Sykes Enterprises, Incorporated
Q2 2018 Earnings Call Transcript

Published: 11 Aug 2018

[Operator:]

Good morning, and welcome to the Sykes Enterprises' Incorporated Second Quarter 2018 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation there will be an opportunity to ask questions. [Operator Instructions] Please note that this event is being recorded. Management has asked me to relate 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 and 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 were identified in yesterday's press release and the Company’s Form 10-K and other filings with the SEC from time to time. I would now like to turn the call over to Mr. Chuck Sykes, President and CEO. Please go ahead, sir.

[Chuck Sykes:]

Thank you, Danielle, good morning, everyone, and thank you for joining us today to discuss Sykes Enterprises' second quarter 2018 financial results. Joining me on the call today are John Chapman, our Chief Financial Officer; and Subhaash Kumar, our Head of Investor Relations. Before delving into the quarter on behalf of all the board members and our colleagues worldwide. I want to take a moment to pay tribute to Lieutenant General Michael DeLong, our current member of our Board of Directors, who passed away on July 27th. We were all simply stunned and saddened by the sudden passing of such a valuable colleague. General DeLong had been on Sykes’ Board since 2003. He was a man of tremendous accomplishments and experience. He was a decorated soldier who served this country with great dedication and distinction. He brought that same dedication to the board and representing the interests of our shareholders; his knowledge of world affairs and his counsel on international relations for companies such as ours was truly invaluable. He was a colleague, a mentor and friend for all and he will be missed dearly. Our deepest condolences to the DeLong family. We are keeping you in our thoughts and prayers. Now, turning to our second quarter results. I will make some general comments about the progress we are making in rationalizing excess capacity, then John will take you through the numbers and then we will turn the call over to Q&A. Overall I’m pleased with the pace of execution of our capacity rationalization plan. In fact, we are tracking ahead of plan, as we have discussed over the last several quarters our challenge in getting our consolidated operating margins in the 8% to 10% range has been twofold. One is excess capacity and the other is recruitment and retention challenges against a very tight labor backdrop in the United States. These two issues are in many ways interrelated, yet also suffered. So on the capacity front of the roughly 4,500 hundred seats targeted for rationalization in 2018 approximately 2,215 were eliminated in the second quarter and the bulk of the remaining seats are targeted for the third quarter with some residuals towards year end. I cannot stress enough the dependencies in managing the various moving parts as we go through this process, everything from coming up with a strategic blueprint to getting the client buy-in to aiding our employees with the transition into managing all the collateral impacts has had to be synchronized in ways to deliver optimal results with the least amount of disruption. I’m very pleased with a high level of execution as we are well on our way towards getting the heavy lifting behind us and this should come into even sharper focus when we deliver our fourth-quarter operating results which should result in roughly 100 basis points of improvement in our operating margin compared to prior year levels. Just as we deliver on the capacity rationalization, we are also executing our plan to improve our recruitment and retention outcomes in the United States. As we have discussed before in detail this operational drag is also costing us more than 100 basis points in terms of operating margins. Therefore, we are tweaking and in some cases even overhauling almost every aspect of our human capital management strategy in the U.S. and I'm pleased to report the leading indicators around fill rates, absenteeism rates and attrition rates are encouraging. Part of the improvement is coming from shifting client programs to geographies that are better aligned in terms of workforce availability, prevailing wage levels and lower operating costs. We are also using technology to empower leadership at the local level to improve agent speed to competency and support as well as launching pilots that dramatically enhances the way we do agent onboarding and finally we are getting some clients aligned with the new wage and price levels in the marketplace. At this point, we are still in the early innings in addressing recruitment and retention challenges through the strategies discussed. We remain cautiously optimistic given the action plan set in motion. In fact, we believe we see a path back to the 8% to 10% long-term margins as we exit 2018. And before I turn the call over to John, I would like to talk about the demand backdrop since we are revising our business outlook. Outside of the weakness in the communications vertical and some extension in the sales and implementation cycles, we are seeing demand opportunities across all vertical mix or our vertical mix with growth rates in the double-digits for most. We are logging wins across retail banking, gaming, tech support, corporate travel support as well as healthcare where we are winning opportunities with various players within the healthcare echo system, including medical device manufacturers, healthcare payers and pharmaceutical companies. In fact the healthcare vertical was up 17% on a comparable basis in the quarter, accelerating dramatically from 3% in the first quarter; as we mentioned in our last quarterly call, we have also won opportunities in the property and casualty insurance vertical which have the potential to be sizable. In addition, we are leveraging are Clearlink and XSELL platforms to expand our presence among new economy players, which is yielding solid results. And finally, even communications the vertical which has seen a meaningful drop off in demand over the last four quarters is starting to reopen in terms of possibilities. In fact, we recently won a new multi shore delivery opportunity across multiple lines of business with one of the largest carriers in the industry. All told, while current market dynamics are hampering near-term outlook the actions we are taking coupled with our differentiated market facing capabilities offer significant scope for growth over the long-term. With that I would like to hand the call over to John Chapman, John.

[John Chapman:]

Thank you, Chuck and good morning, everyone. On today's call I will focus my comments on the second quarter results, particularly key P&L cash flow and balance sheet highlights after which I will turn to the outlook for third quarter and full-year 2018. Let’s start with the revenue in the quarter we reported revenues of $396.8 million, versus our second quarter guidance of between $400 million and $405 million; of the 5.7 million delta between what we reported and the midpoint of our second quarter guidance, $3.7 million was foreign exchange fluctuations and the remaining $2 million was the weakness in the communications vertical. Looking at revenues on a year-over-year comparable basis we were up 5.7% on a reported basis and up 3.7% on a constant currency basis. By vertical market on a constant currency basis financial services was up around 26%. The other vertical which includes retail was up 21% healthcare up 17% technology up 7% and transportation and leisure up 6%, more than offsetting the impact of the communications verticals which was down roughly 21%. Second quarter 2018 operating margins decreased to 1.6% from 3% in the comparable period last year. Comparable results from both quarters include impairment and severance charges as well as deal and integration costs of 9.8 million and 4.5 million respectively. On a non-GAAP basis second quarter 2018 operating margins, which includes the add back of amortization intangibles as well as the improvement in charges and costs was 5.2% versus 5.8% in the same period last year. The year-over-year margin decrease was due to inefficiencies around recruitment and retention primarily in the U.S. The cost of cutting underutilized capacity, and the short-term inefficiencies created by the capacity rationalization initiatives. Second quarter 2018 diluted earnings per share were $0.17 versus $0.21 in the same period last year. Earnings per share were skewed by higher interest expense and dollar well as a negative income tax rate because of discrete items in second quarter of 2018 versus the same period last year. On a non-GAAP basis second quarter 2018 diluted earnings per share were $0.42 versus $0.37 in the same period last year with the delta due to our lower effective tax rate related to the settlement of tax audits and the tax benefit from the reduction of the federal corporate tax rate. Second quarter 2018 diluted earnings per share were $0.09 higher relative to the midpoint of the Company’s May 2018 business outlook range of $0.31 to $0.34 driven by $0.02 from operations which is offset by $0.02 of higher interest other expense with remaining $0.09 from a lower effective tax rate. Turning to our client mix for a moment, we continue to have only one 10% client, our largest client AT&T which represents latest contracts including the demand generation business from Cleveland, rest of them is roughly 10.3% of revenues in second quarter of 2018 versus 14.8% in the year ago period driven by a combination of lower demand, operational inefficiencies and shift into national. Our second largest client which is in the financial service vertical represented almost 7.5% of revenues in the second quarter of 2018 versus 6.6% from a year ago period due to higher demand. On a consolidated basis, our top 10 clients represented approximately 46% of total revenues during the second quarter, from 49% from the year ago period due solely to significant decline in our largest client. Now I would like to turn to some select cash flow and balance sheet items, during the quarter capital expenditures were down by more than a third to 3.3% of revenues from 5% of revenues in year ago period. Trade DSOs on a consolidated basis for the second quarter were 74 days unchanged comparably, the DSO was split 72 days for the Americas and 84 days for EMEA; our balance sheet adapted to June remain strong with cash and cash equivalents of $162.4 million of which approximately 87.9% or 142.7 million was held in international operations, the majority of which will not be subject to additional taxes if repatriated to the United States. At 30th of June 2018, we had 90 million in borrowings outstanding with 350 million available under our 440 million credit facility. We continue to hedge some of our foreign exchange exposure for the third quarter and full-year of 2018 we are hedged approximately 87% and 82% at weighted average rates of PHP 51.84 and PHP 51.80 to the U.S. dollar, respectively. In addition, our Costa Rica colón exposure for the third quarter and full-year are hedged approximately 81% and 76% at weighted average rates of roughly CRC 589.23 and CRC 584.89 to U.S. dollar, respectively. Now let's review some seat counts and capacity utilization metrics. On a consolidated basis, we ended the second quarter with approximately 51,200 seats, down 200 seats comparably. The Company rationalized roughly 2,250 in North America on a year-over-year basis; however that was partly offset by seat positions worldwide. The second quarter seat count can be further broken down to 43,900 in the Americas region and 7,300 in EMEA region. Capacity utilization rates at the end of the second quarter of 2018 were 68% for the Americas and 77% for the EMEA region versus 71% for the Americas and 80% for the EMEA in the year ago quarter. The decrease in the Americas utilization was driven by operational inefficiencies, capacity additions in certain geographies to address demand opportunities and also in part by the short-term inefficiencies created by the progress and implementing initiatives through rationalized underutilized capacity. The capacity utilization rate on a combined basis was 70% versus 72% in the prior year ago period with a decline due to the previously stated factors. Now I would like to turn to the business outlook. We are downwardly revising our full-year 2018 revenue outlook by approximately 50 million relative to the one provided in May 2018. Roughly half or 25 million revision is related to our combination of weaknesses in the communications vertical approximately 10 million with 15 million related to decision by the Company to truly wind out our specific program because of this long-term viability in the markets with operator. Another roughly 50 million revision related to foreign exchange volatility with the remaining 10 million net of the revenue contribution from WhistleOut, related to a slight extension in sales cycle as well as ramp with new clients of the program. The benefit of the product is rationalization initiatives are expected to start flowing through in the fourth quarter 2018, which should yield significant improvement in year-over-year operating margins relative to the fourth quarter of 2017. Additionally, based on the rapid pace of progress reported thus far, the Company expects to rationalize a few hundred additional seats, bringing the total gross number of seats rationalized in 2018 posted upper end of its 10% target discussed in May. In the first quarter of 2018 we close the acquisition of WhistleOut. Australia headquartered of WhistleOut is a consumer comparison platform focused on mobile, broadband and pay TV services principally across Australia and the U.S., the acquisition broadens Clearlink's digital marketing capabilities geographically and extends its home services product portfolio. The second half business segment includes roughly US$7 million of revenue contribution from the acquisition of WhistleOut with the impact a few years 2018 diluted and per share expected to be mildly accretive on a non-GAAP basis although diluted on a GAAP basis. Our third quarter 2018 business outlook anticipates a pre-tax charge of approximately 8.1 million or $0.15 on an after-tax basis related to capacity rationalization. The pre-tax charge is expected to be mostly in cash. Through year outlook also reflects a pre-tax charge of approximately 22.3 million or $0.40 on an after-tax basis, split roughly evenly between non-cash and cash. Revenues and earnings per share assumptions for the first quarter and full-year are based on foreign exchange rates as of July 2018. Therefore, the continued volatility in foreign exchange rates in the U.S. dollar in the functional currencies of the markets we serve which further impacts positive or negative on revenues on both GAAP and non GAAP earnings per share relative to the outlook for the first quarter and full-year. We anticipate total other interest income expense, net of approximately 1 million for the third quarter and 4.6 million for the full-year. We have mentioned the other interest income expense however exclude the potential impact of any future foreign exchange gains and losses. And we expect further reduction in full-year 2018 effective tax rate compared to what was provided in May. Largely due to discrete benefits in the second quarter 2018. Considering above factors, we anticipate the following financial results for the three months ending September 30. Revenues in the range of $402 million to $407 million. Effective tax rate of approximately 14% on a non-GAAP basis and effective tax rate of approximately 19%, fully diluted share count of approximately 42.2 million, diluted earnings per share of approximately four $0.33 to $0.36. Non GAAP diluted earnings per share in the range of $0.55 to $0.58 and capital expenditures in the range of $12 million $15 million. For the 12 months ended 31 December 2018, we anticipate the following financial results. Revenues in the range of 1.63 billion to 1.64 million effective tax rate of approximately 12% on a non-GAAP basis and effective tax rate of 17%, fully diluted share count of approximately 42.2 million diluted earnings per share approximately $1.30 to $1.37, non-GAAP diluted earnings per share in the range of $2.04 to $2.11; and capital expenditures in the range of $45 million to $50 million. With that, I would like to hand over to the operator and open for questions.

[Operator:]

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Bill Warmington of Wells Fargo. Please go ahead.

[William Warmington:]

So I wanted to ask about that discontinued program. How big was the client, which vertical was it and where did the work go did it go to the a competitor?

[Chuck Sykes:]

Yes. So the client belongs in the financial services area Bill, and it is one of our larger relationships that we have, but in the past when we have been talking about some of the challenges with the size of our particular operations that we built in some of the U.S. labor markets we have got to make some firm decisions to get things done. So in this instance, the pricing that we needed to support this particular labor market and just keep in mind I mean the unemployment rate in this particular market is like 2.4%. It is really-really difficult and candidly the client it just wasn’t acceptable for the level pricing that we need which we understand, so we made the decision that we would just prefer long-term. We just can't run the Company with these types of operations performed like they are. So it hasn’t harmed the relationship, so this isn’t a situation where we are reporting some in the life program, our performance was bad or the relationship is going south. This is more about us just having a realistic conversation about what's going on with the U.S. labor market. The client in order to respond to our decision, what they ended up doing was they distributed the risk a little bit, they took some of the work into their own internal operations and then they did move some to some of our competitors staying within the U.S. that they felt for the pricing that they could afford that the labor market was a little better. You look at the option, we certainly tried to find locations that we had as alternatives, but as we are rationalizing our operations, we are wanting to strive to pick the labor markets that we think, given our current pricing level some things that the market will absorb, we just didn’t have a good alternative for them and that is what led to this outcome.

[William Warmington:]

Okay. Now on the sales cycle extension, what verticals is that happening in, why is it happening?

[Chuck Sykes:]

Well, I don’t want to make too much over that, I know it's in my comments in the words I have with it, but the part of that is we as a Company right now, we are really putting a lot of effort into engaging with the market earlier in the sales cycle for a number of reasons. One just statistically if you just talk to anybody in the world itself that is made a living and if you were earlier in the cycle you have a higher probability of - a higher win rate universes later in the cyclic like an RFP goes up at your desk right. But what is so important besides that, is that today many of the opportunities that we are seeing in the marketplace there is a big overarching theme where companies are really wanting help to digitally transformed their customer experience. That is making it a little more complicated and that I think it's probably contributing to some of the delay in a little bit of longer sales cycle and the other element is that some of the people we are engaging with now in the market are first time outsourcers and many of them are first time outsourcers where it's going to impact their employees. That typically make things a little more complicated to as clients are trying to work with there on timing. So those are the things that really or affecting, I mean short-term, it sounds negative and yes it is impacting us where like rationalization but long-term this is good, I mean this is way we ought to be engaging with the market.

[William Warmington:]

And then last question for me on the telecom space. It sounds like you have got the right portfolio there, meaning you have the legacy call center infrastructure, you have got Clearlink, you have got an at home offering. What can you do in telecom maybe how are you differentiated, is there hope for the States.

[Chuck Sykes:]

Yes. Well first of all let me go to your last comment, there is absolutely hope for the space and all of the commentary that we are adding around that vertical. I really do not want you guys to be taken that as messaging that we want to deemphasize the communications vertical. I will tell you what we do as a Company want to be smarter, I think it's probably the right word in how we balance our growth portfolio. One could say that perhaps lesson learned over the years is that we got a bit over index in the communications vertical. So as that vertical along with candidly, I think every company that exist today certainly once our over 10 years old having to think about how to digitally transformed our operating model. And we are witnessing that in a significant way, in a very visible way and what is happening in the news today in the communications vertical, we are seeing the investments companies are making so [indiscernible] be even to make a big change to the models that is causing their contact rates today for some of the lines of business that we serve. They are reducing and that is taken volume out throughout the network. That sounds negative, but it’s not going go forever. We certainly don't believe the answer is, contact rates are going to zero, they are just going - they are level setting to a new normal. And I think collectively the supply chain is feeling that right now in communications. However to go to your second question about do we have the right solution, the answers is we believe we do and we do in several ways. One is if the communications vertical really needs a domestic solution, the one thing that that we are going to be very disciplined about is it has to be a pricing levels that supports the new wage levels, and that is been our trouble. You know in the U.S. we built a lot of these sights three years ago, we price it at a wage that was at three and for our sector are wages, they are not going up 2.4%. They are going up 15% to 20% it is material and it goes beyond the ability for some of our clients to afford. So communications, if clients can afford that then they need to let us either to our home agent model or probably more importantly, I think you are going to see a bigger increased focus on off shoring. The off shoring market is still where we operate the labor gross supply is still strong and we can certainly still get them competitive pricing. So we are just going to need to be a little more disciplined and firm and the way that we want to put solutions in place for that vertical. The last comment I will make is that they all wanting the assistance and helping them grow and this is the beauty and the big part of our strategic rational which you guys know is Clearlink. Clearlink brings to us that marketing sales component of the commerce value chain that we think is so important to our strategic future. And today, we can now engage with that vertical and any vertical in all candor, with talking about how we can help grow their business while also delivering a better experience and reducing cost. So those are the things now that are beginning to change our dialogue with them and so we are seeing some new wins that we have got actually in communications and I think that value proposition was a big part of it.

[William Warmington:]

Well thank you very much.

[Chuck Sykes:]

Okay. Thank you Will.

[Operator:]

The question comes from Vince Colicchio of Barrington Research. Please go ahead.

[Vince Colicchio:]

So Chuck curious about what capacity utilization do you expect to exit the year at?

[Chuck Sykes:]

Yes, we are looking at John you have got some of the numbers here…

[John Chapman:]

Yes. Vince, if you look at the U.S. let's go like this the U.S. really talking about as we stand today as we exit Q2, but in the low 60s which is clearly a factor that we have got capacity we are taking out of that still enough seat count to not to exit in the facilities. But we will get to the year-end in the low 70s, so we are still targeting, 85 is our target, but Q4 guidance assumes that we are going to be I think it's about 74% or 75% by the year-end.

[Vince Colicchio:]

Okay. And then Chuck that do you get to an ongoing sales growth target of 46% let say, do you think you are targeting right clients, you said you are getting traction in some other areas. Do you need to be touching down more of those other areas to reach and going on that growth target like that?

[Chuck Sykes:]

Yes. Vin I would tell John to share with you on that, but I mean that is the big part of our strategic focus and we are seeing traction down. John.

[John Chapman:]

Yes I think you can't really underestimate the impact of Telco highly on the business and so I mean if you look at the numbers that looks like okay 3.7 not that great, but actually really [indiscernible] out the telecom and even if you then adjust for the fact that we know that we can abort the assets of a Telco provider last year at this time. And so even if you take out the noise from that, excluding Telco we have 13% year-over-year growth, so we do believe and clearly on those numbers that the message is getting out there and we are winning a decent share of the market and actually way ahead of where we hope to be in terms of 4% to 6%. Then clearly at MTD telecom edge dragging it down, but we do think by the time we get to Q4 we will start to see that impact on a year-over-year basis start to win and we should start to see the benefit of some of these great new wins that we have got in the other verticals time to really push through and impacting the top number.

[Vince Colicchio:]

And Chuck could you comment on how about the Convergys deal impacts your positioning and then also are you interested in that deal and would you do a transformational deal?

[Chuck Sykes:]

Yes Vince, for us when we look at that program we don't see the transaction as being something that we think gives us concern from a market positioning standpoint. I think we can understand the logic with concentric you know wanting to do the transaction, but you know everybody when they are look at these programs. I mean we are primarily looking at deals that are very much more about the strategic value versus financial value just purely financial synergy play. But to that end to answer your question. Yes, we did engage in sitting down the program. I mean look Convergys is a very well-known Company, it’s a very good Company and on to me. It was such a unique opportunity. It would have been silly to not go sit down at the table, because again you don't know what you don't know, but I will tell you for us the rationale was more a matter of think it would have been a big financial synergy play. Certainly it was not lost on us on the transformational impact that it would have had on us which can be exciting, but it also is a risk. So because of that we were going to be very disciplined and had to be a term that we just thought it was worth taking that risk and would deliver the financial value to our shareholders. It wasn't necessarily something that we felt from a long-term strategic value play made a big impact and because of that we were where we were within our valuation ranges and things. So anyway, every company dependent on the size and what they are trying to go, we believe we are large enough in this industry to compete, we believe we have a good presence in different markets in different countries for delivery platforms and everything, but others I think still need to continue to make improvements to the platform and so I think in this case is probably what concentric are within the opportunity is they have certainly been making some big moves here in the last couple of years. I don’t know John any other comments you would add to that.

[John Chapman:]

No. I mean in effect fact we have got two strong competitors that are going to become one, so for us any kind of transformational deal to get done is an opportunity. Will the culture mix, they have got to find very significant financial synergy, what pressure that is up here on their business. So and we don't worry that they have got capability that we can't compete with. We think it's an opportunity that instead of two good comparison we have got one and that one will be in a in some element of change for the next two, three years as they complete the acquisition.

[Vince Colicchio:]

We are seeing a broader BPO companies team up with context center companies, is that something you would consider.

[Chuck Sykes:]

Well we are obviously with the move we do with Clearlink, we are certainly venturing a little outside of just being involved in the BPO customer support side of the house, but everything that we are doing Vince, we wanted to be fairly easily identifiable or connect to the customer experience versus being kind of pure play back-office operations. That’s probably I think for us the one caveat. So yes, we are wanting to diversify and enhance what we referred to as kind of our performance stock if you will, but we do want it still to be very closely connected to the customer experience.

[John Chapman:]

Yes I mean, Vince, I guess you are probably pointing to the large back-office transaction between TP and Telenext. What we would say is back-office is not really a focus for point at this point. As Chuck said, we are interested in deals that can add its capability around our core and complement and add to our Clearlink business. We invested in XSELL and realized the go to market strength that gives us in the AI field where we see technology through RPA, AI, chatbots, callbots was an important part in the solution and using these tools both improve our employee efficiency on the effectiveness. So we see technology - not replacement of agents, but we see these tools will augment support the work as we continue to support our clients in both the sales and the service side of the house.

[Vince Colicchio:]

Makes sense. Thanks guys.

[Chuck Sykes:]

Thanks Vince.

[Operator:]

The next question comes from Dave Koning of Baird. Please go ahead.

[David Koning:]

I guess the first of all the margin comment you said some of the rationalization should help margins by 100 basis points or more, is that kind of what you are expecting them for 2019 is for margins to go up in the ballpark from a 100 basis points?

[John Chapman:]

Yes. I mean we are not guiding David first of all. But if you extrapolate what we have said in terms of the Q4 impact to the capacity rationalization then you are absolutely right. We still have work to go as I think Chuck in his prepared remarks spoke about all the initiatives to try and improve the U.S. model further. So we have done heavy lifting in terms of capacity rationalization and we will continue to work through the overall gross margin as we get programs in here I hope that at different prices, we win new deals at the new price points, we should start see that feeding through, but overall if you look at Q4 and you extrapolate that, then you are absolutely right, that is what you would do.

[David Koning:]

Yes, okay. And then so the client asset that you acquired about a year-ago, I think it's about 5% of your total revenue and I don't think that was like a real overly strategic buyer big growth driver, but is that growing or is that part of the telecom decline and how should we think about that now that its entering its anniversary, so it’s part of organic growth now?

[John Chapman:]

Yes. And none of the revenues in the asset were Telco.

[David Koning:]

Okay. Is that actually a growing asset right now?

[John Chapman:]

Yes. I mean part of the strategy of buying it and buying the assets, we like the client portfolio and so we leverage that across U.S., on shore and offshore, so we are very comfortable with the deal and it’s been successful.

[David Koning:]

Oh great. Okay, good. And then I guess my last question just with the tax rate being lowered for this year, I can't remember if there is some discrete benefits this year that pushed to 17%. Should we expect that is not kind of a normalized long-term, it’s low 20s it’s still more than normalized rate overtime?

[John Chapman:]

Yes. If you take out the total impact of discreet this year, they are pretty close to 21% and we have said that we expect the rate on a go forward basis to be low 20%. I’m not saying it’s going to be 21% when we eventually get guide for 2019, but that is a normal rate you would look at in 2018 is the 21%. So you are somewhere between 21% and mid 20% exactly where it falls out depends on a lot of factors especially the mix of elements that we eventually guide with in 2019.

[David Koning:]

Got, you. Great, well thank you.

[Chuck Sykes:]

Thanks.

[Operator:]

The next question comes from Frank Atkins of SunTrust; please go ahead.

[Frank Atkins:]

Thanks for taking my questions. I want to ask first on WhistleOut. Can you talk a little bit about the type of work they are doing there, growth rate margins and how that fits into the strategic plan over the long-term.

[John Chapman:]

Okay. Let me just kind take you through that Clearlink business. Clearlink is kind of split into three components Frank. Performance marketing, consumer products and digital marketing agency work. The revenues from those three are roughly 17, 20, 10. Performance market and the biggest ramp we have given branded rights and we find these customers for those brands and we only get paid. We do all the market and we only get paid if we find new customers. The digital marketing agency piece is a smallest piece and still we run the design and digital marketing strategies are brand sometimes actually the digital agency a record. And the last piece is a consumer products, consumer products clear personalized with the PM. Consumer product is where we use websites multiple properties to help consumers find products and services they are looking at buy. In the case of what is alive this is in the mobile, broadband and payTV markets in both Australia an U.S, so within Clearlink, we have managed that sites that provide relevant content to try and help consumers find many different products to many different services across the home services health and insurance verticals and we are paid by either converting out sale for the client or providing that lead to the client who then monetizes it. So it is a really nice margin business and its got great capability and great value to our clients. In terms of growth and as you can imagine based in the multiple we are paying and personal like is growing significant double-digit and in terms of operating margin, even if you look at the Clearlink its part of the Clearlink portfolio its operating margins are slightly ahead of the double-digit that the Clearlink generate. So hopefully that kind of gives you an understanding of components within Clearlink and the reason we have done personal like transaction is a way to further enhance the growth and what we think is really exciting consumer part of that business.

[Frank Atkins:]

Okay, great. That was very helpful, thank you. Wanted to ask about the financial services vertical, I believe up 26%. What was driving that and what impact do you think the program wind down will have in the back half as we think about some of those drivers.

[John Chapman:]

Yes, I mean we saw financial services growth quarter-over-quarter for the last four or five quarter, we had real strength but clearly Frank you are absolutely right. We call that is being a major reduction in revenues on a go forward basis, 50 million over the two quarters increased $30 million, I have not done the marking terms what will affect the overall growth rate. But it will be a headwind for us on a go forward basis until next year to this time and we are still very comfortable with the financial services, we have added a lot nice brand, disappointing hard to exit. As Chuck pointed out, it was for the benefit of both the client on site and we did it in a way to ensure that the relationship did not get damaged [indiscernible] going to give us a headwind for actually a year on to start next year in terms of financial services vertical.

[Frank Atkins:]

Okay and last one for me, can you talk about revenue growth opportunities outside the U.S., if I look at Europe, Middle East, and Africa it looks like the growth there was pretty solid and can you tell us if the program wind down is in the Americas or EMEA segment.

[John Chapman:]

I will answer that second part right Chuck. Frank, the program wind down in all U.S. all Americas.

[Chuck Sykes:]

Yes. And in terms of Europe some of the things that we are really excited about now within Europe, but first of all Europe has a really tight labor market and we are deploying now the home agent model throughout Europe and we are seeing now a market that is much more receptive to that delivery platform, because again you can't speak to a company today. I think that is not been talking about labor challenges. So we like that, we think that this gives to our differentiation. The other thing that we really excited about within the European marketplaces is that we have already landed some new customers that leverage our Clearlink capabilities. So again that is difficult I think to explain in our short earnings call that we have, but again, a big part of our go forward strategy for us is expanding our presence in serving clients again across what we call the commerce value chain. The marketing, sales and service side and being able to engage with our clients about helping them grow their business is really different for us. As an outsourcer, we historically always have been on the cost side of the equation and the efficiency plan which is again still very important in its still a big reason people outsource, but they really do want more. And they are really trying to connect the dots from a customer experience standpoint across that commerce value chain and we are going to continue making strategic investments that will just improve our ability to do that. But we are excited about the way Europe - our team there has been able to embrace these new investments and rather quickly get them delivered in the marketplace, but we still have a lot of work to do there. I mean just the way we show up, the way we present our capabilities, but we are excited about that and it's a new verticals too for us. We are seeing some nice opportunities in financial services in Europe, and particularly when you get in the Fintech kind of what we refer to as the new economy players and we want to deliver this message across the board all the vertical that we are in.

[Frank Atkins:]

Okay. Great. Thank you very much.

[Chuck Sykes:]

Yes. Thanks Frank.

[John Chapman:]

Thanks Frank.

[Operator:]

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

[Chuck Sykes:]

Thank you, Daniel. And just as always just want to thank everybody for their time today and wish everybody has the good week and we look forward to catching up with you next quarter. Everybody have a good day. Thank you.

[Operator:]

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