image
Technology - Information Technology Services - NASDAQ - US
$ 4.74
-1.04 %
$ 226 M
Market Cap
-0.68
P/E
EARNINGS CALL TRANSCRIPT
EARNINGS CALL TRANSCRIPT 2016 - Q4
image
Executives

Paul Miller - SVP, Treasurer, and Head of IR Ken Tuchman - Chairman and CEO Regina Paolillo - Chief Financial and Administrative Officer.

Analysts

Joan Tong - Sidoti and Company Frank Atkins - SunTrust Mike Malouf - Craig-Hallum Capital Group.

Operator

Welcome to TeleTech’s Fourth Quarter and Full-Year 2016 Earnings Conference Call. I would like to remind all parties that you will be in a listen-only mode until the question-and-answer session. This call is being recorded at the request of TeleTech.

I would now like to turn the call over to Paul Miller, TeleTech’s Senior Vice President, Treasurer, and Head of Investor Relations. Thank you. Sir, you may begin..

Paul Miller Head of Investor Relations, Senior Vice President & Treasurer

Good morning. And thank you for joining us today. TeleTech is hosting this call to discuss its fourth quarter and full-year financial results for the period ended December 31, 2016. Participating on today’s call are Ken Tuchman, our Chairman and Chief Executive Officer; and Regina Paolillo, our Chief Financial and Administrative Officer.

Yesterday, TeleTech issued a press release announcing its financial results. While this call will reflect items discussed within those documents, our complete information about our financial performance in 2016, we encourage all listeners to read our annual report on Form 10-K when we file it with the SEC in the coming days.

Before we begin, I want to remind you that matters discussed in today's call may include forward-looking statements related to our operating performance, financial goals and business outlook, which are based upon management’s current beliefs and assumptions.

Please note that these forward-looking statements reflect our opinions as of the date of this call and we undertake no obligation to revise this information as a result of any new development that may become occur.

Forward-looking statements are subject to various risks, uncertainties and other factors that could cause our actual results to differ materially from those expected and described today.

Such factors include, but are not limited to, reliance on several large clients, the risks associated with lower profitability from or the loss of one or more significant clients, execution risks associated with ramping new business or integrating acquired businesses, the possibility of asset impairment and/or restructuring charges and the potential impact to the financial results due to foreign exchange related fluctuations and legislative developments in the United States or other countries where we do business.

For a more detailed description of our risk factors, please review our annual report on Form 10-K. A replay of this conference call will be available on our website under the Investor Relations section. I’ll now turn the call over to Ken Tuchman, TeleTech’s Chairman and Chief Executive Officer..

Ken Tuchman Founder, Chairman & Chief Executive Officer

Thank you, Paul and good morning to everyone. 2016 was an eventful year and one that tested our fortitude. We were challenged in the first half of the year with sales execution gaps and it unfortunately showed in our financial results.

We responded swiftly with a set of strategic initiatives to better optimize or go to market investment and accelerate the pace at which our profits and cash flow will improve.

Fundamentally, we needed to maximize growth from our existing client base, simplify our go to market organization, and processes and further optimize our operating cost and SG&A. We acted with speed, implementing new leadership in flattening our sales and marketing organization.

We redirected sales investments to place more emphasis on growing our existing client base and streamlined our solution and groups to simplify and prioritize the sale of Integrated Solutions. Additionally, we put significant emphasis on improving utilization across our segment and optimizing our SG&A cost.

Included in our actions we've taken to optimize or sales platform and improve our cost structure, we've started the process to exit a handful of non-strategic underperforming assets and investment.

As a result, our 2016 financials include one-time primarily non-cash charges, the positive impact of these initiatives which are now behind us will be significant.

In fact, you can observe the progress in our second half 2016 financial results with improvements in our fourth quarter bookings, the reduction in our SG&A as a percentage of revenue, the increased utilization of our facilities, technology and human capital, and of course the step up in the operating margin during the second half versus the first half of 2016.

But the most important improvement is growing the quality of our sales pipeline, the number and scale of opportunities coming from our existing client base is impressive.

While a few of these opportunities displace competitors, many of these new deals with clients focused on transforming their customer experience by leveraging our strategy, technology and changed management capability.

The changes in our sales and marketing leadership, organizational structure, and processes are enabling more fluid cross-sell segment engagement, relevant solutioning value oriented pricing, and a faster time to proposal and contract signing.

Our bookings in the fourth quarter reached $112 million, and our revenue backlog and pipeline amply support our estimated 2017 revenue growth in the range of 7.5% to 8.3%. Going into 2017 we have a better pipeline, increased revenue backlog, and a reduced reliance on the net new revenue required to achieve our revenue guidance.

Despite the gaps in our financial performance in 2016, there were a number of high points, we established 42 new client relationships, several new strategic channel partnerships, and expanded our global footprint through the acquisition of Canadian-based Atelka.

We increased our analytics business 26%, our cloud business 19% and our sales outsourcing business 11%. And our 2016 client net promoter score results continue to be the best in the services industry and our employee satisfaction reached an all-time high. We knowledge the sales execution gaps we experienced in 2016.

However, based on the decisive action we've taken and the improvement in our second half performance, we believe we will enter 2017 in a much better place. We have eliminated the distractions and are keenly focused on increasing revenue and profitability.

With a growing pipeline and a streamlined operating structure, we're confident you will see meaningful improvement in our financial performance in the quarters to come. So what's next on our agenda? The marketplace is right, our offerings are on target and our clients are on board.

Today, we're operating on the front lines of an omni-channel customer experience revolution. How do we evolve to further improve our top and bottom line? Let me share a few key strategies. First, do business with a client whose true north is customer centricity.

Over the past several years, we've shifted our focus to companies that share our passion for customer experience as a differentiator. We see clients who are driven to make a genuine lasting connection with their customers and are willing to invest for the long run.

These clients realize that when they create a relevant and frictionless experience with their customers they're rewarded with a lasting and profitable relationship. They don't view customer interaction as a task to be managed, but rather as a relationship to be nurtured.

They know that authentic customer engagement translates into increased revenue, profitability and shareholder value.

We will drive our growth from two distinct client groups, new economy brands like Netflix that seek a high tech low friction experience for their customers and well established evolving brands like T-Mobile, Qantas, Telstra that are successfully winning in their respective markets because of their customer obsession and maniacal focus on a differentiated experience.

Let me expand on this idea. Today's customers expect frictionless experiences, they want to be captivated, entertained, and acknowledged everywhere they encounter a brand. That means every touch point as well as the white space in between.

Customers expect companies to pay attention to and remember every interaction from physical stores in kiosk to text, voice, chat, social, video and email. They demand the ability to start an interaction in one channel and complete it in another without having to repeat themselves.

They choose interactions that are seamless and predictive across every mortality, whether it is face to face, voice to voice or chat to chat [indiscernible] fun. Clients select us to help them imagine and create experiences their customers will love.

They're asking us to design and deliver a roadmap to balance the convenience and immediacy of technology with the judgment and compassion of the human touch. They want ways to listen and learn from their customers’ journeys, so that they can understand and prioritize the experiences that drive actions and earn lasting loyalty.

They view as a strategic partner with a solution that delivers defined valuable outcomes. Our relationship is not about labor augmentation, it is about business transformation and it touches every business unit, channel, customer and touch point.

Our clients are depending on us for thought leadership, best practices, and operational excellence at scale. Just a few weeks ago, the CEO of one of the world's most innovative mobile, voice and data service providers was blown away when he visited one of our customer experience centers.

In his words, we are essential in their plan to disrupt their industry. As you can imagine, being central to the execution of any of our clients’ most critical go to market strategies creates opportunities for TeleTech’ growth. Now on to our next strategy, leverage our full portfolio of offerings to deliver predictable sustainable outcomes.

For over 34 years, we've operated our business around one premise, the best and most satisfying customer experience is always delivered with an optimum return on investment. If a company can solve a problem or sell a product with one personalized interaction, the need for a myriad of complex phone calls, chats, e-mails, text is eliminated.

The equation is simple, when you replace the agony of multiple unfulfilled searches, interminable wait times, and endless IVR loops with the joy of a flawlessly orchestrated seamless interaction, the result is a happier customer and a better bottom line.

Getting to seamless however is not easy, it requires an immersive solution that weave analytics, technology and operations around unique customer needs, it doesn't happen by creating a strategy alone.

It's not achieved by simply putting the latest technology in the cloud, it's not accomplished by creating complicated predictive models or hiring highly motivated and skilled front line employees. Getting to seamless is about synchronizing across every channel, every moment, every touch point, every time.

Our integrated customer experience platform knits the pieces together and helps our clients unify the customer experience across the entire customer engagement value chain.

Today, as clients begin to consume our customer experience capabilities more comprehensively, we're delivering a greater impact in terms of increased revenue, improved profitability and deeper customer loyalty. Let me share some example.

For one of the largest healthcare providers in the United States, our integrated platform has delivered a 37% higher conversion rate then their other outsourcing partners, while handling over 200% more volume during their open enrollment season. And we've been awarded the high scores in quality, customer satisfaction, and net promoter score.

For one of the largest global logistics companies, we're combining advanced analytics with our sales platform to deliver over 30% increase in overall sales associate’s efficiency since winning the business. And an increase in spend of as much as 500% for many of their small medium business customers.

It is not surprising that with every positive outcome we deliver for these clients, their trust in our platform increases as does our share of wallet. These are not isolated examples, we're delivering this type of impact across multiple industries and geographies. My third strategy focuses on refining the use of analytics to drive tangible results.

As I mentioned earlier, our analytics business increased 26% this year. We expect it to continue to grow. We're building partnerships in creating our own proprietary models to bring relevant and actionable analytic insights to our clients across every phase of the customer journey. Here is an example.

In the fourth quarter, we signed a partnership with a leading advanced analytics provider to use predictive algorithms to pinpoint qualified prospects, who are in the market for market and ready to purchase. Our combined solution collects and curates 20,000 data signals from external sources as often as every half hour.

We link this real time insight with the expertise of our sales platform. This solution is a game changer in the B2B marketplace, think about it. We're now able to use digital buying signals to pinpoint and close prospects immediately. In this new relationship, we already have three Fortune 500 clients on the platform with more to come.

Our fourth strategy is aimed at extending our reach and expanding our capabilities through strategic partnerships. In CTS alone, we're working with nine strategic channel partners and these relationships are delivering strong results. We’re in active discussion with additional partners and have plans to add several more in the months to come.

And to extend our footprint and capabilities in the healthcare vertical, in the fourth quarter we announced a partnership with Welltok, a leading wellness software-as-a-service provider. This partnership brings together Welltok’s analytical platform with our omnichannel communications capabilities.

Together, we're delivering wellness programs that improve health outcomes and reduce costs. We now have three significant health insurance providers on this platform and several more opportunities are in the pipeline. I've just taken you through four strategies that will guide our growth in 2017.

In the process I've also given you a glimpse into the complexity of customer experience transformation and irrefutable benefits in terms of increased revenue, profitability, and customer loyalty. Companies across the globe have had an epiphany, experiences matter. Analog or digital, experiences are defining their brands and their future.

Now more than ever companies need a partner to help them delight their customers at every moment of truth. As we move into 2017, we're well positioned to deliver on our commitments to our clients, people, and shareholders.

We're focused on delivering customer success for our clients, providing exciting careers for our people and improving our enterprise value for our shareholders.

With a ready market, stellar client base, portfolio of innovative solutions, experienced leadership team and an exceptional employee base, we have what it takes to grow our topline with predictability and reliability and to accelerate profitably in our cash flow.

We remain committed to maximizing shareholder value through share repurchases, dividends and investments and acquisition.

To that end, our Board of Directors recently declared another increase in the semiannual dividend to $0.22 per share representing an 18.9% year-over-year increase as well as an authorization for an additional 25 million in the share repurchase allowance. These decisions reflect confidence in our business outlook and cash flow generation.

In closing, on behalf of our dedicated and passionate people across the globe and our Board of Directors, thank you for your support and I look forward sharing our exciting progress in the months to come. And now I'll hand it over to Regina..

Regina Paolillo

Thank you, Ken, and good morning everyone. I’ll start with a review of our 2016 financial performance and then provide our current forecast for 2017. Before I discuss the financial results for 2016, I’d like to bring to the forefront a couple of noteworthy items that affected 2016’s performance.

As previously discussed, we had a shortlist of factors that challenged our 2016 revenue growth rate. The continued strengthening of the USD eroded total company revenues of $21 million or 150 basis points versus prior year.

In the last three years, the bolstering of the USD against our largest trading currency has cumulatively negated our topline growth by 112 million and our operating income by 15.3 million.

We had three clients who experienced significant one-time events in their respective businesses resulting in reduced volumes in our CMS and CGS segments with an impact of 55 million or 400 basis points on total company revenue.

Avaya’s financial challenges which have resulted in bankruptcy filing in early 2017 impacted the CTS segment by $11 million or 90 basis points on total company revenue.

And last we experienced a significant gap in our sales execution in the first half of 2016 resulting in a decline of our bookings and requiring us to reevaluate certain sales and marketing investment.

Collectively these events significantly impacted 2016’s topline growth and profitability and have led to series of decisions that we expect will improve our ability to deliver revenue growth with greater predictability and reliability and accelerate our profitability and cash flow.

We narrowed our focused to those market solutions, clients and prospects with the greatest growth potential. We flatten the organization and reduced management layers to improve the level of engagement between our sales and operating teams.

And we further streamlined our cost structure, improving utilization of our facilities, our technology and human capital. The actions we have taken are already having a positive impact on our financial performance.

Our bookings increased to 122 million, our operating income improved 190 basis point to 7.4% in the second half versus 5.5% in the first half, with important contributions from site utilization which increased to 80% in the fourth quarter and SG&A which is down to 30% of revenue in the second half of 2016.

The changes we have made in narrowing our focus have resulted in certain charges to our 2016 P&L including a 36.4 million restructure and impairment charge at 5.3 million loss on assets held for sale. While these charges had significant impact on our GAAP based results, they are one-time primarily non-cash in nature and now behind us.

The 36.4 million restructure and impairment charges were taken primarily in the third quarter of 9.3 million and fourth quarter of 27 million. These charges affected the CMS, CTS and CSS segment. They primarily represent a reduction in tangible, goodwill and fixed assets.

The 5.3 million loss on assets held for sale was taken in the third quarter and related to CGS and CSS. The restructure, impairment and loss on assets held for sale will require to execute the changes supporting our go-forward strategy.

It will allow us to deliver an operating improvement of 32 million on an annualized basis once fully realized and are an important driver to our 2017 operating margins in the range of 8.1% to 8.3%. This represents 16% to 19% operating improvement over 2016. With that context, I’ll summarize the fourth quarter results.

In the fourth quarter, consolidated GAAP revenue increase 0.9% to 344.9 million over the same period last year. Adjusted for constant currency, revenue was 346.4 million, a1.3% increase. The Atelka acquisition contributed 10 million in revenue. From a segment perspective on a constant currency basis, CMS’ revenue grew 9.5% of which 5.3% was organic.

CGS’ revenue declined 8.7% on the rationalization of certain accounts, this is in line with our initiative to focus on those clients, industries and market with the greatest opportunity to grow profitably, while this rationalization will impact CGS’ year-on-year growth rate in the second quarter of 2017, we expect to exit the fourth quarter with a revenue growth run rate at approximately 10%.

CTS’ revenue declined 23% on significantly lower Avaya based revenue. We expected to see CTS’ growth just under 10% on a go forward basis exclusive of Avaya. CSS’ revenue declined 22.1% on significantly lower Middle East revenue. We're in the process of selling CSS Middle East and expect to have the sale completed in 2017.

Excluding the Middle East, we expect CSS to grow just under 10%. Our GAAP operating income of 6.2 million in the fourth quarter or 1.8% of revenue compared to 25.1 million or 7.3% in the prior year period. Fourth quarter operating income was adversely impacted by restructuring charges and impairment totaling 27 million.

Adjusted for these charges on a constant currency basis our operating income was 29.7 million or 8.6%, down 30 basis points from the prior year period, but up sequentially by 250 basis points. This sequential improvement is attributable to higher revenues, improved capacity utilization and realized efficiency from our profit improvement initiative.

From a segment perspective, on a constant currency basis, CMS’ operating income grew 44.4% with 47% organic growth. The improvement relates to increased revenue, higher site capacity utilization and streamline cost structure including SG&A. CGS’ operating income declined 30% based on the current rationalization described earlier.

We expect CGS’ operating margins to show improvement into 2017. CTS’ operating income declined 46.3% on significantly lower Avaya based revenues. We expect to see CTS’ operating margins in 2017 at approximately 10% excluding of Avaya.

CSS’ operating income declined from 23.8% to 5.5% on significantly lower Middle East revenue and investments we have made in executive talents to drive our global practices in regional P&L. We expect CSS’ operating income in 2017 at just under 10% exclusive of the assets being held exited.

Our reported tax provision in the fourth quarter 2016 was abnormally high given the restructuring impairment. Normalized tax rate was 38.6% versus 19.7% in the fourth quarter of 2016. The normalized rate is higher given the geographic mix of our pretax income.

On a full-year basis, the normalized tax rate was 23.3% and we expect the rate to be between 22% and 25% on a go-forward basis. On a GAAP basis, EPS in the fourth quarter was a negative $0.01 versus the positive $0.35 in the prior year.

Non-GAAP EPS normalized to the restructure and impairment charges outlined earlier was $0.42 in the fourth quarter versus $0.47 in the prior year. The higher normalized tax rate in the fourth quarter impacted EPS $0.11 in the quarter and $0.11 on the full year.

Capacity utilization across dedicated and [indiscernible] was 80% in the fourth quarter of 2016 representing a 600 basis point improvement year-over-year and 900 basis point sequentially. We ended the year with 55 million in cash and 230 million in total debt resulting in a net debt position of 175 million.

In 2016, we returned 74.5 million to shareholders through repurchases, paid 18.3 million in dividends, spent 50.8 million in CapEx approximately of which two thirds was growth oriented and invested 65.6 million in acquisitions and other strategic investments. This was partially offset by over 100 million in full year 2016 cash flow from operations.

Fourth quarter 2016 cash flow from operations was 0.7 million compared to 17.6 million in the prior year. The year-over-year decline is primarily related to working capital fluctuations in accounts receivable and payable balances.

DSO was 79 in the fourth quarter of 2016, an increase of three days over the prior year quarter, the higher DSO was primarily related to certain large balanced collections that were delayed into the first week of 2017. Capital expenditures were 12 million in the fourth quarter, down from 17.4 million in the prior year.

Majority of CapEx continues to be growth oriented, with investments in our CMS footprint, CTS cloud infrastructure, CGS digital engagement platforms and other R&D initiative. In the fourth quarter, we repurchased more than 606,000 shares of common stock for total of 17.4 million. We ended the year with 19.9 million of authorized repurchase fund.

Regarding our semiannual dividends, we paid a $0.20 or 9.3 million dividend in October of 2016, an 8% increase over the prior distribution.

As we announced in February 2017, the Board of Directors declared a semiannual dividend of $0.22 representing year-over-year increase of 18.9% which we paid on April 4, 2017 to shareholders of record on March 31, 2017. The board also approved a 25 million increase in our share repurchase program allowance.

In summary, 2016 was a disappointing year financially. As we approached the half year mark, we knew we needed to make changes to our go to market platform and to increase the pace at which we streamlined our cost structure, to accelerate our profitability and cash flow.

We acted with speed and ended the year poised to deliver top line growth more reliably and profit and cash flow at an accelerated rate. The operational changes and related restructuring losses on assets held for sale are behind us.

We're encouraged with the steps we’ve taken and look forward to seeing the results of our decisive actions in the quarters to come. As we transition to a discussion on our 2017 guidance, it’s important to highlight the composition of our guidance, given we now have components of our business that we're exiting.

We have eliminated the revenue and operating margin related to the assets we are exiting from our 2017 outlook and 2016 baseline. We’ll separately provide an outlook for the revenue and operating income related to the assets we are exiting.

The revenue, operating income and operating margin for 2016 adjusted to exclude the assets we are exiting is as follows. Revenue, $1.242 billion; operating income, 94.9 million and operating margins, 7.6%. The 2016 revenue from the assets being exited was 33.1 million with an operating loss of 5.3 million.

We estimate our 2017 guidance, excluding assets being exited as follows. Revenue in the range of 1.315 billion to 1.325 billion, representing a 5.9% to 6.7% growth rate.

Excluding the impact of foreign exchange, our revenue growth rate would be 1.5 percentage points higher or 7.5% to 8.3% growth with approximately 4.4 percentage points coming from organic growth. Operating income margin in the range of 8.1% to 8.3%, representing a 13% to 16% increase in our operating income versus the prior year.

Capital expenditures of approximately 4.2% of revenue and an estimated effective tax rate in the range of 22% to 25%. On a full year basis, the revenue and operating income for the assets we expect to exit are estimated to be 30 million and breakeven respectively.

Using the midpoint of our revenue and operating income margin guidance and adjusting the 2016 baseline for assets we expect to exit, we estimate full year results for each of our segment, excluding assets we are exiting as follows. CMS revenue growth of approximately 6.5% and operating income growth of 16.5%.

CGS revenue to be flat and operating income growth of 18.5%. CTS revenue growth of just under 10% with operating income flat. CSS revenue to grow 9% and operating income to grow at 12%. We expect approximately 48% of our revenue and 40% of our operating income in the first half. We entered 2017 in a very different place than 2016.

We are better positioned for profitable growth. Our go to market platform is restructured and our sales teams are intensely focused on growing our embedded base. Our revenue backlog, going into 2017, is a premium to 2016. Our cost structure is streamlined.

Our operating teams are extremely focused on reliably delivering growth and further accelerating our profitability and cash flow and our Board of Directors remains committed to maximizing shareholder values by utilizing our cash flow and balance sheet to execute actions, dividends and share repurchase. I’ll now turn the call back to Paul..

Paul Miller Head of Investor Relations, Senior Vice President & Treasurer

Thanks, Regina. As we open up the call, we ask that you limit your questions to one or two at a time. Operator, you may now open the lines..

Operator

[Operator Instructions] Our first question comes from Joan Tong of Sidoti and Company. Your line is open..

Joan Tong

Good morning, Ken and Regina and everybody. I just have one question regarding the pipeline. Ken, you actually gave some comments regarding the sales opportunity as well as the number of opportunities in the pipeline.

Can you just give us a little bit more color, I think, more importantly just want to get an idea of the portion of those opportunities actually involve multi business segments, especially in the analytics as well as sales outsourcing the cloud opportunity that you mentioned is highly strategic and in a high growth area, can you give us some color on that? Thank you..

Ken Tuchman Founder, Chairman & Chief Executive Officer

Sure. Thank you. I would say that a significant percentage of our pipeline is involving an integrated solution, typically worth requiring two to three different divisions of ours, providing a singular - holistically singular integrated type of solution.

So typically it’s our technology solutions group working with our consulting organization and then either working directly with CGS or directly with CMS. If I had to guess and I want to stress I'm guessing right now, offline, Regina, can try to get a little bit more refined with this.

I’d say that solidly 45% to 50% of the deals that we're looking at have more than one of our divisions involved and are looking for a more of an integrated and an end to end type of a capability.

And that's why in my script, what we mentioned was that our deals are - the size of the deals that are coming into the pipeline are larger than they've historically been and the complexity of the deals are more complex and we actually welcome the complexity.

We've always prided ourselves on having very complex set of capabilities and we believe that when the offering is complex, it creates a much longer term in a stickier type of relationship, but more importantly, it delivers deeper value to the client..

Joan Tong

Okay.

Do we have to concern about the sales cycle just because all these complexity of the transactions typically would take longer to close and so I assume that you guys factor that into your revenue guidance for 2017?.

Ken Tuchman Founder, Chairman & Chief Executive Officer

Yeah. We definitely did and although I don't have a crystal ball going forward, what I would say is that we look at fourth quarter and how deals closed and we're looking now at first quarter and the speed at which deals are closing, we actually are seeing a compression in the time of getting these deals across the line.

There's a definite sense of urgency on behalf of large corporations to get their act together from a customer experience and a customer engagement standpoint. And I think that we've spent the last 10 years banging the drum on how important experience engagement is and the truth of the matter is we don't have to bang that drum any more.

These companies, at the senior most levels and at their board level, understand that customers are only going to do business with companies that are highly focused on delivering a low friction experience.

So we think that that has a lot to do with why there is companies that are moving at a much faster pace because they're really trying to get their act together in 2017 so that they can compete more so with what I would call the new economy companies that were basically built off of an e-commerce type of a platform..

Regina Paolillo

I would just add a couple of things, Ken. I think if you look at our top let’s say 25 kind of year to date clients across that, it’s year to date bookings. You’re going to see that they’ve got 50% of them are taking and consuming more than one capability. So this isn’t new for us, right.

We’ve got a good pattern here for a couple of years now of being able to execute. The other thing I would just mention because I think you bring up the idea of the sensitivity of the timing to the achievability of the revenue is that last year, we went into the year with about 82% of our revenue for the year that we gave guidance on in backlog.

This year, we have 90% and I’d also say that the net new revenue that we need to produce in here is this year 10% of our revenue versus last year, 18%. So we feel we get out of the gate with a much more achievable task within the year in terms of generating revenue..

Operator

Thank you. The next question comes from Frank Atkins of SunTrust. Your line is open..

Frank Atkins

Thank you for taking my question. I wanted to ask where you stand in terms of the go to market platform adjustment and your sales team.

Do you feel that the majority of the changes are behind you? What are your initiatives for that going into the year?.

Ken Tuchman Founder, Chairman & Chief Executive Officer

I feel to be conservative that we have in fact made the majority of changes and that said, we're not done. We're still adding folks across the country, actually across the globe in various different positions.

It's not slowing us down in any way and we feel very confident that we’ll be able to complete the execution of what we're trying to do in sales and in marketing. I think it's safe to say though that any well-run company, you're never done, you're always trimming the sales, you're always tweaking and you're always refining.

I think that we've really learned a lot over the last few years of what it takes to sell in an integrated fashion. And I think that we feel with the highest of confidence that we've never seen our groups work more closely together in more of an integrated fashion.

We think that we've got our compensation aligned far better, so that everybody is motivated to sell an integrated solution and to work with one another versus it just being a separate stovepipe for lack of a better term. And so we feel real good about it. That said, we can always use a few more sales people here and there.

But what we're doing, we're making up for that while we're recruiting those people by having our senior people cover for where there might be a couple of voids.

We also are very excited about new CMO and head of strategy that is going to be joining us very shortly with some incredible digital background, which is an area that all of our clients have focus on. So we're - we feel quite good about the team and how the team is performing and we think that the adjustments will set us right for 2017..

Frank Atkins

Okay, great. That's helpful. And then I wanted ask about the headcount mix on kind of offshore versus onshore.

I guess, one, can you provide some transparency in terms of the numbers and then two, as you think about the US labor market and potential changes in the wage environment and then also changes in potentially client preferences given kind of the current political environment, where do you stand in terms of, it’s just the right mix of onshore versus offshore delivery?.

Ken Tuchman Founder, Chairman & Chief Executive Officer

I'll start with your last question, while Regina is right now looking at her Fact book so that she can give you an accurate answer on the mix.

What I would say to you is that we are not feeling, at this point in time and I want to stress at this point in time, because this administration, I couldn't tell you what's going to happen five minutes from now, but we are not feeling at this point in time any pressure from any of our clients as it relates to offshore and I believe that's where your question is coming from.

I think this administration is much more focused on the headlines of manufacturing jobs and I think that this administration is understanding the fact that with where unemployment is in this country and the number of available jobs that it would not be very realistic to try to have the service and support sector per se come back on shore.

That said, I don't think anybody knows and I think anybody that says that they do know is guessing as I am. But what I will tell you is we are not, we do not, our clients are not in any way panicking.

They are not making any significant changes other than what I would say clients that in certain sectors where they were working on this prior to us even knowing that the current administration would come into play.

And so there was some financial services clients that we talked about, I don't know, three quarters ago or whatever that made some decisions to repatriate some positions to the United States. Other than that, we are not seeing anything.

Now, what I will say in contrast to that and this is not in any way meant to be construed as a contradiction, we are definitely seeing a significant increase in pent-up demand for onshore based services, but what we're being told whenever we talk to the clients about this, they go out of their way to say this has nothing to do with the administration and they are not transferring any jobs from near shore or offshore.

In most cases, it's because the positions that we're doing are positions that require licensed people, they might be Series 6, Series 7, they might be insurance related and therefore they must be done in the United States. So there's no - it's no secret our US footprint is growing, I would say, fairly rapidly.

And it's somewhat reflected in even our tax forecast somewhat in that our top line revenues are growing in the US.

So I'm sorry that I'm not giving you as probably as definitive of an answer that you want, but again I think that it's unrealistic for any CEO anywhere in the world, other than maybe [indiscernible] herself because I guess she's a CEO to be able to give you a prediction of what this administration is going to do, what they're actually going to get through, what's actually real, what's not real, et cetera.

So I hope I answered that part of your question and I'm sorry that I can't be a bit more accurate with forecasting of it.

On the mix, Regina, do you want to?.

Regina Paolillo

Yes. So I mean we have really three countries where we say we have kind of onshore, Brazil, Canada and the US. And in total, it’s about those three countries collectively around 35% of our headcount. It does vary quarter-to-quarter and the US piece of that would be around 30%..

Ken Tuchman Founder, Chairman & Chief Executive Officer

And know that the business in Canada is for Canada and though that our Philippine business, this is a stat that I don't think others are talking about is that just under 50% is US business. Everything else is countries other than the United States being served out of the Philippines..

Frank Atkins

Okay. Great. That's very helpful. Thank you for the color and I definitely understand the limits as to kind of the current environment forecasting. If I could speak one more quick numbers one and can you talk a little bit more about the $26 million impairment charge and where do we stand in terms of internal controls..

Regina Paolillo

I think the first part of that, what was your question around the impairment charges.

Frank Atkins

Just a little bit more color as to what drove that?.

Regina Paolillo

Yeah.

So as we highlighted, in Q3 and now again in Q4, we have made a decision to exit certain kind of, let’s say, non-strategic underperforming assets and that has led to the reduction in certain types of assets on our balance sheet, intangibles, goodwill and certain fixed assets for just activities that we see a better way to do things in the future.

That’s an important part of our cost structure. In terms of the material weaknesses, we have made good progress, it would be inappropriate for me to go into much detail before which time we have our K published, but we have continued to make progress and we’ll shortly see that update in our K..

Operator

Thank you. The next question comes from Mike Malouf of Craig-Hallum Capital Group. Your line is open..

Mike Malouf

Great. Thanks for taking my question. Good morning.

Can we talk about wage pressure a little bit? Have you experienced wage pressure so far, are you expecting that, are you getting any kind of early indicators of that and then, and if so, maybe you can comment a little bit on where that's coming from and your ability to pass that through to the end customer. Thanks..

Ken Tuchman Founder, Chairman & Chief Executive Officer

We talked about this last night just because we kind of knew this question was going to come up and I think the consensus amongst our leadership team is that we're not really seeing any significant wage pressure. We think that part of that is that we're kind of - where no one in the marketplace is really being the higher end provider.

We believe that our salaries and our pay is on the higher side and is more competitive in the marketplace than maybe some other organizations. We, as you know, we are very focused on a fair price, so that we can make a fair return. And so I think that's probably why we don't feel like there is tremendous, like there's a threat of wage pressure.

On the front line, majority of our deals have [indiscernible] increases. So should the wages shift dramatically, et cetera, we can take advantage and enact and adjust the pricing in that area.

I’d say the only area where we see wage pressure that surprises us is Brazil and the good news about Brazil is, it's a very unique market in that automatically whatever adjusted wages that we have to adjust to, we instantly pass through and update the pricing plan to the client.

And that's not unique to TeleTech, that's unique to the marketplace in Brazil. That's how it operates. And so that's good when you've got currencies that are kind of whacky and so on and so forth, it helps. On the management side, meaning what I'd say more onshore, et cetera, I think we feel pretty good about it.

I think people are really excited about what's going on here, although this isn't related to your question, I would tell you that we have probably never seen a better foray of high quality senior management resumes in the 34 years that I've been running this business, which is interesting because it's contradictory to how low the unemployment is in the marketplace.

And yet, we have management and executives reaching out to us from all over the world, wanting to be involved with us. So we feel, I guess I'm being long winded about this, we feel pretty good about where we are right now.

Now, again, there's so many policies that are being changed and so much going on that could just futuristically, could there be some pressure.

There could be, but I think that clients are beginning to become more understanding as they see healthcare costs going up, et cetera that we've been successful in being able to go back, demonstrate cost increases when they take place and pass them on..

Mike Malouf

Okay. Great. That's really helpful. Appreciate it.

And then just a question, I know that a few years ago, you were pretty good about providing some long term margin targets, and I’m just wondering as we sit here, obviously, we had a tough 2016, but it looks like things are, at least on the visibility side turning around and I'm wondering as you look out over the next few years, if you could just comment a little bit on long term margin targets?.

Ken Tuchman Founder, Chairman & Chief Executive Officer

Regina, I’m going to leave that to you. I'll just get myself in trouble if I put out a long term margin target..

Regina Paolillo

I think that’s a statement - I think that 2016 is a distinct year and we've talked about that. We don't take from that year that our long term view of the selective margin of this company has changed and I think it's going to take us a journey to get there, but we still believe and I think you'll see it, you see it in the guidance.

We still believe that we will be as a company above 10% margins in the mid-term and longer term that with scale, it’s amazing that with the additional volumes due to the utilization of our technology and our CGS business, the utilization of our site capacity, the utilization of our SG&A, the utilization of our corporate overhead.

And so we believe and I'm not saying this at any particular point, but I'm saying over the next couple of hundred million dollars of margin increase, if you look at the 6.4% that we have on a constant currency basis this year, right, and you look at the 8.1% to 8.3% on another $100 million of revenue, with another couple of hundred million dollars beyond that, we see ourselves above 10% and it is kind of low teens with scale..

Mike Malouf

Okay. Great. That’s helpful.

And if I could just squeeze one more question in, on the acquisition of Atelka, can you just remind me what’s the impact in 2017 in the growth?.

Regina Paolillo

Yes. Sure. So it's probably going to be about 60% to 65% of the CMS growth and it's about 4% of the company growth. So it’s about 400 basis points of our growth for the company. So when we say on a constant currency basis, 7.5% to 8.3% growth, Atelka is 400 basis points of that. That's at the company level and on the CMS, it’s about 65% of the growth..

Operator

Thank you for your questions. That is all the time we have today. This concludes the TeleTech fourth quarter and full year 2016 earnings conference call. You may disconnect at this time..

ALL TRANSCRIPTS
2024 Q-3 Q-2 Q-1
2023 Q-4 Q-3 Q-2 Q-1
2022 Q-4 Q-3 Q-2 Q-1
2021 Q-4 Q-3 Q-2 Q-1
2020 Q-4 Q-3 Q-2 Q-1
2019 Q-4 Q-3 Q-2 Q-1
2018 Q-4 Q-3 Q-2 Q-1
2017 Q-4 Q-3 Q-2 Q-1
2016 Q-4 Q-3 Q-2 Q-1
2015 Q-4 Q-3 Q-2 Q-1
2014 Q-4 Q-3 Q-2 Q-1