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TeleTech Announces Third Quarter 2014 Financial Results

Third Quarter 2014 Results
Revenue was $305.9 Million ($305.8 Million Non-GAAP);
Operating Income was $21.3 Million, 7.0 Percent of Revenue (7.0 Percent Non-GAAP);
Fully Diluted EPS were 27 Cents (31 Cents Non-GAAP);
Signs Record $125 Million in New Business ($340 Million Year-to-date)
Updated Full-year 2014 Revenue and Operating Margin Guidance

DENVER, Nov. 5, 2014 /PRNewswire/ -- TeleTech Holdings, Inc. (or "Company"), NASDAQ: TTEC, a leading global provider of analytics-driven, technology-enabled customer engagement solutions, today announced financial results for the third quarter ended September 30, 2014. The Company also filed its Quarterly Report on Form 10-Q with the U.S. Securities and Exchange Commission for the quarter ended September 30, 2014.

"Our record new business signings demonstrate the growing market demand for our integrated, vertically focused customer engagement solutions," commented Ken Tuchman, chief executive officer of TeleTech.  "The balance of new business across segments, verticals and regions underlines the strategic relevance and breadth of our new sales and marketing platform. We have only just begun to tap into the full value of our vertically focused account management teams. As we grow relationships with existing clients and build strategic new ones, we are increasing wallet share with cross sell and up sell opportunities across our full solutions portfolio. Furthermore, our expanding pipeline is being supplemented from the many new clients added as part of our M&A focus."

Tuchman continued, "Year-to-date our constant currency growth rate was 5.7 percent versus 1.3 percent in the same period last year with organic growth of 3.1 percent versus a negative 3.5 percent in the prior period. While we are pleased with the progress we are making in delivering top line growth, we are disappointed in our third quarter operating margin. The decline is specific to our Customer Technology Services (CTS) business, wherein the operating profit declined $5.5 million, having a negative 180 basis point impact on our operating margin. The third quarter CTS operating profit was largely impacted by a combination of incremental cloud investment, reduced revenue and one-time expense adjustments.  We view this decline as unique to the quarter."

Tuchman concluded, "With our best-in-class client net promoter scores, record new signings, backlog and pipeline, alongside our improving revenue growth rate, we are confident our investment strategy will deliver continued value to our clients and shareholders." 

THIRD QUARTER 2014 FINANCIAL HIGHLIGHTS

Revenue        

  • Third quarter 2014 GAAP revenue was $305.9 million compared to $297.0 million in the third quarter of 2013. 

EBITDA

  • Non-GAAP EBITDA was $37.3 million, or 12.2 percent of revenue. This compares to $41.2 million or 13.8 percent of revenue in the year ago quarter.

Income from Operations

  • Third quarter 2014 GAAP income from operations was $21.3 million or 7.0 percent of revenue compared to $26.0 million or 8.7 percent of revenue in the third quarter of 2013. 

Earnings Per Share

  • Third quarter 2014 GAAP fully diluted earnings per share attributable to TeleTech shareholders were $0.27 compared to $0.34 for the same period last year.

Bookings

  • During the third quarter 2014, TeleTech signed an estimated $125 million in annualized revenue from new and expanded client relationships. The bookings mix was well diversified across all verticals with approximately 90 percent from existing clients, 72 percent in recurring revenue, 48 percent from emerging businesses and 8 percent from international clients. 

STRONG BALANCE SHEET CONTINUES TO FUND OPERATIONS, SHARE REPURCHASES, STRATEGIC ACQUISITIONS, AND INVESTMENTS

  • As of September 30, 2014, TeleTech had cash and cash equivalents of $87.6 million and $121.1 million of total debt, resulting in a net debt position of $33.5 million. These balances were impacted by the acquisition of rogenSi, share repurchases and capital expenditures.
     
  • As of September 30, 2014, TeleTech had $581.5 million of additional borrowing capacity available under its revolving credit facility.
     
  • Cash flow from operations in the third quarter 2014 was $30.3 million compared to $36.4 million in the third quarter 2013.
     
  • Capital expenditures in the third quarter 2014 were $17.8 million compared to $18.2 million in the third quarter 2013.
     
  • TeleTech repurchased approximately 387,500 shares of common stock during the third quarter 2014 for a cost of $10.2 million. As of September 30, 2014, $21.6 million was authorized for future share repurchases.

SEGMENT REPORTING

TeleTech reports financial results for the following four business segments: Customer Management Services (CMS), Customer Growth Services (CGS), Customer Technology Services (CTS) and Customer Strategy Services (CSS).  Financial highlights for the segments are provided below.

Customer Management Services (CMS) – Customer Experience Delivery Solutions

  • In the third quarter 2014, CMS revenue was $226.8 million compared to $217.0 million in the year ago quarter. On a constant currency basis, revenue increased 4.6 percent to $227.0 million. Income from operations was $18.6 million or 8.2 percent of revenue versus 8.3 percent in the year ago quarter. Operating income margin reflects a $0.4 million benefit from foreign currency translation offset by $0.4 million of restructuring charges.

Customer Growth Services (CGS) – Technology-Enabled Revenue Generation Solutions

  • CGS third quarter 2014 revenue increased 11 percent to $28.8 million compared to $25.9 million in the year ago quarter. Income from operations was $1.8 million or 6.3 percent of revenue versus $0.6 million or 2.3 percent last year.   

Customer Technology Services (CTS) – Cloud and Premise Managed Technology Solutions

  • CTS third quarter 2014 revenue was $35.2 million compared to $40.6 million in the year ago quarter. Income from operations was a negative $0.3 million of revenue compared to income of $5.2 million or 12.7 percent in the year ago quarter.
  • The third quarter CTS income from operations was largely impacted by a combination of $2 million in incremental cloud investment, $1 million in lower revenues and $2 million in one-time expense adjustments. 

Customer Strategy Services (CSS) – Customer Experience Strategy and Analytics Solutions

  • CSS third quarter 2014 revenue increased 12.7 percent to $15.1 million from $13.4 million in the year ago quarter. Income from operations was $1.2 million or 7.8 percent of revenue versus 16.9 percent in the same period last year.

BUSINESS OUTLOOK

"While we are realizing tangible results from our investments, as demonstrated by our record bookings and improved revenue growth, the short-term challenges in our CTS business are impacting our overall results," explained Regina Paolillo, chief financial and administrative officer at TeleTech. "Adjusting for changes in foreign currency, we estimate CTS's performance to impact our full-year revenue growth by approximately 200 basis points and our operating margin by approximately 60 basis points. As a result, we are lowering our 2014 guidance. Excluding CTS's revenue and operating margin decline, on a constant currency basis, we estimate that the non-CTS segments (CMS, CGS, CSS) will grow revenue approximately 7.6 percent and deliver an operating margin of approximately 9.0 percent for full-year 2014, representing an estimated 24 percent improvement in operating profit for those segments," concluded Paolillo.

TeleTech updates its 2014 business outlook, as follows:

Revenue – Revenue estimated from $1.230 to $1.235 billion, reflecting an expected two percent adverse impact from foreign exchange translation. 

Operating Margin – Operating margin range estimated between 7.75 and 8.0 percent (before asset impairment, restructuring or acquisition-related charges), but including approximately $9 million investment in sales, and research and development.

Capital Expenditures - Range between $55 and $65 million with 70 percent expected for growth initiatives.

SEC FILINGS

The Company's filings with the U.S. Securities and Exchange Commission are available in the "Investors" section of TeleTech's website, which can be found at www.teletech.com.

CONFERENCE CALL

A conference call and webcast with management will be held on November 6, 2014 at 8:30 a.m. Eastern Time. You are invited to join a live webcast of the conference 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 will be available on the TeleTech website.

NON-GAAP FINANCIAL MEASURES

To supplement the Company's consolidated financial statements presented in accordance with generally accepted accounting principles (GAAP) in the United States, the Company uses the following Non-GAAP financial measures: Free Cash Flow, Non-GAAP Revenue, Non-GAAP Income from Operations, Non-GAAP EBITDA and Non-GAAP EPS. Additionally our discussion of revenue and income from operations contain references to constant currency amounts. Constant currency measures are calculated by translating the current year reported amounts using the prior year foreign exchange rates for each underlying currency. TeleTech believes that providing these Non-GAAP financial measures provides investors with greater transparency to the information used by TeleTech's management in its financial and operational decision making and allows investors to see TeleTech's results "through the eyes" of management. TeleTech also believes that providing this information better enables TeleTech's investors to understand its operating performance and information used by management to evaluate and measure such performance. These financial measures are not intended to be used in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. A reconciliation of these Non-GAAP financial measures is available in the financial tables attached to this press release. We also encourage all investors to read TeleTech's most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q.

ABOUT TELETECH

TeleTech, founded in 1982, is a leading global provider of analytics-driven, technology-enabled customer engagement solutions. The Company offers an integrated platform that combines consulting, technology, care and growth services to simplify and personalize interactions that build deep engagement between people and brands.  This holistic, multichannel approach improves customer satisfaction, increases customer loyalty and drives long-term profitability and growth. From strategic consulting to operational execution, TeleTech's 42,000 employees speaking over 50 languages deliver results for Global 1000 clients in the automotive, communications and media, financial services, government, healthcare, technology, transportation and retail industries. Through the TeleTech Community Foundation, the Company leverages its innovative leadership to ensure that students in underserved communities around the globe have access to the tools and support they need to maximize their educational outcomes. For additional information, please visit teletech.com.

FORWARD-LOOKING STATEMENTS

Statements in this press release contain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995, relating to our operations, expected financial position, results of operation, and other business matters that are based on our current expectations, assumptions, and projections with respect to the future, and are not a guarantee of performance. We use words such as "may," "believe," "plan," "will," "anticipate," "estimate," "expect," "intend," "project," "would," "could," "target," or similar expressions, or when we discuss our strategy, plans, goals, initiatives, or objectives, we are making forward-looking statements.

We caution you not to rely unduly on any forward-looking statements. Actual results may differ materially from what is expressed in the forward-looking statements, and you should review and consider carefully the risks, uncertainties and other factors that affect our business and may cause such differences as outlined but are not limited to factors discussed in the sections entitled "Risk Factors" included in TeleTech's filings with the U.S. Securities and Exchange Commission (the "SEC"), including our most recent Annual Report on Form 10-K and subsequent quarterly financial reports on Form 10-Q. TeleTech's filings with the SEC are available in the "Investors" section of TeleTech's website, www.teletech.com and at the SEC's public website at www.sec.gov.  Our forward looking statements speak only as of the date of the press release and we undertake no obligation to update them, except as may be required by applicable laws.

 

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

 (Unaudited)

                   
                   
     

Three months ended

 

Nine months ended

     

 September 30,

 

 September 30,

     

2014

 

2013

 

2014

 

2013

                   

Revenue

 

$ 305,900

 

$ 296,995

 

$   903,611

 

$   875,070

                   

Operating Expenses:

               
 

Cost of services

 

220,244

 

208,648

 

646,346

 

625,689

 

Selling, general and administrative

 

49,847

 

50,165

 

148,016

 

142,080

 

Depreciation and amortization

 

13,893

 

11,463

 

41,152

 

33,281

 

Restructuring charges, net

 

593

 

758

 

1,750

 

4,181

 

Impairment losses

 

-

 

-

 

-

 

1,205

         Total operating expenses

 

284,577

 

271,034

 

837,264

 

806,436

                   

Income From Operations

 

21,323

 

25,961

 

66,347

 

68,634

                   
 

Other income (expense)

 

(856)

 

(434)

 

1,846

 

(5,537)

                   

Income Before Income Taxes

 

20,467

 

25,527

 

68,193

 

63,097

                   
 

Provision for income taxes

 

(5,778)

 

(6,358)

 

(14,071)

 

(12,603)

                   

Net Income

 

14,689

 

19,169

 

54,122

 

50,494

                   
 

Net income attributable to noncontrolling interest

(1,442)

 

(1,526)

 

(3,795)

 

(2,575)

                   

Net Income Attributable to TeleTech Stockholders

$   13,247

 

$   17,643

 

$    50,327

 

$     47,919

                   

Net Income Per Share Attributable to TeleTech Stockholders

             
                   
 

Basic

 

$      0.27

 

$      0.35

 

$        1.02

 

$         0.93

                   
 

Diluted

 

$      0.27

 

$      0.34

 

$        1.00

 

$         0.91

                   
                   

Income From Operations Margin

 

7.0%

 

8.7%

 

7.3%

 

7.8%

Net Income Attributable to TeleTech Stockholders Margin

4.3%

 

5.9%

 

5.6%

 

5.5%

Effective Tax Rate

 

28.2%

 

24.9%

 

20.6%

 

20.0%

                   
                   

Weighted Average Shares Outstanding

             

  Basic

 

49,093

 

50,732

 

49,493

 

51,643

  Diluted

 

49,940

 

51,678

 

50,338

 

52,499

 

 

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

SEGMENT INFORMATION

(In thousands)

(Unaudited)

                 
                 
   

Three months ended

 

Nine months ended

   

 September 30,

 

 September 30,

   

2014

 

2013

 

2014

 

2013

                 

Revenue:

               

Customer Management Services

 

$     226,814

 

$     217,035

 

$    673,421

 

$     660,258

Customer Growth Services

 

28,765

 

25,893

 

86,545

 

71,148

Customer Technology Services

 

35,194

 

40,649

 

103,707

 

110,855

Customer Strategy Services

 

15,127

 

13,418

 

39,938

 

32,809

Total

 

$     305,900

 

$     296,995

 

$    903,611

 

$     875,070

                 

Income From Operations:

               

Customer Management Services

 

$      18,625

 

$       17,944

 

$      55,941

 

$       55,140

Customer Growth Services

 

1,800

 

588

 

5,401

 

1,244

Customer Technology Services

 

(286)

 

5,165

 

1,641

 

13,882

Customer Strategy Services

 

1,184

 

2,264

 

3,364

 

(1,632)

Total

 

$      21,323

 

$       25,961

 

$      66,347

 

$       68,634

 

 

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

         
         
   

 September 30,

 

 December 31, 

   

2014

 

2013

   

(Unaudited)

   
         

ASSETS

       

Current assets:

       

   Cash and cash equivalents

 

$          87,612

 

$       158,017

   Accounts receivable, net

 

266,846

 

236,099

   Other current assets

 

85,038

 

75,435

      Total current assets

 

439,496

 

469,551

         

Property and equipment, net

 

147,905

 

126,719

Other assets

 

273,908

 

246,072

         

Total assets

 

$        861,309

 

$       842,342

         

LIABILITIES AND EQUITY

       

Total current liabilities

 

$        188,898

 

$       190,787

Other long-term liabilities

 

201,928

 

175,564

Mandatorily redeemable noncontrolling interest

 

2,790

 

2,509

Total equity

 

467,693

 

473,482

         

Total liabilities and equity

 

$        861,309

 

$       842,342

 

 

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION

(In thousands, except per share data)

(Unaudited)

                 
                 
   

Three months ended

 

Nine months ended

   

 

 September 30,

 

 

 September 30,

   

2014

 

2013

 

2014

 

2013

                 

Reconciliation of Revenue:

               
                 

Revenue

 

$  305,900

 

$  296,995

 

$   903,611

 

$    875,070

   Changes due to foreign currency fluctuations

 

(97)

     

21,287

   

   Lost revenue from typhoon

 

-

 

1,216

 

-

 

1,216

Non-GAAP Revenue

 

$  305,803

 

$  298,211

 

$   924,898

 

$    876,286

                 
                 

Reconciliation of Gross Margin:

               
                 

Non-GAAP Revenue

 

$  305,803

 

$  298,211

 

$   924,898

 

$    876,286

Cost of services

 

220,244

 

208,648

 

646,346

 

625,689

   Adjustments related to Non-GAAP revenue adjustments

 

335

 

396

 

15,754

 

396

Non-GAAP Gross margin

 

$    85,224

 

$    89,167

 

$   262,798

 

$    250,201

                 

NON-GAAP Gross margin percentage

 

27.9%

 

29.9%

 

28.4%

 

28.6%

                 
                 

Reconciliation of EBIT & EBITDA:

               
                 

Net Income Attributable to TeleTech stockholders

 

$    13,247

 

$    17,643

 

$     50,327

 

$     47,919

Interest income

 

(542)

 

(938)

 

(1,545)

 

(2,182)

Interest expense

 

1,646

 

1,799

 

5,197

 

5,567

Provision for income taxes

 

5,778

 

6,358

 

14,071

 

12,603

EBIT

 

$    20,129

 

$    24,862

 

$     68,050

 

$     63,907

                 

Depreciation and amortization

 

13,893

 

11,463

 

41,152

 

33,281

                 

EBITDA

 

$    34,022

 

$    36,325

 

$   109,202

 

$     97,188

                 
                 

Reconciliation of Free Cash Flow:

               
                 

Cash Flow From Operating Activities:

               

   Net income

 

$    14,689

 

$    19,169

 

$     54,122

 

$     50,494

   Adjustments to reconcile net income to net cash

               

       provided by operating activities:

               

          Depreciation and amortization

 

13,893

 

11,463

 

41,152

 

33,281

          Other

 

1,695

 

5,770

 

(33,367)

 

(7,162)

   Net cash provided by operating activities

 

30,277

 

36,402

 

61,907

 

76,613

                 

Less - Total Capital Expenditures

 

17,751

 

18,172

 

52,234

 

31,832

                 

Free Cash Flow

 

$    12,526

 

$    18,230

 

$      9,673

 

$     44,781

                 
                 

Reconciliation of Non-GAAP Income from Operations:

               
                 

Income from Operations

 

$    21,323

 

$    25,961

 

$     66,347

 

$     68,634

Restructuring charges, net

 

593

 

758

 

1,750

 

4,181

Impairment losses

 

-

 

-

 

-

 

1,205

Net effect of foreign currency fluctuations

 

(432)

     

5,533

   

Net effect of revenue lost from typhoon

 

-

 

820

 

-

 

820

                 

Non-GAAP Income from Operations

 

$    21,484

 

$    27,539

 

$     73,630

 

$     74,840

                 

Non-GAAP Income from Operations Margin

 

7.0%

 

9.2%

 

8.0%

 

8.5%

                 
                 
                 

Reconciliation of Non-GAAP EPS:

               
                 

Net Income Attributable to TeleTech stockholders

 

$    13,247

 

$    17,643

 

$     50,327

 

$     47,919

Add:  Asset impairment and restructuring charges, net of related taxes

 

367

 

501

 

1,111

 

3,616

Add:  Deconsolidation of subsidiary

 

-

 

-

 

-

 

3,556

Add:  Changes in acquisition contingent consideration, net of related taxes

 

561

 

-

 

(1,855)

 

-

Add:  Net effect of foreign currency fluctuations, net of related taxes

 

(305)

     

3,845

   

Add:  Net effect of revenue lost from typhoon, net of related taxes

 

-

 

574

 

-

 

574

Add:  Changes in valuation allowance and returns to provision adjustments

 

1,379

 

1,000

 

(398)

 

(509)

                 

 Non-GAAP Net Income Attributable to TeleTech stockholders

 

$    15,249

 

$    19,718

 

$     53,031

 

$     55,156

                 

    Diluted shares outstanding

 

49,940

 

51,678

 

50,338

 

52,499

                 

 Non-GAAP EPS Attributable to TeleTech stockholders

 

$0.31

 

$0.38

 

$1.05

 

$1.05

                 
                 

Reconciliation of Non-GAAP EBITDA:

               
                 

Net Income Attributable to TeleTech stockholders

 

$    13,247

 

$    17,643

 

$     50,327

 

$     47,919

   Interest income

 

(542)

 

(938)

 

(1,545)

 

(2,182)

   Interest expense

 

1,646

 

1,799

 

5,197

 

5,567

   Provision for income taxes

 

5,778

 

6,358

 

14,071

 

12,603

   Depreciation and amortization

 

13,893

 

11,463

 

41,152

 

33,281

   Asset impairment and restructuring charges

 

593

 

758

 

1,750

 

5,386

   Net effect of foreign currency fluctuations

 

(432)

 

-

 

5,533

 

-

   Net effect of revenue lost from typhoon

 

-

 

820

 

-

 

820

   Changes in acquisition contingent consideration

 

51

 

-

 

(3,910)

 

-

   Equity-based compensation expenses

 

3,050

 

3,265

 

9,031

 

9,842

                 

 Non-GAAP EBITDA

 

$    37,284

 

$    41,168

 

$   121,606

 

$    113,236

                 

Note 1: Foreign currency fluctuations are calculated on a constant currency basis by translating the current year reported amounts using the prior year foreign exchange rates for each underlying currency.

Investor Contact
Paul Miller
303.397.8641

Media Contact
Elizabeth Grice
303.397.8507