TTEC Holdings Inc (TTEC) 2007 Q1 法說會逐字稿

Well come to the TeleTech first quarter 2007 earnings conference call. I would like to remind all parties that you will be in a listen-only mode until the question and answer session. This call is being recorded at the request of TeleTech. I would like to turn the call over to Karen Breen. Thank you, ma'am, you may begin.

Thank you. Good afternoon, and thank you to everyone for joining us. My name is Karen Breen. I am Vice President of Investor Relations and Treasurer. Today, TeleTech is hosting this call to discuss its results for the first quarter ended March 31, 2007. Earlier today we issued a press release announcing that our quarterly report on Form 10Q had been filed with the SEC. This call will reflect items discussed within that press release and Form 10Q and TeleTech Management will make reference to them several times this afternoon. We encourage all listeners today to read our quarterly report on Form 10Q.

Speaking on today's call are Ken Tuchman, our Chairman and Chief Executive Officer who is joining us from our London office, and John Troka, our Chief Financial Officer here in Denver. 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 developments, financial goals and operating performance and are based on management's current beliefs and assumptions. Such statements are subject to risk and uncertainties. Factors that could cause the company's actual results to differ materially from those described include, but are not limited to: reliance own a few major clients, the risk associated with lower profitability from or loss of one or more significant client relationships, risks associated with achieving the company's 2007 and 2008 financial goals, execution risks associated with expanding capacity in a timely manner to meet demand and the possibility of additional asset impairment and/or restructuring charges. Please refer to the financial tables in both the press release in Form 10Q for the first quarter where we provide a reconciliation of certain nonGAAP financial measures. I will now turn the call over to Ken Tuchman, our Chairman and CEO.

Thank you, Karen, and good afternoon. I want to begin today's call by thanking all the investor that met with us during the recent secondary offering. We gained valuable incite and feedback from our discussions and appreciate the time that each of you spent with us to better understand TeleTech's unique industry position and our growing market opportunity. Turning now to our first quarter results. I'm excited -- I'm excited to report another quarter of strong financial performance. Our first quarter revenue was a record $333 million, up more than 17% from a year ago period. This was the sixth consecutive quarter of double-digit revenue growth resulting from a high level of new, renewed and expanding client relationships. This solid performance further validates our industry leading position and ongoing ability to deliver strategic capabilities to global clients along with high quality front and back office solutions. Equally important, our profitability continued to accelerate as we reported double-digit top line growth.

First quarter operating income increased 185% to more than $28 million from $10 million in the year ago quarter. And our operating margin was 8.6%. Excluding equity compensation expenses of $2.9 million our operating margin was 9.4%. The strong revenue and operating performance led to a 200% increase in first quarter earnings per share, which grew from $0.08 in the year ago quarter to $0.24 this quarter. We continue to enjoy strong growth in our offshore markets. Revenue from clients served in our offshore locations grew approximately 47% year over year to $127 million in the first core -- quarter representing 38% of total revenue. We believe this makes us one of the largest and most geographically diverse providers of offshore BPO services in our industry. We are currently underway with expansion into new international locations that will serve offshore clients including Costa Rica and South Africa. Costa Rica will be operational in the second quarter and we plan to begin operations in South Africa later in the year.

Our solid financial performance has led to an increasing return on invested capital. Our ROIC at the end of the quarter was 26%, a significant improvement from 12% at the year end of the year ago quarter. We believe our ROIC today and in the future will continue to be industry leading. Our going is to reach 30% ROIC by the end of the year. During 2006, we expanded our total delivery capacity by 30%, or nearly 7,000 work stations. This represented the largest deployed in the company's history. The majority of this capacity came online during the last half of 2006, and nearly all of these 7,000 work stations will be in production by the end of second quarter of this year. Our total offshore delivery capacity at the end of first quarter was more than 19,000 work stations and represented approximately 57% of our global delivery capabilities.

We are very encouraged by the long-term growth prospects for our business. Our market opportunities is expanding rapidly and we believe our ongoing investments in innovation, new offerings along with our extensive global footprint gives us a highly differentiated global capability. Gartner estimates that the offshore BPO market will grow at a compounded annual growth rate of 61% through 2009. Our goal is to capture a significant share of this opportunity given our large and growing offshore presence. In addition, our unique and proprietary approach to technology, people and processes clearly gives us a disruptive capability as it relates to competing in a borderless economy. Not only are our clients continuing to outsource more of their internal BPO needs and consolidating providers, but we are also seeing a flight to quality and strategic capability by many companies who historically viewed outsourcing as purely a cost reduction play. The flight to quality has also been driven by those companies who have had poor performance from either their captive operations or from third party providers. Given these market dynamics our pipeline for new business opportunities remains strong.

We continue to increase the amount of front and back office work we do for our clients and believe this will be -- this will continue to be a growing part of our revenue diversification effort. Clients are increasingly aware of the importance of seam -- of a seamlessly linking their front and back office requirements, and as they source fee services and consolidate vendors we are uniquely position to do leverage our current infrastructure to offer these capabilities. In order to meet the growing needs of our diverse client base we continue to make significant investments in both sales and technology to position TeleTech for continued top line growth. We have stepped up our investment in sales leadership in two core areas including more new business hunters and more seasoned vertical leaders. These vertical leaders have 20 plus years experience in key verticals including Financial Services and healthcare. All these individuals have been extremely successful in their previous leadership rolls with such company as Accenture, SAP and Fidelity Information Services. We planned to expand our roster of top sales talent in key industry verticals throughout the year.

Given the success of our business is highly dependent upon our global work force, we are continuing to leverage technology and processes to ensure our ability to profitably scale the business while providing innovative new offerings to our clients. To that end, we have launched and begun actively marketing several new -- several innovative new capabilities including first TeleTech@Home solutions which has been extremely well-received by both new and existing clients, continues to gain strength, and, during the first quarter, we launched at home services for three new clients in the media, technology and broadband industries. Having just begun this initiative in the fourth quarter of 2006 we are very pleased with the results thus far. We continue to build a solid new business pipeline for this offering, and given the strong market reception in the U.S., we are now underway with expansion of this capability into Asia Pacific and Europe, making this one of the first offer of global at home capability. Before the end of this quarter we plan to issue the next release of our at home technology architecture which will increase scheduling flexibility for our associates and enhance automation of core processes and further improve what we believe is already the highest level of security in the at home space.

Second, we have integrated into our technology portfolio new proprietary voice analytics capabilities. This new offering can ingest and analyze massive amounts of recorded interaction to say provide valuable incite into product or service issues along with identifying potential fraud. This has been extremely well-received by clients and we hope to have several clients utilizing this capability in the coming quarters. These are just a few of the exciting new technology-based initiatives that we are offering. We will continue to invest in new capabilities that will enable us to stay strategically relevant to our clients.

Before I close, let me address some questions that many of you have raised in recent weeks about wage and our currency inflation. This is not a new phenomena for our industry and we are not experiencing abnormal margin pressure from either of these areas. I attribute this to more than 10 years of experience in operating in emerging markets and to our sophistication in how we monitor, measure and manage these business risks. The majority of our clients have COLA increases and we continually update the progress of our pricing models to effectively manage changes in local market cost. In addition, we take an innovative approach to where we locate facilities and to how we hire, train and incentivize our local work force. All these factors contribute to minimizing the impacts of both wage and currency changes in our financial performance.

In closing, our ability to successfully ramp and operate large complex programs around the world is a direct result of our 25 years of experience in developing, deploying and operating complex projects. Our proprietary suite of globally deployed, human capital tools along with our centralized delivery and application platform and standardized operating processes have enabled us to deliver a scalable high quality solution for our clients. This has also significantly reduced operational and delivery risk when scaling large new client programs. The combination of our new -- of our leading industry position and strong revenue growth coupled with improving profitability gives me confidence in our ability to continue to meet our 2007 and 2008 financial objectives. Let me now turn the call over to John Troka, after which I will make a few closing comments.

Thank you, Ken. And good afternoon to everyone joining us today. Let me begin by providing some additional incite into our first quarter financial results. As outlined in today's press release and in our Form 10Q we reported record first quarter revenue of $330 million. This was a more than 13% to 17% increase over the year ago quarter. Our revenue this quarter benefited from higher than expected volumes in our healthcare and retail verticals. With our growing Medicare Part D business, and an increasing number of clients in the retail sector we are seeing a shift in the seasonal nature of our revenue. Historically we had a seasonal list in the fourth quarter of every year followed by lower first quarter revenues. Going forward, given our expected continued growth in our health and retail business we believe the first quarter will reflect less of a seasonal slow down with some of this impact now shifting into the second quarter.

As we have stated before, quarterly revenue may vary based on seasonal volumes and the timing of program launchings. This is why our focus and guidance is on longer-term growth and profitability. During the quarter we also continued to actively manage our business portfolio to increase our overall profitability. As such we exited several underperforming program. As we have anticipated before -- indicated before we plan to continue this process while still achieving our previously disclosed 2007 financial goals of 15% year over year revenue growth with a fourth quarter operating margin of 10%. Our gross margins this quarter improved 360 basis points to 28.3% compared to the year ago period. Several factors contributed to this improvement including: new and expanded business driving increased capacity utilization, continued growth of services provided in our offshore locations, aggressive focus on improving profitability in certain client programs and our ongoing cost management initiatives.

Our first quarter SG&A as a percentage of revenues was 15.8% down from 16.7% in the year ago quarter. We achieved this decrease while absorbing higher incentive and equity compensation expense. At the first quarter this year these costs were 4 -- $4.8 million versus $2.1 million in the year ago quarter. Our first quarter operating margin was 8.6% versus 3.5% in the year ago quarter. And finally our earnings per share was $0.24, up 200% from $0.08 in the year ago quarter. Our first quarter results included $2.9 million of equity compensation expense, or nearly $0.03 per share. This compares to $1.4 million of equity compensation expense in the year ago quarter which was approximately $0.01 per share.

Let me now highlight the performance of each of our core business activities. Revenue in our BPO business grew 22.9% to $327 million over the year ago quarter. This represented 98% of consolidated first quarter revenue. The operating margin in our BPO business was 10% in the first quarter, up from 4% in the year ago quarter. Our North American BPO segment which includes the U.S., Canada, the Philippines and India reported an impressive 30% revenue increase this quarter to $234 million. This represents 70% of the company's total revenue. The gross margin was up to 30.5%. It was up significantly from 23.9% in the year ago quarter. The operating margin also improved. It was 13.8%, up from 7.3% in the year ago quarter. This improvement was driven primarily by the items I previously mentioned.

Turning to our international BPO segment revenue this quarter increased by 7% to $92 million. Operating income was $217,000 versus a $2.2 million loss in the year ago quarter. We continue to actively manage our portfolio of in country business towards improved profitability. During the first quarter we elected not renew several underperforming programs in the international BPO segment and this resulted in certain ramp down and exit costs. I would like to point out that several of the underperforming programs we exited were replaced with more profitable work from U.S. clients. However as a result of our transfer pricing a process a portion of the profit from these new programs was reflected in the North American segment given it was for our U.S. clients. To that point the combined operating margin of the BPO business was 10% in both the fourth quarter of 2006 and in the first quarter of 2007. Regarding [Nugent], the results at this entity were in line with our expectation and we continue to evaluate our strategic alternatives for this business.

Now turning to taxes. Our effective tax rate for the quarter was 35.8%. This rate reflects our adoption of FIN 48, which was effective on January 1st. We expect our full year effective tax rate will be approximately 35%. As for our balance sheet, we ended the quarter with $65 million in cash. We reduced the borrowings on our credit facility by $26 million during the first quarter, bringing our outstanding balance at quarter end to $39 million. Our debt to equity ratio at the March quarter end was 12%, giving us plenty of debt capacity to fund future growth initiatives. Our DSOs were 64 days in the first quarter, down from 65 days in the fourth quarter of 2006. Capital expenditures were $14 million in the first quarter, down slightly from $15 million a year ago. Approximately 80% of our total capital spending was for growth-related needs with the balance for maintaining our imbedded infrastructure.

In the first quarter we added 500 offshore work stations and we're in the process of constructing an additional 2,500 work stations. These additional offshore work stations are expected to be completed during the second quarter. During 2007, we expect our total capital expenditures will be approximately $60 million. This spending includes the deployment of an estimated 5,000 to 6,000 work stations for the year.

Finally with regards to liquidity, our EBITDA this quarter was $41 million, up 97% from $21 million in the year ago period. Free cash flow was $18.3 million for the quarter, up significantly from $2.1 million in the year ago period. The improvement in these liquidity measures is primarily the result of our significant increase in net income. Finally, before I conclude we filed an 8K this afternoon, indicating we have selected Pricewaterhouse Coopers as our audit firm for fiscal year 2007 beginning in the second quarter. As part of its periodic review and corporate governance, our audit committee reviewed several proposals from several registered public accounting firms during the first quarter. Based on that review we, felt Pricewaterhouse Coopers was the best firm to meet our ongoing global audit requirements.

We want to thank Ernst & Young for their efforts over the past four years and we look forward to working with Pricewaterhouse Cooper as our new auditors. In conclusion we are very pleased with our strong financial performance in the first quarter. We believe our prestigious client base, our expanding global footprint and our talented work force with their deep domain expertise puts us in a solid position to continue our track record of profitable growth. With that I'll turn the call back over to Ken.

Thank you, John. In closing as we prepare to celebrate our 25th year anniversary in October of this year, I am very proud of the 49,000 employees and management team who have built this company into an industry leader. All of our historic and ongoing investments and solutions, technology, processes and people are enabling us to capture a growing share of the market opportunity and position us for continued profitable growth in the years ahead. We look forward to sharing new business developments with you over the coming quarters. And with that we will now turn the call over to questions.

Thank you. We will now begin the question and answer session. (OPERATOR INSTRUCTIONS) One moment, please, for the first question. Tobey Sommer, your line is open.

Thank you. Congratulations on a -- on a strong quarter. Just want to do ask a couple of housekeeping questions. Your top five clients, I know you renewed them over the last couple of years, but when do the first once come up for renewal again?

I don't believe we have any clients up for renewal, this is Ken Tuchman, this year. They've all been -- everything has been renewed this year and I believe that we have a small amount of revenue that's up for renewal next year. John, if you want to chime in on that.

Yes. That's correct, Ken. The top five clients at this point in time are all under contract through 2007. We do have some specific programs that will be coming up for next year, and again I think it's key to remember that many of our clients have multiple programs and so various programs can come up for renewal at different times in the master service agreements we have with these particular clients.

Right. Thank you. And, Ken, if we look at the way you've been able to grow the number of work stations and still deliver the operating margin expansion that you have over the last year or two, I wondered if you could maybe provide some color as to how you've been able to grow that and kind of leave the P&L relatively unscathed. And, in fact demonstrate a lot of improvement, where some of the performance from peers within the industry has been a little bit more choppy as they've expanded their work stations.

Well, a few things. First of all, I want to remind you of the fact that in 2001, we set out on a mantra and on a vision to standardize, to centralize, and to virtualize every asset in our company, as well as to centralize every function in our company, as well as to create global best processes. And it took us from the latter part of 2001 all the way through the better part of 2005 to complete all of this work to the point where we now are, we believe, the only company that is operating in this manner, which we believe is far more efficient, more -- but not only is it more efficient it's allowing to us deliver consistent and predictable quality across the globe. So I would say that that single handedly is probably the number one area. The second thing that I would point out is that although we went through a cost improvement program where we took over $100 million in cost out, we spent a great deal of energy building our management bench strength. And I think that we've been rather strategic in how we've been approaching operating the business and executing to a operating plan that we consistently are staying very focused on on a global basis.

And then I think the third thing, as I mentioned in my script, I think that the industry or piece -- parts of the industry have chosen not to hedge, which I think has been -- has been a little bit difficult for some players, whereas we've been hedging all of our offshore revenues since we've been in the offshore business and we kind of created the hold offshore marketplace. And that gives us more earnings predictability. So I think it's just a combination of the platform that we've built along with the management team and a testament to the management team and their total focus on being fiscally responsible. Along with a substantial amount of focus on the clients that we do business with. And I don't mean to wax on, but I also just want to point out the fact that for many years we've stated that we have been very focused on long-term recurring revenue contracts. And so having earning -- having revenue visibility, as well as having contracts that the majority of which have cost of living increases coupled with everything else that we've talked about, I think has allowed us to get through all the growth that we've been able to -- that we've enjoyed.

Alright. Thanks. I will ask one more question and I'll get back in the queue. The cash flow generation was very strong in the quarter. And with that characteristic of the business, I was wondering if you could comment on what the M&A market is like and what you think you will be doing with that cash flow generation over the next year or two. Thanks.

Well, that's a great question. We are -- first of all, first and foremost, we are going to invest in areas that are going to allow us to put most -- put our energy in growing the top line profitably. So naturally organic growth is our number one focus and that would be the most obvious place where we will continue to invest in our business. But that said, then the second area will be in strategic acquisitions. And we have a number of -- we are working with a number of outside advisors, etc., that are assisting us and we are looking at a number of different opportunities. But we -- our goal is to be is very careful and very thoughtful and do things that are accretive for our shareholder and that makes sense. Then thirdly, we believe in our stock and the board has just reauthorized a new purchase price for the stock and so we will also use our cash to purchase stock as well in the future.

Thank you.

Thank you.

Thank you. Next question comes from Bob Evans, please state your company name.

Craig Hallum Capital. Good afternoon, everyone.

Good afternoon.

First, congratulations on a very strong quarter, congratulations. Can you comment, Ken, a little bit more on how you're, well, what your seat count was this quarter? And I believe you said you were going to add 2,500 seats, just getting a little bit more of a feel in terms of how things are going to shake out for the year in terms of ramp up for the seats.

I apologize because I'm in London right now and I don't have my three-ring binder with all of -- every little factoid. I don't believe I can give you the exact number, but I believe we are at approximately 33,000, 34,000 work stations. Is that about right, Jack?

Ken, this is John, it is 33,000 work stations on a global basis, just over 19,000 of those work stations are in our offshore locations. We added, again back to the comments, about 500 offshore work stations in the first quarter and are in the process of constructing close to 2,500 additional ones, all of those again in offshore markets.

In addition to that, Bob, we still are holding to our plan that we will build somewhere in the 5,000 to 6,000 work stations at this point of where -- where our guidance is and we look forward to updating you in the near future if that should change.

I assume all of those will be offshore, the 5,000 to 6,000?

Yes, they will all be offshore, and then -- that's correct, and then you should also be aware that we also are constantly looking at the profitability of our business and in some of the in-country markets where the profitability maybe is not as strong, we are using those markets now to harvest new business and then transfer that business to other offshore markets. So, for example, in Spain, we are moving business from Spain to Latin America, which will then drive better profitability and in the process of doing that we will over time gradually look at the number of positions we have in certain areas and adjust the in-country onshore positions accordingly, all as a way to continue to enhance profitability.

Okay. Thanks, and can you comment as well -- you said the ramp, you had some ramp down and exit costs this quarter? Maybe this is a question more for John. Do you know ballpark how much those costs were? And maybe would that have some level of revenue impact in Q2? I know you're ramping down, but then ramping up, generally there's some lag effect there?

Yes.This is John, in terms of the actual impact in Q1 it was roughly $600,000 for the quarter related to those programs. Again, the good news is that much of that business has been replaced in some cases replaced with more profitable business out of the U.S.

Okay. Would you expect to have much revenue impact from that in Q2? Or just kind view Q2 is maybe slight seasonality to Q1?

Yes. We are expecting the seasonality shift that we talked about going into Q2, but, again, we've been able to grow through the particular losses that we've had.

Okay. And also if I look at, this is more for you I think, Ken -- Ken or John, if we look at the operating margin of kind of where you were for this quarter, 8.6%, and I think it's 9.4% if you take out stock comp and target of 10% by the year certainly seems achievable and then your guidance 200 next year. If we think of it as a blended rate of ball park 9% and 200 basis points on top of that for '08, is that the right way to, again, I know you don't give guidance, but is that the right way to think about it?

This is John, yes, I think that's fair obviously given where we are at in the first quarter and where we expect to ends the year coming out of the year with a blended rate in the 9% ballpark isn't outside the realm.

Okay. Thank you.

Thank you.

Thank you. Next question comes from Shlomo Rosenbaum. Please state your company name.

It's Stifel Nicolaus, thank you for taking my calls -- my questions, I mean. What -- can you just walk me through the rationale again why the seasonality is changing, which verticals are going to be stronger and how are they going to fall off in 2Q and what kind of magnitude are you expecting?

Well, we -- because we've been increasing our emphasis on healthcare we are beginning to see more revenue that's coming in in the fourth quarter and then tailing through the first quarter as well as the retail. We are also announcing, since there's been an emphasis on retail business that we are seeing in fourth quarter, but then tailing into retail as it relates to all different types of things that happen after the holiday season. So those would probably be the two areas that that have caused this and there's really -- we really have put a lot of focus in these two areas. So we are very pleased that it's allowing us to drive our -- our top line. And we believe this trend is most likely going to continue due to the fact that Medicare Part D, as an example is something that the phenomenon of the renewal process is something that's new as of this last first quarter. As you recall the year prior to it was the first year ever for Medicare Part D, so we're now into -- we just now renewed those people and we will see that same renewal process most likely again in the fourth and first quarter, hopefully with additional healthcare clients since we're target -- we are very much targeting that area.

Can you -- just moving on to the acquisition front, can you just tell us how the acquisition you made last year is tracking versus your plan and if there's any metrics you can give us around that, any revenue or profitability that you've been able to improve over there?

Yes, what I would tell you is that we are very pleased with the -- our new President and General Manager who is running Direct Alliance. And she is -- she's doing a fabulous job and has built a very solid pipeline in a very short period of time. And we very much look forward to updating you folks. We are still very comfortable with the statements that we made after we acquired this business which is that we believe that this business once we brought in the senior level leadership that we were always contemplated bringing in would grow at minimally 25% per annum.

Okay. I will just ask one more and get back into the queue. I have heard a rumor that you guys were in talks with Dell for 1,500 seats potentially, 700 -- 750 in the Philippines, and I was just wondering is there any validity to that or something that you can comment on that?

We -- because we focus on the global 1,000, we work with clients all over the world and as a policy we do not talk about anything until after a -- after a release is put out. So therefore I would say that there's no validity to any rumor whatsoever unless you actually see a press release from us.

Fair enough. Thanks a lot.

Thank you.

Thank you. Next question comes from Cynthia Houlton. Please state your company name.

RBC Capital Markets. Just a couple questions on the at home agent program. Ken, you mentioned that's something where three clients have started to ramp. Could you kind of give us a sense now that you've started the program, kind of what the seat count, kind of what we should have as expectations and kind of what the profile of that business is now that you've actually started to launch customers on that program?

Hi, Cynthia, it's Ken. I would love to give you more clarity and we are right now going back and forth internally from discussing at what point we are going to release metrics on it. And right now we've made the decision thus far while we are garnering scale to really hold off on that. What I would just tell as you is that we did put out a release, and we did say that our goal was to reach 2,000 employees to this -- to this area by the end of this year and we are on track to deliver to that 2,000. I would -- there's a possibility that in the next quarter conference call we will give a little bit more visibility, but what I would say that because we ramping now in multiple countries, it's just premature for to us talk about it. That said, what I would tell you is that the business is going very well. We've spent a lot of time putting this together. This is not something we just thought about four months ago or five months ago, but in fact we've actually been working on this foreclose to three years. It was always part of our OnDemand and GigaPOP strategy to have this type of capability. And what we are finding is that the investments and the technology and the preparation of the dedicated management team are in fact paying off.

Then as a follow-up question you mentioned that you are starting to see a shift in your mix from verticals. Could you give us a sense, I know you don't necessarily break it out on a quarter and it's not in your Q, but could you give us a relative ballpark of either ordering the size of your customer verticals, which are the top three, top four? I think that would be helpful to understand how the business is shifting.

Well, I'll start out by just simply saying that, as you know, we have a fair amount of business in the high growth areas, in the media and in the communication area. Now all going their own ways, meaning that we do a fair amount of business with wireless providers, with cable providers, with fixed line providers, and that whole area is as you can imagine is very blurry, because everybody is getting into everybody else's business which is very good for us. And now there is talks of new technology coming out with different performance of WiMAX and new spectrums, etc. So that business continues to do very well for us around the globe and that's still in the -- if you add up all those different verticals and there's three to four verticals just out of that alone you come up with in the 40%, 45% range. And then from there, John, do you want to chime in with where we are with Financial Services and healthcare and --

Sure, Cynthia, this is John. In terms of the other key verticals, transportation is the next after the communications and media that Ken talked about, followed by Financial Services and then healthcare. On the financial service and healthcare front, again, we see a lot of new adoption, if will you, in terms of outsourcing from these particular firms in the spaces, and so we definitely believe that both of those verticals along with retail will continue to grow and become a larger part of our portfolio.

I think, Cynthia, it's safe to say that both healthcare and Financial Services could comfortably be 20% plus each, both healthcare on a stand-alone basis and Financial Services on a stand-alone basis. And we -- this is an area where we are definitely investing from a sales resource standpoint, from a technology standpoint, from a subject matter expertise standpoint, and quite frankly, there is -- we are very focused and opportunistic on that -- on those two areas as well as in retail. So we continue to really put a high percentage of our energy as it relates to acquisition of new business in the retail, the healthcare and the Financial Services area. Naturally, while obviously keeping focus of all the traditional legacy verticals that we've focused on for so many years.

Okay. And then just final question, just with your OnDemand's offering, any updates in terms of customer uptake, timing of when that is going to be launched, what types of services that would also be helpful? And then I'll get back in the queue.

Well, we are -- OnDemand is, first of all, is doing well. It made money last year. And it is winning business. We have signed new contracts recently that are very important to OnDemand that I don't believe we've yet announced, so I can't really talk much more about it other than to say that we still belief in OnDemand and we are also very comfortable with the pipeline that we've developed. There is no question that the marketplace is really starting to stand up and look at the technology suite that we've created, the uniqueness of it and the fact that there really isn't anybody that's demonstrating the scale in the business process outsourcing area and being able to provide a solution across the globe in this area on an on demand basis. So we feel good about it. And we look forward to again in this area giving you some updates and putting out some releases with some client names to help further legitimize it.

Great. Thank you.

Thank you.

Thank you. Next question comes from Matt McCormack, please state your company name.

Yes, hi. FBR . In terms of your comments about the flight to quality as you put it in terms of driving demands for your services, could you just give us a little more detail and possibly talk about what verticals you're seeing that in? And also are these -- are these new clients, or are you taking volume from other third party providers from your existing

Hi, Matt, it's Ken. Just a few comments. First of all, in the 2000 -- after the whole .com and then the 911 and then global recession that took place in 2002 when things went sideways for all of us, there was a huge flight to cost -- to cost. And we saw this happening. There was also a huge flight to putting a lot of voice work in areas where maybe the market wasn't naturally situated for that. And so the net result is, is that a lot of clients that focus on trying to use this as an area to just purely take cost out had some very significant quality issues. To the point where their brands were very adversely affected, etc. So many of them did this through their own internal captives where they built offshore capabilities that did not go well. Because it's difficult to attract management if you're just a captive and you don't have the diversified client base that a company like TeleTech has or the international opportunities from an employment standpoint that a company like TeleTech has. And many others just went to vendors that basically said they could do it for a price that wasn't sustainable.

And so consequently that business is now, we are seeing large corporations, meaning in the global 100, global 200, that are now looking at shutting down their captives, as well as we are seeing large corporations that are making decisions to go a different path. We've never been focused on business that's already been outsourced and taking it away from other organizations. And quite frankly we are still not focused on it. We are really focused just on addressing the global 1,000, providing them with solutions that we think can help them in a significant way and letting the business come from that type of positive focus.

Okay. And then in terms of your offshore growth, 47%, and with 10% margins, very strong growth, very good margins, how -- how should we look at that going forward? And I know you through out the industry's statistic of 60%, but can you -- could you maintain that growth for the foreseeable future?

Well, it's our intension just based on the number of work stations that we are building that we are going to continue to grow rather aggressively off -- near shore and offshore and at home, as well as maintain the onshore business that we have. What's very interesting is is that we are just -- we are not seeing on our onshore business in -- shrink in any material way. As a matter of fact I'm here in London right now meeting with a multitude of multinationals and every one of them wants a blended solution that we have to offer. And they are all interested in us providing capabilities that span from UK across many other continents, etc. So I hope I'm answering your question, but we do believe that people not only are going to want to take advantage of all the different shores that we operate on, which I believe at the end of this quarter will be in nine offshore markets, but they also actually want to -- and they are also looking at expanding their outsourcing even in their onshore areas as well.

There is, I think, the overall sentiment that business in general are coming to the conclusion that they have not invested heavily internally on their technology platform, they have not invested internally on innovation as it relates to their BPO work, whether it be back office or front office work, and so consequently they are basically really starting to say, we need to find companies that have true core capabilities, true strategic capabilities. And that's really how we are positioning ourselves. As not the company that's going to be focused on profit, prosperity and selling price, but instead a company that's going to be focused on strategic capability and on strategic quality.

Okay. And then last question on South Africa, could you just tell us why now are you entering that market and if you're entering that with a current client?

We are entering -- that's a very good question. We are entering -- first, South Africa as really our entry point into the African continent. We believe that the marketplace has been very much a lemming and has been very focused on India and on the Philippines. And we believe and we know from our clients that are enforcing what we are suggesting to them, that the market is again about providing a blended solution and diversifying the risk whether they be environmental or whether they be political or otherwise. And so we are diversifying into places like South Africa as alternatives to places like Canada, where unemployment is -- is very low and as alternatives to other markets that we're operating in. And you will see similar announcements of other countries that we are going into all for the same -- same reason.

The poor lemmings can't catch a break. Thanks a lot.

Thank you.

Thank you. Next question, Susan [Cho], please state your company name.

I'm calling for Greg Smith from Merrill Lynch. I was just wondering can you give us some metrics on attrition rates domestically and offshore, utilization rates this quarter?

John, do you want to comment on just generically kind of generally?

Yes, in terms of attrition rates, domestically, again in countries we are seeing anywhere in the 70% to 80% range on an annual basis, and again that's day one attrition from the day we hire an individual through their training period and the like. In our offshore locations like the Philippines and Argentina, we are seeing actually extremely low attrition ranging in the 30% to 40% range in these countries and again that's for a variety of reasons. But we are very pleased with what we've been able to accomplish there. In terms of overall utilization of our capacity, we have 78% of our shared capacity was utilized as of the end of the quarter. That again is down just slightly from the end of the year. That reflects some changes in capacity where we've added some additional offshore locations and the like. And so again that's a point in time measurement as different sites come on that measurement will go up and down.

Okay. Thanks. And then regarding at home agents, I know you can't comment on the number you have right now, but can you give kind of a time line on the roll out for how agents in Asia Pac and Europe? I know you said it's starting, but can you give a little more color on --

This is Ken. We are literally working with -- on deals right now in Europe as well as in the Asia Pacific area, and -- so I would say the timing is in the third quarter time frame.

Okay. And then one more question, I might have missed this because I was in queue, but regarding our pipeline on new deals, can you comment a little bit about that for both North America BPO and international?

Yes, the pipeline is -- looks -- looks very, very good, pretty much across the globe. And we are seeing nice opportunities in North America, Asia Pacific, as well as Europe. And Latin America has now really become for all intents and purposes a near shore and offshore marketplace for us. So that pipeline in -- is -- comes from our North America. So overall we see very good deal flow right now. We see -- there are a number of -- of large transactions that are in the marketplace right now. And because we don't like to ever count our chickens before they hatch, we are hopeful that we'll be the beneficiary of some of the large opportunities that exist in the marketplace. Naturally having a large pipeline and converting a pipeline is -- the part that is always a little bit -- what makes our business a bit chunky. But that said, we feel very confident that between now and the third quarter that there should be some nice successes in the area of conversion of deals.

Okay. Great. Thanks.

Thank you. Our final question today comes from Tom Smith. Please state your company name.

First Analysis. Hi guys. Thanks for taking my question. Earlier in the call you had you mentioned that you were hiring more seasoned salespeople in a couple of different verticals. I just wondered if you could speak to the magnitude of that hiring and I guess the ramp on that if you would?

Well, we -- I'm going to try not to get ahead of press releases that we've not put out yet. But what I would say is that we -- we've always had -- I shouldn't say always, for quite sometime we've had a successful client partner group which focuses on the imbedded base and the farming of that business. And really now all of our focus is on, for lack of a better term, the hunting side of the business. So that we can capture more of the market opportunity that exists. And so we have added several people in North America very -- that have focused, various different individuals across all eight verticals that we have, and we have also added vertical leaders that have significant background in Financial Services, as well as in healthcare. And until we put out some press releases I think that's probably all that I can say, just because we need to make sure that everyone gets the benefit of all the information. So we are investing in that area of -- of bringing on more salespeople and we plan on continuing to invest in that area in second quarter, and my guess is that you will see us investing all the way through the rest of this year, because our focus now is not 2007, it's 2008 and 2009.

Great. Thanks for all that commentary.

Thank you.

Thank you. At this time, this concludes today's call. We want to thank you for your participation.