TTEC Holdings Inc (TTEC) 2003 Q3 法說會逐字稿

Welcome to the TeleTech third-quarter 2003 earnings conference call. I'd like to remind all parties that you'll be in a listen only mode until the question-and-answer session. This call is being recorded at the request of TeleTech. I would like to turn the call over to Karen Breen. Thank you, you may begin.

Thank you and good morning. My name is Karen Breen - Vice President of Investor Relations and Treasurer. Today, TeleTech is hosting this conference call to discuss its results for the third-quarter 2003 ended September 30th. Yesterday, TeleTech issued a press release announcing that its report on Form 10-Q for the third-quarter has been filed with the SEC. This call will reflect items discussed within the press release and Form 10-Q and TeleTech management will make reference to it several times this morning. Speaking on today's call are Ken Tuchman - our Chairman and Chief Executive Officer and Dennis Lacey - our Chief Financial Officer. Ken will begin today's call with the top-level overview of the Company's performance during the third-quarter, then Dennis will review our financial results, and Ken will make some closing comments. After our prepared remarks, Ken and Dennis will open the call up to your questions.

Before we begin, I would like to remind you of our disclosure regarding forward-looking statements. Matters discussed on today's conference call may include forward-looking statements relating to future plans and development, financial goals and operating performance, and are based on management's current beliefs and assumptions. Such statements are subject to risks and uncertainties. Factors that could cause TeleTech's results to differ materially from those described include but are not limited to reliance on a few major clients, the risks associated with lower profitability from or the loss of one or more significant client relationship, the Company's ability to close new business in 2003, execution risks associated with achieving the targeted 40 million in annualized cost savings during 2004, the possibility of additional asset impairment and restructuring charges and the ultimate liability associated with the amount of past sales or used tax obligations for the Company.

I will now turn the call over to Ken Tuchman - our Chairman and Chief Executive Officer.

Thank you Karen. I would like to begin by reviewing our third-quarter results after which I will provide a business review of each of our operating segments. Third-quarter revenue was 245 million up 5 million or 2 percent from second-quarter revenue of 240 million. Third-quarter net income was 2.1 million which equates to 3 cents per diluted share. This compared to a loss of 59 cents per diluted share in the previous quarter and to earnings of 8 cents per share the year ago quarter.

The third-quarter loss included a $3 million charge increased tax expense and the associated deferred tax valuation allowance. As previously discussed in our second-quarter press release, third-quarter also included a net 1.3 million cash related charge, primarily for the reduction in force completed in mid July. Capacity utilization improved in the Company's multiclient customer management centers from 61 percent in second-quarter of 2003 to 69 percent in the third-quarter 2003, a sequential increase of 13 percent. We invested 11 million in capital expenditures during the quarter and generated over 28 million in free cash flow which is calculated by taking cash flow from operating activity and subtracting capital expenditures.

We ended the quarter with 127 million in cash and cash equivalents and just under 117 million in total financial debt. Placing us in a net positive cash position, our cash balance was up 22 million from the previous quarter. Given our blend of international revenues we're pleased that our DSOs decreased sequentially by nine days and were 53 days in the third-quarter.

As we mentioned in our last conference call, we believe we hit bottom in second-quarter and we're pleased with the turnaround in our financial performance during the third-quarter. We attribute the improvement to sequentially higher revenue, improved profitability in certain client programs and a relentless focus on implementing our profit improvement plan. On the last call we discussed our goal of achieving 40 million in annualized savings during 2004. In the third-quarter we achieved 20 million or 50 percent of the targeted 2004 annualized savings - significant portion of the 20 million in the 2004 annualized savings came from the reduction in force.

Dennis will provide additional information on our financial performance later on in the call.

Now I'd like to review the third-quarter performance of each business unit.

North America. Revenues were steady at 152 million. While operating income improved significantly to 12.6 million up from an operating loss of 2.9 million to second-quarter. This was attributable to improvements in certain client programs as well as short-term service performed for a significant client. The North America segment generated an operating margin of 8.3 percent in third-quarter after having reported a -1.9 percent operating margin just last quarter.

We are encouraged by the early signs of recovery in our business and have recently signed several new client relationships we expect to announce in the coming months. Additionally, our pipeline of new opportunities continues to build both in the U.S. and internationally. Several existing clients across our key industry verticals are increasing their work with us. As an example, during the third-quarter we announced an expanded relationship with Blue Shield of California and extended our relationship for another three years. We will continue to manage all provider eligibility and benefit calls and will now handle 100 percent of their provider inquiries regarding claims status.

We believe our technology solution is one of the industry's first to enable a virtual multisite geographic solution using voiceover IP in a centralized environment.

Moving to Latin America we announced a significant new multi-year with Banco Santander which has doubled the size of our Brazilian operation. Banco Santander is one of the largest and most well respected banks in Latin America and Europe with 335 billion in assets and a presence in 42 countries. The services we're providing to Banco Santander are both complex and encompass commercial and regional banking services. They include supporting the bank's home banking, credit card and life insurance products, along with providing investment management, mortgage, and equipment in vehicle leasing services.

Argentina is meeting our expectations, having recently won a renewed multiple agreement to provide Spanish and English speaking projects that support customers both U.S. and Mexico. Importantly, both Brazil and Argentina are now operating the targeted capacity and their financial performance is improving.

Finally, having reduced costs in our Mexico operations during the second-quarter, and having recently won several new business opportunities, we believe Mexico will return to profitability during 2004.

The Asia-Pacific region continues to see solid growth and good opportunities to selectively expanded business. In the third-quarter we began operations in Seoul, South Korea under a facilities management agreement for a very large financial situation.

Additionally, we integrated Australian and New Zealand business by combining the two management teams into one leaner, more efficient group.

Europe continues to be a challenge. And although we're seeing progress we're not placed with Europe's financial performance. On a positive note Spain recently signed a significant facility management contract with a major global telecommunications company.

United Kingdom, our focus continues to be filling available capacity. We're marketing Belfast as a high-quality offshore English language alternative and successfully launched a multinational program in this facility with one of our key global clients during this quarter.

Percepta returned to profitability in the first-quarter and continue the trend in the second and third quarters. Year-to-date, Percepta has paid 6 million in dividends to joint venture partners. Given our 55 percent ownership we've now recovered 25 percent of our invested capital since the venture was formed in mid '99. We're pleased operational improvements and cost production we implemented last year were successful in returning the venture to profitability. This has enabled Percepta to generate excess cash that can be returned to its partners.

Neugen continues to deliver solid results, with year-over-year third quarter revenue of growth of nearly 14 percent. The third-quarter Neugen successfully renegotiated one of the larger contracts of Ford for its QCConnect (indiscernible) QCConnect enables Ford dealers to customize service reminder marketing materials to their customer base.

Additionally, Neugen continues to expand its solution set and has successfully launched two new offerings that continue to gain market acceptance. The first offering is sales channel which supports the dealers and the sales prospect management through electronic regeneration. The second offering is a point net, which is an industry first in terms of features, functionality, and scope and supports the dealers in their ability to offer electronic scheduling of customer visits.

Both of these offerings drive increased business in same-store sales volumes to the dealerships through proprietary technology that integrates the dealers' business processes and customer management operations. Importantly, Neugen is able to leverage TeleTech's existing capacity to serve its growing suite of offerings.

We believe Neugen offers a unique combination of customer management solutions to the automotive industry with a model that can be expanded to other industry verticals. Additionally, we're leveraging Neugen's unique capabilities into TeleTech's existing sales channel.

Finally our India joint venture with Bharti (ph) is underway. Having received regulatory approval during the second-quarter we recently launched a U.S. client program in India as well as an Indian based wireless customer management program. We're actively marketing our Indian operation and have received strong interest from prospective clients in the U.S., Europe, and in Asia-Pacific. India strengthens our global offering of English based services for more cost market including Argentina, Canada, Mexico, New Zealand, Northern Ireland and the Philippines.

And we believe that we now have the largest labor arbitrage footprint in the industry. Having finished the review of each business unit, I want to acknowledge the efforts of our operations organization as we continue to achieve high levels of client satisfaction as measured by an independent third-party firm. Our operations team continually raises the bar and is working to further improve our unique world-class capabilities to drive customer satisfaction and long-term loyalty.

Before I close, I want to say that we're very pleased with the management additions and appointments that have recently been announced. I'm confident that these seasoned business executives will be instrumental in helping us achieve our strategic initiatives and look forward to their contributions going forward.

In summary, I'm very pleased with the significantly improved results in the third-quarter, the strength of our balance sheet, the solid progress we made against our profit improvement initiatives and the new business we won around the globe.

I'll now turn the call over to Dennis Lacey to review our financial results after which I will make some closing comments. We will then open the call for your questions. Thank you.

Thank you, Ken, and good morning, everyone. I hope you all again find it helpful having the expanded disclosures contained in our recently filed Form 10-Q prior to the conference call. We believe this will allow you during the call to focus more on management's plans for the business, given the comprehensive nature of the financial information found in the filings.

The 10-Q provides an extensive review of our third-quarter results. I will not spend time repeating what is available in the filings. Instead I'll discuss some of the factors affecting the comparability of our current results vs. prior period. Before doing so, I would like to mention that we continue to build upon our financial controls and processes. There are several key initiatives put in-place. Specifically first we instituted a quarterly asset quality review to ensure a timely and well documented assessment of the carrying value of all accounts that involve the use of judgment. Examples of these types of accounts would include allowances against accounts of non-receivable [indiscernible] facilities along with restructuring and certain other approvals.

Secondly, we formed a foreign exchange committee to review foreign currency exposures on a monthly basis.

And, third, we continue to strengthen the depths of our finance team and have recently added a vice president of tax.

Now moving onto the chart and the MD&A section of the 10-Q on page 23 entitled Financial Comparison, this table is similar to last quarter compares net income for the current quarter and year-to-date with the same period last year. Let me comment on a few of the more significant changes in comparability.

First, as discussed in the 10-Q a material factor impacting third quarter's results was an unexpected prior period correction to tax expense of $3 million. This correction arose primarily from a clerical coding error between our U.S. books and our Spanish statutory books.

Another factor which was expected and previously disclosed in our second quarter press release was the reduction in force of approximately 130 non [indiscernible] employees in mid-July. Additionally we were able to reduce certain prior period restructuring accruals which resulted in a net charge of 1.3 million for the quarter.

After these charges, the primary factors impacting the 4.1 million quarterly year-over-year change in net income were first, as was discussed in the last call, the ramp down or loss of certain programs in North America, which resulted in an unfavorable variance of 5.6 million. Secondly, lower financial performance in both Europe and Asia-Pacific resulted in a 4.4 million decrease. However in the year ago quarter, Europe benefited from certain onetime reductions to their operating loss, and Asia-Pacific's current results were reduced by a lower profitability and a large client program. And, third, interest expense increased by 1.3 million. This was primarily attributable to the purchase of the Company's headquarters building with bank debt in the first quarter of 2003, along with increased interest costs on our recently amended debt agreement.

And, lastly, consistent with Ken's comments regarding our focus on our profit improvement plan, we improved our performance at Percepta and TeleTech client programs which totaled 5.1 million. Further, we had lower corporate overhead of 3.5 million resulting from an intense focus on cost reduction and controls.

Regarding our profit improvement goals, you may recall in the second-quarter we established a goal of 40 million on an annualized run rate of cost and profit enhancements to be achieved during 2004. This will be accomplished via several initiatives focused primarily on - first, developing get well plans for all client programs currently generating unacceptable returns. Secondly, investing in global technologies and systems enhancement that include timekeeping and billing standardization, enabling us to maximize agent productivity - our largest single operating costs. Third reducing our costs structure in several areas including telecommunications, facilities, travel, insurance, and consulting. Fourth implementing an enhanced risk based pricing model that standardizes our global pricing methodology.

Through the end of September, we achieved approximately 20 million of the targeted 40 million in actual annualized savings for 2004. A large part of the 20 million actual annualized savings came from the reduction in force completed during the second and third quarters - which represented approximately 14 million of annualized savings. We're committed to achieving the remaining savings goal as part of our profit improvement plan.

Let now take a moment to review our financial position. Which we feel is strong. Cash and cash equivalents were 127 million up from 105 million at the end of June. Our total financial debt was 117 million putting us in a net positive cash position of just over 10 million. Also during the third-quarter, we generated more than 28 million of free cash flow and day sales outstanding decreased 53 days from 62 days in the previous quarter. Further we have available borrowing capacity under our revolving credit facility of over 35 million.

All of these factors place us in a strong position to finance the growth of our business's new opportunity development develop. Lastly in this area and as expected we successfully completed the intercreditor agreement that was required by our lenders under the recently amended revolving credit and senior note agreement.

Moving onto our business outlook. Our goal is to be profitable in the fourth quarter. However revenue and earnings related to the ramp up of new business referred to by Ken will be reduced as a result of the recently issued emerging issue task force accounting pronouncement on how to account for multiple revenue elements.

In July, EITF 0021 was issued to provide further guidance on how to account for multiple element contracts. This EITF will require a deferral of revenue for the initial training that occurs upon commencement of a new contract if that training is billed separately to a client. Accordingly, the corresponding training cost consisting primarily of labor and related expenses will also be deferred. In these circumstances both the training revenue and costs will be amortized over the life of the client contract.

Situations where startup training is not billed separately but rather included in the hourly service rates paid by our clients over the life of the contract no deferral is necessary as the revenue is being recognized over the life of the contract. If startup training revenue is not deferred the associated training expenses will be expensed as incurred.

The adoption of EITF 0021 did not have a material impact on third-quarter results. But going forward, as we launch new business, we believe revenue and earnings and training related services will initially be reduced. This is only a timing manner as the crux of this EITF is to spread training profit over the life of the contract.

Another item we give guidance on is our effective tax rate which we believe will be approximately 20 percent in the fourth quarter. Additionally we believe our total capital expenditures for the year will range between 40 and 50 million, exclusive of the headquarters' purchase in the first quarter of 2003.

In conclusion we are encouraged by our improved financial performance in the third-quarter and as part of the 2004 planning process we (indiscernible) to drive greater profitability. Senior management team is working closely together to finalize the 2004 plan and we are anxious to execute on our agreed-upon strategy next year. With that I will turn the call back to Ken.

Thanks Dennis. As we look ahead we're optimistic about the Company's future and as Dennis indicated our goal is to continue our trend to profitable performance in the fourth quarter. I am encouraged by the recent business wins and the potential size and number of new client opportunities that we are participating in. The customer requirements that these deals reinforce my belief in the value and differentiation of our worldwide footprint. As this is increasingly becoming a key decision point for our targeted global clients. Importantly, we believe these opportunities will allow us to fill existing pockets of global capacity that have remained idle for much of the last two years.

Additionally, more and more clients are asking TeleTech to provide more extensive solutions that enable them to address critical business needs through one key relationship. In line with our strategic plan and commitment to our clients, we have established an experienced solutions team that is developing a growing suite of revenue generating solutions that encompass analytics, automated self-service capabilities and results-oriented campaigns. These solutions are enabling our clients to improve revenues while reducing cost. We have several pilots underway and the results are quite promising. We believe that continuing to advance our solutions team will further differentiate TeleTech and deliver additional value to our clients.

In closing while the economic downturn of the last several years has lowered our historically robust growth rate, it has allowed us to focus on areas within our control. This inward focus has brought about significant change in how we manage and measure our business. And I believe this will ultimately pay off for both TeleTech and its shareholders. Going forward, we look forward to sharing more of our strategy on our first quarter 2004 investor conference call.

I am pleased with our significantly improved third-quarter results and the continued strength of our sales pipeline and while we have made solid progress against our profit improvement plan, we still have a ways to go. This will continue to be a key priority for the entire management team. Ultimately our goal is to build upon our client solutions that enable TeleTech to be the most admired customer management company in the world with a growing list of highly referencable (ph) global 1000 clients. We will now open the call to your questions.

[Operator Instructions]

Jeff Nevins.

Dennis, could you comment on what the timing is of the remaining $20 million part of the cost reduction program?

We anticipate the cost reduction program to continue throughout next year and actually even beyond. I mean it's a culture - it's a mindset and it is something we don't plan on stopping even at the $40 million mark, but cost reduction initiative is underway and will continue throughout this year as well as in the next year.

But it sounds like the remaining amount is -- will be kind of less near-term and more overtime as opposed to what we saw in the third-quarter which seemed to reduced cost a lot quicker than we were thinking?

I think that's accurate.

Just my last question is on fourth-quarter outlook and what you're saying it looks like a couple of the issues ramp up and some of the accounting changes may offset some of the seasonal strength you have in the fourth-quarter. I guess I am just trying to get a sense of are you feeling like it's going to be a sequentially up quarter or down quarter?

As you know we are not giving guidance at this point in time but I think it's safe to say that with minus the U.S. Postal Service there is some seasonality that we would normally enjoy that (indiscernible) not experience from that particular account. And in addition to that, Dennis, I think, clearly laid out the fact that we are now accounting for training revenue differently than we have in the past and so that could in fact have an impact due to the amount of new business that's ramping up as well as existing business that's ramping up.

So what I would say to you is that we want to continue to demonstrate our ability through our performance and the numbers and, unfortunately, we're still not giving guidance at this point in time but we still are optimistic about our future.

Mark Bacurin

Robert W. Baird -- couple of things, Ken, did I hear you say something about a short term gain from a particular client that maybe help margin improvement this quarter?

Not margin, just revenue.

What exactly was that [indiscernible] what that item was?

It was just a campaign based project that we did for a large client of ours.

But not a significant [indiscernible] that came from that contract or the project?

I would say it's not -- it would not be considered extremely significant.

Great and then you also referred to the fact that you had some improved cost with as to the client assuming that your next teller relationship and could you update us on what status is of moving some of those seats into your own centers and then also given the anticipated wireless number [indiscernible] a lot of comment from wireless analyst that Nextel should be a net beneficiary. Are you staffing up and preparing for that as well?

You're putting me in an uncomfortable position because it's our policy to not talk about our clients' strategies. What I would just simply say is that TeleTech - I think - will be a beneficiary in general, more to come on wireless [indiscernible] portability. That being -- that being said, I mean that's really all I comment on at this point in time. As far as how the Nextel relationship is going they're continuing to receive the highest levels of customer satisfaction in their history, they're continuing to be extremely satisfied.

As you may know, Nextel four weeks ago received the JD Powers customer service award for No. 1 customer service. We are very proud of that since we're the company that provides all the customer service to Nextel along with IBM participating with us. And we think that that's pretty significant, considering where they were ranked prior to -- prior to our involvement which was nowhere near the number one position.

As far as the actual relationship, as it relates to us (indiscernible) more business over to our centers, we are now back getting back on plan and are moving as aggressively as we can to continue to move the business where in fact it allows us to be profitable and the business is now seeing profitability.

Great and just finally, looking at this quarter's operating margins, obviously, very nice sequential improvement up in the 4.3 if you exclude the charges range, can we extrapolate the margin numbers that you showed in this quarter going forward and I guess I'm trying to understand this new emerging issues task force requirements. It sounds like you'll be able to defer the cost as well as the revenue so I'm not quite understanding if this new revenue being ramped [indiscernible] deferring the cost as well, why that should be a profitability hit [indiscernible] central cash flow hit near-term but no (indiscernible) impact?

We only -- on the accounting side we only defer the cost if we're also deferring the revenue. So I guess the easiest way to explain it we can bill our clients separately for the training revenue in those cases what we wind up doing is spreading that revenue over the life of the contract but we also get the spread the associated cost. So in other words the net profit you would make from training is going to be booked on a somewhat straight line basis of the life of the contract if you will. If we don't bill the clients separately for training for whatever reason then we book -- [indiscernible] buried in the rates, the revenue is automatically spread, however, we incur the cost as we incur them which are typically up front. So it's really a timing issue. Over time we're going to book the same amount of earnings but it could impact the incident of earnings. So depending upon in the fourth-quarter the mix of business between how much is billed separately or not. It will affect the earnings.

I got you so you're going to have more of the cost up front within these contracts the way they're structured vs. the historic way which was [indiscernible]

One of the things I want to point out, because this is something that's going to come up again. It's very hard to say although Dennis gave very good clarity - the reality is that from contract the contract we have clients who have different requirements. Some clients prefer to pay for in a separate line item. And that's not something that we control. Other clients ask us to include it in the rate. So, unfortunately, this is not something that we're going to be able to say that going forward 100 percent of the time you will see the training accrued or accounted for in one particular way. What we will tell you is that we will always comply with FASB -- with all the appropriate accounting guidelines and that's what we're trying to do is keep current on everything.

With regard to the margin levels in the current quarter, is this a good base level going forward? I suppose that these new accounting pronouncements that you may actually see it decline and then you have a more acceleration of those contracts [indiscernible]

The bottom line is that I feel extremely positive about the future at this point in time. We've enjoyed a very nice quarter of signing up new business. We are very happy with the business that we're also currently in negotiation with and very excited about the pipeline. That being said for me to give you any guidance other than to just simply tell you I'm positive and that we realize we're in the penalty box. And our goal is to not let you guys get too far ahead of us and so we would like to continue to demonstrate performance the stellar management team we have in place. So with that said I think that I think that our Q is probably the most transparent Q of any Q on NASDAQ let alone in our industry. And give you guys a very good base line to try to extrapolate and synthesize what the potential is for earnings on a going forward basis. And I hope that it assists you in the kind of guidance you need for your customer base.

Scott Schneeburger (ph).

Lehman Brothers. Question -- first question. Where are you guys in both potential new contracts and existing contracts? Seeing strength and weaknesses industry back ground wise?

Well I think it's safe to say that it will become very very obvious to people that we have absolute dominance in the wireless sector across the globe and I just -- that in itself, wireless is clearly picking up a lot of steam as wireline is having a little bit less enjoying a little bit less of the opportunity with all the customers moving to a wireless product offering. We're clearly very focused on our space across the globe. We have legacy relationships in the wireless area in Australia with the largest wireless provider in New Zealand with the largest wireless provider and in Spain with all three of the wireless providers. In virtually everywhere we operate we have some fairly significant relationships as well as the United States. So, clearly, we're seeing some very interesting opportunities in that area. Especially not only is WNOP (ph) portability a significant opportunity for TeleTech but in addition to that, 2.5 G and 3-G services are being deployed all over the globe and that in itself is going to create significant opportunities because the wireless offerings are becoming far far more complex than they have been historically. And the product lines are becoming much much more robust - all of which are causing a dramatically increased customer interaction.

Another sector would be the online space has been a very strong space of ours across the globe. Again legacy traditional large companies in that space, they are all expanding as more and more customers are moving to high-speed access. And then, of course, another area would be financial services and we have, historically, had some very significant relationships with financial institutions across the globe. I'd say that those are probably the three primary categories but in addition to that we are seeing some other categories that are looking very interesting to us that we have not yet announced and so we will just hold off and as we make announcements you'll see some new categories TeleTech has not historically operated in that now that will be operating in the near future in an important way.

Thanks. The capacity utilization improvement -- would any part of that be a result from trying to move towards 24 hour seats and doing some other activities outside of phone activity? Business process outsourcing? Could you provide a little color on that?

No although we're focused on a lot more BackOffice work and, again, stay tuned, more to come in that area to talk about as we talk about our strategy, the fact of the matter is that we're seeing just purely more clients are coming to us and are giving us business in taking up our existing capacity across the globe. I think it's safe to say that TeleTech is now back in the business of acquiring new capacity.

Excellent. And just finally, do you have any acquisitions in mind or anything along those lines?

Could you repeat the question one more time, I'm sorry - there was static on the line.

I work for acquisition - what's your position on that currently?

In the industry is self we really don't see companies that are all that interesting to us. We're continuing to differentiate ourselves I think pretty dramatically from any of the other players that are becoming much more of a labor focused type organization so if we were that going to do any acquisitions I would -- my bet would be they would be more Neugen like and be more strategic in nature, but as far as the existing industry, we see organic growth going in the direction we want it to go in and we see the industry in itself kind of going through its own natural consolidation and so therefore we're pretty satisfied with the position we are in.

Bob Evans.

Craig-Hallum Capital. Good morning and nice quarter. Can you comment on the tax rate for fiscal '04 - should we expect the 20 percent to continue?

Yes that will be expected. Third-quarter didn't turnout that way because of that correction I referred to and without it, you would be close to the 20 percent number again.

So that's a go forward number?

Yes.

To ask the margin question a different way, other than the training costs that are going to be incurred in the fourth quarter, given the margin improvement that you just saw sequentially, should we view that as sustainable? I mean, is the only negative or the primary negative impact of those margins being sustained just the initial training costs of the new business?

I would say that would be accurate.

Okay and those training costs is that for business that you've already told us about or for business you have told us about?

Both. It is absolute safe to say that we -- one of the things I think I should remind you of is that over the the last seven or so years - eight years - that we have been a public company, we have tended to never announce business -- I'd say 99 percent of the time, when we announce business it is up and operational, etc. versus what I think other organizations in various industries tend to announce upon the contract signing.

So that's one point that I just want to point out. We really don't see any need to change our philosophy and the reason why we choose to take that tack is because there are many unknowns in starting up some of the accounts etc. and that allows us to get our normalized run rates so that when we do receive questions we can talk in a much more intelligent fashion about them.

Secondly due to the nature of our business it's safe to say that a high percentage of the business that we win entails the unfortunate event of people losing jobs. Therefore, politically, it's not a very easy business to do announcements on. Something that you should keep in mind. A significant amount of business on our books with some of the largest corporations in the world that we have never discussed - ever - and most likely never will. Because we have been asked and it is in our contract to not discuss them.

And then the third point is is that because we're -- because we're a company that has always serviced multiple providers within a common industry, we have to be very sensitive about who we announce, when we announce them and the timing of them. So there are many many reasons as to why our press releases become very very delayed to in some cases indefinitely delayed but what I can assure you of is there will be more announcements of more household name companies that are respected around the globe.

Confidentiality is always rule No. 1 in us protecting our clients' goals and their confidentiality.

I appreciate that but we should expect that at some point clarity on that is just we're -- you are not going to be able to give us exact timing?

I think you're going to see several things, I think we're going to probably start to announce more generically wins (indiscernible) on-line where maybe we will simply say that we won a type of company in a particular type of industry that potentially could be of excise etc. as we run into some of these issues because this is becoming more common than not and so the point is that, yes, we understand we need to give you visibility on the revenue and the income potential. But it's always been a juggling act here.

Can you comment on CapEx for '04 what the ballpark would be?

Probably premature at this point in time. It's clearly safe to say that we will be spending CapEx as I mentioned before we are expanding in the majority of our markets. We are starting to get low on capacity and so our commitment to our shareholders was that we would not began to expand until capacity was properly utilized. And we think it's a positive indicator that we are expanding in multiple theaters as we speak.

Brandon Dobell.

Credit Suisse First Boston. Real quick one, first - is there any provisions in the new credit agreement that will keep you guys from buying back any stock or doing anything different with asset utilization that you guys didn't talk about in the Q?

Yes, there is a sub-limit in both of our principal agreements that generally limits the amount of treasury stock activity.

Okay [indiscernible] more strategic question. You mentioned kind of having the largest labor arbitrage footprint. Wonder if you could give us a sense of a couple of metrics there? One, maybe looking at the numbers of seats did you guys disclosed in the Q, how many seats you kind of classified as those labor arbitrage seats? And perhaps, generally, what the utilization rates look like in your different theaters for the traditional business and then I'll have one follow-up?

Yes - you know, unfortunately, that is something we been discussing in our operating committee as to whether it's something that we want to disclose. We haven't made that determination at this point in time and view that as extremely competitive due to the fact that there is so much activity going on and so much ramping up and we're not interested in (indiscernible) our competitors as to where we're building out space and quite frankly we would prefer to keep it that way. I think that that it's safe to say that in our next quarter conference call there will be more visibility as to position counts from the standpoint of you seeing growth in position counts and we will be more comfortable talking about the stuff as it already operating and in full. But I don't think we really want to be talking about locations that are under construction building out of new countries, potentials etc. So I am not trying to be evasive but we really do view that as very competitive.

Fair enough. Over on the database side of the business, just want to get a sense from you guys, kind of how leveraged to the economy is that business, do people tend to spend a lot more if things come back or is it really just more of a structural change in behavior that the customers are going through to get up to speed on what products you have? Just trying to gauge, (indiscernible) year or two or three or so what that business looks a lot from a topline perspective?

I think it is both - I think we're in the early stages. The fact of the matter is that TeleTech is much more positioned as a solution spaced organization than a quote unquote call center cheeks and feet and we're absolutely focused on making our core legacy business nicely profitable but we're also focused on the value added aspect of the services that we can offer on top of that. The fact of the matter is is that every market that we're involved with is becoming more and more competitive and in quite -- in many cases our clients view their own businesses as commodities. And, therefore, it is so incredibly important that they become as efficient as possible at optimizing every customer relationship that they have. The only way that we can assist them in doing that is through data and converting that data to knowledge that we can act on in an intelligent way. One of the unique things that we have the ability to do is not just interact on react to it by showing the clients things that they can do with the customer from a reporting standpoint but more importantly real-time what our representatives can do as they're in the interaction and how they can interact uniquely and differently on a one-to-one relationship with each customer based on the database management capabilities that we're providing. So to answer your question, we are definitely investing heavily in this area. We're going to be investing heavily throughout the years to come and we think that there's something to be said for a company that not only has the ability to consult with our clients but more importantly has a track record and reputation of executing and that's what they need. They need the ability to convert this information into something that is actionable and that's is something that we're very focused on.

So we think that when you look at the clients, the industries that we talked about like wireless, like on-line, like financial services where there's a lot of commoditization, a lot of similarity from one competitor to another, that it's very important that we have the value added capabilities so that we can assist our our clients in competing.

Bill Warmington.

Bill Warmington, SunTrust Robinson Humphrey. Good morning, Ken, congratulations on a strong quarter [indiscernible] expectations.

Question for tax rate. Just wanted to confirm what was driving what was the mix between U.S. and international (indiscernible) a tax rate they're going to keep it at that 20 percent level going forward?

The other item is something we discussed last quarter and that relates to us establishing a deferred tax evaluation allowance for our U.S. activity - it gets complicated but the upshot establishing that particular allowance is that going forward, for some period of time, we will not be booking deferred tax expense. And so when you pull out the deferred tax expense portion of what would be a normalized tax rate we wind up with an effective tax rate of 20 percent. Our existing tax rate really reflects what we'll be doing overseas and anything we may pay out in current tax expense.

And then follow-up to that in terms of trying to normalize EPS this quarter if you are excluding the restructuring charge and the tax charge, would it come in about depending -- what kind of tax rates are you applying there and where will you come out on the EPS? 7 to 9 cents?

Well as you know with the advent of these new SEC rules on Reg G we're really not allowed to come up with non-GAAP financial measures. If I was to say one during a call we'd have to file an 8-K and all the other staff, but there's enough data in our 10Q and things we've talked about today to allow you to make your own calculation of what that might be.

[indiscernible] tax rate to that would be 20 percent.

20 percent is a rate -- well it depends -- it depends on how one wants to view the deferred tax valuation allowance but if you ignore that 20 percent is the correct way to do it and of course within the quarter included the $3 million correction of an error which would be an unusual item you might want to consider.

Right and then on the [indiscernible] portability issue question would be how -- if you look at your total revenue base, how much of your revenue is coming from wireless carriers in the U.S.? And, then, globally?

All I am going to say is it's a big number. It's a big number. It's common knowledge roughly what one of our large wireless companies are. I think you could say that -- I think -- if I had to guess our wireless revenues it would certainly be well in excess of 20 percent. Well in excess - across the globe.

And then the --

But wireless (indiscernible) portability let me make sure everyone is clear is only relevant in the United States. Most other countries have had portability since day 1. We're only about 20 or -- 15 years late for that.

I know you're not giving a lot in the way of guidance for '04, but the one question that I did have for you on that was, it sounds like you've been the good thing -- the new business (indiscernible) looking good you got a number of deals that have either been signed in the quarter or about to be announced and -- and I am trying to weigh that against some of the losses that had taken place or expect to take place in terms of the [indiscernible] wireless CLEC business and the U.S. Postal Service business that when (indiscernible) in the middle of the year try to get a sense for what the [indiscernible] effect of that might be going into '04?

You know I don't really have a way of giving you guidance on that. That's why we have been so transparent in our Q is to allow you to come to your own conclusions. What -- like I say, what I will tell you is that I think that -- the way we're reporting our information which is -- historically this Company has always been very transparent but now that we're filing the Qs and the KS, with our earnings calls, I think that within another quarter or two it's going to be fairly -- I don't want to use the word easy because your jobs are very difficult, but it will be easier for you to establish the kinds of trends that you're looking to establish. And I think that this will all become much more obvious to you. We are -- like I say, we want to be very conservative in everything that we put forth. We believe that our management team has to build credibility back with the street. And we believe the only way we're going to build that credibility is not what we tell you but what we report.

One follow-up on the (indiscernible) Spanish contract that is coming up for renewal, how large is that in ballpark revenue?

I don't actually recall. What I do recall is that it doubles the size of Brazil and obviously Brazil is built at a much lower rate.

And then the contract in Spain that is coming up for RSP (ph)

I'm sorry -- excuse me -- I apologize.

(indiscernible) given a reference that it's a big portion of Spain but I'm trying to put it -- trying to get some idea -- is that a $20 million a year contract or is that like a $1 to $2 million a year contract?

It is in the Q, the information, but because -- the Q's rather dense but my guesstamation is that it is close to 50 percent of the revenue of Spain which would mean that it is probably close to $25 million or so.

We have time for one final question from Jeff Nevins.

First Analysis. Ken, you had just mentioned that this is the first time in a while since you're expecting to expand. Maybe you could just talk about how long it's been and what you're -- talk about that, I guess?

I'm not sure I understand -- how long it's been?

When I guess I think I might know the answer but I am just trying to get a sense for over last few years, maybe even ten years you go through expansion modes, and then retrench and you've been retrenching it's the first time you're expanding - how many years has it -- have you really felt like expansion is making sense?

Probably -- probably actually three years. Probably for sure two years but probably actually more like three years. Number 1, number 2, I want to assure all of you that our expansion is very calculated. That previous management was expanding in a fashion that was let's just say, a little bit more on speck, than the way this management team operates. As you saw, we made an announcement in Korea and there is an example where we entered that market with a signed contract and are profitable day one. We did the exact same thing in Malaysia and we are profitable day one in Malaysia. So what I would just simply say to you is that although we do need to have some available capacity because the size of the deals that we're looking at are so large that if you do not have capacity that is available to turn up in a relatively short period of time, you will absolutely not be able to win business. It's common knowledge in the marketplace that there are several deals on the marketplace that are in the thousands of [indiscernible] of capacity and I guess what I would just simply say to you is that if you noticed we entered [indiscernible] added new table (ph) in the Q - that showed capacity moving from about 60 to 69 percent. We stated what our goals were. I have all the confidence in the world that in fourth-quarter that we will show that table again and that that table will show once again capacity improvement. The good news is that that capacity improvement is working off of existing capacity that's in place. Quite a bit of which is at a fairly good cost, due to the impairments that were made. And so I think that you will see improvement in all of that. We are in many countries -- yeah, I guess it's safe to say just flat out of capacity. So we're very good at bringing on capacity in a short order of time and it's safe to say that we have people working all over the world to bring online what we view is the necessary amount of capacity to meet the signed contract demand and the demand that we see in our pipeline.

So is it correct to think that if your utilization is at 69 percent and you're saying that you're running out of capacity that implies you obviously have contracts or deals that are going to be taking up, getting that 69 percent to the optimal number 85 to 90 and that's why you're expanding?

I'd say in some markets it will be at 100 percent [indiscernible] again as a market by market thing. We been very opened about our capacity and where our problems are and what I would say you in closing is the following. Mexico had a fair amount of excess capacity and we feel very encouraged by the improvements we're making in chipping away at Mexico's excess capacity. And we think it will be exactly where we want to the idea of this quarter and other than Mexico, the only other place that we see capacity that we would view as significant and concerning is in Europe. Excuse me is in the UK -- I should not say in Europe - just in UK. Other than that not sure how many countries we're up to. About 17, I think - something like that. In every country we operate in, I think you'll see some very nice capacity improvements in our next quarter.

Thank you for participating in today's conference. Today's call has concluded. Thank you for joining.