SOURCE: TeleTech

July 16, 2008 17:26 ET

TeleTech Completes Financial Restatement; Updates Business Outlook; Pipeline of New Business Opportunities Remains Strong; Announces Increased Funding for Share Repurchases up to $100 Million

ENGLEWOOD, CO--(Marketwire - July 16, 2008) - TeleTech Holdings, Inc. (NASDAQ: TTEC), one of the largest and most geographically diverse global providers of business process outsourcing ("BPO") solutions, today announced that it has filed with the Securities and Exchange Commission all of its delayed periodic reports, including its Annual Report on Form 10-K for the year ended December 31, 2007 and its Quarterly Reports on Form 10-Q for the quarters ended September 30, 2007 and March 31, 2008.

These filings include financial statements that were restated as a result of a voluntary, independent review of TeleTech's historical equity-based compensation practices and related accounting. As previously disclosed, the review was conducted by the Audit Committee of the Board of Directors with the assistance of independent, outside legal counsel and outside forensic accounting consultants. The Audit Comittee found no willful misconduct in connection with the equity compensation granting process. The review did identify, among other things, certain mistakes that were made in TeleTech's accounting for equity-based compensation from the Company's IPO in 1996 through August 2007 that required restatement of historic financial statements. The cumulative, non-cash expense recorded as part of the restatement for equity-based compensation expense was $59.7 million on a pre-tax basis. The majority of these adjustments affected periods prior to 2001.

As part of the restatement process, TeleTech also assessed whether there were other matters which should be corrected in its previously issued financial statements. It concluded that there were additional lease and other accounting adjustments for the years 1996 through June 2007 that totaled $5.6 million for the entire period on a pre-tax basis. Once again, the majority of these adjustments affected periods prior to 2001. Please refer to the Company's 2007 Form 10-K for the restatement adjustment amounts by year from 1996 through June 2007.

During the last six months of 2007 and the first quarter of 2008, TeleTech incurred $16.5 million of incremental selling, general and administrative expenses related to audit, legal, payroll tax and other professional fees associated with the Audit Committee's review and the subsequent financial restatement. Of that amount, $11.5 million was incurred in the 2007 third and fourth quarters and $5.0 million was incurred in the 2008 first quarter.

TeleTech believes that with the filing of these delayed periodic reports it will regain compliance with NASDAQ's continued listing requirements, and expects that NASDAQ will send the company an acknowledgement to that effect shortly.

EXECUTIVE COMMENTARY

"I am pleased that we are now current with our SEC filings and I want to thank our Audit Committee, together with the outside consultants, for all of their efforts over the past year along with our finance and accounting teams who reviewed twelve years of financial records to complete the review and the restatement," said Kenneth Tuchman, chairman and chief executive officer. "We look forward to being able to bring renewed focus to the technological and operational excellence that has allowed us to deliver large, complex BPO solutions on a global scale. We believe that in today's economic environment our services are more strategically relevant than ever before and our pipeline of new business opportunities is the strongest in the Company's history. We continue to benefit from Global 1000 companies that are consolidating their BPO work with stronger, more agile BPO providers that have a demonstrated track record of delivering innovative, high-quality solutions."

FULL-YEAR 2007 RESULTS

TeleTech reported 2007 revenue of $1.4 billion, a 13.1 percent increase over 2006. Full-year revenue in the BPO segment was $1.35 billion, a 15.5 percent increase over 2006. Exiting 2007, we achieved the $1.5 billion annualized revenue run rate that we first established as a goal in early 2004.

TeleTech's offshore delivery capacity spanned eight countries and approximately 24,235 workstations at the end of 2007 and represented 63 percent of its global delivery capabilities. Revenue in these offshore locations grew 37 percent in 2007 to approximately $550 million and represented 40 percent of TeleTech's total revenue.

On a GAAP basis, TeleTech's income from operations grew 10.9 percent to $81.8 million in 2007 from $73.8 million in 2006. Income from operations in 2007 included $22.9 million of asset impairment and restructuring charges related primarily to the disposition of TeleTech's database marketing and consulting business, and $11.5 million of audit, legal, payroll tax and other professional fees that were associated with the Audit Committee's review and the subsequent financial restatement. Excluding these charges which totaled $34.4 million, TeleTech's income from operations was $116.2 million in 2007, representing an operating margin of 8.5 percent, and an increase of approximately 220 basis points from 2006 operating margin of 6.3 percent, excluding unusual charges. Furthermore, excluding $13.4 million of non-cash expense in 2007 for equity-based compensation, operating margin would have been 9.5 percent in 2007.

Fully diluted GAAP earnings per share for 2007 were 73 cents on net income of $53.1 million compared to $51.0 million of net income or 73 cents per share in the year-ago period. Excluding the unusual charges impacting income from operations discussed above, which totaled pre-tax $34.4 million or approximately 32 cents per share after-tax, non-GAAP earnings per share were $1.05 on net income of approximately $76 million.

As of year end, TeleTech had $91.2 million in cash and cash equivalents and a debt to equity ratio of 17.4 percent. The company generated $42.4 million of free cash flow during 2007, and its cash flow from operating activities and borrowings under its revolving credit facility enabled it to fund $61.1 million in capital expenditures for the year. Approximately 80 percent of TeleTech's capital expenditures were related to growth primarily in offshore markets.

Return on invested capital, defined as earnings before interest and taxes, excluding unusual charges, divided by average shareholders' equity, was 27 percent at the end of 2007, up from 23 percent at the end of 2006.

FIRST QUARTER 2008 RESULTS

TeleTech reported record first quarter 2008 revenue of $367.6 million, a 10.5 percent increase over first quarter 2007 revenue of $332.7 million. The first quarter 2008 was the tenth consecutive quarter of double-digit revenue growth.

First quarter 2008 revenue from services performed for clients in offshore locations grew approximately 29 percent to $164 million and represented 45 percent of total revenue.

On a GAAP basis, TeleTech's income from operations was $28.8 million or 7.8 percent of revenue. Income from operations in the first quarter 2008 included $2.2 million of restructuring charges and $5.0 million of audit, legal and other professional fees associated with the Audit Committee review and the subsequent financial restatement. Excluding these charges which totaled $7.2 million, TeleTech's income from operations in the first quarter 2008 was $36.0 million or 9.8 percent of revenue, an increase of approximately 80 basis points from the year-ago quarter. Furthermore, excluding $2.7 million of non-cash expense in the 2008 first quarter for equity-based compensation, operating margin would have been 10.5 percent.

Fully diluted GAAP earnings per share for the first quarter 2008 were 27 cents on net income of $19.1 million. Excluding the unusual charges discussed above, which totaled pre-tax $7.2 million or approximately 7 cents per share net of taxes, non-GAAP earnings per share were 34 cents on net income of approximately $24 million.

As of March 31, 2008, TeleTech had $98.2 million in cash and cash equivalents and a debt to equity ratio of 15.9 percent. The company generated $11.0 million of free cash flow during the quarter. Capital expenditures were $15.2 million.

BUSINESS OUTLOOK

TeleTech is revising its full year 2008 outlook on its belief that the U.S. and Europe will continue to experience economic weakness for the next several quarters. This slowdown has resulted in the following business trends for TeleTech:

1.  The Company has continued to build a strong sales pipeline and win
    significant new business from clients who are proactively managing
    through this economic downturn by outsourcing more of their business
    processes and also consolidating to fewer global providers. This is
    reflected in the $302 million in estimated new annualized revenue
    TeleTech signed over the nine months ended March 31, 2008. While the
    pipeline of new opportunities remains robust, this new business has
    taken approximately 12 months to ramp, which is longer than previous
    ramps given the size, complexity, training and global delivery
    requirements.

2.  The Company has recently experienced lower volumes from certain
    clients. These clients are also being more cautious in their projected
    volume requirements for the remainder of the year including the
    upcoming fourth quarter, which has historically been seasonally higher
    for the Company.

3.  Certain clients are moving more quickly to migrate their work with
    TeleTech offshore. Although this offshore shift results in lower
    revenue per workstation it generally results in higher profitability
    over the longer term.

In light of the above trends, TeleTech is revising its short-term business outlook and expects 2008 revenue will grow a minimum of 6 percent to 8 percent over 2007. Longer-term, TeleTech believes that a return to double-digit revenue growth rates is likely under more favorable economic conditions.

TeleTech now expects its 2008 operating margin will range between 9 percent and 10 percent, excluding unusual charges. This expectation takes into consideration the associated costs of migrating certain work to offshore locations along with the belief that TeleTech will see increased costs in the short-term primarily due to the unprecedented and rapid inflationary trends impacting its global workforce and operations. We believe over the short-term we will be able to mitigate these higher costs as we implement price and cost-of-living increases along with ongoing profit improvement initiatives.

INCREASED FUNDING FOR SHARE REPURCHASES

TeleTech's Board of Directors has approved an increase in the funding available for share repurchases up to a total of $100 million. This is an increase of $47 million from the $53 million that was still available for share repurchases when the program was suspended last November due to the review of equity-based compensation practices and related accounting.

"This additional funding reflects our belief that our stock is undervalued based on our leading industry position," said Kenneth Tuchman, chairman and chief executive officer. "TeleTech's strong balance sheet and significant cash flow from operations has given us the flexibility to fund the growth of our business while also continuing our share repurchase program."

SEC FILINGS

The Company's filings with the Securities and Exchange Commission are available in the "Investors" section of TeleTech's website, which is located at www.teletech.com.

CONFERENCE CALL

A conference call and webcast with management will be held on Thursday, July 17, 2008, at 8:30 a.m. Eastern Time. You are invited to join the live webcast of the conference call by visiting the "Investors" section of the TeleTech website at www.TeleTech.com. If you are unable to participate during the live webcast, a replay will be available on the TeleTech website through Thursday, July 31, 2008.

NON-GAAP FINANCIAL MEASURES

To supplement the Company's consolidated financial statements presented in accordance with generally accepted accounting principles (GAAP) in the United States, the Company uses the following non-GAAP financial measures: EBIT, Free Cash Flow, Non-GAAP Income from Operations and Non-GAAP EPS. TeleTech believes that providing these non-GAAP financial measures provides investors with greater transparency to the information used by TeleTech's management in its financial and operational decision-making and allows investors to see TeleTech's results "through the eyes" of management. TeleTech also believes that providing this information better enables TeleTech's investors to understand its operating performance and information used by management to evaluate and measure such performance. The presentation of these financial measures are not intended to be used in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. A reconciliation of these non-GAAP financial measures is available in the financial tables attached to this press release.

ABOUT TELETECH

TeleTech is one of the largest and most geographically diverse global providers of business process outsourcing solutions. We have a 26-year history of designing, implementing, and managing critical business processes for Global 1000 companies to help them improve their customers' experience, expand their strategic capabilities, and increase their operating efficiencies. By delivering a high-quality customer experience through the effective integration of customer-facing front-office processes with internal back-office processes, we enable our clients to better serve, grow, and retain their customer base. We use Six Sigma-based quality methods continually to design, implement, and enhance the business processes we deliver to our clients and we also apply this methodology to our own internal operations. We have developed deep domain expertise and support approximately 250 business process outsourcing programs serving more than 100 global clients in the automotive, communications, financial services, government, healthcare, retail, technology and travel and leisure industries. Our integrated global solutions are provided by more than 50,000 employees utilizing 38,000 workstations across 88 Delivery Centers in 18 countries.

FORWARD-LOOKING STATEMENTS

Statements in this press release that relate to future results and events (including statements about future financial and operating performance) are forward-looking statements based on TeleTech's current expectations. Actual results and events in future periods could differ materially from those projected in these forward-looking statements because of a number of risks and uncertainties including: general economic, business and industry conditions; the loss of business or lower volumes from significant clients; delivery center utilization and labor rates; the pace at which we are able to ramp new business; the effect of TeleTech's failure to timely file all of its required reports under the Securities and Exchange Act of 1934 and its restatement of previously issued financial statements, including shareholder litigation and action by the SEC and/or other governmental agencies; negative tax or other implications for TeleTech resulting from any accounting adjustments or other factors; unexpected regulatory changes, tax laws, and data privacy measures; data privacy issues; our ability to accurately predict geographic sales mix and seasonal sales trends; information technology and/or delivery center interruptions; issues or matters that may arise from governmental and/or administrative agency investigations; our ability to successfully remediate identified internal control deficiencies; litigation and governmental investigations or proceedings arising out of or related to accounting and financial reporting matters; fluctuations in foreign currency exchange rates along with our ability to effectively hedge exposure to changes in foreign currency exchange and/or interest rates; the ability to attract, retain and motivate key personnel; and political instability, the effect of armed hostilities, terrorism and natural disasters. A detailed discussion of these and other factors that could affect our results is included in TeleTech's SEC filings, including our Annual Report on Form 10-K for the year ended December 31, 2007.


                 TELETECH HOLDINGS, INC. AND SUBSIDIARIES
              CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                  (In thousands, except per share data)



                           Twelve months ended       Three months ended
                               December 31,               March 31,
                        ------------------------  ------------------------
                            2007         2006         2008         2007
                        -----------  -----------  -----------  -----------
                                     As Restated               As Restated
                                                  (unaudited)  (unaudited)

Revenue                 $ 1,369,632  $ 1,210,753  $   367,636  $   332,740

Operating Expenses:
  Cost of services        1,001,459      882,809      270,100      237,242
  Selling, general and
   administrative           207,528      199,995       51,372       52,096
  Depreciation and
   amortization              55,953       51,989       15,160       13,554
  Restructuring
   charges, net               7,115        1,630        2,202            -
  Impairment losses          15,789          565            -            -
                        -----------  -----------  -----------  -----------
    Total operating
     expenses             1,287,844    1,136,988      338,834      302,892
                        -----------  -----------  -----------  -----------

Income From Operations       81,788       73,765       28,802       29,848

  Other income (expense)     (7,320)      (4,442)      (1,048)      (1,277)
  Gain on sale of
   subsidiary                 7,005            -            -            -
  Loss on sale of
   subsidiary                (6,122)           -            -            -
                        -----------  -----------  -----------  -----------

Income Before Income Taxes
 and Minority Interest       75,351       69,323       27,754       28,571

  (Provision) benefit
   for income taxes         (19,562)     (16,474)      (7,793)     (10,374)
                        -----------  -----------  -----------  -----------

Income Before Minority
 Interest                    55,789       52,849       19,961       18,197

  Minority interest          (2,686)      (1,868)        (836)        (434)
                        -----------  -----------  -----------  -----------

Net Income              $    53,103  $    50,981  $    19,125  $    17,763
                        ===========  ===========  ===========  ===========

Net Income Per Share:
  Basic                 $      0.76  $      0.74  $      0.27  $      0.25
                        ===========  ===========  ===========  ===========

  Diluted               $      0.73  $      0.73  $      0.27  $      0.24
                        ===========  ===========  ===========  ===========


Income From Operations
 Margin                         6.0%         6.1%         7.8%         9.0%
Net Income Margin               3.9%         4.2%         5.2%         5.3%
Effective Tax Rate after
 Minority Interest             26.9%        24.4%        29.0%        36.9%


Weighted Average Shares
 Outstanding
  Basic                      70,228       69,184       69,937       70,309
  Diluted                    72,638       69,869       71,508       72,929



                 TELETECH HOLDINGS, INC. AND SUBSIDIARIES
                            SEGMENT INFORMATION
                              (In thousands)

                           Twelve months ended       Three months ended
                               December 31,               March 31,
                        ------------------------  ------------------------
                            2007         2006         2008         2007
                        -----------  -----------  -----------  -----------
                                     As Restated               As Restated
                                                  (unaudited)  (unaudited)

Revenue:
North American BPO      $   955,810  $   814,419  $   262,462  $   234,445
International BPO           396,080      356,106      105,174       92,405
Database Marketing and
 Consulting                  17,742       40,228            -        5,890
                        -----------  -----------  -----------  -----------
    Total               $ 1,369,632  $ 1,210,753  $   367,636  $   332,740
                        ===========  ===========  ===========  ===========

Income (Loss) From
 Operations:
North American BPO      $   106,102  $    85,639  $    32,544  $    33,605
International BPO             8,327        3,219       (3,256)         285
Database Marketing and
 Consulting                 (32,641)     (15,093)        (486)      (4,042)
                        -----------  -----------  -----------  -----------
    Total               $    81,788  $    73,765  $    28,802  $    29,848
                        ===========  ===========  ===========  ===========



                 TELETECH HOLDINGS, INC. AND SUBSIDIARIES
                  CONDENSED CONSOLIDATED BALANCE SHEETS
                              (In thousands)

                                     December 31, December 31,   March 31,
                                         2007         2006         2008
                                     ------------ ------------ ------------
                                                  As Restated  (unaudited)
ASSETS
Current assets:
  Cash and cash equivalents          $     91,239 $     58,352 $     98,167
  Accounts receivable, net                270,988      235,958      272,599
  Other current assets                     97,598       64,842       96,412
                                     ------------ ------------ ------------
      Total current assets                459,825      359,152      467,178

Property and equipment, net               174,809      161,061      175,521
Other assets                              125,661      144,208      121,485
                                     ------------ ------------ ------------

Total assets                         $    760,295 $    664,421 $    764,184
                                     ============ ============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Total current liabilities            $    186,810 $    184,030 $    177,499
Other long-term liabilities               118,729      111,800      115,496
Minority interest                           3,555        5,877        3,384
Total stockholders' equity                451,201      362,714      467,805
                                     ------------ ------------ ------------

Total liabilities and stockholders'
 equity                              $    760,295 $    664,421 $    764,184
                                     ============ ============ ============



                 TELETECH HOLDINGS, INC. AND SUBSIDIARIES
             RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION
                  (In thousands, except per share data)

                                 Twelve months ended   Three months ended
                                     December 31,           March 31,
                                --------------------  --------------------
                                   2007       2006       2008       2007
                                ---------  ---------  ---------  ---------
                                          As Restated           As Restated
                                                     (unaudited)(unaudited)
Reconciliation of EBIT:

Net Income                      $  53,103  $  50,981  $  19,125  $  17,763
  Interest income                  (2,364)    (2,209)    (1,086)      (393)
  Interest expense                  6,645      6,560      1,565      1,468
  Provision (benefit) for
   income taxes                    19,562     16,474      7,793     10,374
                                ---------  ---------  ---------  ---------
EBIT                            $  76,946  $  71,806  $  27,397  $  29,212


Reconciliation of Free Cash Flow:

Cash Flow From Operating
 Activities:
  Net income                    $  53,103  $  50,981  $  19,125  $  17,763
  Adjustments to reconcile net
   income to net cash provided
    by operating activities:
          Depreciation and
           amortization            55,953     51,989     15,160     13,554
          Other                    (5,542)    (3,723)    (8,110)      (484)
                                ---------  ---------  ---------  ---------
  Net cash provided by
   operating activities           103,514     99,247     26,175     30,833
                                ---------  ---------  ---------  ---------

Total Capital Expenditures         61,083     66,016     15,185     13,506
                                ---------  ---------  ---------  ---------

Free Cash Flow                  $  42,431  $  33,231  $  10,990  $  17,327
                                =========  =========  =========  =========

Reconciliation of Non-GAAP
 Income from Operations:

Income From Operations          $  81,788  $  73,765  $  28,802  $  29,848
    Restructuring charges, net      7,115      1,630      2,202          -
    Impairment losses              15,789        565          -          -
    Equity comp review and
     restatement expenses          11,481          -      4,968          -
                                ---------  ---------  ---------  ---------
Non- GAAP Income From
 Operations                     $ 116,173  $  75,960  $  35,972  $  29,848


Reconciliation of Non-GAAP EPS:

GAAP Net Income                 $  53,103  $  50,981  $  19,125  $  17,763
 Add:  Asset impairment and
  restructuring charges, net of
  related taxes                    15,529      1,673      1,583          -
 Add:  Equity comp review and
  restatement expenses, net of
  related taxes                     7,784          -      3,572          -
                                ---------  ---------  ---------  ---------
Non-GAAP Net Income             $  76,416  $  52,654  $  24,280  $  17,763

    Diluted shares outstanding     72,638     69,869     71,508     72,929

Non-GAAP Net Income per
 Diluted Share                  $    1.05  $    0.75  $    0.34  $    0.24

Contact Information

  • Investor Contact:
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    303-397-8592

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