TTEC Holdings Inc (TTEC) 2002 Q1 法說會逐字稿

Welcome to the TeleTech first quarter earnings conference call. I would like to remind all parties that you will be on a listen only mode until the question and answer session. This call is being recorded at the request of TeleTech. I would like to turn the call over to Carron . Thank you madam you may begin.

Thank you and good afternoon. My name is Carron Vice President of Investor Relations and I would be the moderator for today's call. For your information this call is being recorded. Participants today include Kenneth Tuchman Chairman and Chief Executive Officer, James Barlett, our Vice Chairman, and Margot O'Dell, Chief Financial Officer and Executive Vice President of Administration.

Before we began I would like to make you aware that during this call there may be discussion of certain forward-looking information. Please understand that actual results could differ materially. You are encouraged to review our 2001 Form 10-K and other SEC filings regarding factors that could cause actual results to differ from that forward-looking statement. Thank you and now I would like to turn the call over to Kenneth Tuchman.

Thank you Carron and welcome to everyone for joining us for the call today. Let me begin by briefly discussing our first quarter results. After which I will provide general business update.

We reported first quarter revenue 254 million dollars, a sequential increase of more than 10 percent. This was in line with our guidance of 250 million dollar to 260 million dollar. First quarter revenue benefited primarily from the launch of Nextel, it was partially offset by anticipated seasonal declines from certain U.S. clients, as well as lower revenues in Spain, and the impact of the currency devaluation in Argentina.

Earnings were 9 cents per share at the high-end of our guidance and in line with the consensus estimates. Given the weak economic climate we are pleased with our first quarter results as we continue to deliver on financial and operational expectations we set for the company. Now let me give business update beginning with the brief summary of each region as well as Percepta and Newgen. James Barlett will then comment on our European operations and Margot O'Dell will end the call with financial review.

Our North American region which include the US and Canada continues to deliver strong results. With 28 centers and over 17000 employees, this region contributes just over two-thirds of our revenue. With continued available capacity in US, the North America region has meaningful operating margin leverage once we flow significant new business and begin to more fully utilize available capacity. Included in North America is the Nextel project, which launched the first week of their with nearly 4000 employees and six customer interaction centers.

By all account the client is pleased with the project success day as we undertake one of the most complex outsourcing agreement in our industry's history. We look forward to continue the accomplishment as we work with IBM to improve Nextel customer's relationships while delivering significant bottom-line benefits.

In the Asia-Pacific region, we continue to win new business and are focused on strengthening our market leadership. We entered this region in 1996 and have consistently met the target we set for growth and market expansion. With operations in Australia, New Zealand, Singapore, China and now the Philippines. This region contributes roughly 8 percent of total revenues and continues to meet our financial expectation.

Our operations in Latin America represents 7 percent of the consolidated revenues and our business in Mexico and Brazil continue to operate on target. As I mentioned on the fourth quarter call we are very concerned about the economic instability in Argentina and the impact that have on our ongoing operations. Although Argentina represents only 1 percent of our consolidated revenues. We are closely monitoring the situation and we will make additional changes as needed to right size the operation to reflect the current operating environment.

Let me also address to you all, as we stated on our fourth quarter call we are under performing in that region. As an executive team we are laser focused on improving our performance in Europe and in the past month Jim, Margot, and I spent over two weeks on the ground in Europe. Let me review some of the highlights of our current efforts. First we recently augmented our European management team and under there leadership the operations are meeting our global standards. Second as we work to fill available capacity.

We believe there are considerable opportunities in the region. Jim and I are focusing our efforts on reintegrating the large deal sales pipeline and are pleased with the early progress we have made. To further those efforts we are committed to spending a significant amount of time on the ground focusing primarily on large deal opportunities in the future. Our Europeans are approximately 7 percent of our total and we believe that it will take at least three to four quarters to achieve breakeven as we actively pursue in improving the plan. Jim will provide additional inside in our European operations later in the call.

Newgen had a great quarter with revenues exceeding 21 million dollar including signing new client agreement with Ford and Hyundai. Newgen contributes roughly 8 percent of TeleTech's total revenue and we continue to have high expectation for there future growth. The Percepta joint venture continues to make progress. Having signed an agreement in the first quarter with Primus, a division of Ford Motor Credit, we enjoyed good relationship with Ford and together we are looking for ways to lower the cost for the venture while continuing to provide high-quality customer support throughout the world. Ford is coming out of difficult financial situation and we expect Percepta will continue to perform our expectation while we work together to optimize the venture.

Overall we are pleased with our growth in light of the global economic weakness in the fact certain client programs have seen reduced volumes. Having spoken about our global operations let me also broadly address the sales pipeline.

We continue to focus our efforts on large multicenter opportunities and are pleased with the quantity and the size of the deals was same. Both new and existing clients are eager to hear how we cannot only lower cost but more important can improve customer relationships and drive more brand royalty. Nevertheless the sales cycle continues to be long and it is obviously difficult to determine when these opportunities will close. Overall we are pleased with our progress and continue to achieve a high level of client satisfaction.

Our largest business units are operating well and we had a specific improvement plan for those units that are under performing. The board and executive management team were committed to take in necessary actions to improve long-term profitability and we remain focused on our primary objective of large deal, growing existing client relationships and aggressively managing our cost. Unfortunately this is a very difficult time for many global companies as they dramatically reduce CAPEX spending and look for ways to further reduce cost. However, TeleTech is uniquely positioned to help both current and perspective client leverage our global infrastructure while providing immediate cost savings and overtime helping them acquire grow and retain more profitable customers.

In many industries there are only two ways to grow; share or create demand. Our industry is the grow share market. In fact estimate the total market penetration is still less than 15 percent. With plenty of in demand we can continue to be a growth company for a long time to come. Let me conclude by saying that I am very confident our management team and operating platform and continue to be excited about our long-term prospects. With that I will like to turn the call over now to James Barlett.

Thank you Ken and good afternoon everyone. Let me begin by sharing with you that we recently welcome for the TeleTech management team as Chief Information Officer. Most recently was Vice President of Systems and Operations in international. His responsibilities included all aspects of the worldwide technology platform including data operation in customer service centers. was also instrumental on the design, launch and ongoing of centralized reservation architecture for operations in over a 100 countries. has over 20 years of information technology experience and we believe his expertise in central technology architectures will greatly augment TeleTech's efforts to centralize its technology deliver platform.

Today I also want to review the market opportunity in Europe and how we intend to return this region to profitable operations. recently completed two very successful trips to Europe in March and April. I can confidently say our operations are solid and we have a strong, motivated management team in place. Our focus now will be on reanimating the sales pipeline. Before I review the results of our trip, let me give you a sense of the market opportunity in Europe and why we are continuing to believe this region of the world is important for TeleTech. According to data monitor the total customer care outsourcing market in Europe is expected to double from 5 billion in 2001. Over 10 billion in 2005, making it the second largest market in our industry behind the United States. Importantly, 75 percent of the current outsource customer care revenue in Western Europe is from inbound services.

In addition over half of the current outsource customer management revenues come from three vertical industries the TeleTech is very familiar with including financial services, communications, and travel and leisure. Now given these statistics we believe Europe can become our second largest market. As we continue to focus the majority of our sales effort on the global 1000 it has become increasingly clear that the global footprint in the competitive is a competitive differentiator and as such we intent to develop our market leadership position in Europe. As you know I have had extensive experience of the financial services and travel and leisure businesses over the course of my business career and I plan to leverage my European relationships to help TeleTech rebuild its pipeline of opportunities. During our recent trips to Europe Ken, Margot, and I worked with our European leadership team to focus on two key areas.

First we met with several of the largest companies in Europe across several industries sectors and second we met with and solidified our channel partner relationships with both IBM and PriceWater . Having met with both partners they are enthusiastic and optimistic about the opportunities that we can jointly pursue. OF the companies we met with, we prioritized this strategic opportunities and will shortly begin assessment of their current customer management operation. Our big deal chain in the US will assist our European sales organization in providing additional expertise to the assessment and proposal stages of this new business opportunities.

Although the sales cycle may be in Europe for the large new deals I believe we are taking the right approach to drive and improve financial performance in that region. Given my experience in establishing and running several growing and profitable businesses in Europe I am confident in our collective ability to grow profitably in this very important market. With that I will now turn the call over to Margot.

Thank you Jim, we are pleased with our financial performance during the first quarter as we continued to deliver on the expectation set by the company. Let me begin by reviewing revenue. First quarter revenue was 254 million dollar up 10 percent from fourth quarter revenue of 230 million dollar. Compared to the year-ago quarter revenue increased 60 million or nearly 7 percent from 238 million dollar.

Revenue for the first quarter was in line with our guidance of 250 million dollar to 260 million dollar and benefited from the launch of the Nextel relationship as well as several short-term projects in the cable industry. These gains were partially offset by declines in our government and transportation sectors given normal seasonality that occurs in the fourth quarter. International revenue which was 90 million dollar in the first quarter was down approximately 6 million dollar or 7 percent from the fourth quarter. The decrease is due primarily to the loss of programs in Spain and the impact of the currency devaluation in Argentina.

International revenue for in-country clients represented 21percent of total first quarter revenue while another 14 percent of our revenue for services provided to US customers from international facilities. In terms of the client concentrations Verizon remains our largest client representing 16 percent of first quarter revenue compared to 18 percent in the year-ago quarter. However, no single divisions of Verizon represents more than 9 percent of total revenue. Now with our second largest client in the first quarter representing 12 percent of revenue or roughly 30 million dollar. For the full year we continue to believe this contract will generate between 120 to 130 million dollar of revenue.

We are pleased with our progress with this relationship in the forward to continue to success as we worked to complete the transition and achieve a steady state of revenue and margin. Beyond Verizon and Nextel no customer represented more than 10 percent of first quarter revenue.

Now our shift to earnings. The first quarter earnings were 9 cents per diluted share these results were at the high end of our guidance and that consents our estimates. Operating margin for the quarter was 6 percent compared to 7.5 percent last quarter and 6.6 percent in the year ago quarter. As expected operating margin declines sequentially due primarily to under performance in our international operation. SG&A as a percentage of revenue decreased to 20.2 percent in the first quarter from 21.4 percent in the fourth quarter.

As stated last year our goal in 2002 is to achieve a SG&A run rate at 20 percent or last of revenue. This was accomplished in the first quarter not only due to continue cost savings initiatives but also from the launch of Nextel relationship which primarily has the direct cost structure. Finally during the first quarter we adopted FAS 142, which resulted in a non-recurring charge of 11.5 million dollar pre-tax and 7.5 million dollar after-tax. The charge reflects the impairment of goodwill in our Latin American operation. The challenging and uncertain environment in Argentina and resulting business risk was the primary driver of the impairment. The impairment is reflected net of tax as of the change in accounting principle after minority interest and before the net income.

Moving to the balance sheet. I want to provide detail on cash, short-term investment, capital expenditures and DSOs. Cash and short-term investments were 73 million dollar at the end of the quarter down approximately 31 million dollar from the fourth quarter. The decrease is primarily attributable to negative working capital associated with the launch of Nextel project.

We began Nextel at the beginning of February therefore in normal and expected receivable balance for February and March is reflected in our quarter end result. But 2002 we expect free cash flow positive as we approach the steady state of operation in Nextel and continue the stringent cost and capital expenditure controls.

First quarter capital expenditures were 9 million dollar down nearly 63 percent in the year ago quarter and up 4.1 million dollar from the fourth quarter. We believe capital expenditures in 2002 will range between 70 million dollar and 75 million dollar. However we reevaluate this guidance after this guidance after the second quarter. It is lightly we did our capital-spending target for the year at that time. DSOs at quarter were 71 days up from 65 days in the year-end again related primarily to the Nextel launch.

We DSOs were come down in the second quarter and continue to target at 65 to 70 day range given in our international presence. In summary we have aggressively managing our balance sheet to ensure strong financial position and adequate liquidity to continue to evaluate the return for investor capital and in certain way we are achieving targeted total rate.

Now I would like to address the second quarter business outlook. We estimate second quarter revenue will be in the range of 245 to 250 million dollar, a modest decrease from the first quarter. The decrease is primarily attributed to some short-term work completed in the first quarter for several cable companies to assist them in migrating former our own customers to their alternative high speed internal network.

The majority of his business end of the first quarter. In addition during the second quarter we are expecting moderate volume decreases in certain US programs as well as the decline in revenue in Europe as we accept certain client relationship. We estimate second quarter earnings per share to range 9 and 10 cents per diluted share flat just slightly up compared to the first quarter. There are couple of factors causing margin lift in the second quarter.

First, we expect margins to increase as we continue to focus on cost control measures and second we expect to see reduced losses in Europe as we access certain unprofitable client relationship. Let me end by reminding our 2002 outlook, our revenue will increase 12 percent to 15 percent over 2001, which takes into account expected annual revenue attrition as well as growth for new and existing customers including Nextel. We continued to have nearly 95 percent of our revenue target and visibility and working to close new business and grow existing client relationship to bridge the gap.

Further, we believe earnings per share will increase 20 percent to 25 percent in 2002 nearly twice the revenue growth rate. The increase will be driven primarily by the following key factors. New client agreement and resulting increased capacity utilization. Continued aggressive cost management and further leveraging our global infrastructure.

In closing we actually working to sell existing capacity and result under performance received in certain business segment. We remain committed to achieve the right return assets and will continue aggressive cost control measures taking the necessary actions to streamline the company and drive great operating efficiencies. We are pleased with our first quarter results and will continue to focus on strategy of the remainder of 2002. With that I would like to open up the call to your question.

At this time if you would like to ask a question please press star 1on your touchtone phone, if you would like to withdraw question press star 2 again star 1 to ask the question and our first question does come from Charles Phillips, please state your company name.

Charles I think, at this point, it's a little bit premature to say whether we're going to a charge that the actions that we've taken in Europe thus far has been to identify accounts what we had problems at the growth margin level, and if we felt that we couldn't improve the pricing on that we have worked with the client to go into a wind down phase. That obviously is going to leave us with some excess capacity in the region.

At this point in our efforts are still premature to say whether or not we think we can fill that capacity quickly enough or whether or not we would take other actions. Likely, we've done in North America, it usually takes us several quarters before we decide which way we want to go with that. I'd say it's premature still.

You know I think, at this stage we're in obviously literally daily contact with the client, and at this stage they feel that the things are going as planned. With any project of this size, there is always going to be launch type issues, etc, because of the overall size and complexity. But we feel pretty confident in the relationship, and how things are going and moving along. They've confirmed that on multiple occasions with us.

None whatsoever.

Thank you

I missed the number four Nextel in the quarter.. how much of revenue was that..?

In 2Q it will probably be slightly up. There are a couple of factors going on the firstly launched Nextel in February so it was only two months during the first quarter. So we would expect an increase but not at the same run rate as the first quarter. We did see at the beginning of the relationship, higher volumes than we expected, and we think that it will return to a more normalized level in 2Q. It will be up slightly in the second quarter.

European total is roughly 7 percent of our revenues, and Spain is probably about 4-5 percent of our revenues. We're not interested in jettisoning it. We were saying, that there were certain clients that we shall not... the contracts were not such that.. they were long-term contracts. Therefore we've taken some action to exit some of those. We still think that the market is one that provides the promise. It's really still premature to tell for sure that we spent quite a bit of time there in the last month. Several people on the management team and I think that we feel that there are some good prospects in the Spanish market.

It's about where it was in the fourth quarter hasn't changed much. We're operating with just under three centers of excess capacity in the US, kind of above and beyond where we would normally be.

Welcome

Thank you. Our next question comes from Bob please state your company name.

Good afternoon and nice quarter. First can you comment on the IBM relationship I think you said channel partner in Europe, where do things stand from a more formalized arrangement there? What are you seeing in terms of that relationship helping the pipeline?

Can you comment Pecepta, what percent of sales do you expect then what is the comment for this quarter and perhaps for the year?

Then on the short-term business that you've done with some of the Telco companies, can you give us a ballpark of how much business that was in 1Q at home business?

The cable works specifically was probably in the range of about 5 to 8 million for that piece of it. It's a pretty significant amount in our 1Q.

Okay. And final question that I have missed, how much, what percent of revenue was due to international, I mean international revenue from US clients?

Right and we have an additional 21% of revenues that are for international clients that are supported out of international facilities, so it's a total of 35%.

The labor arbitrate charge fee.

I think that will continue that will continue to increase. That has certainly been the trend and I think there is a lot of willingness and openness now on the part of US companies to continue to expand into other parts of the world. Clearly they get benefits from the cost savings associated with that but also from a disaster recovery standpoint to have multiple locations supporting them. I think that the trend that we've seen will continue over the next couple of years.

Okay. Thank you

Ah, Ah. The company is Robert Biard. Good Afternoon.

Could you talk a little bit about Philippines and how is that joint venture with Philippines-Telco is going?

Yes. Tuchman can you just review how many, what was the initial number of workstations that you opened there?

Okay. and then and tomorrow is trying to be fast and on the FASB SFAS [phonetic] 142 write down, given that 1 percent of your revenue comes from Argentina so much surprised by the size of that write down. Could you talk about that may be as a percentage of the total value of the assets that you have there?

Okay. Thanks. And finally as you look at or as you think about the guidance that you are providing now versus the guidance that provided in January. Are you feeling better, worse about the same is the economy and may be bad with the particularly with respect to the volume. Do you think that you will see the volume increases or decrease that you expect from your clients as you look to the next three quarters?

I think it will remaining cautious and although we are up beat and we are very, very impressed with the opportunities that are in our pipeline and looking back this part of the year versus, the this time of the year versus the beginning of the year, our pipeline continues to expand and the opportunities continue to impress us as far the size and the opportunity. That being said as I cautioned on the previous call, this economy continues to get worse for our clients and that obviously gives us reason to have some caution. That being said we're a big deal company. We have a track record of consistently winning the majority of the big deal in the industry and all it takes as far as us to close one of this big deal and I think you hear me say that we have been extremely optimistic.

So, I think for now where we are is that we feel good about what is in the pipeline. We feel that we are absolutely talking off the right clients, with the right opportunities, with the right margin and potential. That being said these large deals take time to close and it's really just simply going to be a timing issue. After all we are in the time frame right now and so that being the case we need to win some deals relatively quickly.

Thank you.

Yes. Lehman Brothers. Can you give us some update on what is going on with some of your new business? You touched briefly on what was going on at Newgen. I would like to know there is a couple of new programs that you introduced last year, which were initially sounded very promising they may still be promising and there may be weakness in other areas of Newgen. If you are going to that as well as if you could also talk a little bit about what is going at Enhansiv if there is a, or if there is anything going on at Enhansiv on that matter?

The Newgen. Yes.

And Margot let me just talk about Enhansive. We just put out most recent release 331. We just put up a new release of the couple of software. Obviously, it's talking generally for all software companies, but Enhansiv recently sold a new significant client with the software provided. We continue, obviously to access Enhansiv's progress and prospects and it's market positioning, but we also continue to believe Enhansiv is a strategic asset that TeleTech and the one that we need in the long-term.

Can, let me ask you, maybe overall can question, that is already it is a long-term type of prospective, but it deals directly with perhaps the margin, perhaps the of I should say and the margin that both the, that industry is going to get more return but that has to do with the recession and the, I will say the excess capacity that we have out here, which we don't know about from the early 90's because now you guys are public, but clearly after the IPO spurred in the 60, 96-97 period there was some excess capacity. With this recession there is some excess capacity, do you believe the industry can get to a point of adding enough value to the customer so that you won't be, they won't take programs back in house, the way we have seen in the last two years to create some of this industry excess capacity. Is there value in these programs that to have that can may be make it too important for the customer to drop you?

Thanks very much.

Thank you. Our next question comes from Bill Warmington and you may ask your question.

Bill Warmington, your line is open and please state your company name.

No, it really hasn't because we took over their existing centers. There is some consolidation that we're making within their existing six centers to consolidate down and into fewer of theirs, besides it didn't necessarily take up capacity that we had within the US. We are doing some support for Nextel now at one of our Canadian centers, but not significant work here.

Let me talk broadly about the international operations, which Europe is clearly the leading factor with but the drag sort of speaks from 4Q to 1Q with approximately at 2 cents deterioration in the international operations. Again Europe has been the biggest contributor to that, but also the devaluation in the Argentina also contributed to that.

Credit card marketing is not a big part of our business. That falls more in the outbound telemarketers' arena and the TV direct response arena. That being said we clearly represent some of the largest financial institutions in the world and in some cases we're providing customer service directly for them in those areas, but that's not a major thrust of our business.

Everything we do is on the inbound side on the credit side for the most. I am suggesting is that the majority of the activity that you tend to hear about in the financial services world, as it relates to credit cards is too typically in the outbound acquisition area. The work we are focused on is on the customer service area and getting these large organizations to potentially consider outsourcing their inbound customer care of their other credit card portfolio.

Then that's right there. Thank you very much.

SWS. I don't know sure if I missed it or not, but did you give the break down on North American, International, and Newgen?

What about corporate? Did your company do anything in that quarter -- this quarter?

I was wondering all the European actions were taken on the profitable contracts you plan to get out off? Have you already identified those, and that's in progress or this is all future you planning to do?

Yes, we've already identified them and in both cases we've already taken action.

Okay. Will there be any future I guess charges as a result of those contracts running down?

On the Nextel contract, it sounds like you are off to a pretty quick start. Any way you give us some feedback on how you perform relative to the client's expectations?

There have been no material changes to the rollout schedule?

Thanks lot.

Thank you. Our next question comes from Shawn please state your company name.

The revenue in the quarter was about 30 million dollar.

3o million. In 2Q do you have any idea where that number is going?

I see and then the second question is.. How much revenue is from Spain? Last quarter, there's been a big change in your outlook for Spain. In the last quarter you had indicated that you would be interested in jettisoning the business in this quarter. It looks like you moving forward so I just trying to get the sense of, how much for Spain in the quarter and what would the revenue look like excluding Spain?

Okay. My final question is the excess capacity in the US what is current stand?

Thanks guys

It would be premature for us to comment on a formal relationship. We do that through press releases, etc., and at this point we would prefer not to comment on the exact relationship. What I would simply say is that both parties realize the benefits that we can both bring to each other as far as on large deals, and that we're actively working pipelines in multiple areas together, multiple theatres [phonetic] both Europe, as well as, North America and Asia Pacific. Pretty much it would probably not be wise for us to comment any further on it.

Percepta is right now about 8-9 percent of revenues. There was some growth in the 1Q compared to the 4Q as we launched a couple of projects with them. The growth within Percepta would be similar to the rest of the business. We're expecting a 12 to 15 percent overall growth 2001 to 2002, and I think that Percepta will probably be similar to that.

How much of your CAPEX this year is going towards new capacity and where will that new capacity go?

I think the CAPEX guidance, I thought just about a little bit, right now we're still forecasting between 70 and 75, but I think it is possible that after the second quarter we may bring that down some. We are planning on continuing some expansion likely in Canada, possibly in Mexico areas that continue to grow well for us. Unlikely that we would add any capacity in the US, in fact very unlikely. So new growth would probably be in 30 million 40 million of the number and rest are going into maintenance capital, upgrading our infrastructure.

The labor piece, the part we were supporting US clients out of international facilities is 14 percent of our revenues in the first quarter.

14 percent, and where

And where do you see that number going, say a couple of years from now?

Yeah.

Thanks Bob. The next question comes from Carla Cooper and please state your company name.

Well, So far it is going quite well. We just, we recently launched a significant company in the Philippines. I don't believe that we're ready to announce the company name but it certainly a Fortune 100 type company and right now the quality is meeting and beating our expectations. The client is very satisfied and actually is now looking at expanding. I think that is really all we can give you. We're meeting our goals of the amount of business that we wanted to have in these early days and we're very confident still that we will take up all the capacity in the near future

I believe that we built out approximately 500 workstations and I think that we will probably will have 20 percent of that capacity taken in the next 60 days, something like that and we will, I can say in the multiple discussion of ways to take up a much more of that capacity but we have a very conservative growth plan there. We want to make to sure that we maintain very strict lowering standards and so quite frankly we are not trying to do that overnight.

Well, Carla. It is just simply related to the amount of goodwill that was recorded when we acquired the company down in Argentina several years ago. The way that the new accounting guidelines work, there is a discount in cash flow, now that comes into play in the calculation whereas before they weren't discounted as far as the adjustment [phonetic]. With the situation in Argentina, we're obviously using high-discount factor proportional with the level of risk and that led to the write off. So, the size of revenue, it is not significant now, but there was good deal of goodwill associated with that acquisition.

Thank you.

Thank you. Our next question comes from Jeff Kessler and please states your company name.

The first question. Jeff is related specifically to Newgen.

Yes. We feel good about what's happening in Newgen, and the programs, I think maybe you are referring to may be QCS report was announced late last year. That program is doing very well, and it's meeting our expectations from a growth standpoint. Newgen also, we think has some promising deals in the pipeline as well at this point. So, overall, very positive about how things are going in Newgen.

Yeah. That is a great question. You know it is difficult for me to speak about the industry, because I think that when you are talking about the industry based on your questions, you are targeting companies that went public during the same time from when the TeleTech went public. So therefore it is hard for me to comment on their value proposition. I think that if you look at our value proposition and I mean look beyond the press releases and you really get into the end-to-end capability that we are providing and the global footprints that we are operating in.

I am absolutely confident that we have value differentiation that we can maintain for a long period of time, and I am absolutely confident that our value differentiation is obvious once clients meet with us vis-a-vis other companies in the industry. I think that we have done a very good job over the last several years of consistently diversifying our capabilities and consistently making sure that we are moving up market and going after large, complex, long-term, re-occurring revenue contracts with the largest companies in the world and as far as, the health of the rest of the industry, there is no question that they have excess capacity and I think it is pretty safe to say that once you feel back young in skin [phonetic] then a lot of that capacity is being focused in areas that we have never been focused on and we have no intention of being focused on that.

I would also say that we are not letting grass grow under our feet. We are not prepared to talk about our strategy on a going-forward basis for competitive reason but that we feel very confident that we have other tricks to speak in our arsenal that we will be able to bring on overtime that will continue to enhance the relationships that we have with our clients and our product offerings. So, overall, I think that we do feel good about it and we are very confident. I think the business that is going back in house and the industry, that you might be hearing about is potentially business that is far more tactical.

It is much easier to disentangle from an outsourcer because there is not a high degree of complexity as far as implementing it and therefore these companies have excess capacity and therefore they want to utilize it. I think this stuff is harder to implement and harder to maintain and operate. We have not seeing people at this stage coming to us saying we want to take it back in house. That being said because of the recession we are seeing, in certain cases where some of our client's volumes are in fact down and those volumes are directly related to the fact that the recession is causing consumers, in some cases to buy less of certain types of productive services, and therefore this is not as much pent up demand.

So, what they might be telling us is that they don't have, the volumes aren't as high, but that being said it is our job to continue to grow the pipeline to back fill for any business that potentially reduces through just cyclical recessionary type trend. Been obviously worth, you know big chunk of our business is helping clients not only maintain and manage their business but also attract and grow their existing, attract new customers and grow their existing business.

Sorry for such a long ended answer, but I thought it was an important question.

Thank you.

SunTrust Robinson Humphrey. Good afternoon everyone. A couple of questions for you. First on the Nextel transaction, the centers that have been taking only there, will that help your capacity utilization in United States? It seems like it would.

The other thing is I want to see if you could quantify for us the margin drag from Europe? And the reason I asked that is, it seems like you guys are addressing that issue that you are going to go get some additional revenue to put in there and at some point it will function and normalize margin level. I am just trying to get the sense for what the drag is currently and where it can go?

I want also to ask about your exposure to financial services and whether you are seeing a pick-up in demand there related to credit card marketing?

Did you do anything on the inbound side on the credit cards?

Got you. Last question is whether acquisitions are... whether you are looking at acquisitions as part of your strategy going forward and if so, what would they look like potentially?

We're always looking at opportunities. We are an opportunistic company just like most other well-run companies. That being said, we are very proud of the fact that the majority of our revenue historically comes from organic growth, and therefore, I don't necessarily think that we'll be a significant inquisitor [phonetic] at this time. But if we see an opportunity to benefit our product offering, to extend our product, to take advantage of potentially excess capacity, then we'll certainly be interested in looking at that. We have people that are constantly evaluating. I hope that I am not being too ambiguous, but that's pretty much the company's position.

Thank you.

Our next question comes from Kid .

The break down for 1Q, while Newgen represented about 8% of our revenues and International was a total of 35% of our revenue, the balance being in the North America's segment.

Not from the revenue standpoint. Not.

And also on the housekeeping, did you open or close any seats during the quarter?

We did open some seats and obviously we took on Nextel centers. We also took on a couple of centers from some of our facilities management area and our international locations. We also did open a center in Canada.

So, what is the number of seats in the quarter?

We ended the quarter with approximately 25,000 seats.

And how much of those facilities are managed?

You mean facilities to manage?

Yeah.

I don't know if we have that breakdown in front of us. I could give you a slag on it.

That's good enough.

One sec Kid. From uhh.... I have got the dedicated versus shared in front of me but I don't have the other breakdown. We are still are running at about 80% -- by about 8,000 of our facilities management.

And I guess you are in a kind of over capacity mode here in the States and I assume that because you want to keep it the capacity for the big deals that hopefully will be coming. At what stage or do you reconsider that and just go ahead and close and move on? Or do you... are we still early in this game where you expect to get these filled? What is the kind of timetable there?

It's an on going evaluation Kid. It's more than just looking at the pipeline. It's also looking at where the center is located, what's the cost of the labor is, what the attrition is running historically. All of those things factor into whether we ultimately decide to exit our market. We have obviously made some of those decisions in the past. We exited a center here. In the Northern Denver area we made some consolidation, in California late in 2000. It's something that we continue to look at certainly in the United States. It's a complicated decision now based on all of those different factors and we are committed to looking at it on an ongoing basis and making sure we're making the right decisions around all I see.

Okay. That's it. Thanks.

Our next question comes from Jeff , please state your company name.

Hai, First Analysis. Could you just talk about and I know you have gone through this analysis before, but when you look at the pipeline in the second half, you talked about 95% visibility? Can you speak in terms of new deals existing deals and any other kind of qualitative measures you use determining.

As far as determining the 95%...

Determining how you get the 95% visibility?

The 95% visibility is just basically the run rate that we're on at this point plus any new business that we won that's ramping. So it assumes that we are not going to lose a major customer relationship. We're assuming some attrition in there, normal attrition, but not a loss of a major program for example. At this point, based on our run rate and deals that are already contracted, that's the visibility that we have.

What's the attrition rate you used in the past, is it like 5 or 10% or something?

Right.

In the past you had talked about automating some of the business and using some IVR technology possibly to enhance. I was curious how that's going? Are you considering or do you currently sell some of that business on an outsource basis?

We do and we consistently look at every client engagement we have. We look at opportunities that actually kill [phonetic] calls and if in fact we can divert them to the web or to voice recognition or interactive voice response, we are happy to do so. It's a way to really once again demonstrate more value to the client and show that we are focused on their bottom line. So we are....

Do you ever talk about how big IVR is as a component of revenue?

We don't, and the reason being is that it's not a major component of our business at this point.

Okay. Great. Thank you.

Thank you.

Thank you and our next question comes from Bob . Please state your company name.

ThinkEquity Partners. Want to follow up a previous question on the margin drag on Europe--do you think that's stabilized or are we going to be more margin drag going into the second quarter?

We will actually see slight improvement into the second quarter compared to the first quarter primarily related to same.

How are international in total? Would you expect the same?

International in total should improve slightly during the first quarter to the second.

Can you quantify in terms of what kind of margin drag we saw out of Nextel? Obviously this inefficiency is from this, you know initially.

Actually, Nextel was not per se an earnings drag for us. It was actually, revenue is little stronger than we expected in the first quarter. We had higher call volumes as we took over the centers and the profitability was a little bit higher than what we had expected in the first quarter. So, overall we're all pleased with the launch.

Okay. And could.... do you have the revenue breakup by vertical? Is that something to get real quickly?

The vertical breakdown communications in the first quarter was 53 percent of revenues, transportation 24 percent, financial services was 8 percent, government 7 percent, and all other 8.

Okay. Great. Thank you.

Thank you. That ends today's question and answer segment. I would like to turn the call over back to Mr. Kenneth Tuchman for his final remark.

Great. Thank you. I would like to thank all of you for joining us today. We look forward to hearing from you soon and updating you on future announcements. Have a nice evening.

Thank you. Thank you for joining today's teleconference.