TTEC Holdings Inc (TTEC) 2002 Q2 法說會逐字稿

Welcome to TeleTech second quarter earnings conference call. I would like to remind all parties that you will be in a listen-only mode until the question and answer session. This call being recorded at the request of TeleTech. I would like to turn the call over to Karen Brain. Thank you. Mam, you may begin.

Thank you, good afternoon. My name is Karen Brain, Vice President of Investor Relations, and I will be the moderator for today's call. For your information, this call is being recorded. Participants today include Ken Tuchman, our Chairman and Chief Executive Officer, and Margot O'Dell, our Chief Financial Officer and Executive Vice President of Administration. Before we begin, I would like to make you aware that during this call there may be discussions of certain forward-looking information. Please understand that actual results could differ materially. And you are encouraged to review our 2001, Form 10-K, our first quarter, 2002 Form 10-Q, and other SEC filings regarding factors that could cause our actual results to differ from the forward-looking statements. Thank you, and I would now like to turn the call over to Ken Tuchman

Thank you Karen, and welcome to everyone joining us on the call today. Let me begin by briefly discussing our second quarter results. After which I will provide a mid-year review of our achievement and ongoing areas of focus. Margot will then provide financial overview and discuss our updated business outlook. We reported second quarter revenues of

254 million, an increase of nearly 13 percent from the year ago quarter and relatively flat with the prior quarter. The higher than anticipated revenue was primarily attributable to increased points with Nextel along with strong performance in our Asia Pacific region and New Jersey. Earnings were 9 cents per diluted share before non-recurring items and in line with our guidance. We are pleased we met our second quarter expectation as we continued to offer it profitability and generate free cash flow in a weak and uncertain global economy. Given, that we are mid-way through the year, I want to speak about our accomplishments and then address series of ongoing focus and concern. After nearly a year and half of hard work at every level of the organization, I strongly believe we are now moving from a defensive reactive posture to more of a pro-active mode, where we are focusing on the global sales pipeline and the future strategy for the business. Over the last 12 to 15 months, we've been in a block and tackle mode in the areas of cost containment, balance sheet enhancement, and operational review and improvement.

Let me briefly address all three areas.

During 2001 and the first half of 2002, we spent considerable time attacking the cost side of the business. We left no stone unturned and took precisive action to align both variable and fixed cost with our revenue strength. Achievements in this area are evidenced by year-over-year reductions in SG&A. In addition, we reduced the cost structure and are consolidating their operations in the TeleTech, which I will address in more detail later in the call. Going forward, we will continue to fine-tune our operations to assure they are aligned with the ongoing needs of the business. Turning to the balance sheet, we are pleased to progress in this area. A year ago we were in a net forward cash position in excess of 50 million. Today, we are in a net positive cash position of 16 million, a positive swing of nearly 70 million and a trend we expect to see to continue through 2002. We have cash of over 100 million, DSOs at 65 days and in investment grade, debt to capitalization ratio of 20 percent. We are free cash flow positive and are using cash to repurchase TeleTech's stock to express our firm belief that TeleTech is a solid long-term investment.

In summary, we are controlling costs generating cash, maintaining a conservative capital structure in the demanding and ambiguous business environment. In addition to cost containment, we are laser focused on enhancing our position as the most reputable operator in the industry. Having visited our operations around the globe, our clients consistently tell us they are impressed by our operational expertise and our people.

In this environment it is increasingly important to ensure our client and our customers are satisfied with our service. As such, we are taking additional steps to further define, measure and monitor our performance to make certain we are consistently exceeding our expectation and operating at very high levels of client satisfaction. Operational highlights in the second quarter include Nugent and Asia Pacific. Nugent's revenues exceeded 23 million, an increase of 9 percent from the first quarter. This increase was primarily attributable to the ongoing roll out of QC Connect and Marketing points.

Online tools used by Ford and Lincoln Mercury dealers to create customized marketing programs. You can also add additional volume in the second quarter with OEM including Volkswagen, Audi, and Mitsubishi. The Asia Pacific region with operations in 5 countries continues to meet our expectations both financially and operationally. We are working to further strengthen our market leadership in this region and remain pleased with this consistent progress over the past several years. Going forward, we see this region as a strong future growth market for TeleTech.

Let us now review operational areas that still need improvement. As discussed in our first quarter call, we are not pleased with the trend of preceptor's performance. Operationally, the venture is providing high quality customer support to Ford's customers throughout the world. However preceptor's financial results are well below expectations for remainder of 2002. We believe preceptor will fall below our performance expectations as we continue to see later volumes and as our partners, as our partners works to difficult financial situations. We remain committed to work through this period with Ford and return to improve financial performance next year. During the second quarter of this year, we took further action in Spain and Argentina to reduce headcounts.

Consolidate facilities and strengthen our operations for future profitability and growth. We continue to be concerned about the overall economic conditions in Latin America, but are managing the risk and feel optimistic about our future in that region. In Europe, the actions we have taken are positively impacting our financing results. While we continue to under perform in that region, we have made considerable strides in positioning our operations for future profitability and growth. After several successful trips to the region, we believe TeleTech has the expertise and reputation to become a key player in European customer management arena.

Although, today Europe represents only approximately 5 percent of our consolidated revenues, we believe Europe can become a more significant component of our operations, given if the second largest CRM market in the world. With a solid management team and sound operations infrastructure, our primary focus in Europe is on closing deals to improve capacity utilization.

Let me end by addressing the sales pipeline. With a strong balance sheet and a solidified operational infrastructure, we are well positioned to continue focusing our efforts on closing large multicenter opportunities. We are pleased with the progress made during the quarter in developing global prospects, especially in the US and Europe and through the balance of this year, we will continue our efforts in other regions of the world. Importantly, across the globe, we are leveraging our relationships with several strategic partners to further expand our opportunities. We have a compelling value proposition, one that only lowers cost, but, more importantly improves customer relationships and drives brand loyalty, which are critical in this difficult environment. Nevertheless, recent accounting in corporate governance events have further clouded a very difficult sales environment within the Global 1000. With the dramatic increase in the number of CEOs, CLOs, and CFO resignations in our target markets, corporate decision making has gone from challenging to chaotic and has delayed several large deals we are working on and served to lengthen an already extended sales cycle.

The executive team is opening doors and establishing quite relationships yet to be successful we need to improve our closing rate. Going forward, we plan to develop more resources to our sales infrastructure to further strengthen our ability to close large long-term opportunities across the globe.

To summarize, the sales pipeline activity is very strong. Yet, closing deals are more challenging than ever. In the current environment, this issue is not unique to TeleTech, companies of all sizes and in most industries are experiencing similar struggles. In fact the recent report of group shows that worldwide CRM spending will remain nearly flat for the remainder of 2002 growing at only 2 percent over 2001. Nevertheless, as an executive team we were committed to meeting this challenge and furthering TeleTech legacy of closing large long-term multi center deal. Before concluding, let me briefly address the enhancive. During the quarter, I contributed my common stock ownership and enhancive to TeleTech at no cost to the company. Thereby giving TeleTech majority ownership and boarding control of enhancive.

Our decision was based on two factors. First, the original comments for enhancive was to develop a multi channel remote hosted customer management tool, to virtually manage multimedia interactions on a large scale. Enhancive has made tremendous progress towards that goal and we believe that it will be intrickle to our technology regionalization initiative. Second, I believe the solution enhancive is developing or positively influenced the way TeleTech business in the future and therefore the natural synergies between the two organizations have the most potential when combined. Margot will discuss the financial impact of this change later in the call.

To conclude our mid-year review, I am pleased with the progress we have made to successfully control cost as well as improvements made to our operational platform. We enjoy high levels of client satisfaction and continue to maintain leadership in our industry. Having built the solid pipeline, our primary focus is on dedicating additional resources to increase an unsatisfactory closing rate in sales. Although, I am disappointed our sale cycle is slowed, I have great confidence in our management team and global operating platform. TeleTech is a profitable cash generating enterprise for the passionate executive management team and engaged in independent board of directors and are very prestigious client list. We are well positioned to capitalize a large deal opportunities and I am excited about our long-term prospects. With that I will turn the call over to Margot.

Thank you Ken. We are pleased with our financial performance during the second quarter as we continue to focus on profitable operations while improving key financial metrics. Let me began by reviewing revenue. Second quarter revenue was 254 million up nearly 13 percent from 225 million in the year ago quarter and relatively flat on a sequential quarter basis. Revenue for the second quarter was higher than our guidance of 245 to 250 million primarily due to higher volumes on the net-sell projects as well as better performance in our Asia Pacific region and Nugent. This is off set and part by the expected decline in revenues from short-term programs in the cable industry, which we discussed, in our first quarter call. In addition, we experienced lower than anticipated volumes in existing client programs in North America. International revenue was 88 million in the second quarter down approximately 2 million or 2 percent from the first quarter. The decreases due primarily to the plant ramped down at several client program in Spain and Argentina that were not performing to our expectations. International revenues for in-country clients represented 20 percent of total second quarter revenue while another 14 percent of revenue came from services provided to US based customers from international facilities. In terms of client concentration during the second quarter, Nextel, Verizon to become our largest client and represented 17 percent of total revenue. For the full year, we believe this contract will generate between a 140 and a 145 million and contribute positively to our earnings. While any transition of our project besides the challenging, we are pleased with our progress today and enjoy a strong relationship with both IBM and Nextel. Verizon our second largest client at 15 percent of total revenue was down from 19 percent in the year ago quarter. However, no single division of Verizon represents more than 8 percent of total revenue. Beyond Nextel and Verizon, no customer represented more than 10 percent of our second quarter revenues. Now, let's shift to earnings. Second quarter earnings were 9 cents per diluted share before non-recurring items and inline with our guidance. SG&A decreased as the percentage of revenue to 19 percent in the second quarter from 22 percent in the year ago quarter. In the first half of 2002, we accomplished our goal of achieving an SG&A run rate of 20 percent or less by midyear. This was mainly due to the launch on the Nextel relationship, which has primarily a direct cost structure. Operating margin was 5.1 percent compared to 6 percent last quarter and 6.8 percent in the year ago quarter. Operating results declined sequentially due primarily to lower than expected results in the North American Division as a result of a ship in revenue mix. During the quarter, several campaigns and seasonal projects ramped down and we saw softer volumes with some of our North American client. The result was lower utilization in our multi-client centers where we continued to have available capacity. Although, the decrease in revenue was offset by increased revenues in the Nextel project, we continued to operate those from dedicated Nextel facilities and weren't able to leverage other available Tele Tech capacity. Let me now address the non-recurring items we recorded. During the quarter, we continued to our operations and completed reductions in force and certain facility closures in several regions. More specifically, we closed customer management centers in Spain, administrate facilities in Argentina and California and completed small reductions in force in several countries. In total, we have recorded 5.2 million in non-recurring charges in the quarter related to these items. Regarding enhancive as Ken mentioned earlier, during the second quarter, it contributed its common stock ownership in enhancive to Tele Tech at no cost resulting in enhancive becoming a majority owned subsidiary. Enhancive April and May results were included in other income and expense as an unconsolidated subsidiary. However, beginning in June, we are now consolidating enhancive into our operating results. As a result of Ken's contribution, there is no bottom-line emphatic exchange for Tele Tech's result, simply of changing the accounting for non-operating to operating expense.

To assure there were no complex of interests, Kenneth contributing his interest in Enhansiv to TeleTech with a proper way to divest his ownership. We continue to believe that a virtualized infrastructure is a unique competitive advantage, and the products Enhansiv has developed will provide a key component of our centralized solution. Moving to the balance sheet, our capital structure remains solid and poised for future growth opportunities. Let me provide some details on cash and short-term investments, capital expenditures, DSOs, and progress on our share repurchase programs. Cash and short-term investments were 102 million at the end of the quarter, an increase of approximately 29 million from the first quarter. This increase relates to improved working capital due to normalized revenue collections on the IBM- Nextel contract, now that we have entered the second full quarter of operations. Second quarter capital expenditures were 7.9 million, down nearly 50 percent from the year-ago quarter and down 1.1 million from the first quarter. Given we are more than half way through the year, and the number of capital projects are fewer than originally anticipated, we now believe capital expenditures in 2002 will range between 45 million and 55 million, down from our original guidance of 70 million to 75 million. We generated 28 million of free cash flow during the quarter, and expect to be the free cash flow positive for 2002 as we continue stringent cost controls and appropriate management of receivables. DSOs at quarter end were 65 days, down from 71 days at the end of the first quarter, again related to normalization of the collection cycle for the IBM Nextel project. Given our international presence, we continue to believe DSOs will be in our target range of 65 to 70 days. Finally, since inception of our share buy back program in late 2001, we have acquired nearly 2.5 million of our common stock and will continue to repurchase, given the current stock price and our firm belief in the company's future prospects. In summary, although this has been a period of slower growth for Tele Tech and the entire outsourcing industry, it has enabled us to focus on four key areas, cost reduction, balance sheet stability, operational affluence, and re-animating the sales pipeline. As Ken mentioned, this work has taken the last twelve to fifteen months put in place and we are moving from a defensive postures to a proactive position. The global pipeline is stronger today than a year ago, and we will focus aggressively on closing new deal opportunities. As a result, we are well positioned to return to more of normalized growth. Let me end by addressing our outlook. On the first quarter call we indicated, we had revenue visibility on approximately 95 percent of our 2002 revenue, leaving roughly 15 million to start. We continue to have 95 percent visibility, and have closed several smaller deals in the first half of the year. However, those have been offset by lower than expected volumes in the existing client base, resulting in a net neutral impact to revenue. Given the extended length of our sale cycle and its environment and the watch period associated with more such deals, we believe that will be difficult to close the 5 percent revenue gap between now and year end. As such we are lowering our 2002 revenue guidance to an increase of approximately 10 percent over 2001, or revenue of roughly 1 billion, resulting in revenue being flat to slightly down for the last half of the year. Lower revenue forecast will result in continued under utilization of capacity, which negatively impacts operating margin and earning. Had we closed the revenue gap of roughly 50 million, capacity utilization would have been much higher, resulting in a positive impact of 2002 earnings per share of 9 to 10 cents. As such we now estimate diluted earnings per share in 2002 will be in the range of 32 cents to 36 cents.

We estimate third quarter revenue will be in the range of 245 million to 250 million, a modest decrease from the second quarter related to continued softness in existing client programs. We estimate diluted earnings per share will be in the range of 7 to 9 cents in the third quarter flat to down compared to the second quarter and in line with the estimated decrease in revenue. While we are not providing guidance for 2003. We are taking conservative posture until we have more visibility on the trends in the macro economic environment and enclosure rates on our sales pipeline. Overall, we expect revenue and operating margins to remain relatively flat until we close e-business and better utilize our infrastructure. In closing, I want to say that we are certainly not pleased to have to revise our guidance for the year. However given the potential for continued softness in our existing client base and the extended sales cycle, it was appropriate to do so at this time. Having said that, we remain optimistic about TeleTech's prospects. With the diverse client base and a strong operational platform, we are holding revenue and earnings constant to a challenging economic cycle. Our balance sheet and cash position are strong and we are well positioned once we close additional business. We continue to believe that TeleTech is a leader in our industry with solid long-term prospects to drive profitable growth. With that, Ken and I would like to open up the call for your questions.

Thank you. At this time, we are ready to begin the question and answer session. If you would like to ask a question, please press star 1 on your touch-tone phone. You will be announced prior to asking a question. To withdraw a question, you may press star 2. Once again if you would like to ask a question, please press star 1 on your touch-tone phone. One moment. David Doft you may ask your question and please state your company name.

CIBC. Good evening. A couple of questions. One to start, Margot you have mentioned, you have brought back 2.5 million shares and to put this file back in the place, is that correct?

No, not 2.5 million shares. 2.5 million dollars.

Okay, thank you. I thought that did'nt sound right, and then, are you still in the market place to buy back stock. How aggressive you can expect to be?

The board has only authorized us to purchase based on the previous press release up to 5 million dollars. So, it is our intention to complete that target and then we will re-look at where we are at that time and re-evaluate.

Okay. What is the average price that you paid, is that 2.5 million or how many shares does this equate to?

It is approximately 250,000 shares, David.

Okay. Great and do you anticipate, Ken, do you anticipate increasing the authorization for share buy-back?

No, that is something that the board has to convene on and discuss and so at this point, I have no guidance on that.

Okay and I want to get a better sense on the operating margins. I understand that this is the high flow through of the incremental revenue and that is the hit here. So, where do you stand now in terms of capacity utilization or was there equivalent number of call centers are under utilized at this point and what are you assuming you are going to be at the end of the year? It sounds like pretty much the same place.

Yeah. We are running right now David. I say it is a little bit over of 4 centers of excess capacity above and beyond where we normally operate. That is up slightly from the first quarter because we had around of some of those seasonal programs that I mentioned.

Right.

And we would expect that to stay relatively flat through the rest of the year.

Okay and the shift in business mix, are you talking about this quarter that impacted the margin so much or is that just another way of saying excess capacity or more excess capacity?

Well, what it was, you know, more revenues from dedicated centers that we assume at this part of Nextel contract and not as strong utilization in our multi-client centers here in North America.

And you don't get in the next when there is increased volumes like that, you don't get the flow through or the benefit of it for the increased utilization?

Yeah, we do and we are certainly allowed to bill for our volumes, but we are a little bit behind in our transition with Nextel, not too large, but may be a couple of months behind in transitioning the program. So, it is a little bit ahead in the second quarter, but the main impact really was, we got a nice lift in the first quarter associated with those seasonal programs.

Okay. If revenue from Nextel is running ahead of previous expectations, how could you be behind on the transition? I don't understand?

The transition from a corporate sector, so, we have planned to over time move to a lower cost infrastructure on the Nextel project.

Right.

And we may be a 2 or 3 months behind on that transition plan.

Got it.

On just certain centers.

That makes perfect sense.

We are not concerned over although on it to make your contract and I think with a contract of this size, it's to be expected there will be a hiccup or two.

Okay. The new revenue run rate that you gave for Nextel, is that kind of the new boggie going forward, it seems like it's now quite a bit bigger than you had initially talked to us about?

Yeah, it is bigger than our original guidance on a Nextel and consequently the revenues are up on the project.

With that being said, you know I must make sure that you are aware that we have always anticipated that the volume is as IBM introduces more of the voice recognition capability, the revenues will in fact go down approximately you know 3 quarters from we have always had that in our models that will go down slightly, not anything dramatic but the intension was for the revenues to start out higher the first 3 quarters, the first 4 quarters of operating and then start to normalize.

Okay. Great and then just two more things. Can you comment on the impact of UPSs to reduce volumes on your calling volume? Has it been pretty equivalent?

UPS has been very steady David. There hasn't been really been any impact overall, the revenues stayed flat.

Okay. And then if you could Ken or whoever is appropriate give an update on the Philipines and how that rollout is going? And are tehre any client moving over there at this point?

The answer is yes. The rollout was a little bit slower than we anticipated as far as new business that said, now the rollout is getting back on track. We do have clients that are up operational, they are extremely pleased with the quality and the capabilities. We have had multiple site visits there from clients as well as perspective clients and we have also see......we also see interest in filling the remainder of the capacity. We feel confident that we will fill the reminder of the capacity of this particular center in the very near term.

How many of the seeds are utilized at this point?

I believe.....

It's probably at about 20 percent, 25 percent capacity utilization right now in the Philipines. It's a pretty good site center.

Right.Okay and I think over the next........you know realistically, the next 3 quarters, we should have that capacity taken up.

Got it. Alright,better turn out now. Thank you.

Thank you.

Cathy Carrie, You may ask your question and please state your company name.

Robert W. Baird. Good Afternoon. Just a couple of questions. Margot, can you give us the revenue by your reportable segments, North America, Database Marketing?

Sure. Revenues for the quarter, North America outsourcing had around 77 million, International 54 million and Database Marketing and Consulting 23 million.

Great, thanks. And I don't know. Ken, can you talk a little bit about ,is there any verticals that you are seeing any sort of strength and or once you are seeing a lot of weakness and may be how that is in your pipeline, with certain verticals that are really interested in outsourcing or at least talking about it more?

I think generically, we are seeing heightened interest in virtually every vertical that we are focused on and the reason for that is , is that all the verticals that we are focused on , are focused obliviously on primarily on consumers. And everyone of those companies are having earnings issues and therefore are all very focused on cost containment. They are all focused on trying to get closer to their customers. Keeping the customers that they have. I don't think that there is any single vertical right now, that is expressing more interest over another vertical. I truly believe that it is across the board that there is now CEO awareness of the concept of outsourcing. A significant portion of their customer management if not all of their customer management and that's really where we were focused, is on those types of deal. So, there has certainly been no lack of activity of meaningless, the senior executives of the global 500 and you know getting their interest. It's really the challenge has been taking it from there bringing the ball across the finish line to a close. And that's what we are now very focused on.

Okay. And on the closing of some facilities, can you give us some a feel for how many seats were close there, and may be what type of the benefit you are expecting and when that is going to start to accrue?

Sure. The facilities that we closed during the quarter, they were couple insane and then we had a couple of administrative facilities that we are not really in our seat count for say, because they were more like headquarters facilities. One in Argentina and then the enhance of operations, out in California. As far as the number of seats that we have taken out, is close to a thousand seats and as far as the impact of the burn, it's about a half a cent and we have got some of the benefit of that already. In the second quarter, because we took some of the actions early in the quarter, and then there will be some benefit that we didn't get in the second quarter, that we will get in the rest of the year.

Thank you

Shaun you may ask your question and please state your company name.

Hi Shaun from Credit Suisse First Boston. Just a follow-up on the last question. In some way there are a lot of great conversations going on with potential clients but the closing of deals how are you keeping the sales persons motivated to go out there and continue to sell even though the pipelines continue to expand?

Yeah! Well couple of things I think that our sales force is focused on big deal and they have always been in a understanding of a sales cycle that on the lower side it is 6 months and on the averages, probably 12-14 months. So from the standpoint of them being used to being involved in long sale times, this is nothing new. That being point 1. Point 2 the amount of opportunities that they are now looking at is far far far greater, than what they have ever historically looked at in their carrier. TeleTech let them on probably in previous outsourcing type of job. So, I think that that itself is motivational and then I think you know lastly, I think that you know sales people tend to look at the accounts that they have already brought in and what -- how well those accounts are doing what their satisfaction is etc and if they are getting very positive feedback from their existing accounts they have brought in, they make you feel very good and very comfortable about the companies that they are affiliated with and associated with it. So, I think with that -- this has served them very very well and that there is no -- you know -- we do not have any problematic accounts.

Very good and just one follow-up question for Margot. On the SG&A line, 19 percent. Can that come down a little bit more or do you think that you have reached the bottom in terms of bringing your cost down there?

Well I think we have taken the majority of the action because we have really been focusing on that now with the last 4 or 5 quarters. So, there is probably you know a few minor things left to do but I would also say that it is our anticipation that we are going to continue to invest in our sales infrastructure. So that is the SG&A line. So, I think there is still some cost cutting especially in the global procurement area. We are still not completely using our purchasing power across the globe to this public some area there that we also will be investing in sales.

Very good. Thanks a lot guys.

Thank you.

Jeff Kessler you may ask your question and please state your company name.

Thank you. Is there given the fact that Nugen seems to be picking up some interesting forms of business and your preceptor, the preceptor contract is a little bit behind and again that is may be there is no fault of your own but just the general business trends, any chance of getting some more perhaps some cross selling between those two businesses realizing again 1 deals with dealers one deals with the OM and I understand that but one helping each other out so that you can perhaps generate a little bit more revenue at preceptor?

At preceptor or at Nugen?

I am sorry either -- either way because obviously I would hope so one would play off against the other.

Yeah I think that you know let us take Nugen, I think Nugen is an opportunistic company and I think that they are very focused on the sector that they dominate. So, to answer your question, you know we have high hopes in Nugen not only to further penetrate the existing automotive accounts that they have not provided essentially a deeper breath of product offering over time and I should mention that they do invest significant amount of money in product development and therefore we are hopeful that as they continue to come with new products, those products will ultimately be successful and add to the revenue stream.

But in addition to that as I have mentioned before, our hope in the future is to leverage Nugen database capabilities, the letter generation capabilities, the remainder capabilities and letter capabilities and their marketing capabilities not only across the automotive sector but across TeleTech existing client base. That being said because Nugen been is the growth mode and because we had other priorities to focus on, we have not put this much time and energy into Nugen from a vertical expansion as we originally anticipated. And our plan now that we have all the blockings tackled behind us. We are now immersing ourselves into looking for more synergies between the two companies and we are just now will be starting to look at where those synergies are, from a sales cost selling stand point.

So, I guess the very long answered to a very short question is that that we do believe that there is significant future potential with Nugen and we absolutely plan on taking advantage of that. As few, we are going to see anything in the next quarter or two quarters that's going to be dramatic, the answer is no. We don't believe so, but we do think that going into next year with their new products that are coming out and it would be synergies that we are starting to talk about between sales forces etc. that we will start to see some some additional revenue opportunities.

Okay. You talked about revenue revenue softness because of political instability in Latin America. Is this primarily affecting local call centers down in South America or is it also affecting the two call centers that you have in Mexico?

No, its really its really limited to what's happening in South America. The Mexico operations continue to be a good labor over charged market product for US companies and the Mexico market in country continues to remain strong as well.

One final question, a housekeeping question on interest expense given that your cash balances are moving up. You had a fairly significant fall from your net interest expense beginning in the third quarter of 2001, you know, falling through the first quarter and now it just had a big drop in the second quarter. What type of guidance can you give us with regard to net interest expense over that matter for that mater of income generation in the second half of the year?

Yeah. Jeff, the interest the net interest expense really didn't change too much from the second quarter to the second quarter, I think you looking at other income and expenses and there are other items that flow through there. One of the changes between the first and the second quarter is that enhansiv is not in there for three months any more because of the change that we talked about the ownership change, so the expense for enhansiv for the month of June is now up in operating expense as supposed to flow in through other income expense. That was the biggest change in that line item from quarter to quarter. Let us also explain in gains and losses on hedging transactions in the first quarter, we had a loss on hedging transaction and in the second quarter we had a gain in hedging transactions this is primarily related to Canada, where we hedge currency there and with the way the dollar moved in this quarter, we had a gain on our hedging transaction in the second quarter.

Okay. Thank you.

Bob you may ask your question and please state your company name.

Capital. Good afternoon, can you comment or can you give us the revenue break down by vertical for the quarter?

Sure. Communication was 52 percent.

Okay.

Automotives 17.

Okay.

Transportation 8 percent, financial services 9 percent, government 7 percent, and all others 7 percent.

Okay and could you also comment on, give us some color on the gross margin? You know, what you expect going forward? There is a sequential decline this quarter, is that primarily Nextel or can you give us little bit more color on the decline sequentially this quarter and what you expect going forward?

Sure. Yeah the primary reason for the decline was Nextel. The cost structure associated with Nextel is almost all direct cost, so that's why the gross margin came down in the first quarter, but then in the second quarter we have got a full quarter of operations for Nextel 3, 4 months.

Okay.

There was a further decline because of that direct cost infrastructure.

Were there any other reasons other than Nextel for the decline?

No that was really it. That was really it. Overtime, we do expect that we will migrate Nextel out of some of the current centers that they are in and into more traditional out sourcing model and at that point when they are not facilities management contract per se, there will be a shift again back out of the direct costs into some SG&A costs. So, I think overtime, the growth margin will begin to improve again, but we are really focused overall on our EBIT margin because that mix shifts between whether someone facilities management or outsourcing can skew that ratio, you know from quarter-to-quarter depending on the mix.

Can you give us ballpark where the EBIT or operating margin is on Nextel at this time?

No.

What the trend would be?

No we don't disclose our operating or EBIT margins on a client-by-client basis. Overall we are operating at about a 5 percent, operating in EBIT margin and we expect that we will be in that same range for the rest of the year.

Okay.

That indicates we believe that Nextel long-term will meet our margin threshold, our historical margin threshold requirements.

It would be in kind of in the double-digit range?

That's correct.

Okay and final question, 2003 I am not sure if I understood the comments were you saying, can you clarify your comments?

We were just saying that we are not providing a specific outlook at this point, I think it is a little bit premature given what is going on in the global economy and we need to get some more clarity on the deals that we are working right now and will what we are doing at the end of the next quarter and see if we can provide some guidance at that point, but right now we are going to stay pretty conservative and not give specific guidance yet.

Okay, you are not guiding to flat revenue or margins, you are just saying no guidance at this time?

That's correct.

Okay thank you.

Bill Laurington, you may ask your question and please state your company name.

Good Evening. Bill Laurington from Robinson-Humphrey. Couple of questions for you. The first is, what side could be the margin impact of the increased sales activity that you are going to be putting in place, increased headcount, and increased resources?

Yeah. I think we'll manage that over all thoough, earnings guidance that we provided reflects that increased investment. So, during the last half of the year, we are going to certainly do some staffing up in that area, that is, it's reflected in our overall guidance.

Gotcha. The, question on preceptor, whether there is an opportunity there to take a bigger share of the volumes that are being handled by Ford currently. Is that an opportunity, or is that longer term?

You know, I think that we look at Ford Motor Company as a fantastic opportunity in the future. And Ford is, unfortunately experiencing like the rest of the automotive industry, some very difficult times. And it is our plan to be, to work closely with them as a good partner, so that we can exploit future opportunities with them, as times get better. There's no question about it, that there is more opportunity within Ford Motor Company that we have not yet tapped. That being said, we are not optimistic with short term, that those opportunities are necessarily at hand, based on all of their other internal priorities that they need to focus on. We continue to enjoy a very solid relationship with Senior Executive of the Ford Motor Company, and we are very confident that we will get this relationship to where it needs to be from a financial stand point in the near term future.

Again a final question for you. In the past you've described a what was a very useful way of looking at the whole outsourcing process where you go, wheras the CEO or CFO, you go to a process where you cut staff, try to meet your numbers, cut CAPEX and try to meet your numbers, you still don't meet with the results and so you finally turn to outsourcing. I want to see if we could get your thoughts on where we are in that process, and what it means for us short term, long term?

Well, where we are in that process is clearly capital spending has been, on whole, basically all of this calendar year. That part has already had its impact on our economy as we all know. We've always felt, I'm speaking about management teams, the corporations were very late to react to the employee cuts. And, although many of them have already announced previously significant reductions, we still are under the belief, that you will continue to see significant reductions throughout this year, and even into the beginning of next year, based on where these companies are going. That being said, there are still many companies that were absolutely in the process of committed to the concept of outsourcing, but statistic was recently quoted in the Wall Street Journal and I don't want to mess up with statistics, but I believe that there are three times as many CEOs who've lost their jobs during the last two quarters than in any other time in history.

That CEOs, that does include the CFOs, COOs and so on and so forth. Because we are focused on what we call the Global 1000, and I think it's safe to say that the majority of the high profile turn over that has taken place, has in fact taken place in those organizations. Without mentioning Companies, there is companies in our own backyard here in Colorado, there is companies in Germany, and go right down the line of massive organizations. What tends to happen is, they continue to keep the capital freeze and play. They continue to hold to whatever commitments they made on reductions in force. But all the strategic initiatives such as outsourcing tend to be put on hold. And there tends to be a temporary paralysis that takes place while the Senior Management, the new Senior Management team comes in, the old Senior Management team leaves, and they reguide the management as to what the new vision is.

Unfortunately, what that tends to do with many deals is that it resets the clock. Doesn't necessarily reset the clock back to zero, well we got to start the whole 12 month process, but it certainly could reset the clock six months, because now we have to reconvince the CEO, the CFO, the COO or whoever, and then all of his or her new, executives that they bring in from their previous company. That's the reality that we are facing and every day, I'm involved in my Vice Chairman Jim is involved in conversations with many of the global leaders of the Global 1000, and we are consistently hearing the same story and they're going out of the way to tell us that the delays that are being caused are not just something that they seem to Tele Tech at, but they're aimed at all their outsourcing efforts to end all their technology replishes etc, and we're kind of just in that overall nebulous cloud. And so all we can do is, do the best we can to continue to win small deals and medium deals, that tend to not require that leadership, and those, are the deals that we tend to not report to the streets. Because they tend not be material, and really all they do is back fill the potholes of revenue that need to be filled because of either attrition or softness in quantifying.

Thank you very much for the perspective.

Jeff Nevins you may ask your question and please state your company name.

First Analysis, do we get Percepta revenue in the quarter?

Percepta was less than 10 percent of revenues, so we don't give specific client revenue, number that is less than 10 at this point.

Can you speak to what was the sequential decline in it? I think you mentioned it was going.....it went down.

Percepta revenues went down slightly from the first quarter, little bit lower volume compared to the first quarter but it wasn't a substantial decrease.

Okay, and if you just look at your CAPEX outlooks for '02, it looks like you are going to do about........get about 12 million in the first half and second half to make...make it to 45-50 dollar in number, we are going to see an uptake here in terms of looking at the half of the year. What exactly.....what would be the spending that you anticipate if you were to meet these numbers and why I guess the back-end, I am surprised it's higher like that I guess?

Yeah, the first half of the year, we actually spend 17. So, we just did a run rate from there. We will beat about 35 and we are guiding up a little bit more than that, one reason is that we will likely continue to put in more capacity and lower labor cost markets including a center in Canada and that's our plan for this year. We also maintain obviously across the globe. We have a maintenance capital budget that we need to do refreshe it then and it's a little bit heavier loaded in the back half of the year than the first half of the year.

And that we are also investing in our reutilization and we are doing it in a very thoughtful way and so that also takes a capital.

Okay and what was the workstation count at the end of the quarter?

That's 23 thousand workstations.

Okay, thanks.

Thank you.

Mark you may ask your question and please state your company name.

Yeah, I'm Mark at Walden Asset Management. Given this is, I guess from an operating margin standpoint, I think the lowest quarter you guys reported since you have been public at 5.1 percent, can you talk a little bit about capacity utilization as far as potentially closing some of the excess capacity here, however, in the US, I think you talked about 4 centers and if you can also talk about potentially the impact you have had this quarter? I know in the past, you mentioned 200 basis point or so margin impact came from Europe and also may be give us a little perspective on when you think the next time may get to your ultimate goal double-digit margins, whether it is '03 or '04 or give some perspective there please and a couple of other questions to follow up?

Okay, we will just start out with on the margin - the original guidance that we had for this year just to put some perspective on it if we are close on additional 50 million. We would have been exiting the year more like an 8 percent margin as opposed to 5 percent margins, that's the kind of lift we get out of just layering on, you know a couple of centers worth of revenue. As far as a couple of seats, pinpoints certainly Europe has been a drag on our earnings this year and has created in the range of 4 or 5 cents of earnings degradation year-over-year which is having a pretty big impact on the margin and Percepta is also down year-over-year. So, between those 3 things, Mark I think you can get a good sense of why it is suppressed and as well as the future opportunity once you close the new business and get those things turned around.

So your plan is not to let things go ahead and make any additional closings.....yeah, over the next 12 months? Do you feel the pipeline sufficient to fill the capacity in that timeframe?

Yeah, you know we always look at that. We always evaluate our centers and make sure that we are comfortable with the return of invested capital. We don't have any plans at this point Mark to close any additional capacity. It wouldn't make sense for the centers that we have right now to close one if we felt that we could sell into it within the next several quarters and we are still optimistic about the sales pipeline but right now there are not any plans to do so.

Mark, I would also like to just point out that when Margot said that it would bring our margin to 8 percent, that was selling 2 before little over 4 that we have available.

Right. So, you are you were -- what you believe were your ultimate capacity at the low 80s that you have much more margin with opportunity?

Absolutely which doesn't include Precepta or Europe.

Right. How about Nextel? What's your view there as to when you think you can get back to operating margins that are coperate average historically?

I think Nextel is you know probably a 3 to 4 quarter transition as we said originally, it's behind a quarter. So, I would say we still have 3 to 4 quarters to get to a normalized operating margin that we are comfortable at?

Ken, a question for you. Is there anything you can do with your existing customers as far as getting new programs on board, rolling out new technologies that might help offset the slower volumes of your existing customers, which has been a problem over the last several quarters?

Excellent question and it is something that we are laser-focused on. I really, it wouldn't be appropriate for me to say anything more than that other than that we absolutely think that, when you look at our current customer base of 175 clients worldwide of which more than 90 percent are in the Global 1000 and a high percentage are in the Fortune 500 it goes without saying that we are just scratching the surface of the volumes that they have internally and for therefore there will be a very significant focus on product expansion as well as on capturing more marketshare of the customer.

Will that be done through your existing sales force or is it potentially laying on our account maintenance people that may be responsible for something liking that?

About both.

Okay, just another question as far as verticals, I mean, is there any plans to maybe expand into employee care or potentially the pharmaceutical area which is an area that some of your competitors have worked done and also can you just comment on the telecom product, given your exposure there and giving what's going on around the world, particularly here in North America that business was potentially impacted by the negative that's being gone here in the US?

Well just a comment on the verticals, first of all if we were going to do vertical expansion, it is not something we would discuss on a conference call. Second of all, regardless of whether we choose to do so and not if not something we need to do because we are very satisfied with the overall amount of prospects and opportunities within the 7 verticals that we are currently focused on. There is not a lack of prospects or opportunities and I am sure you will hear that for many other outsourcers in the marketplace.

Is the telecom vertical lasts ?

Yes the telecom vertical, as you know, it has been pretty flat, Margi. I mean, you know there has been a lot of, you know, lot of concern about that, but for us, we really continue to maintain very strong volumes in the telecom space, and we have got a strong mix across that so while it is over 50 percent of our revenues it is spread out across a lot of sub verticals between wireless online technical support, wire line cable, DSL etc. so I think we are well diversified within the communications vertical.

Okay and one confident customer in particular is probably local that seems to be having the share problems, we haven't seen any deterioration in business for them and you are not having to potentially increase reserves that potentially offset any problems there?

I think it is safe to say that we are doing the best we can to proactively manage that particular or that potential company you might be talking about and what I would just simply say is that I think that you will see included in our numbers, revenues sequentially declining.

Okay. Was there any forecast? Is there any factor into your forecast?

into our forecast.

Okay, thanks a lot.

Kit Case, you may ask your question and please state your company name.

SWS Securities. A couple of questions on, you closed the this quarter and so does that you mean you are at 5 centers, over capacity by 5 centers before that or centers that kind of that equate to a kind of where you were before you close?

Yeah, a part of that was one of the Nextel center was also closed. The center was closed, so that is factoring into it as well and we weren't really counting that as an extra central capacity with the brand new center that we took over from Nextel and then the one's that we closed were in Spain, you know, they weren't highly utilized and we took what was in them and moved them into other centers in Spain.

You said you closed two in Spain and then one domestically, one Nextel operation that and all totaled that thousand ?

Right. Yeah.

Okay, and next question on enhansiv, what's are you going to do to SG&A line. How is that there going to be revenue within that group and is how they are going to be or how they are going to impact your SG&A on a kind of absolute dollar basis?

There is revenue in the group because it is professional services revenue for the company as well as there are some clients that are on enhansiv platform today. It will cause our SG&A to go up a little bit and we have also factored that in, kept into the guidance that we provided. With this move when we just going from ....

Right.

Other income and expense is up to operating.

So, I guess, historically it has been about 2.5 million a quarter.

Yeah. The burn is down in this quarter and improved during the first quarter to the second quarter by about a penny.

Okay, you wish to stick on a million and half to 2 million and the SG&A just as on top.

Yeah that is there.

And then take it up other income.

Right.

Last question, North America, did you outsource revenue in North America, you know declined I guess 15 percent sequentially to around a 151 what it looks like. You know, can you give us little as a mostly volume or is it mostly programs and how much of it was the programs that went away, the short-term programs and how much of that was volume?

If you are talking about that from first quarter to second quarter there was not a sequential decline in North American outsourcing, it was flat. It was 177 million in the first quarter, 177 million in the second quarter. Nextel increased and we had a decrease in some of those seasonal programs that I mentioned as well as softness and other existing customers, but the North American outsourcing number was flat quarter-to-quarter.

Okay because I thought you said, it is what 59.7 percent revenue?

No, it is 69.7 revenue in the first quarter and 69.9 in the second quarter.

Okay and then I heard that one, could you go us through again those percentages for the revenue lines make sure if you have got that right?

Sure and I am, this segment reporting the closure, North American outsourcing 177 million, International outsourcing 54 million, data base marketing and consulting 23 million.

Okay all right thanks.

Carla Cooper, you may ask your question and please state your company name.

Good afternoon, Robert W. Baird & Co. Just a couple of follow ups, could you talk specifically about the activity in allowance without forecounts, I know, was obviously changing the finances as many corporation customers have been hearing a little bit more about that this quarter?

Yeah, All along doubtful accounts have remained pretty flat for us, both as the percentage of revenue, as well as the percentage of accounts receivable. I think that we went through really a turn in what I would call accounts at risk last year and the accounts that we have now, we feel pretty good about, I mean there is certainly an exception area here or there like all companies have, but we feel good about the mix, the companies that we are doing business with and have left our reserve relatively unchanged for the last couple of quarters.

Okay and then just getting back to the closure of the centers, I think initially you said that you have closed two abroad and then some admin, but then later you added on that you also had closed our Nextel facility.

Right.

Was the Nextel a part of the charge that you took actually for the Nextel center that you closed?

No it was not.

Okay thank you very much.

You are welcome.

Justin Evans you may ask your question and please state your company name.

First Analysis, just wanted to follow up on something Margot was talking about. Could you comment on and then in the past you have commented on any sort of quantitative number in terms of what Europe lost in the quarter or the other enhancive business?

Would you repeat that question it was a little static.

I am sorry about that, in the past quarters you had said that Europe for example was a 1 to 2 to 3 cents loss in the quarter in enhancive ways, you know, a penny on earnings or something to that affect and I was just curious if you could comment on that some of those operations quantitatively and you know and what you are expecting that going forward?

Right. The Europe operations did improve from the first quarter overall by about a penny.

Okay.

about any pick up there, so when you look at the international outsourcing segment, you will see an improvement in the operating income of roughly few million dollars from the second quarter to second quarter.

Well did you see any improvement in, I know it Enhansiv is consolidated now, but is there any improvement on that front?

Yes, Enhansiv improved a penny or so from first quarter to second quarter.

Okay, and you expect the progress improvement in those losses to certainly continue?

We expect and did say about where they are right now in the near terms. We made the changes in Europe that we thought we were prudent and appropriate to make some overhead standpoint really the issue now in Europe is to get some sales growth. And from the enhansiv perspective similar we made some reductions enforced in enhansiv and are consolidating into the TeleTech operation and we think we made the touch there that we need to make.

And another has been asked already but if you did see the revenue environment weaken further from what you are looking at in terms of guidance for whatever reason, do you still expect that you will be maintaining infrastructure at least for the next two quarters here, from a cost perspective?

Yes we do and that's the reason that we were providing pretty much flat to slightly down guidance through the rest of the year because we are assuming that we would keep the infrastructure in place that we have now and the reason we are making that assumption is because we are optimistic about what's in the pipeline and we think its still the right decision for us to carry that capacity as supposed to close a bunch of centers and then two or three quarters from now sell something of size and have to go out and use our cash to build brand new centers.

Okay, Karen I thank you.

Thank you our final question comes from David , please state your company name.

Hi CIBC, just a quick follow-up. Ken, you have been referring to regionalisation and I am assuming you are telling about the technology infrastructure that you have previously talked that centralization has there been some sort of shift in that strategy or just for a name?

Just really a different name.

And then you continue to plan a roll that over the next 18 months or so?

Absolutely.

Okay. Has that begun yet or is that in in much of the CAPEX at this point?

There has been CAPEX already spent in that area, it had begun and again our primary focus is making sure that we have a 110 percent customer satisfaction and so we are going to do it in a way where it is seamless to our customers and where it adds satisfaction value at the same time while reducing cost, and so therefore what we are not going to do is one giant force would cut and run the risk of jeopardizing anything from the customer base. So, therefore we are going to take it in a very methodical manner and in a way where we can absolutely be confident that our technology is bulletproof and it is highly .

So then we are looking at end of 2003, begining of 2004 for for it to be fully implemented, right?

Yeah, I would say that is accurate.

And is there a sense at this point of what sort of savings you can get on your infrastructure costs from implementing this you know, just for date say that the 2004 year?

We are not to prepared to discuss that right now.

Okay. Thank you.

Thank you.

Thank you. This concludes today's conference call. Thank you for joining and you may now disconnect.

Thank you.