreements [you do]?

Yes, I think the first thing to note is that in both of our big clients we have multiple lines of business and multiple subcontracts, statements of work, which typically are on different cycles and have different executives that we negotiate with. So that's a hedge for starters. Secondly, most of them are two year contracts even though they have provisions for ramping up and ramping down on a monthly basis. So they're not really protected. Your pricing is protected for two years, but your volumes are not protected. And three, I think it's a performance game. As we just said, the current clients are rewarding us both with incremental seats in existing programs and in new programs, because we get the job done. And that's not necessarily true in a number of our competitors who are seeing some turmoil right now.

Do these contracts or agreements have break points that as you get more volume you tack some margin [on them]?

I think there is only one or two small subsets that have that kind of capability, but our big contracts do not have that. They are renegotiated at the end of the two year term based on volume.

I don't know if you have the numbers -- you were asked a general question, but I don't know if you have the numbers. Can you quality the non-AT&T and non-T-Mobile decline in revenue in both Q4 and for the year, please?

Yes, I--we do not have that. I do not have that number at the tip of my fingers unfortunately.

I think that information is all available and if you want to call us back later we can pull the percentages back. Every quarter we announce those, so you've just got to back into the number.

I just didn't know if you had it at your fingertips.

No.

Thank you.

Your next question comes from the line of [George Goetz]. Please proceed.

Yes, good morning and thanks for taking my call. I was wondering if you could give a rough ballpark approximation of how--what proportion of your marketing expense is directed to securing accounts in new industries, like perhaps the consumer technology industry or the healthcare industry? And what percentage is directed at securing business in the telecom industry?

I would say the majority of our marketing dollars are spent in the core business we're in. And in many cases, the marketing dollars are pretty generic, so that they're not specifically targeted. This is a reference game (inaudible) a marketing game. So the absolute amount of marketing dollars we spend is relatively low on an absolute basis. And where we do focus, we focus on industry events and making sure we have a presence at those industry events. But a lot of our marketing dollars are pretty generic and focused on lead generation as opposed to kind of promotional marketing.

I see. So there would be nothing imminent as far as any new accounts in any new industries?

Well, there are two levels. One is technology, which I said earlier is kind of an adjacent market, which we have a number of prospects in our pipeline, and only because we've focused our lead generation and targeted sales people at that industry. But to expand to other industries, we think that it's going to take a lot more effort and when I have somebody new running the sales operation, we'll look at different verticals and potentially start expanding there.

That's understandable. One other question. Has anyone in management had any conversations whatsoever about--as far as consolidation with another company in the industry or--?

--I think casual conversations happen all the time, but I think we haven't seen a lot of activity in that area that this point. And I think it's been true for a couple of years now. But nothing imminent.

Okay. Nothing imminent. Well, thank you very much.

Thanks, George.

Your next question comes from the line of Tobey Sommer with SunTrust Robinson Humphrey.

Thank you. I just wanted to ask a follow up question about the sales momentum that you may have as you enter 2009 from ramping programs. Is this--is there -- are there ramping programs that may give you momentum to have kind of sequential growth and then we'll see how the new sales efforts start to yield fruit, or is--have you already gone through most of that ramping process?

Good question. We've got a lot of momentum as we enter the fourth quarter, as we continue to ramp the sites that we built and align the businesses that we were granted in the third and fourth quarter. So I think a lot of our revenue growth that we talked about in the low single digits will come from that. We have a little bit of new sales baked in our plan, but we're pretty optimistic that if we're successful in landing some of these new contracts, that will be gravy on top of that.

Okay, thanks.

Tobey, the only thing that I would add speaking about sequential revenue, as you look at the calendar there are--there are actually two fewer days in the first quarter of '09 and I guess this is more of a modeling point for you. And we also have a little bit less revenue than--a little bit less revenue due to the fact that we did close Petersburg and we're intending to close Regina. So I wouldn't expect the same kids of sequential gains that you've seen the last few quarter, but based on--solely on those two factors.

Okay. With some underlying momentum being masked by those changes probably?

Yes.

Correct, yes, absolutely.

Thank you.

Yes.

At this time there are no further questions. I would now like to turn the call over to Mr. Larry Jones for closing remarks.

Well, thanks, everybody, for joining us and we'll talk to you next quarter.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect, and have a good day.