Announces Plans to Reduce Debt by $50 Million and to Implement
Additional Cost Reductions
DENVER, May 5 /PRNewswire-FirstCall/ -- TeleTech Holdings, Inc.
(Nasdaq: TTEC), a global provider of customer management solutions, today
announced first quarter 2004 financial results. The company also filed its
Quarterly Report on Form 10-Q with the Securities and Exchange Commission for
the quarter ended March 31, 2004.
TeleTech's previously announced cost reduction initiatives enabled the
company to operate profitably during the first quarter. TeleTech reported net
income of $1.6 million or 2 cents per fully diluted share. This compares to
net income of $2.8 million, or 4 cents per diluted share, for the first
quarter 2003 and to a net loss of $2.4 million, or 3 cents per diluted share,
for the fourth quarter 2003.
Revenue for the first quarter 2004 was $266.1 million and up
$20.3 million, or 8.3 percent, over the year ago quarter and up $4.5 million,
or 1.7 percent, over the preceding quarter. Income from operations was
$4.9 million for the first quarter 2004 compared to $6.9 million for the year
ago quarter and $8.1 million for the fourth quarter 2003.
As planned, included in the first quarter 2004 results was a $1.8 million
pre-tax cash charge primarily related to streamlining the company's
operations. Included in the first quarter 2003 results was a $0.6 million
pre-tax benefit related to revised estimates of restructuring charges. The
fourth quarter 2003 net loss included $1.2 million of net restructuring
charges and a $5.5 million charge for the impairment of deferred tax assets
and other income tax corrections.
The first quarter 2004 also included:
* Announcing new or expanded relationships with Australia's largest
wireless provider, a major U.S. telecommunications company, and
AeroMexico, the largest airline in Mexico. Further, the company
entered into agreements with new or existing clients during the first
quarter, including a telecommunications company and a major financial
institution in Latin America, a government taxing authority and a
telecommunications company in Europe, a multinational airline in the
Asia Pacific region, and a healthcare organization in North America.
In addition, Percepta was awarded additional business with an existing
client.
* Ending the quarter with cash and cash equivalents of $146.6 million,
up $4.9 million from $141.7 million in the fourth quarter 2003, and up
$28.8 million from $117.8 million in the year ago quarter. Total debt
was $123.4 million at quarter end, placing TeleTech in a net positive
cash position of $23.2 million, calculated as cash and cash
equivalents less total debt.
* Repurchasing approximately $5 million, or 790,000 shares, of TeleTech
common stock for an average price of $6.33.
* Managing days sales outstanding (DSOs) on accounts receivable to
53 days, up slightly from 51 days at the end of 2003 and down from
56 days at the end of the year ago quarter.
* Generating $14.0 million of free cash flow, calculated as cash flow
from operating activities of $25.8 million less capital expenditures
of $11.9 million. This compares to free cash flow of $18.9 million
for the fourth quarter 2003 and a negative $62.0 million for the year
ago quarter. Free cash flow in the year ago quarter reflected the
acquisition of the company's corporate headquarters for $38.2 million.
COST REDUCTION UPDATE
In August 2003 TeleTech outlined a multi-phase profit improvement plan,
including a goal to achieve $40 million, on an annualized run rate, of cost
reductions to be achieved during 2004. These savings are being accomplished
via several initiatives, including streamlining operations, investing in
global technology and systems enhancements, and reducing the company's cost
structure in various areas. The company believes it has achieved the full
$40 million in annualized cost savings during 2004.
Today TeleTech is announcing the second phase of its plan, with additional
cost reductions to be realized over the next 12 months. These benefits are
expected to be achieved primarily in the areas of operational improvements,
reduced interest expense associated with the $50 million debt reduction plan
described below, and lower operating expenses in the areas of
telecommunications, professional fees, and insurance.
DEBT REDUCTION PLANS
TeleTech has maintained a strong cash position over the last several years
and ended the first quarter with nearly $147 million of cash and cash
equivalents. In light of these factors and the opportunity to refinance in
today's interest rate market, the Board of Directors approved a plan to
structure a new $100 million revolving credit facility and to reduce long-term
debt by $50 million during the second quarter 2004.
The weighted average interest rate on the $75 million senior notes was
approximately 9 percent at March 31, 2004 and the interest rate under the new
$100 million revolver is LIBOR-based, plus an applicable margin.
Beginning in the third quarter 2004, TeleTech's fully diluted earnings per
share will benefit from reduced interest expense as the $50 million debt
reduction is estimated to result in an annualized net, pre-tax interest
expense savings of approximately $5 million per year.
The above plan will result in an estimated pre-tax charge in the second
quarter of approximately $9 million, of which $8 million will be a cash charge
related to the senior notes "make-whole" payment and the remaining $1 million
will be a non-cash charge to write-off previously capitalized debt issuance
costs. The company expects to recover the $8 million charge for the senior
notes "make-whole" payment from the estimated future savings associated with
reduced interest expense.
EXECUTIVE COMMENTARY
Commenting on the company's results, Dennis Lacey, chief financial
officer, said, "Nearly one year ago, we announced the $40 million cost
reduction plan, combined with 'get well' plans for under-performing client
programs, to address known changes in our business and, in particular, the
scheduled cessation of certain revenues from a client program. This plan
enabled us to operate profitably during the first quarter. However, the
severance aspect of this plan significantly impacted this quarter's operating
results by approximately $1.6 million pre-tax."
"As we begin 2004, we are announcing the second phase of our cost
reduction plan designed to further improve profitability on an annualized
basis during 2005," Lacey continued. "One element of that plan is a
$5 million reduction in annualized net interest expense that we expect to
arise from our plans to retire our outstanding senior notes. Other aspects of
this new plan relate to our continued focus on improving results on a program-
by-program basis, enhancing productivity in our customer management centers,
and achieving further reductions in telecommunications and other operating
costs."
Kenneth Tuchman, chairman and chief executive officer, said, "We are
pleased with the progress we made during the first quarter against the multi-
phase profit improvement plan outlined last year, and we are executing on a
well-defined strategy to achieve additional improvements. Our entire
management team continues to be sharply focused on returning to sustained
profitability by concentrating our efforts in the areas we have previously
outlined, including (1) growing new and existing client relationships,
(2) improving the profitability of certain client programs, (3) achieving our
targeted cost reduction initiatives, and (4) developing and launching products
to diversify our sales offering."
"We are pleased with the success of our revenue diversification efforts
that, coupled with our customer management expertise, generate measurable,
long-term value for our clients," continued Tuchman. "In addition to
developing products to broaden our sales offering, we are leveraging the
technology investments we made over the last several years to further enhance
our global technology infrastructure, drive additional efficiencies, and
improve profitability. Moreover, our business unit leaders are aggressively
expanding our global business development efforts. As a result, our clients
are increasingly taking advantage of our in-country capabilities in strategic
locations throughout the world that deliver best-in-class customer management
services, provide standardized processes, and drive efficiencies regardless of
location. Looking ahead, we expect our business opportunities to improve as
the economy strengthens, and we plan to improve financial performance by
making significant investments in our sales and solutions infrastructure to
profitably grow our enterprise while also strategically expanding our
extensive capabilities."
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 host a conference call to discuss first
quarter 2004 financial results on Thursday, May 6, 2004, at 9:00 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, May 20, 2004.
ABOUT TELETECH
TeleTech is a global leader of integrated customer solutions designed to
help clients acquire, grow, and retain profitable relationships with their
customers. TeleTech strengthens customer relationships for its clients by
providing a combination of technologies, processes, and professional services.
Headquartered in Denver, Colo., TeleTech's worldwide capabilities are
supported by more than 33,000 professionals in North America, Latin America,
Asia-Pacific, and Europe. For additional information, visit www.teletech.com.
FORWARD LOOKING STATEMENTS
All statements not based on historical fact are forward-looking statements
that involve substantial risks and uncertainties. In accordance with the
Private Securities Litigation Reform Act of 1995, following are important
factors that could cause TeleTech's and its subsidiaries' actual results to
differ materially from those expressed or implied by such forward-looking
statements, including: under generally accepted accounting principles, the
revenues, expenses and profits associated with the launch of new client
agreements may be expensed up front or deferred over the life of the client
contract, and, accordingly, the profitability of these agreements may be
disproportionately skewed toward later periods; the possibility of the
company's Database Marketing and Consulting segment not returning to historic
levels of profitability; the impact to future earnings related to refinancing
the company's debt agreements, including owing a make-whole provision
associated with the company's senior note agreements, among others; economic
or political changes affecting the countries in which the company operates;
greater than anticipated competition in the customer care market, causing
adverse pricing and more stringent contractual terms; the risks associated
with losing one or more significant client relationships; execution risks
associated with operating individual client programs to avoid incurring
penalties; the renewal of client or vendor relationships on favorable terms;
higher than anticipated start-up costs associated with new business
opportunities and ventures; 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 attracting and retaining
cost-effective labor at the company's customer management centers; consumers'
concerns or adverse publicity regarding the products of the company's clients;
the company's ability to close new business in 2004 and fill excess capacity;
execution risks associated with achieving the original
$40 million and the incremental annualized cost reductions; the possibility of
additional asset impairments and restructuring charges; the ultimate liability
associated with the amount of past sales or use tax obligations; risks
associated with changes in foreign currency exchange rates; changes in
accounting policies and practices promulgated by standard setting bodies; and,
new legislation or government regulation that impacts the customer care
industry. Readers should review the company's Annual Report on Form 10-K for
the year ended December 31, 2003, the Quarterly Report on Form 10-Q for the
quarter ended March 31, 2004, and other documents filed with the Securities
and Exchange Commission (SEC). These SEC filings describe in greater detail
the items discussed above along with 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
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three months ended
March 31,
2004 2003
Revenues $266,128 $245,789
Operating expenses:
Costs of services 202,412 189,901
Selling, general & administrative 40,967 36,232
Depreciation and amortization 15,982 13,374
Restructuring charges, net 1,842 (1) (588)(2)
Total operating expenses 261,203 238,919
Operating Income 4,925 6,870
Other expense (1,267) (1,907)
Income Before Income Taxes 3,658 4,963
Income tax expense 2,255 1,936
Income before Minority Interest 1,403 3,027
Minority Interest 206 (262)
Net Income $1,609 $2,765
Basic Earnings Per Share $0.02 $0.04
Diluted Earnings Per Share $0.02 $0.04
Operating Margin 1.9% 2.8%
Net Income Margin 0.6% 1.1%
Effective Tax Rate 61.6% 39.0%
Weighted Average Shares
Basic 75,069 74,117
Diluted 76,524 74,531
Notes:
1. Represents a $1.6 million charge related to a reduction in force,
a $0.4 million charge related to facility exit charges in
connection with SFAS No. 146, and a $(0.2) million benefit
related to revised estimates of restructuring charges.
2. Represents a $(0.6) million benefit related to revised estimates
of restructuring charges.
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, December 31,
2004 2003
ASSETS
Current assets:
Cash and cash equivalents $146,619 $141,687
Accounts receivable, net 153,392 145,132
Other current assets 31,189 32,730
Total current assets 331,200 319,549
Property and equipment, net 145,314 148,690
Other assets 82,246 83,035
Total assets $558,760 $551,274
LIABILITIES AND STOCKHOLDERS' EQUITY
Total current liabilities $200,243 $137,039
Line of credit 39,000 39,000
Senior notes -- 63,000
Other noncurrent liabilities 23,399 14,064
Minority interest 8,934 9,354
Total stockholders' equity 287,184 288,817
Total liabilities and stockholders'
equity $558,760 $551,274
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
RECONCILIATION OF CASH FLOWS
(In thousands)
Three months ended
March 31,
2004 2003
Cash flow from operating activities:
Net income $1,609 $2,765
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 15,982 13,374
Other 8,241 (31,516)
Net cash provided by (used in)
operating activities $25,832 $(15,377)
Total Capital Expenditures $11,866 $46,582 (1)
Free Cash Flow $13,966 $(61,959)
Notes :
1. Total capital expenditures for the three months ended March 31, 2003
include the purchase of TeleTech's corporate headquarters building for
$38.2 million.
SOURCE TeleTech Holdings, Inc.
