Sykes Enterprises, Incorporated
Q2 2017 Earnings Call Transcript

Published: 8 Aug 2017

[Operator:]

Good day, and welcome to the Sykes Enterprises Second Quarter 2017 Earnings Conference Call and Webcast. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions [Operator Instruction] 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. Please note this event is being recorded. I'd like to turn the conference over to Mr. Chuck Sykes, President and Chief Executive Officer. Please go ahead, sir.

[Chuck Sykes:]

Thank you, Francesca. And good morning everyone and thank you for joining us today to discuss Sykes Enterprises second quarter 2017 financial results. Joining me on the call today are John Chapman, our Chief Financial Officer; and Subhaash Kumar, our Head of Investor Relations. On today's call, I will touch on the quarter and make some general comments about the business landscape, after which, I will turn the call over to John, and then we'll open it up for Q&A. First here is a quick summary of some of the main points from our second quarter results. We delivered another quarter of revenue growth, this marks 17 consecutive quarters of organic revenue growth. EMEA led the way with strong demand in the technology and communications verticals with America seen strength in technology, financial services and travel. Underlying non-GAAP operating margins were inline considering ongoing staffing channel just we have spotlighted. And finally, we sustained our strong balance sheet which enables us to reinvest in our platform organically, inorganically and through partners across a number of strategic areas including artificial intelligence. We view these investments is critical for both permutable defense and good offense in sustaining our differentiation in driving competitive advantage in a marketplace that is not immune to the forces of disruption. Now I'd like to make some general comments about the business landscape. Let me start with the demand side. The demand backdrop on balance remains positive, although demand will always vary by vertical client and line of business, both reporting segments are seeing pockets of strength. Within EMEA we are winning opportunities in the credit card FinTech, travel and internet of things space across both new and existing clients, whereas in the Americas region the demand backdrop is still in the growth mode for the financial services, technology and travel verticals. With new clients and program wins in banking NewTech and corporate travel business. Communications however has been a little tepid and with respect to our 2017 business outlook, the softness in the communications vertical is with the couple of clients including one that is impacting our outlook disproportionately. This particular communications client, which now ranks as one of our top five clients by revenue, as gone through significant integration challenges related to an acquisition, which impacted its network and led to an initial surge in demand. In fact just in second quarter of 2017 this client grew 25% for us on a comparable basis versus last year and over the last four quarters, they have been growing at an average rate of 6% sequentially. Having stabilized our network ahead of plan, they have revised their demand forecast prompting us to adjust our outlook accordingly. Outside of this, we continue to see pipeline of opportunities that are in our sandbox given us incremental confidence in the broader demand environment. And now I'd like to update you on the supply picture. Since our last call, there have been pockets of progress in recruitment and retention strategies in the United States. But in totality, we still have ways to go before we see normalization. I highlight the U.S. in this discussion, because that is where the bulk of the labor market challenges reside. The recent results have been uneven is two-fold. First all labor markets by the very nature are local, that is each geographic market in the U.S. where we have site at its own commercial dynamics in terms of access to labor demographics, labor competition, unemployment levels and weighed structures. Second, each industry line of business and delivery channel have their own unique labor attributes. As such momentum varies by site, although we have stories of success in certain geos and certain sites which gives us confidence, we are working to right levers, we will continue to refine and adjust elements of our work content, our work environment, compensation and our leadership. We remain highly focused and confident that we will find the optimal trade off to drive the revenue growth and operating margin enhancements this platform is capable of generating and sustaining. In closing, and although we have had to revise our outlook, we continue to see end win opportunities in the marketplace. We believe we are in an industry that still offers good growth prospects. To be sure our industry is ongoing changes and the clients and the constituents they target themselves are being tested on multiple fronts, the force is a competition, disruption, innovation and consolidation driven in part by changing consumer taste and habits and shifting channel preferences along with broader secular and macro trends is altering the state of play. Against this backdrop, we continue to see opportunities emerging from a broad spectrum of new and existing clients in industries, albeit evolving along new pathways. This evolution is a trend toward convergence, between marketing sales and service, with clients seeking out outsourcers that have full lifecycle capabilities. This is especially true as these clients narrow the number of providers they use. We believe that the interplay these trends plays to our strength. Thanks to our highly differentiated business platform which integrates capabilities from Clearlink, Alpine and Qelp. We can't deploy a comprehensive suite of customer lifecycle management offerings that advances our clients brand while providing operational flexibility. That suite includes everything from digital marketing and demand generation to customer service, where their live agent or self service. Other way to retention and soft collections built on a foundation that leverages data analytics demand expertise and our comprehensive delivery model. And we are building on this foundation through our invests and innovation both organically and inorganically as underscored with the strategic acquisition of Clearlink. So while we are disappointed in our short-term business outlook, our long-term conviction full revenue growth and operating margin remains unchanged. And with that, I'd like to hand the call over to John Chapman. John?

[John Chapman:]

Thank you, Chuck. And good morning everyone. On today's call, I'll focus my comments on the second quarter results particularly key P&L and cash flow and balance sheet highlights, after which I'll turn to the business outlook for third and full year 2017. From a revenue perspective we came in at $375.4 million for the second quarter of 2017. Second quarter revenues included approximately $6.4 million of contribution or a month worth from the acquisition of the customer engagement assets in the second quarter. On a year-over-year comparable basis, revenues were up 3% on a reported basis yet up 5% on a constant currency basis. By vertical market on a constant currency basis the other vertical which includes retail was up 18%, financial services was up around 15%, technology up 13% and transportation and leisure up 2%, more than offsetting the healthcare and communication verticals which were down 24% and 3% respectively. Second quarter 2017 operating margin decreased to 3% from 3.7% from the comparable period last year. Second quarter 2017 operating margin reflects the in part of a $4.2 million impairment charge or 1.1% of revenues related to the capacity rationalization in the U.S. On a non-GAAP basis, second quarter 2017 operating margin was 5.8% versus 6.1% in the same period last year with a decrease due partly to the sub-optimized revenues from the acquired customer engagement assets and previously discussed operational inefficiencies around recruitment and retention. Second quarter 2017 diluted earnings per share were $0.21 versus $0.22 in the comparable quarter last year. On a non-GAAP basis second quarter 2017 diluted earnings per share were $0.37 versus $0.36 in the same period last year, with a delta due to a lower tax rate which was partially offset by higher interest and other expense on sub-optimized revenues from the acquired customer engagement assets. Second quarter 2017 diluted earnings per share were higher relative to the company's May 2017 business outlook range of $0.30 to $0.33 with $0.05 outperformance relative to the midpoint of the range as follows. Roughly $0.04 contribution due to lower tax rate, $0.01 headwind from the acquired customer engagement asset and the $0.02 contribution resulted from overall operations. Turning to our client mix; we continue to [indiscernible] plus client, our largest client AT&T would represent various contracts including the demand generation business from Clearlink represented 14.8% of revenues in the second quarter of 2017 versus 16.4% in the year ago period. Our second largest client which is in the financial services vertical represented 6.6% of revenues in the second quarter of 2017 virtually unchanged from the year ago period. On a consolidated basis, our top 10 clients represented approximately 49% of total revenue during the second quarter of 2017, down 1 percentage point from the year ago period due largely to the decline and the revenues from our largest client. Now let me turn to cash flow and balance sheet items, net cash provided by operating activities in the second quarter is $34.3 million versus $39.3 million with the change due mostly to working capital swing factors. During the quarter, capital expenses were $18.8 million or 5% of revenue unchanged from the year ago period. Our balance sheet at 30 June remains strong cash and cash equivalents of $301.5 million of which approximately 91.2% or 274.8 million withheld in international operations. At quarter end, we had 267 million borrowings outstanding with $173 million available under our $440 million credit facility. We continue to have some of our foreign exchange exposure for the third quarter and full year were hedged approximately 43% and 45% at a weighted average rate of 49.35 and 48.73 Filipino peso to the U.S. dollar respectively. In addition, our Costa Rico colon exposure for the third quarter and full year hedged approximately 57% and 49% and weighted average rate of 559.32 and 557.56 colon U.S. dollar. Receivables were at $332.5 million, trade DSOs, on a consolidated basis for the second quarter were 74 days, up one day sequentially down one day comparably. The DSO was split between 72 days for the Americas and 85 days for EMEA. Depreciation and amortization totaled $90 million for the second quarter. Now I'd like to review some seat count and capacity utilization metrics. On a consolidated basis, we ended second quarter with approximately 51,400 seats up roughly 5700 seats comparably and up 3900 seats sequentially, included in the second quarter seat count are 2900 seats associated with the acquisition of the Customer Engagement Asset of a Global 2000 telecom service provider. Year-over-year comparable seats increased even excluding the acquisition reflecting capacity additions for higher projected demand. The second quarter seat count can be further broken down to 44,400 in the Americas and 7,000 in the EMEA region. Capacity utilization rates at the end of the second quarter of 2017 was 71% from the Americas and 80% for the EMEA region, roughly 77% for Americas and 79% for EMEA in the year ago quarter. The decrease in the Americas utilization was driven by capacity additions related to the aforementioned acquisition with a seasonally lower utilization rate as well as capacity additions going to higher project demanded under weighted operational and efficiency. The capacity utilization rate on a combined basis was 72% versus 78% in the prior year ago period with a decline mainly due to previously stated factors. Now let's turn to the business outlook. We are revising our full year 2017 revenue and diluted earnings per share outlook downward relative to the one provided on May 8, 2017, roughly half of the revision in revenues and diluted earnings is demand related with the remainder being operational and efficiency which are attributable to the U.S. Although the pipeline of opportunities remain largely healthy across West Coast such as financial services, technology and travel, we have experienced an unforeseen reductions and demand forecast from a growing communications client which is now seeing demand softness and is one of the key factors in the demand related revision in the business outlook. Meanwhile, we continue to monitor tactical and strategic levers to address the operational inefficiencies on recruitment under tension in order to mitigate the drive on our business outlook. Separately, as a result of the previously mentioned demand rate as of July 2017, therefore, continued volatility in the foreign exchange rate between the U.S. dollar and the functional currencies of the market we serve due to further impact positive or negative on revenues in 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 expense were approximately $1.7 million for the third quarter and $5 million for the full year. The amounts in the other interest income expense, however, excludes potential impact of any foreign exchange gains or losses. We expect a reduction in the full year effective tax rate relative to outlook provided on the 8 May, with a decline due to shift in geographic mix of earnings to lower tax rate jurisdictions coupled with a tax benefit arising from the second quarter settlement of a Canadian revenue authority audit. Considering the above factors, we anticipate the following financial results for the three months ending 30 September, 2017. Revenues in the range of $397 million to 402 million, effective tax rate of approximately 14%; on a non-GAAP basis and effective tax rate of 21%; fully diluted share count of approximately 42 million; diluted earnings per share of approximately $0.33 to $0.36; non-GAAP diluted earnings per share in the range of $0.42 to $0.45 and capital expenditures in the range of $15 million to $18 million. For the 12 months ending December 31, 2017, we anticipate the following financial results; revenues in the range of $1.56 billion to $1.57 billion ; effective tax rate of approximately 22% on a non-GAAP basis, an effective tax rate of approximately 26%; fully diluted share count of approximately 42.1 million; diluted earnings per share of approximately $1.35 to $1.41; non-GAAP diluted earnings per share in the range of $1.77 to $1.83; and capital expenditures in the range of $55 million to $65 million. With that, I would like to hand back to the operator to open the call for questions.

[Operator:]

We will now being the question-and-answer session. [Operator Instructions] Thanks. First question comes from Bill Warmington of Wells Fargo. Please go ahead sir.

[Unidentified Analyst:]

[indiscernible] on for Bill Warmington. How are you guys doing?

[Chuck Sykes:]

Good.

[Unidentified Analyst:]

I had a question, the reduction in demand forecast from the growing communications client that seems very sudden, is there any chance that bounces back in the coming months?

[Chuck Sykes:]

There is two aspects of it. The one in regards to the volume reduction, it is sudden and that has clearly caught us off-guard, I mean, just keep in mind, we built a lot of that capacity in U.S. over the last year and a half in meeting this demand, it was all built for purpose. So, and then, just 25% growth that we had just here in the recent quarter. So, we don't really see right now that that would not be coming back, because what we think is happening there, is there that region kind of the new normal from the standpoint of what their steady state demand is. I think it was clear to us now that it was a bit fuzzy, if you will in terms of what the real volume level is looking like. And that's just because of the level of integration challenges and things that they are having caused the big spike. Now, in regards to the other half of the revenue which is coming under the communication challenges related to labor that is recoverable and we are working very diligently just to get our solutions in place to see how we are going to address this U.S. labor market challenge that we are having. We have not seen anything like this. It's fair to say that I can ever recall in the company. So, that one is going to be a little interesting as we are very engaged with our clients. I do think in fairness, if I just reflect on it, certainly not a new conversation that we have been having. But, I do think collectively maybe there is a little bit of a state of denial that this is actually happening in the U.S. But, I think we are all seeing that it's reality and particularly in the communications vertical. It's a very real problem. And it isn't unique to Sykes, we had our clients as I personally engage with them, they have personally acknowledged their struggling internally themselves and are struggling across their supplier network. So, the only good news in that, if you want to look at the silver lining is that, that to me is going to create more receptivity from our clients in the sense of accepting the solutions that we can offer to address this. I mean, we are not sitting here completely helpless; the question is just whether or not, we can convince our clients to embrace of what we have to offer to get things resolved. So, I'm going to place a lot of hope and faith in that, they will -- because again, I think we are coming to the realization that the U.S. labor market particularly for the demographics that we hired is very, very tight.

[Unidentified Analyst:]

Got you. Okay. And then, I guess along those lines, the 600 basis were up in utilization in Americas year-over-year. Is there a timeline for when this excess capacity can be rationalized or worked through?

[Chuck Sykes:]

What we want to do there is, I mean, always hate when I'm not able to answer your questions with specifics in that regard, but what I really need to do in giving you specific timeline, we just need to engage in the conversations that we are having with all of our customers and let's see what the plan of action is before I feel like, I can just give you the concrete timelines of when these execution, how long it's going to take. Once we get decisions from our clients, we will be able to give you concrete timelines. But, right now, those are number of options that we are speaking with them about and we are just going to need to get their clarification as far as which way they want to go. But, one thing about it, look I mean -- it may not be concrete, but the one thing about it is, I mean, it is solvable. I mean it's not that we are sitting here without something that can't be solved. The only thing that makes it uncomfortable is just trying to answer your question that you just asked, the win.

[John Chapman:]

Where we got completely empty facility, it is easy to do. But, we don't have that. We've got facilities that are across the board that are impacted by just demand softness. So, it takes time to work through those things with the clients. [We're already] [ph] and some reason we are telling you is, we have been struggling with recruitment, so the clients want those heads left in those sites. So, we need to work through that in the medium term with those clients between now and the end of the year.

[Unidentified Analyst:]

Okay. Got you. Thanks for the color guys.

[Chuck Sykes:]

Great. Thanks.

[Operator:]

Next question comes from Vincent Colicchio of Barrington Research. Please go ahead.

[Vincent Colicchio:]

Hi, Chuck, your at home business was down in the quarter and I always thought of that as sort of a solution to help smooth resource issues. What's holding that business back and do you expect it to change?

[Chuck Sykes:]

Yes. Vince, I agree wholeheartedly. And it is one of the reasons why we did make that decision to get that platform as we look at and try to extrapolate what we think is going to be happening with labor supply. The challenge that has been primarily I would say around concerns in the initial phase and security. When we first made the acquisition of Alpine, we quickly added a lot of capacity into that platform with one of our large communication companies that we had. What happened was some of things not related to home agent, but as you read about cybersecurity threats and things, there were some changes that they made inside the company that ended up making it, where they wanted everything to be at home, which of course, we ended up adding capacity for that. So, we didn't lose that business, but we ended up shifting it. All of the headway and everything, the conversations we've had about cyber security that has created for certain industries not for all of them, but for certain industries a little more reluctance to an embraced home agent is quickly as we thought that they would. Now I will tell you that those concerns that really unfounded, we do not have a disproportionate amount of issues on the home agent platform that this is not factual, but, perception does become reality obviously for lot of people. The one thing though, is that I do believe now, as particularly in U.S., as I think you are going to hear more and more if you are not already hearing about it certain industries having challenges in the labor, I think we are going to find a new level of receptivity to the home agent platform. The home agent platform just to give you a little color with that, we are not having issues and being able to get the supply and to get focus on. And our customers will need solutions for that and not all of them are going to want to just try to move to the offshore markets, which at this point in time continue to see, seem to be in a better position to build to meet labor demands to what we are experiencing in the United States. So, I'm still very, I feel very good, we have that capability in the company, we are at the same time deploying that internationally, because there are other markets around the world that also have labor shortages and it is being received in those markets now where two years ago those clients would have said they would never do home agent. So, its taken a little longer than what we thought, but I still think the premise of the thesis of the investment is going to pay an out force.

[Vincent Colicchio:]

Now investors have wanted, have not liked to put it in a way, the growth of overhead cost, the growth as exceeded revenue growth in recent years and, given current pressures as led something that you can, something you can do there is sort of help your margins out?

[Chuck Sykes:]

Well certainly that growth in our G&A has not been helped by the fact that, in the last two years, we were quite aggressive and we doubled our capacity, not doubled it, but we grew it by over 13% and a lot of that was in the United States built for purpose to meet this demand. So it is certainly exacerbating the challenges right now. We had all this stuff put to work and we're now having labor challenges, I don't think we would be having quite as much I discussed and about the G&A. There have been things at the corporate level that, as we got larger and the company as tripled in size over the last 10 years that we've needed to make some pretty significant investments into our financial systems and all, and is just kind of part of the course of company that's maturing. But we can't address those issues, I mean hopefully we're able to get it to work, we'll find different sources of industries that want those sites and we'll get it to work and that would begin to take care of itself, if not we can certainly take actions and we will take actions to streamline it.

[Vincent Colicchio:]

Then last question from me, you're the softness of communications, seems to be largely due to the wireless business. So curious what your exposure is there and within the communications vertical?

[John Chapman:]

In the U.S., yes largest client we are, the bulk of that business is wireless and for other telcos significantly U.S. I think is more on the broadband side, so it's a mix, it's a real mix. But wireless is a significant portion of it.

[Vincent Colicchio:]

And overseas?

[John Chapman:]

Overseas we go less wireless than the U.S.

[Vincent Colicchio:]

Okay, thanks guys. Thanks for answering my questions.

[Chuck Sykes:]

Thank you.

[Operator:]

[Operator Instruction]. Next question comes from Joan Tong of Sidoti & Co. Please go ahead.

[Joan Tong:]

Good morning. I'm just wondering is there a way to do like it would be more of a surgical cut in the capacity so that you can actually get those utilization rate, better, faster and back you those like 85% operating margin. I understand that the wage inflation, but in terms of capacity, you talked about rationalizing capacity, can you just give us a little bit more color that what exactly you are doing there?

[Chuck Sykes:]

While we have first, we have the way our platform in the United States is structured, we have 26 locations now. Each one of these locations in general is about a 400 seat operation, some are smaller, some are larger, but that's a good number just to kind of keep in your mind for what set up. Yes, it can't be surgical, because a number of these locations are dedicated, because they were built for purpose. As we are engaged with these customers and we're deciding on either the new opportunities in the pipeline that we have particularly as we alluded to with financial services, technology and some of the retail side, does it make sense that we can convert those from those clients to serve the other areas where we are growing. Or in the other hand, can we convince those clients to take their work that they got, let us convert them to home agent, so that we then can just get to the G&A and very surgically to your point just to address, individually each site on its own court. So that is very much a possibility and most likely the way that we would be tackling it.

[Joan Tong:]

Okay, got it. And then, so let me ask you this last time we had such a low unemployment rate years ago, how do you tackle this problem last time and how is the difference, please go around?

[Chuck Sykes:]

Well the things for me that I believe make this considerably different and I do believe over the last couple of quarters, I made comments about it, but it never seems to be too relevant until things hit you in the face and the way it is. But the biggest thing is that, 75% of the labor market that we employed in the U.S. is a 19 year old to a 30 year old. And I think right now the biggest difference compared to in the past when unemployment was at this point in time, is that the growth and the supply in that demographic. It has in our country to me for that demographic it has slowed down. The other thing is that when you look back at our in the United States, we only have like 8 centers in the United States, and so even though we were challenged with it, it was way disproportionately a much smaller concentration. So those two factors right there alone within and I think right now the third for us is that over the course of that time, the communications vertical has been good to us for quite a well, but today as we look at that growth and as a company we want to continue to get better distribution of our risk and concentration of revenue that has also grown in concentration in United States. So, we've got almost three times the number of sites and we've got a much, much larger concentration in communications, which just by its nature as a different dynamic inside the work environment that we believe is making it a little more challenging in the sense of attracting and retaining labor. So those are the biggest things that make the difference.

[Joan Tong:]

Thank you, guys.

[Chuck Sykes:]

Thank you.

[Operator:]

Next question comes from David Koning of Baird. Please go ahead.

[David Koning:]

Hey guys, thanks for taking my call. So, when we look at the revenue guidance for the year, I think at the midpoint its down around $20 million or so, and if we think at some of the pieces maybe just walking through it seems like the acquisition of the group of client center or whatever is going to probably add $45 million and then FX got a little better as well. So it seems like there is a delta somewhere in the $70 million that came down and only part really can be the lost client, I don't think much more than $20 million can be the lost client. So I'm just wondering, what's the other $50 million or so of revenue cut?

[John Chapman:]

Well, I think the -- not a lost client first of all its actually volume remember, I mean we've not lost that client, the forecast is significantly reduced. We have in addition, we got few pockets of volume weaknesses in other telco clients. So the vast majority is the one that we've spoken about, but we've also got weaknesses across the communications for some other programs both in, all in the Americas and domestic U.S. and we've had a couple of nearshore, offshore programs have come in a bit weaker. And the rest of it is that was headcount issues, I mean we've got headcount issues and again dominant where that call in the U.S. is telco and so the majority of it is there. But we've also had other challenges and some of the new sites we've been growing in the financial services. So the U.S. issue is more acute and the telco, but we've still got challenges where we've been growing new sites in the financial services and all of that together, mass is not too far away, I mean I don't think it will quite as high for the customer engagement asset we bought, but you are in the ballpark, so it's really communication weaknesses on the volume, the bulk of it being the client we mentioned a few other programs that we've seen softness together with new site ramps that impacting us and telco and financial services all in the U.S.

[David Koning:]

Got you. Okay. That's very helpful. Thanks for working through that. And then, I guess one other thing, the execution overall is quite good like this quarter the Q2 was totally fine, so it does seem kind of like this somewhat isolated and unfortunate issue with a couple of things. But, does that mean, is there a certain layer of cost that you can almost isolate and say, yes, unfortunately we have this kind of extra $10 million this year that goes away next year or maybe even describe it in a margin headwind type of wages so we can win think of, how of much can it go back up next year once things normalize?

[John Chapman:]

Yes. We are certainly not saying that the business has moved in terms of long-term margin target David. As we have described, we got kind of two challenges, we got labor challenge, where we are cycling through employees too quickly, we have been giving salary increases that in some cases the clients have not yet set-up and paid for. That part of the issue. But, we've also got significant capacity. I mean we got way too much capacity in the U.S., if you think -- the demand reduction we've seen from the -- that we have spoken about from the telco clients, we now need to figure how we subjectively remove that to remove that cost. Exactly timing, exactly how that's all subject to funding to date and I really hope by the end of -- the next thing we do this conference call, we'll be in a much better position to actually explain what we have done and where we have done to get back to what is still a committed goals in terms of growth rate under operating margin target.

[David Koning:]

Is it something that is potentially fast enough to improve that next year you can only have margins back to what's been more of a normal at least 7% to 8% range, and then, from there kind of get back to what you hope to be 8% to 10%?

[John Chapman:]

Yes. Absolutely. The difficulty is, making an impact this year, not making an impact next year.

[Chuck Sykes:]

David, the labor -- as to how much we want to get into specifics and rating our headcount everything, but it is material. And the thing that's -- the thing that's disappointing to us and at the same time gives us a lot of confidence and things is that, the demand is there. So, if we start getting traction in the sense of addressing some of the labor issues and all, I mean, we will be back on our way. But, it is material.

[David Koning:]

Got you. Well, thank you for all that color. Appreciate it.

[Chuck Sykes:]

Thank you.

[Operator:]

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

[Frank Atkins:]

Thank you for taking the questions. Can I get an update on Clearlink in terms of the growth, in terms of integration with the existing clients and what you are seeing on that side of the business?

[John Chapman:]

I mean, clearly, annualize it, so we don't want to keep explaining. But, you guys saw that we were growing way above what we expect. And we have always said to you guys it will be the growth rate -- the growth rate would be potentially double-digit. But, we have been close to 20% and that's continued for the first half of this year. So, in terms of Clearlink, delivering everything we expected and more. We do believe once we get the -- let's call it core issues behind us, we were speaking about today, that the accretion that Clearlink will give to our business is exactly where we want it to be. The revenues numbers have been some nice growth. They are investing in new vertical as we speak to continue that growth number. I mean clearly 20% is going to be difficult to continue. But, in terms of the acquisition, we are still going to market with our joint offering and we have got a few -- I will describe it small pilots on the go to-date, but not anything that's meaningfully changing any revenue numbers. But, in terms of the strategic rationale for the deal in terms of the digital marketing space, we are still learning about I would say and we would still be looking to make little acquisitions in that to -- hopefully make sure that we keep Clearlink on that growth path.

[Frank Atkins:]

Okay. That's helpful. And just a quick numbers question, what was consolidated constant currency growth?

[John Chapman:]

Consolidated constant currency was at 3%, yes. Constant currency was 5%, if you strip out the acquired asset, [indiscernible].

[Frank Atkins:]

Okay. And then, can you give us some color on the financial services vertical a little bit of step-up there. Where are you seeing strength and weakness in that vertical?

[John Chapman:]

Well, that's part of the benefit of the transaction that we closed. I think Chuck described how in the U.S., we were very concentrated in telecom, part of this strategic rationale for those assets which we got a decent price, we paid a bit more than good value, but we did gain nice clients of which the bulk of the vast majority is financial services. And part of the reason that we only paid bulk is, these kind of contribute to utilization as these sites have got significant capacity available. So again, that's an opportunity for us to fill those seats and start generating returns for the assets. So, in terms of financial services, it's kind of connected with those asset acquisitions.

[Frank Atkins:]

Okay, great. Thank you very much.

[Operator:]

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

[Chuck Sykes:]

Hi, guys. Well, as always, we really appreciate everyone's participation on the call and certainly we are here to address any questions that you may have subsequently or anything. But, we appreciate your wise time today. Look forward to updating you next quarter. Everybody have a good day.

[Operator:]

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