Sykes Enterprises, Incorporated
Q4 2015 Earnings Call Transcript

Published: 1 Mar 2016

[Operator:]

Good morning and welcome to the Sykes Enterprises, Incorporated Fourth Quarter 2015 Conference Call. All participants will be in listen-only mode. [Operator Instructions] Management has asked me to relay to you that certain statements made during the course of this call as it relates 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 are identified in yesterday’s press release and the company’s Form 10-K and other filings with the SEC from time to time. Please note this event is being recorded. I would now like to turn the call over to Mr. Chuck Sykes, President and Chief Executive Officer. Please go ahead, sir.

[Charles Sykes:]

Thank you, Chad, and good morning, everyone, and thank you for joining us today to discuss Sykes Enterprises’ fourth 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. We’re particularly excited about today’s call. We have much to celebrate as we mark a strong finish to 2015 and project a solid trajectory for 2016. Let me briefly provide a high level summary as well as some context around our solid fourth quarter results, after which I’ll turn the call over to John and then we’ll open it up for Q&A. I’d like to start the call by recognizing the hard work and dedication of our employees and our leadership in delivering exceptional customer service to our clients and solid results to our investors. As we closed the quarter and the year, we’re ending both on a strong note, similar to the way we began the year. More broadly, the fourth quarter of 2015 now marks 11 consecutive quarters of comparable constant currency organic revenue growth. Still, this performance in revenue growth was accompanied by 10 consecutive quarters of comparable increases in operating margins. The operating performance we have delivered over the last three years underscores that hard work, even more so when one considers that we delivered on our 8% to 10% operating margin commitment a year ahead of schedule. Now, a quick overview of our fourth quarter results. But briefly, revenues, operating margins and diluted earnings per share all came in better than expected. Thanks to client demand from verticals such as financial services, healthcare, travel, technology and retail, we delivered respectable revenue growth despite the drag from the communications vertical. Constant currency revenues topped their business outlook and were up 0.4% on a comparable year over year basis. Non-GAAP operating margins came in at 9.7%, a record for the fourth quarter, not seen for a decade and a half. Operating margins were also up on a comparable basis and meaningfully versus what was implied in our business outlook, thanks to the productivity initiatives, which translated into solid gross margin for the quarter. In fact, gross margins in the quarter were the highest since the fourth quarter of 2007. And we exceeded our earnings per share target as outlined in our business outlook by a healthy margin. Thanks to slightly better demand, but also to really strong operational performance. Finally, we generated solid cash flows and ended the quarter with a record cash position and a double digit return on equity. As we look out into 2016, we have a nice tailwind as highlighted by our solid business outlook. Areas around credit cards, fraud, retail banking, broadband, health insurance and new tech continue to experience healthy demand levels, thanks to a combination of drivers, including the ongoing outsourcing, vendor consolidation and new product or service offerings. Equally, we remain focused on leveraging our cost to sustain strong operating margins, even as we continue to make significant investments for future growth. Even though the communications vertical overall remains somewhat restrained, we see a solid pipeline of opportunities taking hold toward the vertical could be in a comparable growth mode as we exit the year. In short, with our diverse client and vertical mix, coupled with our relentless operational focus and solid positioning, 2016 has the markings of another promising year. In wrapping up, we are excited about what we accomplished in 2015; we delivered on our operating margin commitment ahead of schedule, but we are equally excited about what’s in store for 2016. We issued a business outlook with solid increase in revenue growth and strong implied operating margins. In all, we are well positioned strategically as we enter 2016. And although the macroeconomic backdrop has seen increased volatility, we believe our disciplined execution and our highly differentiated platform better equip us to confront the challenges and capitalize on the opportunities. 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 will focus my comments on the fourth quarter results, particularly key P&L, cash flow and balance sheet highlights, after which I will turn to the business outlook for the first quarter and full year of 2016. As Chuck mentioned, we delivered better than expected results in the quarter. From a revenue perspective, we came in that $337.3 million, above the top end of our business outlook range of $332 million to $337 million provided in November. The outperformance was right across multiple clients, sparing the communications, technology and travel verticals. On a year over year comparable basis, although revenue was down 3.6% on a reported basis, constant currency organic revenues were up 0.4% in the fourth quarter of 2015. By vertical markets, on a year over year and constant currency basis, the other vertical which includes retail was up around 42%, travel up 15%, financial services up 7%, technology up 5%, all of which was tempered by declines in the communications and healthcare verticals. Fourth quarter 2015 operating margin was 8.6% versus 9.3% in the same period last year. Fourth quarter 2014 results included 70 basis points of pre-tax operating margin contribution from a facility sale. On a non-GAAP basis, which explores the facility sale, fourth quarter 2015 operating margin increased to 9.7% versus 9.6% in the same period last year, with comparable margin increase driven principally by higher agent productivity gains, partially tempered by costs associated with capacity additions and ramp for higher projected demand. Fourth quarter 2015 diluted earnings per share were $0.48 versus $0.53 in the comparable quarter last year, which included $0.04 in diluted earnings per share contribution from the sale of a facility. On a non-GAAP basis, fourth quarter 2015 diluted earnings per share remained unchanged on a comparable basis at $0.55. Fourth quarter 2015 diluted earnings per share, however, exceeded the company’s November 2015 business outlook range of $0.45 to $0.48. This outperformance was driven mostly by higher agent productivity gains. Adjusting for just the interest and other expense, our non-GAAP tax rate as projected in the company’s November outlook, diluted earnings per share for the quarter would have been $0.54. Coming to our client mix for a moment, on a consolidated basis, our top 10 clients represented approximately 48% of revenues during the fourth quarter of 2015, unchanged from the year ago period. We continue to have only one 10% plus client, the largest client AT&T, which represents distinct contract spread across four lines of business, represented 16.2% of revenues in the fourth quarter of 2015, down from 17.8% in the year-ago period. After AT&T, client concentration dropped sharply. Our second largest client, which is in the financial services vertical, represented 5.9% of revenues in the fourth quarter of 2015, versus 4.7% in the same period last year. The growth in the financial services client is being driven by new program wins with existing clients. Now, let me turn to select cash flow and balance sheet items. Net cash provided by operating activities in the fourth quarter was $25.6 million versus $27.6 million, with the decrease due largely to working capital swings and other items. During the quarter, capital expenditures were $13.3 million. Our balance sheet at December 31 remains strong with cash and cash equivalents of $235.4 million, of which approximately 94.2% or $221.7 million was held in international operations and are deemed to be indefinitely reinvested offshore. Also at December 31, 2015, we had $70 million borrowings outstanding, with $370 million available under our revolving senior credit facility. We continue to hedge some of our foreign exchange exposure. For the first quarter and full year, we have hedged approximately 86% and 67% at a weighted average rate of 46.18 and 47.12 Pilipino peso to the US dollar, respectively. In addition, our [indiscernible] exposure for the first quarter and full year is hedged at approximately 55% and 33%, at a weighted average rate of 548.16 and 547.3 to the US dollar. Receivables were up $277.1 million; trade DSOs on a consolidated basis for the fourth quarter were 76 days, down 1 day sequentially and unchanged comparative. The DSO split was 75 days for the Americas and 80 days for EMEA. Depreciation and amortization totaled $14.3 million for the fourth quarter. Now, let’s review some seat count and capacity utilization metrics. On a consolidated basis, we ended the fourth quarter with approximately 41,100 seats, up roughly 100 seats comparably and unchanged sequentially. Year over year comparable seats reflect the impact of facility rationalization in the fourth quarter, even though we added gross seats in the quarter. The fourth quarter seat count can be further broken down to 35,100 in the Americas and 6,000 in the EMEA region. Capacity utilization rate at the end of the fourth quarter of 2015 was 79% for the Americas region and 85% for the EMEA region, versus 77% for Americas and 90% for EMEA in the year ago quarter, with a decline in EMEA utilization driven by higher growth in the year ago quarter and partially due to facility rationalization. The capacity utilization rate on a combined basis is 79%, unchanged from the prior year ago period. Now, I’d like to turn to the business outlook. The assumptions driving the business outlook for the first quarter and full-year are as follows

[Operator:]

[Operator Instructions] First question comes today from Mike Malouf with Craig-Hallum Capital.

[Mike Malouf:]

Was wondering if you could just give us a little bit of color on the strengths you are seeing. I think that’s probably a nice surprise as you go into 2016, especially given some of the concerns and news that we’re hearing with regards to economies throughout the world, even here in the US. So I’m wondering if you could just give some color on that. And then in particular, the comment about communication might actually grow by the back half of the year. And then as a follow-up, I will give that to you now, as an understanding of where the seats, the incremental seats of just over 4,000 are coming from would be helpful?

[Charles Sykes:]

Mike, just in a general sense, the thing that’s encouraging for us right now coming into 2016 is it’s the broad based growth opportunities that we’re really looking at. We’re seeing opportunities in financial services, communication, tech and healthcare is real nice and that’s a big strategic focus for our company. We’ve got to continue to find new sources of growth in different industries and I’m happy to say I think we’re starting to get some good beachheads there. So that’s going to be really important for us. From a standpoint of just overall trends, nothing has really changed in the context of companies are continuing to believe at outsourcing. I think the economic macro volatility actually continues to fuel that interest on their part. They’re really seeing the need to want to be flexible and responsive and outsourcing is a key way that they can achieve that. So I think the beauty of being an outsourcer in our business is that we certainly are susceptible to points in time changes in the curb, if you will, but on a long-term basis, in difficult times, companies certainly do want to outsource to be more responsive to changing to the challenges. But in good times, they also want to outsource so that they can meet demand. Now, when we shift from one phase to the next, that’s the acuteness that sometimes we certainly have to report to over the years, but when you look at it from a long-term sustainable basis, that’s one of the things we love about our industry. I think it’s a really good business to be in. The communications side, to answer your question there, that’s one of those acute issues. It’s still a strong vertical for us and it’s one in which we continue to grow and take the count share where we have existing relationships and we’re also finding ways to expand into new lines of business within these very large companies. The nice thing on top of that is that, in 2015, we’ve added couple of new logos in that area. The communications vertical, I think it’s probably fair to say it does have a rather long sales cycle because we do have entrants competition and the deals are rather large. They really don’t make a decision and do a 100 seats; it’s normally a dedicated center or so. That’s the negative to it. But the positive is when we win one, it’s a nice win. And so I think we’ll start to see in 2016 will get back to where we’ll have positive comps year over year in that case.

[John Chapman:]

Mike, in terms of where we’re adding seats, it’s predominantly in the Americas. However, if you actually look across the Americas, it’s being onshore, near shore and offshore, we are adding in all three. So as Chuck mentioned there, it’s spread across all of our verticals. It’s spread across all of our delivery points. And again, I think we are seeing probably some nice growth that we’re benefiting from some of our operational delivery where we know clients all outsource a portion of their business, we know they outsource to multiple vendors and we see ourselves as grabbing probably more than a fair share at the moment of that growth. So we’re feeling really good and looking into the 2016 numbers.

[Operator:]

The next question is from Bill Warmington with Wells Fargo.

[William Warmington:]

A question for you on 2016 growth, if you could talk a little bit about what verticals are driving that and give us some granularity in terms of the complexity of some of that new business and talk about the speed to competency?

[Charles Sykes:]

From a standpoint of where the growth is coming from, it’s in financial services, communication, tech and health. Those are the four industries that really are, on a broad based standpoint, given us the source of growth. From a complexity standpoint, I guess there is different degrees of that. If you think in the context of communications, the complexity, I would define it more in just a sheer size and scale of ramping. And that cause challenges, we’re having to build our capacity and then just getting the labor productive up and running. The speed of proficiency there, it’s probably fair to say it takes about 120 days, I would say, for a customer service professional to really start hitting stride with the key performance indicators, operational metrics that our clients expect from us. Financial services is an area where the degree of complexity, it also can be a very large vertical, so you have a complexity as the dimension of the size. But sometimes, the complexity there is a little more geared to just the nature of the call type. Sometimes we may have to go through – if it’s handling things around financial services and investments, on a regulatory side, we have certain certifications and things that we have to obtain, series 6, series 7. That’s not a large part of our business, but just to answer your question as accurately as I can. Those types of programs, we’re talking to speed of proficiency and just even getting trained that will go easily into six months if not longer sometimes. But just in a general sense, Bill, I would say that speed of proficiency for us is probably about 120 days, sometimes we can get into 6 months, 120 to 180 days. That’s probably a good general expectation on an average basis.

[William Warmington:]

A question on 2016 margins, you’re seeing better revenue growth, but the G&A is also running higher. Why are you seeing more leverage there? Maybe give us some thoughts on how we should think about incremental operating margin on the business and is there potential for gross margin expansion? Have we capped that now?

[Charles Sykes:]

Bill, I would say just we’ve just staying consistent in some of the conversations we’ve had in the past on this subject. In general for you guys, external to the company and the metrics that you’re looking for, the things that I would always keep focused on is anytime our facility utilization is under 84%, 85%, that’s always been our goal of optimum level to get to, we’ve got opportunities. So today with us being in total around 79%, of which 85% is in Europe and then running over in the Americas, we’re down in the 70%, we definitely have opportunity to get more economy of scale as we get that facility working. Now, the moment I say that, I’m sure you’ll go, why haven’t you been able to get there yet? And honestly it’s a good problem in the sense of the way that we’re growing. We as a company are beginning to move into the area where we’re able to compete and win big deals now. That’s great news. The bad news is that it typically requires us to build a new dedicated center because we just don’t have a lot of empty centers sitting around. And some of the places like we’re taking out 1,600 seats, some of the places that we have, particularly in the United States, we’re having to exit because those sites have been there for almost 20 years and we’ve just seen a change in the labor market. We just can’t for the life of us in some of the smaller communities really find a way to get those things for, to get them to the 85%. And here our clients wanting to have big programs. So it’s just becoming irrelevant. So we’re having to exit some of those. I think we’ll always have to some extent rationalization is taking place, that certainly has come down because please keep in mind on a net basis this year, we’re adding 10%. For the last couple of years, I think that net addition has been pretty neutral, if not sometimes declining. But that’s the big reason now why the G&A expenditure is getting a little out of whack just in 2016, okay, because of the seat addition, net seat addition being 10% as a company. The other thing I would watch too is when you’re watching on our corporate expenses, we are making some investment again as part of our company maturing, we’re having to spend money. These things are expensive on just foundational systems around our ERP. You have seen because the company’s performances turn, you certainly have seen an increase in our stock based compensation. But that should level out as well. And you really should see any time our corporate G&A in total is running over 4%, I would say that there is opportunity that we should always skew back down more toward 4%. Those are the two opportunities I’d say, facility utilization still exists and as we grow and get economy of scale over some of these investments we’re having to make at a corporate level.

[Operator:]

And the next question is from Shlomo Rosenbaum with Stifel.

[Shlomo Rosenbaum:]

It seems to me that the implication for margins through the year is basically flat margins with weight on the margin in the first half of the year and then a real pick up in the margins in the second half of the year to end up flat. Just how confident are you in your clients’ ability to forecast the accelerated demand, or is this basically work that’s already there that you’re just taking some market share from and some of your clients that have undergone some M&A and they might be looking to reallocate?

[John Chapman:]

It’s truly a mix. I would say the vast majority of the growth we’re seeing is real volumes that exist today, not projections of increase volumes of tomorrow. And in some cases where clients have got new volumes and in some cases its share of volumes that clients are allocating. So I would say it’s a combination of all of those. In terms of operating margins, I think we do see headwind in the first half of the year. If you actually look, we’ve always got growth and we’ve always got headwinds from ramps. What I would is if you look 2015 versus 2016, I would estimate our headwind that hit us in 2015 through that was probably 25 basis points. It’s more than double of that in 2015. So we see our headwind from those ramps as being above 50 basis points. And if you look in the first quarter, and look at the impact, and it’s roughly 90 basis points impact in Q1, which then if you add that back that to our guidance we’d still see, excluding that 90 basis points, you’d see us exceeding last year’s Q1 numbers, because if you remember last year in Q1, we really didn’t have any ramp impact at all, all of that 25 basis point ramp impact was really the latter part of 2015, not the first half.

[Shlomo Rosenbaum:]

And they can you elaborate a little bit on the home agent investments in EMEA, what exactly is going on over there?

[John Chapman:]

We’d been moving our platform across EMEA during 2015. I think we’ve – again, I would describe it as still in pilot phase. I think we’ve got less than 100 agents in Germany on. It really isn’t a huge drag on our EMEA numbers at the moment. I think [consent] of the year over year comparable in EMEA, we did make the decision to really exit some fulfillment business in the Swedish and Nordic region and that was probably the biggest impact year over year against our operating margin rather than being our home agent. We’re still in the pilot phase; we’re really excited by what the virtual platform can do in EMEA. But in terms of impact on the numbers, probably not that significant in Q4 2015.

[Shlomo Rosenbaum:]

Can you just clarify what does it mean fulfillment business, what exactly are you doing?

[John Chapman:]

A small piece of our business we do in Europe is fulfillment, basically fulfillment for clients, pick, pack, and shift. And this is our historic business from one of the acquisitions that was picked up in 1997. We still got very successful operation in the UK and we just made the decision that we close down the one in the Nordics. It was, I think, $3 million revenue, a very small operation and we just decided with no longer strategic and one of our clients decided to axe them, we made the decision to basically exit that line of business in the Nordics.

[Shlomo Rosenbaum:]

If I could squeeze in one last one, please. Could you walk me through the $1 million of net interest expense in the first quarter? When I add up kind of interest expense, normally I would expect a little less than $0.5 million and then kind of the accretion stuff from Qelp, it sounds like that should be offset by the interest income, so I’m trying to figure how to get from $0.5 million to $1 million.

[John Chapman:]

I don’t have that in front of me, so let’s get back to you, a reconciliation for you later on.

[Operator:]

The next question is from Frank Atkins with SunTrust.

[Frank Atkins:]

Wanted to ask a little bit about the pricing environment, have you seen any changes in any verticals there?

[Charles Sykes:]

No, Frank, not in the context of downward pressures or anything that I would say is out of sync with kind of the typical structural norm. We do continue to see clients wanting to change their bonus structures from time to time. As new trends come out, they’ll move from maybe net promoter score focus to maybe now customer effort score. I will say we’re seeing today more and more of our customers actually are beginning to get a sales component into the transaction. And so we’re getting sometimes opportunities around bonuses related to our ability to up-sell, cross-sell programs and/or commission schedules. So you’re seeing changes in that regard, but not – I don’t know if this is what you’re alluding to or not, but not in the standpoint of downward competitive pressures.

[Frank Atkins:]

And then in terms of your top line or revenue guidance, what assumption did you make regarding the AT&T account or what range or what color could you give in terms of your outlook as you were thinking of that guidance range?

[John Chapman:]

We don’t want to really talk about individual client guidance. I think we wouldn’t want to get down that road. We’ve said what we expect in the telecom environment and some of that strength that will come back in the second half of the year will be AT&T, but not solely AT&A. So we certainly don’t see – I wouldn’t see the concentration of AT&T is going to grow this year.

[Frank Atkins:]

And the last one for me, a lot of the cash is offshore, can you talk a little bit about your strategy for leveraging that cash?

[John Chapman:]

We’ve spoke about it in the past, we do look for opportunities to use that cash, we look for opportunities to acquisitions that maybe we can use that cash for. We could bring it back to US at the moment and lose 40%, we’ve made the judgment we don’t want to do that. We still see there is opportunities for growth offshore. This year, we’re expanding our offshore footprint, we are expanding it in Costa Rica, we’re expanding in various other Latin America countries. So we will be starting to use some of that offshore cash for that growth.

[Charles Sykes:]

Just one thing to add on the comment, we don’t see the AT&T concentration increasing, but the reason for that, I just want to make sure it’s understood is because it’s going to be diluted with the growth we see in financial services, healthcare and technology, not because it’s declining.

[Operator:]

Our next question is from Steve McManus with Sidoti & Co.

[Steve McManus:]

So the first one, given the seat ramp, what does that imply for utilization for the year? And what geographies are you guys targeting with respect to the 1,600 seats you expect to rationalize during the year?

[John Chapman:]

In terms of rationalization, what I would say is it’s a – again, it’s all in the Americas and again it’s spread, as Chuck said, we’ve got some community seats in the US that we decided we need to exit because the labor truly is just not available. And we’ve got some in the offshore environment, and if you remember I think a couple of years ago we spoke about how we were the first mover in the Philippines and some of our sites were looking tired and clients were expecting more grade one facilities. And so in the Philippines we probably got some there that we would be kicking out this year. So that’s really the reductions that we’re seeing on the seat count.

[Steve McManus:]

And then in 2014, I think, you increased the at-home agent headcount by about 16% or so, where there any significant additions during the year, during 2015?

[John Chapman:]

Yes, and I think you’ll see virtual headcount on the year over year did decline and it’s fair to say that our virtual platform had a number of telcos and I would say it was disproportionately impacted by that telco softness that we saw. However, we did see and I think you see in the comments about this significant growth in the retail vertical we saw in Q4 2015 and we delivered some really good numbers in Q4. So we have seen virtual year over year, a little bit of a decline, but we’re really pleased that we saw, one, the retail improvement and as we go into the year, we’re also seeing some nice traction on the healthcare side for virtual. What that does do, and I think [indiscernible] clearly manage to have some nice wins in the retail environment. However, retail is much more seasonal than telco, so you will see virtual being much more seasonal than it’s been before.

[Charles Sykes:]

One thing to add on that one, when you guys think about the home agent platform and even though we’re looking at the numbers, recall the thing that we like so much about it is the strategic differentiation. Our industry, we’ve been around now for quite a while and when you find yourself needing to find new areas of growth by breaking into new verticals, it’s really important that you find ways to create differentiation. And we still believe, we know people have virtual capabilities, but we still believe, when you get into the details of this platform, it’s unmatched. And what I’m excited about is we’ve been able to use it to help us as a company break into new verticals which is very important for us to sustain our growth. And we’re finding retail and we’re finding health to be two areas where they seem to really have a need for what that platform delivers to them. So it’s one of the reasons too why we want to take it into Europe, so that in certain marketplaces there we can create that differentiation in the hopes of continuing to find areas of breaking in and growing.

[Operator:]

The next question is from Adam Doms with R. W. Baird & Co.

[Adam Doms:]

Most of my questions have been answered. I guess just a quick one on the cadence of revenue. If I look over the last couple of years, Q2 is down sequentially, but it seems like you guys are adding a lot of seats here in Q1. Is it fair to think that we should see sequential increases after Q1 and maybe getting stronger towards the end of the year, is that about right?

[John Chapman:]

I would say Q2 would probably – we’re only really guiding to Q1 the full year, Q1 if you actually even look at Q1, if you adjust Q1 for FX you’ve got roughly about a 2% constant currency growth in Q1. I expect the comparables will be tough in Q2, but there on in it should be significant growth there on in, Q3 and Q4.

[Adam Doms:]

And then I guess one quick follow up, your long term margin targets have typically been 8% to 10% that you guys have gone with. I know in 2015, you guys rationalized some suboptimal clients. Any change to how you’re thinking about that long-term? Can we get – is it biased towards the high end, is the range biased higher, how are you guys thinking about that?

[Charles Sykes:]

Adam, without a structural change to the business model which we have not incurred, I would say the 8% to 10%, if I go back to in 2004, when I first talked about this framework when we were running breakeven and we had to give an expectation at that time it was 4% to 6% margins on a $470 million revenue base. And the general rule of thumb was that every $80 million, we would get about 40 basis points of improvement. So when you just extrapolate that out to a $1.3 billion base, we have the expectation we should be running our company in that 8% to 10%. Certainly, as you reach that level and if you went to $2 billion, you can’t skew it over a little bit by our estimates. I mean, we think in an ideal state, if you got to a $2 billion range, you could say it would be 9% to 11%, okay. But once you get beyond into that range, it’s really difficult to get any more economy of scale on your onsite G&A like corporate. It’s just a lot of big numbers of spend. So I would say for us, given where we are at $1.3 billion, the 8% to 10% is probably going to be around for a little bit is our expectation, unless we really breakout and get into over the $2 billion, $2.5 billion mark in that case. So I would say structurally we’re going to be in that zone.

[Operator:]

The next question is a follow up from Bill Warmington with Wells Fargo.

[William Warmington:]

So one follow-up for you. Last week, one of your big competitors talked about how economic uncertainty was negatively impacting clients, their client forecast across verticals. So you guys are not talking about that, in fact I would say you’re probably talking about the opposite, and I was that hoping that you could reconcile those two different views.

[Charles Sykes:]

I think what happens there, I’m going to have to assume, I’m just going to try to give you an answer. You would have to chat with those guys in particular. But remember, what happens, even though we all are talking about the same verticals, I think what’s more important is who are the clients in those verticals. I remember in 2009, 2010 when the recession started coming into our business, at that time people were saying, wow, how are you guys growing and the growth that we had, I think, was very much related to the fact that within the verticals we had clients that were winning and doing quite well. Sometimes though you can find yourself – and at that time, we were growing in communications, I think we had a competitor or two that wasn’t growing in communications. But we had completely different clients. So I think that’s probably the detail that you guys – unfortunately you just don’t have visibility into that, but I would assume that that could be a very possible answer. It could just be the mix of customers.

[Operator:]

[Operator Instructions] The next question comes from Vincent Colicchio with Barrington Research.

[Vince Colicchio:]

Chuck, a question on the financial services side, clearly a strong quarter, an important driver going forward. Can you remind us of the industry factors affecting that push? And then also is it strong enough in terms of the pipeline to get you back to the 30% of revenue level you have been at historically?

[Charles Sykes:]

I would say that the key growth factors that are happening there, there are three. And the more of what I would consider retail banking side of the house is banks continuing to embrace outsourcing. And that’s – historically, if you read the research reports, they are probably one of the smaller areas or industries that have outsourced and they’re continuing to outsource more. But on the credit card side, and even on retail banking side, I would say that fraud is definitely producing growth. We’re having having a lot of impact and interactions on that and so that’s creating opportunities for us. And then the third area is that the clients that we have in our portfolio, going back to the previous question, are actually having some really good success in just growing their business, particularly in credit card in a sense that this new card issuance and at the same time it’s been related to how well those cards are being utilized by their customer base. So retain banking, the trend towards outsourcing is helping. Fraudulent activity, even though it’s a negative in all of our personal lives, for us right now it is creating the need for transactions to be handled and then just the success of our current mix of clients being very, very successful in growing their overall portfolio in their business.

[VinceColicchio:]

I guess one big picture follow-up, we all know who your competitors are on the communications side, but some of these new areas, is vendor consolidation playing a role, an important role in terms of opening up opportunities?

[Charles Sykes:]

Yes, I would say vendor consolidation is a theme that is used particularly for the very large programs. So financial services, you do see that taking place in technology. So I would say communication, technology and financial services, we are seeing more and more clients in that space continuing to want to use fewer suppliers. Those typically have a limit in that, just for their own risk management strategy. But that’s what we’re seeing. In the area of healthcare and in retail, I would say those are a little more new horizons. You do have insurance companies and things that have had some degree of outsourcing for a while, but you’re seeing that pick up. And the other thing is that you’re going to see the whole business model, I think, of healthcare changing. Things around tele-medicine, things around health coaching, these are things that are actually we believe really line up to us very nicely with our virtual model, because it’s more about talent access and the kind of people that you want. So in that case, that’s a little bit of a new venture and we don’t really see normal competitors in that case. Retail is an interesting one too. You’ll see some of the traditional competitors that we’ve had, but we’re continuing to see retail really likes the virtual model. And so in that sense, we just don’t see a lot of our established competitors, one, I don’t know if they push it that much or sell it that much, but I do believe too that our capabilities are quite more robust. So I think in the retail side, we compete against a little bit of a different group there in a general sense.

[Operator:]

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back to Chuck Sykes for any closing remarks.

[Charles Sykes:]

Thanks, Chad. No really closing remarks as usual, just outside of saying thank you to everyone. Appreciate the questions and interest in the company. And we look forward to speaking with you guys next quarter. Everybody have a good day. Thanks.

[Operator:]

Thank you, sir. The conference is now concluded. Thank you for attending. You may now disconnect.