TTEC Holdings Inc (TTEC) 2009 Q3 法說會逐字稿

Hello, and welcome to the TeleTech Third Quarter 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, TeleTech's Vice President of Investor Relations. Thank you, ma'am, you may begin.

Thank you. Good morning and thanks to everyone for joining us today. This is Karen Breen, VP of Investor Relations. TeleTech is hosting this call today to discuss its results for the third quarter ended September 30th. Participating on today's call will be Ken Tuchman, our Chairman and CEO, and John Troka, our CFO. Yesterday, TeleTech issued a press release announcing our financial results for the third quarter 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 it several times 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 conference call may include forward-looking statements relating to our operating performance, financial goals, business outlook, and future plans which are based on our 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 this 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 November 12th. I will now turn the call over to Ken Tuchman, our Chairman and CEO.

Thank you, Karen, and good morning to everyone joining us today. I'd like to take a few moments to review our financial performance for the third quarter 2009 and then I will provide some commentary on the current business climate and our fourth quarter outlook. After that, John will discuss our third quarter financial results in more detail.

Third quarter revenue was $282 million. This compares to $342 million in the third quarter of 2008 and $302 million in the second quarter of 2009. On a constant currency basis, third quarter revenue decreased 16% from the year ago quarter. Year to date revenue is lower by just over 10% on a constant currency basis. These declines are primarily attributable to lower client volumes due to reduced demand for our clients' products or services along with our proactive efforts to manage certain underperforming programs out of our portfolio. In addition, we continue to strategically relocate business to certain offshore locations to meet the evolving requirements of our clients.

To that end, our offshore revenue reached a milestone this quarter, climbing to 50% of revenue, up from approximately 20% five years ago.

During the third quarter, we signed an estimated $55 million of annualized new revenue, from both new and existing clients. Several of the new client wins are with large, prominent, Global 1000 companies which have the potential to grow meaningfully over the coming quarters. While we are not pleased with this being one of the lower quarters for new signings, our new business was far greater than the last economic downturn when nearly all decision making and new business wins came to a halt.

As we begin the fourth quarter, we are encouraged by the increase in the pace of new business wins. We have already signed an estimated $80 million in new annualized revenue thus far in the fourth quarter. And we expect to close several additional new business opportunities by the end of the quarter. As companies place a heightened focus on renewed revenue generation, client retention, and more cost effective delivery, TeleTech's value proposition continues to differentiate us in the marketplace.

Several of our wins this quarter were tied to our unique capabilities in the areas of both revenue generation and technology enabled, on-demand solutions. We continue to be pleased with our solid operating margin performance throughout 2009. Third quarter GAAP operating margin improved 210 basis points from 7.8% to 9.9% from the year ago period. This improvement was primarily driven by the following. Our continued growth in professional services and technology related offerings, ongoing steps to exit underperforming client contracts or geographies, reduced workforce attrition, and stringent cost controls we're implemented across the globe.

Earnings per share for the third quarter were $0.32 compared to $0.29 in the year ago period. Our balance sheet is exceptionally strong and we are well-positioned to fund new business opportunities. At the end of the third quarter we had $115 million in cash and $106 million of net cash after subtracting outstanding debt. This is a significant increase when you consider we started the year with zero net cash.

We generated $59 million of cash flow from operations in the third quarter, compared to $65 million in the year ago period. After subtracting capital expenditures, third quarter free cash flow was a record $54 million. Our solid cash flow from operations places us in strong financial position and provides us with the flexibility to fund a variety of strategic initiatives including organic growth, share repurchases, as well as potential acquisitions. In all our conversations with either new or existing clients, we emphasize the reliability of our delivery capabilities. Never has this been more evident than during Typhoon [Andoi] in the Philippines last month. As I am sure most of you are aware, the devastation in the Philippines was tragic. The country was hit with twice the amount of rain in a 24 hour period than what Hurricane Katrina brought to the United States in 2005.

TeleTech has several delivery centers in the area of the storm, but the sophistication and fault tolerance of our cloud based global delivery network, along with management's swift action to implement TeleTech's disaster recovery plan, enabled business continuity for all of our clients. Our worldwide redundancy global architecture enabled us to instantaneously and seamlessly reroute clients' customer inquires and transactions to other TeleTech locations. Our ability to diminish the potential impact from these types of natural disasters is just one of the many reasons why clients select TeleTech.

Now let me turn to the current business climate. First, in terms of our existing business, we believe our volumes are beginning to stabilize. While decreased demand is driving lower volumes in certain smaller vertical markets such as automotive logistics and travel & leisure, the volumes in several of our key industry verticals appear to be stabilizing. Furthermore, certain clients are projecting a slight seasonal lift in volumes in fourth quarter which will allow us to offset the absence of approximately $8 million in revenue we recognized in the third quarter from work performed for the FCC digital television conversion program.

Second, the pace of new business signings is increasing as evidenced by the $80 million in revenue we signed in the first month of the fourth quarter. While new business can take anywhere from four to six quarters to ramp, we are encouraged that the investments we've made over the past nine months in additional sales professionals is beginning to pay off. We believe this trend is a positive indicator that will lead to increased business wins throughout the end of the year as well as 2010.

Third, we continue to operate below our targeted capacity utilization. Our shared center utilization this quarter was essentially flat with the past several quarters at 68%. As we strategically rationalize capacity in underperforming locations, we continue to have plenty of available capacity in the right geographies which will enable us to rapidly respond to client demand and enhance our operating leverage as client volumes return to more normalized levels.

Fourth, there has been significant and in our opinion long overdue consolidation taking place in our industry. We view this very positively. As the competitive landscape narrows, the stronger, more responsible players will continue to exhibit greater financial discipline which will benefit the entire industry.

Lastly, TeleTech has placed a long term focus on agility. This has never been more important than in the past several years given the increased pace of global competition and economic volatility. Our ability to improve profitability in the face of temporary declining revenue is a testament to the strength of our leadership team and their in-depth understanding of the key performance levers of our global operations.

Now let me turn to our business outlook. Given the signs of stabilization in our existing business, we believe fourth quarter 2009 revenue will approximate third quarter 2009 revenue. An I just mentioned, we expect a seasonal lift from certain clients will offset the absence of the short term FCC program completed in the third quarter. In terms of operating profit, we have again increased our expectations for 2009. We now believe full year 2009 operating margin, excluding unusual charges, will range between 9% and 9.5%, up from our previous guidance of 7.5% to 8.5%. As in prior years, we will provide our 2010 business outlook in conjunction with our fourth quarter 2009 earnings announcement.

In conclusion, we are pleased with many aspects of our performance this quarter as we continue to demonstrate our ability to proactively respond to and manage a challenging macro economic landscape. Now that the base business has begun to stabilize, we are keenly focused on renewed revenue growth along with continued profit improvement and ongoing development in the sale of technology enabled solutions. Let me now turn the call over to John, after which I will make a few closing remarks. Thank you.

Thank you, Ken, and good morning. Let me take a few minutes this morning to provide some additional insight into our third quarter financial results. Our third quarter revenue was $281.5 million compared to $349.1 million in the year ago quarter. This decline is attributable to several factors, as Ken touched on earlier. First, the majority of the revenue decline over the prior year quarter is the result of lower transaction volumes across many of our consumer oriented client programs. In addition, we continue to shift existing client business from onshore to offshore locations and proactively manage underperforming client programs and geographies out of our portfolio.

In addition to the items just mentioned, approximately $12 million of the quarterly revenue decline is due to changes in foreign currency rates. This impact is a combination of lower currency translation rates for certain of our foreign subsidiaries and foreign currency hedge losses related to various cross currency exposures as disclosed in our Form 10-Q. As I have discussed on previous calls, we use a disciplined foreign currency hedge program to protect our operating margin. Any revenue impact from hedge gain or losses is offset with a corresponding increase or decrease in our cost of services, thereby neutralizing the impact to our operating profit.

In the third quarter our revenue from offshore locations was $141 million. This represented 50% of our total revenue. On a year to date basis, our offshore revenue has grown to $426 million, or 48% of our consolidated revenue. Our offshore delivery capacity now represents approximately 70% of our total delivery capacity. Our third quarter gross margin increased 330 basis points over the year ago quarter to 30.9%. This improvement was due to the favorable shift of revenue to our more profitable products, services, and delivery locations, as well as determination of underperforming client programs.

We have also seen an improvement in workforce attrition, resulting in lower costs to hire and train our associates.

Turning now to SG&A, our third quarter SG&A was $42.6 million or 15.1% of revenue. Included in our quarterly SG&A is $2.9 million of equity based compensation expense. When you exclude equity based compensation expense and the cost of the financial restatement in prior periods, our SG&A expense decreased more than $5 million from the year ago quarter. This reflects our aggressive and ongoing management of overhead costs to insure alignment with current business conditions.

Our third quarter GAAP operating income was $28 million or 9.9% of revenue. This compares to $27.2 million or 7.8% of revenue in the year ago quarter.

Our third quarter effective tax rate was 24.5%, up from 20.3% in the year ago period. The third quarter rate was higher primarily due to an increase in our US based taxable income at the correspondingly higher US tax rate. We expect our full year 2009 effective tax rate will approximate 25%. As for EPS, our GAAP earnings per share increased 10% for the third quarter to $0.32, compared to $0.29 in the year ago quarter.

Turning now to our segments, as you may recall in the first quarter, we changed our operating segments. Specifically, our segments now reflect where our client contracts originate from rather than the location from which our services are being provided. Therefore, our North American BPO segment is now comprised of sales to all clients based in North America. Our International BPO segment is now comprised of sales to all clients based in countries outside of North America. These changes more closely align our external reporting with our internal client focus and our management accountability model.

As noted in our Form 10-Q, our North America BPO segment reported an operating margin of 14.2%, up from 8.3% in the year ago quarter. This increase reflects the growth in professional services and technology enabled solution revenues along with lower workforce attrition and the migration of less profitable business out of our portfolio. Our International BPO segment generated an operating loss of $2.9 million in the third quarter, and approximately $13 million year to date. Nearly $5 million of the year to date loss is related to restructuring and impairment costs incurred as we work to realign the cost structure of various international client programs and delivery locations.

These actions have been taken to improve the long term profitability of the international BPO segment. The higher operating losses year over year are primarily attributable to our Brazil and Spanish operations. As we discussed during our second quarter call, the local labor laws and agreements in Spain prohibit us from responding quickly to the dynamic business environment. We continue to work closely with our Spanish clients, local governments, and our workforce to address these issue and we have reached agreement on several provisions providing for more flexible work arrangements.

Focusing now on our cash flow and liquidity, we continue to be very pleased with our generation of strong cash flow. Cash flow from operations was $58.8 million in the third quarter and free cash flow was a record $54 million. This is due to our strong working capital management and lower capital expenditures. We ended the quarter with $115 million in cash, no borrowings on our credit facility, and $9 million of other debt. As a result, our total debt-to-capital ratio is 2% and our current ratio is 2.4 times. We continue to proactively manage our cash collections to further enhance our working capital and free cash flow. As a result, our DSOs were 66 days in the third quarter and continue to be within our target range of 65 to 70 days.

Our capital expenditures decreased to $4.8 million from $15.3 million in the year ago quarter. We expect 2009 capital expenditures will approximate $25 million. We continue to commit both capital and operating expenditures to the development and enhancement of our proprietary suite of technology enabled offerings. Our return on invested capital was 28% at the end of the third quarter. This return continues to be what we believe is one of the highest for any global infrastructure based BPO company.

Looking now at our global delivery capacity, we continue to rationalize our footprint and capacity as the global delivery needs of our current and potential clients change. In the third quarter we exited approximately 1,100 work stations. We transitioned many of the programs from existing sites to offshore locations during off-peak hours demonstrating our ability to increasingly leverage our facilities over a 24 hour period.

Regarding our outlook for the remainder of 2009, as Ken mentioned earlier, we believe fourth quarter 2009 revenue will approximate our third quarter 2009 revenue. We expect to continue our strong operating margin performance in the fourth quarter and are therefore again increasing our expectation for full year 2009 operating margin which we now believe will range between 9% and $9.5% excluding unusual charges. This is up from our previous guidance of 7.5% to 8.5%.

Lastly, many of you may have seen the Form 8K that we filed earlier this week indicating we executed a Stipulation of Settlement with the lead plaintiffs for both the class action and derivative lawsuits that were filed in 2007. We are pleased to be reaching the closing stages of these lawsuits and expect to finalize both of them in the coming quarters. As disclosed, all but $227,000 of the settlement amounts for both cases will be covered by our insurance carriers. The $227,000 to be paid by TeleTech is accrued for and reflected in our year to date results.

In summary, we are pleased with our solid profitability and earnings per share this quarter. We remain focused on improving our top line growth and are encouraged by the recent increase in the pace of new business signings. We are confident that our focused sales efforts and unique capabilities and offerings will result in additional new business wins in the coming quarters.

With that, thank you, and let me now turn the call back over to Ken.

Thank you, John. As we look to 2010, we will continue to operate efficiently and are well positioned to deliver top line results given our differentiated capabilities and the investments we're making in our sales team and in technology. We look forward to discussing our new business wins and the 2010 business outlook when we announce our full year results in the first quarter. Let me now open the call to your questions. Thank you.

(Operator Instructions). Matt McCormack, Brigantine Advisors.

Yes, hi, good morning. In terms of -- you obviously had a good pickup in demand heading into the fourth quarter. I guess could -- you've historically gone after the Global 1000 and what are the thoughts about also going after like those deals that are a slightly under that radar for a more [thorough] I guess opportunity?

Hi, Matt. I think that the majority of the Company is wired for working with multinational companies. That said, when opportunities present themselves that are in the let's just say the Global 2000, we certainly look at them and will certainly explore them. But the main thing that we look for in any opportunity is a client that has significant opportunity to grow over a three to five year period of time. And so if we can find that within the Global 2000, certain Global 2002 clients, we're interested. But know that there are so many more clients for us to win, that we're really trying to continue to stay very focused on landing the very large, the very strategic accounts where frankly we think that we have the most to offer them with our overall offering.

Okay. And then looking at your Q, it does look like you've got a new 10% client and it looks like you've had a couple over the years. And I guess could you talk abut how you look to kind of manage that risk? And is there a way that you can do that organically or do you really need to kind of make an acquisition to fully diversify your customer concentration?

That's a great question. We actually don't believe there is any real significant risk of a particular client gaining any significant concentration. I think that there will be variability throughout the quarters and I think that with several other clients now demonstrating that they're looking to grow, I think that you'll see that the client that is potentially just now touching 10%, maybe two quarters from now will be just slightly below 10%. And so we don't see that as a concern at all. As a matter of fact we think we have one of the most diversified customer bases as it relates to percentage of concentration. That said, obviously it's something that we do look at all the time and we're trying to make sure that we have a balanced portfolio. But I'm confident that in light of the amount of new logos that we're bringing on right now, in light of other clients that are ramping, etc., that we don't feel there's significant concern there.

Okay, and then my last question, just can you talk about I guess the current pricing environment and I guess couple that with the comment you made about the consolidation helping, should help with pricing. Is that something that you've already seen or something that's just expected?

I'd say that it's premature to say that we've seen that at this point because as you know there is some deals that have not yet closed, etc. But I think that as some of the smaller players that have been traditionally kind of more commodity focused, etc., as they exit either organically or through consolidation, that all that is going to do is create for a much more rational marketplace. And I think that the larger, stronger, more profitable players are going to maintain their position of profitability by being rational in everything they do, not just pricing, but in how they operate their business in general.

And so we absolutely welcome the consolidation and quite frankly we're looking forward to seeing more of it take place. We think it's ten years overdue. I'm sure that my peers and contemporaries feel the same way and I don't see anything but positive coming out of that.

As it relates to our pricing and what we're seeing, without getting into a long diatribe, what would just tell you is that we are very focused on creating our own demand for the types of deals that we're looking for. And when we go about it in that way, and when we try to bring forth a unique solution that's going to have a truly transformative impact on these large, global, multinational companies, it's not about the price, it's about the total cost to serve. And so what I would just simply say is, that we truly believe that the amount of money we've been investing in technology over the last ten years or so is really starting to pay off and is allowing us to truly differentiate ourselves in the marketplace.

There's plenty of business out there for all different types of providers. There's some providers that are going to focus just on their footprint. There's other providers that are going to focus more on trying to be the lowest cost provider in the marketplace. And where we're trying to focus is on being able to have an offering that is very unique, very differentiated, that truly has the ability to drive revenue, truly has the ability to impact wallet share, truly has the ability to impact retention. And these are things that we think that CEOs care about and are very focused on. And that's really where we target our energies versus the procurement department.

Okay, nice margin performance. Thank you.

Bob Evans, Craig-Hallum Capital.

Good morning and I'd like to echo nice margin and free cash flow performance. Thanks for taking my questions. First, can you talk about -- it looks like you're getting more traction with direct alliance, or DAC, and professional services. Can you give us a sense of maybe in the new business that you signed how much of that might, what portion was attributed to DAC and kind of what's, give us some more sense of what's going on there?

I would just say at this point in time that it was a nice part of the overall wins. I realize that's not giving you any clarity as it relates to I'm not giving you a dollar amount or a percentage amount. Maybe we can talk a little bit more about that on the next quarter call when we have actuals, etc. to discuss. But I would just simply say that we fully integrated their value proposition into TeleTech's overall offering and I think that what you're going to see is that it's really all part of an overall TeleTech solution. And we will be bringing forth to the marketplace in a very cogent way what that overall solution is and we're just now in the process of getting ready to kind off unveil all of that. But the bottom line is that everyone is looking for revenue right now and we have a solution as it relates to creating revenue in a very professional way and so I would just simply say that our offering is in fact resonating with the marketplace right now.

And what's the margin profile of that business relatively speaking to your core business?

Well why don't we just say that it's aligned. It's clearly not dilutive with our core business. And as with all of the expansion of our product line capabilities, they're all about being more margin accretive than just simply being on the legacy type of business. And so we actually view our core business as really being kind of the base foundation for us to build on a series of service offerings that go far, far beyond the core offering that the rest of the industry is offering right now. And I'm going to say it again, we absolutely think that our success is going to rely upon our innovation and our technology and our ability to demonstrate that we have unique and different outcomes that are more accretive to our clients than just simply looking for the lowest cost offshore provider.

Okay, and trying to get a little bit more into the reasons for the margin improvement, a little bit more granularity there, because you've obviously had a nice sequential and year over year improvement, can you give us here's the top two or three things? I know migration to offshore has certainly been beneficial, but what else is going on and what's sustainable?

Bob, this is John. In terms of the key drivers, obviously it's the focus that we have on our workforce management. In this environment and given what has occurred, volumes is something that is absolutely critical. We are utilizing again the technology suite that we've built to make sure that we are bringing the right resources at the right time and that we're not carrying any excess capacity if you will in terms of labor. That is our biggest cost component and so key control of that element is important.

We also mentioned what we have seen from an attrition perspective. That is way down. We believe obviously there is some economic impact to that, what's going on in the world economy, but also believe that again, through a lot of the tools that we've put in place in terms of human capital and selection of employees who will work in our environment, we believe that that lower attrition is something that is sustainable over time. And definitely the overall workforce management is something that we will remain focused on. And again, we do believe that we can sustain the margin growth that you've seen.

Okay, and I believe you said you exited some capacity this quarter. Can you elaborate as to where and maybe what other areas in the world that you're thinking would be good to exit?

Yes, the capacity that we've exited is primarily in North America, US and Canada. It's no secret the Canadian environment is much different than it was several years ago. And as we've talked about previously, continue to look at that and exactly how large we want to be in that particular location.

And Bob, this is Ken, I'd just like to add that we are very much marketing to our imbedded customer base technology enabled solutions. And our technology enabled solutions certainly have a significantly higher margin than just the base or core outsourcing business. So whether it be our on demand offerings, whether it be our professional service offerings, whether it be our systems integrations offerings, whether it be our data analytics, market segmentation offerings, all of those have a higher, have an overall higher overall margin profile. And we're going to continue to push very hard for a multitude of reasons, not just for a margin driving standpoint, but because it allows us to deliver significantly more value and build a much more strategic relationship with our client base.

Okay. Thanks. Final question, of the verticals of the new business that you signed, can you elaborate? I know you can't get client specific, but can you tell us what verticals you're seeing the most interest in?

Yes, in terms of what was signed -- government.

In terms of new business signings.

Yes, government continues to be a growth area for us, financial services the other largest area of growth.

Okay, thank you.

Eric Boyer, Wells Fargo.

Hi, thanks. Just on the margin sustainability question, when the economy starts to improve in a more robust way, what's the thinking on kind of the new level of longer term margin?

Well a couple of things. Naturally we have a fair bit of operating leverage due to the fact that we're operating at a 68% or 69% capacity utilization. So as we infill that capacity, clearly that creates some pretty significant operating leverage. Secondly, we are successfully selling more and more non voice back office work that is impacting our off hours which is elongating our work station utilization in a pretty significant manner. And we are going to continue to focus on that which is going to create also more operating leverage.

And then thirdly, what I just talked about which is the real push of having technology enabled solutions. And maybe I should just explain, when we say technology enabled solutions, a big chunk of the outsourcing industry, the way they choose to operate, is basically they're providing labor and basic facilities infrastructure either in North America or in an offshore environment. And that's kind of where their service stops. Beyond an automatic call distribution system, beyond a workforce management system and beyond a quality assurance system, those are kind of the three components of technology that they offer.

We have 104 unique pieces of technology, many of which actually have patents that we are now applying across our imbedded account base. And we absolutely believe that for our business and for the clients that we're going after, that there is a real need for a lot of these capabilities which ultimately drive a far more efficient capability, but also create much more operating leverage for us since it tends to mean that there's less human capital involved and more technology involved where there's operating leverage.

So I know you've asked me a specific question about where the margins could go and I guess what I would just simply say to you is that over the long term, we have stated in the past that we are not uncomfortable with low double digit margins. And so 12%, 12.5% is a very reasonable number that we feel very comfortable with. And we think that as more and more revenues kick into the technology area and as we get more leverage out of the back office and as we fill more capacity, that that in fact is reasonable and achievable and historically has been done, as well as we have historically achieved even higher margins.

But as you know we're a conservative company and so I'd rather be conservative and quite you what we think is the low end of the realm of possibility.

Okay, then you talked about seeing improved 2010 revenue results. Does that mean you're expecting a return back to growth? And should the typical seasonality play out in terms of Q1 being down sequentially?

I'm sorry, I didn't hear the last half of your question, I apologize.

Should the typical seasonality play out in terms of Q1 being down sequentially?

Okay, so as far as do we see 2010 as a growth year, what I would say to you is that we think that it's -- I'm going to use the words that it's possible that we will see a growth that starts to look more like historical growth in the second half of 2010. That said, I don't want to get ahead of my skis. And what I would say to you is that we will feel far more comfortable in answering that question with dramatically better visibility in our next conference call. And just based on the signings that we've seen thus far in 2.5, 3 weeks into the first month and what we feel we will sign later into this quarter, assuming that all that takes place, will give us a much better idea.

The reason why we would say the second half versus the first half is because even if we have a very successful fourth quarter signing, we still have four to six quarters of ramping and therefore we don't really start to see some of the real benefits until the second half of the year

And just on that point, Ken, I know last year you had a pretty good amount of quarters that had high signings in it, but due to the economy the actually pull through to revenue this year wasn't really what you were expecting. The signings that you've had so far in 2009, are they ramping accordingly to what you were expecting when you signed the deals as far as the scope of seats and volumes?

I'd say for the most part they are ramping -- in some cases they're ramping a little bit slower than we would have expected. But we are also now seeing, which is not all that unusual, ones that were ramping a little slower we're now starting to get calls saying to change the ramp schedules and to accelerate them a bit because they need the budget coverage for '10 as well as expand them. So I think that, we think that there's a possibility that we could make up for kind of the anemic growth or lack thereof in '09. We think we could start to see a makeup for that in the second half of the year.

Again, I don't have a crystal ball and I'm not telling you anything you don't already know . There's a fair bit of variables out there in the global

All right, thanks a lot.

Shlomo Rosenbaum, Stifel Nicolaus.

Hi, thank you very much for taking my questions. Good morning. I want to, first of all on the margins, you guys have done just an outstanding job on the margins. And a lot of the quarters what I see is a lot of restructuring charges so that the GAAP margins are not what we see from the non-GAAP basis. But this last quarter you really had very minimal charges. I'm just wondering -- what should we think of going forward? Should we think of have you positioned the Company to the point that this level of charges is the realistic level of charges? Or is it really just going to vary widely?

Shlomo, it's John. In terms of what they might be going forward, again, I'm not going to tell you that there are always going to be only $700,000 in a quarter. A lot just depends again on where our demand for capacity is going, where do we have existing capacity that we may exit. I mean as we look in the near future we don't see that they will be accelerating, but we are going to continue to manage our footprint on our capacity. We are trying to take advantage obviously of all the lease terms that come up throughout any given year and really that's using those as an assessment point every time they come up so that we can minimize specifically what charges would be.

And again, we continue to aggressively manage our labor force such that we're not getting ourselves in a situation where we have labor far in excess of what's required and therefore we have to let them go and incur severance charges to do so.

But I think, Shlomo, that it's pretty reasonable to assume that we have -- we've always been very conservative in how we approach managing our business and that we tend to -- we don't tuck anything ever under the rug. And so consequently we do feel that the waters are going to be a bit smoother because we have very consistently, as fast as we have opportunities to trim in certain areas that quite frankly are dilutive to our business like Spain, that we do so. And so I think that we are definitely getting well ahead -- we're getting ahead in that area now, making considerable progress. And therefore to John's point, I don't think that you're going to be seeing short term anything unusual.

And then the other point that I should bring up is that we're glad that this lawsuit stuff is all behind us. And so if you look at the last eight quarters or so, a great deal of those charges were tied to the various different things that evolved around that. And we're happy to see that this is finally coming to a closure.

So we -- I want you to feel like you do have some direction and that yes, we are certainly, our goal is to get down to as low of a number as possible. But that said, as John said, we're going to be as proactive as possible where if we feel that we have leases that are coming to an end and they're in labor markets that are no longer optimal, we're going to take advantage of it. That way we can quite frankly take advantage of new leases at what could potentially be 20 year historical lows. So we think that 2010 will be the very best time in almost TeleTech's history to enter into any types of real estate transactions and therefore we absolutely, as business demand picks up, would like to re-level-set our real estate costs which are already very, I would say very efficient. But we think there's opportunities to make them even more so efficient.

So what I'm understanding is that you feel comfortable that at this level of focus that you've had up to now should kind of reset what you're seeing going forward in terms of the size, it should be lower, not necessarily at the $700,000 but certainly lower than what it's been over the last two years. Is that fair?

Yes, I think that's fair. Absolutely.

And just as you touched on Spain, do you guys feel like you've gotten to the point -- I mean there was a nice step down in where the losses came in. Do you feel that we should see that continue or are you sort of plateaued over there with where you are with the clients?

No, I think we're going to continue to see some improvement over there, Shlomo. We have again gotten extremely aggressive in managing the workforce. The great news is that our two largest clients in the country have volume and are pushing volume to us. Our biggest issue that we talked about was these inflexible work arrangements. So I had staffing in all the wrong periods and so it was just again, very detrimental to our profitability.

We have, again, reached some arrangements with some of the labor unions over there that allow us to be much more flexible. And so we are now being able to move labor to match the periods the volumes are arriving which should help us going forward.

And Shlomo, you should know that in the 18 or so countries that we have large operations in, this is one of the only countries where we have this level of inflexibility. So this is not a common thing, this is not something we experience in Latin America or in Asia Pacific or even in North America for that matter. So we're working it as aggressively as we can and we're pleased with the results that we're now starting to see.

Is it a volume issue that when the volume starts to get better you guys feel like you've been able to fix that and improve from there as volumes improve?

Yes, I think we'll see improvement in the margins. I mean to be honest, Spain will never deliver the type of margins that we see in other markets including the United States. I mean that industry over there has just battered itself through pricing concessions years ago that they have yet to recover from. So it's been a long slog, but if we can get our labor aligned, which we believe we are doing, we expect to see improved profitability.

And most of our growth in Spain is all moving offshore where we have far better flexibility. So that's the whole purpose of maintaining a market presence there. Otherwise, we don't see huge growth in country.

Thanks. Just given the capacity that you have, utilizations obviously pretty low, the CapEx guidance continues to come down, I understand that because of where you are in utilization. It seems like you have a lot of slack and you could probably go maybe another year or so even on this type of CapEx. What kind of revenue do you feel that would start to make you really accelerate the CapEx in order to expand the capacity? Are you -- what kind of growth would we need from current levels?

Yes, Shlomo, when we look at it, and again, just doing the math on the numbers, I mean given the capacity we have in place, if our clients choose to go where it's located, and again, we're trying to migrate to the places where we see the demand, we can easily increase revenue by several hundred million dollars before we're going to have to invest in new capacity in those locations. With that said, we have to continue to look for those markets where we're going to be able to find the skills, the technology, the workforce to enable us to continue to grow. I mean we obviously have a large presence in the Philippines but we're only going to be able to put so much there. So again, we may have to expand into new markets and that will require a capital investment which would require the level to go up slightly.

But I think it's safe to say that through 2010 you most likely are not going to see a $60 million or $70 million capital type of year. But again, we are definitely investing heavily in technology and wanting to maintain the most modern infrastructure in the world. And so there's a cost associated with that.

You've talked a lot about how you've changed the mix. What percent of revenue is really what you would call professional services and on demand and really outside the [pervae] of regular call center operations at this point in time?

So is the question what's the mix of professional services and technology? It is still a relatively -- there's probably close to 15% of our business that's right now in that space and we think that there is going to be a lot more opportunity in that. But, Shlomo, we need to move on. I appreciate all of your questions, but in fairness to --

You've been more than fair. I'm going to step out of line here.

Ashwin Shirvaikar, Citigroup

Thanks. My first question is, can the four to six quarter ramp for new work seems longer than [normal]. So the question really is, how much of it is a function maybe of cautious client spending versus increased complexity of new work? It doesn't seem to be a capacity issue.

A great question. I think that a big part of it has to do with the complexity of the work. We are increasingly doing far more complex things in the area of back office where we're doing claims processing, where we're doing mortgage modifications, etc. A lot of the work that we're doing has phases to it where it requires us to write technology, actually physically create new technology as we're bringing the work on. This is not (inaudible) business which is what we're trying to stay away from and let that go to other people that want to slug it on just providing labor. This is business that truly requires transformational consulting, it requires transformational professional services, it uses every aspect of our virtual infrastructure. And so it just simply takes more time to bring on.

And then the other aspect is, a lot of the new business we're bringing on, the training requirements have dramatically increased. From what used to be two to four weeks of training is some cases is turning into nine weeks plus of training. And so when you have big chunks of business that are coming on with nine plus weeks and then you've got nesting and everything else, you're basically 12 weeks, three months into it before you're even really seeing any meaningful revenue. That's becoming also very, very common.

We have been -- we recently signed a couple of accounts where we are providing support across their entire product line and the product line is all technological -- they're all technologies that, as fast as we come up to speed on them, they are producing another 100 SKUs of new technologies that we have to be up to speed on, etc. So I guess that's just my way of saying to you that this is not taking an airline reservation. This is not doing checking someone's mileage or telling them how much money they have in their bank account, etc. These tend to be pretty complex types of interactions that in many cases are tied to very complex back office functionality that goes beyond the voice side where there's back office work that we're being asked to do post the actual voice interaction.

Okay. And a separate question maybe building on one of the questions that Shlomo was trying to get to. Newer centers have higher capacity utilization than older ones and is that just function of clients moving steadily away from I guess the older US and Canadian centers to newer Philippine or African centers?

I think that that's safe to say, yes.

So the follow on to that is, I guess won't that mean that you have to continue to take charges to shut down facilities here? Or do you expect --

No, it doesn't because a lot of it, the US business that currently is under contract, A) is under long term contract, and B) is with clients that cannot legally move the business outside of the United States. And so that business just -- they just physically can't because of brokerage licensing, because of insurance licensing, whether it be in the P&C area, the healthcare area, etc. And so no, I do not think so. And I think we're pretty good on, for the most part, on the North American side, so we're not too concerned about that.

Okay, a couple of housekeeping things. The tax rate, the 24% to 26% level, is that sort of more or less permanent given how work has moved offshore?

Yes, I mean we expect obviously to end this year in that range and at this point don't, do not see anything which would indicate it would change next year. I would say it would probably range between 25% and 28% next year.

Okay and the last thing is, where is your cash located? Is it mostly in the US and does it limit your ability to invest in any particular geography based on where it is?

No, most of it's overseas in locations. It doesn't -- it's structured in such a way that it doesn't limit us to where we can use it to invest in. I mean we have money in Latin America, Europe and Asia Pac.

Okay, great. Thanks. Nice job on margins and cash.

Robert Riggs, William Blair & Co.

Good morning, everyone. Thanks for fitting me in. Kind of expanding on that last question on the cash, balance sheet is in great shape, just wondering if you could discuss the [thoughts] for the use of cash going forward. You had the recent announcement about a new $25 million repurchase program, but are acquisitions starting to look a little more attractive?

As I said in the script, in not any one particular priority order, yes, we are planning on continuing as we have always done with our share repurchase program. And yes, we are looking at various different acquisitions. That said, we're not -- our acquisition strategy is not to acquire more of the same and so we're being very selective in looking at what types of acquisitions can continue to add more technology, can add more strategic capability, can make us more strategically relevant to our customer base, etc., And so what I would say to you is that we continue to look, but as you know, finding good acquisitions is a needle in the haystack and we're optimistic that we'll get one or two done in the near future. But one never knows.

Great. And going back to the strength in the technology based solutions and professional services, it would seem like the technology based offerings would tend to be more of a recurring type revenue stream while the professional services would be a little more kind of one off engagements. Is that the right way to think about that? And maybe you could just give a little more detail on the visibility into those revenue streams?

So the answer is yes, the software as a service on demand would be longer term, reoccurring revenues. The professional services tends to have a means to an end. That said, we are creating capabilities that will futuristically require professional services that require ongoing maintenance. So in the area of knowledge process outsourcing as an example, building knowledge management systems, in the areas of eLearning where we have clients that are asking us to not only build their curriculum but to maintain the curriculum. The same thing with maintaining knowledge management systems. So we are very mindful of the fact that what we don't want to do is just job shop professional services. And please understand, when we say systems integration, professional service, we're not doing cellophane wrapped SAP, Oracle type stuff. We're doing things that are only germane to our offering. So it's either things like back office workflow type technology, or it's desktop technology and in all cases that ultimately enhances our longer term relationship with the client because not only do we get to take advantage of it, but they get to take advantage of it in their internal sites. So that's clearly going to continue to be a big focus of ours. And we think that -- we just don't see a lot of other players that have this type of capability, nor do they have the cadre of the amount of technology that we've invested hundreds and hundred of millions of dollars in as the base foundational technology.

Great. Thanks. Nice quarter.

Howard Smith, First Analysis.

Yes, thank you for your patience and I echo the congratulations on that margin. It was nice to see the technology investments paying off. Most of my questions have been answered, but kind of housekeeping on the FX hedging side, you're down quite a bit in the amount of exposure relative to your last year end that you're hedging. Is there any change in your thinking or policy there?

This is John, Howard. No, there's no change in our thinking. I mean, what we hedge reflects the exposures that we have in the various cross currency areas. And so it has come down significantly. That's driven in large part by the reduction in hedging that we had done or had in place for Canada. And the fact of the matter is, it just reflects the decline in revenue and the corresponding exposure that goes with it. So as the revenue comes back, so will the amount of hedging that you see to the extent that the revenue is in a cross currency situation.

Okay, And just on your depreciation charges, pretty low CapEx, you're depreciable base is coming down, yet your depreciation/amortization quarterly is going up a little bit. Could you just discuss that for a moment?

Yes, that increase in the third quarter, what I would tell you is that a portion of that is a one time item that's related to an evaluation of particular assets in Brazil. Where we went and looked, Brazil was one of the last locations for us to move to some of our new infrastructure and our GigaPOP and the like. And so we looked at some assets after a client exited there in the technology side that we had to accelerate the depreciation on because they don't fit into our current architecture.

Great. Thank you. And I appreciate again your patience to take my call.

Thanks so much. Have a good day, everybody.

This concludes the TeleTech Third Quarter 2009 Earnings Conference Call. You may disconnect at this time.