Sykes Enterprises, Incorporated
Q2 2019 Earnings Call Transcript

Published: 2 Aug 2019

[Operator:]

Good morning and welcome to the Second Quarter 2019 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]Management has asked me to relay to you that certain statements made during the course of this call, as they relate to the company's future business and financial performance, are forward-looking. Such statements contain information that are based on the beliefs of management as well as assumptions made by information currently available to management. Phrases such as our goal, we anticipate, we expect, and similar expressions, as they relate to the company, are intended to identify forward-looking statements. It is important to note that the company's actual results could differ materially from those projected in such forward-looking statements.Factors that could cause actual results to differ materially from those in the forward-looking statements are identified in yesterday's press release and the company's Form 10-K and other filings with the SEC from time to time. Please note this event is being recorded.I would now like to turn the call over to Mr. Chuck Sykes, President and Chief Executive Officer. Please go ahead, sir.

[Chuck Sykes:]

Thank you, Ian, and good morning, everyone, and thank you for joining us today to discuss Sykes Enterprises' second quarter 2019 financial results. Joining me on the call today are John Chapman, our Chief Financial Officer; and Subhaash Kumar, our Head of Investor Relations.I'll make brief remarks about the quarter on today's call and then talk about our sales opportunities. And after that, John, will take you through the numbers, then we'll turn back the call for Q&A.From an operations standpoint, we continue to make solid progress. Thanks to a range of actions that actually began back in late 2017, encompassing capacity rationalization, price increases and program reassuring, our operating margins came in better than expected, both relative to the year prior and our projections. In the quarter, we delivered 14% non-GAAP operating income growth on roughly flat non-GAAP revenues. Gross margins expanded at their fastest pace on a comparable basis since the second quarter of 2015.Just as there has been direct benefits from the rationalization actions, there has also been indirect benefits. Among them is the greater simplification and refinement of our operations and sales model, the benefits of which I will discuss shortly. Also in the quarter, we sustained our strong balance sheet with a net cash position. This has enabled us to not only reinvest in our business, it has also allowed us to return cash back to our shareholders and take advantage of the valuation dislocation that emerged after the release of our first quarter 2019 results.We repurchased 771,000 shares of our common stock for $20.2 million, which was more than 3 times the amount of our free cash flow in the quarter. In addition, we purchased another 229,000 shares after quarter end with 3.7 million shares remaining under our share repurchase program.So let me now address the revenue side of the picture. As I mentioned earlier, the operational simplification from capacity rationalization is also driving closer alignment in our sales model. This is fostering deeper integration among our full life cycle offerings around digital transformation, engagement services and digital marketing. The results are extremely encouraging as our differentiation is starting to resonate strongly with clients, who are looking for help with the current and future state of their business transformation.Relative to our first quarter comments about the strong state of our sales funnel, we are even more positive about our sales trajectory. We have closed incremental new business wins totaling more than 1,000 seats. For the most part these wins are not reflected in our current business outlook, as the ramp around them begins in the fourth quarter. Some of these wins have been with new clients, while others have been new programs or significant program expansions with existing clients. These wins span several verticals including transportation, communications, financial services and health care. Some are purely new outsourcing opportunities, while others result from share gain.For instance, we recently won some business in the health care insurance vertical with a top-tier provider, which opens up a whole new segment of the market to us. We leveraged our operational excellence in engagement services, combined with digital transformation around robotic process automation to give us the edge to win the business. This client has multiple lines of business across multiple delivery channels spanning several thousand seats. We will begin that program with the dental line of business with potential for significant growth.Another recent significant win is in the space of digital travel and hospitality for the B2B marketplace. We recently won this opportunity from a competitor due to our strong performance for this client. This is a several hundred seat win that will start ramping in the latter part of the fourth quarter. Also in the communications vertical, we announced last year that we had won a significant consumer wireless program. We have now won an additional several hundred seat program on a different line of business, focused on the digital and cloud segments of that business. These are just some of the incremental wins we have been awarded in the last couple of months.We are currently working other opportunities in the funnel. These opportunities are sizable with some approaching a few thousand seats. We have already been down selected for several giving us confidence that we are likely to win more than our fair share.So in closing, we feel good about our sales momentum as we move through the year. We believe our differentiated value proposition is really resonating with clients. Our suite of full life cycle offerings around digital marketing, customer engagement services and digital transformation are translating into competitive advantage. And the proof of that is in the recent pace and scope of client and program wins.Now, near term, our underlying revenue advancement is being held back, specifically the revenue impact from our revised 2019 outlook, looks pronounced largely due to a timing mismatch between the immediate cut-off of revenues from the exit of a client relationship and the complete backfill of those revenues with ramps that are typically gradual in progression.So, while we are reducing our revenue and diluted earnings per share outlook, we believe the short-term impact is worth the benefit in freeing up valuable capacity and diversifying the client mix.Ultimately, through a margin outperformance in the quarter coupled with a markedly improved sales funnel, we believe the actions we're taking position us well to deliver on our long-term revenue growth targets of at least 4% to 6% with an operating margin range in the 8% to 10%.And with that, I'd like to hand the call over to John Chapman. John?

[John Chapman:]

Let me turn to quarterly financial results, particularly key P&L cash flow and balance sheet highlights, after which I'll turn to the outlook for the third quarter and full year. Let's start with revenues.In the quarter, we reported revenues of $389 million versus our second quarter outlook of $393 million to $398 million. This was $7 million below the midpoint of our business outlook. Of that $7 million, roughly $5 million was due to weakness in the communications vertical with the remainder a function of foreign exchange fluctuations.If we look at revenues on a year-over-year comparable basis, we were down 2% on a reported basis, but flat on a constant currency basis. By vertical markets and on a constant currency basis, transportation and leisure was up around 22%; health care up around 15%; technology up 10%; and financial services was essentially flat, all of which were partially offset by the communications vertical down 14.4% and other vertical down 2%.In the other vertical, although retail grew nicely with a couple of programs in the education and energy space that were down, it is also worth noting that excluding the drag from the previously disclosed strategic decision to discontinue a program, financial services vertical would have swung to roughly 7% growth on a constant currency basis.Second quarter 2019 operating margin increased to 3.9% from 1.6% from the comparable period last year. On a non-GAAP basis, second quarter 2019 operating margin was 6% versus 5.2% in the same period last year. The increase in the comparable operating margins was due primarily to the actions related to capacity rationalization.However, the year-over-year increase in operating margin was somewhat moderated by the pace of ramps of the previously mentioned new program wins. These are geared towards offsetting the impact of the roll-off of certain client programs with suboptimal margins.Second quarter 2019 diluted earnings per share were $0.27 versus $0.17 in the same period last year, with the increase due principally to the success around actions related to capacity rationalization and strong broad-based operational performance.On a non-GAAP, basis second quarter 2019 diluted earnings per share were $0.41 versus $0.42 on a comparable basis. The decrease in the diluted earnings per share on a comparable basis was due to a lower effective tax rate in prior year's quarter.Applying the second quarter 2019 tax rate of 20.3% to the year ago period, would have translated into roughly $0.06 favorable delta for 2019 diluted earnings per share. Relative to the midpoint of the second quarter's business outlook range of 12% provided in May 2019 the $0.11 per diluted share outperformance was split between $0.09 from operations and $0.02 from a lower than forecasted tax rate.Coming to our client mix for a moment, on a consolidated basis our top 10 clients represented approximately 43% of total revenues during the second quarter, down from 46% from the year ago period, due principally to a decline in our largest client. We had no 10% clients in the quarter versus one at 10.3% the year ago period driven mostly by lower demand by the client in the communications vertical.Now let's turn to slide, cash flow and balance sheet items. During the quarter, capital expenditures were down to 2.7% of revenues from 3.3% in the year ago period. The reduction in capital intensity is largely timing-related coupled with a focus on driving utilization of existing capacity and assets.Trade DSOs on a consolidated basis for the second quarter were 75 days, up one day comparable and down one day sequentially. The DSOs were split 75 days Americas and 82 days for EMEA. We collected roughly seven days worth of DSO just a few days after quarter end.Our balance sheet at 30th of June 2019 remains strong with cash and cash equivalents of $136.6 million, of which approximately 89% or $121.6 million was held in international operations.During the quarter, we repurchased approximately 771,000 shares at an average price of roughly $26 for a total of $20.2 million. Subsequent to the quarter end, we purchased an additional 229,000 shares, an average price of $27.23 for $6.2 million.We have roughly 3.7 million shares remaining under amended 10 million share repurchase authorized in August 2011 and amended in March 2016. At June 30th, 2019, we had $92 million in borrowing outstanding, down $1 million sequentially under our $500 million credit agreement.We continue to hedge some of our foreign exchange exposure. For the third quarter and second half of 2019, we are hedged approximately 34% and 32% of the weighted average rate of PHP 54.29 and PHP 53.97 to the U.S. dollar respectively.In addition our Costa Rica colón exposure for the third quarter and second half are hedged approximately 51% at an average weighted rate of CRC596.48 and CRC599.86 to the U.S. dollar.Now, I'd like to turn to some seat count. On a consolidated basis, we ended second quarter with approximately 47,400 seats down approximately 3,800 seats comparably. Roughly 80% of the comparable reduction was related to capacity rationalization actions in North America. The second quarter seat count could be broken down to 39,700 in Americas and 7,700 in EMEA.Capacity utilization rates at the end of the second quarter for 2019 were 70% for the Americas and 74% for EMEA versus 68% for the Americas and 77% for EMEA in the year ago quarter. The increase in the Americas utilization was driven mostly by the capacity rationalization program while the reduction in EMEA was due to an expansion and utilization of our at-home platform as a complement to our brick-and-mortar facilities. The capacity utilization rate on a combined basis is 71% versus 70% in the prior year ago period with the increase mainly due to a combination of previously stated factors.Now, let's turn to the business outlook. Broadly speaking our sales funnel is markedly stronger than the levels in the second quarter. A large part of the strength is from significantly higher win rates with new clients due to the traction of the company's differentiated value proposition coupled with higher demand on existing and new lines of business with these wins span the financial services, communications, technology, as well as transportation, and leisure vertical.However, we are reducing our full year revenue and diluted earnings per share outlook by approximately $35 million and $0.04 respectively relative to the midpoint in the prior outlook guidance. Of the $35 million of revenue reduction, $5 million is related to foreign exchange volatility. Close to 80% of the remaining $30 million in reduced revenue outlook is concentrated within the communications vertical, the bulk of which is related to the rapid ramp down of a communications client, whose recent contract renewal did not align with our forecast targeted margins with the residual related to discontinued demand softness from our largest communications client.The other 20% of the net $30 million is related to longer than expected ramps because of wins with clients who are new adopters to outsourcing and whose programs have a higher level of complexity and speed to competency.Accordingly, the underlying strength in our sales funnel and revenue growth opportunity is being masked in the short-term by the timing mismatch between ramp downs that have immediate revenue impact and ramp ups that have a more graduated lead-time.Our revenues earnings per share assumptions for the third quarter and full year reflect foreign exchange rates as of July 2019. Therefore the continued volatility in the foreign exchange rates between the U.S. dollar and the functional currencies of the markets we serve could have a further impact positive or negative on both revenues and both GAAP and non-GAAP earnings per share relative to the business outlook for the third quarter and full year.We anticipate total other interest income expense net of approximately $1.2 million for the third quarter and $4.3 million for the full year. The amounts here do not include any potential foreign exchange gains and losses.Our full year 2019 effective tax rate is expected to be slightly lower than previously forecasted, predominantly due to an increase in the discrete tax benefits reflected in Q2. Considering the above factors, we anticipate the following financial results for the three months ended 30th September 2019; revenues in the range of $400 million to $405 million; an effective tax rate both GAAP and non-GAAP of 24%; fully diluted share count of 41.1 million; diluted earnings per share of approximately $0.35 to $0.38; non-GAAP diluted earnings per share of $0.45 to $0.48; and capital expenditures in the range of $13 million to $16 million.For the 12 months ending 31st December, we anticipate the following financial results; revenues in the range of $1.624 billion to $1.634 billion; an effective tax rate of 24% both GAAP and non-GAAP; fully diluted share count of approximately 41.6 million; diluted earnings per share of approximately $1.53 to $1.60; non-GAAP diluted earnings per share in the range of $2.07 to $2.14; and capital expenditures in the range of $45 million to $50 million.With that, I'd like to open the call up for questions. Operator?

[Operator:]

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Josh Vogel of Sidoti & Company. Josh, please proceed.

[Josh Vogel:]

Thank you. Good morning, guys. Chuck you sound great. It's good to hear your voice again.

[Chuck Sykes:]

Josh, it is so good to be able to talk to you guys. Yeah. Thank you. I appreciate that. Been quite a journey.

[Josh Vogel:]

Yes. I'm sure. Well, glad you're on the upswing there. I have a couple of questions for you guys. I guess, the first one is you've been in business so long time and it's great to see you're winning new clients that are new adopters to outsourcing and I understand there could be higher levels of complexity to these programs. But I'm curious if you can give a little more detail around your dialogue with these clients. What is changed today versus your initial discussions with them, which led to your original expectations for accelerated ramp schedules? Is it more on your end or on theirs?

[Chuck Sykes:]

Well, I would say that the changes on the ramp program, so a lot of it has to do with -- some of them are moving work from their internal operations. And when you're dealing with complexity around people reductions inside of a company and things sometimes they've needed to kind of push out the start date, while they deal with those HR issues and that's been some of that, Josh.The other is just really when we got down to it, we're either a new supplier to them or they are new to outsourcing. And as they started looking at the ramp schedules and things they came to the decision that they wanted to maybe seed a group with about 50 to 100 people, let's get things run and optimize and then let's scale it. So it's been if you will a little bit of maybe caution or conservatism on their side just because of us being a new supplier or them being new to outsourcing.And then the other is just when you get down to it, some of the programs they're requiring particularly in insurance licensing. And when you're trying to recruit and you're looking at your pass rates and the ability to hire people those training programs take about 2.5 months. And so we just encountered a couple areas there where as we looked at the ramps, we just needed to slow it down a little bit. But it doesn't change the trajectory of those things. It is just the kind of the pace within that. I don't know John if there's anything more to -- those are kind of the big -- probably big broad-brush things Josh.

[Josh Vogel:]

Okay. Thank you for the insights there. When we look at your guidance for Q3 maybe pushing it out a bit, can you discuss how much visibility you have say three months to six months out? Because based on your guidance, it implies about 5% annual growth in Q4. I guess what gives you confidence that you can hit that target? And maybe could you share how much you expect to be coming from new versus existing customers or new versus existing programs? And also is there any -- I guess when we look at it if you could breakdown between new client wins versus existing program expansions and even pricing increases, that would be helpful?

[John Chapman:]

Yeah. We don't really have any pricing increases build into our Q3 versus Q4 numbers. In terms of visibility, in terms of like business that we've got like on the books today named clients known programs as 9A, I mean, I don't look at the number, but we're not looking around and seeing Q4 and the increase that's obviously built into Q4 that we need to win a whole lot of new relationships to make that happen that's not the case.And the business is, we see it, it's visible, it's based on client forecast. It's not based on us winning any new programs to now and end the year of any significance. We -- Chuck did talk about how we've got some major new programs that will probably ramp at the very end of Q4 and that's not included in numbers, because we don't think it will be material to this year. There the programs, I guess, there are still to be won, but that really doesn't impact the 2019 guidance.

[Josh Vogel:]

Okay. In the past you've stated your targets like longer-term are 4% to 6% revenue growth. I guess, with the differentiation you have and the strengthening sales funnel, is it possible you can get to 7% or 8% revenue growth? And how do you think you could get there?

[Chuck Sykes:]

Yeah. I mean, Josh if you look at it, I mean, the numbers John today if you take out what's happening with telco, the company would have been growing that.

[John Chapman:]

Yeah. I mean, yeah, it's interesting, because you're right. I mean, if we kind of exclude the telco headwinds, but if you look at 2017 versus 2018 where really we were 1% organic constant currency, if you take out telco that jumps to 10%. So we have been demonstrating the ability to grow at those rates. But again, I think long term we still feel that 4% to 6% is what we are looking at although we do -- organically, if you look back, if we hadn't had that telco headwind we would have been significantly above that in the last 18 months.

[Chuck Sykes:]

Yes. So Josh I mean I think it's just -- in the interscene, I know it's hard for you guys on the outside looking in at the numbers and you don't see all the details and stuff that we've got with it. But yeah that underlying growth is looking good and the thing for us.To answer your question the key word being could absolutely this business can grow with that pace. We just set the baseline, set the way that we measure success and we're always disappointed in ourselves when we're not running the company on a net basis, growing 4% to 6%. That bakes in the ebbs and flows to what happens always across your portfolio of clients and those types of things.But the thing that -- when you look at our underlying growth, yeah I mean it is encouraging. And I think the other thing for me that is particularly encouraging and it's something that as a company, our collective leadership team is really striving to be much more disciplined at is expanding our growth avenues to not really just be contained to finance technology and communications.The other growth that we've had in the other verticals have always been somewhat opportunistic, and we're really now making a concerted effort to grow more balanced across numerous areas of industries.And on top of that, look I mean we love growth with clients obviously. But ideally we would love to just keep our client concentration toward no one client really over 10%. On any given quarter sometimes that can be difficult to achieve. But just as a company, if you can keep that portfolio mix, you really give yourself more opportunities for growth.And at the same time you stabilize the business that you're not susceptible to really what's happened to us in the telco sector. So the differentiation combined with just the way we're changing our portfolio and the sources of revenue and our client concentration those are all really good things that could possibly allow us to outperform our own expectations.

[Josh Vogel:]

Great. I appreciate all the color. Thank you.

[Chuck Sykes:]

Yeah. Thanks Josh.

[Operator:]

Our next question comes from Vincent Colicchio of Barrington. Vincent, please proceed.

[Vincent Colicchio:]

Yeah. So Chuck we've been through periods before recently where you thought you were looking at a better growth outlook down the road. And as you know there's some investors sitting on the sidelines, just questioning your growth prospects. I just -- what would you tell people? You probably answered it already, but if you could add anything to, what you would tell an investor in terms of why this time is different in terms of better results ahead?

[Chuck Sykes:]

Yeah. Vince it's a fair question, and I think the thing for me as I reflect on it is that the growth before that we had was pretty concentrated in the telco and financial services, which again in and of itself isn't bad. But what made it particularly difficult for us is that if you recall like going back to 2015 we were building multiple centers in the United States and it was for purpose to your point.So we were declaring, hey we're building all this capacity and it is for a purpose. But what began to -- in 2016, it was like Houston, we've got a problem because we suddenly saw what was happening in the U.S. labor market and we just couldn't get the darn places staffed. And unfortunately we have priced it at a point where the wages were at a certain level and we were just -- we were wrong. And the market changed quickly and they were with our largest relationships and they were counting on us and it was a difficult situation. You can't just do an about face and tell people you made a mistake and they're counting on you to get it done. So we worked really hard to combat that but that's really the issue.The growth we're talking about today and again I know you all just have to listen to us anecdotally on these things, but it's more broad-based, it's coming across different verticals, it's coming across both traditional accounts and we're starting to be smarter about going after new economy companies, which short-term doesn't move the needle a whole lot in revenue because they're smaller but it's really playing a short-term, mid-term, long-term game if you will.And honestly for me, the thing that I really like is that some of the traditional wins that we have recently that we're talking about here these are with companies that have entrenched competition.In fact in our business with the exception of new economy players, we -- pretty much wherever you show up, you've already got competitors that are there and they're good. We don't have a bunch of people we compete against that are bad operators. So I mean well if there are -- Subhaash is laughing at me as I'm saying this so, but the truth is they are not.But as you look at that, you have to show up different and top of mind today is all about digital transformation. And so we now have with the three significant wins that we've got from traditional players in different -- all in different verticals, the one thing about it that really has given me affirmation is that they are selecting us over our capability. So we're not showing up this is a 40-year old call center company.In their words they're really looking at us more in a context of digital BPO. So again it's early in the game. We've made these investments. Symphony was a real nice piece of the puzzle that we needed in our capability that's only been nine months. And I think the market affirmation that we're getting both verbally and through their actions of awarding this business is certainly giving us confidence. So we think, okay, we think we're on to something.So anyway I just had to give you that much color plus with my voice work and I'm probably talking a little longer. But anyway that's what I would say about that Vince.

[Vincent Colicchio:]

And you're going after -- you're more broad-based in terms of your sales effort in terms of what you're going after. Give us a sense of how low or high the penetration rates are in some of these other verticals like health care for example?

[Chuck Sykes:]

Yes. So if you look at our mix, I mean the one thing as we sit back and look at the business, I mean just in the simple -- kind of in a simple barometer to see how we're doing, we really would like our business to be a little closer to the way the market is currently distributed just where people work in our industry. And again, we really want to be so much more disciplined in managing that client concentration. So, in that regard, we are underindexed in health care right now.As I think most of you guys know, most of our health care has kind of been out of our Canadian operation and a lot of it has actually been more on the product side versus on the insurance payer side. And now with our digital marketing capabilities and with our RPA capabilities, we can really show up with a different offering there and we believe we're going to be able to start breaking into that insurance payer start of the house. And the recent win is a nice start for that.On the communications side, look, we're sitting down in the low 20s right now, okay. I mean that's -- we don't want to get back up into the 40s like we were, but that probably should be a little higher than that from just an indexing. But the other thing too is that we want to make sure, we're delivering and supporting these industries in the right delivery geographies. Communications domestically is pretty tough as we learned and that's been a lot of our story. So, the work that we're looking at now and the future is primarily outside the U.S. and we feel good about that, so financial services is hanging in there.I think we're at -- we're in the low 30s there and I think that's indicative of what the market concentration is. So, we feel like we've got good representation there and we still have new logos to go after in the area. Probably, the bigger thing and this isn't really visible to you guys because, it's easier at top of the verticals, but within every vertical you have think of the traditional big players and you have the new economy players, today and when you look at our business, our new economy companies, it probably represents about 17% of the total company and we love to see that more towards 30%. So, we're making a concerted effort there as well. Anyway, just giving you that type of color, I hope that helps but talking to you.

[Vincent Colicchio:]

Yes, thanks for all that color. It was helpful. That’s it from me. Thanks.

[Chuck Sykes:]

All right. Thank you.

[Operator:]

[Operator Instructions] Our next question comes from Dave Koning of Baird. Dave, please proceed.

[Dave Koning:]

Yes, hey guys. Thank you and welcome back, Chuck.

[Chuck Sykes:]

Hey Dave, I appreciate. Thanks.

[Dave Koning:]

Yes, that’s great. So, I guess first of all just a numbers question. What was the contribution from Symphony and WhistleOut in the quarter?

[John Chapman:]

Symphony was about 40 basis points of margin benefit. WhistleOut is more difficult because it's integrated into Clearlink. In terms of revenue, it was about 2.9% overall in terms of the revenue for the two pieces. But we did call out Symphony in terms of -- it was about 40 basis points. If you look EMEA overall year-over-year, half of the improvement was EMEA and half of it was Symphony. And we did call out because it's part of the European EMEA footprint, it did have a disproportionate impact. WhistleOut would be less than Symphony's impact on Americas obviously because it's very small.

[Dave Koning:]

Got you. Okay. That's helpful. And then, I guess when I think of kind of the implied Q4 because you gave Q3 guidance and full year, so you're kind of back into Q4. The sequential revenue growth is something like 7% at the midpoint and then the margins in Q4 have to be pretty close to 10%. So I mean that's a lot to ask for from Q4, maybe what gives you the confidence that that all kind of happens?

[John Chapman:]

Yes. Remember, we've also got and we spoke about the work we've been doing on the medical side as part of Clearlink and the digital marketing. We do have -- we are probably more seasonal now than what we were in the past David. So there's about one-third of the growth between Q3 and Q4 is related to those let's call it seasonal programs and two-thirds of it is real growth that you'd continue to see throughout 2020. We just see as we're growing these accounts, so utilization is going to be getting up towards 7%, 8% by the end of the year; in fact offshore it may well be in the low 80s.And so it's really that impact that we've said is what to watch out for. And when that happens, we should be in the 8% to 10% range. So, we've obviously got a benefit in Q4 for that seasonal piece of business, but the rest of the benefit is really through the utilization that sees cut fund come through and impacting Q4. I mean, we don't see as a stretch based on the known programs and the margin targets we've got and what we expect to achieve. We don't feel that we're stretching too far in Q4 that's for sure.

[Dave Koning:]

Okay. And then just the last final question kind of as we think about the sustainability, it seems like you've kind of said, hey the first half of this year there's been some margin pressures that are probably a little unnormal and I think you said before the tax rate is actually pretty normal in that 24% tax rate like there's nothing too one-off in that. Just as we kind of think about the future I just want to make sure there's – we kind of understand what happened this year? And how normal or unnormal it is?

[John Chapman:]

Yeah. We know we've been -- we've had some ramps, but we've obviously had a significant client that went away quickly. And so that has impacted us in Q3 in that – through having the seats – more seats available. But that was the only decision that we had to make. And we didn't want to keep a client that was going to take seats up mainly domestic seats up and not deliver to the bottom line. But in terms of one-offs, I would say there's clearly ramp costs and the tax rate will stay around the mid-24%, 25% number it's not anything that you shouldn't use for 2020 as we look at it today. But really it's about the occupancy it's about the seats that we utilize. I mean, we give you guys that number because if we ever get to the point where we are in the 6% to 7% margin range and we are operating above 80% utilization that tells you the business there's something changed.That's not the case here. We're operating at just over 70%. We've – you guys see for our revenue per agent and if you do the simple math in terms of okay these guys have got the capacity, let's do normal gross margins adding even a better G&A, you'll see where we can get to as a business quite quickly. Obviously Q4 is a best quarter but actually driven by the seasonal impact of those programs. But again, I mean, we feel really confident in our 8% to 10% range. As Chuck mentioned, we've got a lot of tailwinds going into the next year with new relationships. So yes, we're feeling good about the guidance both for this year and obviously in a couple of quarters, we'll be giving guidance for 2020.

[Dave Koning:]

Sounds great. well, thanks guys, appreciate it.

[Chuck Sykes:]

Thanks, David.

[Operator:]

This now concludes our question-and-answer session. I would now like to turn the conference back over to Chuck Sykes for any closing remarks.

[Chuck Sykes:]

All right, no closing remarks. Just thank you as always for your interest and participation here today. And everybody have a good day. Thank you.

[Operator:]

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.