Sykes Enterprises, Incorporated
Q3 2014 Earnings Call Transcript

Published: 4 Nov 2014

[Operator:]

Good morning, and welcome, to the Sykes Enterprises Third Quarter 2014 Financial Results Conference Call. [Operator Instructions] Please note, this event 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.

[Charles E. Sykes:]

Thank you, Amy, and good morning, everyone, and thank you for joining us today to discuss Sykes Enterprises third quarter 2014 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 update of our operating results, after which I will turn the call over to John who will walk you through our financials and then we'll open up the call to questions. By most measures, we had a strong quarter. I want to congratulate our employees worldwide for a job well done, for it's through their solid execution we exceeded what we outlined in our business outlook. We beat our implied operating margin target and our third quarter non-GAAP diluted earnings per share ranges handily, and we carried that financial out-performance through to our year end revenue and diluted earnings per share outlook. With that, let me provide a brief summary of our financial results. Consolidated revenues were up 4.2% on a constant-currency basis during the quarter. Underlying business drivers were better than expected. In fact, they were fairly broad-based, helped by solid end market demand, coupled with shared gains from competition and shifts from our clients in house operations. More specifically, we saw demand within various lines of business and services including wireless, broadband, as well as consumer and enterprise tech support. Turning to our operating margin performance. Through ongoing agent productivity initiatives and improved speed to competency on certain programs, combined with facility rationalization and cost optimization, operating performance improved nicely. In fact, we posted record margins in the EMEA region of 10.5%, which is the best in over a decade. Overall, our consolidated operating margins came in at 7.8%, substantially better than what was implied in our business outlook. We did this even as we absorbed the drag from the exit of an outbound program, investments in infrastructure and continued agent ramps for the fourth quarter. And finally, we closed the quarter with a non-GAAP diluted earnings per share increase of 15.4% comparably. We sustained our strong balance sheet, which gives us the resources and flexibility to continue investing in our business and fund future growth. As we look out in the marketplace, demand indicators remain encouraging. Echoing what we discussed last quarter, both in the communications and technology verticals, we are seeing opportunities with telecom and cable providers as well as global market leaders in the platform, software and hardware categories. Signs of a demand rebound are also starting to emerge in the financial services and health care verticals. For instance, we recently landed a new win with an existing financial services client in the credit card space, while in health care we just won a meaningful opportunity to provide support around insurance enrollment. Both of these opportunities underscore our strong strategic and operational value proposition in the industry, particularly our best-of-breed at-home agent platform. Operationally, we see further scope for gross and operating margin improvement. In the near term, some of this is expected to result from the elimination of headwinds we discussed in the second quarter, specifically the exit of an outbound program within the financial services vertical. We also plan to eliminate sub-profitable programs with diminished strategic value. Over the medium- to long-term, margin improvement drivers will stem from initiatives around, again, driving agent productivity, but also sharing best practices globally, increasing capacity utilization, continuing facility rationalization and leveraging G&A expenses. At the same time, we will continue to invest in our business, both organically and inorganically. We have put in place the building blocks around chat and social media, especially as consumers spend more time online. We believe we can accelerate our scale in those areas, along with potential targets in the health care vertical, horizontal services and new geographic markets through discipline and targeted acquisitions. In conclusion, we are extremely pleased with our operating performance. The business is on the right trajectory as underscored by our third quarter results and fourth quarter business outlook. We are in an industry that is large, global and fragmented. It is an industry where our clients are looking to provide exceptional customer experience as a point of differentiation. They're doing this against the backdrop of market shifts and constrained budgets, and they are seeking customer contact providers that can deliver tangible business impact. As such, we continue to invest in initiatives that will further our strong industry position and sustain our long-term operating momentum. That includes not only allocating capital to fixed investments, service innovation and potential acquisitions, but also investing in our leadership. And along those lines, we announced the appointment of Drew Blanchard to lead the financial services, health care and retail verticals. So we recognize the task ahead and we remain focused as ever. We continue to execute against our strategic and growth objectives. Just as we delivered on the turnaround in EMEA, we are starting to get our legs under the Americas. And though the path to 8% to 10% targeted operating margins will inevitably include some twists and turns, we believe we are taking the right actions to restore our financial profile and unlock the value for our shareholders. 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 remarks on key P&L, cash flow and balance sheet highlights for the third quarter of 2014, after which I will turn to the business outlook for the fourth quarter and full year. During the third quarter, revenues were up 3.3% to $332.7 million. They were $2.2 million above the midpoint of the business outlook range of $328 million to $333 million, despite roughly $3 million of foreign exchange drag on a comparable basis. The revenue increase, relative to the midpoint of our business outlook, was driven largely by run rate demand across several client programs spanning the communications and technology verticals. By vertical market, technology was up 17% on a comparable basis and communications up 11%, all of which more than offset demand softness from the financial services, health care and transportation verticals. Third quarter 2014 operating margin from continuing operations was 6.6% versus 5.8% in the same period last year. On a non-GAAP basis, third quarter 2014 operating margin from continuing operations increased to 7.8% versus 7.1% in the same period last year, driven primarily by higher revenue and better expense leverage, coupled with a favorable foreign exchange impact of approximately 40 basis points. All of which was partially offset by costs associated with a previously discussed exit of an outbound program within the financial services vertical. Third quarter 2014 diluted earnings per share from continuing operations were $0.39 versus $0.33 in the comparable quarter last year. On a non-GAAP basis, third quarter 2014 diluted earnings per share from continuing operations increased 15.4% to $0.45 from $0.39 in the same period last year, with the comparable increase driven by higher demand and expense leverage. Relative to the midpoint of our non-GAAP diluted earnings per share guidance of $0.34 to $0.37 provided in August, third quarter 2014 non-GAAP diluted earnings per share came in $0.09 better. Of the $0.09 delta, $0.02 was related to lower tax rate while the remaining $0.07 was all from operations. Turning to our client mix for a moment. On a consolidated basis, our top 10 clients represented approximately 48% of total revenues during the third quarter, up from 47% in the same period last year due to growth within several of our Top 10 clients within the communications and technology vertical. We continue to have only 1 10%-plus client, our largest client AT&T, which represents multiple distinct contracts spread across 4 lines of business, represented 17.2% of revenues in the third quarter, up from 14.3% in the year-ago period. After AT&T, client concentration drops sharply. Our second largest client, which is in the financial services vertical, represented only 5.1% of revenues in the third quarter versus 5.5% 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 $1.1 million favorable over the comparable period last year, and $200,000 favorable sequentially. For the fourth quarter of 2014, we are hedged approximately 87% at a weighted average rate of PHP 44.34 to the U.S. dollar. In addition our Costa Rican colon exposure for the fourth quarter is also hedged approximately 80% at a weighted average rate of CRC 521.49 to U.S. dollar. Now let me turn to select cash flow and balance sheet items. Net cash provided by operating activities in the third quarter was $27.3 million versus $56.2 million in the comparable year-ago quarter, with a decrease driven chiefly by a significant catch-up of the timing of receivable collections in the year-ago quarter. During the quarter, capital expenditures were $11.4 million. Our balance sheet as of 30 of September remains strong with a total cash balance of $209.6 million, of which $195.1 million or 93.1% of the cash balance was held in international operations and may be subject to additional taxes if repatriated to the United States, including withholding tax applied by the country of origin and U.S. taxes on the dividend income. At September 30, we had $79 million of borrowings outstanding with $166 million available under our revolving credit facility. Receivables were $283 million. Trade DSOs on a consolidated basis for the third quarter were 75 days, flat sequentially and down 2 days comparably. The DSO was split 73 days for the Americas and 80 days for EMEA. Depreciation and amortization totaled $15.1 million for the third quarter. Now let's review some seat count and capacity utilization metrics. On a consolidated basis, we ended the third quarter with approximately 41,000 seats, down 100 seats comparably and sequentially. The decrease in seats was due to ongoing facility rationalization. The third quarter seat count can be further broken down into 34,600 in the Americas and 6,400 in EMEA. Capacity utilization rates at the end of third quarter were 77% for the Americas region and 88% for the EMEA region versus 73% for Americas and 85% for EMEA in the year-ago quarter. Capacity utilization rates combined basis was 79%, up from 75% comparably and unchanged sequentially. The increase in the consolidated capacity utilization rate on a comparable basis was driven by higher demand. Now let's turn to business outlook. Although the macroeconomic environment has recently seen increased volatility, the overall indications of client demand, thus far, remain encouraging. As such, we are upwardly revising our full year 2014 business outlook relative to the prior outlook provided in August 2014. This upward revision is driven by better-than-expected third quarter performance and higher anticipated fourth quarter demand. The drivers of higher anticipated demand reflect our continued ability to capitalize on growth within the communications and technology verticals. In addition, we have caused additional sales opportunities in our pipeline, winning some new programs with existing clients within the financial services and health care verticals. The upwardly revised full year 2014 business outlook also reflects an incremental $2 million of unfavorable foreign exchange impact to revenues relative to the August 2014 outlook, driven by recent currency volatility. Our revenues and earnings per share assumptions for the fourth quarter and full year 2014 are based on foreign exchange rates as of October 2014. Therefore, the continued volatility in foreign exchange rates between the U.S dollar and the functional currencies of the markets we serve, could have a further impact, positive or negative, on revenues on both GAAP and non-GAAP earnings per share relative to the business outlook for the fourth quarter and full year. In addition, our GAAP and non-GAAP diluted earnings per share do not reflect the impact of a potential sale of previously exited customer contact center. Second, we plan to add approximately 1,700 seats on a gross basis in 2014, higher than the 900 previously anticipated, with the increase driven by higher anticipated demand. We have added roughly 1,100 seats for the 9 months to date, ending 30 September, including approximately 300 in the third quarter. Total seat count, on a net basis for the full year, is now expected to decrease by approximately 1,300 seats versus the planned 1,500 seats driven by higher demand. Third, we anticipate interest and other expenses of approximately $0.8 million for the fourth quarter and $1.7 million for the full year. This includes interest expense related to the debt associated with the acquisition of Alpine Access. The updated interest and other expense amount excludes the potential impact of any un-forecasted future foreign exchange gains or losses in other expense. And finally, we anticipate a slightly lower effective tax rate for the full year 2014 compared to the projections provided in August, with the decrease being driven chiefly by a shift in geographic mix of earnings to lower tax rate jurisdictions. Considering the above factors, we anticipate the following financial results for the 3 months ended December 31, 2014. Revenues in the range of $345 million to $350 million; an effective tax rate of approximately 24%; on a non-GAAP basis, an effective tax rate of approximately 25%; fully diluted share count of approximately 42.6 million; diluted earnings per share of approximately $0.44 to $0.48; non-GAAP diluted earnings per share in the range of $0.50 to $0.54; and capital expenditures in the range of $13 million to $14 million. For the 12-months ended 31st of December, we anticipate the following. Revenues in the range of $1.323 billion to $1.328 billion; an effective tax rate of approximately 24%; on a non-GAAP basis, an effective tax rate of approximately 26%; fully diluted share count of approximately 42.8 million; diluted earnings per share of approximately $1.26 to $1.30; non-GAAP diluted earnings per share in the range of $1.52 to $1.56; capital expenditures in the range of $49 million to $50 million. With that, I'd like to open the call up for questions. Operator?

[Operator:]

[Operator Instructions] Our first question comes from Mike Malouf from Craig-Hallum Capital Group.

[Michael Fawzy Malouf:]

I'm wondering if you can shed a little bit more color on the hire of Drew. Sounds kind of interesting and as you look over the next couple of years, what do you think he'll be really focused in on?

[Charles E. Sykes:]

Yes, Mike, we're really excited to have Drew on board. Most of you may not know, but I had actually, I'd say, worked for Drew when he was a client of ours quite a few years ago, when we were doing some work with Accenture and SBC, which of course, today, is our AT&T program. So we're real familiar with him and his leadership abilities. He has really nice experience, obviously, being in the Accenture environment for 30 years, and knowing how to run these global programs, the complexity of these programs. And I think, at the same time, for those of you that have been following us for quite some time, you've seen our company maturing. As we're getting bigger and bigger, we're starting to get deals that are more complicated and larger. On top of that, we are a little more of a matrix structure now, with a vertical focus in the way that we've really been pushing for what we call customer excellence. So Drew's going to bring a lot of relevant experience, from an organizational standpoint, a lot of leadership. As we put in our release, we are having him focus on the market-facing activities of the financial services, health care and retail. Those industries do share a lot of commonality, particularly when it relates to financial services. I mean, health care involves a lot of insurance. Obviously finances is finance. But even in the retail space a lot of the programs that we serve there involve a lot of credit card type activities and things. So we see some synergy over there. And when we say market-facing activities, it's everything from our strategy, not just sales strategy, but literally down to the delivery capabilities that we need to have to continue to be relevant and win in those industries. And then he'll have go-to-market sales responsibility. And then he'll oversee client management for large programs, it's not every program has dedicated, but large programs. So just to give a more color. But, no, we're really excited to have Drew on board.

[Operator:]

The next question comes from Kevin McVeigh of Macquarie.

[Kevin D. McVeigh:]

Can you give us a sense -- great momentum in '14. How does that set up for '15, particularly from a margin perspective? And then just any thoughts around the holidays. And I apologize, I know there's a couple here. And then, also, Chuck, any sense of how Apple Pay kind of changes the telco dynamic, if at all?

[Charles E. Sykes:]

Yes. Interesting that [indiscernible] as you think about the Apple Pay type thing. But let me go through the 2015 -- we don't want to get too much in the specifics of the thing with 2015. Guys, we always try to stick to each quarter, but we do want give an indication for you guys, in 2015. We see the earnings growth trajectory that we're on to continue to be sustained. Last quarter, we had a little bit of a -- we called it a pothole, we hit it in the road and we were concerned that people were going to get concerned it was knocking off our trajectory. But that's not the case and we still see the earnings momentum going into 2015. One thing I do want to comment on and the comment that I made in my comments about sub-profitable programs, we are addressing an issue that we're not happy with and next year we're looking at that probably hitting about 2% of the revenue for next year. But not the earnings growth. I think that's the key thing. And I just don't want everyone thinking that the 2% revenue growth is in any way indicative that we're not finding sources of growth, it's not our value proposition. It's more just a continued journey, that we've been on, to get to the operating profile where it needs to be. So it's the right step, it's a good step. And again, to your question, Kevin, specifically margin profile, we're still on track and it's looking good. Apple Pay, those types of things, these are activities that -- it's interesting, because in a world where we see self-serve and so many wonderful capabilities are the way that we can take care of ourselves, the interesting thing is that the velocity of all these mobile apps and the communication that's coming into our lives is also dramatically increasing total quantity of interactions. So even though you have the self-serve things, the interactions always drive an opportunity for your to need to pick up the phone and also speak with someone or engage in a chat session. So it's something that we love to see. And this type of innovation, we think in the end, it's really good for our business and continues to drive up the need for personal interactions. I don't know, I think I hit the 2, Kevin. Was there another one that you had there?

[Kevin D. McVeigh:]

No. Just any thoughts around how the holidays are shaping up. Are you seeing a normal seasonal ramp? And then, just more granular and then I'll jump off, on the tax rate for '15. Should it be somewhere around '14 for modeling purposes?

[Charles E. Sykes:]

Yes. Holiday volumes so far -- I'm sorry John. Holiday volumes, so far, I mean based on the forecast now we're getting from our clients. It's a normal cycle that we're looking for. Which is good, because in some of our segments now, we do have quite a bit of an uptick in the seasonality. So it's important that we believe that seasonal volume is going to happen. And so far, just based on the commitments from the clients, things we're getting, we're encouraged by that. On the tax rate, John.

[John Chapman:]

Yes. On 2015, as you've said, Chuck, we don't want to really talk about 2015 just now. Although we don't expect the tax rate to materially change next year.

[Operator:]

Next question comes from Bill Warmington at Wells Fargo.

[William A. Warmington:]

I wanted to ask about the unwinding of the financial services client contract and just how much is that weighing -- or did it weigh on Q3 and is it weighing on Q4? When will you be totally past that? And then the second question for you is asking about the utilization gap between Americas at 77% and EMEA at 88% and whether you think you can close that gap. And by that, I mean, taking Americas up and how long that would take and whether that's going to impact your '15 margins.

[John Chapman:]

Okay. I'll take the first point, Bill, on the financial services client. The impact of that client on numbers in Q3 was approximately 50 basis points. We expect that is still the high-end, Q4, but not of that scale. And as we've always said, we anticipate that we will be completely out of that drag by Q1 next year.

[William A. Warmington:]

So 50 basis points to the EBITDA margin?

[Charles E. Sykes:]

Yes. Yes, the one thing, too, just adding on the commentary in financial services is that the numbers and everything, even though I know when you look at our comparables, Q3 last year was kind of a peak level for us in terms of total aggregates. So this is really a low point. And I know, when you're on the outside looking in, it kind draws the question maybe about how well we're doing in financial services, but the change is really just related to event-driven types of activities. We continue to feel very good about financial services. We're winning, we still have strong relationships with the companies. So weird with the numbers but I wouldn't overreact in the sense that we're losing our position in that space. We still see growth in the future for us. In regards to your question about utilization, the 77%. Yes, remember, this has come up from the 60s and the challenge that we have in the Americas really has been about threefold. One is that, as we've grow as a company, we continue to win bigger and bigger deals, which is great. The only problem with that is that the clients who we're winning these big deals with, want dedicated centers. Our challenge is that, where we have 30 centers in the U.S., many of them were just in the wrong place for those clients or didn't they have the right of availability of seats. So we really had a problem, which is why we've had to add seats, even though our utilization was down. That was a little counterintuitive. The other thing is that, in Asia, we felt that some of our centers had really gotten old and outdated and it was hurting our ability to win. We had made some investments there to launch a brand new site. Not related really to winning business, just keeping ourselves relevant. That utilization and that strategy has worked really, really well. And it's a completely full type operation in the new site. So good success there. The third thing that we've had is that we still see, with some of our sites, labor market concerns. They're in pretty small communities. We see a shift in the work demographic, what's going on. And we just need to close the centers. The problem is we still had some clients in there. This is where we used our virtual investment in Alpine, to be able to go to those customers and say, look, I know you don't want to move but can we convert them to virtual. And for every 6 clients that we approach, 5 of them are agreeing to say, we'll go virtual, and 1 is not. So I think that's why you're seeing that already go from the 60s into the 70s. And, yes, we absolutely believe we can get it up into the 80s, in the range. We need to get it into the 80s to get it into the 8% to 10% for the company, overall margins. And with the virtual expansion, with the growth we're having, we're seeing this again on that trend. A lot of comments with it, but I just -- there's 3 key things I just want to make sure aren't lost on the sense of what were doing in the facilities.

[Operator:]

The next question comes from Shlomo Rosenbaum at Stifel.

[Shlomo H. Rosenbaum:]

I want to ask a little bit about EMEA. And if you look at what happened in EMEA, you have a sequential increase of almost $5.5 million on your operating income with a sequential increase of $1.4 million in your revenue. So it implies a dramatic amount of cost take-out or something else over there. If you can just kind of give us more color into that. And then, just in general, this being such a high point in the EMEA margins. How should we think about that business at this point in time because this has been repositioned over the last couple of years?

[John Chapman:]

Okay. Shlomo, you're absolutely right. The improvement in EMEA, between Q2 and Q3, was quite dramatic. You've got to think of Q2 -- that was really a low point in EMEA. And there's 2 types of clients in EMEA. There's clients that we support 7 days a week, 24 hours a day sometimes. And in Q2, we've got costs as we have to support those clients through the public holidays that exist in Europe in Q2. We've also got clients that are 5 days a week clients, and in Q2 they close down on those public holidays. And so in Q3, you've got the benefit that you don't have the costs of staffing your centers in public holidays that exist in Q2 but don't exist in Q3. And then on the clients that you support in the business environment 5 days a week, because there's no public holidays in Q3, you really do get more days to generate revenue. And because most people are salaried in Europe, you've effectively got a relatively fixed labor cost. And you do get this anomaly that Q2 is usually, and always will be, the lowest quarter. And then you've got this nice pick-up in Q3 because of those factors. In saying that, I think we are extremely impressed by the performance in EMEA. I mean, it's above where we expected it to be. But we will see in Q4, seasonally, that will drop back down, because again, in Q4, not as much as Q2, has some of the same issues in terms of supporting clients during the holiday season. So hopefully that kind of gives you flavor of where we are in EMEA and how we went from where we were in Q2 to where we are in Q3.

[Charles E. Sykes:]

Yes, it effectively is a higher effective wage rate because if you look at the revenue only going up 1.4. It's just having to do the double pay on the holidays and everything, Shlomo. So just our expense for generating a little revenue really increases because of double period on a holiday time period.

[Shlomo H. Rosenbaum:]

Okay. And then, I just want to focus a little bit more on the Americas. And like from an organic growth perspective, the trajectory has been, like 3Q, 4Q '13 I think 9.1% growth, then 6.4%, 3% then 1.5%. If you can give us just a little bit of underlying color as to what's going on, especially in the context of AT&T. The year-over-year growth of AT&T, on a revenue basis, exceeds the year-over-year growth for the overall company on a revenue basis. So if you can just kind of give us a little color around that.

[Charles E. Sykes:]

Sure. John?

[John Chapman:]

Yes. In the Americas you've obviously got, as Chuck has been pointing out, the headwind of the financial services business that we have. And so you've really got to look at that's been shrinking for us. So you've actually got to then adjust that out of the numbers for Americas. And you're right, AT&T growth is very significant, both year-over-year and sequentially. But if you then take out the financial services, you'll see there's also growth in the other vertical, primarily in the technology space. So, really, we've got a real headwind, both in the financial services in the Americas and we've got a bit of a currency headwind just now, with the strength of the dollar against, primarily, the Canadian and the Australian impacting our numbers on a comparable basis.

[Charles E. Sykes:]

Shlomo, on the financial services side we had 2 of our large financial services customers exit their mortgage business. They sold it off and so that was a pretty significant impact there for us. And then, of course, the 1 program that we're referencing about, the outbound program with the regulatory change, and our sales ability and affecting our commission rates and profitability. So those 3 right there have been particularly impactful in making the Americas number look strange. Now the one thing is, on all 3 of these programs, we still continue to have the relationship on the mortgage side. In fact, our business is now back to being offset, the mortgage business we lost, we're now growing in fraud activity on the banking side. But it was event-driven, that hit. They're trying to remove the mortgage part of the business, some of these banks, and it just hit us. But it is not a value proposition that's out of whack or a performance issue or anything such as that. So it makes the comps a little strange looking right now, but it is what it is. That's the numbers.

[Shlomo H. Rosenbaum:]

Okay. If I could just squeeze in a housekeeping. How much stock did you repurchase in the quarter?

[Charles E. Sykes:]

138,000.

[Operator:]

The next question comes from Adam Dahms at Baird.

[Adam Dahms:]

You guys mentioned, in your prepared remarks, about investments for growth. I was wondering if you could talk a little bit about that. You guys got a nice net cash position. Is M&A a possibility? And if so, what kind of targets might you guys be looking at here?

[Charles E. Sykes:]

Yes. The 2 areas that we're really -- I'll call it our strategic filter, that we want to keep an eye out for, is things that will strengthen our platform. And when we talk about our platform, that could mean anything -- if we need some offshore capability. Like years ago people did that to get into the Philippines or -- we started Costa Rica through an acquisition of Acer computer's operation, right? But today, we don't -- it's probably not as likely a country as it is more capabilities around digital. We're very interested, and really want to lead, in digital. A lot of demand and interest that's occurring right now in the world of chat. And even though we have nice capabilities there, if we still see a company that's really doing something innovative, we'd be very interested that. Social media certainly is another one. A lot of interest in that. Hasn't quite taken off in the sense of scale in the world of customer service. But we think it's going to become more and more of a top-of-mind issue. Alpine, just to reinforce that, obviously was an example of us making investments in our platform. We continue to see the world of virtual being, again, a key differentiation in the future. So the platform area is a significant spot for us. In regards to the verticals that we serve, the one that we would keep an eye out for, and we are, is health care. And the health care is a spot that we keep a close watch on where we see the emerging trends. Of course, the challenge in it right now is that the valuations are pretty steep. So those are things that make it a little difficult. But to answer your question, it's in those 2 categories, platform and from an industry standpoint, we'll keep an eye out for health care.

[Adam Dahms:]

That makes a lot of sense. And then, from a Q4 margin perspective, I know you guys talked about EMEA, seasonally, coming down a bit. Overall, should we expect margins to come down a little bit from the 7.8% we saw in Q3 or how should we look at that?

[John Chapman:]

I mean, our guidance, if you back into our guidance, we are guiding above our 7.8% in Q4. We expect to move forward again in Q4, both sequentially and comparably.

[Adam Dahms:]

Okay, I guess that's what I got there. And then real quick housekeeping. Onshore versus offshore seat count for the Americas.

[John Chapman:]

Well, we don't really have that. I don't have that number here. It's not one we usually look at. I mean, it's really remaining pretty flat and compared to what it has been in prior quarters.

[Operator:]

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

[Charles E. Sykes:]

Great. Well, thank you, everyone. And as always, we appreciate your interest and your questions and we look forward to updating you guys next quarter. Everyone have a good day, thanks.

[Operator:]

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