TTEC Holdings Inc (TTEC) 2010 Q1 法說會逐字稿

Welcome to the TeleTech first quarter 2010 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. You may begin.

Good morning and thank you for joining us today. TeleTech is hosting this call to discuss our results for the first quarter ended March 31. Participating on today's call will be Ken Tuchman, our Chairman and CEO; and John Troka, our CFO.

Yesterday we issued a press release announcing our financial results for the first 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 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 management's current beliefs and assumptions. Please note that these forward-looking statements reflect our opinions only as of the date of this presentation, and we undertake no obligation to revise this information as a result of new information that may become available after the call.

Forward-looking statements are subject to various risks, uncertainties and other factors that may cause our actual results 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 risk associated with ramping or migrating new business, and the possibility of additional asset impairments and/or restructuring charges.

For a more detailed description of these risk factors, please review our SEC filings along with our 2009 annual report on Form 10-K.

A replay of this conference call will be available on our website through May 20.

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

Good morning to everyone joining us today. I'd like to take a few moments to review our performance for the first quarter of 2010, and then I will provide some commentary on the current business climate and our outlook for the rest of the year. After that, John will discuss our financial results in more detail.

First-quarter revenue was $272 million, compared to $304 million in the first quarter of 2009. The lower revenue was primarily attributable to lower client volumes along with their desire to more fully leverage our offshore footprint.

To that end, our offshore revenue was $123 million for the quarter, or approximately 45% of our consolidated revenue.

During the first four months of 2010, we signed an estimated $55 million of new revenue from both new and existing clients. This includes a portion of a 2,000 workstation deal with a large US-based client, as well as several wins tied to our unique capabilities in the areas of both revenue generation and technology-enabled on-demand solutions.

While I am disappointed that we only signed $55 million of incremental new business, I'm very encouraged by the velocity of new opportunities that we are actively engaged in, including a number of meaningful new business opportunities that are expected to close in the next couple of months.

Many companies took a very cautious stance at the beginning of the year and delayed strategic business decisions until they could better assess the economic outlook and its impact on their businesses. We are now seeing many existing and prospective clients coming out of their foxholes and moving forward on strategic actions. As a result our pipeline continues to build and we are confident that we will sign multiple new business opportunities in the coming months. That will continue to further diversify our existing client base.

Turning now to our operating performance. We had a 40 basis point improvement in our operating margin, 7.1%, from 6.7% in the year-ago period.

Our non-GAAP operating margin was 7.7% of revenue.

These improvements were primarily driven by the following. Our continued focus on growth and higher margins, 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 first quarter were $0.21, and $0.22 excluding unusual charges.

Turning to our balance sheet. We remain in an extremely strong financial position to fund our future growth requirements. Our long track record of free cash flow and profitability has placed us in this unique position within our industry.

We ended the quarter with $134 million in cash and $127 million of net cash after subtracting outstanding debt. This represents a significant increase when you consider we had $35 million of net cash at the end of first quarter a year ago and that we repurchased nearly 52 million of stock over the past four quarters, of which approximately 20 million was repurchased in the first quarter.

I'd like to now discuss several key accomplish we've had since the start of the year.

First, we successfully launched one of the largest hosted on-demand offerings in history of our industry for the U.S. Census program. More than three years ago IBM and Lockheed Martin selected TeleTech to design, build and test and deploy a private network that has virtually connected more than 8,000 associates across five providers to ensure optimum results for the U.S. Census project.

Through our proprietary network, TeleTech is providing custom-designed desktop applications, sophisticated workforce management tools, and intelligent analytic reporting.

When this project is completed, TeleTech will have built one of the largest fully integrated cloud-based delivery platforms of any BPO provider. We are actively working with IBM to see if other government agencies may be interested in using this platform once the census work is completed.

Second, the volume and size of new opportunities in our sales pipeline continues to gain traction. Back in 2007, before we entered this unprecedented global recession, there was a flight to quality by many companies who were seeking strategic partners such as TeleTech to help them continue their growth and trajectory and to capture greater market share.

During the recession, however, many companies shifted their focus to rapid cost reduction, oftentimes sacrificing quality to make sure they weathered the economic crisis. This extreme cost-cutting had a negative impact on many company's customer satisfaction as well as resulted in extreme customer churn.

Now that many companies are seeing signs of improvement in the economy, they're shifting their focus back to growth and customer retention, and as a result are resuming their flight to quality.

The customer experience is once again paramount, and companies are looking to consolidate the high-quality providers who can deliver on that objective. TeleTech's value proposition has always been centered on this and is driving significant increases in our sales pipeline across all verticals, as well as new economy companies.

That being said, there is a timing issue associated with closing and ramping these new opportunities relative to the soft volumes we continue to experience with certain clients in the communications and technology verticals.

Third, as we have discussed on prior calls, we are making continued investments in further building and strengthening our sales team and market reach. To that end, during the first quarter we hired Joe Bellini as our Chief Sales Officer. Joe's career spans engineering, marketing, sales and executive management at esteemed companies such as EDS, Oracle and others. Joe is a proven hands-on business leader, and we are excited to have someone of his caliber leading and expanding our worldwide sales organization. We believe that Joe, along with certain other key hires, will continue to help improve our new business wins and drive profitable growth in the coming quarters.

Lastly, we received several performance accolades this quarter, including being named partner of the year by one of the world's largest consumer electronics retailers. TeleTech was selected for this award for a variety of reasons, including our ability to increase our client's customer satisfaction scores by more than 10%, our ranking as top performer in first-call resolution, and our consistent achievement of our client's key business objectives.

Our ability to continue to deliver improved financial performance will rely on our ongoing ability to strategically align our company goals with our clients' business goals. In 2010 our top priorities for our clients and for ourselves continue to include revenue generation and diversification, insuring the ultimate customer experience, process and technology optimization, and risk mitigation.

Now let me turn to our business outlook. As the US economic outlook continues to improve and we further strengthen and expand our sales team, we expect to see our pipeline of meaningful opportunities build. We believe that the European market will continue to lag the recovery in the US, based on the many concerns that have been raised about the region over the past few days and months.

That said, we are currently in advanced discussions with multiple clients, and we expect several large opportunities will close in the coming months to offset lower expected volumes with certain clients. Accordingly we believe our annual 2010 revenue will approximate $1.1 billion, and operating margin will range between 8% and 9%, excluding any unusual charges.

As we have shared with you on 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.

The fundamentals of our business remains strong, our management team, which I believe is the strongest in our industry, is committed to delivering on our strategic objectives, and I am confident that the pace of new business wins will continue to pick up through the year.

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.

Revenue for the first quarter was $272 million, compared to $304 million in the year-ago quarter. As Ken touched on earlier, this decline is attributable to several factors, including lower client volumes, the migration of existing client programs to offshore delivery locations, and our ongoing efforts to proactively manage underperforming client programs out of our portfolio.

The sequential revenue decline from the fourth quarter was primarily attributable to the $8 million reduction in seasonal volumes that we discussed on our fourth-quarter call. The sequential decline also reflects a $2 million impact from the strengthening of the US dollar, primarily against the Euro and the British Pound Sterling.

As for gross margin, our first quarter gross margin increased 30 basis points over the year-ago quarter to 28.3%. This improvement was due to the favorable shift of revenue to our more profitable service offerings and delivery locations. In addition, improvements in workforce attrition and the termination of underperforming client programs both had a positive impact on our profitability.

Our first quarter SG&A was $43.4 million or 16% of revenue. Excluding equity compensation expense of $3.2 million in the quarter, SG&A as a percent of revenue was 14.8%.

Our first quarter GAAP operating income was $19.3 million or 7.1% of revenue. This compares to $20.3 million or 6% of revenue in the year-ago quarter.

Adding back the $1.5 million of restructuring charges primarily related to the closure of a Canadian delivery center, our non-GAAP operating margin was 7.7% of revenue.

Sequentially we saw decreases in both our gross and operating margins. This decrease in margins reflects a combination of both favorable nonrecurring items improving our margins in the fourth quarter as previously disclosed, as well as additional cost items impacting our current quarter. These items include the favorable impact in the fourth quarter from adjustments to our self-insurance reserve, statutory and contractual wage increases effective January 1 in certain countries, the impact from the resetting of payroll tax withholdings for the new year, and the costs associated with aligning our workforce to client commands by program and geography.

While individually these items are immaterial, when taken together they drive the sequential decrease you see in our reported results.

Our effective tax rate for the first quarter was 26.5%, up from 24.6% in the year-ago period. The rate was higher in the first quarter due to the higher mix of revenue from onshore locations as well as strong profit contributions from our technology-based products and services.

As for earnings per share, our GAAP EPS was $0.21, and after adding back the unusual charges, it was $0.22.

Turning now to our segments. Our North American BPO segment reported an operating margin of 9.5%, as compared to 11.1% in the year-ago quarter.

Excluding $1.5 million of restructuring charges, the operating margin was relatively flat with the year-ago.

Our international BPO segment was roughly breakeven, compared to a $5.1 million loss in the year-ago quarter. This is primarily due to the actions we took in 2009 to move underperforming business out of the portfolio and to realign our cost structure to our revenue levels.

On a sequential basis, the revenue and margin decreases in both segments reflect the items I previously discussed, with the largest incremental cost impact occurring in the North American BPO segment.

Focusing now on our cash flow and liquidity, we continue to be very pleased with our generation of strong cash flow. It ended the quarter with $134 million in cash, no borrowings on our credit facility, and $7 million of other debt. As a result, our total debt to capital ratio was 1.5% and our current ratio is 2.7 times.

Cash flow from operations was $51.4 million for the first quarter. After excluding capital expenditures of $6.6 million, free cash flow was nearly $45 million.

In the first quarter our DSOs improved by five days, from 71 days to 66 days. This is well within our targeted range of 65 to 70 days.

Our first quarter capital expenditures decreased to $6.6 million from $8.5 million in the year-ago quarter.

In addition to the regular and ongoing maintenance requirements associated with our global infrastructure, we continue to commit both capital and operating expenditures to the development and enhancement of our proprietary suite of technology-enabled offerings. For 2010 we expect capital expenditures to range between $25 million and $35 million.

Based on confidence in the prospects of our business, we actively continued our stock buyback program in the first quarter, repurchasing 1.1 million shares for $19.6 million.

With our Board's approval to increase the share repurchase program by $25 million in February and the first-quarter repurchase activity I just described, we have $31 million remaining in our Board authorization for future share repurchases.

In summary, we remain focused on improving our topline growth while continuing to deliver strong operating performance and the 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 remain focused on delivering improved topline performance as the pace of new business further accelerates and clients return their focus to revenue growth and customer retention. Our ability to solve our clients' most ambitious 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.

I look forward to updating you on our continued progress in the coming quarters. Thank you.

As we open the call up to questions, we would ask that everyone limit their questions to just one so that we have time to take everyone's' inquiries. Rosie, you can now open the call to questions.

(Operator Instructions). Tobey Sommer, SunTrust Robinson Humphrey.

I was wondering if you could give us some more color on what sort of things are making you confident in the timing of new deals. I'll let you just give us some color there. Thank you.

First of all, we had several deals that we originally expected were going to close in fourth quarter, of which those deals ended up getting closed in first quarter. We had several deals that we expected that were going to get closed in the first quarter that now are being pushed, some of which we'll have signed in just the next week or two, and some of which we will have signed in the middle of the quarter, and that we are confident based on the fact of where we are in the contractual negotiations that these deals will in fact get done.

So our confidence is really based on where deals are in the pipe and where they are in the negotiating process. And so we're basing it just on that as to what we have left to sign in this quarter that frankly we were disappointed didn't get signed in first quarter.

I will respect Karen's instructions and get back in the queue.

Bob Evans, Craig-Hallum Capital.

Can you comment -- can you elaborate in terms of the guidance or, if you will, the targets that you gave on revenue? Can you give us a greater sense of what's really driving that? Is it one or two clients in terms of telecom and technology? Is it more across the board? And perhaps what's changed over the last -- let's say over the last 90 days?

It's not one client, it's over various, different clients. And it's in various different markets. And really it has to do with the fact that some of these clients, their volumes have just continued to drop. And in spite of the fact that they didn't believe they were going to drop, but they just saw weaker demand for their services and their products, etc.

In some cases some of the ones that saw some of their volumes dropping all the way up until last quarter are now starting to see some volumes coming back. In other cases they are projecting they are going to be flat through this year and expecting growth next year. So it's a little bit of a -- it's a bit of a mixed bag with various different clients. But it's all tied to the economy.

And this is nothing that is unique that we are experiencing. Several other providers in the marketplace are experiencing the exact same thing. And as we've said in the past, we are as healthy as our clients are. So when our clients are experiencing downturns in their revenues, unfortunately it gets reflected in some of our clients' volumes.

That said, the way we avoid this going forward is we get very, very serious on expanding our client base and diversifying our client base -- and we are all over that. We are very focused on it, we are signing new logos, we are adding clients that we have never done business with before, and we think this year and next year we will materially impact the number of clients that are delivering important revenue to us.

And just one follow-up to what you answered -- given that, how should we think about Q2, kind of given the current state of volumes?

I don't want to avoid your question, but as you know, we just don't want to start the practice of giving guidance. We are comfortable with the numbers we've put out there thus far, and I really don't want to give overall quarterly detail.

Fair enough, thank you.

Sri Anantha, Oppenheimer.

John or Ken, if you guys could comment, in the past you guys have been talking about churning away unprofitable customers proactively. Where are you in that process today? Are we completely behind? Or is there still some more to be done? When you say volumes are still declining, could you give us a sense like, is the rate of decline still accelerating, or is it some -- it has moderated and we've seen a majority of the declines and we should see at least some kind of a stabilization going forward? Thank you.

No, that's a great question. As you know, we have been very proactive in managing customers that are not meeting a certain profitability threshold. It's safe to say that we are really down to a much smaller set of business that doesn't meet our profitability threshold than we've had historically. So the answer to your question -- yes. It will decelerate considerably going forward based on the clients that we have and where those clients are, etc. So we feel very comfortable that we will be churning less of our internal business due to profitability reasons.

And what about the volumes?

I'm sorry, I didn't hear the --

What about the volumes?

I'm sorry, I apologize. I don't know what the question -- volumes regarding --?

You said volumes still remain under pressure, you're not seeing any kind of a pickup in volumes. Are the volumes still declining at an accelerating rate? Or are they kind of, say, hey, they've moderated here, the rate of declines, and we should at least expect some kind of stabilization going forward, at least given the pipeline of opportunities you're seeing?

We do believe that the volumes are in fact starting to stabilize. We were hopeful that they were going to be more stable in the last quarter, but based on clients' forecasts that we are receiving, we are starting to see some green shoots, and we are actually having some clients now asking us to prepare to ramp up in certain areas.

That said, there are still a few clients that volumes are not in fact -- that I don't think have necessarily hit bottom. But overall I would say the majority of clients now are seeing -- are showing I should say stabilization in their volumes as it relates to the 90-day rolling forecasts that they give us.

Got it, thank you so much.

Eric Boyer, Wells Fargo.

Could you just elaborate on the new head of sales and talk about what your changing organization, about how you're going to market?

Sure. As we have said in the middle of last year that we were going to get very serious about doing a far better job in us being represented in the marketplace. And we've always felt like we have won our fair share of business. But frankly we've never really felt like we've had enough overall presence in the marketplace on a global basis.

And so really, just the simplistic answer is that we are adding senior professionals in the space, most of which are not from this space but in fact have significant large-deal outsourcing background, significant consultative selling background of large deals, etc. And we are adding them in all the various different regions that we are focused on driving revenue. It's pretty straightforward.

In addition to that, we have ramped up our marketing efforts and our positioning efforts, and in addition to that, we have ramped up our consulting efforts.

We are not interested in being perceived to the street as similar to other providers that are truly just focused on mess for less or a [teak] and seat type environment, but instead we are really focused on being an organization that is known for helping our clients with transformative type outcomes in the areas of revenue generation and in the areas of driving the customer experience.

And the deals that we are winning are based on that value proposition, versus I can do it in India or I can do it in some other offshore market for less than you can -- which we think is a model that ultimately doesn't last since there's such a focus now on quality and churn reduction.

And just a quick follow-up. When you bring on a new salesperson, how long does it usually take for them to be productive? Thanks.

Good question. I think it takes them -- realistically it takes them nine months. The way we look at it is you bring someone in and you're evaluating their pipeline in the first six months, and within nine months you know whether or not you have someone that is going to really be generating meaningful business.

Again, I want to stress that the people we are bringing in our very experienced, very seasoned professional executives that know how to present to Boards and know out of present to CEOs, and we believe that's really where our sweet spot is. And now what we just simply need to do is expand the physical amount of people that we have so that we can get appropriate market coverage and take advantage of all the opportunities in the marketplace.

(Operator Instructions). Tobey Sommer, SunTrust Robinson Humphrey.

I had a follow-up question on the new business. Ken, how should we think about what can sometimes be expense associated with ramping new business? Is that something that's built into the operating margin of guidance for the year? And maybe you could also characterize the degree to which you've been successful you feel in incorporating those kind of ramping expenses into contracts. Thanks.

So if I heard your question correctly, the question was -- how do we account for ramp expenses? And are they built into our pricing models? Is that (multiple speakers)

Are they built into pricing models and into guidance so that if you are successful in signing a lot of these deals, does that mean that the near-term margin could be impacted more?

No. The near-term margins would not be impacted more. But go ahead, John, do you want to add some color to that?

Yes. We obviously have bake in all of the costs for the ramp within the price mechanisms that we put before the client. It's contracted with the client as to how that's going to be recovered, and so depending on which way that goes, determines if there is an immediate impact or if it's amortized. But at the end of the day, those are the things that are considered as part of our guidance. If there is some major shift in how we see contracts being negotiated, it might impact it. But we don't anticipate it at this point.

Do you have any expectation for the potential impact of currency, given all the fluctuation seems to be a very prevalent theme here in this earnings season for most companies? And then I was wondering if you have a cash flow expectation for the year. Thank you.

Relative to the FX, we do anticipate some additional headwinds in light of what's going on in Europe, primarily, and our operation over there. We are not forecasting a cash flow publicly. We understand that -- it's impact on our business. We do believe our cash flow will continue to be strong and consistent with what we've been posting.

Thank you.

Ashwin Shirvaikar, Citigroup.

My question is -- and I apologize, I hopped on a little bit late -- but I'm trying to delve a little bit further into the delta between signing $350 million of bookings over the last five quarters and what's going on with revenues. I know a big part is that clients are sending more work offshore and existing clients are doing less work, so volumes are down. But can you explain all the different pieces to what is going on? Because that seems like a very large bookings number to have not materialized here so far.

Well, I wouldn't say that it hasn't materialized. I think what it's done is it's offset some pretty significant volume reductions. Again, I don't need to remind you, this has been the worst recession that I have seen in my lifetime and I think you've probably seen in your lifetime.

That said, it's about $295 million for the four -- on an annualized basis for four quarters. When you take into account that it takes us, depending upon the size of the opportunity, anywhere from a year to a year and a half to really get the business actually ramped, then on top of that you take into consideration the amount of business that's moved offshore and that has not stayed onshore and that each time $1 moves offshore it reduces the revenue by 50%, it's not hard to understand that delta.

So I guess as a recap, it's a combination of timing issues on the ramps, a combination of volume reductions, and it's a combination of business moving offshore.

But the math does foot. Believe me, we look at it often.

And so I guess the silver lining of all of that is that we are still signing a significant amount of new business, and we think that as we ramp up our sales force -- and it is already getting larger as we speak -- what -- that we will see sequential increases down the line in quarterly signings. And we are seeing it right now in the signs of that our pipeline has -- is building dramatically.

Now, part of that we think is just the overall economy starting to come back, people are coming out of their foxholes, and so we are getting the benefit of people who held off on making any decisions because they were in survival mode. Part of that we would hope is our efforts being in the marketplace and trying to drum up and create opportunities that ultimately we feel will convert to revenue.

So when you sign a particular contract, how do you make the assumption what percent of this is going to be offshore? I would imagine that it is already in your number.

No, we know that ahead of time. Not in all cases. We've actually had situations where we have had clients start in one region and after the whole thing was ramped up -- I'm not sure exactly why -- they then decided -- and we had hit all their satisfaction levels -- that now they wanted to move to another region.

So that does happen. Unfortunately that slows things down. It doesn't happen often, thankfully, but it does happen. It actually happened last year with a particular client.

But no, we know ahead of time where they want to ramp, and then depending upon if we have the capacity, which now we do, determines if we can start the ramp immediately. In some cases we are physically building infrastructure and we could be behind on the ability to even start on the ramping of that particular site for up to 90 or 120 days.

But for the most part everything we are winning now going forward, we are in-filling existing capacity. That said, not to bore you with all the details, but you have some clients who definitively want to be in one site, in a dedicated site, and they are not willing to expand into other sites until that site is full.

Well, unfortunately when clients take on that position, you're hiring in a linear fashion and therefore you're limited to the speed at which you can actually ramp the size of the project.

Whereas we have other clients that will ask us to launch in three and sometimes four sites simultaneously, and that allows us to significantly increase the speed at which that we can actually ramp the business.

So I'd love to tell you that there's -- there's not an easy way to answer your question, just due to the amount of variables that are involved in a client's needs and the way we physically launch them.

But as we've said, it's safe to say that on a deal that's, let's say, a couple thousand -- for example, we recently signed a deal for 2,000 workstations that we are ramping, but to be conservative, we only put in the signings for the quarter -- a third? About a third or so of those 2,000 seats, and then we will spill probably another third of it into the next quarter, just as a way of being conservative based upon the way we are ramping the actual business.

And then the question of ramps, of course, is quite important because -- and you've discussed this in the past. Several other of your competitors do seem to have shorter ramps, and your take on that has been that you do more complex stuff. Could you comment on that? To what extent is it maybe a different offering that you have that will be leading to maybe the slower ramp? Or (multiple speakers)

Yes. Well first of all, we can debate who these companies are off-line and whether they're really our competitors.

But what I would say to you is the following. A high percentage of the business we win is very complex. And the training associated with that business is anywhere from eight to as much as 11 or 12 weeks. So consequently, if you just do the math, when you're training somebody for eight to 12 weeks, that means they don't begin to really start generating recurring revenue, so to speak, until three months after you've actually hired them.

Secondly, you have physical limitations as to how many physical people you can train in the number of classrooms that you have available at that site. So as for how other competitors are ramping at a more rapid rate, I would say that it's tied to the fact that, A, we tend to be given the more difficult business. We see that consistently where we are involved in projects that we are sharing with other companies and where we consistently have queues that others don't have that are dramatically more complex and require a lot more training.

Secondly, once you get past the actual impact of the training, a lot of times there's some complex logistics of the client that is now having to make their own arrangements internally with the volumes they are taking out of their internal sites, and so consequently they have to time that with various different public relations issues, they have to time it was government issues, they have to time it with various different things which can impact the launch as well.

And then the last point is that our focus is on having flawless launches and on having high customer satisfaction, client satisfaction. And that happens through doing launches properly and doing them right. And so I would just simply say there is a fair bit of transactional business out there that we don't even bid on where they're training people for one or two weeks and they are on the phone, etc. And that tends to be the work that's under extreme price pressure, that's commoditized, and that doesn't require any form of desktop technologies.

Last point I'll make is a high percentage of the business that we bring on requires us to introduce technology to our client's desktop or they are asking us to use our own desktop.

So all these factors play in, which is probably why the tenure of our customer base is now getting close to 10 years as far as a big chunk of the majority of the revenue has been with us for such a long-term period of time and continues to keep renewing.

That's very complete. I have two housekeeping questions if I can squeeze them in. One is the (technical difficulty) in client volume. Is that -- how much is voluntary versus client-driven?

And then the cash that you have, which is very significant now, how much is in the US versus outside?

The volumes are client-driven (multiple speakers) that answers your question. I think that's what I am -- if I'm understanding your question --

No, because you were stepping away from certain less profitable contracts also. Is that still the case? In that number?

Do you want to go ahead and answer it?

Yes. Ashwin, I think you are just talking about attrition. We are saying of that amount, probably 3% to 4% are things that we would've tried to manage out of the portfolio because it was underperforming last year. But we believe that number will go down, as Ken was saying, as we've managed a lot of that business out already.

Okay. Got it. Okay. And on the cash, how much is US versus outside?

How much of the cash is what?

In the US versus outside the US.

$17 million of the cash is in the US, and the remainder is outside the US. But again, we have full access to that and can bring it to bear wherever it's needed.

Thank you guys.

Robert Riggs, William Blair & Company.

Just a quick follow-up on the building cash balance on the balance sheet and the strong free cash flow in the first quarter. Can you just address your appetite for acquisitions and then the potential opportunities that would look attractive to you at this point.

Sure. Well, obviously we have an obligation to our shareholders to manage our balance sheet as intelligently as we know how to. Therefore we are always looking at opportunities. We are always looking for ways to drive shareholder value. And historically what we have found is a high percentage of the deals that we've looked at, quite frankly, we were buying business that we felt ultimately -- we would be buying business that we felt we would ultimately be winning anyway. And we -- or we found there were many companies out there that their contracts just were so bad that we would be basically buying a boat anchor.

And so we have been very conservative in our acquisition philosophy and our strategy, and what I would tell you is that we are very actively in the marketplace looking at a number of different opportunities, but they've got to be accretive. And they can't be something that's going to change the complexion of a company that wants to get back to being a high-growth company and a company that historically has been long-term very profitable. And so that limits really the universe of the opportunities that are out there.

So hopefully that answers your question.

In the meantime, while we are looking, we will continue to acquire our own stock, because it's incredibly accretive, especially at these prices. And when the right opportunity comes along, I can assure you that we will be aggressive and we will act on it.

Great. I guess I was thinking about maybe the -- since you are doing more technology-related offerings, didn't know if there were any small deals that you could pick up to kind of improve I guess maybe your own internal processes as far as it goes for those technology offerings.

No, that's a great question. The answer is that we are looking at a whole -- a myriad of technology companies out there. One of the dilemmas that we have with many of them is the fact that the ones that have the most interesting technologies don't have scale. So then it's really a matter of actually just buying a raw technology that we can apply to our client base. And in some cases that might make sense, and we are looking at that.

But in reality from an acquisition standpoint it would be nice to find something that could potentially have enough scale and girth that it could maybe move the needle a little bit.

And then lastly, people have very unrealistic price expectations, and therefore we need to make sure that whatever we buy is going to make sense to our shareholders and that we are not going to overpay for it.

Great, thanks.

Bob Evans, Craig-Hallum Capital.

First, can you talk about the -- just how should we think about margins as the year progresses? You were a little bit above in Q1 -- and I'm talking about gross margin -- and had built up as the year goes on. Are we thinking similar margins? Or with the lower volumes we should be thinking about slightly less?

Relative to margins, obviously we've provided the guidance on our overall operating margin. If you look at that and what we expect for the year, that would imply that we expect our gross margin to increase slightly through the year.

Well, although the operating -- the operating margin is actually year-over-year going to be down; right? So -- and I understand that it's going to increase as -- from Q1 because it's seasonally always the lowest gross margin, but I'm just trying to get a sense of how we should think about margins maybe relative to last year or from a mix. I'm just looking for a little bit more granularity as to how margins might be impacted, because I know you're moving to more and more offshore, which is generally beneficial.

Again, I think if you look at where we were in the first quarter and where we are projecting, again, we are comfortable that we will see some improvement in our gross margin throughout the year. Now, you can look back at how that compares to last year. But we will range in a range of 1 or 2 percentage points of what we did last year on the gross margin side.

We historically have always had a track record of being very conservative. So we don't want to get ahead of our skis in a marketplace that still the economy is rather unpredictable. That's why we are saying what we are saying today, etc., and our goal is -- and I think our track record shows -- is to try to under-promise and perform or over-perform whenever it's possible.

So I would just simply say to you that when you look at our track record of the number of quarters, how profitable we have been, how we continue to find ways to become more and more efficient, etc., you should assume that we are trying to be conservative, and that's the posture that we are choosing to take at this juncture, based on where the economy still is.

Thank you very much.

This concludes the TeleTech first quarter 2010 earnings conference call. You may disconnect at this time.