Consistent Profitability in 2004 Enables Free Cash Flow Generation of
$74 Million and the Repayment of $120 Million in Outstanding Debt
DENVER, March 8 /PRNewswire-FirstCall/ -- TeleTech Holdings, Inc.
(Nasdaq: TTEC), a global provider of customer management and business process
outsourcing (BPO) services, today announced fourth quarter and full year 2004
financial results. The Company also filed its Annual Report on Form 10-K with
the Securities and Exchange Commission for the year ended December 31, 2004.
Fourth Fourth Full Full
Quarter Quarter Year Year
2004 2003 2004 2003
Financial Results
Revenue $260.8M $264.4M $1,052.7M $1,001.1M
Operating income $15.3M $8.6M $48.5M $17.4M
Net income (loss) $9.7M $6.9M $24.0M $(30.5)M
EPS -- diluted $0.13 $0.09 $0.32 $(0.41)
Other Data
Operating margin
percentage 5.9% 3.3% 4.6% 1.7%
Net cash* $67.1M $12.5M $67.1M $12.5M
Free cash flow* $40.4M $18.9M $74.2M $(20.0)M
Days sales outstanding 52 51 52 51
*See reconciliation of Non-GAAP measures below.
Fourth quarter 2004 highlights include:
* In November, the Company announced the renewal of two of its five
largest client relationships representing approximately 15 percent of
2004 revenue and the signing of a multi-year agreement with a new
client valued at an estimated $150 million over its five-year term.
* TeleTech introduced several new higher margin product offerings
targeting middle market and larger companies that are complementary to
TeleTech's core services:
* TeleTech(R) On Demand(TM) provides fully managed technology
solutions using TeleTech's standardized global technology
platform. These services can be provided to both outsourced and
in-house operations to help clients save capital investment
dollars and reduce operating costs, while providing the
additional benefits of consistency, scalability, flexibility, and
access to state-of-the-art technology.
* TeleTech(R) InCulture(TM) is a suite of products initially
focused on providing real-time, over-the-phone language
translation services in 150 languages to the growing multi-
cultural market that allows customers to converse in their
preferred language.
* Income from operations was $15.3 million, an improvement of
$6.6 million or 77 percent, from $8.6 million for the year ago
quarter, and an improvement of $3.0 million, or 25 percent, from the
third quarter 2004. The year-over-year increase is primarily a result
of the Company's ongoing initiatives to grow new and existing client
relationships, improve profitability on certain client programs,
centralize and further automate global delivery and operating systems,
and achieve global cost reduction goals. As previously discussed, a
component of TeleTech's cost reduction goals was to maintain an
appropriate level of health-care benefits while also reducing costs.
As a result of this initiative, TeleTech experienced a decline in
subscriber enrollments of 13 percent from the second to third quarter
2004 and 32 percent from the third to fourth quarter 2004. This
decline resulted in a $1.5 million and $4.8 million reduction in
employee-related healthcare liabilities during the third and fourth
quarters of 2004, which approximated 1 cent and 4 cents per diluted
share, respectively.
* TeleTech recorded reductions to income tax expense of $1.0 million, or
approximately 1 cent per diluted share, in the fourth quarter 2004
related primarily to a partial reduction of the U.S. deferred tax
asset valuation allowance and from various state income tax refunds.
These benefits were reflected as credits to income tax expense,
resulting in an effective tax rate of 30.2 percent for the fourth
quarter 2004.
* TeleTech ended 2004 in a strong financial position with $75 million in
cash and cash equivalents and no bank debt. Days sales outstanding
(DSO) were 52 days at the end of December, down from 57 days at the
end of third quarter 2004. TeleTech generated $40.4 million of free
cash flow during the 2004 fourth quarter, up from $18.9 million for
the year ago quarter.
* As required by the Sarbanes-Oxley Act of 2002 (Sarbanes Oxley), the
Company completed an assessment of the effectiveness of its internal
controls over financial reporting and did not identify any material
weaknesses. As a result, TeleTech believes its internal controls over
financial reporting were effective as of December 31, 2004.
* During the fourth quarter 2004, TeleTech acquired 31,300 shares under
its share repurchase program at a cost of $288,000. Since the
beginning of 2005, TeleTech has repurchased 1,457,300 shares for a
total of $16.2 million, funded via working capital and borrowings
under its revolving credit facility.
Full year 2004 highlights include:
* Revenue was $1,052.7 million, which includes a previously scheduled
decline of $23 million in minimum commitments from a communications
client. This was a 5.2 percent increase over 2003 revenue of
$1,001.1 million, or a 7.5 percent increase over 2003, excluding the
decline in minimum commitment revenue. The increase was due, in part,
to TeleTech's focus on renewing and growing existing client
relationships, winning multiple new business relationships and
realizing the benefits of its ongoing internal revenue assurance
programs.
* Income from operations was $48.5 million for the full year 2004, up
$31.1 million from $17.4 million for 2003. The year-over-year
increase is primarily a result of the Company's ongoing initiatives to
grow new and existing client relationships, improve profitability on
certain client programs, centralize and further automate global
delivery and operating systems, and achieve global cost reduction
goals. Additional information regarding comparability to the prior
year is included in the Company's 2004 Annual Report on Form 10-K.
* TeleTech recorded reductions to income tax expense of approximately
$5 million over the third and fourth quarters 2004, primarily related
to certain tax planning strategies and a partial reduction in the U.S.
deferred tax valuation allowance. These income tax benefits resulted
in an effective tax rate of 27.7 percent for 2004.
* Over the past 18 months, TeleTech has implemented cost improvement
plans totaling $60 million. In January 2005, TeleTech announced the
third phase of its cost improvement initiatives, which is expected to
lower operating costs by an additional $20 million annually during
2006. These cost improvements are anticipated to result from
increased automation of workforce management, the implementation of
global best operating practices and interest expense savings, among
other initiatives.
* As previously announced, the Company repaid $120 million in
outstanding debt during 2004 and, in so doing, incurred a
$10.4 million one-time charge related to a make-whole payment and
termination of an interest rate swap agreement during the second and
third quarters of 2004. This debt reduction was achieved via a
combination of free cash flow and certain tax planning strategies that
enabled the Company to repatriate monies from foreign locations.
* As part of TeleTech's share repurchase plan it acquired 821,300 shares
at a cost of $5.3 million during 2004.
EXECUTIVE COMMENTARY
Kenneth Tuchman, chairman and chief executive officer, said, "We are
extremely pleased that the strategy we implemented almost two years ago to
drive more profitable growth was successful, enabling us to report four
consecutive quarters of profitability during 2004. Our improved financial
performance and related cost reductions were achieved while continuing to
invest in innovative, higher-margin services and in building our global sales
and account management teams."
"As we begin 2005, we are focused on achieving our three-year revenue
growth and diversification goals, while continuing to increase profitability
via the globalization of our North American best operating practices, further
standardizing our delivery platform, and the successful implementation of our
recently announced $20 million, third-phase cost improvement plan," continued
Mr. Tuchman. "With a talented leadership team in place around the globe, a
suite of new, innovative higher margin service offerings, a more cost
efficient operating structure, and $75 million in cash with additional
available borrowing capacity, we believe we are well positioned to execute our
growth plans."
Dennis Lacey, executive vice president and chief financial officer, said,
"We made significant progress in 2004 to improve client profitability, reduce
costs, and enhance our business controls, all of which resulted in
significantly improved financial performance, enabling us to operate
profitably and pay off $120 million of outstanding debt during 2004. These
achievements have put us in a strong position to fund our future growth
initiatives."
FIRST QUARTER 2005 OUTLOOK
Newgen recently launched a new agreement with Ford Motor Company to be its
exclusive provider of a customer retention program known as "Genuine Retention
Plus" (GRP). GRP is a comprehensive customer communication solution for
Ford's automotive dealers incorporating personalized service and targeted
multi-channel marketing campaigns designed to increase customer satisfaction
and retention levels leading to greater brand loyalty.
The rollout of GRP to Ford's automotive dealers is taking place during the
first half of 2005. In order to deliver this capability, Newgen incurrred
additional costs to enhance the features and functionality of its delivery
platform which took longer than expected. These costs, along with lower
volumes from dealers migrating to the new platform, and higher sales and
marketing expenses are expected to result in Newgen reporting break-even
operating results for the first quarter 2005. Newgen's operating results are
expected to improve throughout the last three quarters of 2005 as dealers are
fully transitioned to the new platform and Newgen implements anticipated cost
improvement initiatives.
TeleTech currently believes, based upon its most recent projection of U.S.
taxable income, that its effective tax rate in the first quarter of 2005 will
approximate 15 percent, reflecting a continued partial reduction of its
deferred tax asset valuation allowance.
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 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.
Full Year
2004
Net Cash:
Cash and cash equivalents $75.1M
Less: current portion of long-term debt
and capital lease obligations $(0.3)M
Long-term capital lease obligations $(0.2)M
Other long-term debt $(0.2)M
Grant advances $(7.3)M
Net Cash $67.1M
Fourth Full
Quarter Year
2004 2004
Free Cash Flow:
Net cash provided by operating activities $52.8M $112.7M
Less: purchases of property and equipment $(12.4)M $(38.5)M
Free Cash Flow $40.4M $74.2M
These Non-GAAP financial measures should be used in addition to, but not
as a substitute for, the Company's comparable GAAP 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
fourth quarter and full year 2004 financial results on Wednesday, March 9,
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, March 23, 2005.
ABOUT TELETECH
TeleTech is a global business services company that provides a full range
of front- to back-office solutions including customer management, BPO,
database marketing, and outsourced 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: the ability for the Company to execute it's growth plans, 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 ability to successfully launch and generate revenue from
new product introductions; the estimated revenue associated with new or
renewed client agreements; the possibility of the Company's Database Marketing
and Consulting segment not returning to historic levels of profitability; the
ability of the Company to fund its future growth initiatives; greater than
anticipated competition in the customer care market, causing adverse pricing
and more stringent contractual terms; risks associated with losing or not
renewing significant client relationships, or early termination of a client
agreement; the Company's ability to close new business and fill excess
capacity; 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; execution risks associated with achieving targeted annualized cost
reductions; 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-
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 2004, 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
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three months ended Twelve months ended
December 31, December 31,
2004 2003 2004 2003
Revenue $260,814 $264,423 $1,052,690 $1,001,128
Operating expenses:
Costs of services 187,308 202,148 774,521 764,687
Selling, general
& administrative 43,415 36,873 165,630 (3) 149,860
Depreciation and
amortization 14,886 15,560 59,378 58,596
Impairment loss -- -- 2,641 (4) 6,955 (9)
Restructuring
charges, net (58) (1) 1,198 (8) 2,052 (5) 3,676 (10)
Total operating
expenses 245,551 255,779 1,004,222 983,774
Operating Income 15,263 8,644 48,468 17,354
Other income
(expense) 85 (2,913) (3,861) (11,996)
Debt restructuring
charges -- -- (10,402) (6) --
Income Before Income
Taxes 15,348 5,731 34,205 5,358
Income tax expense
(benefit) 4,639 (2) (445) 9,464 (7) 34,859 (11)
Income (Loss) before
Minority Interest 10,709 6,176 24,741 (29,501)
Minority interest (1,054) 719 (738) (1,003)
Net Income (Loss) $9,655 $6,895 $24,003 $(30,504)
Basic Earnings
(Loss) Per Share $0.13 $0.09 $0.32 $(0.41)
Diluted Earnings
(Loss) Per Share $0.13 $0.09 $0.32 $(0.41)
Operating Margin 5.9% 3.3% 4.6% 1.7%
Net Income Margin 3.7% 2.6% 2.3% (3.0)%
Effective Tax Rate 30.2% (7.8)% 27.7% 650.6%
Weighted Average
Shares
Basic 74,804 74,381 74,751 74,206
Diluted 76,709 76,074 76,109 74,206
Notes:
1. Represents a $(0.1) million benefit related to revised estimates of
restructuring charges.
2. Includes a $(1.0) million benefit related to a partial reduction of
deferred tax asset valuation allowance and from various state
refunds.
3. Includes a $1.9 million partial reduction of the estimated sales or
use tax liability related to the Database Marketing and Consulting
segment.
4. Represents a $2.6 million charge related to the impairment of fixed
assets in connection with SFAS No. 144.
5. Represents the $(0.1) million benefit described in Note 1 above, in
addition to a $2.5 million charge related to a reduction in force, a
$(0.8) 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.
6. Represents a $7.6 million one-time charge related to restructuring of
the Company's debt facilities including a make-whole payment, and a
$2.8 million one-time charge related to the termination of an
interest rate swap agreement.
7. Includes a $4.6 million tax benefit related to implementation of
certain tax planning strategies.
8. Represents a $1.0 million charge related to a reduction in force, and
a $0.2 million charge related to facility exit charges in connection
with SFAS No. 146.
9. Represents a $7.0 million charge related to the impairment of fixed
assets in connection with SFAS No. 144.
10. Represents the $1.2 million charge described in Note 8 above, in
addition to a $2.9 million charge related to a reduction in force, a
$1.5 million charge related to facility exit charges in connection
with SFAS No. 146, and a $(1.9) million benefit related to revised
estimates of restructuring charges.
11. Includes a $25.9 million charge related to an increase in the
valuation allowance and a $7.2 million charge to write-off certain
U.S. deferred tax assets.
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
SEGMENT DISCLOSURES
(In thousands)
Twelve months ended Three months ended
December 31, December 31,
2004 2003 2004 2003
Revenue:
North America Customer Care $638,359 $635,627 $157,038 $161,797
International Customer Care 315,938 255,894 79,705 75,786
Database Marketing &
Consulting 98,393 109,607 24,071 26,840
Total $1,052,690 $1,001,128 $260,814 $264,423
Operating Income:
North America Customer Care $58,580 $41,723 $16,774 $12,743
International Customer Care (18,414) (37,651) (3,615) (8,484)
Database Marketing &
Consulting 8,302 13,282 2,104 4,385
Total $48,468 $17,354 $15,263 $8,644
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, December 31,
2004 2003
ASSETS
Current assets:
Cash and cash equivalents $75,066 $141,655
Accounts receivable, net 148,627 145,658
Other current assets 54,342 36,341
Total current assets 278,035 323,654
Property and equipment, net 132,214 148,690
Other assets 86,546 96,801
Total assets $496,795 $569,145
LIABILITIES AND STOCKHOLDERS' EQUITY
Total current liabilities $136,192 $143,039
Line of credit -- 39,000
Senior notes -- 63,000
Other noncurrent liabilities 30,186 29,411
Minority interest 7,872 9,183
Total stockholders' equity 322,545 285,512
Total liabilities and stockholders'
equity $496,795 $569,145
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
RECONCILIATION OF CASH FLOWS
(In thousands)
Twelve months ended Three months ended
December 31, December 31,
2004 2003 2004 2003
Cash flow from operating
activities:
Net income (loss) $24,003 $(30,504) $9,655 $6,895
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation and
amortization 59,378 58,596 14,886 15,560
Other 29,300 30,936 28,241 5,902
Net cash provided by
operating activities $112,681 $59,028 $52,782 $28,357
Total Capital Expenditures $38,521 $79,053 (1) $12,370 $9,418
Free Cash Flow $74,160 $(20,025) $40,412 $18,939
Notes:
1. Total capital expenditures for the twelve months ended December 31,
2003 include the purchase of TeleTech's corporate headquarters
building for $38.2 million.
CONTACT: Investor Relations, Karen Breen, +1-303-397-8592, or Dan
Campbell, +1-303-397-8634, or Public Relations, Julie Lucas, +1-303-397-8555,
all of TeleTech Holdings, Inc.
