TTEC Holdings Inc (TTEC) 2009 Q1 法說會逐字稿

Welcome to the TeleTech first quarter 2009 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 now turn the call over to Karen Breen, TeleTech's Vice President of Investor Relations. Thank you, ma'am, you may begin.

Good morning and thank you for joining us today. This is Karen Breen, VP of Investor Relations. TeleTech is hosting this call today to discuss its results for the first quarter ended March 31, 2009. Participating on today's call will be Ken Tuchman, our Chairman and CEO, and John Troka, our Chief Financial Officer. Yesterday, TeleTech issued a press release announcing our financial results for the first quarter 2009 and also filed our quarterly report on Form 10-Q with the SEC. This call will reflect items discussed within that press release and Form 10-Q and TeleTech management will make reference to them this morning. We encourage all listeners today to read our quarterly report on form 10-Q. Before we begin, I want to remind you of our disclosure regarding forward-looking statements. Matters discussed on today's call may include forward-looking statements relating to our operating performance, financial goals, business outlook and future plans which are based on management's current beliefs and assumptions.

Please note that these forward-looking statements reflect our opinions only as of the date of this presentation and we undertake no obligation to revise this information as a result of new information that may become available after the call. Forward-looking statements are subject to various risks, uncertainties and other factors that may cause our actual results, performance and achievements to differ materially from those described. Such factors include but are not limited to reliance on several major clients, the risk associated with lower profitability from or the loss of one or more significant client relationships, execution risks associated with ramping or migrating new business and the possibility of additional asset impairments and or restructuring charges. For a more detailed description of our risk factors, please review our SEC filings along with our 2008 Annual Report on Form 10-K. A replay of this conference call will be available on our website through May 26th. And I will now turn the call over to Ken Tuchman, our Chairman and CEO.

Thank you, Karen, and good morning to everyone joining us on today's call. I would like to take a few moments to review our financial performance for the first quarter 2009 and then I will provide some commentary on the current business climate and our 2009 outlook. After that, John will discuss -- excuse me -- our first quarter financial results in more detail. First quarter revenue was $304 million. This compares to $368 million in the first quarter of 2008 and $326 million in the fourth quarter of 2008. On a constant currency basis, first quarter revenue decreased 8.4% from the year ago quarter and decreased 5.7% from the fourth quarter 2008. The year-over-year -- the year-over-year constant currency revenue decline was primarily attributable to lower client volumes along with the shift of certain North American and International client volumes to offshore locations.

More than half the sequential revenue decline in constant currency was attributable to the normal seasonal volume reductions we saw in the first quarter. During the first quarter, our client retention was 98%, the highest in our Company's history, and we signed an estimated $60 million of new annualized revenue, primarily from existing clients. We continue to be viewed as a critical business partner to our clients, as we deliver innovative and globally diverse outsourcing solutions to meet their evolving business needs. While sale cycles have lengthened due to the challenging macroeconomic environment, we continue to see our pipeline of opportunities build across many of our core industry verticals as our new sales teams begins to develop a stronger pipeline. In the first quarter, revenue from offshore locations was $146 million and represented 48% of our total revenue and approximately 67% of our total delivery capacity.

First quarter operating margin, excluding unusual items, was 7.5% compared to 9.8% in the year ago quarter. Furthermore, excluding noncash equity-based compensation, expense of $3.6 million, operating margin was 8.7% for the first quarter of 2009. While our gross margin improved by 150 basis points to 28%, our operating margin declined year-over-year due in part to lower absorption of certain fixed costs, higher equity-based compensation expenses, and increased investments in our sales force and in technological capabilities. We have and will continue to implement stringent global cost controls and minimize capital expenditures throughout 2009. Excuse me. Earnings per share for the first quarter, excluding unusual charges, were $0.26. Our balance -- our balance sheet remained strong and we are well-positioned to fund new business opportunities. At the end of the first quarter we had $91 million in cash and $35 million of net cash after subtracting outstanding debt.

We generated $54 million of cash flow from operations for the first quarter, up from $26 million a year ago. After subtracting capital expenditures, free cash flow was $46 million for the quarter, this was more than four times our free cash flow in the year ago quarter. Our solid cash flow from operations places us in strong position to not only fund our organic growth, but to also repurchase our stock. As of March 31st, we had more than $33 million authorized for share repurchase and we plan on continuing to buyback shares in the coming months. Our efforts over the past five years to improve our business through standardization, globalization, and virtualization have significantly increased the efficiency of our global delivery model. As a result, our return on invested capital has more than doubled since 2005. Our ROIC was 28% at the end of Q1and we believe this is one of the highest of any global infrastructure-based BPO companies.

This leads me to the current business climate, which continues to be weak for many of our clients due to significantly reduced consumer spending and higher unemployment. This has impacted our business in the following ways. First, we are working on winning a number of new business opportunities, as clients are increasingly turning to outsourcing to weather this economic storm, and we are -- and are seeking financially sound providers who can deliver complex business processes on a global basis. While several of the prospective opportunities could benefit 2009, we have seen sales cycles lengthen across certain verticals and this could push back the positive impact of the potential new business wins to later in the year or early in 2010. In addition, the significant investment we are making in our sales team has enabled us to increase our focus on new client opportunities and puts us in strong position for improved performance in 2010.

Second, while we are signing meaningful new business, it is still less than historic quarters. This combined with longer sales cycles and lower existing client volumes present near-term growth challenges. Third, clients in Asia-Pacific and Europe are increasingly willing to offshore existing or new work with TeleTech. While this reduces revenue in the near-term, it has enabled us to increase our profitability over the longer term given a shift to more profitable geographic locations. As the global delivery needs of our business changes, we continue to both add and rationalize capacity. In the first quarter exited -- we exited approximately 2600 workstations in underperforming locations, primarily in North America and Brazil, as a result of unfavorable labor or currency related costs or both. Let me now review our business outlook.

As discussed in the previous calls, the stronger US dollar is expected to negatively impact revenue by $90 million to $110 million for 2009 when compared to 2008. After adjusting for the impact of foreign currency, we expect 2009 revenue to decline by 8% to 10% due to, one, the increased migration of certain domestic work to offshore locations and two, to lower volumes with several clients that is more than offsetting the ramp of new business wins. The lower volumes are not specific to any one client or vertical, with the majority of the reduction spread across approximately 12 to 15 of our 100 or so clients, that are each down about $5 million to $10 million on average versus in 2008. Despite the revenue decline, we are continuously managing our cost structure and believe that 2009 operating margin, excluding unusual charges, will fall within the range of current consensus expectations of 7% to 8%.

In conclusion, as we begin -- excuse me, as we began 2009, we recognized it would be a difficult year to achieve year-over-year revenue growth, given the fragile global economic environment and the expected currency headwinds. Despite this situation we are actively managing the areas of our business which we are in control. We believe we are in a strong position to prosper as we benefit from new business wins and as client volumes return to more normalized levels, given the operating leverage we have in the business. We believe our leading industry position, along with the health of our balance sheet and high client retention, will enable us to enjoy improved performance in 2010. Let me now turn the call over to John, after which I will make a few closing remarks.

Thank you, Ken, and good morning to each of you who have joined us today. Let me take a few minutes this morning to provide some additional detail on our first quarter financial results, as well as highlight a few items that will impact the full year. First quarter revenue was $304 million compared to $367.6 million in the year ago quarter. This decline is attributable to several factors. Approximately $36 million of the decline is due to the combination of lower foreign currency translation rates for certain subsidiaries and foreign currency hedge losses related to certain cross currencies exposures as disclosed in our Form 10-Q. The hedge losses have virtually no operating margin impact given they are put in place to protect our margin at the time a contract is signed. The remainder of the revenue decline is a result of lower client volumes when compared to the year ago quarter and a continued shift of our business to offshore locations.

In spite of the challenging economic environment and its impact on our top-line growth, our first quarter gross margin increased 150 basis points over the year ago quarter to 28%. This improvement was due primarily to a favorable shift of revenue to more profitable locations, our continued focus on operating efficiencies and the increased utilization of our global delivery platform across a 24-hour period. In terms of our SG&A expenses, when you exclude the cost of the financial restatement in prior periods, our SG&A expense increased approximately $2 million over the year ago quarter. This increase is primarily related to the investment in our sales organization, which we have discussed previously, and is also due to higher equity-based compensation expense. Our first quarter GAAP operating income it was $20.3 million compared to $28.8 million in the year ago quarter.

Operating income included $2.6 million of unusual charges, primarily for restructuring and impairment costs. It also includes $3.6 million of equity-based compensation expense. GAAP earnings per share for the first quarter were $0.23 compared to $0.27 in the year ago quarter. Excluding unusual items, our non-GAAP EPS in the first quarter was $0.26. Our effective tax rate was 25% for the first quarter, down from 28% in the year ago period. Our tax rate continues to be driven by the changing mix of our profitability in the various tax jurisdictions in which we operate. We believe our effective tax rate will range between 26% and 30% for 2009, as we expect our pretax income to increase in certain higher tax jurisdiction, such as the United States and other International markets. We continue to closely monitor the recent legislative tax proposals that have been introduced or are being considered both in the US and abroad. At this point, it is too early to quantify the amount and timing of any impact until additional information and clarifications are provided.

Turning now to our liquidity. We continue to generate very strong cash flow. Cash flow from operations was $54 million in the first quarter This is more than double the amount in the year ago quarter and is due to strong working capital management. Our free cash flow increased 315% to $46 million. We ended the quarter with $91 million in cash, a debt-to-total capital ratio of 13% and our current ratio is 2.2 times. Our DSOs were 67 days in the first quarter, unchanged from both the previous and year ago quarters. We continue to proactively manage cash collections to further enhance our working capital and free cash flows. Our capital expenditures decreased from the year ago quarter to $8.5 million. Our reduced capital spend this quarter is a reflection of our rigorous capital management process. We now expect 2009 capital expenditures will range between $30 million to $40 million, down from our original expectation of $45 million to $55 million.

The current forecast reflects our expansion plans in select locations that are highly attractive for both TeleTech and our clients. In addition, we will continue to invest in the innovative technologies that have made us an industry leader. Given our strong cash flow from operations, our $91 million of cash on hand and the $173 million of additional borrowing capacity under our credit facility, we have ample liquidity to fund our ongoing operations and quickly capitalize on growth opportunities. Let me now take a moment to briefly discuss the significant and we believe helpful change which you find in our first quarter form 10Q. Specifically you will see that we have made changes to our operating segment footnote and disclosures. These changes more closely align our segment reporting structure with our client focus and our management accountability model.

Beginning in the first quarter of 2009, our segment reporting no longer reflects the location from which services are being provided, but, instead, reflects where our client contracts originate from. As such, our North American BPO segment is now comprised of sales to all clients based in North America and our International BPO segment is comprised of sales to all clients based in countries outside of North America. We believe this change will increase the transparency into our business and make it easier for investors to understand our performance. To conform to these new operating segments, we have revised the previously reported operating segment information which appears in our Form 10-Q. Finally, in regards to the business outlook that Ken discussed earlier, while our revenue is expected to decline 8% to 10% this year on a constant currency basis, some of the earnings-per-share impact of the lower revenue will be offset by our reduced effective tax rate.

As I outlined earlier, we now estimate our 2009 rate to be 26% to 30% versus the 30% to 33% we originally estimated. In addition, as Ken also indicated, we will continue to execute on our share buyback program, thereby further benefiting our earnings per share for the year. Overall, we continue to focus on the long-term success of our business, recognizing that we must continue to aggressively align our operating costs with the realities of today's economic backdrop. We are confident that we continue to have a strong value proposition for our clients supported by operational excellence. This has and will continue to be the cornerstone of our success. With that I will turn the call back over to Ken.

Thank you, John. We have done a lot of work over the last five years to transform TeleTech and improve our efficiencies. As clients remain focused on reducing cost and conserving capital, our diversified flexible platform and commitment to innovation continues to enable us to meet the evolving needs of our clients and strongly position us to capitalize on the increased trend towards outsourcing. We have enjoyed ten plus year relationships with many of our clients and given our high retention levels and global delivery expertise, we are optimistic in our ability to deliver improved performance with these clients in 2010. We look forward to updating you in the coming quarters and we now would like to open the call to your questions. Thank you.

( Operator Instructions ) Thank you, our first question is from Josh Vogel, Sidoti and Company, your line is open.

Good morning, Ken and John, thank you. I was just trying to get a better sense of the impact from the volume migrations. We know it will be a $50 million to $60 million drag on revenue this year. But I was just curious how much of the business or volume is actually being migrated. Are we looking at really $100 to $120 million?

Josh, this is John. At this point, I would say that the amount that is being migrated is close to what we've indicated the impact is. Given the client relationships we have today, what we see is what we have talked about at this point.

So how long should these migrations take?

They will continue to occur probably over the next several quarters.

Okay. And then based on your lowered CapEx forecast, can we assume that you have adequate excess capacity in place offshore already to handle this capacity? Or we need to build out?

We do have adequate capacity and, again, the great news is it is going into capacity we have in taking up a different time slot during the day. So, again, allowing us to leverage that existing cost structure.

Okay. Shifting gears a little bit. You guys have discussed you are making a significant investments in the sales force, and given the -- the expected revenue declines, do you have any plans to stem or slowdown your hiring to better align your cost structure?

I -- I'm not sure I understood your question, because it sounded like you were going towards do we have any plans to slowdown the hiring of salespeople. But the answer is we plan on continuing to increase our investment in sales and as it relates to just our overall operating expenses, we as a Company and as a policy have always been continuously focused on looking at each and every cost and being very conservative and fiscally responsible in managing those costs. What I would say to you is is that we are very focused on that just like we were last quarter and just like we were the quarter before and quarter before.

Okay, thank you. Just lastly, are there anymore planned restructurings or impairments we should see hit up in Q2?

Yes, in terms of restructurings, we continue to look, again, at the capacity and rationalize so it is not out of the question that we might see that.

Okay. Thank you. I will jump back in the queue.

Thank you.

Okay, thank you. Next, Ashwin Shirvaikar, Citigroup. Your line is open.

Hi, Ken. Hi, John.

Hi.

My first question is on working capital driven cash flow improvement. And clearly a very good first quarter for cash flow. But is the rate of improvement sustainable throughout this year. And if you believe it is, what do you think the source of that might be, DSOs or anything else that you can point out.

Ashwin, I don't know that the rate of improvement is sustainable, but by all means we will continue to aggressively manage our cash flow, manage our collections to insure that we are getting paid promptly for the services that we provided. Obviously, with the economy and the downturn that we saw, we wanted to make sure that we were well out in front of dealing with our clients and making sure that we were collecting. So that was obviously a driver in the first quarter, as well as then, again, just managing our cash outflows.

And is there a DSO target that you are shooting for?

We are currently at 67 days. And we have been -- we have been maintaining at 65 to 67 days. And in the perfect world we would love to see 60 days, but I think that considering the economic environment, we have done extremely well on the management of our DSOs.

Okay. One question I had was with regards to the new segment reporting and as I look at the segment margins, the International BPO loss, are there any particular countries that are driving that -- that loss? And are you taking any specific actions that we should be aware of in terms of either restructuring or any longer term moves you are making?

The answer is is that we are taking specific actions. You know it has to do with -- with a certain country or two. And I would say to you that we are very aggressively taking action and are very confident that we will get it back to where we need it to be, which will just add to our operating leverage in the future.

I guess, can you mention where you have -- where you have those -- where -- those losses or what's driving them. Is it just a lack of scale or investments or what -- what is driving the losses?

I think it's -- it's not lack of scale per se. I think it's a combination of things. Usually it has to do with labor-related issues and as for the exact location, I really would prefer not to get into it at this point in time.

Fair enough. A question about restructuring, restatement costs in the prior year that were in the SG&A line. John, could you -- could you remind us what you had for 2008, because as I look at -- look at the SG&A line bounced around quite a bit and I remember that last year you had in there some restatement costs and so on. And now you are sort of replacing those with -- with investments in the sales force. Is that a better way to think about it.

That's correct, Ashwin. Last year we added just about $5 million in our first quarter results related to the restatement activities.

And in -- in -- do you know the number what it was for the second quarter last year.

$3.4 million last year.

In the second quarter, yes.

Okay. Is it possible to quantify what the investment in the sales force is. I believe you had indicated 15 salespeople and you are, what, about halfway through that, 8, 10 people.

That's about right.

That's correct.

Are you still intent to go ahead with the 15, right?

Absolutely.

Okay. One last question and then I will sort of jump back in the queue. Could you talk about the shift utilization that -- that you are benefiting from and what can you get it to. I mean, obviously the -- the utopian goal is 3.0, but what can you realistically get it to in terms of shift utilization and what -- if you can quantify the benefit it could have on your CapEx going forward, that would be very useful. Thanks.

Yes. Well we -- it -- it depends upon the market and it depends upon the location, so it is a great question and there is not a very -- there is not a -- a simplistic answer. What I will tell you is is that in some of our higher performance offshore locations where we are feeding multiple contents -- continents of business into those locations, we are driving 1.6, 1.8, and in certain facilities, we are as high as 2.0, maybe slightly a little above 2.0. 3.0 is not achievable, at least not by us. And -- but we do believe that in -- in the old -- in the ideal world that 2.0 is achievable and it is clearly where our targets are -- are focused and the way we get there is by driving more offshore revenue from Europe, as well as more offshore revenue from Asia Pac, whilst maintaining and growing our business in North America. And so the confluence of all three of those continent -- all three of those areas coming into play is what allows us to get better overall workstation utilization. And better, obviously, return on invested capital and flow through of operative.

Okay. That sound great. 2.0 any -- any -- any date for when you can steady the -- is it a three-year process? A five-year process. Is there a -- do you think about it like that or not?

No. What we really think about is we try to -- we try to take it a step at a time. And our goal is to really achieve an hour of additional utilization each year. It's actually much harder than it sounds. An hour doesn't sound like a lot, but across the vast amount of workstations we have across the globe, it's -- it is not an easy task, but we have been adding. And it has been very helpful. And I think that the best thing that we could do now is build out more of our salesforce in regions outside of North America, which will give us these complimentary shifts and drive higher workforce utilization -- workstation utilization, excuse me. The other point that I would like to make is is that our back office business quarter over quarter just continues to increase as more and more clients keep asking us to do non-voice-based function and that obviously also drives workstation utilization as well.

Very useful. Thank you.

Thanks so much.

All right. Thank you, next Bob Evans, Craig-Hallum Capital, your line is open.

Good morning, everyone. Thanks for taking my call. Can you -- can you clarify -- I want to make sure I understand the -- on the revenue guidance, let's say the nonforeign currency impact is ballpark from what I gather $100 million give or take. How much of that is coming -- just migration to offshore versus volume declines from existing clients if you were going to try to ballpark that.

Bob, it's John. Yes, relative to that I would tell you that, again, the offshore or the migration to offshore locations is probably $50 million to $60 million for the year. And the bulk of it is -- or the remainder of it is related to the volume declines you speak of.

Okay, and the volume declines, is there any concentration in one particular client. Are you -- are you seeing a broader base and if so what verticals.

Yes, Ken talked about it is probably across 10 to 12 different clients all $5 million here or there. So it is across multiple industry segments, multiple clients.

Okay. Okay. And no particular concentration as it relates to an industry?

No. No, I would say the -- obviously the only one where we are not seeing volume declines would be in the government sector, but that goes without saying with the government continuing to stimulate.

Sure. No, understood. And can you give a comment on the pricing environment? How will -- I think you said sales cycles are lengthening. How are pricing discussions going a And are you -- you know, what are you seeing from competitors?

I think for the most part the pricing environment is pretty rational. I think that there are a few clients here and there that are trying to -- to continue to reduce cost and maybe ask for some things that are unachievable or unrealistic. But I think overall, the marketplace is a lot more mature market than it used to be. And I think that the providers that matter, the top tier providers, are much more mature about their approach about pricing business that is truly profitable and profitable from the get go instead of on the promise and the hope that it may or may not be profitable. And so we are -- we are not seeing huge pricing issues. But like I say, from time to time there are some clients that -- that attempt to get aggressive and you do the best you can to try to accommodate them by coming up with creative solutions, but for the most part, that's not something we are losing sleep over.

Okay. And on the new business pipeline, how much of is that -- of the deals that you are working on, how much would be coming from new logos versus larger deals from existing that are just looking to outsource more.

Well, on what we closed in the quarter, most of that was existing. However, on the pipeline, a very significant portion is from new logos, which is exactly what we would expect because there has been so much focus and so much concentration on -- on new business opportunities.

And what are you seeing in terms of competition. Are you seeing multiple vendors or is it more of a couple of vendors. We are just trying to get a sense of level of competition or is it more one on one discussions.

It's -- I think it is a smattering of all of the above. I think on the deals that are very strategic to us it is us or it's just a couple. I think the deals that are, quite frankly, more tactical, there is the usual suspects that arrive at the table. Those are the ones we tend to not focus a lot of energy on, et cetera, because ultimately that probably is where -- where it is more transactional in nature and has the ability to be more commoditized. We are really looking for business that requires a great deal of technology, that requires a great deal of process rework and transformational work. And we believe that those are the things that allow us to provide value add and allow us to provide -- allow us to demonstrate differentiation versus what feels more like labor augmentation type work.

Okay, okay. And capacity utilization. I apologize if you gave this, but do you happen to have capacity utilization for the two segments, North American and International?

Yes, this is John. In terms of the segments, we are not actually showing it for the two segments because, again, the segmentation is changed and so the capacity utilization for our shared facilities, regardless of where it is coming from, is 71% for the quarter.

Okay. And where do you think you can drive that on a realistic basis.

We, obviously, are looking to get our capacity utilization in the 80% and 90% range. That's where we believe it needs to be operated at. And so, again, part of our reduced capital spending reflects the fact that we know we need to fill the capacity that we have in place. We do believe that, again, we have got adequate capacity in the markets that our clients are demanding and we will continue to look at capacity in those places that may no longer be attractive to TeleTech.

Okay. Thank you.

Thanks, Bob.

Okay, thank you. Next Tobey Sommer, SunTrust Robinson Humphrey. Your line is open.

Thank you. I was wondering if could you comment on what forward contract hedging expense may have been in the quarter compared to a year ago and maybe how we should think about your strategy in that regard going forward. Thanks.

Tobey, this is John. In terms of the forward contracts, when you say the expense, obviously, when we are buying a forward, there is very limited expense. The impact though from the settlement of those contracts in the prior year was approximately a $6 million gain. This quarter it is almost an $8 million loss. Now, again, while that flows through the statements and you can find that in our 10Q in some of the new derivative footnote disclosures that were required this quarter. Although those gains and losses are in there, what they offset or reflect is the underlying movement as well in the cost structure in those countries. So as I indicated, they are margin neutral to us when they occur.

Okay. Thank you. Just a detailed question. In terms of your guidance for 2009 revenue, is that assuming the base 2008 revenue at the $1.4 billion mark.

Yes. The $1.4 billion is a starting point. You back out the foreign currency element of around $100 million and then the 8% to 9% is off of the remainder.

Thank you. In terms of opportunities on the sales side with the government so actively involved in spending for additional programs, are there opportunities you see before you that may require enrollments or other things where the government would have to touch quite a few citizens and perhaps present a sales opportunity for TeleTech?

We have been involved with government for quite some time and what I would tell you is that we are -- we are very confident that we will continue to do well in the government space. We have a long-standing relationship with the Federal Government, something that is taking us many, many years to achieve. We are currently right now, it is common knowledge, we're -- we're responsible for the DTV program, which is the digital television conversion program which is going quite well, as well as TeleTech is responsible for providing core technology for the 2010 census that we are very excited about as we near getting closer to going live on the 2010 census. And that has been a major project with -- with us.

And then, of course, we also have worked with the State Department in other forms -- other aspects. So, overall, the good news about the government is that they are a good client and they pay their bills. And we think that the current administration is -- is clearly going to continue to focus on E-government and that is a space that we think we are very strong in and we have a lot of applications that we've developed for self-serving in those areas, et cetera. And so, yes, it is an area of focus and time will tell as to what some of the -- what fruit will bear from the efforts that -- that we have right now in the marketplace.

Thank you. One last question and I will get back in the queue. Want to look out and get your thoughts on what sales growth could look like once you start to see some stabilization in call volumes from the subset of customers that have seen their own business under pressure. And particularly once you have had some of these salespeople that you brought on board recently with several quarters under their belt and some of them finding their footing and getting traction. Thanks.

So the question is what do we believe will come out of -- .

What would our sales growth return to.

Well, first of all, we are very hopeful that volumes will come back, which is a great thing for us because we have tremendous operating leverage and we have no reason to believe that the volumes won't come back to the normal volumes that we have seen over the years, et cetera. We have done a lot of analysis looking back two, three, four and five years to understand where the volume should be versus where they are, et cetera. And we have all the belief and reasoning that -- that even if we didn't win new business, which of course we will win new business, that volumes will increase as Americans feel and as the rest of the world feels a little bit more comfortable with spending some of the dollars that many of them are -- are being conservative with and are saving. So we view it as a very positive thing.

In addition to that, we are absolutely confident that outsourcing is no longer considered a -- a possible tool. It is really now an absolute necessity. And we are finding more and more executives are looking within and it is no longer even about costs. They are just coming to the conclusion that they don't have the capabilities internally to provide a competitive level of a customer experience internally that they do when they work with someone like TeleTech. And so I think overall, the trend is going to be that you are going to see that our business, as well as the industry, is going to grow quite nicely as the market shows signs of recovery.

Thank you.

Thank you.

All right, Thank you, next, Eric Boyer, Wachovia. Your line is open.

Hi, thanks. Last quarter you talked about free cash flow expectations for the year being roughly in line with 2008. Is that still the expectation?

Well, we would think that's the minimum that we could accomplish. And, again, we are trying to be very conservative with our outlook so I would say that is the minimum. I think that there is certainly an opportunity with our -- with lower -- with focus on -- on lower CapEx that -- that cash flows could be -- could be -- could be better.

And then on the volume front, what you seeing from the volume forecast from your customers that gives you confidence that they should improve later in the year?

Well, it is somewhat of a mixed bag. Some clients are -- are showing forecasts that don't actually have lower volumes, yet lower volumes are materializing. Other clients are showing lower volumes with volumes going up in the summer. I think that it is really safe to say that our clients don't actually know. I think that -- and I think that's really been the difficulty in forecasting is that typically our clients are very, very accurate on their forecasting and they have been caught a bit by surprise and so, consequently, they are suffering a bit and so are we. So I think that overall they believe that -- that this summer that volumes are going to get better. You should also know that cyclically this is a lower quarter historically and that summer and back to school is cyclically when volumes increase in general. So I think that at least right now consumer confidence appears to be rising a bit and although we still think that we are in a rather fragile economy, there is no question that the coordinated efforts amongst all the different governments from a stimulus standpoint has had a positive impact in us avoiding or averting a pretty major crisis.

Then to get back to growth in 2010. Could you give us some kind of indication of the amount of signings that you would need in 2009 roughly?

The amount of signings we would need in 2009 to achieve what?

Well, you talked about in your release expecting growth again in 2010.

Yes, I mean -- I think -- I think I will just answer that question generally and what I would say is that we would like to see and need to see the pace of new business wins increasing and we think that -- that we should start to see that taking place in the third and in the -- and in the fourth quarter as the new sales team, and we've always said that it was going to take close to four quarters for them to really have any real meaningful traction.

All right, well, thanks a lot.

Thank you.

Okay, thank you. Next Shlomo Rosenbaum, Stifel Nicolaus. Your line is open.

Hi, thank you for taking my questions. I just wanted to ask if you could segment the impact in the quarter from migrations offshore versus just lower volumes year-over-year.

Shlomo, at this point I don't have that breakout relative to those particular elements in terms of the quarter impact. Are you saying the year-over-year quarter or do you want the fourth to the first quarter.

Well, you broke out for us year-over-year the impact of currencies, so I am trying to figure out how much of the year-over-year revenue decline beyond the currency is migrations going to what should be more profitable locations and how much are just volumes that are falling our of the funnel.

Sure, after you back out the $36 million that is related to currency, there's about $10 million that is related to migration. The remainder is the volume.

Okay. Just to make sure I understand your annual guidance. Is it fair to assume that you are thinking of revenue in the 1.160 to the 1.20 range.

Yes, that is proximate.

Okay. And could you just talk about what has changed in the last quarter. It seems like the volumes are a little softer quarter over quarter and that's why it seems like the revenue is going down, but there seems to be more confidence from management that things are firming up and I just want to get your perspective on that, Ken.

Well, I mean, I think it is really probably three things. One, volumes did soften more than we -- more than we or our clients forecasted. And we have done several channel checks with competitors who have -- who have said the exact same thing. In addition to that, the majority of our clients show us the entire volume served to their network and we can see that their volumes, in fact, overall are -- have softened. The second point is is that clearly the longer sales cycle resulting in lower new business wins. I mean clearly we would have liked to have seen $120 million in business wins instead of $60 million in business wins. That has an impact. And then I would say the -- the third is just the overall amount of business that we have that has been migrating offshore, which is a double-edged kind of a sword but has a very significant silver lining and that significant silver lining is that it ultimately results in far better operating performance.

But while you are going through that transition, you have a cost that is fairly significant in redundancy of labor, as well as in the up to the -- the up-training of the new employees. So I think that those three things taking place all at once has impacted the revenue number. And then, of course, we beat this one to death, the currency impact as well. So all of those happening at once. That said, I -- I -- I still believe that our pipeline is going to afford us some -- some very attractive wins. What I just can't tell you with absolute certainty is whether it's -- whether we are going to see some of those winds in -- in the -- the end of this month or whether they are going to bleed into third and fourth quarter.

So the -- the confidence that you have in things picking up is due to the fact that you guys are making a lot of investment in the salesforce and you picked up some really good people and that's got to show some results at some point in time. It is not -- I am trying to discern whether there is a change in the environment that you are -- your're finding any stabilizations in the volumes in terms of the decline or, frankly, you guys haven't been standing still and that's where you expect to see improvement.

Yes, I mean, I think -- look, I don't know if bullishness is the right term that I would use to describe how we feel. What I would tell you is is that I am spending a significant amount of my time in front of our clients. And I am doing it at the highest possible levels in the world's -- some of the largest corporations in the world. In most cases it is took the CEO, the CFO, the COO level and I am truly understanding where our clients are coming from, what they are doing with -- with their business. What their strategies are going forward, et cetera. And based on those meetings and based on our relationships, I feel very comfortable that we have rock solid relationships with our clients, that they are committed to working with us and committed to expanding with us. And based on the new client opportunities that we are looking at, that I am personally involved with, I am confident that we are going to win our fair share of those opportunities.

The combination of those two things, the combination of the health of our business, the combination of the fact that it goes without saying that right now all the large opportunities out there are not going to look at a tier 2 or a tier 3 provider that has balance sheet issues or that has scale issues or that has footprint issues, et cetera. The fact that there is really only a small percentage of the marketplace that is healthy, I believe that we will ultimately end up, as we historically always have ended up, on top and that we will continue to execute with strong -- in a way that allows us to manage our costs and ultimately delivers to the bottom-line. So that said, we feel like we are very well-positioned to take advantage of the marketplace that we are in front of.

What kind of seasonality are you expecting this year in revenues?

Well, as I just mentioned, summertime typically is an uptick in North America. It is unfortunately a downtick in Europe because of their historical one-month-long vacation. But that said, we are seeing in our models and forecasts that we think that -- that we will start to see volume increases for summer, back to school, and then, of course, the holiday, preholiday and the holiday season.

So incremental step-ups through the year is what it sounds like?

Well, that is certainly our -- that's certainly our goal. So from third to fourth.

Okay. And then I am sorry if I missed this, the International losses in the quarter, some things have been sort of changed in the unit bases. Is that something that sort of popped up or is that how that unit has been trending as it has been recast?

Well, again, as just indicated a little earlier, Shlomo, if reflects some issues in several countries. We've talked about the migration of work to offshore locations as Ken's indicated. There's costs both in the country it is leaving, as well as the one it is going to that are incremental relative to labor that has to be addressed. There's some issues in there around facilities rationalization. So, it is not that it just popped up but it is an event that's occurring because of some of the things that are going on and we were aware that they were happening.

Okay. And just on the CapEx. How much of the CapEx, guidance declines about $15 million, how much of that is due to the volumes? And how much of that is just you guys are utilizing the workstations better so, frankly, you are able to go ahead and just spend less money.

Yes, I don't know an exact split, but obviously with the volume down, we are being very diligent around where -- where and when we add new capacity. We will continue to fill the existing capacity in the locations that we have it before we get out and build new.

All right, thanks a lot.

Thank you.

Thanks, Shlomo.

Okay, thank you. Our last question comes from Matt McCormack, Brigantine Advisors. Your line is open.

Yes, hi, good morning. A couple of questions on Sprint. First, could you just give us an update on the relationship and then you did disclose that it was below 10% in the quarter. If you could let us know how -- how -- how much below 10% that possibly came in at. And then given your guidance and your commentary of 12 to 15 companies having lower volumes, is it safe to assume Sprint is -- the lower volumes is due more toward migration than lower volumes. So any color there would be helpful.

Yes, as it relates to the client that you just mentioned, we really have a policy internally to not discuss externally our -- what our clients are doing. What I would tell you is that we have a good relationship. We feel comfortable with where the relationship is. We forecasted all along that they would become a customer that would be below the 10% range and we are tracking to where we forecasted. Unfortunately, that's really all that I can discuss. Just at the end of the day, our clients are, along with our employees, are our most important assets and we just don't want to say something accidentally that might upset one client over another client, et cetera. But we clearly have been offsetting the decreased volume there with other clients significantly in -- in the communication sector. And so I think the net-net is that there hasn't been as much -- all that much impact.

Matt, we missed the second part of your question if you want to repeat that.

The second part was -- well, it was related to -- to the impact in '09 from Sprint in terms of lower volumes versus migration. But, given you comments about not commenting on I'll just move on.

Yes, I think I answered that.

Sure. In terms of your margin guidance of 7% to 8%. Is that -- is that what we should think about as how you are trying to manage the business, I guess, through this period of lower volumes, meaning are you -- do you sufficiently have enough workers on the bench to, if demand starts to pick up will you be able to service all that demand or are you taking the conscious decision to lin of pass up on some revenue opportunities to preserve profitability.

Yes, Matt, obviously the guidance we gave on operating margin reflects the fact that we understand with the loss of revenue that we have got to do things to ensure our cost is in alignment. We are not concerned about our ability to hire and attract the people that we need when the growth begins picks up again. So we have the technology and the tools in place that are proven that allow us to do that quickly.

Okay. And then my last question you talk about investing in the sales force. Can you talk about any -- any other management hires that you have had recently, possibly investing in other. You using the tough economy to build a talented pool of managers for some of these -- some of these more nascent offerings.

Yes, we are having difficulties on the line right now, Matt, and your voice is going in and out and it was very garbled. I am not -- I apologize, w We are just not hearing your question.

Okay. Let me try that again. I was just asking about -- you are investing in your salesforce and I just wanted to know are you investing in your Senior Management team in areas that -- in the growth areas of the business, such as finance and accounting or any other kind of BPO type area.

Absolutely. Absolutely. As a matter of fact, we've made several new hires in the area of back office. We have hired several people that sole background and experience is claims processing, mortgage processing, et cetera. So absolutely, we are top grading and taking advantage of the economy to add leadership in areas where we believe there is future opportunities as well as where we have existing opportunities and can improve upon the performance of our business. So definitely we are doing that.

Great, thank you.

Thank you so much.

Thank you. This concludes the TeleTech first quarter 2009 earnings conference call. You may disconnect at this time.