ICT Group, Inc. Q1 2008 Earnings Call Transcript

May.20.08 | About: Sykes Enterprises, (SYKE)

ICT Group, Inc. (OTCPK:ICTG)

Q1 2008 Earnings Call Transcript

May 1, 2008 9:00 am ET

Executives

Betsy Brod – MBS Value Partners

John Brennan – Chairman and CEO

Vincent Paccapaniccia – EVP and CFO

Analysts

Josh Vogel – Sidoti & Co.

Shlomo Rosenbaum – Stifel Nicolaus

Bob Evans – Craig Hallum

Tom Smith – First Analysis

Matt McCormack – Friedman Billings Ramsey

Troy Mastin – William Blair & Co.

Tim Weiss [ph] – Robert W. Baird

Operator

Greetings and welcome to the ICT Group Incorporated First Quarter 2008 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator instructions) As a reminder this conference is being recorded.

It is now my pleasure to introduce your host, Betsy Brod with MBS Value Partners, LLC. Thank you. Ms. Brod, you may begin.

Betsy Brod

Thank you, operator, and good morning everyone. Thank you for joining us for today's first quarter conference call with the management of ICT Group. Since we will be discussing certain forward-looking statements during today's conference call that are subject to risks and uncertainties including those related to ICT Group's future revenues and earnings projections, the Company claims protection of the Safe Harbor forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

Now, I would like to turn the call over to John Brennan, Chairman, Chief Executive Officer and President of ICT Group. John, you may begin.

John Brennan

Thank you, Betsy, and welcome, everybody to our first quarter 2008 Investor and Analyst conference call. With me this morning is Vincent Paccapaniccia, our Executive Vice President of Finance and Chief Financial Officer.

Thank you for joining us this morning. On today's call, I wish to discuss some of the operational highlights of our first quarter performance and review with you where we stand with positioning ICT for renewed revenue and earnings growth. Vince will review the details of our first quarter performance and discuss our revenue and earnings guidance for the second quarter and full year. I will then return with our outlook for the balance of 2008 and open the call to questions and answers.

Our first quarter performance was in line with our expectations. Revenue for the quarter totaled $108.7 million and we incurred net loss of $0.06 per share as a result of higher expense levels in the first quarter due to seasonal factors and to costs associated with recruiting, training and ramping up new programs awarded in the second half of 2007. I think it's worth noting that we've been close to break even on a constant currency basis, and Vince will review with you the impact of foreign exchange rates on our financial performance and update you on our hedging strategy.

Overall, I believe we executed well in the quarter in meeting existing program performance targets, beginning the ramp up of new programs, winning new business and responding to a challenging economic environment. I also believe that we are positioned for renewed growth in 2008, as our call center capacity is better aligned to meet domestic client needs for both onshore and offshore delivery options. The international segment of our business continues to be strong. Our value add service offerings continue to gain traction despite softness in marketing related offerings, and the overall market demand for our services remains good.

I like to review with you now our first quarter business trends. We had another strong quarter of new business wins, which totaled $24 million in value, when fully ramped up on an annualized basis. While we did not capture any large individual wins as we did on the previous two quarters, we continue to gain new business from multiple existing and new domestic and international clients across all our targeted verticals. They include domestic wins, which accounted for approximately 60% of the total value and which was split about evenly between onshore and offshore solutions.

They also include international wins that included programs that will be supported from the Philippines for both UK and Canadian clients. We expect that these wins, together with the $80 million of new business awarded in the second half of last year will help support top line revenue growth in 2008 as they roll out over the course of the year, and will cushion the revenue impact from domestic programs that are migrating into lower priced offshore facilities over the past year, and cutbacks in our financial telesales and market research business that has resulted from the US economic environment, as well as reduced call volumes from certain unrelated consumer focused customer care programs.

Looking at our vertical industry trends, the financial services revenue totaled $51.4 million, which while down 9% on a year-over-year basis was sequentially flat with the fourth quarter of 2007. This sector accounted for 47% of total Company revenue in the quarter, compared to 49% in last year's first quarter. The decline in our domestic credit card telesales business is being partially offset by an increase in outsourced customer care and BPO work from domestic clients and continued growth from our international business units.

Exclusive of the decline in our domestic credit card related business are financial services business that actually been up year over year, quarter to quarter. Our mortgage related business has leveled off and we actually saw a sequential up tick in revenue in the first quarter of this year. Overall, we expect these trends to continue in 2008 and are currently projecting some sequential revenue growth in the financial services sector throughout the year, as outsourced customer care, BPO, and international market growth more than compensate for the decline in credit card telesales business which has begun to level off at reduced levels.

We are experiencing strong growth in the telecommunication sector with important client wins in the US, Canada, the UK and Australia during the past six months. Telecommunications sector revenue totaled $33.8 million up 8% on a year-over-year basis. We believe our telco sector wins resulted from a combination of clients outsourcing more work from in-house operations, as well as our success in capturing market share for existing outsource business.

We expect to see continued demand for sales and services business from the telco sector throughout 2008 as carriers seek to sell and support more complex product offerings around the globe. We saw a year-over-year decline in business from the healthcare sector as both pharmaceutical and health insurance clients cut back their spending as they seek to control costs in the face of unfavorable political and business environments in the United States. Healthcare sector revenue totaled $13.9 million in the first quarter of '08 which was down 19% from last year's first quarter, but was relatively stable the three previous quarters beginning in the second quarter of 2007.

On the positive side we signed a three-year contract extension during the first quarter with our largest pharmaceutical client and recently captured our first provider based program, which provides patient support services for a mid-sized hospital chain which includes patient scheduling, insurance verification and multiple other applications. We expect healthcare sector revenue to continue to remain in the range of $12 million to $15 million per quarter throughout 2008. Revenue from clients and other sectors totaled $9.7 million up 3% from last year's first quarter.

We captured new business from a large non-profit organization to handle subscriber increase. We were selected by a major consumer electronics firm to provide inbound sales and service support for its retail customers. And as they previously announced in March, the US General Services Administration has selected ICT as one of its preferred contact center solution providers to have access to its $2.5 billion contract vehicle over the next 10 years. We expect revenue from these other verticals to be relatively stable in 2008 as new program wins will offset cutbacks we are experiencing in certain consumer-related programs.

In regards to our new service offerings, the demand for our marketing technology and BPO services, we believe is reflective of trends in the US economy. Revenue totaled $12.3 million in the first quarter of the year up 22% compared to a year ago, that's strong growth in BPO, collection services and IVR alert messaging services offset a decline in market research and database management business. We expect these trends to continue throughout the year. On the international side, we continue to achieve strong growth from our international business operations where revenue totaled $39.8 million up 40% on a year-over-year basis.

As a result of this growth, our international business units accounted for 37% of total Company revenue in the first quarter of this year compared to 25% in the first quarter of last year. We expect to see continued strong international growth throughout 2008. Our Canadian business expanded rapidly over the past year as we grew relationships with existing clients and captured new business predominantly in the telecommunications sector.

We expect to see continued strong year-over-year performance in Canada throughout 2008. First quarter revenue in Europe was up sequentially, but down on a year-over-year basis. We upgraded senior management, rationalized capacity and added sales resources, which are leading to a more positive outlook in Europe for 2008. We were awarded a significant Philippine win for UK clients and began supporting our first Spanish client from Argentina in the first quarter.

Mexico and Australia both achieved strong year-over-year revenue growth in the first quarter, but were down sequentially from last year's fourth quarter. Demand for our services remains strong in both countries. Our shortfalls resulted from the time it took to recruit and train new staff after the extended year-end holiday periods in these countries. Action plans were in place, staffing has improved and we expect to see sequential growth in the second quarter and year-over-year growth in both these units in 2008.

Revenue in Argentina was down slightly on a year over year in sequential basis as a result of a decline in business from one large client. On the positive side, we implemented our first Argentina to Spain offshore program in the first quarter as previously noted, and we expect to implement our first Argentina to US offshore program in the second quarter of this year. We believe in a more diversified business supporting clients in Latin America, Spain and the US will better position Argentina for future growth. At this point, I'll turn the call over to Vince to provide you with details on our first quarter financial performance.

Vincent Paccapaniccia

Thank you, John. Good morning, everyone. For your reference purposes, reconciliation tables for non-GAAP financial measures and quarterly call volume statistics may be found at the Company's Web site.

As projected revenue for the first quarter 2008 decreased sequentially by 3%. On a year-over-year basis, revenue decreased 6% to $108.7 million versus the first quarter of 2007. The year-over-year decline in revenue is primarily due to reduced domestic financial telesales business and also by the continued offshore migration at reduced revenue rates. Call production hours also declined 3% sequentially and were down 9% versus the first quarter of 2007 and again this was primarily driven by the decrease in domestic financial telesales business.

EBITDA for the first quarter 2008 was $4.9 million or 4.5% of revenue compared to $6.6 million in the first quarter of 2007, which resulted in an operating loss of $1.8 million this year versus an operating profit of $375,000 in 2007. As discussed in our fourth quarter 2007 conference call, profitability in the first quarter of '08 was expected to be negatively impacted by the seasonal first quarter expenses that were projected to total approximately $2 million. These expenses approximated $1.7 million, but they were largely offset by $300,000 of lower D&A, $600,000 reduced travel expenses and other cost reduction programs.

During the first quarter of this year, the Philippine peso and the Canadian dollar strengthened against the US dollar by 17.9% and 16.7% respectively versus the first quarter of 2007. The gross negative impact of the strengthening of these currencies was approximately $3.6 million, which represents 330 basis points of operating margin and $0.18 of earnings per diluted share.

Our hedging program allowed us to recapture $2.5 million of these higher costs so the net impact of the Philippine peso and the Canadian dollar on the first quarter '08 results was $1.18 million which is 100 basis points of operating margin and $0.05 of EPS.

In addition to the Philippines and Canada, we incurred approximately $400,000 of negative foreign currency impact from the remaining international countries. We continue to hedge six forward quarters for the Philippine peso and peso denominated cost comprised 19% of the Company's consolidated cost structure in the first quarter of 2008.

We have only extended our Canadian hedge program through September of this year since we have substantially reduced the volume of US work scheduled to be produced in Canada.

Net interest income of $122,000 in the first quarter of '08 was comparable to $119,000 in last year's first quarter. For the first quarter of '08 we recognized 39% income tax benefit resulting in a net loss of $1 million or $0.06 per share compared to net income of $410,000 and $0.03 per share first quarter of 2007.

The first quarter 2008 financial results reflect the impact of share-based compensation of $531,000 versus $491,000 for the first quarter of 2007. At March 31, we had 13,823 workstations in operation. During the first quarter of '08 we added 313 workstations primarily in the Philippines and other off shore locations, and we removed 200 work stations by closing a US call center at its lease end, which represents net workstation additions of 113 stations.

Cash remained constant at $30.2 million and day sales outstanding remained at 63 days consistent with the day sales outstanding as of December 31, 2007.

For the first quarter of 2008, total property and equipment purchases totaled $6.4 million, 5.9% of revenue. These expenditures were largely attributed to facility and technology infrastructure to support the Philippines expansion and also the addition of a new contact center in Canada. While we were very pleased by the amount of new business wins, the ramp up of certain of the programs won in the second half of 2007 are being extended over a longer period of time.

We now project that $50 million of this new business will benefit revenue in 2008 down from our previous projection of $60 million. Since the capacity and the infrastructure are largely in place, the slower ramp up schedule will impact profitability. Additionally, the new business wins announced this quarter are expected to offset lower volumes from existing programs.

Based on these revised projections, full year 2008 revenue is projected to range from $455 million to $465 million. In full year diluted earnings per share are expected to range from $0.35 to $0.45 cents. For the second quarter of 2008, we project that revenue will increase sequentially to $110 million to $113 million and diluted earnings per share to be in the range of $0.02 to $0.05. We continue to expect that the benefit of the Company's acceleration of its offshore expansion and the alignment of its North American capacity will start to be realized during 2008.

Operating margins are expect to improve during 2008 as first, we realize the benefit the benefit of the higher offshore margins, we benefit from the increased revenue and gross margin from the new contract wins, and third, we focused on reducing unpaid training and other start-up costs for new programs. As a result, we expect that operating margins will grow sequentially each quarter during 2008 with the fourth quarter of 2008 reaching the 4.2% margin level that was achieved in the last quarter of 2006.

The effective income tax rate for full year 2008 is expected to approximate 20%. We anticipate that quarterly income tax rates will fluctuate based upon the geographic distribution of the Company's profits in each respective quarter. The Company does not foresee any restructuring charges in 2008.

And currently, the Company has 87% of its projected Philippine peso exposure hedged for calendar 2008. We expect to add 1,200 to 1,500 net new workstations during 2008 and we project that full year 2008 capital expenditures will approximate 5% to 5.5% of annual revenue.

And at this point, I would like to return the call to John.

John Brennan

Thank you very much, Vince. Before turning the call over to – opening the call to questions and answers, I just like to summarize our outlook for 2008. We believe we've accomplished much over the past year to better position ICT Group for renewed revenue and earnings growth and believe our first quarter performance represents the inflection point of beginning the up tick in both revenue and earnings improvement in the Company. We believe we've established a strong customer base and provide diversified service offerings to a number of key vertical industry markets, which gives us a distinct competitive advantage to grow existing business and win new business.

We have good balance between cost competitive onshore and offshore capacity alternatives in both the Philippines and Latin America to better service our US clients, as well as those in Canada, Europe and Australia. And our senior management team is focused on executing our growth strategy while simultaneously controlling costs for further reduced infrastructure. So, while we see a strong pipeline of new business and are confident in our ability to manage costs, we felt the prudent course of action to reduce our guidance was made especially in light of challenging economic conditions to reflect both the slower ramp up of certain programs, as well as the declines in call volumes and other programs.

At this point in time, we'll open the call up to questions and answers.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, we will now begin conducting a question and answer session. (Operator instructions). Our first question today comes from the line of Josh Vogel with Sidoti & Co. Please proceed with your question.

Josh Vogel – Sidoti & Co.

Hi, good morning and thank you for taking my call.

Vincent Paccapaniccia

Morning, Josh.

John Brennan

Morning, Josh.

Josh Vogel – Sidoti & Co.

I apologize. I jumped on a couple of minutes late, so if I'm repeating anything you guys talked about, I apologize. But can you discuss the new technologies and infrastructure you are looking to implement this quarter and what kind of drag, well, not this quarter, but throughout this year and what kind of drag it could be on margins?

John Brennan

Well, the overall, I think Vince just mentioned that we intend to add about 1,200 to 1,500 workstations to expand our operations primarily in the Philippines, Latin America and to a smaller degree in Canada in response to demand. I think basically the timing of the infrastructure investments that we are trying to coincide with the ramp up of the programs we won, as well as some facility expansion. In regards to, I'll call it profitability improvement initiatives that what we are investing in, I think from a technology point of view, it's less than a $1 million to $2 million of total investment associated with voice mining software to improve the productivity of our sales verification processes, as well as additional licenses for workforce management, as well as technology that we are implementing to better profile and screen applicants to improve performance, as well as reduce attrition. But the net impact of our performance improvement initiatives to our capital expenditures is less than 5% to 10% range of our total CapEx.

Vincent Paccapaniccia

Yes, and that's included in our 5% to 5.5% of revenue projection we put out there, Josh.

Josh Vogel – Sidoti & Co.

Okay, and that $1 million to $2 million that you just mentioned, John, is that going to hit up in Q2?

John Brennan

In general that will be implemented over the course of the year as what we are doing on these initiatives is to pilot them and then roll them out. So, I would say it's just going to be --- I don't have an exact schedule in front of me, but I would see most of it happening in the first half of the year.

Josh Vogel – Sidoti & Co.

Okay. And then just shifting gears a little bit, can you discuss the hiring environment out in the Philippines and maybe what kind of attrition you're seeing out there?

John Brennan

Yes, we have in the Philippines, right now, I'd say it's not changed dramatically. We have five facilities in greater Manila area, and we are planning to open as we expand there in the second half of this year, two what we call provincial sites, though we are stabilizing our workforce in Manila. Our experience over the past couple of quarters is that the hire rate as a percent of applicants has actually increased, where about a year or two ago, which had 4% of the applicants we would hire, now we're in the 7% to 8% range. That's one thing. I think we’ve not seen any significant increase in attrition in the Philippines. We are still in the range of I would say about 4%, 3% to 5% per month which is about 40% to 50% per annum is our attrition rate in the Philippines. That has not happened. There's a new wave of college graduates in May, I believe it is coming on the market, which is always a good hiring period. And we have seen, though, I would say some wage impacts in terms of wage levels and compensation review on (inaudible).

Vincent Paccapaniccia

Yes, from a lever perspective, we still are seeing, I'd say still in the low single-digits wage inflation factors in the Philippines adjusted for currency. So, that’s still is a good thing. And one other thing I would like to expand on John's comment is the 4% to 7% we've seen has really been in Metro Manila. So, we believe our expansion in the Provinces in 2008 will give us wider access to the applicant pool.

Josh Vogel – Sidoti & Co.

Okay, so the 1,200 to 1,500 seats that you're building out with the majority being in the Philippines, these are going to be in new locations, not in existing facilities?

John Brennan

We've expanded one of our existing facilities in Manila, but the large majority of the expansion will occur in the facilities outside of Manila this year.

Josh Vogel – Sidoti & Co.

Okay and again, I apologize if you discussed this, but what are the headwinds that you're seeing that have basically slowed down the program ramps?

John Brennan

I think they vary by client. I wouldn't say that outside of the financial services industry where the headwinds of financial services, as we've discussed before, we have seen a decline and pullbacks in, I'll call them the telesales type of activity. Marketing budgets have been cut, marketing efforts to less creditworthy people have been cut significantly, and that part of it has been on the negative side. On the positive side is an increase in outsourcing in back office and customer care work. Those are generalities that vary from client to client. The ramp up issues we see again I'd say them are client-specific. We've seen them in two or three of significant programs. Some of the larger programs we're involved in are right on schedule, but the net-net of what we had anticipated capturing about 75% of that $80 million of revenue that we sold in the second half of last year, which would have been $60 million now looks like it's going to be about $50 million as we've seen delays in a couple of specific programs of really one of them pushed it back I believe in about 60 days. So, you've got a ramp schedule that peaks in the fourth quarter, and now with the peaking is at the end of the year into the first quarter of 2009. And another program that has just been slow and they expect to accelerate the ramp in the July timeframe as opposed to in the second quarter. Thought, it's really a pushback, that is, I don't know whether it's economic based or internal based to the specific clients, but basically have the infrastructure in place, both onshore and offshore to support these programs and we'll have the cost in place, but not generating as much revenue from them as we originally anticipated.

Josh Vogel – Sidoti & Co.

Is it possible that especially with the client that pushed back the start date, that they pull the business altogether?

John Brennan

No, no, not at all. No, we're in the training mode. We have the people, the classes that have taken place and I would say I'm 99.99% sure that that's not going to be pulled.

Josh Vogel – Sidoti & Co.

Okay, and Vince, I don't have my chart up in front of me, but is it safe to say that if the dollar was stable against the peso and Canadian dollar this quarter basically flat Q1 versus Q2, that there could be $0.05 upside to the second quarter results?

Vincent Paccapaniccia

Yes. If you take the 2008 operating results at the rates in aback in the first quarter of 2007, If I can adjust the – my $0.05 I said on the call was the Canadian dollar and the peso.

Josh Vogel – Sidoti & Co.

Right.

Vincent Paccapaniccia

If you only do the peso, my hedges are combined. So, I'm going to have to stick with the information I have. I don't have how much hedges we made from the Philippines versus Canadian broken out here. But if you take the Canadian dollar and the Philippine alone, there was a $0.05 headwind on probability in Q1 '08, Josh.

Josh Vogel – Sidoti & Co.

Okay, that's helpful because I just want to have an idea that if the dollar does stabilize and/or begins to appreciate that there could be upside to your bottom line.

John Brennan

I think on the Philippine peso, though, we are largely hedged against that, so there would be some upside, but not --

Vincent Paccapaniccia

The $0.05 is net. This $0.18 was a gross impact, $0.13 was covered by hedges, so $0.05 will be the net impact.

Josh Vogel – Sidoti & Co.

Right, okay. And just lastly, I know over the last 12 months or so, you guys have revised your guidance several times, and I was just curious now with your outlook here and with the delays in the programs that are ramping and the weakness you're seeing on the financial services side of the business, basically how confident do you feel in your new guidance?

John Brennan

Well, we feel confident. We think we were trying to be as prudent as possible. We see that the business side is coming in and it continues to come in, but we have experienced, I'll call them to some degree unforeseen cutbacks in volumes and programs, both the telesales has probably leveled off. But we've seen some cutbacks on customer care programs, largely those that were left in the United States, but we are trying to be as prudent as possibly recognizing the, I call it the headwinds, ahead or the face winds we're in and we certainly do not enjoy reducing guidance and we're trying to be as conservative as possible here.

Vincent Paccapaniccia

And Josh, I'll just add my comments to that. We'll get the cost structure that we have in place right now in the first quarter of '08 and our projections for the balance of this year and the infrastructure on that. I continue to believe that as the revenue comes in, the leverage will be there on this cost structure because it's in place. The North America and that we realigned at the counter 2007, we think is positioned and I believe as the revenue comes in, we think this is a prudent adjustment to the guidance.

Josh Vogel – Sidoti & Co.

Okay, thank you very much.

John Brennan

Thank you, Josh.

Operator

Thank you. Our next question comes from the line of Shlomo Rosenbaum with Stifel Nicolaus. Please proceed with your question.

Shlomo Rosenbaum – Stifel Nicolaus

Hi, good morning. Thank you for taking my call.

John Brennan

Good morning.

Shlomo Rosenbaum – Stifel Nicolaus

I want to just get into a little bit more of the slowdown in the ramp ups and what vertical are the slowdowns in?

John Brennan

We’ve seen them in both and varies by client. I don't think it's indicative of – we're looking at it and we've seen it in the telecommunications sector. We've seen it within the financial sector. You know, Shlomo, if you look at that, that's 80% of our business. It’s in those two sectors. Within the healthcare sector it's basically been probably cutbacks in volumes as opposed to we have no major healthcare program initiative that we would be ramping up this year. It's up in those two sectors.

Shlomo Rosenbaum – Stifel Nicolaus

So, is financial services flat quarter over quarter? In other words is the revenue from financial services that's what I thought I understood from the release?

John Brennan

Yes, sequentially we are about flat. We can get into where we are relative to – we saw some up tick in the mortgage arena. We think the mortgage piece of our business is relatively flat moving forward. We've seen some continued erosion, but at a lower level within the credit card side of the business and then when you get into things like insurance and retail bank and our projections are that the business we've won that we'll actually see some growth moving forward there.

Shlomo Rosenbaum – Stifel Nicolaus

So, financial services is flat. The weakness is coming in telecom and healthcare and areas like that? I'm saying like quarter over quarter.

John Brennan

Right now moving forward, we see – we’re still projecting sequential growth quarter to quarter. We think we have hit, I would say at the end of last year and into the first quarter this year, we like hit bottom. We have a hole to refill in terms of dollar value with contracts because of the amount of work that moved offshore. So, we are projecting, I would call it flat to slow growth over the course of this year, sequentially within our domestic financial services business and greater growth in some of our international units on the financial services side. So, we are maybe in the face of adversity seeing some growth of business within the financial services arena because we are now more skewed towards at least domestically towards people in the cost-cutting mode of off shoring customer care and back office work offshore to save money. The telecommunications sector, we were up, it was 8% year over year flat or down a little bit sequentially, but that was really some peak, I'll call them seasonal peaks in the fourth quarter with one of our clients there. And we are projecting growth and its’ just not as fast as what we had previously projected within the telco sector this year, so we have gained quite a bit of traction. A lot of it is new business, which creates some level of uncertainty as to how fast you're going to grow it and it's not a steady stateside business right now, but we are seeing expansion within the telco sector.

Shlomo Rosenbaum – Stifel Nicolaus

What were like the market research programs that you talked about getting on a database? I mean how big is that and how significant was that for you?

John Brennan

Our market research business is a data collection business. We basically work for other what we call full service market research companies. That business is about $12 million business last year. It'll probably drop to at least to about $8 million this year. So, we've seen significant pullbacks like 30% drop in that business, and it is very project based and a lot of it is on short notice that projects will get cancelled as ad budgets and marketing budgets are being pulled back. Probably 90% of it is consumer faced as opposed to business to business. So, when marketing budgets turn, the business goes. It can go up like a rocket and when they get cut the speaker [ph] turns off and you suddenly get cancellations of lots of projects at the last minute. So, one of the benefits we got today is that a lot of that work is done offshore and we do not have – we’ve only one stranded US market research center. So, we were able to cross utilize those facilities for other business in Latin America as well as in the Philippines, but the revenue doesn't sort of a top line and bottom line impact from that.

Shlomo Rosenbaum – Stifel Nicolaus

So, if you just step back from everything that's going on, declining state of the economy impacting outside the financial services vertical, it seems like it is. And how much do you think you've accounted for the second half of this year because as you said, you have a lot of volumes that are uncommitted and volumes that are expected to come in, but we've seen slower ramps?

John Brennan

Well, we believe where we are today is that we've tried to pull back because we don't enjoy this pullback, and it varies day to day in terms of what particular volume levels the clients are going to be doing, and though we got some coming in the door where people are cutting back their cost structures. We have identified by client for the balance of the year, probably 97% of all revenue, and it's all based on the timing of the growth of the new business and the expectation that based on the best information we have in terms of the continuation of the programs we have. We sample our clients weekly to try to get inside their heads, but we are not always dealing at the top level of a company, so very often our customer contact would be surprised with certain pullbacks that would occur or a program or service gets pulled from the marketplace. So, I think where were at, and Shlomo, is that we are projecting to the best of our ability and as conservatively as possible our expectations for the quarter-to-quarter growth of the Company in terms of top line revenues, where it's going to happen. And secondly we are keeping very tight control over our infrastructure costs that are largely in place. We don't see any significant sequential growth on the, I'll call it the fixed expense side of the Company for the balance of the year. So, as Vince mentioned, it's all about leveraging the cost structure we have. We believe we can achieve based upon the programs in place and the programs that we have won over greater than the 4% EBITD levels that we achieved in fourth quarter of 2006 which has been our target all along.

Shlomo Rosenbaum – Stifel Nicolaus

Vince, I'm just going to ask a few housekeeping questions. Can you just – I was not even able to pull this up on the Web site. What were the production hours in the quarter?

Vincent Paccapaniccia

4.8 million.

Shlomo Rosenbaum – Stifel Nicolaus

Okay, what was cash from operations?

Vincent Paccapaniccia

It was just north of $6 million, Shlomo. I think it was $6.03 million.

Shlomo Rosenbaum – Stifel Nicolaus

Okay, and you said CapEx, again can you give that number again?

Vincent Paccapaniccia

$6.4 million.

Shlomo Rosenbaum – Stifel Nicolaus

And do you guys expect to generate cash this year?

Vincent Paccapaniccia

Yes. One thing that we talked about when we talked about was going through the capital, our projections are, I think earlier we were talking closer to $30 million. We believe it will be in the mid '20s now, $24 million, $25 million of capital, and as we look at our cash flow from operations for the year, we expect to be free cash flow positive. As you know we don't put guidance out here, but I think the numbers will give you a range of pretty close to about $5 million number.

Shlomo Rosenbaum – Stifel Nicolaus

Okay, thanks.

Vincent Paccapaniccia

You're welcome.

John Brennan

Thanks, Shlomo.

Operator

Thank you. Our next question comes from the line of Bob Evans with Craig Hallum. Please proceed with your question.

Bob Evans – Craig Hallum

Good morning and thanks for taking my call.

Vincent Paccapaniccia

Morning, Bob.

John Brennan

Morning, Bob.

Bob Evans – Craig Hallum

First can we go back to your revised guidance and I want to make sure I understand from the end of February when you first give the guidance to now. Can you give us a little bit greater color in terms of what's changed because if you look at it from a raw dollar amount, it's roughly call it $4 million? Is it all the delay in ramp or how much is it that versus currency, if you could give us a little bit more color?

Vincent Paccapaniccia

Yes. What we did, Bob, is we looked at the revenue flow and we looked at all the ins and outs, and we looked at the $80 million of new business wins announced in the second half of last year.

On the February call, we projected that 75% or about $60 million of those new business wins would benefit revenue in 2008. Our projections right now it's about $50 million.

Bob Evans – Craig Hallum

To me it seems like, we'll put it this way, $10 million delay in revenue ramp and $4 million cost seems disproportionate.

Vincent Paccapaniccia

Our gross margin is about 40%.

Bob Evans – Craig Hallum

Okay.

Vincent Paccapaniccia

So, we have the ability to remove all the variable cost. From an infrastructure standpoint I guess there's two pieces of that. The North American infrastructure we realigned it very significantly in calendar 2007, but at the end of the year, we left sufficient US and Canada production facilities to produce what we thought was going to be the $60 million of revenue stream.

John Brennan

For their part of it?

Vincent Paccapaniccia

Yes, the US and Canadian part of it, exactly. So, that revenue stream, I mean that capacity, that infrastructure is in place. We are able to delay some of the Philippine expansion, so if it's needed, but it's largely the gross margin from the revenue.

Bob Evans – Craig Hallum

Okay. Did you have any recourse with your clients on this in terms of if they're delaying? I mean you're basically bearing a lot of the costs here. I mean is there anything you can do from a pricing standpoint?

John Brennan

I would say not really, not in this business. I think we get ramp schedules. We have capacity in place to retrieve it or we have capacity in place that was projected to come on. As Vince mentioned, some of them pushed out of like a quarter of some of the fixed cost in the Philippines to handle some of that delay, but basically it's like getting huge termination penalties from a client that's pretty much non existent in this business.

Bob Evans – Craig Hallum

Okay, okay. And can you also talk about the second half if you – you had given Q1 result and Q2 guidance, how should we look at the makeup of profitability in the second half waiting between Q3-Q4? And obviously, I would expect Q4 to be the stronger quarter as it historically has, but can you give us some sense of magnitude?

Vincent Paccapaniccia

Sure. What we’ve done is we have modeled the mid point of this $455 million to $465 million and we're adding basically $4 million to $5 million as quarter's revenue growth. From a margin perspective, we're seeing the operating margins pretty consistently grow about 200 basis points sequentially.

Bob Evans – Craig Hallum

You're saying Q3 versus Q2?

Vincent Paccapaniccia

Q2 versus 1; 3 versus 2 and 4 versus 3; yes, Bob.

Bob Evans – Craig Hallum

Okay. All the way through, okay. That's very helpful. And then on the 1,200 to 1,500 seats, is that all net new in terms of – are you seeing seats being transitioned? Does that include any seats being transitioned, say from the US to the Philippines or is it all new seats being added from either new or existing customers?

John Brennan

That's niche. We do have some center closings. We just closed one at the end of March, as Vince mentioned, and there's couple of other lease expirations this year in North America. So, in terms of new adds, we are closer to like 1,800 to 2,000 of new seats, but eliminating somewhere few hundred seats, 300 or 400 seats in North America as the year progress. One other thing I did want to mention but we hadn't added the clarity to it. As we brought in new business in the past quarter, we're still seeing a lot of demand. As I said, we didn't win any big deals, but we won a lot of deals that are in the $3 million to $5 million range, I would say in the lower single digit range over the past quarter both domestically and internationally. And we are taking what we believe is a conservative approach of not recognizing much, if any, benefit of revenue from those new wins. We are using those as a buffer in anticipation if anything else fell out of the bottom.

So, we're trying to be conservative saying if any new business that we bring in this year, and as the year progresses, you get less recognition of it in the sense of being able to implement it over the course of the year, but we're balancing out of seeing any additional business we get in would balance out any short falls of downside in volumes or program cutbacks moving forward. So, we are trying to provide that hedge to our outlook, Bob.

Bob Evans – Craig Hallum

Okay, now that's helpful. Thanks. And then could you give us a little greater flavor in terms of how should we think about operating margins currently in terms of regionally where, what areas of the world would you say, we think we are at or getting to where we need to be, and what's that level versus perhaps where you might be in US or Canada?

Vincent Paccapaniccia

Well, I think, talking about where we are in the first quarter probably – they are probably more helpful to talk about (inaudible) fourth quarter of 2008 what's going to look like. As we've been discussing for the US. The US has been in the negative margin perspective for 2007. I believe in 2009, it will be profitable from an operating margin perspective. It should be pretty close to that in the fourth quarter of this year. The Philippines, as you know, we're undergoing some expansion there. I still think that's going to be a double-digit operating margin for calendar '08 and into 2009. That's probably the two primary countries, Bob.

Bob Evans – Craig Hallum

When you say calendar 2008 for Philippines, are you saying getting there by the end of '08 or for the full year?

Vincent Paccapaniccia

I believe it will be double digit for the full year of 2008.

Bob Evans – Craig Hallum

Okay and then growing from that level, then would you expect growth from that level in 2009 in terms of operating margin, rather?

Vincent Paccapaniccia

I think it's going to pretty much level off in the low double digits. It's 10% to 12% or some number like that.

Bob Evans – Craig Hallum

Okay. And then how about your business is growing in Canada? How should we look at Canada?

Vincent Paccapaniccia

Canada, trying to think of (inaudible).

John Brennan

In Canada, where we are as we left a lot of – we had a lot of work being done in Canada in 2007 that was being worked for the U.S. We had been transitioning that to handle the volume of business that we have sold in Canada, which is I think was up 40%. The Canadian business, the total hours produced in Canada are about flat because there was a lot of work pulled out of Canada that either came back to the U.S. or went offshore that was for U.S. clients. So, that has had some margin pressure on it right now, but that's being worked through.

Vincent Paccapaniccia

Yes. The other part in Canada is we are incurring some training cost in Q1. Q1, Canadian margins are negative, Bob.

Bob Evans – Craig Hallum

Okay.

Vincent Paccapaniccia

But they, I said the US will turn profitable in 2009. We do expect Canada to return profitability in the second half of '08.

Bob Evans – Craig Hallum

Okay, and as we look at exiting '08, how big would Canada be? I just want to get a sense of currency.

John Brennan

We'll do for the year about $100 million plus (inaudible) 5 million something like that. For Canada, so that's about $25 million in the quarter.

Vincent Paccapaniccia

Yes. But just so you talk about currency, of that, Bob, probably 97% of that revenue stream is going to be Canada to Canada, so it won't be an effective impact on that.

Bob Evans – Craig Hallum

So you're effectively hedged, okay.

Vincent Paccapaniccia

Effectively hedged, yes.

Bob Evans – Craig Hallum

Okay, thank you very much.

Vincent Paccapaniccia

Welcome.

Operator

Thank you, ladies and gentlemen. Our next question comes from the line of Tom Smith with First Analysis. Please proceed with your question.

Tom Smith – First Analysis

Hi, guys.

John Brennan

Good morning, Tom.

Vincent Paccapaniccia

Good morning.

Tom Smith – First Analysis

Hi. You've answered a lot of my questions already, but just a couple. On the new business, can you give the dollar amount of new business that you won in the first quarter?

John Brennan

Yes, okay, I must go through too quickly there. We won $24 million of new business and as I just mentioned to Bob Evans, it was primarily in the, I call it the low single digits. We won a lot of business in and I’ll call them in the $3 million to $5 million, $2 million to $5 million range. And a significant number, probably more wins in the quarter, but there was nothing, there was no blowout, there was no double-digit revenue wins as we had achieved in the third and fourth quarters of 2007.

Tom Smith – First Analysis

Right, and were you able to, on those new wins get the training costs paid for going forward?

John Brennan

In almost all of them. There's one or two, but I would say about 80% of it, the training was paid for. One of the things maybe we do get, maybe Vince, you want to indicate when we do get training paid for it's very positive. We don't have a short-term hit.

Vincent Paccapaniccia

Yes, the accounting for the training, when we do get paid for the training because of accounting literature, Tom. We amortize the training revenue and the associated costs over the term of the contract. So, even if we are, I mean it's always great to get paid for training, don't get me wrong, but if we collect $1 million of training costs on day 1 for a three-year contract, we will actually recognize that $1 million of training revenue in the operating profit on that $1 million straight line over the 36 months.

Tom Smith – First Analysis

Okay, okay. And I guess, it seems like maybe it’s just because the contracts in the second half of '07 were larger, that they're taking longer. I'm just wondering with these smaller contracts is there any possibility that those could get delayed too like we've seen delays happening for the second half of '07 or do you think that because they're smaller that they might not get delayed?

John Brennan

I think it probably spreads the risk of delays over a broader base. It's not like we have some significant contracts that are right on schedule, they will deliver close to 90% of the full value of the contracts we got because they started early in the year from 2007. What we are doing as I just mentioned, we're looking at these new wins and we're trying to discount our projected revenue from them to at least hedge against any softness of existing programs where volumes might be reduced. So, if there were delays in them, they would be largely the guidance we're providing would not have an impact on it.

Tom Smith – First Analysis

Okay. And then I know as far as your infrastructure cost, you mentioned that you don't expect any more restructuring charges. How many more facilities or how many more seats do you expect to shut down in the US? I thought it was going to be 200 to 300 for the year. It sounds like most of that, that's the case has it happened in the first quarter? Is there any more?

John Brennan

Our US total we came into the year at about – precise number I have is 3,863. It would drop about 200 seats over the course of the year for the U.S.

Vincent Paccapaniccia

Yes, and that's what happened in the first quarter. It was basically one center closure, Tom.

Tom Smith – First Analysis

Okay, so no more center closures, then?

Vincent Paccapaniccia

That's correct.

Tom Smith – First Analysis

Okay, well, what are some of the other initiatives that you're taking? I guess, could you expand on those to lower costs? I think you mentioned in the release, some attempts to lower infrastructure costs?

John Brennan

Yes. We have so far in the last 90 days, we have initiatives underway here that really take the whole life cycle of a program, I'll try to be quick on it, everything from recruiting that we're investing in, software dollars that provides with better testing, better, I call it identify candidates for jobs. We've seen where we tested late in the fourth quarter 17% reduction in attrition and in particular, centers we are rolling out to more centers in North America. So, that's on the recruiting side. Obviously, we're trying to become on the training side, we're investing in, but it will probably be in the second half of this year, some more sophisticated e-learning tools for both agents in the center, as well as home based agents. We have several hundred home based agents. I think 300 to 400 home based agents in Canada right now. So, we can do learning at the home, as opposed to bringing it back into some of our regional training centers and call centers to do it.

Third one is the workforce management software. We are building up an operation we have that's been predominantly in the U.S. We are migrating that capability to our lower cost staff in the Philippines to manage workforce management for all of North America from the Philippines.

And the last one I want to mention is on the using (inaudible) mining techniques that will be able to cut our sales verification for all of our tele sales activity that we've been able to test that. We're basing our – resulting in a 20% reduction. And we're also moving as many of those jobs as feasible to India and the Philippines to reduce the overall cost structure, but we're also reducing the number of operators. So we believe that by 2009, we'd be able to pull out $3 million to $5 million of cost benefit to the Company $3 million to $5 million next year.

Tom Smith – First Analysis

Okay. Okay, great. Thanks a lot, guys.

John Brennan

Okay.

Vincent Paccapaniccia

Thank you, Tom.

Operator

Thank you. Our next question comes from the line of Matt McCormack with FBR Capital Markets. Please proceed with your question

Matt McCormack – Friedman Billings Ramsey

Hi, good morning.

John Brennan

Morning, Matt.

Vincent Paccapaniccia

Morning, Matt.

Matt McCormack – Friedman Billings Ramsey

In terms of the $10 million, I guess, delay is that all inbound work or could you break out what component of that is outbound?

John Brennan

There is an outbound component of a program that is an inbound/outbound program. So, it's not a strictly outbound operation. It is predominantly inbound activity, though, that I would say overall probably 70% of it. So, it is not a telesales activity, but there is, I'll call it, client retention inbound and outbound with one of those programs.

Matt McCormack – Friedman Billings Ramsey

Okay. And then you mentioned that you had no large wins this quarter. Is that a reflection of lower RFP activity in the marketplace or is it just a seasonally slow quarter and nothing else to read into it?

John Brennan

I wouldn't read anything else into it. I think these are fact that we captured a $10 million to $20 million win in each of the previous quarters. Our typical wins of new business I'd say over the last three years is more in the $15 million, $10 million to $20 million per quarter. We typically don't go after the real big contracts. Our sweet spot is in the $5 million to $10 million. But we certainly are focused on winning some larger deals. I don't think there was anything indicative of what the pipeline is. The larger ones typically have a longer lead time to them, and we have some of those in the pipeline right now. But there certainly are, if you bet 300, you may not get enough opportunity in any given quarter to make that on every quarter hit one of them.

Matt McCormack – Friedman Billings Ramsey

Okay. And then you mentioned your financial services vertical would have been up if you excluded the outbound card business, could you break out what percentage of revenue the card business is and tell us how much financial services would have grown?

John Brennan

Yes. We've created a little bit more granularity on it because of the importance of financial services to us and I guess we're not trying to expect to be reporting on it every quarter. But the credit card business, if I look at it, first quarter of last year, the first quarter of this year dropped from, this is just domestic, dropped from $19 million to $13 million, a couple of hundreds in there. So, that was $6 million delta. Our mortgage business was down from $8.5 million to $7.5 million but sequentially on the mortgage side, as I mentioned, we were up about a $.5 million over the fourth quarter. That's leveled off in this $6 million to $8 million range. The rest of what we do for retail banks, insurance and other was about $15 million last year and was about $15 million this year. So, domestically outside the credit card business, we were year over year down about $1 million. On the international side, we were up about $.5 million. Everything else balanced out in that mode. Moving forward we see up ticks in the non-credit card segments of the business. We are growing some of those contracts. Those are some of the ones that we've talked about that are ramping up slower than what we previously anticipated, but we are seeing strengths from a number of customers there, particularly those that have done work offshore. We're also seeing continued strength in the markets outside the U.S. So we're seeing the drift down being primarily in the credit card side of the business, but the big hit occurred between the first quarter of last year and the fourth quarter of last year, dropped by about $5 million and then another $1 million in the first quarter of this year. I think that's leveling off, but we're not betting on it. We think it's leveling off, but we're anticipating internally that we'll see some continued decline there and we think we'll more than compensate for that with growth in the other domestic segments of our financial business.

Matt McCormack – Friedman Billings Ramsey

Okay, thank you.

John Brennan

You're very welcome.

Operator

Thank you. Our next question comes from the line of Troy Mastin with William Blair & Company. Please proceed with your question.

Troy Mastin – William Blair & Co.

Good morning. Thanks.

Vincent Paccapaniccia

Good morning, Troy.

John Brennan

Hi, Troy.

Troy Mastin – William Blair & Co.

I just want to understand the flow of ramp a little bit. I know you guys have been questioned a lot and we're running out of time here, but can you just help us understand if this is I don’t know volume that didn't materialize from the customer or removing volume out of internal servicing to outsourcing and what gives you confidence this volume is going to materialize?

John Brennan

Well, I'll take two of the more significant ones on. One was a case where the volume was coming from internal operations that were being downsized in North America and we are migrating it to our operations in the Philippines, some of those jobs. We are in constant contact. It's not like we're pushing it back a year. They're pushing it back, I think like 60 days where the ramps so we've delayed some of the – so we've started the business, but it's going at a slower rate as they downsized some of the U.S. operations. And so I'm very confident that that's happening. The other was a case where it's been a reallocation of work that we were a new supplier to a company that is reallocating volumes from other out sources and again, I think it's the timing. We just had a senior management meeting with them this week and everything looks confident. Moving toward the second half of this year, we already, I believe we have somewhere close to 200 people on the program already, but the second quarter volumes there is like pushed out. So, I think both of these are where we're in close communication. We don't see either of them have no indication that something is going to be canceled or significantly reduced in volume, and I think it's a timing issue that between the rate of ramp and the start dates of ramps.

Troy Mastin – William Blair & Co.

Okay, and then I'm curious what currency assumptions are worked into your 2008 guidance? And on the currency front, how much revenue growth, given the current exchange rate and the collars or the hedges you have in place, how much revenue growth do you need in 2009 to improve your margins versus 2008?

Vincent Paccapaniccia

Okay, let me start on 2008 on foreign currency projections, Troy. We're projecting, even though the Philippine peso is about trading by 42.20 right now, we are projecting the peso to strengthen during the balance of 2009. A lot of the bank economists where we look at their data, they are easing their projections a little bit, but we do have a continuing to strengthen this year. And as I shared on the call, about 87% of our 2008 projected Philippine peso exposure is hedged. So, the delta of our assumptions versus what really occurs would have an impact on the 13% that's unhedged. Okay, as we move into 2009, our FX projections are that it will continue to strengthen, the peso against the dollar, but we have it strengthening much, much less significantly than it has in the '07 timeframe ’07 to first half of '08 timeframe.

John Brennan

I think there's a great degree of uncertainty amongst currency projections particularly in the Philippines right now that based on the issues with food and fuel in the Philippines, the peso has been relatively flat for the first quarter of the year. So, while we are hedged and the bank projections today are that it's going to strengthen versus the U.S. probably the indications over the last couple of weeks is create some degree of uncertainty whether or how much it will strengthen moving forward. So, I guess a lot of macroeconomic things happening in the Philippines in particular in terms of currency.

Troy Mastin – William Blair & Co.

Well, Vince, do you have an estimate for how much of a margin headwinds peso will be in 2009 even with stable exchange rates because of the hedges pulling off?

Vincent Paccapaniccia

Yes. As I look at, we're talking about the margin headwind, I'll tell you what our assumptions are. We have a blended rate in calendar 2008 will be right around 45, (inaudible). I'm sorry, blended rate of 45%, that would be the amount that the 87% that's hedged. That's our expectation with a 13% unhedged is going to be. We expect we’ll deliver a peso rate combined to about a 45. If you look at our projections for next year, we are right now able to hedge in the 43 range, Troy. Actually probably 43.5, so we have the ability, we're going to be entering into the balance of '09 contracts as we continue throughout 2008. So with where we are right now, I mean you could see a 45, maybe moving into the 43, 43.5 range, something like that.

Troy Mastin – William Blair & Co.

Okay, so maybe 3% to 5% increase on 20% of your costs roughly?

Vincent Paccapaniccia

I would think that would be reasonable.

Troy Mastin – William Blair & Co.

Okay, very good. Thanks.

Vincent Paccapaniccia

You're welcome.

Operator

(Operator instructions). Our next question comes from the line of Tim Weiss [ph] with Robert W. Baird. Please proceed with your question.

Tim Weiss – Robert W. Baird

Hi, morning, guys.

John Brennan

Hi, Tim.

Vincent Paccapaniccia

Hi, Tim.

Tim Weiss – Robert W. Baird

Just had a quick question in terms of call volumes, they are a little weaker than we expected this quarter and understandably there is a tough comp in Q1 in '07. But how do you guys view business coming on in the second half of the year, feel that call volume should trend through 2008 and into '09?

John Brennan

I think where we are looking at is sequential growth in call volumes. They were, as we talked about it the big decline in call volumes was associated with, you mentioned about our outbound telesales business in credit card dropped about a third. Most of that work had already been largely offshore. So, it wasn't like a transfer of domestic revenues to offshore revenue. So, we have seen a decline in that piece of it, and the second piece was a measurable decline in the market research volumes. The balance of our business was up. So, as that business, we believe has leveled off, we will be seeing sequential growth in volumes. Do you have any better feel?

Vincent Paccapaniccia

Yes. What I would add to that, Tim, is as you look at the first quarter, you are absolutely right. It was just over 4.8 million hours, and as we look at Qs two, three and four, a lot of the first quarter impact was due to the rates from an offshore perspective. So, in Q2 over Q1, if you look at sequential increases in revenue dollars, I think it'll more closely tie to increases in production call volumes.

Tim Weiss – Robert W. Baird

And that's helpful; thanks.

Vincent Paccapaniccia

You're welcome.

Operator

Thank you. Our next question comes from the line of Shlomo Rosenbaum with Stifel Nicolaus. Please proceed with your question.

Shlomo Rosenbaum – Stifel Nicolaus

Just one follow-up question, overall, if you stand back, is demand same as it was last quarter, strengthening or declining, overall excluding some stuff that are outbound tele services for items like credit cards?

John Brennan

It certainly – it’s an excellent question, Shlomo. I mean we stand back and we look at it, and we think the demand is still growing, particularly for, I would say, infrastructure cost moving offshore. That being said, the work that we have seen, the cutbacks on has been the telesales business, the market research business and a some of our, I'll call it, the health insurance clients who had not moved work off shore and is not a huge part of our business. But we've seen those cut back either move work back into in-house facilities or cancel some of their programs. On the other side of the business, we still see a lot from our perspective, that there is a continued interest across all verticals to outsource more work. I got my – other one that offsets it, people who are outsourced work are looking at, well, now I'm spending $40 million a year whether it's in the U.S. or it's offshore, and I still have an internal cost pressure. How do I reduce that by adjusting call volumes or looking for, I don't think we haven’t seen any pricing pressure on any significant one outside of the credit card side. But people are looking across the board to cut cost structures. So, then they're saying, well, is there a way that I don't have to take as many calls if I do this or do that. But I would say on a 50,000-foot level, I think the overall headwinds are behind the outsourcing industry and the call center world that we are in.

Shlomo Rosenbaum – Stifel Nicolaus

Are your clients potentially going to cut back in customer service? I mean you're talking about them looking to reduce their own cost. Are you thinking that – are you seeing people saying, let their clients stay on the line a little bit longer and we'll reduce our volumes. Are you seeing something like that?

John Brennan

We haven't had any requests so far. I remember back in 2001, I got some clients who called up and said, can you look to people sit on the line longer? But that has not happened to date. We do see people looking at, can I get more people to be serviced on the Internet? Can I do more email? Can I send out text messages rather than live operator messages? I think any kind of alternative automation is being looked at in a lot of large companies, and we certainly are trying to embrace that and offer a variety of like alert messaging services. In the collections business more companies front ending their collection calls with outbound alert messages, so that they don't have to use a live operator to do that. So, I think technology is wherever feasible, just like we're tying got cut our infrastructure costs with technology, some of our customers are trying to drive their customers away from a live operator.

Shlomo Rosenbaum – Stifel Nicolaus

Okay, thanks a lot.

John Brennan

You're welcome.

Operator

Ladies and gentlemen, there are no further questions at this time. I would like to turn the floor back to management for closing comments.

John Brennan

Well, thank you very much. Vince and I would like to close by just thanking you for your support. We communicated our expectations for the balance of the year to the best of our ability and we feel positive about the overall (inaudible) as I just said to Shlomo. The overall trends in the business are positive. But in view of the economic uncertainties, we think it’s prudent to effectively manage our costs and effectively project the future. So, we look forward to talking to you at the end of the second quarter. Thank you very much.

Operator

Ladies and gentlemen, this concludes today's teleconference and you may disconnect your lines at this time. Thank you for your participation.

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