TTEC Holdings Inc (TTEC) 2002 Q3 法說會逐字稿

Welcome to the TeleTech third quarter earnings conference call. I'd like to remind all parties you'll be in listen-only mode until the question and answer session. This call is being recorded at the request of TeleTech. I'd like to turn the call over to Ms. Karen Breen. Ma'am, you may begin.

Thank you. Good afternoon, my name is Karen Breen, 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, Chairman and CEO and Margot O'Dell CFO and Executive Vice President of International Operations before we begin I'd like to make you aware during this call there mean discussion of certain forward-looking information. Please understand that actual results could differ materially. You are encouraged to review our 2001 Form 10-K, our first and second quarter 2002 form 10-Q and other SEC filings regarding factors that could cause actual results to differ from these forward-looking statements. Thank you and I would now like to turn the call over to Ken Tuchman.

Thank you, Karen. I'd like to welcome everyone joining us today. Let me begin by discussing our third quarter results after which I will provide a brief business update and Margot will then end by providing a more comprehensive financial overview. We reported third quarter revenues of 252 million an increase of 13 percent from a year ago quarter, and relatively unchanged from the prior quarter. Earnings were eight cents per diluted share and both revenue and earnings were in line with our guidance. Although we are pleased to meet our guidance, we're not satisfied with our operating margin and believe there's work to be done to bring our margin in line with our long-term objectives. Nevertheless, the economic climate remains challenging and we continue to operate profitably and generate free cash flow.

On the second quarter call, I provided a mid-year update that covered our accomplishments as well as areas of ongoing focus. Today, I want to provide a brief update. As I mentioned last quarter, we continue to proactively focus on the global sales pipe pipeline and the future strategy for the business. Our near term goals are threefold. First, close new business to better utilize our capacity. Second, continue to improve profitability in Europe. And third, strengthen per Percepta's financial performance. Let me address each of those areas. As we've discussed on the last several calls, we've had a healthy sales pipeline of significant opportunities, with some of the worlds most respected companies. Our compelling value proposition allows us to meet with key level executives around the global in this environment many organizations are eagerly looking for ways to dramatically lower costs while improving customer relationships and strengthening brand loyalty. The challenge here is the ability to convert encouraging high level sales meeting into long-term client relationships.

Corporate decision making continues to be slow and it's negatively affected by executive level changes, market dynamics and global economic uncertainty. To improve our sales close rate we're aggressively employing two tactics. First, further leveraging relationships with our global strategic partners. Many instances our partners are working with potential clients on parallel opportunities, which gives us an additional positive exposure within the clients' organization. Second, as I mentioned on the previous quarter call, we're devoting more resources to our sales infrastructure. During the third quarter we've been strengthening the sales organization by adding select professionals with a proven track record of closing large complex deal opportunities. We're still in the early stages of retooling the sales organization and expect to complete our efforts by early 2003. The sales pipeline continues to be strong. And while closing deals remains difficult, we're encouraged by the progress we're making with deals moving further in the sales process.

Turning to Percepta. We continue to work with Ford to improve Percepta's performance, operationally the venture is exceeding expectations and providing value customer management services around the world ranging from vehicle financial inquiries to complex warranty decisions. While it's under-performing financially we're seeing improvements in certain areas, including sequentially lower DSOs. We believe Percepta's financial performance will begin to improve over the next several quarters as we work in partnership with Ford to reduce the cost structure in the venture.

In Europe, the action we've taken are positively impacting the region's financial results. The new management teams in both Spain and the UK have proven track records and we're beginning to see the benefits. Operating margins improved sequentially in the third quarter and the region is funding its operations. The European sales pipeline is getting stronger and we're working to close new business and utilize excess capacity in the Spain and UK. As we do so, Europe's financial performance should continue to improve and will continue to provide a solid base from which to build a stronger European presence.

Let me end by addressing Newgen. Newgen had another strong quarter, generating 25 million in revenue, an increase of 8 percent from the second quarter. New initiatives such as QT Connect and Marketing Point increasing volumes with other OEMs. Our positioning Newgen for year-over-year growth of over 30 percent. Newgen continues to meet our expectations and we believe it will maintain a healthy growth rate in 2003.

In summary, I'm pleased we met the third quarter guidance and I'm confident we're making the right decisions to position the company for future growth. We're working hard to close new business and feel positive about opportunities in the sales pipeline. TeleTech continues to operate profitably, generate positive free cash flow and maintain a net cash position in a very difficult global economic environment.

Last week we celebrated 20 successful years in business. In that time we pioneered a new industry. And have become a global leader in customer management. Since our public offering in 1996, our revenues have grown from less than 200 million to nearly one billion with operations in 13 countries and providing services to over 30 countries in nearly two dozen languages. We owe much of our success to our 28,000 dedicated employees who diligently work to make TeleTech a premiere provider of customer management solutions. As we look ahead, I'm truly optimistic about our long-term prospects and I'm confident in our ability to continue leading the industry and capitalizing on large deal opportunities. With that I'll turn the call over to Margo.

Thank you, Ken. Let me begin by reviewing revenue. Q3 revenue was 252 million up 13 percent from 223 million in the year ago quarter and relatively flat on a sequential quarter basis. International revenue was 88 million in the third quarter, unchanged from the second quarter. International revenue for in-country clients represented 20 percent of total third quarter revenue, while another 15 percent of revenue came from services provided to U.S. based customers from international facilities.

In terms of client concentration, Nextel was our largest client in the third quarter. For the full year we believe this contract will exceed 150 million and contribute positively to our earnings. The project is meeting Nextel's internal customer satisfaction metrics and the client is extremely pleased with the relationship and the status of the project. It is important to note that the launch has taken place simultaneously with the conversion of Nextel's billing platform, which further highlights the overall success of the transition to TeleTech. As we enter 2003, and as we have discussed before, revenue from the Nextel project will begin to decrease modestly as IBM implements speech processing technology and as we continue to drive efficiencies in the operation.

Verizon was our second largest client at just over 15 percent of total revenues 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 client represented more than 10 percent of our third quarter revenues.

Now let's shift to earnings. Third quarter earnings were eight cents per share and in line with our guidance. SG&A as a percentage of revenue was 19.4 percent in the third quarter, up slightly sequentially, and down from 21.5 percent in the year ago quarter. Over the last three-quarters we have maintained SG&A as a percentage of revenue in line with our goal of 20 percent or less and believe we will continue to meet or exceed this target.

Operating margin for the quarter was 4.3 percent, down sequentially from 5.1 percent last quarter and 7.3 percent in the year ago quarter. Operating margin declined sequentially due primarily to lower operating results at Percepta as well as lower volumes in certain North American client programs. However, over the next several quarters we believe Percepta's results will improve as we work to reduce costs in the joint venture.

Moving to the balance sheet, our financial position remains strong and I want to provide some detail on cash and short-term investments, capital expenditures and DSOs, as well as update the progress on our share repurchase program. Cash can in short-term investments were 107 million at the end of the quarter, up sequentially from 102 million in the second quarter, while continuing to repurchase shares. Since the inception of our share buy back program in late 2001, we have acquired 18 million of our common stock or just under three million shares. Roughly 16 million in cash was used in the quarter to repurchase shares, and we plan to continue our program given our firm belief in the company's future prospects.

Second quarter capital expenditures were approximately 13 million, up nearly five million from the second quarter, and from the year ago quarter. The sequential increase was due to technology upgrades in certain North American centers as well as expanding our presence in Canada to support Nextel. We continue to generate free cash flow even while investing in technology and actively participating in our share repurchase program and expect to be free cash flow positive for the full year 2002.

DOS at quarter end were 57 days down from 65 days from the second quarter due to improved collections in north America, including Percepta. While we saw strong improvement during the third quarter DSOs could be slightly higher as we exit the year. Finally, we recently closed on the renewal of our revolving credit facility with the prestigious group of banks including Bank of America, CIBC, Key Bank, Northern Trust and Wachovia. The 85 million four-year agreement is at favorable terms and gives flexibility to pursue growth initiatives and fund capital requirements often required in large deal opportunities. As of September 30, the credit facility was undrawn. In summary, our capital structure remains solid and we continue to aggressively focus on cost reduction and balance sheet stability.

Let me end by addressing our outlook. As I mentioned on the second quarter call, we expect revenue and operating margins to remain relatively flat until we close new business and better utilize our infrastructure. Therefore, we estimate fourth quarter revenue will be in the range of 250 to 255 million, relatively unchanged with the third quarter. And we estimate diluted earnings per share will be in the range of 7 to 9 cents in the fourth quarter, again steady compared to the third quarter.

To close I want to reiterate we're pleased with having met our guidance in a difficult economic environment. Our balance sheet remains strong and we continue to operate in a net cash position. The sales pipeline is solid and we are well positioned once we close additional business. With that, Ken and I would like to open up the call to your questions

At this time, if you with issue to ask a question, please press star followed by the number 1. It's star 1 on your touch tone phone to ask a question. One moment. Your first question comes from Brandon Dobell. Please state your name.

Brandon Dobell from First Boston. A couple of questions. Could we focus on a couple of the difference between the U.S. market and international market. As most of the companies in this space remarked the last week or so there's a decent amount of capacity that's unused out there in the U.S. market. The same time we're seeing good demand for overseas operations as well. Maybe you could comment on what kind of trends you see from two perspectives. One in terms of pricing. Are companies saying hey we might as well go overseas if we don't do that can we push a little bit more on pricing here in the U.S. Second maybe comment on the pipeline you have. Are you seeing companies go down the road of looking into the U.S. as a primary location and then perhaps taking a second look and saying, well, let's check out the international locations as well? And then I'll come back with a few more follow-up questions. Thanks.

OK. A couple things. First of all, we've been very open about how much excess capacity that we've maintained in the United States, and clearly we're not pleased with that. That being said, the pipeline we have in front of us we feel is more than adequate to ultimately fill up all the U.S. capacity that we have. And we feel we're absolutely making progress from the sales pipeline standpoint as well as moving the current deals that we have in the pipeline down the path to get towards a resolution of starting to dramatically reducing some of that capacity. That being said, there's kind of two different international markets to us. There's just the overall in region international markets for us and then there's markets that have clearly been created for offshore capabilities.

And near shore capabilities, i.e., Canada where more than 85 percent of the revenue that's in Canada, 90 percent of the revenue is U.S. based. I.e. the Philippines. Mexico doing some of that and some of the other markets et cetera. What we're seeing is that in just the markets that we're participating in, like Europe, et cetera, which were never designed to be arbitrage markets we're actually feeling good about them and finding also more business there to ultimately fill up any excess capacity that might exist in those regions. As it relates to labor arbitrage, what we're hearing from clients basically what we're seeing is there's two different types of client opportunities.

There's the one that absolutely have to be done in the United States due to either, A, the client doesn't have an appetite for going offshore because of various different uncertainties or, B, they actually can't go offshore because of regulatory reasons. That might be the case in certain banking applications, certain health care applications, et cetera, where they legally have to handle the interactions here in the U.S.. as a matter of fact even certain telecom clients we have must do the work in the United States. So what I want to stress to you is that the balance picture is there will always be a market for volumes to be attracted to the United States.

That being said, there's definitely more of a heightened interest right now with many clients that are considering moving some of their activity into lower cost environments. And we feel we are one of the few companies that's ideally positioned to provide them this blended capability because our global footprint is in all the right locations.

So I guess just to, you asked a fairly simple question and the answer is that we're seeing opportunities in all three environments. In the U.S. with clients that just would prefer to stay here, as well as with clients that have to stay here. We're seeing opportunities in region in our various different countries that have no interest in taking advantage of what we call labor arbitrage. And of course there are clients that are also saying that the nature of the business is such that they feel comfortable moving pieces of it, rarely all of it, but pieces of it to various different offshore marketplaces. Did I answer your question?

Yes, very helpful. Maybe a couple for Margot. Currency impact, the top line in the quarter, and the impact from (inaudible) on operating margins.

The currency impact in the quarter was extremely minimal because we've got some currencies offsetting each other. So it was less than a half a million. And as far as the impact for Percepta, Percepta impacted the overall operating margin by about, it was 1.1 million of operating margin impact.

OK. Thanks a lot

Your next question comes from David Doft. Please state your company name, sir.

Good afternoon. CIBC World Markets. A couple questions, Ken, on the sales pipeline and the different vertical markets and what you're seeing in terms of opportunity and was there any business that closed during the quarter or is it still pretty dry out there and any signs that people are ready to turn the spigot back on?

There's been business that's been signed in the quarter. We've not yet made announcements so that - most of it is filler business around the globe. And in many cases we choose not to even bother announcing that business. But there definitely have been businesses that have been signed. As far as business that's in the pipeline right now, we are starting to see certain deals now start to materialize and move forward further into more of a negotiating stage. But that being said, we'll still we're still seeing a much slower conversion from the pipeline to actual contracts but we're encouraged by the deals we're actually working on right now. So I'm not sure there's really much more color to put on it than that

Any different trends by industry?

I think telecom is seeing less volumes, lower volumes. And I think that there's probably less overall opportunity in the telecom space. But that being said, there is more opportunities in other verticals all throughout financial services and other verticals. So our hope is that one will offset the other.

Right. Fair enough. Given the tough environment out there and really the difficulties across the entire sector, are you seeing any of the potential clients being more price sensitive, i.e., any of your competitors trying to significantly undercut on price in order to fill capacity?

We're not seeing that to our existing base of business but we're certainly seeing that in certain markets on certain types of business, especially where the business has a potential of being more tactical that there is in fact a focus on price.

Lastly, on Europe. You mentioned it's funding itself. Is it profitable?

No it's not yet profitable nor did we plan on it being profitable this early on. But we're getting closer to break even status which was the goal we set forth fourth quarters or three-quarter's ago.

Is that still achievable by the end of this year?

No, I don't think so. I think our stated plan is we would hope for it to be in a break even status sometime between around the second quarter, end of, potentially the end of first quarter. But we're thinking more towards the end of second quarter.

Thank you very much

Your next question comes from Bill Warmington. Please state your company name, sir.

Good afternoon. This is Lilly (inaudible) Sun Trust Robinson-Humphrey. Our first question was if you could give us a little bit more color on gross margin, and is it correct to assume that the decline in gross margin is due to Percepta whether we would see any improvement in fourth quarter?

The gross margin change this year is primarily related to the Nextel business, because the Nextel project has primarily a direct cost structure associated with it. Overtime, as we begin to operate Nextel out of new locations, that could change a little bit. But that's been the main driver in the shift between direct costs and SG&A costs during the year. During the quarter there was certainly a slight degradation associated to Percepta. But overall, all the gross margin in the third quarter was comparable to the second quarter.

Are we seeing any benefits yet from the cost rationalization measures taken in the second quarter? And are we going to see any incremental benefits going forward?

Are you referring to the closures we did in Spain in the second quarter? Yes, we're seeing some of the benefits of that already. That's why the results in Europe did improve in the third quarter compared to the second quarter. And we would expect there to be a little bit more improvement in the fourth. It's been factored into our guidance

And also can we get revenue break down by vertical.

Sure. In the third quarter the communications vertical was 50 percent of revenues. Automotive was 19 percent, financial services 10 percent, transportation eight percent, government, eight percent, and other, five.

OK. Thank you

Your next question comes from Mark Bacharon-ph.

Robert W. Baird. Couple things. First of all, can you say that you're seeing more contracts moving towards a phase of where they might be closer to being signed. Could you comment what the catalyst might be or what you think is causing some of these things that have been hanging out there to moving towards actual signed contracts.

I don't think there's any one catalyst other than just simple time. I think there's been several deals we've been pursuing in our pipeline for a period of time. You get to a point in the deal where ultimately there's nothing left to talk about and it's time to move on to negotiations. So, I think all I would simply say is there's not anyone catalytic event that I can tell you. It's certainly not economy related, other than maybe several of our clients or prospective clients have a dramatic need to get closer to their customers because they're seeing net customer losses. We're seeing a lot of our perspective customers that are talking to us about the needs that they must rationalize their cost immediately and this is another way for them to get significant savings.

But I wouldn't say that there's any one common theme out there that is allowing us to get farther down. We've always been a very conservative company we never tend to be excited about any contract we're working on unless it's signed and in most cases until it's actually installed and that's when we start to talk about it. So where we're at right now is we're hopeful that we're going to make progress between now and tend of the year on contracts that could have some impact on our excess capacity.

Any thoughts as budgeting gets set for 2003, that that's going to help some of the contracts across the goal line.

Again I'm not trying to avoid your question. It's just a hard thing to say. It's a very nebulous corporate environment out there. I think budget does tend people to get more focused on what they need to do in order to accomplish their goals and we're clearly hearing from many different companies that they can't get to their budget under the current cost structure. Whether that will stimulate them to move to a contract stage with us versus going somewhere else to try to find those savings, only time will tell.

What I will tell you is that what we're finding, and we're hearing this through our partners working with us as well, our strategic partners, is that the proposition that we're offering customers today tends to have much more of an immediate savings than let's just say the classics systems integrators. When they're looking at a field of various different things they can do to bring down the cost, I think ours does in fact stick out because there's such large opportunities to remove cost. Clearly, we've been a big deal company. So we tend not to talk about the 50 position and 100 position deals. Our focus is how do we win some more mega deals that require multiple centers. That's clearly where my energy is and that's where the whole big deal team energy is and that's where we have faced a commitment to delivering in that area.

You talked about the impact of Percepta in the quarter. What was the impact of consolidation of Enhancive in the third quarter. If you could give us that number. Last question for Ken you said the USPS was in a re-bidding mode, could you give us an idea where that stands?

Let me clarify because Brandon actually asked me what Enhancive impact was. I clarified Percepta. Let me clarify Percepta was around just over a million. The impact from Enhancive active is now integrated really back into the business and it's part of our overall IT function. The R&D I guess investment associated with Enhancive was probably about a half a million dollars during the quarter.

Regarding the Postal Service, we're in a kind of wait and hear. We've gone through all our process just like the other vendors. We're waiting to hear what the next step is with the Postal Service. It's very difficult to determine in any type of a bidding process where one stands. And I to the best of my knowledge, we have not been. Given any indication as to where we stand in the process. We've been through this process before multiple times. And we would like to hope that we were able to put forth a value proposition that was compelling. But right now we would hope to hear from them sometime this month or maybe possibly the next month. I'm not sure as to their time frame, as to when they're ultimately going to make a decision.

Thanks a lot

Your next question comes from Chuck Phillips, please state your company name, sir.

Morgan Stanley. On the European profitability, this target you have, can you get there off of existing volumes or, like depending on further cost reduction, I guess how do you get there to get the profitability?

We really have to sell new business, Chuck, in order to get there. We've made a number of changes in the infrastructure and cost side of the business and feel like we've made the consolidation from a facilities standpoint in Spain as well as some reductions in our overhead there already. So at this point the path to profitability in Europe is to selling to new businesses.

And I should add we're selling new business, they've been successful in signing up new accounts. We've very pleased with the accounts they're signing up and, more importantly, we're pleased that interestingly enough that in Spain we're actually now seeing less pricing pressure than we were seeing and due to the fact that more and more companies in that marketplace are basically just kind of fading to dark. And therefore we're seeing the accounts that we're going after we're able to obtain a better overall margin than we were able to historically.

Last question. Looking at all the (inaudible) and the software that's been sold over the last several years by the CRM (ph) companies, does any of that turn into an opportunity where the customer has gone to implement this but it's too expensive people wise and they (inaudible) enable call center or whatever it is, once they go that far it's that they run it themselves?

Absolutely to the contrary. In fact they're asking us to run I thought. I just came back from Brazil, and we're running a feeble (ph) implementation for a client. So the fact that they go through the implementation, in some cases, they actually ask if we take over, the adds changes deletes of the software itself. In some cases they'll ask us to roll out new capability. But, no once they, - the fact they made the investment in the software does not mean that it does not mean that the software does not ultimately become portable and move over to our location.

Thanks a lot

Your next question comes from Jeff Kessler. Please staple your please state your name.

This is Jeff Kellson-ph filling in. Can you comment on the exposure in Latin America. There's a lot of companies we cover (inaudible) Obviously having some issues I know you folks have some exposure. If you could comment, please.

The overall Latin American region is roughly seven percent of revenues, between Mexico Argentina and Brazil. Argentina is a very small piece of the revenue at this point given the devaluation, but we have made some structural changes in that region, meaning consolidation into one center, and a reduction in force in order to decrease the cost structure, and we're now at basically a break-even status in Argentina. Brazil is a wait and see with the current elections We were recently down there last week and feel good about the market, about the opportunities that we see and we are actually expanding a little bit right now in Brazil because we're sold out of our capacity. I think Mexico continues to be a good market for us, both from a labor arbitrage standpoint and in country opportunities we've made changes in the Mexico management and feel good what we have there. I'd say the region is in a little bit of a watch mode right now but we feel good about our position at this point.

Thanks. Also just a housekeeping, and you might have mentioned this during the first quarter, I apologize if I missed. Capacity utilization did you actually give a rate where you're coming in overall.

We didn't give a rate, but we're operating still at about roughly four and a half centers of global capacity above and beyond where we would like to be

How many seats would that encompass?

On average, about 2000.

2,000 total seats of excess capacity.

On a global basis. ? OK. Thank you

The next question comes from Todd Lowden, please state your name and company name.

ThinkEquity Partners. Can you talk a little bit about the sales cycle for these clients that are looking at moving part of their operations offshore to take advantage of labor arbitrage. Does that tend to take longer than the norm hall complex deal that you go after or about the same time.

Actually, I think it's probably shorter, because the clients that wanted to move, in many cases they're very, very focused on getting immediate instantaneous cost reductions and therefore I would say that those fields are moving quicker. As a matter of fact, it's amazing the willingness for a client to stay we'll immediate you in India or in the Philippines or there or here and how quickly they want to go there. No, I would say to the contrary.

Last time you talked about turnover in the executive ranks of your client sort of a general corporate paralysis. If you covered this before, I mean has there been any change, kind of the level if you will of the corporate indecision.

Well, I think it's safe to say that with all of the corporate malfeasance that's going on, the kind of forest is burnt down now we're starting to see the beginning of the growth, the new growth starting to come back out. The point is no, we're not seeing the same level of executive leadership being terminated or then resigning, et cetera, that we were seeing before, but now it's time for these people to get into their job, build their management figure out what their strategic and tactical priorities are. So, would I say on a global basis we're seeing business as usual? No, we're definitely not seeing business as usual. We're seeing people being very cautious. We're an extreme amount much time and energy being put into analyzing ever and understanding what all the various different impacts are. And we're seeing, because of kind of what's taken place, historically, that there is more of a consensus requirement that's being required by companies where they're getting more buy in from multiple people within management, whereas before maybe the CEO would unilaterally make a decision.

Real quickly Margot I know you mentioned probably the Nextel and Verizon relationships for the third quarter. Can you repeat that please?

Yeah, we did for Verizon, the percentage of revenues was 15 percent during the quarter. Nextel's assets not just specifically gives a revenue for the quarter. But we did talk about the full year revenue which we expect to exceed 150 million.

Thank you

The next question comes from John Mahoney. Please state your question.

This is Doug Thompson (ph) for John at Raymond James. A clarification of the second point. Am I correct you said it's the Newgen that's up eight percent sequentially, not Nextel.

No, it's the Newgen revenue, not Nextel.

You addressed additional campaign into Canada on the Nextel contract.

Yes we opened a new facility in Canada which is fully operational.

Further expansion?

In Canada or regarding Nextel?

Regarding Nextel.

That's not really anything we talk about at this stage. We're constantly looking at how to make that account efficient. I would just simply say we're going to look at the quality of the service we're delivering and the efficiency of which we're delivering it at and make the determination from there. But we tend not to talk about any clients once they're on board as to various different, exact expansion plans at the request of our clients.

On the last call, I think we said that we were about a quarter behind on the Nextel schedule. Sounds like you've raised the full year expectations.

When we say we're a quarter behind, we're saying a quarter behind on the transition of all the transitional areas that we needed to make, which we don't believe - which we won't make up, we'll just get to the end goal that we need to get to. So we feel good about the relationship. Very good about the service levels and the quality we're generating, client is ecstatic with the business. We're meeting and exceeding virtually every SLA and every goal on the contract. So it's important to us that we continue to keep delivering at that high level because it's a highly referencible account and we'd like to keep that way

Thank you your next question comes from Jeff Nevins, please state your name.

First Analysis. Could you comment on what you're doing to the infrastructure earlier in terms of additional resources. Are you making any changes in the terms of sales maybe the way they're compensated. And secondly I don't know if you disclose this but how many sales reps do you have out there.

We don't discuss how many salespeople that we have. It's not something that we want people to get focused on and try to figure out what their quotas are and that kind of stuff. The business we're in it's a big time deal. It's very difficult to tie it into the head count you have.The changes that we're making is we're simply bringing in more people that have fist indicated large outsourcing deals. That's it. We're just strengthening in that area. And we're also clearly becoming more focused on our verticalization which has been paid off historically we want more depth and more breadth in each of our verticals.

Is that how it's set up by vertical industry?

Absolutely.

The second question I had Newgen being up in the fourth quarter, another big quarter for them. Any reason or drivers that you see going on there, why they're doing so well?

Several reasons. We've got an excellent management team at Newgen. They're very focused on their business and I think it's always good to have strong management that's focused on what their end goal is which is to add more dealers. Secondly, they've been successful in winning more OEMs and when the OEMs fall to the dealers that usually helps out the overall business. Thirdly, they've been successful in rolling out new product offerings and making sure that their product is constantly fresh to the marketplace, which is something that TeleTech is focused on overall not just at Newgen.

And then I guess the last point is that they're number one in the industry by a very large share. Their market share continues to get bigger while others get smaller. And I think that it's like any other business, success begets success. So I think they're in that stride right now where they're really starting to benefit from the number one player in the marketplace and not having a lot of material competition at this point in time that's in their way.

And then lastly I would say that their client satisfaction is at an all time high. Just as TeleTech's overall customer base is also at a high time high and I think that's critical for them to be able to use that as a reference base to continue signing up more and more dealers. So I think those are really the key drivers of their business as to why they're doing so well and we're very hopeful in the future that there they will be able to do continue their success.

Last question was receivable sequential decline in Q3, was that related to one question or was that a variety of factors.

It was a variety of factors, the once one was related to Percepta. The overall Percepta's DSOs to the total was between three and four days. We also saw decreases in North America, in general, as well as in Latin America.

Thank you

Next question comes from Stacy Forbes. Please state your company name.

Janco Partners can you give us the revenue number in the fourth quarter from Percepta obviously it was less than 10 percent, but what that was and what your expectations are for the year for that business unit. And also what kind of margin improvement are you expecting from Percepta I guess in Europe and how quickly do you expect that to show up in financial results.

The revenue number for Percepta was less than 10 percent. And as such we don't disclose individual clients that are less than 10 percent. But the revenues have been fairly flat in Percepta over the last couple of quarters. And then Stacey, the second part was related to the impact of their operating margins.

Yes you said you were going to work with Ford to try to get the costs down and margins will go up that should improve overall margin. What do you expect to see happen there and when do you expect to see that impact.

The loss was a little over a million. I think in the fourth quarter there still be a loss, it will be less than that. Then, hopefully, as we get into the first and second quarters of next year we'll begin to get into profitability again.

Thank you very much

Our final question comes from Kit Case. Please state your company name.

SWS. A couple questions. I mentioned on the Nextel that you opened up a center for them in Canada. Now, you already closed one of their centers but now you're opening up one of your own to replace that? Could you maybe give us some color on that.

We also closed another center here in the U.S. during the quarter. That was a Nextel facility.

So you moved that volume into this one center, basically.

Yes.

Is there an adjustment in the revenue when you move into your site, or is it basically the same terms?

Same terms.

OK all right. How about are there any major renewals coming up over the next six months, six to nine months?

The United States Postal Service.

Besides that, anything else that's major?

Verizon Wireless.

When does that come out?

It's pretty much due. We're in active negotiations right now.

The contract expires at the end of 2002.

OK. And can you say how much wireless is?

They're roughly four percent of revenues.

All right. And I guess a couple of housekeeping. Could you break down the revenue into North America out sourcing and international and Newgen? I guess you've done some of that, but...

Right. During the quarter, North American outsourcing was about a 174 million. International outsourcing 54 million and Newgen 25.

Also, the debt, you still have your notes out, 75 million. And what about the capitalized leases?

There's 75 million in our long-term debt and roughly six million in other. Total of 81 million.

All right. And number (inaudible) did you take any away in the quarter and what was the total you added?

It was actually a slight net reduction, because we opened the center in Canada and closed the center here in the U.S., one of the Nextel sites. Overall our seats declined modestly but we're operating still just over 23,000 seats and 28,000 employees.

What was your - I don't know if you've looked at this number, but if you take out roughly 40 million for Nextel, revenue was down year-over-year but you all cleaned up some customers. What was your same customer growth, the customers that are there today and that were there last year, how much did they grow year-over-year? Have you looked at that number?

Well, we've actually will overall slight reduction year-over-year in the customer base because we've had attrition in some of our customers. An example would be in AT&T where we were doing quite a bit of business for AT&T last year and now we are not anymore. So overall, Kit, we've had a reduction. Are you asking of the customers that are still our customers, whether we've seen growth in those?

Yeah, I'm trying to get an assessment of the volume, because obviously new business is harder to come by, but you've still got your, most of your customers. I'm kind of trying to get an idea of getting past the noise of seeing how much volume those guys are increasing with you.

It's been pretty flat overall. Some customers going up because their business is doing well and others that, their revenues are slightly off because their volumes are down. So net net I'd say it was pretty flat with our existing customer base.

OK. And did you all sign up anybody from the Philippines this quarter?

Well, - No, we don't have a new contract signed there the third quarter in the Philippines.

OK. All right. Thanks

Thank you. This concludes today's conference. You may disconnect at this time.