TeleTech Announces Second Quarter 2012 Financial Results

TeleTech Holdings, Inc. (NASDAQ: TTEC), a leading global provider of technology-enabled customer experience solutions, today announced financial results for the second quarter ended June 30, 2012. The Company also filed its Quarterly Report on Form 10-Q with the Securities and Exchange Commission for the quarter ended June 30, 2012.

“Our results this quarter reflect our previously announced plans to exit certain underperforming markets while at the same time actively investing in innovation and revenue diversification,” said Ken Tuchman, TeleTech chairman and chief executive officer. “Our diversified business segments comprised 21 percent of revenue up from 15 percent in the year-ago quarter,” continued Tuchman. “Clients are coming to TeleTech because of the breadth and depth of our customer experience expertise as demonstrated by the eleven new clients we signed during the quarter. Our ability to holistically design, implement and manage a brand differentiating experience across multiple channels is helping our clients generate long-term customer equity.”

SECOND QUARTER 2012 FINANCIAL HIGHLIGHTS
  • Second quarter 2012 revenue was $288.8 million compared to $293.6 million in the second quarter 2011. Second quarter 2012 revenue was lower by approximately $13 million due to the company’s previously announced decision to exit certain underperforming markets and programs in addition to a $9.7 million negative foreign currency impact. Excluding the above reductions, revenue increased approximately 6 percent over the year-ago quarter.
  • Income from operations for the second quarter 2012 included $17.3 million of restructuring and impairment charges which was in line with the Company’s previously announced range of $15 million to $18 million in charges to be incurred in 2012. These actions are expected to positively impact operating income by $10 million to $12 million on an annualized basis when fully realized.
  • Second quarter 2012 income from operations was $6.4 million or 2.2 percent of revenue compared to $24.6 million or 8.4 percent of revenue in the second quarter 2011. Excluding the restructuring and impairment charges discussed above, second quarter 2012 non-GAAP income from operations was $23.7 million or 8.2 percent of revenue.
  • Second quarter 2012 fully diluted earnings per share attributable to TeleTech stockholders was 10 cents compared to 38 cents in the second quarter 2011. Excluding restructuring, impairment and other items, second quarter 2012 non-GAAP fully diluted earnings per share attributable to TeleTech stockholders was 31 cents compared to 29 cents in the year-ago quarter.
  • During the second quarter 2012 TeleTech signed an estimated $55 million in annualized revenue from both new and expanding client relationships. Approximately 70 percent represented recurring revenue.

STRONG BALANCE SHEET CONTINUES TO FUND OPERATIONS, SHARE REPURCHASES AND STRATEGIC ACQUISITIONS
  • As of June 30, 2012, TeleTech had cash and cash equivalents of $170.6 million, $78.0 million of borrowings on its credit facility and total other debt of $13.0 million, resulting in net cash of $79.6 million.
  • TeleTech had approximately $418 million of additional borrowing capacity available under its revolving credit facility as of June 30, 2012. This provides TeleTech with the continued financial flexibility to fund organic growth, share repurchases and pursue accretive acquisitions.
  • Cash flow from operations in the second quarter 2012 increased 45 percent to $34.0 million from $23.4 million in the second quarter 2011. The increase was primarily due to the timing of certain working capital items.
  • Capital expenditures in the second quarter 2012 were $11.0 million compared to $8.5 million in the second quarter 2011. The higher capital expenditures were primarily related to the selective expansion of capacity in line with TeleTech’s new business wins as well as increased investments in its technology-based offerings.
  • TeleTech repurchased 1.2 million shares of common stock during the second quarter 2012 for a total cost of $18.1 million. As of June 30, 2012, there was $15.9 million authorized for future share repurchases.

SEGMENT REPORTING

To provide clarity as to the financial profile and performance of TeleTech’s primary businesses, 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). Corporate expenses are reported separately from the above. Highlights of the financial performance of the primary segments are provided below.

Customer Management Services (CMS) – Customer Experience Delivery Solutions

  • CMS second quarter 2012 revenue was $229.4 million, representing approximately 79 percent of total second quarter 2012 revenue, compared to $248.2 million in the second quarter 2011. CMS second quarter 2012 revenue was lower by approximately $13 million due to the Company’s previously announced decision to exit certain underperforming markets and programs in addition to an $8.6 million negative foreign currency impact.
  • CMS second quarter 2012 income from operations included $17.0 million of restructuring and impairment charges related to the exit of certain unprofitable markets and programs referred to above. CMS second quarter 2012 income from operations was $28.6 million or 12.5 percent of revenue, compared to 20.0 percent of revenue in the second quarter 2011. Excluding the $17.0 million of restructuring charges, CMS second quarter 2012 non-GAAP income from operations was $45.6 million or 19.9 percent of revenue.

Customer Growth Services (CGS) – Technology-Enabled Revenue Generation Solutions
  • CGS second quarter 2012 revenue was $24.4 million, representing approximately 8 percent of total second quarter 2012 revenue, compared to $23.5 million in the second quarter 2011.
  • CGS second quarter 2012 income from operations was $4.2 million or 17.3 percent of revenue, compared to 19.6 percent of revenue in the second quarter 2011.

Customer Technology Services (CTS) – Hosted and Managed Technology Solutions
  • CTS second quarter 2012 revenue increased 114 percent from the second quarter 2011 to $25.0 million, representing approximately 9 percent of total second quarter 2012 revenue. The increase was due to the acquisition of eLoyalty.
  • CTS second quarter 2012 income from operations was $4.1 million or 16.4 percent of revenue, compared to $3.2 million or 27.1 percent of revenue in the second quarter 2011. CTS second quarter 2012 operating results reflected the mix shift of services from purely hosted solutions in the year-ago quarter to both hosted and managed solutions in the second quarter 2012, along with an increased investment in sales and marketing to support the segment’s continued growth initiatives.

Customer Strategy Services (CSS) – Customer Experience Strategy and Data Analytics Solutions
  • CSS second quarter 2012 revenue was $10.0 million compared to $10.3 million in the second quarter 2011. In constant currency, CSS second quarter 2012 revenue grew by approximately 6 percent.
  • CSS second quarter 2012 income from operations was $0.3 million or 3.1 percent of revenue, compared to $1.3 million or 12.7 percent of revenue in the second quarter 2011. The lower operating margin was primarily due to a negative foreign currency impact of $0.3 million, an increased investment in geographic expansion and certain acquisition-related costs.

Corporate Expenses
  • The second quarter 2012 operating income of the above segments excluded $30.7 million of corporate expenses which were lower by $3.3 million or 9.6 percent, from $34.0 million in the second quarter 2011.
  • TeleTech expects to continue to further leverage its corporate expenses as a percentage of revenue across its expanding suite of services.

BUSINESS OUTLOOK
  • As previously discussed, TeleTech’s decision to exit certain underperforming markets and programs is estimated to reduce 2012 revenue by $100 million to $115 million while positively impacting operating income by $10 million to $12 million on an annualized basis when fully realized. These actions are estimated to result in asset impairment and restructuring costs in the range of $15 million to $18 million during 2012, of which $17.3 million was recognized in the second quarter 2012.
  • TeleTech continues to expect 2012 revenue will range between $1.15 billion and $1.2 billion. Growth in both existing and new client relationships is expected to offset any revenue reduction resulting from the decision to exit certain unprofitable markets.
  • TeleTech continues to expect 2012 operating margin will increase from 2011 and range between 8.5 percent and 9.0 percent, before any unusual charges.

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

A conference call and webcast with management will be held on Thursday, August 2, 2012 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 through Thursday, August 16, 2012.

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 Income from Operations, Non-GAAP EBITDA and Non-GAAP EPS. 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 our Quarterly Report on Form 10-Q for the quarter ended June 30, 2012.

ABOUT TELETECH

For nearly 30 years, TeleTech and its subsidiaries have helped the world’s most successful companies design, enable, manage and grow customer value through the delivery of superior customer experiences across the customer lifecycle. As the go-to partner for the Global 1000, the TeleTech group of companies delivers technology-enabled solutions that maximize revenue, transform customer experiences and optimize business processes. From strategic consulting to operational execution, our more than 41,000 employees drive success for clients in the 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 www.teletech.com.

FORWARD-LOOKING STATEMENTS

Statements in this press release that relate to future results and events (including statements about future financial and operating performance) are forward-looking statements based on TeleTech's current expectations. Actual results and events in future periods could differ materially from those projected in these forward-looking statements because of a number of risks and uncertainties including: achieving estimated revenue from new, renewed and expanded client business as volumes may not materialize as forecasted, especially due to the global economic slowdown; the ability to close and ramp new business opportunities that are currently being pursued or that are in the final stages with existing and/or potential clients; our ability to execute our growth plans, including the successful integration of acquired companies and the sales of new products; the possibility of lower revenue or price pressure from our clients experiencing a business downturn or merger in their business; greater than anticipated competition in the customer management industry, 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 our clients’ products; our 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, fires, pandemic, or terrorist-related events; risks associated with attracting and retaining cost-effective labor at our delivery centers; the possibility of asset impairments and restructuring charges; risks associated with changes in foreign currency exchange rates; economic or political changes affecting the countries in which we operate; changes in accounting policies and practices promulgated by standard setting bodies; and new legislation or government regulation that adversely impacts our tax obligations, health care costs or the customer management industry. A detailed discussion of these and other risk factors that could affect our results is included in TeleTech's SEC filings, including our Annual Report on Form 10-K for the year ended December 31, 2011. The Company’s filings with the Securities and Exchange Commission are available in the “Investors” section of TeleTech’s website, which is located at www.teletech.com. All information in this release is as of August 1, 2012. The Company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the Company’s expectations.
 
TELETECH HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (unaudited)
       
 
Three months ended Six months ended
June 30, June 30,
2012 2011 2012 2011
 
Revenue $ 288,798 $ 293,636 $ 581,452 $ 574,615
 
Operating Expenses:
Cost of services 209,121 210,358 421,016 409,479
Selling, general and administrative 45,709 47,283 93,844 95,084
Depreciation and amortization 10,229 11,423 20,345 23,021
Restructuring charges, net 16,296 (57 ) 18,254 682
Impairment losses   997     -     2,797     230  
Total operating expenses   282,352     269,007     556,256     528,496  
 
Income From Operations 6,446 24,629 25,196 46,119
 
Other income (expense)   (1,470 )   (1,276 )   (1,550 )   (1,546 )
 
Income Before Income Taxes 4,976 23,353 23,646 44,573
 
Benefit (Provision) for income taxes   1,272     (129 )   (581 )   (9,978 )
 
Net Income 6,248 23,224 23,065 34,595
 
Net income attributable to noncontrolling interest   (925 )   (1,007 )   (1,861 )   (1,905 )
 

Net Income Attributable to TeleTech Stockholders
$ 5,323   $ 22,217   $ 21,204   $ 32,690  
 

Net Income Per Share Attributable to TeleTech Stockholders
 
Basic $ 0.10   $ 0.39   $ 0.38   $ 0.57  
 
Diluted $ 0.10   $ 0.38   $ 0.37   $ 0.56  
 
 
Income From Operations Margin 2.2 % 8.4 % 4.3 % 8.0 %

Net Income Attributable to TeleTech Stockholders Margin
1.8 % 7.6 % 3.6 % 5.7 %
Effective Tax Rate (25.6 )% 0.6 % 2.5 % 22.4 %
 
 
Weighted Average Shares Outstanding
Basic 55,125 56,713 55,809 56,949
Diluted 55,712 57,974 56,558 58,376
 
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(In thousands)
(unaudited)
       
 
Three months ended Six months ended
June 30, June 30,
2012 2011 2012 2011
 
Revenue:
Customer Management Services $ 229,401 $ 248,207 $ 464,277 $ 494,280
Customer Growth Services 24,409 23,483 47,173 45,626
Customer Technology Services 24,956 11,660 50,509 16,317
Customer Strategy Services   10,032     10,286     19,493     18,392  
Total $ 288,798   $ 293,636   $ 581,452   $ 574,615  
 
Income (Loss) From Operations:
Customer Management Services $ 28,563 $ 49,588 $ 74,269 $ 97,839
Customer Growth Services 4,212 4,594 5,291 7,576
Customer Technology Services 4,103 3,156 7,808 5,868
Customer Strategy Services 316 1,309 847

1,773
Corporate   (30,748 )   (34,018 )   (63,019 )  

(66,937
)
Total $ 6,446   $ 24,629   $ 25,196   $ 46,119  
 
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
   
 
June 30, December 31,
2012 2011
(unaudited)
 
ASSETS
Current assets:
Cash and cash equivalents $ 170,578 $ 156,371
Accounts receivable, net 243,360 243,636
Other current assets   87,757   78,275
Total current assets 501,695 478,282
 
Property and equipment, net 105,055 100,321
Other assets   178,202   168,375
 
Total assets $ 784,952 $ 746,978
 
LIABILITIES AND EQUITY
Total current liabilities $ 184,001 $ 170,011
Other long-term liabilities 132,289 106,720
Total equity   468,662   470,247
 
Total liabilities and equity $ 784,952 $ 746,978
 
TELETECH HOLDINGS, INC. AND SUBSIDIARIES RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION (In thousands, except per share data) (unaudited)
       
 
Three months ended Six months ended
June 30, June 30,
2012 2011 2012 2011
 
Reconciliation of Gross Margin:
 
Revenue $ 288,798 $ 293,636 $ 581,452 $ 574,615
Cost of services   209,121     210,358     421,016     409,479  
Gross margin $ 79,677   $ 83,278   $ 160,436   $ 165,136  
 
Gross margin percentage 27.6 % 28.4 % 27.6 % 28.7 %
 
 
Reconciliation of EBIT & EBITDA:
 

Net Income Attributable to TeleTech Stockholders
$ 5,323 $ 22,217 $ 21,204 $ 32,690
Interest income (695 ) (720 ) (1,455 ) (1,386 )
Interest expense 1,583 1,291 2,681 2,671
(Benefit) Provision for income taxes   (1,272 )   129     581     9,978  
EBIT $ 4,939 $ 22,917 $ 23,011 $ 43,953
 
Depreciation and amortization   10,229     11,423     20,345     23,021  
 
EBITDA $ 15,168 $ 34,340 $ 43,356 $ 66,974
 
 
Reconciliation of Free Cash Flow:
 
Cash Flow From Operating Activities:
Net income $ 6,248 $ 23,224 $ 23,065 $ 34,595
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 10,229 11,423 20,345 23,021
Other   17,516     (11,274 )   5,247     (9,635 )
Net cash provided by operating activities 33,993 23,373 48,657 47,981
 
Less - Total Capital Expenditures   10,994     8,492     17,368     12,362  
 
Free Cash Flow $ 22,999 $ 14,881 $ 31,289 $ 35,619
 
 
Reconciliation of Non-GAAP Income from Operations:
 
Income from Operations $ 6,446 $ 24,629 $ 25,196 $ 46,119
Restructuring charges, net 16,296 (57 ) 18,254 682
Impairment losses 997 - 2,797 230

Acquisition-related expenses
  -     855     159     1,066  
 
Non-GAAP Income from Operations $ 23,739 $ 25,427 $ 46,406 $ 48,097
 
 
Reconciliation of Non-GAAP EPS:
 

Net Income Attributable to TeleTech Stockholders
$ 5,323 $ 22,217 $ 21,204 $ 32,690
Add: Asset impairment and restructuring charges, net of related taxes 10,843 (42 ) 13,278 641
Add: Acquisition-related expenses, net of related taxes - 522 95 650
Add: Changes in judgement for uncertain tax positions recorded in prior periods  

1,016
    (5,687 )  

(537
)   163  
 

Non-GAAP Net Income Attributable to TeleTech Stockholders

$

17,182

$

17,010

$

34,041

$

34,144
 
Diluted shares outstanding 55,712 57,974 56,558 58,376
 

Non-GAAP EPS Attributable to TeleTech Stockholders
$

0.31
$ 0.29 $ 0.60 $ 0.58
 
 
Reconciliation of Non-GAAP EBITDA:
 

Net Income Attributable to TeleTech Stockholders
$ 5,323 $ 22,217 $ 21,204 $ 32,690
Interest income (695 ) (720 ) (1,455 ) (1,386 )
Interest expense 1,583 1,291 2,681 2,671
(Benefit) Provision for income taxes (1,272 ) 129 581 9,978
Depreciation and amortization 10,229 11,423 20,345 23,021
Asset impairment and restructuring charges 17,293 (57 ) 21,051 912

Acquisition-related expenses
- 855 159 1,066
Equity-based compensation expenses   3,457     3,955     6,845     7,715  
 
Non-GAAP EBITDA $ 35,918 $ 39,093 $ 71,411 $ 76,667
 
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(In thousands)
(unaudited)
       
 
Three months ended
March 31,   June 30,   September 30,   December 31,
2011 2011 2011 2011
 
Revenue:
Customer Management Services $ 246,073 $ 248,207 $ 248,690 $ 240,657
Customer Growth Services 22,143 23,483 25,793 24,210
Customer Technology Services 4,657 11,660 22,876 27,785
Customer Strategy Services   8,106     10,286     6,876     7,886  
Total $ 280,979   $ 293,636   $ 304,235   $ 300,538  
 
Income (Loss) From Operations:
Customer Management Services $ 48,251 $ 49,588 $ 43,385 $ 43,751
Customer Growth Services 2,982 4,594 5,020 5,059
Customer Technology Services 2,712 3,156 4,289 4,804
Customer Strategy Services 463 1,309 (322 ) 19
Corporate   (32,918 )   (34,018 )   (25,800 )   (32,870 )
Total $ 21,490   $ 24,629   $ 26,572   $ 20,763  

Copyright Business Wire 2010

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