Achieves Record Quarterly Revenue of $274 Million;
Operating Margin Increases by 139 Percent From Last Quarter
DENVER, Nov. 2 /PRNewswire-FirstCall/ -- TeleTech Holdings, Inc.
(Nasdaq: TTEC), a global provider of customer management and transaction-based
business process outsourcing (BPO) services, today announced third 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
September 30, 2005.
Business highlights include:
* Several new client wins and key client renewals
* Third quarter 2005 operating margin more than doubles from last
quarter
* Capacity utilization improves by 25 percent sequentially in shared
client centers
* International segment profitable before corporate allocations
* Global profit improvement plans on track
* Newgen's operating loss reduced by nearly half from last quarter
* Under construction for 1,500 new workstations in the Philippines
* $63 million of common stock repurchased year-to-date through
October 31, 2005
* $52 million of international monies moved back to the U.S. resulting
in no bank debt outstanding as of September 30, 2005
Third Quarter Second Quarter Third Quarter
2005 2005 2004
Financial Results (Unaudited)
Revenue $274.3M $253.9M $258.3M
Operating income $11.9M $4.5M $12.2M
Net income $11.6M $3.7M $10.6M
GAAP EPS $0.16 $0.05 $0.14
Non-GAAP EPS* $0.08 $0.05 $0.14
Total stockholders' equity $305.7M $297.9M $300.3M
Other Financial Measures
Operating income margin 4.3% 1.8% 4.7%
Total debt to total
stockholders' equity 3.1% 10.1% 5.0%
Net cash* $46.0M $52.7M $42.6M
EBITDA* $24.6M $18.0M $24.0M
Free cash flow* $7.4M $11.0M $37.3M
Days sales outstanding (DSOs) 62 56 57
*See attached reconciliation of Non-GAAP financial measures.
EXECUTIVE COMMENTARY
"We are pleased to report record revenue for the quarter and a significant
improvement in our sequential operating margin," said Ken Tuchman, Chairman
and Chief Executive Officer. "Our improved performance is the result of the
work we completed over the last 36 months to fine tune every aspect of our
global business. We remain committed to achieving our long-term goal of
growing both revenue and operating margin to a run rate of $1.5 billion and
10 percent, respectively, by the end of 2007."
"We continue to see increased demand for our services as current and
prospective clients are increasingly focused on our unique capabilities given
we deliver both innovative offerings and measurable results," continued
Tuchman. "During the past several months, TeleTech renewed or expanded
existing client business estimated at $70 million annually and signed new
client relationships estimated at $20 million annually in the financial
services, communications, healthcare, and commercial industries. We are
investing in an enhanced product suite that leverages our existing
infrastructure and is actively being marketed to current and prospective
clients. We continue to expand and grow existing client relationships given
our high client satisfaction levels, and our prospects for new business around
the globe remain strong."
REVENUE
Third quarter 2005 revenue was a historic high of $274.3 million, a
6.2 percent increase compared to $258.3 million in the prior year quarter, and
an 8.0 percent increase compared to $253.9 million for the last quarter.
These increases are primarily attributable to higher revenue in North America
and in certain international locations. Included in revenue for the North
America segment is work TeleTech performed during the quarter on behalf of a
large, U.S. government agency to assist in Gulf Coast hurricane relief
efforts.
OPERATING INCOME
Third quarter 2005 income from operations was $11.9 million compared to
$12.2 million for the prior year quarter. Included in the third quarter 2005
operating income is a litigation and claims charge of $2.9 million, the
majority of which pertains to a legal judgment that the company is appealing
and plans to vigorously contest. Included in the prior year quarter operating
income was a benefit of $2.0 million related to the reduction of certain
self-insurance reserves. Additional information regarding comparability to
the prior year quarter is included in the Company's September 2005 Quarterly
Report on Form 10-Q.
Third quarter 2005 operating margin was 4.3 percent compared to
4.7 percent for the prior year quarter, and a meaningful increase over the
1.8 percent reported for the second quarter of 2005. Excluding the above
mentioned items, the operating margin percentage for the third quarter 2005
and 2004 would have been 5.4 percent and 3.9 percent, respectively.
INCOME TAX EXPENSE
TeleTech recorded a net, one-time reduction to tax expense of $6.0 million
during the third quarter 2005, which is the net of a one-time reversal of its
$9.9 million U.S. deferred tax valuation allowance offset by a one-time
increase to tax expense of $3.9 million related to the repatriation of foreign
funds.
In the prior year quarter, TeleTech recorded a reduction to tax expense of
$4.9 million related to various tax planning strategies.
During the fourth quarter 2005 and thereafter, the Company expects its
effective tax rate will approximate 40 percent.
BALANCE SHEET, CASH FLOW AND LIQUIDITY
TeleTech ended the third quarter 2005 in a strong financial position with
$55.5 million in cash and cash equivalents and no bank debt outstanding. Days
sales outstanding (DSOs) were 62 days at the end of September, up from 56 days
for the last quarter due in part to the ramp of a program on behalf of a U.S.
government agency.
Capital expenditures for the third quarter 2005 were $10.0 million versus
$5.8 million during the year ago quarter as the Company has been expanding its
capacity to meet client demand.
Earnings before interest, taxes, depreciation and amortization (EBITDA)
and Free Cash Flow are two liquidity measures. Free Cash Flow is impacted by
changes in working capital accounts and capital expenditures. EBITDA for the
third quarter 2005 was $24.6 million, up 36.8 percent from $18.0 million for
the last quarter and comparable to the prior year quarter. Free Cash Flow for
the current quarter was down from both the last and prior year quarters
primarily due in part to (1) working capital used to launch and operate the
U.S. government program as the company had not received payment for services
rendered on that program as of quarter-end and (2) increased capital
expenditures.
SHARE REPURCHASE
During the third quarter, TeleTech repurchased 1.6 million shares of its
common stock for a total of $14.4 million. Year-to-date through October 31,
2005, TeleTech repurchased approximately 6.6 million shares for a total of
$63 million, which is recorded as a reduction to stockholders' equity.
FOURTH QUARTER 2005 OUTLOOK
TeleTech expects fourth quarter 2005 revenue to increase sequentially from
the third quarter 2005. The Company also believes the operating results for
its Database Marketing and Consulting segment, which represents 8 percent of
its consolidated revenue, will approximate the third quarter 2005 results.
NON-GAAP FINANCIAL MEASURES
Pursuant to Regulation G as issued by the Securities and Exchange
Commission, the attached tables provide a reconciliation of the differences
between the Non-GAAP financial measures as discussed above including "Non-GAAP
EPS", "Net cash", "EBITDA", and "Free cash flow", and TeleTech's closest
comparable financial measures in each case calculated in accordance with GAAP.
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 third
quarter 2005 financial results on Thursday, November 3, 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 Thursday, November 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 40,000 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: the Company's belief that it's continuing to see strong demand
for its services; estimated revenue from new or expanded client business; the
belief that the prospects for new business remain strong; achieving the
Company's expected profit improvement in its International 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 year-end 2007 financial goals and targeted cost reductions; the
possibility of the Company's Database Marketing and Consulting segment not
increasing revenue, lowering costs, achieving similar operating results to its
third quarter 2005 results, or returning to historic levels of profitability
thereafter; the possibility of lower revenue or price pressure from clients
experiencing a downturn or merger 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 September 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
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(In millions)
(Unaudited)
Reconciliation of Non-GAAP EPS
Third
Quarter 2005
GAAP Net Income: $11.6
Less: one-time, tax benefit from
reversal of deferred tax
valuation allowance $(9.9)
Plus: one-time, tax expense from
repatriation of foreign monies
under the American Jobs Creation
Act of 2004 $3.9
Non-GAAP Net Income $5.6
Diluted shares outstanding 72.591
Non-GAAP Earnings per Diluted
Share $0.08
Reconciliation of Net Cash
Third Second Third
Quarter Quarter Quarter
2005 2005 2004
Net Cash:
Cash and cash equivalents $55.5 $82.9 $57.6
Less: current portion of long-
term debt and capital lease
obligations $(0.2) $(0.2) $(0.3)
Long-term capital lease
obligations $(1.1) $(1.1) $(0.1)
Bank debt --- $(21.9) $(7.2)
Grant advances $(6.9) $(7.0) $(7.2)
Other long-term debt $(1.3) --- $(0.2)
Net Cash $46.0 $52.7 $42.6
Reconciliation of EBITDA
Third Second Third
Quarter Quarter Quarter
2005 2005 2004
Net Income $11.6 $3.7 $10.6
Interest income $(0.9) $(0.8) $(2.3)
Interest expense $0.7 $0.7 $2.8
Provision for income taxes $0.4 $0.6 $(1.4)
Depreciation and amortization $12.7 $13.7 $14.3
EBITDA $24.6 $18.0 $24.0
Reconciliation of Free Cash Flow
Third Second Third
Quarter Quarter Quarter
2005 2005 2004
Free Cash Flow:
Net cash provided by operating
activities $17.4 $20.2 $43.1
Less: purchases of property
and equipment $(10.0) $(9.2) $(5.8)
Free Cash Flow $7.4 $11.0 $37.3
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three months ended Nine months ended
Sept 30, Sept 30,
2005 2004 2005 2004
Revenue $274,259 $258,347 $782,518 $791,876
Operating expenses:
Costs of services 202,492 188,808 580,663 (3) 587,213
Selling, general &
administrative 46,642 43,072 136,728 (4) 122,215 (11)
Depreciation and
amortization 12,659 14,304 40,650 44,492
Restructuring
charges, 537 (1) (54) (8) 1,480 (5) 2,110 (12)
Impairment losses -- -- 2,537 (6) 2,641 (13)
Total operating
expenses 262,330 246,130 762,058 758,671
Operating Income 11,929 12,217 20,460 33,205
Other income
(expense) 524 (344) 1,530 (7) (3,946)
Debt restructuring
charges -- (2,756) (9) -- (10,402) (14)
Income Before Income
Taxes 12,453 9,117 21,990 18,857
Income tax expense
(benefit) 432 (2) (1,372) (10) 3,204 (2) 4,825 (10)
Income before Minority
Interest 12,021 10,489 18,786 14,032
Minority interest (401) 68 (713) 316
Net Income $11,620 $10,557 $18,073 $14,348
Basic Earnings Per
Share $0.16 $0.14 $0.25 $0.19
Diluted Earnings Per
Share $0.16 $0.14 $0.24 $0.19
Operating Income
Margin 4.3% 4.7% 2.6% 4.2%
Net Income Margin 4.2% 4.1% 2.3% 1.8%
Effective Tax Rate 3.5% (15.0)% 14.6% 25.6%
Weighted Average Shares
Basic 71,650 74,612 72,946 74,733
Diluted 72,591 75,944 74,604 75,909
Notes:
1. Represents a $0.1 million charge related to a reduction in force, a
$(0.1) million benefit related to revised estimates of restructuring
charges, and a $0.5 million charge related to a facility exit charge
in connection with SFAS No. 146.
2. Includes a $(9.9) million benefit due to the reversal of income tax
valuation allowance, and a $3.9 million charge related to a
repatriation of foreign earnings under a Qualified Domestic
Reinvestment Plan.
3. Includes a $(2.0) million benefit due to revised estimates of
self-insurance accruals.
4. Includes a $(0.4) million benefit due to revised estimates of self-
insurance accruals.
5. Represents the net $0.5 million charge described in Note 1 above, in
addition to a $1.0 million charge related to a reduction in force.
6. 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.
7. Includes a $(1.0) million benefit due to a litigation settlement.
8. Represents a $0.5 million charge related to a reduction in force,
and a $(0.6) million benefit related to revised estimates of
restructuring charges.
9. Represents a $2.8 million one-time charge related to the termination
of an interest rate swap agreement.
10. Includes a $(4.9) million tax benefit related to implementation of
certain tax planning strategies.
11. 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.
12. Represents the $(0.1) million benefit described in Note 8 above, in
addition to a $1.8 million charge related to a reduction in force,
a $(0.1) 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.
13. Represents a $2.6 million charge related to the impairment of fixed
assets in connection with SFAS No. 144.
14. Represents the $2.8 million charge described in Note 9 above, in
addition to a $7.6 million one-time charge related to restructuring
of the Company's debt facilities including a make-whole payment.
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
SEGMENT DISCLOSURES
(In thousands)
(Unaudited)
Nine months ended Three months ended
Sept 30, Sept 30,
2005 2004 2005 2004
Revenue:
North American Customer Care $474,852 $481,321 $170,930 $157,387
International Customer Care 244,157 236,233 82,596 76,625
Database Marketing & Consulting 63,509 74,322 20,733 24,335
Total $782,518 $791,876 $274,259 $258,347
Operating Income (Loss) :
North American Customer Care $40,752 $41,806 $15,654 $13,996
International Customer Care (12,188) (14,799) (1,871) (2,898)
Database Marketing & Consulting (8,104) 6,198 (1,854) 1,119
Total $20,460 $33,205 $11,929 $12,217
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
Sept 30, December 31,
2005 2004
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $55,463 $75,066
Accounts receivable, net 184,097 148,627
Other current assets 63,576 54,342
Total current assets 303,136 278,035
Property and equipment, net 122,497 132,214
Other assets 94,070 86,546
Total assets $519,703 $496,795
LIABILITIES AND STOCKHOLDERS' EQUITY
Total current liabilities $176,842 $136,192
Other noncurrent liabilities 31,430 30,186
Minority interest 5,733 7,872
Total stockholders' equity 305,698 322,545
Total liabilities and stockholders'
equity $519,703 $496,795
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
RECONCILIATION OF CASH FLOWS
(In thousands)
(Unaudited)
Nine months ended Three months ended
Sept 30, Sept 30,
2005 2004 2005 2004
Cash flow from operating activities:
Net income $18,073 $14,348 $11,620 $10,557
Adjustments to reconcile net income
to net cash
provided by (used in )
operating activities:
Depreciation and
amortization 40,650 44,492 12,659 14,304
Other (5,991) 1,059 (6,860) 18,259
Net cash provided by operating
activities $52,732 $59,899 $17,419 $43,120
Total Capital Expenditures $23,614 $26,151 $10,043 $5,808
Free Cash Flow $29,118 $33,748 $7,376 $37,312
CONTACT: Karen Breen, +1-303-397-8592, or Dan Campbell, Investor
Relations, +1-303-397-8634, both of TeleTech Holdings, Inc.
