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TeleTech Holdings (NASDAQ:TTEC)

Q4 2012 Earnings Call

February 27, 2013 8:30 am ET

Executives

Karen Breen

Kenneth D. Tuchman - Chairman of the Board and Chief Executive Officer

Regina M. Paolillo - Chief Financial Officer, Chief Administrative Officer, Accounting Officer and Executive Vice President

Analysts

Ashwin Shirvaikar - Citigroup Inc, Research Division

Michael Fawzy Malouf - Craig-Hallum Capital Group LLC, Research Division

Steven Shui - Stifel, Nicolaus & Co., Inc., Research Division

Derek Sbrogna - Macquarie Research

Operator

Welcome to the Fourth Quarter and Full Year 2012 Earnings Conference Call. [Operator Instructions] I would now l to turn the call over to Karen Breen, TeleTech's Vice President of Investor Relations. Thank you, ma'am, you may begin.

Karen Breen

Thank you. Good morning, and thank you to everyone joining us today. TeleTech is hosting this call to discuss its fourth quarter and full year 2012 results ended December 31. Participating on today's call will be Ken Tuchman, our Chairman and CEO; and Regina Paolillo, our Chief Financial Officer.

Yesterday, TeleTech issued a press release announcing its financial results for the fourth quarter and full year 2012, and we also filed our annual report on form 10-K with the SEC. This call will reflect items discussed within those documents, and we will make reference to them on today's call. We encourage all listeners to also read our annual report on Form 10-K.

Before we begin, I want to remind you that matters discussed on today's call may include forward-looking statements relating to our operating performance, financial goals and business outlook, which are based on management's current beliefs and expectations. Please note that these forward-looking statements reflect our opinions only as of the date of this call, and we undertake no obligation to revise this information as a result of new data that may become available.

Forward-looking statements are subject to various risks, uncertainties and other factors that could cause our actual results to differ materially from those described. Such factors include, but are not limited to, reliance on several major clients, the risks associated with lower profitability from or the loss of one or more significant client relationships, execution risks associated with ramping new business or integrating acquired companies and the possibility of additional asset impairments and/or restructuring charges. For a more detailed description of our risk factors, please review our most recent SEC filings, along with our annual report on Form 10-K.

A replay of this call will be available on our website through March 13. I will now turn the call over to Ken Tuchman, our Chairman and CEO.

Kenneth D. Tuchman

Thank you, Karen, and good morning to everyone. It's a pleasure to be with you today to review our financial performance, along with the progress we've made on key imperatives. As I reflect on both 2012 and our past 30 years, I realize that our continued success has stemmed from unwavering clarity of purpose, and that is to build stronger brands for our clients through the delivery of extraordinary customer experiences. This focus is enabled by relentless commitment to innovation in everything that we do. This has led us to further diversify our revenues into a fully integrated offering that spans strategy to execution.

Last year, 21% of our revenues came from these technology-enabled services, up from -- excuse me, 17% in 2011 and from 8.5% in 2010. Technology has clearly revolutionized every aspect of our lives, and we undeniably live in the age of the customer. We firmly believe that success of every company will be determined by how they respond to the heightened challenge. What is most exciting about our future is the customer experience is squarely at the forefront of every board and every CEO's agenda.

Numerous studies have validated that companies who sustain a long-term competitive advantage are those that differentiate via the customer experience versus those that benefit from a short-lived price or product advantage. Having managed billions of interactions in 2012 alone, we have a unique insight into the experiences that customers want, and more importantly, how to deliver it.

Let me now reflect on our 2012 accomplishments and key priorities in 2013. I'm pleased that we delivered on all of our 2012 financial commitments that were first outlined a year ago when we announced our 2011 results. I'm proud to say that we achieved both our revenue and profitability targets for 2012 despite a volatile macroeconomic environment.

We successfully exited certain underperforming programs, which equated to over $110 million of annualized revenue. Importantly, we stayed within the low end of the $15 million to $18 million range of restructuring cost associated with the exiting of those markets. As a result of this initiative, along with our revenue diversification efforts and our shared capacity utilization reaching 79%, our non-GAAP operating margin reached the 3-year high of 9%.

Our strong balance sheet and free cash flow allowed us to continue to fund organic growth, accretive acquisitions and return capital to shareholders. To that end, we completed several acquisitions during 2012 that further laid the groundwork for our integrated offering and also acquired 9% of our shares outstanding. Lastly, we remain committed to achieving our longer-term financial objectives and expect to reach our revenue diversification goal of 25% during 2013, a year ahead of our originally stated time line.

As we begin the new year, our focus on becoming the preeminent global provider of fully integrated customer experience solutions, strategy to execution remains steadfast. And to that end, we continue to concentrate on the following 3 priorities: First, position the company for top line growth with increased penetration in targeted verticals; second, invest in innovation and technology-rich solutions that ensure we remain vital -- a vital partner to our clients, while also driving higher margins in our diversified business segments; and third, pursue strategic and accretive acquisitions. We believe that successful achievement of these objectives will lead to superior shareholder returns over the coming years.

As it relates to top line growth, we expect 2013 will grow between 4.5% and 6.5%. Our pipeline remains strong, with a number of potential opportunities across all segments and verticals. Our sales pursuits continue to be solely targeted towards clients that are focused on total value delivered versus tactical, labor augmentation engagements.

Clients are selecting TeleTech because of our demonstrated value proposition and our ability to analyze, design, deploy and deliver turnkey solutions that drive measurable outcomes and improved customer acquisition, retention and higher third party Net Promoter Scores.

The recently announced business win with Fairfax Media, one of the largest media companies in Asia-Pacific, is an excellent example of another relationship that spanned our integrated offering and was the key factor in winning this 5-year engagement. Our work spanned strategy to execution as Fairfax's goal is to reengineer their business around the customer to enable faster growth and great -- greater profitability through a more optimized set of processes.

We expect additional wins of this nature during 2013, as both existing and prospective clients are clearly resonating with the value of our integrated offering. We now have more than 20 clients that are using multiple services from our solution set. We believe this is solid progress, and our goal is to double the number of clients buying these integrated services by this time next year. In regards to vertical penetration, we continue to gain traction in our financial services, healthcare and transportation verticals, each of which grew 20% or more for the year.

Turning to our second priority, which is continued innovation. Over the last 30 years, our ability to stay strategically relevant to our clients and their customers' needs has continued to differentiate TeleTech. Innovation is in our DNA, and it will continue to fuel our prosperity over the next decade.

In 2013, we plan to invest approximately $25 million towards innovative new offerings in addition to sales and marketing. Our innovation pipeline remains robust, and we will continue to prudently pace this investment relative to our near- and long-term financial objectives.

Turning to our third priority. We continue to pursue complementary and accretive acquisitions. In late December, we completed the acquisition of Technology Solutions Group, or TSG, which became part of our CTS segment. They have a strong presence in the large enterprise market and bring deep expertise in consulting and systems integration, along with the management of large, complex, converged IP-based environments.

As we execute against our 3 imperatives, we continue to build our leadership team. We're delighted to have Brian Shepherd recently join our executive ranks in the newly created position of Executive Vice President of TeleTech and President of our Customer Strategy and Technology Services segment. Brian is an internationally recognized business leader, with more than 20 years of customer experience consulting and technology acumen. Most recently, having held several executive leadership positions at Amdocs. By adding someone of Brian's stature to lead these 2 critical segments, it reaffirms our commitment to our diversification strategy and to accelerate in the growth of these key segments via a strong executive focus.

Finally, our strong balance sheet provides us with tremendous optionality to invest in the business, as well as pursue accretive acquisitions that further complement and enrich our existing offerings. In addition, we continue to drive enhanced returns to shareholders via our long-term buyback program, which we first started 12 years ago. During the fourth quarter, we spent $26 million on share repurchases and $81 million in 2012. As we begin 2013, we had $25.4 million available for future repurchases.

In closing, as we embark on our fourth decade in business, our path forward is deliberate and focused entirely on profitable top line growth. We are pleased with the alignment of our emerging businesses as we enter 2013 and their strong pipeline of opportunities. When you reflect on the actions, investments and key hires that we've made over the past 24 months, I hope you see the level of commitment and conviction we have to achieving our future financial objectives for the combined benefit of our employees, clients and shareholders.

Today, we serve 200 of the world's leading brands, more than double the 85 clients we supported just 2 years ago. Given a majority of our historic growth has come from our embedded base, we see great future opportunity with these and other prospective clients. We have a strong management team, a solid balance sheet and proof points that our integrated value proposition is resonating with the market. I'm confident that our strategy will continue to create value as we embark on the next 30 years.

And with that, I'll turn the call over to Regina.

Regina M. Paolillo

Thank you, Ken, and good morning, everyone. Let me start with some comments on the full year, after which I'll discuss our fourth quarter and 2013 business outlook in more detail. Revenue of $1,163,000,000 was in the middle of our originally guided range of $1,150,000,000 to $1,200,000,000. The decline from 2011 was attributable to $64 million in lost revenue from exiting certain unprofitable programs, combined with a nearly $15 million negative currency impact. Excluding these items, revenue grew $63 million or 5.3% over the same period a year ago.

Adjusted operating margin reached a 3-year high of 9% and at the high end of our originally guided range of 8.5% to 9%. The charges associated with exiting unprofitable markets were $15.5 million and at the low end of our originally guided range of $15 million to $18 million. We returned $81 million to shareholders or 9% of our net market cap via the repurchases of 5 million shares. We generated nearly $66 million of free cash flow for a near 7% yield on our market cap. Let me now review our fourth quarter results in more detail.

Revenue for the quarter was $295.3 million compared to $300.5 million in the year-ago quarter. The $5.2 million decline was related to the loss of $21.7 million in revenue from exiting certain unprofitable markets, offset in part by a $2.9 million favorable foreign currency impact. Excluding these items, revenue grew $13.6 million or 4.5% over the year-ago quarter.

Our diversified businesses comprised approximately $60 million or slightly more than 20% of fourth quarter revenue. Our fourth quarter GAAP operating income was $26 million or 8.8% of revenue compared to 6.9% in the year-ago quarter. Adding back the $2.2 million of restructuring charges, our non-GAAP operating income was $28.2 million or 9.5% compared to 7.4% in the year-ago quarter.

SG&A expenses in the quarter were 15.2% of revenue, down from 16.7% in the year-ago quarter. These improvements are the result of ongoing efficiencies we are realizing as we leverage our general and administrative expenses across an expanding suite of services.

Our effective tax rate this quarter benefited from several items, none of which were individually significant. Excluding these benefits, our normalized effective tax rate for the quarter was 18.7% and 20% year-to-date.

Our fourth quarter GAAP fully diluted earnings per share grew 36% to $0.38 from $0.28 in the year ago quarter. On a non-GAAP year-over-year basis, EPS grew 31% to $0.38 compared to $0.29 a year ago. During the quarter, the company repurchased 1.5 million shares for a total of $26 million. As of year end, we had $25.4 million authorized for future share repurchases.

Free cash flow was $36.1 million compared to $57.2 million in the year-ago quarter, and was lower primarily due to the timing of certain working capital items. Capital expenditures were $7.4 million compared to $17.1 million in the fourth quarter of 2011. The full year CapEx was $40.5 million comparable to the $38.3 million in 2011.

We ended the quarter with $164.5 million in cash and $119.5 million of total debt. This resulted in a net positive cash position of $45 million. Our total debt-to-capital ratio was 19.3%. Our current ratio was nearly 3x, and our adjusted return on invested capital, 24%.

As of December 31, we had approximately $388 million of additional borrowing capacity under our revolving credit facility. This continues to provide us the capacity to fund a combination of organic growth, share repurchases and accretive acquisitions. We will continue to opportunistically execute tuck-in acquisitions, adding additional competency, scale and geography. Our DSOs were 76 days, which was down 2 days sequentially and up 1 day from a year-ago quarter.

Let me now review our fourth quarter segment results. As we noted in the press release, we allocated our corporate cost against each of our business segments. We felt the allocation of corporate cost to the individual segments will provide greater insight into the fully allocated profitability of each business. As we move into 2013, we plan to further refine our allocation methodology using a combination of consumption and pro rata-based methodologies.

Customer Management Services revenue was $235.45 million compared to $240.7 million a year ago. Revenue was reduced by $21.7 million in the fourth quarter due to exiting certain unprofitable markets, partially offset by a $3.1 million favorable foreign currency benefit. Excluding these items, revenue grew $13.4 million, or 5.6%. Adjusted operating income was $24 million, or 10.2% of revenue compared to 6.5% in the year ago quarter. The operating margin increase was attributable to the seasonal lift we see in the fourth quarter from holiday-related volumes in our retail sector, along with the benefit we expected to see from exiting certain underperforming businesses during the latter half of 2012.

Customer Growth Services fourth quarter revenue grew nearly 5% to $25.4 million as a result of new programs. Operating income was $850,000, or 3.3% of revenue compared to 8.1% in the year-ago quarter. Our margins in 2012 were impacted by higher sales, marketing and rebranding expenses combined with increased investment in the scalability of our marketing platform.

Customer Technology Services fourth quarter revenue was $24 million, up 7.4% sequentially from $22.3 million but down from the year-ago quarter, which benefited from a large product sale in the fourth quarter 2011.

Customer Strategy Services fourth quarter revenue grew 32% to $10.4 million from $7.9 million in the year ago quarter, primarily as a result of the iKnowtion and Guidon acquisitions. The operating loss in the segment was due to seasonally lower utilization in certain geographies and investments in select geographic expansion. We expect the operating income performance of this segment to improve in 2013, as we leverage our investment and drive synergies across our consulting practices.

Turning to our business outlook, we are introducing our 2013 guidance. We expect revenue to grow 4.5% to 6.5% to a range of between $1,215,000,000 and $1,240,000,000, with operating margin increasing to between 9.25% and 9.5%. In addition, we believe our effective tax rate will range between 20% and 22% in 2013.

With regard to capital expenditures in 2013, we continue to prudently pace our investment in global infrastructure, in line with our new business wins and would expect full year 2000 CapEx to range between $50 million and $60 million.

While we don't provide specific guidance on our 4 business segments, let me share some additional color. Regarding the CMS segment, keep in mind that the first quarter results are seasonally lower, both from a revenue and operating margin perspective, due to the run off of holiday volume. In addition, there was approximately $50 million of revenue that we recognized in 2002 as we exited underperforming businesses that will not recur in 2013. We believe the CMS operating margin will approximate the 9% non-GAAP margin we reported in 2012. However, keep in mind that there was an approximate 25 basis point onetime benefit to the 9% margin related to the finalization of certain real estate and employee-related expenses in Q3 of 2012 that will not recur in 2013.

Regarding the other 3 emerging segments, which include CSS, CGS and CTS, we expect the combined revenue for this group will grow 30% to 40%, of which roughly half will be organic. As Ken indicated, we would expect these businesses to reach 25% of revenue during 2013. With regard to the combined operating margin for these businesses, we believe they will exceed 10% on a full year basis in 2013. Also, keep in mind that about half of the $25 million incremental investment in 2013 to support our growth initiatives will be directed to these 3 emerging segments.

Thank you. And with that, I'll turn the call back to Karen.

Karen Breen

Thank you. As we open the call to your questions, we would ask that you limit them to one at a time, so we have the opportunity to take everyone's inquiry. Operator, you may now open the line.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Ashwin Shirvaikar of Citi.

Ashwin Shirvaikar - Citigroup Inc, Research Division

I guess my question is on -- from a segment basis, as I look at margins, either -- in all of the -- in the non-call center businesses, they were down except for Technology. I wanted to understand, as these businesses grow at a faster pace, is there a scale impact -- I mean, are these fundamentally lower-margin businesses compared to call center? Or is there expectation that margins improve at some point?

Kenneth D. Tuchman

Ashwin, it's ken. Our expectation is that the margins, in fact, will be higher. And we communicated that we set forth on our strategy. And we're very confident that we will deliver on higher margins, as well as a significantly higher growth rate.

Ashwin Shirvaikar - Citigroup Inc, Research Division

Could you quantify what you might mean by higher margins? Is there other milestones we should be looking for?

Kenneth D. Tuchman

Well, I think over the -- I think, over the medium term, I think that our expectation is that, that business typically will put forth a margin that's going to range on the very low end of 15% to 21%. And so you can kind of just do an average, if you want, and we'd be comfortable with that. But what I would just simply say is that I don't think you should judge that segment with the amount of acquisitions that we've done going forward. I think that it's safe to say that we're pretty good at rationalization, and that we're aggressively going through that process and feel very confident in what we're seeing, as well as the pipeline.

Ashwin Shirvaikar - Citigroup Inc, Research Division

If I can ask one more. Can you talk about sort of the strategic imperative in the integration of TSG and Guidon into your current operations?

Kenneth D. Tuchman

I'm sorry, you faded out on the very end.

Regina M. Paolillo

Strategy around TSG into Guidon.

Karen Breen

And Guidon integration. How will you integrate TSG into Guidon?

Kenneth D. Tuchman

So I'm still not sure I fully understand question, but let me just do -- try to take a crack at your question. What we're finding is that although the Street thinks that we're in the call center business, the fact of the matter is, is that our clients now understand that they need something that's going to drive and dramatically change their customer experience. In order for us to do that, we have to be able to be able to provide strategic consulting for them. But to just provide strategic consulting and to provide a 3-ring binder of the what and what has to be done is not enough. And what they're looking for is they're looking for an organization that they can hold responsible to outcomes. The only way we can deliver to outcomes is to basically manage the ecosystem that drives whether our customer experience is good or bad, or whether revenue is growing or shrinking, or whether retention is staying or loyalty is maintaining or declining. And we believe that the assets that we've pulled together and the capabilities that we've pulled together are allowing us to work with very large companies that have very legacy processes, very much legacies in their technology area, et cetera, and they're looking for an end-to-end solution. So what I would just say to you is, is that we're getting very significant -- clients resonating to what it is that we're offering. And we're selling in that manner. We are not selling a staff augmentation capability, which is something that we think longer term is not our overall businesses that's going to have the types of margins that have traditionally been afforded in the past. Instead, clients are looking for outcomes where they can predict what in fact is going to take place with their customer base. And so, we have a myriad of case studies, of clients where we've had these types of impacts. And offline, I'd be happy to talk more with you on how we're impacting this, but that is exactly what we're doing. TSG is merely now become part of eLoyalty. And the difference is, is that it just simply gives eLoyalty that much more overall scale than what eLoyalty already had. eLoyalty has been growing at a very fast clip and is going to continue to grow at a very fast clip, with more acquisitions planned, so that we can continue to drive a more technological solution. So sorry for the long-winded answer, I hope that answered your question.

Operator

Our next question is from Mike Malouf of Craig-Hallum.

Michael Fawzy Malouf - Craig-Hallum Capital Group LLC, Research Division

A question to -- it's kind of a 2-part question. Can you talk a little bit about foreign exchange, specifically, the Philippine peso, and how that's affecting you guys? What kind of impact that's going to have going forward, and how you're trying to -- how you're mitigating that?

Regina M. Paolillo

Yes, let me just -- let me address the FX piece. So it's not affecting us. I would say, we've got a very mature program relative to the risk that we have around the world with regard to FX. That program really is twofold. One is that we risk mitigate a fair amount of this, especially with our larger clients, through contractual terms and conditions, which allow us to true up that FX on a fairly frequent basis. And then second to that, we have a very active hedging program, both short term but very much long term. For example, specifically your question on the Philippine peso, we're -- for a part of our portfolio, we're hedged out almost 4 years. So we have, I think, done a very good job over the last number of years. It's been a long-term program of very actively, and I think, successfully managing that risk and expect to continue to do that on both those fronts that I mentioned. As we bring new clients in, clearly, we're pricing our contracts at that moment relative and immediately at the gate establishing hedges where relevant.

Michael Fawzy Malouf - Craig-Hallum Capital Group LLC, Research Division

Great, that's really helpful. And maybe can you talk a little bit about how the sort of the traditional call center business is right now? I know you kind of do a good job of -- as you sit here at the end of the end of 2012 and looking out over the next couple of years, your results and some of the other companies in your industry seem to be experiencing a little bit of a strengthening in demand. And I'd love to sort of get some color on where we think we are with the outsourcing trend? And specifically, around maybe if there's any -- been any structural changes, for instance, @Home? And how that's affecting the industry?

Kenneth D. Tuchman

I think just to kind of layer on to what I was just saying to Ashwin, that the business, in our opinion, in order to really be differentiated in the space, we have to be become the leader that is driving the outcomes. And therefore, what we're focused on is having differentiated technological capabilities that allow us to help our clients deliver a capability that ultimately, their customers are saying is differentiating their brand. In doing so, what we're seeing is that there's really kind of 2 types of clients in the marketplace. There's a client that wants to be prescriptive and tends to have the lowest Net Promoter Scores, tends to want to be focused on the lowest price in the Excel spreadsheet and is very focused on more of a staff augmentation, lift and shift, much for less. We're going the exact opposite direction. And if you actually look at who our clients are, it's safe to say that the majority of them have some of the highest CSAT scores, J.D. Power scores, and MPS scores. And they actually understand the fact that investing in a customer, being able to be predictive with the customer, being able to almost have a psychic ability, and I don't mean to be corny by saying this, of knowing and understanding what the customer is looking for is very important. And that's why we've been making significant investments in the data analytics space. It's why we're building platforms in that area, et cetera. And so I think again, the Street focuses on our name because of its legacy of how long we've been in this business as a call center company, when in fact, what we're seeing, to your point, is a dramatic shift in the types of interactions that are taking place. So our ability to be able to service and support customers, not just across the voice channel, but across the chat channel, not just across the chat channel, but across social media channels like Facebook, like Twitter, like video. The ability to be able take all that information, consolidate the information and give our clients a single view, so that they understand what the voice of the customer is, where their customer is going, where they're trending, are they happy, aren't they happy. If not, what are the treatments that need to be used, et cetera. We're not seeing other folks in the marketplace focus on this. And there's not -- and we understand that they've got a great business, and they're focusing on their traditional business. But the business that we're focusing on, like I say, is to have a strategic differentiation with our strategic consulting, a technological differentiation with the capabilities that we offer, the platforms that we offer, that SaaS-based capability that we offer through the cloud, and the ability to have a delivery capability that physically can provide the arms and legs to interact with the customers. At the end of the day, we are totally fine if the customer is not interested in using our BPO delivery capabilities. And as long as they're purchasing our technology capabilities and our consulting capabilities and our strategy capabilities, we're very happy. So the point is we feel that the marketplace is going to continue to evolve. And there are going to be those customers who are very focused on their customers, and there are going to be those that are going to treat them as transactions. And we're going to focus on the companies that in fact are passionate about their customers, and therefore, need the capabilities that we have.

Operator

Our next question comes from Steven Shui of Stifel, Nicolaus.

Steven Shui - Stifel, Nicolaus & Co., Inc., Research Division

It looks like CapEx has taken a healthy step up in 2013, and we see now the competitors as well. Can you give us some color into what you'll be spending on? And whether some of your newer businesses are just more capital intensive?

Regina M. Paolillo

Yes, just -- I'd first start by saying that, that $50 million to $60 million is a range that will be tied to bookings. So the infrastructure required around the world, either for CMS or for CTS, which are really the 2 businesses that consume the bulk of that capital. But the lion's share of the step up would be new sites based on the pipeline that we have, the bookings that we're seeing in Q1. We still expect over the long-term to be within that 4% to 5% of revenue. Our CapEx was $40 million last year. I think within that, we spent probably about 25% on site buildout. And as you see, our capacity has moved up from 72% to 79% and will continue to improvement in Q1, as we come off of Q1 and book new business in CMS. Globally, we expect that we will start to buildout new sites. So the bulk of that is really, as I said, site buildout as well as in CTS, the buildout of our cloud platform for -- which backs up our recently kind of achieved certification in Cisco cloud. And then just one other comment that for the most part, our CapEx continues to be around 70% new and 30% maintenance.

Steven Shui - Stifel, Nicolaus & Co., Inc., Research Division

And a separate question, what was TSG's revenue in the 2012? And how fast do you expect that business to grow in 2013?

Regina M. Paolillo

TSG's revenue was in the mid $30 million. And we expect that business to be between $35 million and $40 million on a forward basis.

Operator

[Operator Instructions] Our next question comes from Kevin McVeigh of Macquarie.

Derek Sbrogna - Macquarie Research

This is actually Derek Sbrogna in for Kevin. I just -- with kind of the new operating margin guidance for 2013, the 9.25% to 9.5%, given that new range, do you guys still see the 11% to 12% that you'd previously outlined in 2014 as attainable?

Kenneth D. Tuchman

Definitely.

Derek Sbrogna - Macquarie Research

Great. And is -- should we be thinking about...

Kenneth D. Tuchman

And I want to just stress, so if you're wondering, where is the delta, the amount of investment that we're making in sales and marketing and R&D is significant. And I would just suggest that you take a look at what that investment is and what our margins would be without that investment. So we're very comfortable with the future guidance.

Derek Sbrogna - Macquarie Research

Got it. And we should be thinking about that as a run rate for the entire year, not an exit rate, correct?

Kenneth D. Tuchman

Yes, that's correct.

Derek Sbrogna - Macquarie Research

Okay. And I then know you're not probably going to provide too much color, but given all these investments that you spoke about, what does that kind of imply for the margin profile of the kind of the core CMS business? I mean, do you expect that to continue to expand? Or is it -- I wonder if you can just talk about it directionally?

Kenneth D. Tuchman

What I would just the say to you that on an aggregate, when you look at onshore, nearshore and offshore, I think that, that business is going to range probably in the 8% to 9% range. And I think that what's going to bring the margin over-the-top is all the emerging capabilities that we've been putting together, and that we're now getting excellent traction on.

Operator

And at this time, there are no other questions. Do you have any closing remarks?

Karen Breen

We do not at this time.

Operator

Thank you. This does conclude the Fourth Quarter and Full Year 2012 Earnings Conference Call. You may disconnect your phones at this time.

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