TTEC Holdings Inc (TTEC) 2007 Q3 法說會逐字稿

Welcome to the TeleTech third 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 now like to turn the call over to Karen Breen. Thank you, ma'am. You may begin.

Good morning, and thank you for joining us. My name is Karen Breen. I am Vice President of Investor Relations and Treasurer. TeleTech is hosting this call today to discuss its preliminary results for the third quarter ended September 30th, 2007. Speaking on today's call are Ken Tuchman, our Chairman and CEO, and John Troka, our Chief Financial Officer.

Before we begin let me briefly cover a few items related to this press release this morning, as well as our cautionary statements regarding risks factors and forward-looking statements. As we announced in our press release today, during the third quarter our Audit Committee undertook a self initiated review of accounting for equity based compensation practices. The review still underway and based on the work conducted thus far, management believes it will be required to incur additional compensation charges for prior periods, and that restatement of prior, interim, and annual financial statements is likely.

There may also be an impact on the current fiscal year's resulted including those reported in the release this morning. Due to the ongoing review, all financial results released today and discussed on our conference call, should be considered preliminary and subject to change. Our objective along with the Audit Committee is to complete the review in a comprehensive, accurate and transparent fashion, and to file our third quarter Form 10-Q and any required restated financial statements as soon as practical.

In addition, 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 risks and uncertainties.

Factors that could cause TeleTech's actual 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 relationships, risks associated with achieving our 2007 and 2008 financial goals, execution risks associated with expanding capacity in a timely manner to meet demand, changes in the amount of timing of previously reported non-cash equity-based compensation expense for current and previous fiscal periods resulting from the Audit Committee's ongoing review, the effect of this review on our ability to meet requirements set forth by various regulatory agencies, and the possibility of additional asset impairment and restructuring charges.

I will now turn the call over to Ken Tuchman, our Chairman and CEO.

Thank you Karen. And good morning. Let me provide an overview of our preliminary third quarter results, and discuss the key drivers of our financial and operating performance. I am pleased to report our that third quarter revenue was a record $336 million, up 10.5% from the year-ago period.

Year-to-date, our consolidated revenue has grown 14% to $998 million, and revenue in our core BPO business grew 17%. Our 25 years of experience along with our breadth, scale, and geographic diversity, continue to fuel our growth and have enabled us to consistently deliver innovative front and back office business process outsourcing solutions, to both new and existing Global 1000 clients. Preliminary operating income excluding $4.8 million of asset impairment, and restructuring charges was $30.7 million, or 9.1% of the revenue. The $4.8 million in restructuring charges related to several items including 1) a $3.1 million loss on the sale of Newgen, and 2) a $1.7 million restructuring charge related to optimizing our BPO segment, which we discussed on our second quarter call.

Operating income was further reduced by $3 million due to ramp-related costs from added a record 3,600 workstations for committed new business wins in this quarter. The revenue contribution from these workstations, and increased capacity utilization and our existing workstations during the fourth quarter, puts us on-track to achieve record fourth quarter revenues.

We continue to enjoy strong growth in our offshore markets. Revenue from clients served in these locations grew 33% year-over-year to $136 million in the third quarter, representing more than 40% of the total revenue. Year-to-date, our offshore revenue has grown 41% to $396 million, our offshore delivery capacity now spans eight countries, and more than 23,000 BPO positions, representing 62% of our global delivery capabilities. I believe this makes us one of the largest and most geographically diverse providers of offshore services in our industry.

Our facility in Costa Rica was operational in third quarter, and we are currently underway with expansion in to South Africa, which is expected to open later this year. By the end of 2007, we expect to have nearly 25,000 offshore BPO workstations, nearly twice the 13,000 we had at the end of 2005. The third quarter was our biggest quarter for new capacity additions, with an incremental 3,600 workstations deployed in both offshore and in U.S. locations to meet committed demand. This puts us on-track to add approximately 7,500 workstations during 2007, primarily in five geographies, including the Philippines, Argentina, Costa Rica, Mexico, and the U.S. This is up from our beginning of year expectations to add 5,500 to 6,000 workstations for all of 2007.

During the last half of 2007, we are on-track to hire an additional 7,000 people across the globe, primarily to address incremental growth. Our ability to rapidly ramp this amount of new capacity, further validates our proven Six Sigma-based processes, management's operational experience in the industry, and the scalability and technological sophistication of our global delivery platform.

We are continuing to see some of the largest and most significant opportunities in our Company's history. These opportunities span many of our targeted verticals, including financial services, technology, communications, and the retail sectors. In the third quarter alone, we signed over $100 million of annualized incremental revenue, further, we have a high degree of confidence that we will add multiple new Global 1000 clients in fourth quarter.

At the same time, the competitive landscape of qualified providers continues to narrow. We see more companies seeking partners with strategic capabilities, and continuing to rapidly consolidate the number of outsourced providers, as they shift their focus towards quality over cost, and to those providers who have a broad array of front to back-office capabilities.

Companies enjoying rapid global growth are also keenly focused on finding providers who can offer speed to market on a global scale. These trends offer significant new and expanded business opportunities for TeleTech. We believe our extensive global footprint and scalable innovative global delivery model, further distances us from the competition, as demonstrated by our industry-leading double-digit revenue growth rates, and recent new client wins.

These trends are further validated by our recent win with a Fortune 50 global technology product client. As this client reviewed and consolidated BPO providers, TeleTech was the only non-incumbent provider to be awarded business. The new relationship is currently ramping with nearly 1,000 full-time employees spanning several counties, thereby leveraging our global infrastructure, to provide high-quality service to our clients, and their customers in addition.

The client has aligned several of their 2008 corporate goals around our recommendation for elevating their customer's experience. A global provider of wireless voice messaging, and data services also recently chose TeleTech to serve its rapid customer growth, as a result of our ability to quickly deploy our services in North America's facilities. Within two weeks we began the process of adding 700 new workstations for this client, with the intent to further expand this business offshore in early 2008. Increasingly, we are also providing more front and back-office solutions.

One of the largest Asian communication and media companies recently expanded the amount of complexity of the business it does with TeleTech, from primarily front-office work, to a highly complex suite of front and back-office services spanning its mobile, fixed line, and cable product offerings. We are now providing seamless support for over 90 different non-voice back-office processes, including complex provisioning, activation, resolution of failed work tickets, along with managing many aspects of their cable provider relationships.

Our future growth will continue to come from innovation and the development of new scalable solutions. We have seen impressive growth in our work from home initiative since it's launch in January of this year. TeleTech at Home is now both profitable and fully operational in the U.S., the U.K., and Australia markets, with plans to expand in to more countries during 2008.

We believe the rapid growth of this virtual business, which increased its employee count by over 40% during the third quarter, is the direct result of our highly differentiated at-home platform. Unlike many of our competitors work from home offerings, the technology supporting this solution was internally developed, and offers innovative scheduling, security and quality assurance capabilities. It capitalizes on hundreds of millions of dollars we have invested in our centralized and standardized giga POP delivery architecture, further enabling us to rapidly scale this business, and to have it contribute positively to our overall operating margin.

Bolstered by strong demand, and plans for continued global rollout over the next 12 months, we are confident we will meet or exceed our goal of having 5% of our North American employees working from home by the end of this year. In summary, we are pleased with our continued strong financial results in the third quarter, and are on-track to achieve our fourth quarter goals that we first announced nearly three years ago.

Let me now turn the call over to John Troka, after which, I will make a few closing remarks.

Thank you, Ken. And good morning. As Ken has just indicated, we are very happy with the financial performance of the business, we continue to achieve results, which show our steady progress towards our long-term goals. As discussed when we began the call, due to the Audit Committee's current review of our accounting for equity based compensation, we will not be filing our third quarter Form 10-Q at this time, and all financial results we have released today, and those discussed on today's call, should be considered preliminary and subject to change.

In addition we are limited in the financial data that can be currently disclosed, so we are unable to share with you information that we may have in our previous releases, or in our prior calls. With that said, let me provide some additional insight into our preliminary third quarter financial results.

We reported record third quarter revenue of $336 million, an increase of 10.5% over the year ago quarter. As we have stated before, our quarterly revenue may vary based on seasonal business trends, and the timing of various program launches. This is why our focus and guidance remains on achieving and tracking towards our annual and longer term growth and profitability targets.

Our preliminary gross margin was 27.1%, included in this margin is the impact approximately $3 million of new capacity ramp costs, associated with adding 3,600 workstations, and several new site locations during the third quarter. This compares to adding 2,300 workstations in the year-ago quarter.

Our preliminary SG&A was $46.4 million, or 13.8% of revenue. This percentage continues to decline, as we further leverage our scale, and centralize delivery platform across our higher revenue base. Our preliminary third quarter operating margin was 7.7%, excluding the nonrecurring BPO restructuring charges, and those associated with the Newgen disposal, the operating margin was 9.1%.

Relative to the BPO restructuring charges, you may recall that on our second quarter call, we spoke of eliminating certain SG&A positions in our North American delivery centers. We were able to do this as a result of achieving greater operational efficiencies from our ongoing investments in standardizing, centralizing, and automating our global delivery capability. This resulted in a third quarter restructuring charge of approximately $1.7 million. The annualized savings from this initiative is estimated to range between 8 and $10 million per year, and will contribute to our 2008 goal of achieving a 200 basis point improvement over our 2007 full-year operating margin.

As previously disclosed, during the third quarter, we disposed of substantially all of the assets and certain of the liabilities of Newgen, as part of our ongoing commitment to enhance shareholder value. Newgen is the sole business unit in our database marketing and consulting segment. The consideration we received a part of the sale is comprised of three main components.

First was cash consideration of $33.2 million, second was software license revenue of $2.2 million, and the third is a three-year customer management agreement valued at $18 million over a multi-year period. Given TeleTech will have ongoing and net positive cash flows, the sale did not qualify to be accounted for as a discontinued operation. As such, any future revenue or cost related to Newgen during the remainder of 2007 and beyond, will continue to be shown in the database, marketing, and consulting segment in our financial statements.

Accordingly, the preliminary third quarter operating loss of approximately $4 million for this business segment is reflected in our income statement as continuing operations. This operating loss was in-line with our expectations. Further, because not all of the segment's liabilities were included in the sale, over the next couple of quarters, we have anticipate having certain wind-down costs of approximately $1 million.

As Ken mentioned earlier, our operating income this quarter was reduced $3.1 million, due to restructuring and impairment costs related to the Newgen sale. In addition to these charges, other income and expense items reported below operating income, included a net charge of $3.9 million related to the transaction, bringing the total pre-tax charges for the disposal to $7 million.

Turning now to our balance sheet, we ended the quarter with $74 million in cash, and a debt to equity ratio of 10%. We continue to see our ROIC strengthen, as we leverage our substantial investment in our centralized delivery platform. Our DSOs were 67 days in the third quarter, and within our targeted range of 65 to 70 days.

Our strong financial position enabled us to repurchase $23 million of our common stock during the third quarter. Since inception of our buy-back program in 2001, we have invested $162 million, to acquire approximately 20% of our shares outstanding. We have suspended repurchases under this program, pending completion of the Audit Committee review. Once this review is completed we will promptly address the resumption of our repurchase program.

Capital expenditures were $15.7 million in the third quarter, compared to $22.8 million in the year-ago quarter. Approximately 80% of our total capital spending was for growth-related needs, with the balance for maintaining our embedded infrastructure. As Ken mentioned, in the third quarter we added 3,600 workstations for committed new business in primarily offshore locations. In addition, we are currently in the process of adding another 2,000 workstations this quarter.

We believe our total capital expenditures for 2007 will range between 60 and $70 million, reflecting the investment required to support the increased pace of new business wins. Regarding our business outlook for 2007, we are reaffirming our previously stated goal to end the fourth quarter with a $1.5 billion annualized revenue run rate, and a 10% operating margin, excluding unusual charges.

In conclusion, we are very pleased with our solid financial performance in the third quarter. We continue to enjoy strong demand for our expanding array of offering, as demonstrated by our seventh quarter of double-digit top-line growth. In addition, our focus on leveraging our ongoing investments and our global delivery capability continues to drive increasing profitability. The combination of these factors puts us in a solid position, to continue our track record of profitable growth.

With that, I will turn the call back over to Ken.

Thank you, John. In closing, TeleTech's preliminary third quarter results further build on our reputation of successfully managing our industry-leading growth, through a highly integrated Six Sigma-based global model. We just celebrated our 25-year anniversary in October, and we firmly believe that our success over the next 25 years, will be driven by our extensive global footprint. The breadth of our front to back-office service offerings, and our ability to rapidly scale Best-in-Class infrastructure, as well as our commitment to technological innovation. I am very proud of what TeleTech and it's employees have achieved over the past 25 years, and appreciate our loyal long-standing global client base.

I am even more excited about the business opportunities ahead, and I look forward to sharing these and other accomplishments with you in the coming quarters. One point I would like to make before we take questions, is that as much as we would like to give you additional information about the review of our equity compensation grant practices, because the Audit Committee review is not complete, we will not be able to comment further on this matter.

We also are not in a position to discuss financial information beyond what we have included in our press release today. As you are no doubt aware, there are more than 200 other public companies in the United States that have gone through similar reviews over the past two years. I want to make clear, that while we are fully supporting the Audit Committee's review, we are not going to let this matter distract us from the task of profitably growing our business.

With that, we will open your call to your questions about our business operations and outlook. Thank you.

Thank you. (OPERATOR INSTRUCTIONS) Our first question comes from Tobey Sommer, SunTrust Robinson-Humphrey your line is hope open.

Thank you. I wanted to ask you a question about the goal of 200 basis point of operating margin expansion in 2008. Am I doing the math correctly that kind of based on the trends this year, and the losses in the database marketing unit, do you expect that the absence of those losses to contribute about 70 or 80 basis points of that 200 basis point improvement? Am I doing the math correctly there?

Tobey, this is John. Relative to that 200 basis point improvement, obviously you know, taking Newgen out of the mix will contribute. But we are driving from many areas, including our expansion in our offshore locations, and other things. So yes, Newgen is factored in there, but it is not the only thing.

I know, I understand it's not the only thing. But am I doing the math correctly? Is it contributing roughly, you know, a third of that expected margin expansion?

Again, we are not prepared to say that at this point in time.

Yes, I mean, I think Tobey the one thing you need to look at is the fact that our offshore business is growing so rapidly, that by the middle of next year, offshore revenues will make up 50% of our overall revenues, so we are at 41% revenues as it relates to offshore. As we cross the river or the chasm of going from 41 to 50, that certainly will have an significant impact on our ability to achieve these margins.

The second thing I would remind you of is that we are pretty good at managing our cost, and as our top line continues to grow, obviously that allows us to dilute our SG&A. So I think if you really wanted to say where are, what are going to be the biggest margin drivers, we think we have got the efficiencies already built in to the business now, and really it is going to come out of growth and how that growth impacts our overall SG&A, and lowering it, as well as the fact that more and more business is migrating from that growth to offshore. So hopefully that answers your question, but we are seeing very positive trends in that area.

Right. Thank you, and then on a different issue, kind of attack, you have expanded in to some new countries, and you are always looking for new areas that can supply, you know, a talented labor pool for you to service your customers. What are your expectations kind of over the next couple of years? Do you think from a little, a slightly longer-term perspective you are looking at country or two a year? I was just wondering from a high-level perspective if you could comment on what your expectations are there?

This is Ken. As you know we are about to launch in South Africa, and South Africa will really be our portal to the African continent. So I think it is safe to say between now and let's just say 2010, we will most likely be adding multiple additional countries, potentially as many as four countries that we have on the drawing board, that we are developing as we speak, and we look forward to updating you on those particular countries as they unfold.

Virtually all of our focus, I would say about 90% of our focus is in offshore markets. As you know our strategy is to not put all of our eggs in one basket, to have a very diversified platform, and we are also looking at, which I can't discuss which ones, but potentially entering a couple of, let's just say G-7 nations that we are not currently in as well over the next few years. So we are seeing requests from our clients to basically be able to be pretty much ubiquitous across the globe, and our goal is to make sure that we have that ability to do so.

Right. I will ask question queues and then I will get back in the queue, if I could. One from a mechanics standpoint, at what point would you be able to reengage with company share repurchases? And secondly, in terms of the sales cycle, I was wondering if you could comment on the relative timeframe it is taking for customers, to sign on a deal from the time they express interest and you begin to the time you actually close the deal, just whether any changes have taken place in terms of that pace? Thanks.

In terms of repurchase program, this is John. I mean, we will take a look at it as soon as we are current are all of our regulatory filings, and again assess it at that time, relative to what is going on in the market place.

Now that said, this is Ken again, we are working with counsel right now on the potential to be able to do some block-trades, but they would be unique types of block trades, and once they have sorted out how we can do that, we will make sure that appropriate investors understand what the actual opportunity is.

It is safe to say that we are very confident in our stock, and are very, very interested in continuing to purchase our stock, but in no way, shape, or form do we want to do anything that could potentially, you know, create an administrative problem, or a violation of any form.

Is there another part to your question? I'm sorry, Tobey?

Just is there any acceleration or deceleration in the time it takes to close business? Thank you.

I think it's very safe to say that we are seeing business accelerate, and we are seeing, at this point in time, sales cycles shortening pretty dramatically, and there is a whole myriad of reasons, but we would like to allow other people to ask questions, but the short answer is that sales cycles are shortening, and there is a significant amount of pent-up demand of people that are trying to get deals done in this calendar year, as well as we are seeing significantly larger deals than we have historically seen.

Thank you very much.

Our next question comes from Matt McCormack, FBR Capital Markets. Your line is open.

Hi, good morning. Obviously offshore revenue target is 50% of the business by next year, I guess you are diversified in to various countries, but the Philippines I think is probably the biggest driver there. I guess could you just tell us what your targets are for growth in the Philippines, and what do you think the biggest challenge for that is?

Hi, Matt, this is Ken. Right now we are at about, actually let me just see what, right now, we have, how many total employees? We have over 13,000 employees and close to 10,000 workstations in the Philippines.

Right.

And I believe we will achieve somewhere in the 15,000 to 16,000 employee headcount by the close of this year. We are rapidly ramping as we speak. We have numerous real estate projects throughout the entire country, and we believe there is still a lot of room for growth with our type of model since, once again, our model is not the build everything in central [Maccaudy] where all of the wage inflation and attrition is taking place.

We realistically, we are planning our growth in the Philippines through 2009, and then we will reassess as to whether we are going to take it any further, but simultaneously we will be ramping up other markets, so we can ensure we have ample competitive cost, high-quality labor markets.

But I think it's safe to say that it is common knowledge we are the largest provider in the Philippines. We have more employees. We have more real estate, and that is according to the Philippine government, and we are comfortable that we'll take that number to 25,000 over the next couple of years.

Okay. And in terms of the pipeline, you were talking about for the fourth quarter, just in general saying the sales cycle have been shortening, could you just kind of talk about verticals and talk about demand if this is coming from companies that haven't outsourced before? Or if it's more due to vendor consolidation?

Well, it is like anything. It is a little of both. I would say that the majority of what we are seeing right now is clients that are definitely saying that they want to go from 10 vendors down to 1 or 2. As well as we are also having dialogue with clients who are basically saying they don't want to have a front or back-office operation period. And so that also is driving the growth.

Interestingly enough, several of the clients that we have won recently we have historically not been focused on, and what has happened is many of them have kind of moved from cost at any cost as we say, to they have now really moved to a model where there is a value proposition. So there was such a flight to places like India, and other places where they weren't necessarily achieving the quality, and they were getting customer defection, that now the pendulum has swung very hard the other direction, and there is this huge flight to quality, huge flight to strategic capable they we can provide on the desktop, as well as database management capabilities, et cetera.

And we believe at the end of the day when you get past just the experience and how long we have been doing this, that really what is driving our business the most is the fact that we have, we think, very unique technology, and that once you win the client, the client expands if you are performing, and if you are not performing, they don't expand. And I would say we are seeing expansion pretty much throughout our entire client base across the globe, where we are outperforming their internal operations or competitive operations.

So sorry for the long-winded answer, but I think it is coming from a combination of areas. Certainly the embedded base is doing very well, but we are also seeing quite a bit of new logo growth, and we will be adding multiple new logos between now and the end of the year.

Okay. Thank you.

Our next question comes from Bob Evans, Craig-Hallum Capital. Please go ahead.

Good morning, everyone. Can you clarify, I believe you made a comment saying that you signed 100 million of new business annually in the third quarter. Is that other business that just ramped this quarter, or is that other business that you are referring to?

You want to answer that?

Yes. Bob, it is John. It is a combination of both. It is new programs that we are doing from new clients. It is new programs that we are doing for existing clients, as well as expansion of programs that are underway with clients that we have already today. And the $100 million represents, again, what those programs will be when they are fully ramped to their expected levels.

Okay. And that ramp, so some of that ramp is yet to be done, and some of that ramp was partially done in this quarter, is that a fair statement?

Yes.

Yes.

We will be ramping all the way through this quarter, and things are looking like in to, well in to first quarter as well, so the ramping is not going to stop in the near term.

Okay. And then, I am not sure how much you can say about this, but obviously there has been a lot of concern from an industry standpoint in terms of currency. It looks like you were able to manage currency quite well this quarter. I don't know if you can give us any sense of impact this quarter, but I assume, I guess give us color in terms of the your 200 basis points of operating margin improvement for '08. I assume you have are comfortable with your current hedging strategy and where things are at relative to that? If you could elaborate on currency, given that there has been fears in the marketplace on currency impact on companies in your industry.

Sure, Bob, this is John again. Obviously we are closely monitoring what is going on in the currency markets, especially as they relate to some of our larger markets, Canada and the Philippines. We have been actively hedging those currencies for many years, and our exposures there for this remainder of this year, and well in to next year, are hedged well over 50 to 60%, especially as we get towards the latter parts of next year. But we have over $350 million worth of contracts out there right now for purchasing of currencies in to future periods.

So it has been something that we have been actively doing. We are watching it and continuing to assess what that means for these markets. We work with a whole group of banks and it is as with anything you talk to 20 bankers, you get 20 different opinions, as to which way various currencies are going. We believe we have a great handle on it, and our forecast for next year and the 200 basis point improvement that we are projecting, includes what we see happening relative to currency, taking in to consideration what we have done to protect ourselves.

Bill, this is Ken. Couple of other comments. We have, as you can imagine, very focused on making sure that our costs are properly in-line with our revenues, and therefore, it is safe to say that we have been successfully raising our rates, because our clients are very sympathetic to the currency issues.

In addition to that, I think that on our fourth quarter call, people will be pleased as to some of the creative things that we will be doing in Canada, to reduce our exposure to the Canadian. In that, I mean that A) we will be receiving more Canadian dollars that we have historically receives through, a) winning more Canadian business that pays in Canadian dollars, and b) with several of our non-Canadian clients that are utilizing Canada, choosing to pay us in Canadian, which obviously helps us, since the Canadian is just steaming ahead like no other currency.

So we feel pretty good about where we are taking this, and I think it is safe to say that we have got it under control.

Okay. Thanks. A final question. Pricing environment for kind of new business, can you give us some sense of how that is shaping up relative to your discussions, and I don't know how much of this new business that you are looking at is competitive bid versus just your own discussions?

Yes, you know, Bob, it's pretty simple. We are drinking from a fire hydrant right now, and therefore we are being very selective on the business that we take. And therefore, we have a profit threshold.

We are not in any way, shape, or form, going to step off of that profit threshold, and therefore there are clients that are truly focused on receiving the highest possible quality, on the most capability, and on the best performance delivered, and for that there is a cost associated.

And so the point is, is that we are getting the price that we need be able to provide our shareholders with a return that we believe will exceed what others are delivering in the industry.

So we are not having, really any issues from a pricing standpoint, and in addition to us being able to obtain it on new business, we also are finding, as I said before, our clients are being sympathetic to currency, as well as to labor-wage increases, and are allowing us to pass that on through our normal cost of living increases as well. So we feel good about that.

Okay. Thank you.

Our next question comes from Shlomo Rosenbaum, Stifel Nicolaus. Your line is open.

Hi, good morning, Ken, John, and Karen. I just have a few questions. First of I want to just clarify some of the guidance of this year, the $1.5 billion run rate, and 10% operating margin by the fourth quarter. Does that mean that the fourth quarter itself should have that run rate and achieve 10% margin? Does that mean like the last month of the quarter that's where you guys expect to be?

It is John Troka. The guidance reflects what we expect the quarter to be in totality. So we will exit the quarter with a run rate on revenue, we plan to exit the quarter at 1.5 billion, and then the quarterly operating margin will be 10%, excluding any unusual charges.

Okay. Great. And just looking at some of the CapEx. You built 50% more workstations in the quarter, but the CapEx is pretty much flat quarter-over-quarter, and you maintained your CapEx guidance, is there some timing issues, or can you give me a little bit more detail on how that worked out?

Sure, this is John again, what you are seeing there is what is literally driving again our improved ROIC. We are becoming more efficient in the utilization of our capital, the giga POP strategy, where we centralized this technology, allows us to grow it at very little incremental cost, and so it is really allowing us to spend less and get much more for it.

Okay. And the SG&A has been coming down sequentially for the last three quarters. When does that end? You have taken out a lot of costs and I understand that, but would we be looking, I am talking on an absolute dollar basis. Should we be looking for that to reverse next quarter?

I don't know that we would say that we would look to it to reverse. Obviously cost control is key. We want to make sure that as we continue to grow the top line that we are not expanding the corporate overhead, if you will, that is required to deliver it. With that said, given the size and growth that we are experiencing, we may have to look at layering on some incremental costs to continue that support.

Okay. And I know you are trying to stay away from anything to do with the equity comp discussion. The one thing I want to ask though, is the companies we have seen this from, it basically came up about a year ago. And I was wondering what prompted this investigation, I won't call it investigation, the review, what prompted this review from the Audit Committee at this point in time?

I am sorry. I apologize. What was the question?

The question was most of the companies I have seen who have the internal reviews from their equity comp, have had this in last year or so. But earlier on, I am wondering what prompted your Audit Committee to decide to review your equity comp practices during the third quarter?

The review was undertaken during the third quarter, after we discovered some administrative errors in certain grant awards. It was self-initiated and not in response to any regulatory action. So it is a review that our Audit Committee is undergoing, and it was really upon something that we self-discovered.

Okay. Is there anything else, I mean, what is an administrative error? Any kind of clarification in to some of that?

This is John, again, we are just not at liberty right now to say that given the outstanding review, and we understand the question and the like, but we cannot address it at that point.

But we look forward to giving you an update, and hope to do so before the next quarterly call.

One last question on the fundamentals, revenue was just a little lighter than what we and I think most other people were expecting, were there any particular verticals that came in notably below expectations, or was it just matter of ramping a lot, and you are going to see the revenue coming out over the next nine months, and it just wasn't factored in properly in the way the people were expecting it?

No, actually it has nothing to do with that, it is all really just tied to timing and ramping, and just the sheer volume of people we have to bring on, the sheer volume of people that we have to train. Because our projects tend to be significantly more complex. The average training on the majority of our projects right now is running 10 to 14 weeks. Therefore, a lot of these projects we are not really recognizing any meaningful revenue other than potentially some training revenue, until after we get past the training curve.

So no, we are very satisfied with the top line, and this is exactly why we choose not to give quarterly guidance, because as I have always said for us the game is all about four quarters combined, and what the score is at the end of the game, which is at the end of the year. That is what we are focused on. That is what we are committed to. And that is where our confidence is.

Fair enough. Thanks.

Our next question comes from Ashwin Shirvaikar, Citigroup, your line is open.

Hi, guys. The new seats that you added, not just this quarter, but as you add them, most, I guess trading periods and so on, they become revenue-generating. But when do they become profit-generating on a fully loaded basis and start approaching, sort of, company average? You know, how long of a time period do you have where it is a drag?

Ashwin this is John, relative to the profitability of any given workstation. I mean, it is a difficult question, in that we have programs that are ramping centers that have taken the whole center, so as soon as it reaches full scale, which is typically three to six months, those will be profitable workstations. If it is a smaller program that is going in to a center that we have opened that is dealing several program ramps, it may take a little bit longer.

So again, I would say three to six months on average for dedicated facilities, maybe 6 to 9 months for a facility that is serving multiple clients.

But when he says up to nine months just for clarification, what we mean by that is not the project or that client, we mean that particular facility. So another way of looking at it is that our goal is always for profitability to take place right out of the gate when training is completed.

Right. No, I understand that. I am just trying to get, because you have essentially a little bump up, well not a little, but a big bump up , in terms of the seats that you are

Correct.

And you are maintaining in spite of that your 200 basis point improvement.

Correct. It is very much like an air line you really need to cross the chasm of about 60% of facility utilization, so that you can cover your overall administrative and infrastructural cost, et cetera, and once you get past that you start to enure profit.

And again, the good thing is we have become very good at making sure that we don't get too far ahead of ourselves in terms of adding facilities. So they are coming online very closely to when we have committed to business to go in them.

Right. And I guess that makes me, I guess comfortable with the profitability aspect of it. The demand side, the revenue growth side the 12 to 15% range is, you know, is a pretty big range. You are talking about all of this new demand, does that make your more confident in the upper half of your target maybe?

It makes us more confident in 2008. And the reason why I say that is only because there is so much ramping that is taking place in third quarter, and the ramping is continuing to go on through fourth quarter, that it really puts us in a very nice position going in to first quarter. So, and that quite frankly is where we are focused at this point in time, as we always do towards this part of the year. It is always about lining up for the next year.

So everyone's head is all focused now on 2008, and you know, meeting or exceeding the numbers that we have out there for 2008. So it is a wave. Right, and the wave rolls forward, and that is what is taking place.

Got it. The question on pricing, but I wanted to ask about terms and conditions on the new deals you are signing other than pricing. Are there any changes that you see as these companies come to you with, you know, with these large projects? And these are large companies, they have considerable bargaining power. What changes are you seeing in the terms and conditions that you have signed, in terms of collections, DSOs, up front, things like that?

Yes. Well, Ashwin I would say that we are not seeing a ton of changes. Contract terms, are the low ones are in three years, the longer ones are in five. We're actually working on some that are longer than five right now.

But what we are seeing is we are very focused on currency, and so we are in, we now have new terms that have collars on currencies, so that we burden less of the currency risk going forward, and attempt to transfer it. Now this is something new, and we only have a few contracts now that have this, but it's our intent for all contracts going forward, to have these types of clauses in them, and I would say that really, that is the only focus that we have added to.

As far as clients looking for terms that in any way make the contract less desirable, we are not, I don't think John, I don't think we're seeing that anywhere at this point in time. There is no question about that there is a significant demand for business, and there is a scarcity of capability. And I think it's what is driving our ability, you know, to be able to expand at the rate that we are expanding at.

Got it. Thank you.

You have a question from Dhruv Chopra, Morgan Stanley. Your line is open.

Yes, good morning. A lot of my questions have been answered, but I was just wondering, to get to your fourth quarter target of 1.5 billion run rate, that is about 375 million for the quarter in revenue, which is about a $40 million sequential increase. I was just you know, I know that there are some seasonal programs that make Q4 higher like the Medicare Part D, but could you give us a little bit of visibility on what would be driving that increase?

It is John again. Relative to what is driving it. You mentioned some of the key things. There is some seasonality that we have in the fourth quarter that you mentioned. And again, it gets back to all of the ramps that we have talked about, and so we realize that $40 million is an extremely large number. If you look back from our third to fourth quarter growth last year, it was about $30 million. So we believe, or we know that we're capable of bringing that revenue online in an efficient way, and again, what is driving it, we have that visibility today, we know what is out there, because it is all in ramp as Ken indicated, 10 to 14 weeks, these people are in these facilities being trained as we speak.

Great, and then just quickly, the last question is on Sprint's conference call, they said they added 4,500 customer care seats during the September quarter. How did they specifically perform with you, given that are your largest client?

I don't understand the question.

Well, did you see a pickup in growth with Sprint? I know you signed a lot of --

Yes, of course. We added a new facility for them in, I don't know if we can say the country, but we added a new facility for them near, in the near-shore environment, and it is live and operational, and performing quite well.

Okay. Great. Thank you.

Thank you.

We have time for one more question. Josh Vogel, Sidoti & Company. Your line is open.

Hi, good morning. Could you maybe give a snapshot of your vertical concentration? Maybe, notably the exposure of financial services, and maybe discuss any pockets of weakness or negative trends you seeing across any of these sectors?

I am going to say, you go ahead, and I'll figure out the numbers.

Hi, this is Ken. While John figures out the breakdown of that, let me just say, make one statement. TeleTech across it's more than 53,000 employees, is currently not providing any services to the subprime marketplace, not in the mortgage area, nor in the credit card area. I want to be perfectly clear. We have not providing any services in the subprime marketplace. Now, maybe John has a breakdown of --

Yes. Josh, just real quick. Relative to financial services and again, based on what Ken indicated, let you know that we have about 10% of our revenue coming out of the financial services sector. You know, telecommunications and media continues to be a large sector for us representing over 50%. That represents land line customers, wireless customers, cable, satellite, so it's across the wide spectrum of businesses that are in that. And then transportation represents over 10% as well. So those are the big sectors for us.

Okay. Great. You guys did a good job of signing a lot of new business last quarter, but I was wondering if you had lost any clients or notable business during the quarter?

I do not believe that we did lose any business at all.

And our attrition rate has stayed relatively the same from what it was second quarter. I think we are at about 93% retention.

Exactly. One other comment on financial services, we actually believe that financial services will be a growth engine for the BPO industry in 2008. There is a number of very large institutions, that because of the various different issues that are taking place, and the distractions that they are having to deal with, as it relates to their own portfolios. Are looking to a company that has professional capabilities that can assist them in the front and back-office area, so we view it as, we feel bad for the financial services industry and what they are currently going through. That said, we are happy to join, to offer a helping hand, and I think that you are going to see that there will be some tremendous opportunity in the very near future.

Okay. Great, and shifting gears a little bit, it appears that demand for your U.S.-based services is still strong. I was wondering if you could tell us how many of the 3,600 seats added last quarter were in the U.S. and how many of the 2,000 you expect to build in the fourth quarter will be in the U.S.?

It is a little less than 1,000 in each of those two quarters, in the U.S. capacity that was added. And what you need to know about that is those were only signed after we had a committed contract, if you will, for business to go in them.

Okay. And just lastly, you know, Ken you did mention you will have more detail on the accounting review before the next conference call, but I was wondering if you could give us any sort of timeline of when we should expect to see you guys release your full results for the third quarter?

You know what I can say is that I have all of confidence in the world in our Board, and in their process, and in the professionals that are supporting us, and I am confident they will work as expeditiously as possible. No one has a higher goal of getting this behind us as quickly and as efficiently, and as accurately as possible, and you can be rest assured that we will get this done, as fast as humanly possible, and obviously, we are every bit as motivated as you are. So that is where we stand, and we look forward to giving you an update shortly.

Okay. Great. Thank you.

This concludes the TeleTech conference call. Thank you for joining.