Sykes Enterprises, Incorporated
Q2 2015 Earnings Call Transcript

Published: 4 Aug 2015

[Operator:]

Good day and welcome to the Sykes Enterprises, Incorporated Second Quarter 2015 Financial Results Conference 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] Please note that today's call is being recorded. 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 is 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 in 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 Chief Executive Officer. Please go ahead sir.

[Chuck Sykes:]

Thank you, Kate and good morning everyone and thank you for joining us today to discuss Sykes Enterprises second quarter 2015 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 provide a quick summary of our operating results, after which I will turn the call over to John who will walk you through our financials and then we will open up the call to questions as usual. Let me begin by comments by saying that we delivered healthy second quarter financial results. Revenues, operating margins and earnings exceeded our expectations as such we are adjusting our full year 2015 business outlook upwards. John will provide more color on that later. On the year-over-year basis revenues has increased 1.1% in constant currency terms. The EMEA region which is less than 20% of total revenues delivered an impressive constant currency growth rate of 10% balancing out the drag from the Americas region. By vertical the strong growth in technology where we are winning new marquee logos new lines of business from existing vendors and taken market share from competitors paved a way for growth in the second quarter. The pace of growth in technology which is 19% of total revenues was such that it more than offset the demand moderation in other areas. Similarly, we are starting to see growth rebound in financial services which is being led by credit cards, retail banking, fraud and insurance segments. What’s more to term there is projected the faster rate than we anticipated. Even within communications we saw a pause in the quarter, we are winning new business supporting the enterprise which should begin the counter some of the headwinds from that protocol next year. Turning to operating margins they came in really strong during the second quarter on a historical basis. On a year-over-year basis, we saw operating margin expansion both in EMEA and Americas. Consolidated non-GAAP operating margins in the second quarter were up 240 basis points to 7.1%, levels we haven't seen for almost five years. As we have noted over the past year, levels around agent productivity and disciplined capacity rationalization continued to pay dividends and we have more opportunities in that area ahead of us. And finally, we generated solid non-GAAP earnings growth of 33% highlighting the strong operating leverage in our model. We sustained our strong balance sheet at the same time we continued to invest in other business to take advantage of growth and maintain our position in key verticals, geographies and service offerings through both organic and inorganic means. So, in closing we had a good quarter and we remain cautiously optimistic about our overall demand trends in the industry. In my earlier remarks I have touched on the return of growth within financial services with the technology vertical already on the growth footing coupled with emerging opportunities within communications more than 50% of our revenue base is expected to contribute to our growth momentum next year and with the continued progress in our margin profile our action plans around our margin goals are on track. By complementing the strong operational performance with skillful capital deployment we believe we can continue to enhance our market positioning and deliver value to our shareholders. And with that I would like to hand the call over to John Chapman.

[John Chapman:]

Thank you, Chuck and good morning everyone. On today's call, I will focus my remarks on key P&L, cash flow and balance sheet highlights for the second quarter of 2015, after which I will turn to the business outlook for the third quarter and full-year. During the second quarter, reported revenues came in at $307.5 million, above the top end of our revenue range of $300 million to $305 million provided in our May 2015 business outlook. More than half of the revenue outperformance was driven by higher demand spanning various clients across our vertical mix with the remaining coming from foreign exchange flux. On a year-over-year basis although revenues were down 4.1% on a reported basis, constant currency revenues were up 1.1% in the second quarter of 2015 by vertical markets on a year-over-year on a constant currency basis technology was up 18.5%, more than offsetting the expected drop from the remaining verticals. Second quarter 2015 operating margin was 5.9% versus 3.3% in the same period last year. On a non-GAAP basis, second quarter 2015 operating margin increased to 7.1% versus 4.7% in the same period last year, with the comparable margin increase primarily driven largely by higher agent productivity and sustained improvement and capacity utilization coupled with a favorable foreign exchange impact of approximately 80 basis points. Second quarter 2015 diluted earnings per share were $0.31 versus $0.19 in the comparable quarter last year, an increase of 63.2%. On a non-GAAP basis, second quarter 2015 diluted earnings per share increased to $0.36 from $0.27 in the same period last year, with a comparable 33.3% increase driven largely by margin expansion resulting from higher agent productivity and sustained improvement and capacity utilization. Second quarter 2015 diluted earnings per share were also higher relative to May 2015 business range of $0.24 to $0.27 driven in the main by operations with only $0.01of the earnings out-performance coming from more than expected effective tax rate. Turning to our client mix, on a consolidated basis, our top 10 clients represented approximately 49% of total revenues during the second quarter of 2015, up from 47% in the same period last year due to growth within several of our top 10 clients. We continue to have one 10% plus client, our largest client AT&T, which represents multiple distinct contracts spread across four lines of business represented 17.6% of revenues in the second quarter, up from 15% in the year ago period. After AT&T, client concentration dropped sharply. Our second largest client, which is in the financial services vertical, represented only 4.7% of revenues in the second quarter of 2015 versus 5.6% in the same period last year. On a consolidated basis, during the quarter, the approximate net operating profit impact of all foreign currencies including hedges was approximately $1.5 million favorable over the comparable period last year and roughly $300,000 favorable sequentially. For the third quarter and full-year 2015, we have hedged approximately 79% at a weighted average rate of 44.89 Philippine peso to the U.S. dollar and 78% at 44.91 Philippine peso to the U.S. dollar, respectively. In addition, our Costa Rica colon exposure for the third quarter and full-year 2015 is also hedged 81% at a weighted average rate of 562 colons to U.S. dollar and 80% at 559 colon to the dollar, respectively. Now let me turn to select cash flow and balance sheet items. Net cash provided by operating activities in the second quarter increased 22.8% to $28.5 million from $23.2 million in the year ago quarter, driven mostly by higher net income, coupled with favorable working capital dynamics. During the quarter, capital expenditures were $8.6 million. Our balance sheet at 30 June, 2015 remains strong with a total cash balance of $222.4 million, of which $201.9 million or 90.8% was held in international operations. At 30 June, 2015, we had $65 million of borrowings outstanding with $375 million available under our new revolving senior credit facility. In the second quarter of 2015, we repurchased approximately 279,000 shares at an average price of $24.47 for a total of $6.8 million. Since the share repurchase program is authorized in August 2011, we repurchased 4.5 million shares with 0.5 million shares still remaining. Receivables were up $272.4 million. Trade DSO on a consolidated basis for the second quarter was 76 days, unchanged sequentially and up one day comparably. The DSO was split 75 days in the Americas and 79 days for EMEA. Depreciation and amortization totaled $14.4 million for the second quarter. Now let's turn to some seat count and capacity utilization metrics. On a consolidated basis, we ended second quarter with approximately 40,200 seats, down 900 seats comparably, but up 300 sequentially. The comparable decrease in seats was due to ongoing facility rationalization with the sequential expansion coming in the Americas region. The second quarter seat count is broken down into 33,500 in the Americas region and 6,700 in EMEA region. Capacity utilization rates at the end of the second quarter of 2015 were 79% for the Americas region and 86% for the EMEA region versus 77% for the Americas and 89% for EMEA in the year ago quarter. The capacity utilization rate on a combined basis was 80%, up slightly from 79% comparably and unchanged sequentially. Now let's turn to business outlook. The assumptions driving the business outlook for the third quarter and full-year 2015 are as follows. First, given the better-than-expected financial results for the second quarter, we are increasing the bottom end of our revenue range for 2015 to between $1.275 billion and $1.285 billion from between $1.27 and $1.285 billion previously. In addition, we are also raising both the bottom and top end of our fully diluted earnings per share ranges to between $1.57 and $1.63 from between $1.54 and $1.63 previously even as we observe investments for an incremental 1,700 seats doubling the initial 1,700 gross fee additions plan for 2015. The incremental fee addition is being driven by higher demand mainly from certain financial services clients. The investments associated with the incremental capacity additions under related grant are expected to impact diluted earnings per share by approximately $0.09 for the second half of 2015. Yet despite these incremental investments and applied operating margin expectations for the full-year 2015 remain unchanged and our EPS guidance has increased. We had roughly 400 seats on a gross basis in the second quarter in addition to the 400 already added in the first quarter of 2015. The net fee count year-to-date however, down by approximately 800 for the first six months of 2015 in addition to the 1,700 gross seats we had projected during 2015, we now expect those gross fee additions to double to 3,400. As such we expect a net increase of 1,700 seats in the year versus initial plan which projected a flat seat count. Second our revenues and earnings per share assumptions for the third quarter and full-year are based on foreign exchange rate as of July 2015. Therefore, the continued volatility in foreign exchange rates between U.S. dollar and the function currencies at the market the company serves should have a further impact positive or negative on revenues on both GAAP and non-GAAP earnings per share relative to the business outlook for the third quarter and full-year as previously discussed. Third, we anticipate net interest expense of approximately $0.8 million for the third quarter and $3.2 million for the full year 2015. These amounts exclude the potential impact of any future foreign exchange gains or losses in other expense. Finally, we anticipate a slightly higher effective tax rate for the full-year 2015 relative to the business outlook provided in May driven swiftly by a shift in the geographic mix of earnings to higher tax rate jurisdictions. Concerning the above factors, we anticipate the following financial results for the three months ending September 2015. Revenues in the range of $315 million to $320 million and effective tax rate of 29%, on a non-GAAP basis an effective tax rate of 30%, fully diluted share count of approximately 42.2 million, diluted earnings per share of approximately $0.29 to $0.32, non-GAAP diluted earnings per share in the range of $0.34 to $0.37, capital expenditures in the range of $25 million to $28 million. For the 12 months ending December 31, 2015 we anticipate the following results. Revenues in the range of $1.275 billion to $1.285 billion, effective tax rate of approximately 27%, on a non-GAAP basis an effective tax rate of approximately 28%, fully diluted share count of approximately 42.6 million, diluted earnings per share of approximately $1.35 to $1.41, non-GAAP diluted earnings per share in the range of $1.57 to $1.63 and capital expenditures in the range of $60 million to $65 million. With that, I would like to open the call for questions. Operator?

[Operator:]

[Operator Instructions] The first question comes from Bill Warmington of Wells Fargo. Please go ahead.

[Bill Warmington:]

Good morning everyone.

[Chuck Sykes:]

Good morning, Bill.

[Bill Warmington:]

I was hoping you guys give us some color on the margin drivers this quarter. What you guys are doing differently or is it merely a function of growing more slowly?

[Chuck Sykes:]

No, Bill if you think and first of all, in relationship to historically I mean, Q2 is typically lower than the other quarters so we have, but also in regards to the guidance that we have previously given, the performance is really just a hats-off to our operations team. We did in fact still see some of the volume downturn in the communications sector that we had discussed, but they really did a nice job in dealing with that and managing some of the costs and getting them out and running it very efficiently. The thing that was a little bit of a nice surprise is that we did see some volume uplift particularly as we alluded to in our technology vertical that provided a little bit of a hedge against that compared to the time that we had given our guidance. So, it's really probably those two things.

[John Chapman:]

Yes, I mean tailor projections Bill, revenues did drop, but in the quarter I would say that the decline was a little slower than we had anticipated, but Chuck said I mean, the main out-performance was really on the margin side where the operations folks did a really good job marching the resources to the volume decline. So not one specific area, not one specific thing just many things that a lot of the guys in the field were doing better than we expected, coupled with a little better volume through the quarter than we had hoped for, so yes, so really good performance. Compared to prior year remember that the growth in Q2 is a weakest but remember last year was particularly weak because we had the delay in the telco volumes from Q2 to Q3, so great performance although the 240 basis points year-over-year changes probably a bit high because last year it was a bit depressed because of the event, but great job by lots of people.

[Bill Warmington:]

Got it, okay. And the question then on revenue as we head into 2016, when we talk a little bit about attrition and that it had been running 3% to 5%, the target for growth had been 4% to 6% and so that would imply that on a gross basis you have got to deliver 9% to 11% type growth. So, if the attrition is running potentially above 5% than how are you going to be able to grow your sales fast enough to still hit that 4% to 6% target?

[John Chapman:]

Yes, we are still very focused on the 4% to 6% and you are right we always target and alike somewhere around 3% to 5%, we always target 8% to 10% on gross new sales. But remember, we took action Q4 last year to really get us some 2% of our revenues that we had different event so [indiscernible] is still probably excluding the higher end and this year you are right, our new business is at the weaker end but actually we are driven by the weakness that we’re seeing in the telco vertical that we have expressed. We still have formal commit to that 4% to 6% range and if we hadn't taken the action in sub optimal program we would have been set in at 3, so still below the 4 to 6 but not as a new make as the 1% clearly.

[Bill Warmington:]

Okay. Thank you very much.

[Chuck Sykes:]

Thank you.

[Operator:]

The next question comes from Mike Malouf of Craig Hallum Capital. Please go ahead.

[Mike Malouf:]

Great, good morning guys.

[Chuck Sykes:]

Hey Mike.

[Mike Malouf:]

I am just going to ask kind of an overview question with regards to the cash, I mean, the cash flow has been very strong over the past two years and I know you have been buying back stock in a modest way, and I am just wondering as you look at that cash overseas, is there any kind of, what kind of options do you venture around with regards to use of that cash, does it, you can make a couple of these small acquisitions like how they can help, but I am just wondering what kind of pace you can do to help bring that cash to the shareholders?

[Chuck Sykes:]

Yes Mike, obviously it’s a question that we get to ask quite a bit and I know when you look at the cash that we have sitting there, but for us we really want to use the cash as we’ve done to continue to buy back stock in a controlled manner, in the way that we’ve been doing it. But the other thing is, we really do see the world ahead of us and the pace of innovation in the change that I think is going to be reshaping every industry that exist today. We just don’t want to do anything to impair our ability to respond to that. The only thing is that if you looked at it today and we try to bring it back, it really is quite inefficient in the cash, and when you wake up the next day, I just don’t know if it makes a material impact for shareholders and compare that to the opportunity cost that we would be sitting out with maybe impairing our ability to take advantage or make more strategic investments for the company. We just like the course that we are on right now. More of our strategic acquisitions would be something that we would want to continue to keep our eye on.

[Mike Malouf:]

Right, and I guess that’s sort of the key issue that I had been focusing on, can you talk a little bit about the opportunities for strategic acquisitions maybe even the significant strategic acquisitions as you look out over the next couple of years that could use that cash overseas?

[Chuck Sykes:]

Yes, we can but there are some things that sometimes windows can open it even when you can make certain acquisitions, it brings much more efficient path to be able to bring the cash back. So, there are doors like that that will open up that could be transactions outside of the U.S. for us. So, we certainly we will watch all of that, but we – for us the things is that we are really looking a lot into our platform. If you look at things that are happening in the digital channels today, investing in anything that would help around the world of social media or anything such as that, wherever that capability is, we would want to be ready to invest in it. Now if it’s a service side like looking at a healthcare vertical that really would be more for the U.S. marketplace for us, and we do want to continue to keep our readiness level to make investments for building in the healthcare vertical in the U.S.

[Mike Malouf:]

Okay, great. Thanks a lot for the color, I appreciate it.

[Chuck Sykes:]

Yes, thanks Mike.

[Operator:]

The next question comes from Frank Atkins at Sun Trust. Please go ahead.

[Frank Atkins:]

Going back to that kind of acquisitions team, in terms of the strategic initiatives for [KEL] acquisition, anything is that meant to signal an area of interest in the future, is this the type of acquisition that you would be looking for going forward?

[Chuck Sykes:]

Yes, well, Frank it does fit one of the things in the sense that we view it a little more as part of our platform. The world of digital support I am sure all of us on this phone call find ourselves going to the web, and searching for answers and support and using chat tools and so forth and so on, we all are seeing what’s evolving out there. And for us, really striving to compete and create differentiation in a competitive marketplace. We do want to be in a position to invest in those types of things that when you bring it in to Sykes and you are bringing into our overall integrated offering, we just believe it’s going to allow us to continue to deliver more value to our customers, and particularly in the wireless segment, which is one of the largest segments in the world for using customer service operations. So, there are other things in the world of social care, social support whatever it’s using community forms or if you are looking at things around video, conferencing for providing certain support, I mean, you are going to see quite a bit of evolution that’s going to be taking place within the platform of delivering customer service operations. And so, those are the things we are scouring the world if you will, looking for those things that we believe will allow the total addressable market in our industry to be more approachable for our company. And as you get into wireless, as you get into healthcare, as you look at financial services, they all have their own individual new launches of what they need in a platform to be relevant to serve them. So, those are the types of things that we are looking for.

[Frank Atkins:]

Okay, great. And can you give us a little color on what you are seeing now in the hiring environment and kind of attrition on head count level?

[John Chapman:]

I would say Frank, it’s relatively unchanged and we do get pockets of fee around the globe looking whether it’s a language skill set or a technical skill set, but in terms of attrition and wage pressure etcetera, I would describe as normal and business as usual. But something we clearly watch out for all those lead indicators because it’s very, very important in our business. I would say it’s not really moved much in the last quarter.

[Chuck Sykes:]

Yes Frank, there is two ways when you think about question, there is kind of two ways to think of it, on a short term basis to John’s comment, we do it from time to time, if we think about it in [indiscernible] those are lot of competition that’s literallyacross the street from you. And if certain ramps are going on, if the company is launching a big captive center and they were hiring 3,000 people across the street, it does call a short acute term issues. But it doesn’t change the long term systemic view if you will about labor marketplace, but it will cause short term hiccups for you and we experience it all over the world from time to time. But I would say more so probably in the offshore markets where competition is a little more closely located to where you operate. In the U.S., in the bigger markets we’re in will experience that as well, sometimes a company is coming in and opening up big centers things such as that. But from a long term standpoint, I’d agree with John, I still see the labor market being fairly stable for us from a wage level and a supply level.

[Frank Atkins:]

Okay and last one from me. If you look at the Americas revenue, can you give us any color in terms of the breakdown on North America versus Latin America or parts of the Asia that are included in LATAM?

[Chuck Sykes:]

No, we don’t really supply that Frank, I am afraid.

[Frank Atkins:]

Thanks a lot.

[Chuck Sykes:]

Frank, thank you.

[Operator:]

The next question is from Dave Koning of Robert W. Baird. Please go ahead.

[Dave Koning:]

Yes, hey guys. Nice job.

[Chuck Sykes:]

Thanks Dave.

[Dave Koning:]

Yes, I just have a couple of questions. My first one, you are going to end the year up about 1,700 seats so that’s about 4% from last year and I think a lot of the seats are probably going out in the U.S. that are probably higher yielding than average. So, if we would just kind of take that 4% seat growth plus probably yields that are little higher, I mean, are you could kind of just setting yourself up for well over times and pretty steady kind of mid single digit growth in the out year or are there thing we need to think about that could vary somewhat from that?

[John Chapman:]

No, I think you are correct, David, I mean, we are still focused on not 4% to 6% range, and you are right that we are – hard to push the new seats in the domestic U.S. market which we like. But I don’t think that changes not that we would project anything for 2016 today, but we still look at long term and not 4% to 6% net revenue gain.

[Dave Koning:]

Yes, okay. Then the other one just the ninth sense of investment activity headwinds to earnings that all make sense, that’s all just setting up for growth, but are those one time type investments that go away in 2016 or are those investments that are just in stuff that really continues through 2016 and the reason I ask is just, is that kind of a leverage point into next year that we have some expenses that just totally go away and help margin next year?

[Chuck Sykes:]

Yes Dave, and jumping on that one here for a minute, I mean, obviously in this business particularly when you are working more than world when you get your facility utilization running in the 80, 85 percentage you are going to continue to grow, you will need to continue to add additional capacity in that way. So, the thing that makes us on a little odd that we’re really having a called out is that so much of the growth is being, is very acute into the Q3 period. But, if you look at on yearly basis we are still delivering the annual margins that we had guided to. We are still investing and building capacity for growth is just that it’s coming into second half of the year which kind of throws off to Q3 margin profile we normally have. And the fact that it's very, very concentrated. So, to me it does continue to position the company that we get more scale and more economy of scale and as we have always said for 10 years as we continue to grow the revenue base that we have already there just to put in, I mean, the past trailing 12 months was running at 8.3% margin base. If we weren’t doing the investment we would be at 8.1 for the full year this year, but you need to keep growing and we guided to the ranges around and we are delivering on those margins and we are still investing for growth. So, we are doing the right things and right activities are occurring in the company.

[Dave Koning:]

Great, well nice job, thank you.

[Chuck Sykes:]

Thank you.

[Operator:]

[Operator Instructions] The next question comes from Shlomo Rosenbaum of Stifel. Please go ahead.

[Shlomo Rosenbaum:]

Hi, good morning and thank you very much for taking my questions.

[Chuck Sykes:]

Good morning Shlomo.

[Shlomo Rosenbaum:]

Chuck, how comfortable are you with the demand coming in the financial services clients, it’s a pretty big expansion that you are doing adding $10 million to CapEx this year and it seemed like there was a pivot point in the second quarter that those are a lot of seats that just kind of popped up, was there – is it a general volume surge that you are seeing – have you been displacing competitors over there, are the clients little bit more committed that you feel comfortable to add that kind of capacity, if you could just go a little bit more into description as to your decision to build?

[Chuck Sykes:]

Yes, sure couple of things and just to kind of remind folks I know this is probably common sense, but I will state it anyway. When we think of our sources of growth, just put them into four simple buckets right, either our clients are growing that’s always the best situation. But in many cases, [indiscernible] is some of our clients are still searching for growth, so how do we grow? It’s the next bucket; they decide to outsource more of their business. Well, if they are not growing and they have already outsourced everything they want to outsource, how do we grow? The third bucket, we take a count share. Okay, but if they have outsourced everything they are not growing, and we are already at the top, one or two or three suppliers, where does the growth come from? And this is the last bucket, and its more events driven. Maybe like what we went through at the recession one, the financial services, we had a flood of calls with consumers very concerned about they’ve lost their jobs, interest rates on their cards, those types of things. Mortgages, so you get that. So coming to your question in financial services, we are seeing a kind of the second bucket, companies continuing to outsource more and we are seeing the third bucket, companies continuing or to use fewer suppliers. So, what’s happening for us in relationship to the sites or building, our clients that we are serving are expanding the amount that they are outsourcing and we’ve picked up some business that we are consolidating in the supplier base. That’s been the two big drivers, the other thing too is keep in mind the comparisons we had alluded to this in the last quarter that we said we thought financial services would start showing growth trends again in the second half, one because we had an idea of some of the things in the sales –but the other is, going back in the last year, remember we had some tough comps because we had three of our major banking customers, sold off a considerable portion of their, what they call their legacy in mortgaging servicing portfolio. And the companies that purchased that did not outsource. So, we just lost that business and we had to kind of regroup and we’ve been able to get some of that facility back to work, and this takes a lot of time sometimes to recoup that. But that’s where it’s coming from right now. Outsourcing more and taking some account shares as they continue to look for fewer and fewer suppliers to work with that can meet their needs.

[Shlomo Rosenbaum:]

True, vis-à-vis visibility to filling up those 1,700 seats. How much visibility do you have to that, do you have a half of it, 75%, 100% or what visibility based on what you see right now?

[Chuck Sykes:]

Well, all of the seats that we’ve alluded to right now that we are indicating in our guidance, it’s all been built for purpose, it’s not speculative.

[Shlomo Rosenbaum:]

Okay. And then just switching gears a little bit, the implication just doing the math as AT&T was down about 7 million in the quarter, Is this from the tougher comp last year or how should we think about that?

[Chuck Sykes:]

Are you meaning sequentially or year-over-year?

[Shlomo Rosenbaum:]

On a sequential basis it looks to me that AT&T was down about 7 million in revenue?

[John Chapman:]

Yes, AT&T sequentially down 11%, although year-over-year it’s still up 13% and that’s the weakness that we spoke about – they are one of the telco clients that we knew we are going to see weakness in Q2 and for the Q3, Q4 period.

[Shlomo Rosenbaum:]

Okay. And so, is there -- is it straight out of volume thing or you guys don’t have a change in your position amongst the vendors at all?

[Chuck Sykes:]

No, we don’t have a change in that case what we’ve did see and this is what we guided to was kind of our portfolio communication clients very primarily it’s in the North American marketplace. They did guide to considerably lower volumes. Now the interesting thing Shlomo was as we look at that the second half of the year within some of that portfolio we are seeing considerable strength again. So it’s little bit of rollercoaster there right now but it has nothing to do with losing position or losing account share.

[Shlomo Rosenbaum:]

Okay. And then what did – what was the growth in the home agent business in the quarter and what are the recent trends over there?

[John Chapman:]

Well, we don’t really spell out at-home in separate revenues in like brick-and-mortar – more than parted by the telco weakness that we’ve seen and so it’s not – I mean clearly overseeing in the brick-and-mortar is great growth in the financials averages. The at-home model plays really well and the telco and retail. So, we are going to see a change where progress double-digit, three or four times growth rate that we’ve been growing virtual greater than brick-and-mortar is going to change because mostly the growth is going to again brick-and-mortar that’s clearly in financial services that’s the strength of our vertical.

[Chuck Sykes:]

Yes, one other things to, when you go through one of these downturns and again as John’s point the virtual model that get affected with some of the communication softness but one other things too I’d like to highlight is, when we brought in and made the investment in the virtual platform, the question was, hey, guys just to say superior operating margin and the answer was no, it’s really not to us is more of a tapping in to help us break in the new verticals but the one thing it is, is that it does have better downside protection. And I think, if you go in and when you saw reading some of the QU and things that we have on some of seats and the people you will see the seat reductions but the beauty in that is that’s the virtual model working at its best. Whereas, on our brick-and-mortar the seats wouldn’t go away, you just see our utilization drop and internal margins will drop little more severely. So, it’s just a point in time will occur the long-term we still believe and we are still experiencing virtual growing at rate that is little more like three times that the typical brick-and-mortar certainly quarter-over-quarter you may see that changes as we are winning certain business depending on the mix, but if you step back a minute look at the longer term view, we still see for the next couple of years that probably virtual is going to run at that pace.

[John Chapman:]

Yes and we are just starting to expand virtual in the European market and we’ve had some nice local wins there and so yes, still very positive on that as part of delivery system.

[Shlomo Rosenbaum:]

Great. And then lastly, could you just clear this is a little bit more detail what Qelp adds to the offering that you were not able to do on your own?

[Chuck Sykes:]

Yes, I mean I think it’s fair to say, everyone knows I mean it’s the competitive industry that we are in, and when you are trying to break-in to markets where we have entrance competition. We need to continue invest in a ways that create differentiation in the eyes of the clients and right now, the world of digital is again its changing every industry access to information, connectivity and access to super computing power. Those three things are going to reshape every industry. So, we as a company just like we believed in off shoring we are the first to embrace it in a major way just like we believe in virtual becoming very, very relevant making a big investment there. Somehow we think that the world of providing some component of content, diagnostic tools, self-serve aspect is going to be another part of the portfolio. It isn’t going to replace the voice agent anymore than off shoring was going to replace domestic. But, for us as an integrated platform and as a leader in this industry, we think it’s a very important component to bring into our platform. So, I mean that’s our thinking that we’ve got there in. We logged the fact that its wireless you guys know that’s a nice segment for us the other thing that’s nice about it is that wireless is a very, very large market on a global basis and we just believe it’s going to help create more differentiation to access that market.

[Shlomo Rosenbaum:]

Okay, and could you just – this would be my last question. Can you just talk about the strategy on the share repurchases this offset dilution type of thing or you trying to opportunistically buyback the stock I am just saying its – the volume in the stock is not huge, I’m not sure what the benefit you get in terms of having increased share repurchases versus going ahead and deploying cash towards acquisitions and help drive top line growth?

[John Chapman:]

Yes, we’re just buying back enough to avoid dilution and that is what we’ve been doing and no change there at all.

[Shlomo Rosenbaum:]

Very, good. Thank you.

[Chuck Sykes:]

Well, thank you.

[Operator:]

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

[Chuck Sykes:]

Alright, well thank you Kate, and thank you everyone as always for your questions and your interest in the company. And we will look forward to getting back to you guys next quarter. Everyone have a good day. Thank you.

[Operator:]

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