TTEC Holdings Inc (TTEC) 2010 Q4 法說會逐字稿

Welcome to the TeleTech Fourth Quarter and full year 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. Thank you, ma'am, you may begin.

Thank you. Good morning and thanks for joining us today. TeleTech is hosting this call to discuss its fourth quarter and full year 2010 results ended December 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 fourth quarter and full year 2010 and also filed our Annual Report on Form 10-K. This call will reflect items discussed within those documents and we will make reference to them several times today. We encourage all listeners to read our Annual Report as well. Before we begin, I want to remind you of our disclosure regarding certain forward-looking statements. Matters discussed on today's conference call may include such statements relating to our operating performance, financial goals, business outlook 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 call and we undertake no obligation to revise this information as a result of new data 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 firms or the loss of one or more significant client relationships, execution risks associated with ramping the business or integrating acquired companies 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 Form 10-K, which was filed today. A replay of this call will be available on our website through March 16 and I will now turn the call over to Ken Tuchman, our Chairman and

Thank you, Karen, and good morning to everyone joining us today. I'd like to review our results for the fourth quarter and full year 2010. After which I'll provide my thoughts on the current business climate, along with our outlook for 2011. After that, John will discuss our financial results in more detail. Fourth quarter revenue was $280 million, up 3.5% from the third quarter. Keep in mind that our third quarter revenue included $24 million from the now completed US Census program. During the fourth quarter, we replaced this revenue and were able to grow sequentially as a result of the ramp of new business and approximately $10 million of seasonal work. Our full year 2010 revenue was $1.1 billion compared to $1.17 billion in 2009. Despite the significant economic headwinds, during the first half of 2010, we are pleased to have achieved both the revenue and the operating margin guidance that we announced earlier this year.

During the last two quarters of 2010, we won an incremental $100 million of annualized business from both new and existing clients. This brings our total signings for the year to $300 million. We believe our highly consultative approach and expansive suite of offerings is resonating with clients and providing us with increased boardroom access. In addition, our continuing investment in sales, marketing and vertical industry expertise is gaining greater traction and we're encouraged by the increased build of our pipeline and sales conversion. Turning now to our operating performance. Fourth quarter operating margin excluding unusual items was 8.3% and non-GAAP earnings per share was $0.28. We ended the year in a very strong financial position with $119 million in cash and $115 million of net cash after subtracting outstanding debt. As we begin 2011, our mission remains steadfast, to deliver transformational, technology-based solutions that both grow and optimize our clients' customer relationships.

This vision drives everything we do. It guides how we deliver value to our clients, engage our employees and provide return to our shareholders. We are living in the age of experience, where products or commodities and the customer experience differentiates the brand. In a world increasingly impacted by social networking, what customers say about a Company is increasingly more important than what companies say to them. It is in fact that companies who lead in customer satisfaction scores lead in customer retention, revenue growth, profitability, and market valuation. These companies view the customer experience as an investment, not a cost, and they view TeleTech as a strategic advisor and an implementation partner who can help them achieve measurable business outcomes.

This is a result of our nearly 30 year track record of continued innovation and investment in customer centric solutions that leverage technology to drive commerce and the highest levels of brand satisfaction. As we emerge from the great recession and the economy begins to recover, we are all well positioned for renewed growth. During 2010, we added 12 new clients that exemplifies this transformative approach to differentiating the customer experience. Let me take a moment to highlight the depth and breadth of some of these new business wins. The ability to drive global commerce and grow revenue is critical to our clients. During 2010, we won a multi-year agreement with one of the world's largest new economy companies to help them further penetrate the small and medium business markets.

For many companies, this is one of the largest but most difficult segments to cost effectively grow. Working with this client, we designed a multi-channel segmentation and acquisition strategy with a tailored marketing plan to help these customers maximize their search results. In less than six months our solution exceeded their targets for both new business and existing client growth. An important win in our customer innovation business was with one of the world's largest automotive manufactures. Given they had nine different providers, it wasn't a surprise that their customer experience was disconnected. They established a customer management office and selected us to redesign, deploy, integrate, and run their entire customer facing operation that included over eight different divisions, including consumer affairs, service, appointments, warranty support, consumer financing, and leasing.

Shifting to our On-Demand business, we recently won a five year agreement with a leading North American energy retailer to host their entire customer management environment. The client had grown extensively through acquisitions and selected TeleTech to migrate their entire network infrastructure and software applications for their front and back office associates from an disparate and outdated architecture to a fully hosted 100% cloud based environment. We've invested hundreds of millions of dollars since 2003 to develop this unique capability. The prospects of this business are exciting and we continue to set ourselves apart via this innovative offering. Lastly, let me share an example of our back office support. It's not uncommon for customer experience to suffer given broken and disconnected back office processes.

A leading telecommunications provider selected TeleTech to integrate over 100 unique business processes across 50 distinct lines of business, spanning consumer, small business, and retail for the dealer channels, to create a seamless experience for their customer. Our team of over 2000 dedicated associates provided back office and account management support for the majority of this client's products, including mobile, fixed line, cable television, and internet. This comprehensive enterprise-wide solution exemplifies the power of the TeleTech partnership. These examples are just a few of the new and diverse wins we enjoyed in 2010. We also believe our focus on higher margin services and transformative customer experiences is gaining traction with our existing accounts as well.

In 2010, we won newer expanded business from more than 40% of our existing accounts. A further validation of our differentiated industry position was Gartner's recent positioning of TeleTech in the leaders quadrant of their just published Global BPO Analysis. This report highlighted our market defining vision and hosted technology offerings as key differentiators. Additionally, just last week and for the third year in a row we were ranked in the top 100 of the world's best outsourcing providers at the Outsourcing World Summit. Turning to 2011, let me outline the strategic imperatives which we believe will be key drivers of our future growth. The first is continued innovation and revenue diversification. Since our inception, investment in innovation has been a key component of TeleTech's strategy.

Our vision for the future and the strength of our balance sheet have consistently allowed us to make significant investments in our solution offering and continue to differentiate TeleTech with current and perspective clients. We are now deeply involved in building vertical specific solutions that leverage our industry expertise and operational know how. As we increasingly shift our focus from labor intensive solutions, we expect our technology based offerings to grow from just 15% of revenue today to 40% over the longer term. This will come from sizeable investments we have made over the last five years in our professional services, revenue generation, On-Demand, data analytics, and virtualized workforce solutions to name just a few. The second imperative is continued investment in sales and marketing. In addition to our significant investment in innovation and diversification, our consistent profitability has enabled us to further our global investment in sales and marketing.

By the end of 2010, we had more than doubled our sales teams and launched five new products. We are encouraged by the initial progress this team is making and our hope is that they will meaningfully grow our new logos again this year. Looking ahead to 2011, we continue to invest in both of these areas to fuel future growth. The third imperative is the pursuit of strategic acquisitions that compliment and extend our capabilities. In 2010, we expanded our professional services capabilities with the acquisition of Peppers and Rogers Group. This preeminent global management consulting firm brings two decades of customer centric thought leadership, proprietary IP, and proven vertical expertise to our portfolio of offerings. This added knowledge and expertise reinforces our commitment and ability to drive both strategic consulting and operational execution for our clients. In summary, in today's competitive environment, leading companies select TeleTech because of our singular focus on designing and implementing solutions that grow and optimize the customer experience.

We achieve this through a rich operational heritage combined with a suite of consulting, technology, eCommerce, and data analytic capabilities that continue to keep us strategically relevant with our clients. Our management team, delivery capabilities and financial position are stronger than ever and we are pleased to get back on a growth trajectory as we start the New Year. To that end, we expect revenue growth of 5% to 6% in 2011. While we remain encouraged by the favorable trends in our pipeline, conversion rates and revenue diversification efforts, we also recognize that the global economy is recovering from a very turbulent period and we continue to closely monitor the macro environment while actively managing those areas within our control. 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. As Ken indicated earlier, we are pleased to have achieved both the full year 2010 revenue and operating margin guidance we announced early last year. Our focus remains on achieving the mid and long-term financial objectives we have set for the Company, while our near-term results may be impacted by decisions we make to invest in our people, products, technology, which enable us to reach these longer term goals. Let me take a few minutes this morning to provide some additional insight into our fourth quarter and full year results. Revenue for the fourth quarter was $280 million, up 3.5% from $271 million in the previous quarter and relatively flat with the year ago quarter. As Ken mentioned, we were pleased to have completely replaced the $24 million in census revenue that we enjoyed during the third quarter of 2010.

Revenue for the full year 2010 was $1.1 billion compared to $1.17 billion in 2009. Looking at our gross margin, our fourth quarter gross margin was 27.7% down from 30.9% in the year ago quarter and 28.4% in the previous quarter. The decline from both periods reflects the completion of the US Census program, which was a higher margin On-Demand program. Turning now to SG&A, our fourth quarter SG&A was $42.1 million or 15% of revenue compared to $15.7 million or excuse me, 15.7% of revenue in the year ago quarter and 15% of revenue in the previous quarter. Excluding equity compensation expense of $3.4 million in the quarter, SG&A as a percent of revenue was 13.8%. Our full year 2010 SG&A was also 15% of revenue. This is consistent with the 15% we reported in 2009.

It is important to note we have maintained our SG&A costs as a percent of revenue, while significantly increasing our sales organization and our investments in marketing and product development. We will continue to aggressively manage our SG&A costs relative to our revenue and, as discussed on previous calls, we believe the business can be effectively supported with SG&A costs in a range between 14% and 15% of revenue. Our fourth quarter GAAP operating income was $15.3 million or 5.5% of revenue. Adding back $8.1 million of restructuring and impairment costs, primarily related to expected employee severance, our fourth quarter non-GAAP operating margin was 8.3% of revenue for the quarter. Also impacting our fourth quarter operating margin were expenses in excess of $1 million related to investments in the revenue diversification initiatives Ken spoke of earlier, including the launch of our new loan servicing platform and acquisition costs related to the purchase of Peppers & Rogers Group.

For 2010, our GAAP operating income was $73.7 million or 6.7% of revenue. Adding back $15.4 million of restructuring and impairment costs, again primarily related to employee severance, our 2010 non-GAAP operating margin was 8.1% of revenue. Our effective tax rate in the fourth quarter was impacted by several one-time items resulting from the execution of various corporate tax planning and global cash management strategies. Specifically during the fourth quarter, we successfully repatriated $105 million of foreign earnings via a dividend to our US parent Company, which resulted in a onetime tax expense of $5.6 million. Additionally, we recorded net increase of $3.7 million in our deferred tax valuation allowance related to certain European operations.

Partially offsetting these items was a $2.5 million tax benefit related to tax planning strategies involving other foreign locations and the reduction in certain foreign withholding tax accruals. Excluding these onetime items, our normalized effective tax rate for 2010 was 24.7% -- excuse me, for the fourth quarter was 24.7%. The normalized effective tax rate for the full year 2010 was 19.3%. As a result of the various tax strategies we have employed, we believe our full year 2011 effective tax rate will range between 21% and 23%. Finally, our fourth quarter GAAP earnings per share was $0.07. Adjusting for the impact from both the restructuring and impairment charges, as well as a higher tax expense just discussed, our earnings per share was $0.28. Turning now to our segments.

Our North American BPO segment reported non-GAAP operating margin of 10.5% in the fourth quarter compared to 12.1% in the third quarter and 12.7% in the year ago quarter. The decline was attributable to the significant amount of higher margin On-Demand revenue in the previous quarters related to the US Census program that I mentioned earlier. Our international BPO segment returned to profitability on a non-GAAP basis in the fourth quarter, reporting operating income of $2.4 million or 3% on revenue of $81.6 million. This improvement reflects solid revenue gains, along with the continued efforts of our management team to improve program pricing and operating efficiencies, while at the same time rationalizing underperforming capacity. 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 $119.4 million in cash, no borrowings on our credit facility and $4.9 million of other debt. As a result, our total debt-to-capital ratio was at 1% and our current ratio was 2.5 times. Approximately $100 million of our international cash was repatriated to the US in December. The balance of international funds will remain offshore to support working capital and growth oriented requirements of our foreign operations. Our cash flow from operations was $14.5 million for the fourth quarter and $134.5 million for the full year 2010. After our capital expenditures, free cash flow was $5.1 million for the quarter and $108 million for the full year 2010. DSOs in the fourth quarter were 77 days versus 71 days in the year ago quarter. This increase is largely a distortion in the calculation resulting from our acquisition of PRG in December, whereby we consolidated only one month of their revenue but the balance sheet reflects the entire accounts receivable balance as of December 31.

Absent this anomaly, our DSOs were 72 days. As is customary at year-end, our DSOs increased slightly due to clients window dressing their balance sheets. As in the past, we enjoyed healthy collections in January and expect our DSOs to return to a normal range of 65 to 70 days in the coming quarter. As we discussed on our third quarter call, we amended our revolving credit facility in October, which extended the term through September of 2015 and increased our aggregate borrowing capacity to $350 million. The amended facility represents a $125 million increase from our previous $225 million facility and includes a $150 million accordion provision allowing us the option to increase the size of the facility to $500 million. In obtaining the amendment we exceeded our target commitment amounts and accomplished our pricing and structural goals, including foreign borrower and multi-currency flexibility.

As previously discussed, the new facility is used to fund our global working capital, growth initiatives and other strategic pursuits. As we look ahead, it is important to note that throughout last year, the Company took advantage of the permissibility of foreign affiliates to make short-term loans to a US parent Company without adverse US tax consequences. As a result, we had $87 million in short-term loans outstanding from several of our foreign subsidiaries at December 31, 2010. At this date there were no borrowings under our credit facility. However, the expiration of the tax rules allowing these short-term loans will result in increased borrowings in the US under our credit facility during 2011. These borrowings, however, are expected to be offset by the cash we will hold in our foreign locations. Our fourth quarter capital expenditures were $9.4 million compared to $5.1 million in the year ago quarter.

In 2010, we invested a total of $26.8 million for the maintenance and enhancement of our industry leading infrastructure and our proprietary suite of technology enabled offerings. As we have discussed in our previous filings and conference calls, we are constantly evaluating the client demand for and operating effectiveness and profitability of the various global markets in which we operate. As a result of this process, during the year we have selectively rationalized and closed underperforming capacity across both our business segments. As we look ahead, we plan to migrate certain operations out of Argentina during 2011. This is due to the significant government and union mandated increases of employee related costs, which we have absorbed for the past several years. We also expect to selectively expand our footprint during the year to meet the global delivery needs of our clients. We believe our 2011 capital expenditures will approximate $40 million.

In addition to strategic acquisitions, which Ken talked about, we continue to strongly believe that one of the best uses of our available capital is our share buyback program. During the fourth quarter, we continued to actively repurchase our shares, buying 1.8 million shares for $32 million. This brings our full year 2010 purchases to 5 million shares for $80 million. At the end of the year, we had approximately $45 million remaining for future share repurchases under our current forward authorization. Looking now at 2011, we believe our revenue growth will resume and our year-over-year revenue growth will approximate 5% to 6%. Additionally we expect our 2011 full year operating margin will range between 8.5% and 9.5% excluding unusual charges. As you think about this guidance, please recall that our 2010 revenue includes approximately $80 million of revenue from the US Census program we successfully completed last year.

Finally, before I conclude, I want to let you know that we submitted our 2010 Form 10-K in the new XBRL format, which will become the filing standard for all companies in the years ahead. We completed this change ahead of schedule and it is intended to provide investors with increased data uniformity to facilitate comparability of financial statements between companies. In closing, we are pleased to have achieved both the revenue and operating margin guidance we set forth early last year and we are excited about our growth and revenue diversification prospects for 2011. We have a management team that is focused on technology based innovation and on delivering strong results for both our clients and our shareholders. Thank you and with that I'll now turn the call back over to Ken.

Thank you, John. I'm proud of our progress in 2010, in spite of a very challenging global environment, and am grateful to our clients, employees, Board, and shareholders for their contributions to our performance. Our ability to combine breakthrough technology innovation with operational excellence puts us in a unique position to build engaging customer experiences, those that drive revenue, loyalty, satisfaction, and retention. As we prepare for the next decade I'm confident we have a value proposition and a delivery capability that will deliver strong growth, profitability and returns and as always, I look forward to sharing our progress with you in the coming quarters. Thank you.

Thank you. (Operator Instructions)Our first question comes from Ashwin Shirvaikar from Citi.

Hi, thank you. So, my first question is what percent of the $200 million bookings from the first three quarters is already flowing into revenues, and then I guess the second part of that is how much did the Peppers & Rogers acquisition contribute to 2011 growth estimates?

Ashwin, it's John. Relative to how much is in the run rate, again as we've talked about previously, it can take anywhere from four to six quarters. Some of the things that we announced earlier in the year were some rather large projects that have some extended ramp times. So, again, a portion of that is showing up and it is reflected in our guidance. And then what -- can you repeat your second question relative to -- ?

Right. The Peppers & Rogers acquisition, what's the revenue contribution of that in 2011?

Yes, we haven't specifically disclosed that, Ashwin, specifically because it's rather immaterial. I mean, it's a small consulting firm. Again, they provide a very strategic type capability and so we haven't come out and publicly stated what that is yet.

And I think it's safe to say that the majority of our growth in 2011 will be organic growth.

Okay, great. Thank you.

Thank you.

Our next question comes from Howard Smith from First Analysis.

Yes, good morning. Question regarding the gross margin target or maybe operating long-term. You talk about a 40% target at some point coming from technology. What type of operating model might that produce when you get there? Again, understanding there's no specific timeline.

So the question is what would the margins that we would expect from these businesses that we are diversifying into?

Yes, either way, or the blended margin, 60/40 when you have everything working right.

So, the blended margin would be in the low to mid-teens and the margin on the business that's technology, where we're diversifying into more data analytics, data management technology, et cetera., would be in the low 20s -- low double digits or low 20s range.

Okay, thank you.

So technology like type margins.

All right, I'll limit it to one and I'll get back in queue. Thank you.

Thank you.

Our next question comes from Mr. Toby Summer of SunTrust Robinson Humphrey.

Thanks. I wanted to ask a question, kind of modeling question on some of the line items below operating income to try to triangulate in on what a likely EPS range is. Anything shifting regarding the tax rates or interest expense and/or income that we should think about for 2011?

Toby, it's John. Relative to interest expense, as I indicated in my earlier comments, we will have some borrowings against our credit facility that are higher than we've had in the past ,because of some of the changes in the tax laws, so we do expect that number to go up. As far as the tax rate, again, believe that the effective tax rate for the year will range between 21% and 23%, which is a little bit lower than what we've seen this year.

Is that shift in the tax rate a function of having repatriated a decent chunk of the money in the fourth quarter?

Yes, it's all interrelated with some tax strategies that we've employed around the globe. That led to the repatriation that we did as well, but that's definitely what is driving that lower rate. The other thing, I guess, below operating income that will impact EPS is minority interest. As you may recall from our announcement relative to PRG, we own 80% of that particular entity, so there will be a minority interest for that that will be adding to what we have reported historically.

Is that new tax rate range on a relative basis something we should think about on an ongoing basis or is that specific to 2011?

Yes, right now it's specific to 2011. If you've got a better crystal ball relative to what the US government is going to do on its tax policy for corporations, you and I will have to go to lunch and have a discussion.

Yes, I wouldn't be on the call if my crystal ball was that good. A separate question on contract renewals. Could you describe kind of what you have in front of you for 2011 and 2012? I think the K refers to some renewals coming up, and then I'm also interested in any other collective bargaining agreements that you might have on the horizon in your international operations. Thanks.

Toby, it's Ken, how are you? We are feeling very comfortable with our contract renewals. We're well out ahead of them and I think that we'll continue to enjoy the type of renewal rates that we've historically renewed at, which are typically in the high 90 percentile of all of our business. So, we've been very proactive about this and we're very comfortable with where we are in the actual renewal process.

Toby, this is John. In terms of your other question around collective bargaining, I'm assuming you're talking about the labor issues we have in various countries. We don't have any significant collective bargaining agreements that are specific to TeleTech. Most of them are industry related in some of the Latin American and in Spain, specifically, that are out there, but even those agreements have just been recently renewed.

And just a last broad question to Ken. The sales environment feels a little bit better. You're forecasting some growth despite lapping census this work -- this year. Are you feeling good that there's some momentum here, both internally generated as well as perhaps a little rebound in the market?

Yes, I think what we're feeling is that we're looking at the amount of deals that we were able to convert in the last two quarters, which is really when we converted the majority of all of those deals, and we're looking at the size of our pipeline and how the pipeline is growing and maturing, and we feel comfortable that this year, based on where our base business is and based on the new business activities that we're already in negotiations with, et cetera, that it's leading us to feel comfortable that this is a growth year. So coming out of two years of shrinkage, it feels pretty darn good from that standpoint.

In addition to that, we're also sensing that, albeit that the global economy is crawling back, that people have kind of crawled out from underneath the rock and they're much more engaged in wanting to change their business and get new contracts signed. And then the last point that I would make is that there's a tremendous amount of energy in people wanting to update their technology. Quite a bit of their technology is past its useful life and so we're seeing a fair bit of opportunities in this area, which is why we have such a strong focus in our On-Demand area.

Thank you so much.

Thank you.

Our next question comes from Mike Malouf of Craig-Hallum Capital.

Great, thanks for taking my call. Just specifically with regards to Argentina, I know that sometimes that can be a little sticky getting out of a country like that. Can you give us any color on that exit strategy and whether or not we are going to expect any sort of lingering costs associated with that?

Mike, it's John. Relative to Argentina, a couple things. First, let's be clear. We're not shutting the country down. We are making conscience decisions to migrate the specific clients out of that country into other environments and other geographies that we have, which is going to help the longer term profitability of those specific programs. Relative to charges, I would tell you the largest percentage of the charge that we took in the fourth quarter reflects the anticipated cost for us to exit that market. So that is already something that we now have recorded and we don't expect additional -- significant additional cost as we move forward. And again relative to our clients down there, I mean our clients, again the ones that will be migrating, these are discussions that we've had ongoing now for the better part of six or nine months and they have all agreed, because they understand there's no way that they can compensate us to address the uncontrolled inflation and employee related costs down there.

Okay, great. And then just with regards to some of the things that are going on in the Middle East, can you give us a sense of what your exposure is, maybe in particular, do you have anything in Egypt and some of the -- any of the other areas that might be of concern for investors? Thanks.

Yes, we have no physical operations in the Middle East at this point in time, so I guess it's very minimal. We do have, I guess, I should say I don't want to say no. We have our -- the State Department work that we do, but that's all virtual. That's all done through the internet, et cetera, and so I guess my answer to you would be that it's very minimal impact if any.

Great. Thanks a lot.

Thank you.

Our next question comes from Robert Riggs of William Blair & Company.

Good morning, thanks for taking my question. As you think about your 2011 guidance for 5% to 6% revenue growth, are there any notable benchmarks that you need to hit that we need to keep our eyes out for in terms of the kind of the 15% of the business outside of the labor intensive activities?

Hi, Robert, it's Ken. So is the question is there a -- is this regarding the revenue diversification?

Well, I guess just in terms of what, for your revenue streams outside of the labor intensive businesses, how much is baked into your '11 guidance? If you show kind of better -- is that contributing to getting you to the high end or kind of what are the expectations for the contribution there?

Yes. I mean, I think as long as we continue with the type of quarterly signings that we have seen over the last three quarters, we'll be in good shape, and that's really what we're shooting for. That's what we've designed in our sales and marketing activity and I hope I'm answering your question.

Yes, and just real quick follow-up. Any notable changes in the competitive landscape, be it RevGen, technology solutions, things like that?

I don't think so. I mean, I think other than what we've been saying all along, which is that we really feel like we compete in a very different field than some of the companies that Wall Street wants to associate us with. Although they're all fine companies, we think that there is much more of a focus with some of these other companies in the labor area and how many seats they're going to sell. And our focus, we think, is much more consultative and much more focused on what's the outcome that the client is actually trying to achieve and therefore, there's a lot less focus on the human capital side and how many seats we're going to sell. And so, I think that what we're just simply seeing is, is that the space that we're competing in is a different space and we're hopeful that this space leads to higher margins and less risk of overall commoditization.

Great, thanks for the detail.

Thank you.

Our next question comes from Eric Boyer of Wells Fargo.

Hi, thanks. I was just wondering how much impact are the investments in 2011 expected to have on your operating margin?

We've certainly taken that into consideration in our guidance, Eric. So that -- the guidance of 8.5% to 9.5% would incorporate that, but we haven't really quantified it at this point.

Okay, I mean looking forward should it be the (multiple speakers) ?

We have quantified it internally, we have not quantified it externally. I want to be clear.

Right, so, going forward would it be past 2011 same type of investments that you make as far as the level or should it wind down some as you complete your global sales and marketing?

No, no, it will be constant focus of money put into sales, marketing, R&D, product development, product management, and we see no let down in that area in the foreseeable future. We think that it's absolutely critical. I mean, our belief is that this is about investing in the future and we've got a very solid cash flow, a very solid model, and we feel that we're going to differentiate ourselves in the marketplace with innovation, and we think it's what our clients are looking for versus being in kind of a lift and shift or mess for less type business.

Okay. Sorry if I've missed this, but it looked like your international segment had a pretty big jump in revenue. Was that mostly the acquisition or anything onetime related in that?

Eric, John. Most of that is actually organic growth in our Asia-Pac region, where we've got a large client there that has grown substantially with us, as well as then again even in Europe we've seen some increase in the fourth quarter in the revenues from clients there.

Okay, so you shouldn't expect that to dramatically drop off then from prior levels?

No. In fact we're hoping that it continues to grow.

We're going to continue to grow as we add more clients in the region.

Okay, great. And then is there any meaningful onetime revenue in your 2011 guidance?

No.

Okay. And then finally just on your gross margin in 2011. Since 2010 had the higher margin census revenue, how should we think about that?

Again, I think from a Company perspective, we target between 28% and 30% as an appropriate gross margin and so we're right underneath that. We do believe that that will pick up as, again, we add new clients, continue to fill capacity and create more of a mix relative to some of the higher margin items.

Okay, great. Thanks a lot.

Thank you.

Our next question comes from Shlomo Rosenbaum of Stifel Nicolaus.

Hi, thank you very much for taking my questions. Exiting Argentina sounds like a good idea and seems that a number of firms that are doing that. Can you comment on how much margin lift you can get by just exiting, which is a really poor area for most contact centers right now?

Shlomo, I don't have the specific margin lift that we could get by closing the location. We haven't looked at it. One of the things that everyone should understand about Argentina is we have core BPO operations down there, and then we also have a lot of shared service functions that TeleTech uses in IT, accounting, Human Resources that are still extremely cost competitive for us, and that talent is something that we're not prepared to basically let go and try to reestablish somewhere else. And so, we haven't really looked at it from a full closure perspective. We do believe that we'll get some improvement relative to the programs we're moving, but I don't have that specific number.

The other thing I would just comment on is we've been in this market for many, many years, so, we've gotten our investment back tenfold in this market. We're not a new enterer into the marketplace. We saw these issues coming down very early on, back in 2000, I want to say 2005 and we've been, I think, we've been very deliberate in all of our decisions in that area. That said, we are about to see a political change in the marketplace in the relatively near future and it's very much unknown as to what impact that political change is going to have.

It's safe to say that the experts in that market, the people that live in that market do not believe that the current political regime can continue, and therefore, there is a lot of talk about how the market could experience the same type of reset that it experienced back in 2000, I want to say 2002, which was very beneficial for us. So what I would just simply say to you is, is that although we've taken all the appropriate write downs, I wouldn't write the whole country 100% off at this point.

Okay, that's good color. Just a couple housekeeping things. It seems just from your comments that the AR skew from Peppers and Rogers is about $15 million. Is that right, John?

Yes, that's about right.

So just when I put that in context of the contribution to revenue growth, would -- do they have particularly long-term receivables or anything on there? I'm just trying to kind of bifurcate what should be organic and what should come from Peppers.

Yes. They're receivables, because of where they are doing the bulk of their business, are just by the business environment they're in are extended compared to what you would see in Europe or excuse me, in the US. They look a lot like what we see in Spain, which is 90 to 120 day plus. But again, that cost of money, if you will, is built into the pricing that is charged for those professional services.

Okay. Okay.I'm just trying to kind of get an idea of materiality of that revenue that we're kind of dancing around over here. One last item is if you guys are repatriating the funds, I'm just trying to get some clarity as to the inter-quarter borrowings, why that's going to still be necessary?

Well, the reason is it won't -- we won't be doing inter-quarter borrowings between our affiliates, therefore, again for the US cost structure, we will be borrowing in the United States against the revolver. What we have done in the past quarters is bring money in from overseas where, again, we have a significant amount of cash based on funding the operations over there and we're not going to be allowed to do that under the new tax regulations. And so that money will have to stay in those locations and we'll be using our revolver for the US component.

So you're saying that the working capital needs of the business are going to exceed the $100 million that you guys have repatriated, that's why you're going to dip in in the US? I'm just trying to get an understanding of this -- .

Yes. And again, not just working capital. We've got share repurchase programs that we're engaged in, any acquisitions that we may do out of the US, so there are things that we're investing in here that aren't just working capital. Capital -- CapEx as we look at capacity that we may build in the US.

Yes, I don't think you should assume that there's any unusual CapEx expenditures coming up. That we're right in line as we consistently are with our CapEx, et cetera.

All right, thanks a lot, guys.

Thank you.

Sure.

At this time, we have time for one more question. And our question comes from Mr. Matt McCormick of BGB Security.

Yes, hi, good morning. In terms of your guidance for '11, could you talk about what we should expect in terms of adding seats and what utilization should, how that should trend throughout the year?

Matt, it's John. Again, we obviously have looked at where we have capacity, where the demand is appearing relative to that, and we do expect to add seats. In terms of a gross add, it's going to be dependent on where the sales occur and what markets we have the capacity in. So, we are prepared to fund in those growth markets that we don't have capacity and we will obviously drive utilization and the others where we do. Again, we will also continue to evaluate every site that we have to make sure that it continues to meet the needs of our clients, both from an operational perspective as well as an economic perspective.

But I think it's safe to say that we have excess capacity in markets that are in demand and that we're seeing that capacity being filled with the current contracts that we've recently signed, as well as we're looking to fill it further with new contracts that we're under negotiation with. And so we're comfortable that our utilization through 2011 is going to go up and that we'll get better overall utilization across the enterprise.

Okay. And then in terms of the On-Demand win that you highlighted, I guess could you provide a little bit more detail? Is that client using that service on an in-house basis? Is that really the opportunity for that offering, or are you seeing clients using that offering for their -- to consolidate their many outsourced vendors.

Yes, I mean, the people who we're targeting or our clients, I should say, that we're targeting for this are typically utilizing their own human capital and they're taking advantage of our technology. So if you're -- and in many cases they might actually be doing business with other outsourcers and using the technology to actually provide to not only their internal operations, but to other outsourcers and we're very comfortable with that. So, that is certainly our focus and our goal is to continue to find more clients like that, that want to take advantage of the majority of the suite of the technology offerings that we have for these large global 1000 companies.

Okay, thank you.

Thank you.

Great. Thank you. This concludes our call for today and we'll be available for the rest of the afternoon if you have any questions. Thanks so much.

This concludes the TeleTech fourth quarter and full year 2010 earnings conference call. You may disconnect at this time.