TTEC Holdings Inc (TTEC) 2009 Q4 法說會逐字稿

Welcome to the TeleTech fourth quarter and full-year 2009 earnings conference call. (Operator instructions)

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, and good morning.

This is Karen Breen, VP of Investor Relations. We are hosting this call to discuss our results for the fourth quarter and full-year ended December 31st. Participating on today's call be will Ken Tuchman, our Chairman and CEO, and John Troka, our CFO.

Yesterday, TeleTech issued a press release announcing our financial results for the fourth quarter 2009 and also filed our annual report on Form 10-K with the Securities & Exchange Commission. This call will reflect items discussed within that press release and Form 10-K, and TeleTech management will make reference it to several times this morning. We encourage all listeners to read our annual report on Form 10-K.

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 management's current beliefs and expectations. 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 to differ materially from those described. Such factors include, but are not limited to, reliance on several major clients, the risks 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 impairment, and/or restructuring charges.

For a more detailed description of our risk factors, please review our SEC filings, along with our 2009 Form 10-K. A replay of this conference call will be available on our website through March 9th, 2010. 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 performance for the fourth quarter and of full-year 2009. And then I'll provide some commentary on the current business climate, and our outlook for 2010. After that John will discuss our financial results in more detail.

Fourth quarter revenue was $281 million, compared to $326 million in the fourth quarter of 2008. Our full-year 2009 revenue was $1.2 billion, compared to $1.4 billion in 2008. On a constant currency basis, full-year revenue declined 12.5% from a year-ago period. The lower revenue for the quarter and the full-year was primarily attributable to lower client volumes, due to weak demand for our clients' products and services, along with our clients' desire to more fully leverage our offshore footprint. To that end, our offshore revenue reached $131 million for the quarter, and nearly $560 million for the year, representing approximately 48% of our consolidated revenue.

During the fourth quarter, we signed an estimated $100 million of new revenue from both new and existing clients. Several of these wins were tied to our unique capabilities in the areas of both revenue generation and technology-enabled On Demand solutions.

We continue to be encouraged by the number of new logos in our sales pipeline and by the increased pace of business wins. We recently launched several new pilot programs with some of the world's largest and most innovative companies. We're optimistic that these programs will have a positive impact on our pace of sales conversions going forward, and will develop into more sizable opportunities to create a platform for future growth.

Turning now to our operating performance. We delivered a strong operating margin in 2009. Fourth quarter operating margin improved 330 basis points, to 10.4% from 7.1% in the year-ago period. For the full year, our non-GAAP operating margin was 9.4% of revenue. These improvements were primarily driven by the following: our continued focus in growth and higher margin, professional services and technology-related offerings, continued expansion of services provided from our worldwide delivery centers, and our ongoing focus on profit improvement initiatives. Earnings per share for the fourth quarter was $0.31, compared to $0.22 in the year-ago period.

Turning to our balance sheet. We remain in a strong financial position to fund our future growth requirements. We ended the year with $109 million in cash, and $99 million of net cash after subtracting outstanding debt. This is a significant increase when you consider we started the year with zero net cash and repurchased $35 million worth of our stock during 2009.

Yesterday, we announced that the Board had approved an increase to our share-repurchase program by $25 million, bringing the total available for repurchase at the end of the year to nearly $51 million. This increased authorization continues to reaffirm the Board's confidence in our industry position and the long-term prospects of our business.

I'd now like to speak to the current business climate. First, in terms of our existing business, we believe volumes in many of our key accounts appear to be stabilizing. However, certain clients continue to experience softness. Consequently, our fourth quarter revenue was relatively flat on a sequential basis. As in the past, we did benefit from $8 million of seasonal revenue in the fourth quarter, albeit 50% lower than the historical levels, due primarily to the weak holiday season. This increase replaced a similar amount of revenue in the third quarter from the FCC's digital television conversion program.

Second, turning to the new business, the pace of business signings continues to increase. As demonstrated by the $100 million in new business we signed in fourth quarter. As we have mentioned on previous calls, it takes anywhere from four to six quarters to ramp new programs and we remain encouraged by the diversity of new business opportunities that we continue to win.

Third, our available capacity continues to provide us with significant revenue and operating leverage, and the ability to ramp incremental business with minimal capital or fixed operating investments.

Fourth, our ability to improve profitability, during one of the worst recessions on record, is a testament to both the strength of our business model and our management team. We continue to achieve improved margins through our increase in professional services, and on demand revenue, maximizing operating efficiencies and higher utilization of our worldwide delivery centers across a 24-hour period.

Lastly, our ability to continue to deliver improved financial performance will rely on our ongoing ability to strategically align our company's goals with our clients' business goals.

In 2010, our top priorities for our clients, and for ourselves, include: revenue generation and diversification, ensuring the ultimate customer experience, process and technology optimization, and risk mitigation. Across all industries, revenue generation is a top priority in 2010. As the economy begins to stabilize, clients are looking to resume their revenue growth, as we are. And we understand that driving revenue for our clients will, in turn, drive revenue for TeleTech. Just as we strive to grow and diversify revenue for our clients, we too have actively invested in a suite of new and innovative offerings. Today, we are in discussions with every major client on these enhanced capabilities, and some are already launching them, as we speak.

Let me discuss two of those offerings now, including our capabilities in revenue generation and On Demand solutions. We're at an inflexion point with many of our clients, as they actively seek partners who can offer far greater and more strategic capabilities, than just the traditional lift and shift of business process to off-shore locations. They are selecting TeleTech because we are well ahead of this trend, and have been investing in capabilities that are strategically relevant to our clients. These include driving increased revenue and exceptional customer experiences, tied to measurable outcomes. Our revenue generation solutions include a diverse set of capabilities, including sophisticated analytics for cross selling and upselling, advanced market segmentation tools, and electronic direct marketing. All of these globally available products are designed to shorten sales cycles, accelerate revenue, and optimize operating efficiencies on behalf of our clients. We believe a few other providers offer such -- offer such robust capabilities, and as we build referenceable lists of some of the world's largest and most prestigious brands, the pipeline of revenue generation opportunities continues to build.

The second offering that I wanted to touch upon is TeleTech's On Demand, which is a cloud-based capability, delivering a fully integrated suite of best-in-class process applications on a hosted basis. This allows our clients to empower their employees with the same technology and the best practices that we use internally, without having to license software, purchase on-premise hardware, or undertake the integration risk. We host and support a diverse suite of business process applications that span talent acquisition, learning services, performance management, our work from home solutions, along with customer satisfaction and quality assurance tools. Importanty, TeleTech On Demand has expanded our market opportunity, enabling us to reach both large enterprise markets, as well as the small and mid-sized businesses.

A recent example of our success in commercializing this capability, was when IBM and Lockheed Martin selected TeleTech to design, build, test, and deploy a private network for more than 13,000 associates, to ensure optimal results for the upcoming US census project. Through our virtualized network, TeleTech will provide custom-designed desktop applications, sophisticated workforce management tools, and intelligent analytics reporting. When this project is launched at the end of this month, TeleTech will have built one of the largest, fully-integrated, cloud-based delivery platforms of any BPO provider. This is just one example of the tremendous opportunities we have to grow and diversify our revenues over the coming years.

Our second priority for 2010 is to continue to deliver an exceptional experience for our clients' customers. Given the strong correlation between customer satisfaction and improved profitability, more and more companies are selecting TeleTech to deliver a complete global solution that positively engages customers to drive brand loyalty. We firmly believe a customer who is emotionally connected to the brand will develop a lengthier, more profitable relationship, resulting in a more reliable revenue stream for our clients and for TeleTech.

We also continue to focus on process optimization and operational transformation. In an increasingly competitive global environment, where growth and pricing power has stalled, operational transformation is a key to driving greater profitability and competitive advantages. We are continuing at the forefront of identifying the tools and technology to help our clients realize increased productivity and operational efficiencies.

Our own operations -- our own operational transformation over the past six years, to an IP-based delivery platform, has enabled us to centralize and standardize our world-wide delivery capabilities. These investments, which totaled hundreds of millions of dollars over a five-year period, have resulted in improved quality, rapid scalability, while significantly lowering our operating and capital cost. It has also enabled us to enjoy one of the highest and quickest paybacks in the industry.

Last month we demonstrated the incredible versatility and rapid scalability of our delivery platform, when we ramped 5,000 workstations to support MTV Hope for Haiti Now telethon. Within three days, we recruited more than 5,000 volunteers and built a network that routed simultaneous calls to 42 locations across six continents supporting the project. Our cloud-based delivery platform, standardized processes, and global footprint enabled us to meet the tight time-line of this program. This is just one example.

TeleTech has a proven track record of responding quickly to an extraordinary needs of our clients. As many of you recall, TeleTech responded immediately following Hurricane Katrina to support FEMA with 4,000 workstations. And just last year we hired over 4,000 associates, in less than a month, to handle the digital TV conversion work for the FCC.

Lastly, we'll continue to seek ways to mitigate business risk for our clients in the same manner that we mitigate our own internal business risk. Our diversified global infrastructure, coupled with our secure, scalable cloud-based technology platform, enables clients to sustain best-in-class business processes across the globe. In addition, we have a 99.95% global network up-time rate, and the ability to instantly reroute business processes to other locations in our world-wide delivery network, to ensure seamless business continuity for all of our clients.

We believe that, in order for TeleTech to achieve its goals, we must help our clients do the same. This is why our priorities for 2010 are aligned with the business goals of our clients.

Now let me turn to our business outlook. While volumes in certain key accounts are stabilizing, there are some clients which continue to experience softness. At this time, we're comfortable with the current analysts' consensus for both full-year revenue and operating margin in 2010. Taking into account the typical fall-off of seasonal revenue from fourth quarter to the first quarter, we believe our revenue will grow sequentially beginning in the second quarter of the year, and continue to accelerate in the back of 2010.

As we have shared with you on the previous calls, we continue to invest in additional sales professionals, as well as the commercialization of some exciting new solutions, and believe our differentiated capabilities continue to keep us at the forefront of innovation and relevance with our clients. In conclusion, we believe we will continue to deliver improved financial performance, as the pace of new business continues to accelerate, and the global economic environment improves. Our ability to solve our client's most ambitious business goals, through our diverse suite of offerings, along with our revenue and operating leverage, gives us confidence in our ability to expand our market leadership.

With that, I'll turn the call over to John, after which I'll make a few closing remarks.

Thank you, Ken, and good morning. Let me take a few minutes this morning to provide some additional insight into our reported financial results, beginning with our performance in the fourth quarter.

Revenue for the fourth quarter was $281 million, compared to $326 million in the year-ago quarter. As Ken touched on earlier, this decline is attributable to several factors, including lower client volumes, the continued migration of existing client programs to offshore delivery locations, and our ongoing efforts to manage underperforming client programs and geographies out of our portfolio.

Our fourth quarter revenue generated from offshore delivery centers was $131 million, which is 47% of our total revenue. Our fourth 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 service offerings in delivery locations. In addition, improvements in workforce attrition and the termination of underperforming client programs, both had a positive impact on our profitability.

Turning now to SG&A, our fourth quarter SG&A was $44 million, or 15.5 -- 15.7 -- excuse me -- percent of revenue. Excluding equity compensation expense of $2.7 million in the quarter, SG&A as a percent of revenue was 14.7%. Our fourth quarter GAAP operating income was $29.3 million, or 10.4% of revenue. This compares to $23.3 million, or 7.1% of revenue in the year-ago quarter.

As indicated in our Form 10-K, the semiannual adjustment to our self-insurance reserves, based on third-party actuarial studies, improved our operating income by $2.3 million. This represented 80 basis points of the overall operating margin improvement in the quarter.

Our effective tax rate for the fourth quarter was 29.9%, down slightly from the 30.9% in the year-ago period. The rate was higher than anticipated in the fourth quarter, due to increased profitability in our US operations. This increase was driven primarily by the improved financial results of our existing core BPO programs, as well as strong profit contributions from our technology-based products and services.

As for earnings per share, our GAAP EPS increased 41% for the fourth quarter, $0.31 compared to $0.22 in the year-ago quarter. While the reported $0.31 was lower than the analysts' consensus of $0.32, this shortfall is the result of a higher effective tax rate on our stronger than expected operating profits, as I just discussed. We estimated the fourth quarter impact of this was approximately $0.02 per share.

Turning now to our segments, our North American BPO segment reported an operating margin of 12.7%, up from 9% in the year-ago quarter. This increase reflects the growth in professional services and technology-enabled solutions revenues, along with lower workforce attrition and the migration of less profitable business out of our portfolio.

On the international side, our international BPO segment returned to profitability in the fourth quarter, with operating income of $2.5 million on revenue of $69 million. The actions we have taken in 2009 to realign our cost structure, primarily in Spain and Brazil, positions this segment well for improved profitability in 2010.

Turning now to our full-year results. Our 2009 revenue was $1.2 billion, compared to $1.4 billion in 2008. This decline is attributable to the impacts on quarterly revenue that I discussed earlier. 2009 revenue from offshore delivery locations was $557 million, and represented 48% of our total revenue. Currently 71% of our global delivery capacity is in offshore locations. 2009's gross margin of 29.7% is an increase of 290 basis points over our reported 2008 gross margin of 26.8%. This improvement resulted primarily from the favorable shift of revenue to our more profitable service offerings and delivery locations, our diligent cost and work force management, and the termination of underperforming client programs.

SG&A expense in 2009 was $180 million, or 15.4% of revenue. Excluding the $11.6 million of equity-based compensation expense incurred during the year, our SG&A expense was 14.4% of revenue. Full-year GAAP operating income was $101 million, or 8.6% of revenue. This compares to $109 million, or 7.8% of revenue in 2008. When normalized for one-time restructuring and impairment charges, our 2009 operating income was 9.4% of revenue.

Our effective tax rate for the full year was 26.7%, up slightly from 26.1% in the year-ago period. As indicated earlier, this rate primarily reflects the mix of profitability relative to our domestic versus international tax jurisdiction. In 2010, we estimate our effective tax rate will approximate 28%.

Our 2009 GAAP earnings per share was $1.12, representing a 5.7% increase over $1.06 in 2008. Again, when normalized for one-time restructuring impairment and tax items, our 2009 earnings per share was $1.22.

Focusing now on our cash flow and liquidity, we continue to be very pleased with our generation of strong cash flow. We ended the year with $109 million cash, no borrowings on our credit facility, and $10 million of other debt. As a result, our total debt to capital ratio is 2%, and our current ratio is 2.7 times. Cash flow from operations was $161 million for the full year. After excluding capital expenditures of $24 million, free cash flow was $136 million for the year.

We recognize that our free cash flow in the fourth quarter was lower than previous quarters. The two primary factors driving this decrease were the timing of various global payrolls at year end and an increase in our DSOs. In the fourth quarter, our DSOs were 71 days. This is slightly higher than normal and reflects client payment delays until the new year, as is evidenced by the strong collections we experienced in the first week of January. We expect DSOs to return to more normal levels in the coming quarters.

Our fourth quarter capital expenditures decreased to $5 million from $10 million in the year-ago quarter. This brings our total capital expenditures for the year to $24 million, compared to $62 million in 2008. In addition to the regular and ongoing maintenance requirements associated with our global infrastructure, we continue to commit both capital and operating expenditures through the development and enhancement of our proprietary suite of technology-enabled offerings. For 2010 we expect capital expenditures to range between 30 and $40 million.

We continued with our share repurchase program in the fourth quarter, buying back more than 414,000 shares for nearly $8 million. During 2009, we repurchased a total of 2.5 million shares at a cost of $34.5 million. In addition, as outlined in our Form 10-K, we have repurchased an additional 600,000 shares at a cost of $11.4 million since the beginning of 2010. Finally, as we announced yesterday, and as discussed by Ken earlier, our Board recently increased the repurchase authorization by $25 million.

Our return on invested capital was 27.5% at the end of the fourth quarter. We continue to be pleased with this high level of return, and believe it is one of the highest for any global infrastructure-based BPO company.

In summary, while we are disappointed in our top-line performance in 2009, we are pleased with our solid profitability and earnings per share this year. We believe our ability to deliver solid results during both good and challenging economic times is testament to the strength and sustainability of our company's business model and our management team. While 2009 was a challenging year for TeleTech and our clients, we remain focused on improving our top-line growth, while continuing to deliver the strong operating performance and cash flows necessary to fund our organic growth, pursue select acquisitions, and continue our share repurchase program.

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

Thank you, John.

In conclusion, we have great confidence in our ability to continue to deliver improved financial performance through 2010 and beyond, given our high operating leverage, low financial leverage, and our 28% return on invested capital. With our share repurchase program announcement yesterday, we reaffirm our optimism in the future of the company, and I look forward to updating you on our continued progress in the coming quarters. Thank you.

Thank you. We will now begin the question-and-answer session. (Operator instructions). Our first question comes from Ashwin Shirvaikar. You may ask your question.

Hi, Ken. Hi, John.

Hi.

The first question is can you provide a breakout of bookings into sort of, you know, new clients, say new work for existing clients and pure renewals? What I'm trying to do is get an idea of what part of bookings contributes to growth and what is replacement.

Yes, we can. We're looking for it as we speak right now.

Ashwin, John. Relative to the bookings, the $100 million, I would tell you that none of that is related to renewal. That does represent new work that we have been awarded in the period. So that's all new work related. And then the second part of your question was --

If you can provide that for what you've done for bookings in the last two to three quarters, and as we think about how bookings ramp into revenues, is that sort of normal 60-, 90-day ramp?

Well, our ramps as we've said historically take the larger and more complex programs anywhere from four to six quarters. What I -- you know, just -- if it helps you in any way, I can tell you that about a third of the business came out of the financial services sector, about a quarter of the business came out of technology, and then roughly the remainder came out of communications and government. And then of all of that, about a third of them were tied to our database management, database marketing, and revenue generation areas.

Okay. No, that's -- that's very useful.

A question on margins. Obviously, a fabulous job here in 2009, but as you think about long-term margin targets, is there sort of a structural limit on where margins can -- can go? And if you can talk about some of the factors? I mean, you know, more G&A improvement, what impact revenue mix has, and the investment in sales continuing, how much of an offset that is?

Yes. I think that -- let me start with the last part of your question first. As its relates to the investment in sales, I think that that will be a factor in 2010 as we are continuing to step up our invest inspect that area, and, therefore, that will add some to SG&A.

As it relates to the other part of your question regarding margin limitations, as it relates to clients, et cetera. What you are going to find is, is that our focus has been on revenue generation, and we have been working very diligently over the last, probably three years in expanding our application suite and productizing our applications over the last 12 months. And so we believe that where we have considerable margin leverage is in the area of our technology-enabled solutions. And so we also believe that our clients are very understanding in that area, in that, they understand that technology companies tend to have a higher margin, and so we have a significant amount of energy going into that area, so that we can continue to drive higher margins over the long term.

Okay.

And then one last question, if I may, the -- you know, the pace of buyback sort of put your ownership at more than 50% of -- of the shares. Have you guys considered, sort of a different approach, maybe, you know, given the cash flow, maybe a dividend or, you know, how do you think of that? If you can answer, and then I'll just pass it on to the next question.

Well, I think that we -- you know, the Board explores these types of opportunities, and I think that, you know, certainly with our free cash flow, et cetera, we're going to look at what's the most accretive to our shareholders. And so what I can just simply say to you is I think we've demonstrated over the past several years, that we are a fiscally-focused company that is very focused on shareholder -- an increasing shareholder value, and we are absolutely going to do whatever it takes to continue to drive more shareholder value, down to and including strategic acquisitions, as well as the possibility at some point in time of looking at maybe a dividend. So I would say that we're not close to any of those types of things, but obviously that's something that our Board has to decide on.

Okay. Thank you.

Thank you.

Thank you. Our next question comes from Tobey Sommer with SunTrust. You may ask your question.

Thank you.

You talked about some of the professional services pilot programs in On Demand services. Can you, in general, give us some color as to what kind of margin profile those services have in them?

Tobey, this is John. I mean relative to that margin profile as Ken just iterated, I mean, it's going to be higher than what we see in our core business. And so, you know, we continue to expand our sales opportunities in that area, and hope to enjoy margins that can, you know, be anywhere between 5% and 10% greater than our core at this point.

And I think John is being conservative in his -- in -- you know, in what he believes the margins can be in that area. I guess what I would just simply say to you is, our plan futuristically is that our technology-enabled solutions over time, and I stress over time, because there's SG&A to ramp them up, et cetera, is for them to have software-like-type margins. I don't really care to get in to what those are. You folks know what software-like margins are, and we -- nor do we want to get ahead of our skis, and as we, you know, historically have always been very conservative in our outlook, what I would just simply tell you is that we believe that, over time, that it makes a lot of sense for us to have a very significant technology-enabled suite that is not levered off of human capital, but instead is levered off of technology. And so we're very excited about that. We're very excited about the fact that virtually every major client that we're doing business with right now, is now taking advantage of these tools or in the process of taking advantage of these tools, and it's truly where we're spending a significant portion of our time in our client meetings around the world.

Thank you.

In terms of some of the customers that are still experiencing softer demand for their services and products, how is your market share trended among their overall, kind of declining demand? Thank you.

Tobey, in terms of -- you know, our market share, I would say the, you know, client segment that we have seen that softness continue is primarily in common media, and specifically, you know, on the wireless side. Obviously that's -- you know, a large percentage of our portfolio continues to be -- we believe that from a market-share perspective, though, we continue to gain market share, as we see the consolidation in the space between vendors, and so we are still extremely positive on that client suite, and what it means to our future.

Thank you, two kind of numerical questions.

In the CapEx that you talked about for 2010, I was wondering if you could give us a rough breakdown of maintenance CapEx versus growth CapEx, if you think about it in those terms?

Okay. Sorry Tobey.

-- and then maybe what your thoughts -- initial thoughts are on taxes in 2010? Thanks.

Yes, in terms of the CapEx it 'll be probably around 55%, 60% growth-related, and then, again, the remainder being related to maintaining the existing platform that's in place.

On taxes, as we indicated, you know, in the comments earlier, we expect a full-year tax rate in 2010 to approximate 28%.

Thank you very much.

Thanks.

Thank you. Our next question comes from Eric Boyer with Wells Fargo. You may ask your question.

Hi. Thanks.

I was just wondering if you could break out your assumptions for your 2010 top line, in terms of FX, off-shore revenue migration, volume declines, and what you're thinking as far as termination of underperforming client programs?

I'm not even sure where we would start with that question. John, can you give a simplified -- I mean clearly --

Yeah. Let me address a couple of them.

In terms of FX impact, at this point when we put our plan together not two months ago what FX was doing is completely different than what it's done in the last two months since. And so that's a hard one for us to button down. I would tell you, that, you know, in general it looks to be relatively neutral, maybe a slight benefit. But again, that has changed downward since we put our original plan together not too long ago.

In terms of migration -- continued migration to offshore, again, at this point, when we look at it, we don't see the impact from that nearly as much as we saw in 2009, because the clients in the existing base that wanted to do that, did that in 2009. So, most of our clients that we have now have already made that move, so I don't anticipate that to be a big number. I can tell you in 2009, it was close to $55 million worth of the revenue decline, was just associated with moving an existing client offshore.

Okay.

And then just the normal amount, I guess of underperforming client programs that you expect to kind of terminate? I think you have given -- given like a rough estimate before.

Yes. I mean our attrition, again, ranges in the 9% to 10%, the bulk of that driven by us, in terms of those underperforming programs, and so I would imagine that that's -- you know, it would continue --

Or potentially a little bit -- a little lower this year just due to the fact that we've really cleaned up the customer base dramatically, and so there's certainly the potential for less of that this year.

Okay. Great.

And then in terms of the -- I guess your new signings, what level of signings are you expecting for the -- kind of the first half of 2010 to be able to reach the -- the guidance that you provided?

I didn't understand the question.

(Inaudible).

I think we're more than on track to meet the guidance with what we've already announced, and what we see in our pipeline, and what we plan on announcing.

Okay.

And then could you just give a percentage of the current revenue that you have from the revenue generation in On Demand solutions that you talked about a bit today?

It's roughly 10 to 12% from a revenue-generation standpoint. And then it's probably -- on the technology side -- it's trending towards 7%, and our goal is to get that up to a 15% number.

All right. Thanks a lot.

Thank you.

Thank you. Our next question comes from Bob Evans with Craig-Hallum Capital. You may ask your question.

Good morning. And thanks for taking my questions.

First, can you comment a little bit on 2010 in terms of -- as the currency sits today, what type of currency impact are you seeing when you look kind of forward at -- for your budgeting?

Bob, as I just expressed -- I mean, we expect right now that the revenue impact for 2010 is going to be neutral, maybe slightly positive.

Okay.

And again, that's a dynamic changing, you know -- number, so --

Right. And then percent level of hedge? In terms of how much have you hedged out the Philippine peso, as well as other, you know, currencies that have a major impact?

Yes. What I would tell you, Bob, is that, you know, typically we hedge anywhere between 50% to 100% -- not 100 -- probably 50% to 80% of our exposure in the particular countries. So different countries that we have exposure on are hedged at different rates. And so the Philippines is heavily hedged, just because of the amount of activity we have there, whereas countries like Argentina, where the general trend in the currency is downwards, we do not hedge nearly as much.

Okay. And also in terms of revenue impact, can you give us a sense of how much revenue may be migrating from onshore to offshore? What type of revenue impact you might see from that in 2010?

You know, I think that we're not seeing anything abnormal in the pace of that at this point in time. If anything, it's maybe slowed down a little bit, and we're actually seeing increased interest in onshore job -- you know, in the US, as well as in other near-shore locations. So I don't think that we expect to see a significant amount of the -- of the embedded base at this point moving more business offshore. That said, I do think that the embedded base has other opportunities that they have not yet outsourced, and that they're targeting for outsourcing, and that will be a mixed, kind of, set of shores as to where that business is put.

Okay.

We're actually working on a number of those right now.

Okay.

If I hear you properly in terms of your new bookings of $100 million, just want to clarify what percent between your On Demand and direct alliance businesses? What percent of the whole is that of the $100 million? Did I hear around 45% or so?

Yeah, about 45%. That's about right.

Okay. Is that -- that's the highest percentage I can remember for those businesses in terms of new bookings. Is that a trend we should continue to see in the future? Is that -- do you see more and more bookings going towards the higher-margin pieces of the business?

Yes. That's accurate, and of course, it's going to vary by quarter. You know, with -- there's a lot of focus in 2010 by clients to get revenue stimulation, et cetera. So that's clearly one of the reasons why we're seeing a step-up in that area.

Okay.

And in terms of new business, are you -- or potential new verticals, can you elaborate a little bit more in terms of what pockets of the industry are starting to look to out-source more? Give us a little bit more sense in terms of where, you know, the pipeline discussions that you're having right now are coming from?

You know, I think that we're seeing quite a few opportunities in the technology area, in the search space, in -- in the FS area, Financial Services, with a lot of the big brands. And certainly there's -- we think there's more opportunity in the government with our technology platform. And then, of course, healthcare is untapped. That said, it's also unknown with the administration and -- you know, where we actually stand on what's happening to health care, et cetera, but we think that, at the end of the day, with the need for electronic medical records, et cetera, that that's just going to create more spend in that area.

Okay. Thank you.

Thank you.

Thank you. Our next question comes from Howard Smith of First Analysis. You may ask your question.

Yes, good morning.

Couple of questions. Having to do with the margins. You've done a great job of keeping the margins up here on the operating line with relatively low utilization in the centers, particularly the ones open a year, and, you know, I would think as you get better utilization that would cause upward pressure, you know, to the low teens, maybe even mid-teens in terms of margins, so I was wondering if you could comment on that at a high level over time.

And then the second question has to do with Professional Service versus the On Demand offerings. I would think Professional Services is more temporary in nature from a margin impact than the On Demand offerings? Am I correct in thinking about that? And if so, you know, what's the relative contribution there, near-term?

Howard, it's John.

Relative to the margins, I mean, you're spot on, in the sense that we do have a lot of leverage in the model right now, due to where we're at from a capacity perspective. So, yes, we would expect that over time we will see our margins improve, as sales come back in, and we start growing the top line. We are, as Ken pointed out, continuing to invest heavily in our sales and marketing organizations in order to get there. So, in the near term, you know, that margin expansion is something that we don't anticipate, but, again, it all is going to be tied to how quickly that revenue comes online.

-Relative to professional services and on-demand-type solutions. Again, you're correct in that the professional services are engagement related, and they're things that we have to go out and renew on a regular basis. With that said, we have, as Ken pointed out, again,lots of clients interested in those type of activities as they really try to understand how to best optimize their operations and improve in the areas related to customer experience, as well as revenue stimulation. So, you know, we do believe that, you know, that there is a -- a reccurring revenue stream to be had in that area, and hope to continue to grow it. As well as then the On Demand, Obviously longer-term contracts and solutions on behalf of our clients, we obviously like that business.

Okay. Great. Thank you much.

Thank you.

Thank you. We have time for one final question, and that comes from Shlomo Rosenbaum with Stifel Nicolaus. You may ask your question.

Hi. Thank you for squeaking me in here.

Ken, I wanted to ask, where are we in the volumes? You guys have won a lot of business which should overwhelm some of the volume declines that we've been seeing, but are we at the end of year-over year, or maybe better to say month-over-month, volume declines in general? Or are we another quarter or two out on that?

And than I also want to just follow up with just a question as to how the census contract should impact revenue over the year? Is that going to make things kind of lumpy in the second and third quarter with kind of a drop-off in 4Q? Thanks.

Hi, Shlomo, it's Ken.

I think that as it relates to volumes, we feel like we are nearing the end, but we're intentionally taking a very conservative nature in our forecast, and, you know, are trying to assume for the -- or trying to plan for the unknown as it relates to the economy. That said, we are starting to see a pickup in volumes in certain sectors, but there's certain clients that are still experiencing a little bit of weakness, and so, you know, are we seeing the kind of volume declines that we saw in '09 and the early part of '09? No, we're not. We're seeing -- but are we still seeing some declines with certain clients? Yes, we are.

That said, we're very hopeful to your point, with A, the new business wins, and B, with the embedded base starting to come back and showing some signs of volume increases, that that will more than makeup for some of the clients that have softer volumes.

The second part of your question, I'm going to ask John to answer.

Yes, Shlomo, relative to the census and how that's going to track in for the year. You're correct, in that we anticipate the revenue for that program to grow in the second and third quarters as we add the labor component to the technology component that we have been doing. Obviously, the census does end in the third quarter, and so we will have a drop-off from that program into the fourth quarter.

Thanks.

Sure.

Thank you.

Thank you. And this concludes the TeleTech fourth quarter and full-year 2009 earnings conference call. You may disconnect at this time.