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TeleTech Holdings, Inc. (NASDAQ:TTEC)

Q4 2013 Earnings Conference Call

February 25, 2014, 08:30 AM ET


Paul Miller - Senior Vice President and Corporate Treasurer

Kenneth Tuchman - Chairman and Chief Executive Officer

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


Mike Malouf - Craig-Hallum Capital Group

Tobey Sommer - SunTrust

Kevin McVeigh - Macquarie

Bill Warmington - Wells Fargo

Steven Shui - Stifel


Welcome to the fourth quarter and yearend 2013 earnings conference call. (Operator Instructions) I would now like to turn the conference call over to Mr. Paul Miller, TeleTech's Senior Vice President and Corporate Treasurer. Thank you, sir, you may begin.

Paul Miller

Good morning and thank you for joining us today. TeleTech is hosting this call to discuss its fourth quarter and full year 2013 results ended December 31. Participating on today's call are Ken Tuchman, our Chairman and Chief Executive Officer; and Regina Paolillo, our Chief Financial Officer.

Yesterday, TeleTech issued a press release announcing its financial results for the fourth quarter and full year 2013. While this call will reflect items discussed within the press release, we encourage all listeners to read our most recent annual and quarterly reports filed with the SEC.

Before we begin, I want to remind you that most matters discussed on today's call may include forward-looking statements related to our operating performance, financial goals and business outlook, which are based on management's current beliefs and assumptions. Please note that these forward-looking statements reflect our opinions as of the date of this call, and we undertake no obligation to revise this information as a result of new information 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 large clients; risks associated with lower profitability from or loss of one or more significant clients; execution risks associated with ramping new business or integrating acquired businesses; the possibility of assets impairment and/or restructuring charges; and the potential impact to the financial result due to foreign exchange rate fluctuations. For a more detailed description of our risk factors, please review our most recent Annual Report on Form 10-K.

A replay of this conference call will be available on our website through our Investor Relations section.

I will now turn the call over to Ken Tuchman, our Chairman and Chief Executive Officer.

Kenneth Tuchman

Thank you, Paul, and good morning to everyone. We had a strong fourth quarter to finish 2013. These solid results demonstrate that our holistic customer experience strategy is taking hold and our ability to execute is accelerating. Our focus on partnering with clients to build meaningful and profitable relationships with their customers continues to deliver value and is increasingly differentiating us in the marketplace.

Now, for a few financial highlights. Our non-GAAP revenue grew over 11% to $326 million on a constant-currency basis in fourth quarter over the same period last year. Our non-GAAP operating margin improved to 10.9% from 9.5% in the year-ago period. We had $80 million in new bookings in the fourth quarter, resulting in 2013's full total bookings of $365 million or 20% increase year-over-year.

Our revenue mix continues to diversify. In fourth quarter, our strategy, technology and growth services segments represented 27.5% of total revenue, a 46% increase over the same period last year. For the full year 2013, more than 25% of our revenue came from the emerging businesses, up from 21% in 2012.

Since 2012, 42 clients have purchased services from multiple business segments, up 75% from 24 clients in 2012. This progress demonstrates that we're successfully executing against our four strategic themes.

First, deliver profitable growth with a holistic portfolio of high-value, strategically relevant customer engagement solutions. Second, increase market presence by accelerating investments in vertical markets, expanding into new geographies and developing key new client relationships.

Third, accelerate innovation with new proprietary intellectual capital across all aspects of our business. And fourth, execute strategic and accretive acquisitions to add quality companies that broaden the depth, breadth and reach of our customer engagement capabilities.

In 2013, we delivered on every facet of our growth strategy. Our topline grew 5.8% and our operating margin increased to 9.4% on an adjusted basis. New bookings increased 20% and we expanded our market presence with 45 new clients. We continue to diversify revenue across our four business segments and we expanded our reach in the financial services, healthcare and retail sectors.

Our focus on operational improvements, investments in leadership and technology delivered favorable results and we successfully acquired and integrated two companies, TSG and WebMetro. Last, we announced yesterday our intent to acquire Sofica Group.

As we move to 2014, we're increasing our momentum with each of our four themes. Allow me to explain. Let's start with our integrated platform. Our focus on delivering economic value through customer experience differentiates us in the marketplace. Everything we do, consulting, technology and services, is oriented towards one thing and one thing only, helping clients build engagements with their customers across the customer lifecycle.

Given the complexity of the omni-channel customer experience, it is increasingly difficult to create true customer engagement without a holistic approach. Disconnected processes, legacy technology and silo databases are alienating customers and destroying value, while increasing cost. Our integrated solutions help clients break the vicious cycle.

Our portfolio of capabilities supports every customer-facing touch point, including acquisition, service, retention and growth. This holistic view of the customer journey enables us to breakdown the walls between marketing, sales, care and deliver a multi-channel experience in ways that customers want today.

Now, on our second theme, increasing our market presence. Our progress in 2013 has given us confidence in our ability to execute our integrated strategy. To that end, late last year, we began to invest in the front-end of our business with the creation of our global markets and industries group.

This go-to-market team is led by seasoned industry experts, focused on selling our integrated platform within an industry's specialized context. In 2014 and in 2015, we plan to turn up the volume with an increased investment in sales and marketing in new geographies and industries.

The next theme is driving outcomes through innovation. As new social, mobile and cloud technologies proliferate, our clients are seeking ways to streamlining interaction channels and simplify the customer experience. In 2014, we will continue to invest in building technologies that integrates channels and reduces friction.

In addition, we'll continue to invest in innovation across all aspects of our business. Innovation is in our DNA and it is evident in how we architect our facilities with renewable resources, manage our global operations, build outcome-based business models and make investments in leadership, R&D and acquisitions.

Regarding our fourth theme, acquisition, we announced a definitive agreement to acquire Sofica Group, a leading customer management services company based in Bulgaria. This acquisition will deliver additional language capabilities to our existing and new clients globally and will be immediately accretive to earnings. We continue to elevate a wide spectrum of additional strategic acquisition opportunities and our pipeline remains very active.

Looking back on 2013, I am pleased with our progress. Going into 2014, I'm even more optimistic about our future. As the connected economy continues to evolve, our singular focus on the customer is more relevant than ever before. Our clients are embracing our technology-enabled services model that incorporates the trends that are shaping our world social, mobile, analytics and cloud.

CEOs across the globe are counting on partners like us, who have the ability to bring transformative ideas and flawless execution together. Today, we're privileged to be helping some of the best companies in the world reinvent their business to drive competitive differentiation through customer engagement. That said, we can do more.

We're well-capitalized, have a strong executive team and offer a distinct and unique holistic value proposition. With this solid foundation in place, we are better positioned than ever to deliver higher value offerings to our clients, greater returns to our shareholders and increased opportunities to our employees.

And now, I'll transition to Regina to take you through the financial details.

Regina Paolillo

Thank you, Ken, and good morning, everyone. I'll start with the review of our 2013 full year results, segue into a discussion on Q4 '13, including segment results and end with our 2014 outlook.

Our GAAP revenue was $1.193 billion, an increase of 2.6% from $1.163 billion in the year-ago period. On a constant-currency basis and adjusting for $37.6 million in exited business from Spain, our adjusted 2013 revenue was approximately $1.2 billion, representing a 5.8% year-over-year growth rate. Revenue from acquired companies in 2013, during their first 12 months, was $57 million.

Our emerging segments, including CSS, CTS and CGS increased to 25% of total revenue in 2013, up from 21% in 2012. We anticipate this trend to continue, as we accelerate our investment in the emerging businesses, including the build-out of an integrated vertically focused sales platform. This is particularly evident in our fourth quarter 2013 revenue mix, whereby 27.5% of total revenue was derived from emerging segments.

Our GAAP operating margin was 8.5%, up from 6.8% in the prior year. On a constant-currency basis and adjusting for restructure costs, operating margin for the full year 2013 was 9.4% compared to 9% in 2012. Operating income in 2013 from acquired companies, which were in their first 12 months, was $6.8 million.

With fourth quarter's $80 million in bookings, our full year bookings were $365 million, up 20% over the prior year. The strong bookings growth was matched by a positive mix with contribution across all verticals, 90% from existing clients, 64% in recurring revenue, 50% from emerging businesses and 27% in international clients.

Let me now review our fourth quarter, including bridging our GAAP to non-GAAP numbers. Fourth quarter GAAP revenue was $318.1 million compared to $295.3 million in the fourth quarter of 2012, up 7.7%. On a constant-currency basis, adjusted revenue was $326.3 million, representing a 12.3% growth rate over the year-ago period, when adjusted for $1.7 million in exited business from Spain. Revenue from acquisitions in the fourth quarter of 2013, which were in their first 12 months, was $15.2 million.

Our fourth quarter GAAP operating income was $32.8 million or 10.3% of revenue compared to $26 million or 8.8% of revenue in the year-ago quarter. Income from operations on a constant-currency basis and adjusted were $0.3 million and restructuring charges increased 28.5% to $35.5 million or 10.9% of adjusted revenue. This compares to $27.7 million or 9.5% of revenue in the year-ago quarter. Operating income from acquired companies in the fourth quarter of 2013, which were in their first 12 months, was $2.9 million.

All segments contributed to the improvement in operating income, including delivering a higher margin revenue mix, expanding offerings, executing on acquired company targets and improved agent retention and capacity utilization in our core business. These improvements were offset by incremental investments and additional amortization expense related to the acquisitions in TSG and WebMetro.

The incremental investments include our expanded leadership team, the build-out of our vertical sales platform, marketing investments related to our rebranding and technology investments of new products and solutions. While these initiatives are not one-time expenses, they are in the development stage and have not yet hit revenue or operating income for a given target.

As planned, SG&A expense in the quarter was 16.1% of revenue, up from 15.2% in the year-ago quarter. The increase is primarily due to the incremental investments I just mentioned.

Our GAAP-based tax rate this quarter was 27.6% compared to 12.3% for the same period of 2012. This increase in rate was partially influenced by the distribution of earnings in international jurisdictions and higher restructure charges in the prior period. The normalized tax rate was 23.4%.

Fourth quarter fully diluted GAAP earnings per share was $0.38, unchanged over the year-ago quarter. Adjusted EPS increased 23.7% to $0.47 compared to $0.38 in the prior-year quarter.

We continue to be committed to early returns to our shareholders, after including our fourth quarter share repurchases of approximately 200,000 shares for $4.9 million. The full year 2013 share repurchases was 2.48 million for a total of $56.5 million.

As of December 31, 2013, there was $18.9 million authorized and available for future share repurchases. Also as announced, the board authorized an additional $25 million, which reflects their support of the company's business outlook and the value delivered to shareholders from the repurchase program.

Cash flow from operations in the fourth quarter was strong, increasing to $61.4 million compared to $43.5 million in the year-ago quarter. Free cash flow also significantly improved, despite higher capital expenditures increasing to $42.8 million from $36.1 million in the fourth quarter last year.

We continue to pace our capital expenditures in line with our business requirements and growth expectations. We spent $18.5 million on capital items in the fourth quarter, resulting in $50.4 million for the full year 2013. This compares to $40.5 million in the prior year.

We ended the quarter with $158 million in cash and $109.8 million of total debt, resulting in a net cash position of $48.2 million. In addition to our cash balances and cash flow from operations, we have significant financial flexibility to fund growth, working capital, accretive and strategic acquisitions and share repurchases by utilizing our revolving credit facility. As of December 31, we had $596.5 million in committed additional capacity under the line of credit.

Our total debt-to-equity ratio is approximately 23%. Our current ratio, 2.5x. And our adjusted return on invested capital, 25.2%. The strength of our operating cash flow balance sheet and capital structure have allowed us to fund our organic growth, execute significant share repurchases and acquire important capability for supporting our emerging business strategy.

Since January of 2012, we've deployed $279 million in share buyback, acquisitions and capital expenditures. Cash flow generation in the fourth quarter was aided by a notable improvement in our DSO, decreasing 8.4 days to 68.3 days in the fourth quarter over the same period last year.

The improvement reflects additional focus on a few larger accounts, discipline over permitted payment terms, and overall more active management over the billing and collection processes. Our site utilization was 83% in the fourth quarter of 2013, an improvement from 79% in the year-ago period and sequentially over the third quarter of 2013.

Let me now share with you our fourth quarter performance highlights from each of our segments. Customer Management Services fourth quarter revenue was $230.6 million compared to $235.5 million a year ago. Adjusted for $7.5 million of foreign currency translation and $1.7 million related to the exit from Spain, revenue grew 3.2%.

Operating income was $20.5 million or 8.9% compared to $21.8 million or 9.3% in the year-ago quarter. On a constant-currency basis and adjusted for approximately $200,000 in restructuring charges, the operating margin was 9.9% compared to 10.3% in the year-ago period.

While the CMS segment saw improvements in operating efficiencies, employee retention and capacity utilization, it was offset by the incremental investments we noted earlier.

Customer Growth Services fourth quarter revenue increased 17.5% to $29.8 million compared to $25.4 million in the year-ago period. The increase in revenue is largely due to the acquisition of WebMetro. Fourth quarter bookings included a few important media, healthcare and financial service companies who selected our services for our digital sales and marketing capability.

CGS continues to make progress in transforming its solutions portfolio, which includes the integration of WebMetro, the development of digital marketing capabilities, moving to outcome-based pricing and further development of its sales channel.

CGS had operating income of $1.8 million compared to $849,000 in the year-ago quarter. The increased operating income was largely due to the change in revenue. Sequentially, CGS improved operating income by $1.2 million, including WebMetro, and we expect continued improvements in the profitability in 2014.

Customer Technology Services fourth quarter revenue was $41.6 million, up 73.5% compared to $24 million in the year-ago quarter. 26.4 percentage points was organic with the balance from the TSG acquisition. Our cloud and managed service solutions now comprise approximately 42% of the segment revenue with an estimated annualized run rate of $72 million.

The profile of this business generally includes three to five-year client contracts, with upfront annual or multiyear subscription payments. The gross margin of these solutions continues on average at plus-40%.

CTS GAAP operating income was $6.1 million or 14.6% of revenue compared to $4.6 million or 19.3% of revenue in the fourth quarter of 2012. Excluding acquisition-related amortization expense, OI was 17.2%. The lower operating margin is attributable to investments in the cloud platform, systems integration services and sales channel.

The Customer Strategy Services fourth quarter segment revenue increased approximately 54% to $16 million compared to $10.4 million during the same quarter last year. The segment had an operating profit of $4.4 million or 27.2% versus an operating loss of $1.3 million in the prior year quarter.

The increase in revenue year-over-year was primarily the result of improved sales effectiveness, particularly in EMEA and the recognition of certain performance-based milestone revenue. Sequentially, CSS grew revenue $2.6 million and operating income by $2.1 million. This improvement is the result of having fully integrated the CSS entities, including leadership consultants, infrastructure and service portfolios.

Before I discuss our 2014 guidance, I want to quickly reflect on the updated full year 2013 guidance that I provided in October and the events that resulted in us exceeding expectations.

If you recall, the changing guidance was driven by macroeconomic and client-specific events in our BPO businesses, mainly adverse foreign exchange, prudent decisions we made to decline low margin seasonal work and temporary client-driven delays in program launches.

Our full year revenue of $1.193 billion was $8 million higher than the high-end of our guidance. $2 million of this positive variance was FX at $12 million versus our estimated $14 million. The remainder of the variance came from improved volumes and performance across all segments.

I'll now cover our 2014 outlook. Based on the expectations that current foreign exchange rates directionally extend through 2014, in combination with significant increased investment in sales and marketing and research and development, our estimated full year 2014 guidance is as follows.

We anticipate year-over-year revenue growth between 4% and 6% or $1.240 billion to $1.260 billion. It is important to note that this range incorporates an estimated 2% adverse impact from foreign currency translation.

In other words, if 2013 currency exchange rates were the same as [technical difficulty] growth rate would be 6% to 8%. We estimate 70% or between 4% and 5.5% of that growth to be organic and 30% to come from acquired companies in their first 12 months, including WebMetro, which was purchased in August of 2013 and Sofica, which will close at the end of February 2014.

Our operating margin range is between 8.75% and 9% before asset impairment restructuring or acquisition-related charges. The guided operating margin range includes an additional $12 million to $14 million in investments for sales and marketing and R&D, absents the $12 million to $14 million in 2014 incremental investment, the operating margin range would will be 9.7% to 10%.

We also expect revenue and operating income to follow similar trends as last year with a greater portion recorded in the second half of the year. Further more we expect our revenue mix to remain well-diversified with the percentage of revenue from our CSS, CTS and CGS segments to approximate 28%. We anticipate capital expenditures in the range between $55 million and $65 million with 70% expected for growth and 30% maintenance. Last, our estimated tax rate will range between 23% and 25% in 2014.

Before I hand the call back to Paul, I would like to address the timing of our 2013 10-K filing. We originally anticipated filing our 10-K with the press release covering our fourth quarter and full year earnings results. Due to our audit process taking longer than originally anticipated, we'll file the 10-K separately. We do not expect any material changes to the financial statements or the supplemental business information provided in the press release and this earnings call. We do expect to file the 10-K shortly.

In closing, I'll reiterate two important data points. The first is a momentum we've experienced across our segments in the second half of 2013 and in particular Q3 to Q4. Most noteworthy is the GAAP-based performance in our emerging businesses including CSS, CTS and CGS. In the second half of 2013, these businesses collectively grew 37% and OI 92% versus the second half of 2012.

The second point I would highlight is our 2014 consolidated revenue outlook at 6% to 8% on a constant-currency basis. Most noteworthy, the 4% to 5.5% organic growth, which would be our peak growth rate in the last seven years organically. Our strategy integrated solutions and vertical, international and specialty sales platforms are forting us the return to growth.

With 2013's progress, we are increasingly more confident in our ability to execute a healthy balance of organic and inorganic growth on our way to sustainable, high-single, low-double digit growth rates.

With that, I will turn the call back to Paul.

Paul Miller

Thank you, Regina. As we open the call, we ask that you limit your questions to one at a time. Operator, you may now open the call.

Question-and-Answer Session


(Operator Instructions) And our first question comes from Mike Malouf, Craig-Hallum Capital Group.

Mike Malouf - Craig-Hallum Capital Group

Question about the guidance. If I could just get a little bit of clarification, you're going to spend about $12 million to $14 million extra this year on sales and marketing and R&D. And I am wondering if you could just give us a little bit of color, is that a sustained number as we look out over the next few years of just a new level or is this a temporary rise in spending specifically targeted somewhere? Just wondering if you could just give us a little help on that?

Regina Paolillo

What I would say is, is it's not a one-time expense. We are in the process of building our vertically oriented front-end to the business, which we call Global Markets and Industries. In this year, we put in place head of that group, Keith Gallacher, and had in place by the end of the year four CBU heads, Client Business Unit heads across financial services, healthcare, media, technology and diversified, which includes auto, retail and a couple of others.

That organization largely got put in place in the second half of the year and some of it into Q4. So there is an annualization of that. In addition, we're building out an organization under them to ensure that we have a continue healthy penetration for additional business within our existing clients, so client executives who will be fully dedicated to clients, who are capable of being $50 million, a $100 million, a $150 million. And then second to that, sales executives.

The other piece I called out is the investment in our go-to-market integrated solutions and the organization that supports that. Our ability to work with clients, not on specific capability, but their problems and challenges and to be able to engage those clients in our end-to-end capability, including each of our segments oriented and in the context of our clients in their vertical, in their processes, with consulting technology services, BPO and customer acquisition, BPO and customer care.

So the bulk of that investment is a rise in our sales and end-marketing. And our view is that it's not so much that that step-up from our sales and marketing from what today is around $22 million to $34 million, that rise is not necessarily something that goes away, but the return is seen, first step, in terms of a continued growth in our bookings, and then second step, that we do see organically high-single digit into the low-double digit over the next 18 to 24 months. So let me stop there.


And our next question comes from Tobey Sommer, SunTrust.

Tobey Sommer - SunTrust

In terms of the emerging businesses, which ones do you think are performing better than your expectations and which aspects are taking longer to develop?

Kenneth Tuchman

I think that we're feeling actually really good about all of the segments. I think that CSS is growing at a nice clip and expanding. We're in a definitive hiring mode across the globe, adding consultants all over the world. I think our CTS business is very stable and also growing and meeting and exceeding our expectations, and have some really exciting opportunities in front of them, as it relates to what we're doing in the cloud.

I think that our growth business is the one business that clearly was disappointing, as it relates to the organic growth. That said, we have stepped it up and we're seeing margins expand dramatically and we're seeing the topline growing as well and we feel really comfortable about us achieving our internal budgets that we have on our CGS unit on Revana.

So all-in-all, I think we feel very good. And then CMS is showing some great growth. Also all these units have very strong pipelines. And the truth is, is that you're asking the question in a quarter where we feel really positive, across all the business units and how they're operating, and how customers are reacting and taking down their capabilities, let alone the fact, that we're seeing many of our clients taking advantage across multiple of our capabilities, which is obviously what the intention is of our strategy. So I don't actually have one that I think is per se concerning or lagging behind.

Tobey Sommer - SunTrust

If I may just slip in a numbers question. I'm not sure I caught the breakdown, Regina, of the implied organic versus acquired growth in your guidance. Could you repeat that for me?

Regina Paolillo

So on a constant-currency basis, our growth estimate is 6% to 8%. Of that, 600 basis points to 800 basis points, right, we believe 400 basis points to 550 basis points is organic. The balance would be inorganic and not that it is planned inorganic. As we define inorganic and include inorganic, these acquired companies for the first 12 months, it would include WebMetro and Sofica. So WebMetro was purchased in August, so it will have nine months, let's say, eight months of inorganic into 2014. And Sofica just being purchased at the end of this month's closing will be about 10 months of inorganic in this.


Our next question comes from Kevin McVeigh, Macquarie.

Kevin McVeigh - Macquarie

Again, Regina, as you think about kind of the backlog, you've seen real nice success selling that, if I heard the numbers right, $365 million in '14 with $80 million in the Q4. How should we think about that as it layers into the 2014 topline, just in terms of the progression as that comes in?

Regina Paolillo

I mean there is a couple of things. In general, what I would say is, of that $365 million, when you separate the recurring versus the non-recurring, most of the non-recurring is in the year, there is some that will spillover from Q4. But that non-recurring typically has a 90-day cycle. The recurring piece, we typically get about 40% of that in a year, based on the way bookings lay out. So I mean collectively, I would say, there is probably about half of it or so that is moving into the next calendar year.

Kevin McVeigh - Macquarie

And then just along those lines, as the emerging businesses are taking a greater percentage of revenue. Are you seeing better retention among your existing clients as those services start to gain some traction?

Kenneth Tuchman

Absolutely. I'd say that we don't want to jinx anything or ever declare a victory as it relates to the future. But what I would tell you is we're seeing some of the retention we've seen in years. So a lot of that is just attributable to that we're delivering on our promise and that we're executing and exceeding our client's expectations, but a lot of it is also that we're delivering a capability that they're not finding elsewhere in the marketplace, so no question that we're seeing better retention.

And I think we're always cautiously optimistic. It's just the nature of how conservative I've been and my team is. And I think it's safe to say that we're very optimistic right now and we feel very good about 2014. And we really like what we're seeing, but what our clients are, how they're acting, what they're doing, we're liking the fact that we're seeing deal sizes expanding and we're seeing in many cases contract terms expanding. And so we view that as a positive reflection on many areas. One, how we're performing, but also two, that the economy is firming up and strengthening in certain areas and we're benefiting from that as well.


And our next question comes from Bill Warmington, Wells Fargo.

Bill Warmington - Wells Fargo

A question for you on Q4. Site utilization seemed very strong at 83%, and just wanted to ask, what was behind that strength? How sustainable it is? And now that we're about two-thirds through Q1, if you could comment on how revenue and expenses are trending there?

Kenneth Tuchman

We're very focused on our utilization. And we'll never our take our eye off of that. I think that utilization will probably be in the 80% range. And the reason for that is we're bringing on more capacity, just because of the demand that we are seeing in the marketplace. We tend to not build on speck, so it's safe to say that when we're building out capacity, there is a client behind that capacity or there is demand behind that capacity.

That said, as much as we would like to flip a switch and have every one of our work stations being occupied, there is ramp time to that. So I think you'll see it in the hover, in the 80% and upward. And I think that we're going to continue to strive to drive higher and higher utilizations.

Bill Warmington - Wells Fargo

And then your thoughts on Q1?

Kenneth Tuchman

As far as?

Bill Warmington - Wells Fargo

We're about two-thirds of the way through, so how revenue and expenses are trending so far this quarter?

Kenneth Tuchman

Well, I'm going to let my CFO answer that just because as you know we don't give quarterly guidance. So I'll see how she wants to put that.

Regina Paolillo

In reality, I'll just repeat what said, we don't give quarterly guidance.

Kenneth Tuchman

I mean, I think in general hopefully from the tone of the call, we feel very good about the year. And how the year is shaping up and we look forward to reporting positive results in our next quarter.

Bill Warmington - Wells Fargo

How are the volumes coming in versus the customer projections? It sounds like they're coming in pretty strong?

Kenneth Tuchman

I think volumes are coming in where we estimated them to be. I would hate to go on record and say that they're coming in hot and then you make a wrong assumption. But what I would say is, is that the guidance that we put out there, we're very comfortable with. I think you can see, we tend to always be conservative with our guidance and our hope is to obviously be able to beat our guidance. So stay tuned.


And our next question comes from Steven Shui, Stifel.

Steven Shui - Stifel

Ken, this question is for you. Why did you decided to buy a call center company in Bulgaria? Our impression was that TeleTech has been looking to expand outside of the core call center business. Was there a particular client that asked you to go that region?

Kenneth Tuchman

First of all, I wouldn't exactly classify this company as a call center. They are a company that is doing some pretty complex ITO work and BPO work. And the truth of the matter is, is that we just don't have enough strength in that region. And what we're trying to do is to make sure that we have a presence across the globe, regardless of how that presence starts, so that we can then carryover all of our other capabilities. We selected this company for a myriad of reasons.

One is that it adds between 18 and 19 languages, and for the last five years, we have consistently been asked to speak these languages and we've been able to deliver on many of them, but we've had to do it frankly in a non-cost effective way. And this gives us a cost effective way to service all of the European languages. So we are very excited about that. And by the way, the deal is just about to close. And we've already moved over a client that has made a commitment to taking advantage of this language skill set.

So number one, they're rich in languages. Number two, they have a very strong management team and we need presence in the marketplace. And number three, we see it as a very logical place for us to expand in our other areas, i.e. our Customer Growth Services, so we do have clients that are asking us to provide capabilities throughout Europe that carry Revana into the region. And so that had a lot to do with it as well.

But I would not classify this acquisition as a classic contact center type of a transaction. It doesn't look like one, when you visit them. It doesn't feel like one. They do a fair bit of hosting of software and technology, which is very important to us, because that's something that we're very focused on as well.

So please do not take this as a departure from our strategy of revenue diversification. I can assure you that you will see that we are very focused on diversifying our revenues and very focused on going up market and being far more strategically relevant to our clients and trying to reduce the amount of labor that is tied to our revenue numbers.

Steven Shui - Stifel

And just a very quick follow-up question. What's the annual run rate in revenue for that business?

Kenneth Tuchman

Are we commenting on that at this point in time?

Regina Paolillo

We don't give individual segment guidance, but I think you can take Q4. So we don't give guidance on each of the segments. The guidance that we've given is that collectively, they will be around 28%. What I would suggest over time, our framework for growth is that the emerging businesses are mid-teen growers and that our CMS business is growing in 3% to 6% range on an annual basis.


Thank you. And I do not see any questions at this time.

Paul Miller

Thank you. Operator, you may close the call.


Thank you. That concludes the fourth quarter and yearend 2013 earnings conference call. You may disconnect at this time.

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