Generates $11 Million in Free Cash Flow and Repurchases $15 Million in
Common Stock; Announces Phase IV Cost Improvement Plan
DENVER, Aug. 3 /PRNewswire-FirstCall/ -- TeleTech Holdings, Inc.
(Nasdaq: TTEC), a global provider of customer management and transaction-based
business process outsourcing (BPO) services, today announced second quarter
2005 financial results. The Company also filed its Quarterly Report on Form
10-Q with the Securities and Exchange Commission for the quarter ended
June 30, 2005.
Second Quarter Second Quarter
2005 2004
Financial Results (Unaudited)
Revenue $253.9M $265.5M
Operating income $4.5M $14.9M
Net income $3.7M $2.4M
EPS - diluted $0.05 $0.03
Total stockholders' equity $297.9M $278.4M
Other Financial Measures
Operating income margin 1.8% 5.6%
Total debt to total stockholders' equity 10.1% 26.1%
Net cash* $52.7M $7.8M
Free cash flow* $11.0M $(17.6)M
Days sales outstanding (DSOs) 56 57
*See reconciliation of Non-GAAP financial measures below.
REVENUE
Second quarter 2005 revenue was $253.9 million compared to $265.5 million
during the year ago quarter resulting from lower revenue in North America.
During the past sixty days, the Company signed agreements with several new
and existing clients, including one of the largest global airlines, a major
U.S. healthcare company, a U.S. cable company, a digital entertainment
company, and a leading U.S. wireless company, among others. These contracts
represent approximately $50 million of annualized revenue once fully ramped.
This future revenue will be offset, in part, by a client with excess internal
capacity that is moving work back in-house during the third quarter 2005.
OPERATING INCOME
Second quarter 2005 income from operations of $4.5 million was
$10.5 million less than the year ago quarter due to, among other items
described in the 2005 second quarter Form 10-Q, a $7.5 million decline in
Newgen's operating results and, as anticipated, a $2.7 million reduction in
minimum commitments from a large client. Additional information regarding
comparability to the prior year quarter is included in the Company's June 2005
Quarterly Report on Form 10-Q.
The second quarter 2005 benefited by $3.4 million related to a one-time
reduction in TeleTech's self insurance liability and a litigation settlement.
These benefits were offset, in part, by a $2.5 million charge for the planned
closure of TeleTech's Glasgow, Scotland facility disclosed in the Company's
Business Update press release dated July 19, 2005. TeleTech believes the
decision to exit the Glasgow facility is in the best interest of its
shareholders as it positions the Company to return to profitability in the
United Kingdom during the latter half of 2006.
COST IMPROVEMENT INITIATIVES
During the past two years, TeleTech implemented and successfully achieved
two cost improvement plans totaling $60 million. In January 2005, TeleTech
announced the third phase of its cost improvement plan of $20 million annually
and is on target to fully realize these improvements during 2006.
Today, TeleTech announced the fourth phase of its cost improvement
initiatives, which is expected to further improve the Company's future cost
structure by an additional $20 million annually. The major cost improvement
initiatives in Phase IV include efficiencies gained from modifying the way
TeleTech hires, trains, and retains employees, as well as savings associated
with exiting higher-cost global facilities.
When TeleTech completes the Phase IV plan, the Company will have achieved
$100 million in cost improvements since the multi-phase plan was originally
announced in August 2003.
EXECUTIVE COMMENTARY
Ken Tuchman, Chairman and Chief Executive Officer said, "While I am
disappointed that Newgen did not reduce its operating loss as anticipated, we
continue to take the necessary steps to return them to profitability. During
the quarter, Newgen made progress in completing its technology migration to a
new platform and in consolidating its operational and back office functions
within core TeleTech. Additionally, we are nearing completion of our search
for a proven, experienced professional to lead Newgen, and believe that
individual will be on board during the fourth quarter."
"On an annualized run-rate basis, TeleTech has been incurring at least $15
million in higher selling, general and administrative expenses to deploy and
market new innovative offerings such as TeleTech On Demand(TM) and TeleTech In
Culture(TM), to expand the sales organization, and to streamline and
standardize operational processes. I am confident that these investments will
pay off in the future. Our primary focus remains continuing to close new
business, sell higher-margin offerings, and invest in our sales organization
to drive long-term profitable growth. Since the beginning of 2005, we have
repurchased 3.3 million shares for a total of nearly $32 million and going
forward, management is committed to continuing the share repurchase program."
Dennis Lacey, Executive Vice President and Chief Financial Officer, said,
"As a result of our profitability and cost improvement initiatives, our net
cash position grew $45 million from the year ago period, after repurchasing
$32 million of treasury stock during that period of time. We continue to
pursue ongoing cost improvement initiatives and today we are announcing Phase
IV of our multi-phase cost improvement plan."
INTEREST EXPENSE
Interest expense in the second quarter 2005 was $0.7 million, lower by
$1.9 million from the $2.6 million reported for the second quarter of 2004.
Second quarter 2005 interest expense was higher than for the first quarter of
2005 as a result of utilizing the revolving credit facility to repurchase the
Company's common stock.
BALANCE SHEET
TeleTech ended the second quarter 2005 in a strong financial position with
$82.9 million in cash and cash equivalents and net cash of $52.7 million after
$30.2 million in total debt. DSOs were 56 days at the end of June and within
the Company's targeted DSO range of 50 to 60 days.
Capital expenditures for the second quarter 2005 were $9.2 million versus
$8.5 million during the year ago quarter.
LIQUIDITY AND FREE CASH FLOW
TeleTech generated $11.0 million of free cash flow during the second
quarter of 2005, which improved from the year ago quarter primarily due to a
decrease in accounts receivable.
During the second quarter of 2005, TeleTech continued its share repurchase
program and purchased 1.9 million shares for $15 million, leaving
approximately $13 million authorized to be repurchased under the Company's
current share buy-back program. Going forward, management of the Company is
committed to continuing its share repurchase program.
THIRD QUARTER 2005 OUTLOOK
TeleTech believes third quarter revenue will be comparable to the second
quarter revenue as the summer is seasonally slower in certain international
regions and revenue from new business wins are expected to begin ramping
primarily in the fourth quarter 2005 and continue ramping during 2006. The
Company believes its Newgen subsidiary will operate at a profit, excluding
corporate allocations, during the fourth quarter of 2005.
NON-GAAP FINANCIAL MEASURES
Pursuant to Regulation G as issued by the Securities and Exchange
Commission, the tables below provide a reconciliation of the differences
between the Non-GAAP financial measures as discussed above including "Net
cash" and "Free cash flow", and TeleTech's closest comparable financial
measures in each case calculated in accordance with GAAP.
Second Second
Quarter 2005 Quarter 2004
Net Cash:
Cash and cash equivalents $82.9M $80.4M
Less: current portion of long-term
debt and capital lease obligations $(0.2)M $(0.8)M
Long-term capital lease obligations $(1.1)M $(0.3)M
Bank debt $(21.9)M $(64.2)M
Grant advances $(7.0)M $(7.3)M
Net Cash $52.7M $7.8M
Second Second
Quarter 2005 Quarter 2004
Free Cash Flow:
Net cash provided by (used in)
operating activities $20.2M $(9.1)M
Less: purchases of property
and equipment $(9.2)M $(8.5)M
Free Cash Flow $11.0M $(17.6)M
These Non-GAAP financial measures should be used in addition to, but not
as a substitute for, the Company's comparable GAAP financial measures. They
are presented because TeleTech's management uses this information when
evaluating current results of operations, and believes this information
provides the users of the financial statements with a useful comparison of
TeleTech's current results of operations with past and future periods.
SEC FILINGS
The Company's filings with the Securities and Exchange Commission are
available in the "Investors" section of TeleTech's website, which can be found
at www.teletech.com.
CONFERENCE CALL
TeleTech executive management will hold a conference call to discuss
second quarter 2005 financial results on Thursday, August 4, 2005, at
11:00 a.m. Eastern Time. You are invited to join a live webcast of the call
by visiting the "Investors" section of the TeleTech website at
www.teletech.com. If you are unable to participate during the live webcast, a
replay of the call will be available on the TeleTech website through
Wednesday, August 17, 2005.
ABOUT TELETECH
TeleTech is a global business services company that provides a full range
of front- to back-office outsourced solutions including customer management,
BPO, and database marketing services to measurably enhance clients' core
customer management processes. TeleTech's ability to create innovative
strategies, combined with its global technology platform and delivery
infrastructure, helps clients increase revenue, lower costs, and retain their
customers around the world. TeleTech's products and services, standardized
processes, and recognized capabilities to implement complex global projects
make the Company a valued partner for clients that include Global 1000
businesses and governments. TeleTech partners with clients to offer 150
languages, through its more than 32,000 employees, in 17 countries. For
additional information, visit www.TeleTech.com.
FORWARD-LOOKING STATEMENTS
This press release may contain certain forward-looking statements relating
to future results. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements. These forward-looking
statements are subject to risks and uncertainties that may cause TeleTech's
and its subsidiaries' actual results to differ materially from those expressed
or implied by such forward-looking statements, including but not limited to
the following: risks associated with achieving the Company's expected profit
improvement in its United Kingdom operations; the ability to close and ramp
new business opportunities that are currently being pursued with existing
clients and potential clients; the ability for the Company to execute its
growth plans, including sales of new products (such as TeleTech On Demand(TM)
and TeleTech In Culture(TM)); to increase profitability via the globalization
of its North American best operating practices; to achieve its three-year
financial goals and targeted cost reductions; the possibility of the Company's
Database Marketing and Consulting segment not increasing revenue, lowering
costs, achieving profitability, excluding corporate allocations, in the fourth
quarter of 2005, or returning to historic levels of profitability; the
possibility of lower revenue or price pressure from clients experiencing a
downturn in their business; greater than anticipated competition in the
customer care market, causing adverse pricing and more stringent contractual
terms; risks associated with losing or not renewing client relationships,
particularly large client agreements, or early termination of a client
agreement; the risk of losing clients due to consolidation in the industries
we serve; consumers' concerns or adverse publicity regarding the products of
the Company's clients; higher than anticipated start-up costs or lead times
associated with new ventures or business in new markets; execution risks
associated with performance-based pricing metrics in certain client
agreements; the Company's ability to find cost effective locations, obtain
favorable lease terms, and build or retrofit facilities in a timely and
economic manner; risks associated with business interruption due to weather or
terrorist-related events; risks associated with attracting and retaining cost-
effective labor at the Company's customer management centers; the possibility
of additional asset impairments and restructuring charges; risks associated
with changes in foreign currency exchange rates; economic or political changes
affecting the countries in which the Company operates; changes in accounting
policies and practices promulgated by standard setting bodies; and, new
legislation or government regulation that impacts the customer care industry.
Please refer to the Company's filings with the Securities and Exchange
Commission, including the Company's Annual Report on Form 10-K for the year
ended December 31, 2004 and Quarterly Report on Form 10-Q for the three months
ended June 30, 2005, for a detailed discussion of factors discussed above and
other important factors that may impact the Company's business, results of
operations, financial condition, and cash flows. The Company assumes no
obligation to update its forward-looking statements to reflect actual results
or changes in factors affecting such forward-looking statements.
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three months ended Six months ended
June 30, June 30,
2005 2004 2005 2004
Revenue $253,933 $265,531 $508,259 $533,529
Operating expenses:
Costs of services 187,161 (1) 194,674 378,171 (1) 398,405
Selling, general &
administrative 46,110 (2) 38,777 (7) 90,086 (2) 79,143 (7)
Depreciation and
amortization 13,683 14,206 27,991 30,188
Restructuring
charges, net (10)(3) 322 (8) 943 (6) 2,164 (11)
Impairment losses 2,537 (4) 2,641 (9) 2,537 (4) 2,641 (9)
Total operating
expenses 249,481 250,620 499,728 512,541
Operating Income 4,452 14,911 8,531 20,988
Other income
(expense) 132 (5) (1,242) 1,006 (5) (3,602)
Debt restructuring
charges -- (7,646) (10) -- (7,646)(10)
Income Before
Income Taxes 4,584 6,023 9,537 9,740
Income tax expense 623 3,675 2,772 6,197 (11)
Income before
Minority Interest 3,961 2,348 6,765 3,543
Minority interest (249) 42 (312) 248
Net Income $3,712 $2,390 $6,453 $3,791
Basic Earnings
Per Share $0.05 $0.03 $0.09 $0.05
Diluted Earnings
Per Share $0.05 $0.03 $0.09 $0.05
Operating Income
Margin 1.8% 5.6% 1.7% 3.9%
Net Income Margin 1.5% 0.9% 1.3% 0.7%
Effective Tax Rate 13.6% 61.0% 29.1% 63.6%
Weighted Average
Shares
Basic 73,008 74,519 73,594 74,794
Diluted 74,501 75,260 75,611 75,892
Notes:
1. Includes a $(2.0) million benefit due to revised estimates of
self-insurance accruals.
2. Includes a $(0.4) million benefit due to revised estimates of
self-insurance accruals.
3. Represents a $0.1 million charge related to a reduction in force, and
a $(0.1) million benefit related to revised estimates of
restructuring charges.
4. Represents a $1.5 million charge related to the impairment of fixed
assets in connection with SFAS No. 144 and a $1.0 million charge
related to facility exit charges.
5. Includes a $(1.0) million benefit due to a litigation settlement.
6. Represents the net $0.0 million benefit described in Note 3 above, in
addition to a $1.0 million charge related to a reduction in force.
7. Includes a $1.9 million reversal of a portion of the estimated sales
or use tax liability related to the Database Marketing and Consulting
segment.
8. Represents a $0.2 million charge related to a reduction in force, and
a $0.1 million charge related to revised estimates of restructuring
charges.
9. Represents a $2.6 million charge related to the impairment of fixed
assets in connection with SFAS No. 144.
10. Represents a $7.6 million one-time charge related to restructuring of
the Company's debt facilities, including a make-whole payment.
11. Represents the $0.3 million charges described in Note 8 above, in
addition to a $1.6 million charge related to a reduction in force,
a $(0.2) million benefit related to revised estimates of
restructuring charges, and a $0.4 million charge related to a
facility exit charge in connection with SFAS No. 146.
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
SEGMENT DISCLOSURES
(In thousands)
(Unaudited)
Six months ended Three months ended
June 30, June 30,
2005 2004 2005 2004
Revenue:
North American
Customer Care $303,922 $323,934 $151,670 $161,658
International
Customer Care 161,561 159,608 81,141 79,184
Database Marketing
& Consulting 42,776 49,987 21,122 24,689
Total $508,259 $533,529 $253,933 $265,531
Operating Income
(Loss):
North American
Customer Care $25,098 $27,810 $13,865 $18,011
International
Customer Care (10,317) (11,901) (5,994) (7,184)
Database Marketing
& Consulting (6,250) 5,079 (3,419) 4,084
Total $8,531 $20,988 $4,452 $14,911
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, December 31,
2005 2004
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $82,909 $75,066
Accounts receivable, net 156,219 148,627
Other current assets 51,973 54,342
Total current assets 291,101 278,035
Property and equipment, net 120,852 132,214
Other assets 87,637 86,546
Total assets $499,590 $496,795
LIABILITIES AND STOCKHOLDERS' EQUITY
Total current liabilities $143,707 $136,192
Other noncurrent liabilities 51,712 30,186
Minority interest 6,235 7,872
Total stockholders' equity 297,936 322,545
Total liabilities and stockholders' equity $499,590 $496,795
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
RECONCILIATION OF CASH FLOWS
(In thousands)
(Unaudited)
Six months ended Three months ended
June 30, June 30,
2005 2004 2005 2004
Cash flow from operating
activities:
Net income $6,453 $3,791 $3,712 $2,390
Adjustments to
reconcile net income
to net cash provided
by (used in)
operating activities:
Depreciation and
amortization 27,991 30,188 13,683 14,206
Other 869 (17,200) 2,820 (25,681)
Net cash provided by
(used in) operating
activities $35,313 $16,779 $20,215 $(9,085)
Total Capital
Expenditures $13,571 $20,343 $9,174 $8,477
Free Cash Flow $21,742 $(3,564) $11,041 $(17,562)
CONTACT: Investor Relations, Karen Breen, +1-303-397-8592, or Dan
Campbell, +1-303-397-8634, or Public Relations, Susan Koehler,
+1-303-397-8313, all of TeleTech Holdings, Inc.
