U.S. markets closed

Edited Transcript of SYKE earnings conference call or presentation 27-Feb-20 3:00pm GMT

Q4 2019 Sykes Enterprises Inc Earnings Call

TAMPA Mar 11, 2020 (Thomson StreetEvents) -- Edited Transcript of Sykes Enterprises Inc earnings conference call or presentation Thursday, February 27, 2020 at 3:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Charles E. Sykes

Sykes Enterprises, Incorporated - President, CEO & Executive Director

* John Chapman

Sykes Enterprises, Incorporated - Chief Finance Officer

================================================================================

Conference Call Participants

================================================================================

* David John Koning

Robert W. Baird & Co. Incorporated, Research Division - Associate Director of Research and Senior Research Analyst

* Joshua David Vogel

Sidoti & Company, LLC - Analyst

* Vincent Alexander Colicchio

Barrington Research Associates, Inc., Research Division - MD

* William Arthur Warmington

Wells Fargo Securities, LLC, Research Division - MD & Senior Equity Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good day, and welcome to the Sykes Enterprises, Incorporated Fourth Quarter 2019 Earnings Conference Call. (Operator Instructions) Please note this event is being recorded.

On the call today is the Sykes' management team, including CEO, Chuck Sykes; CFO, John Chapman; and IR Head, Subhaash Kumar.

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 are based on the beliefs of management as well as assumptions made by and information currently available to management. Phrases such as our goal, we anticipate, we expect and similar expressions as they relate to the company are intended to identify forward-looking statements. It is important to note that the company's actual results could differ materially from those projected in such forward-looking statements. Factors that could cause actual results to differ materially from those in the forward-looking statements were identified in yesterday's press release and the company's Form 10-K and other filings with the SEC from time to time.

I would now like to turn the call over to Chief Financial Officer, John Chapman. Please go ahead, sir.

--------------------------------------------------------------------------------

John Chapman, Sykes Enterprises, Incorporated - Chief Finance Officer [2]

--------------------------------------------------------------------------------

Thank you, Carrie. Good morning, everyone, and today -- and thank you for joining us today to discuss Sykes Enterprises' Fourth Quarter 2019 Financial Results. On today's call, I'll make brief remarks about the quarter and walk you through the numbers, and then turn over to Q&A for Chuck and I.

To begin with, we are extremely pleased with our fourth quarter operating performance. Underlying results were strong across the vertical and virtually all key metrics. Fourth quarter 2019 saw a nice acceleration in revenue growth, healthy expansion of margins, growth in diluted earnings per share and increase in capacity utilization. We continue to reinvest in our business while maintaining our sturdy balance sheet. With strong quarterly results underpinned by actions taken on capacity rationalization, exiting sub-profitable accounts and rebalancing our delivery footprint, we are setting up for a strong 2020.

As we enter 2020, demand indications are better than initially expected. We are seeing solid growth in both new and existing clients across virtually all verticals. Operationally, we are also making solid progress. In particular, the challenges around elongated ramp of large client programs we discussed in our third quarter are on a glide path of remediation. Separately, while wage inflation in the U.S. remains a concern, clients are being constructive about replacing contracts to target levels of profitability. On the strategic front, we continue to innovate, simplify and integrate our business, while simultaneously refining our go-to-market messaging. Our value proposition around full life cycle offering encompassing engagement services, digital marketing and digital transformation continues to resonate in the marketplace. With a decent demand backdrop and healthy operational momentum, underlying fundamentals remain on an upward trajectory even if the uncertainty around the coronavirus created some short-term bumps along the way.

I'd like to discuss our quarterly financial results, particularly key P&L, cash flow and balance sheet highlights, after which I'll come to the outlook for the first quarter and full year.

We had an overall solid quarter. Let's start with revenues. In the quarter, we reported revenues of $425.3 million versus our third quarter outlook of $415 million to $420 million. This was roughly $8 million above the midpoint of our business outlook. Of the $8 million outperformance, approximately $7 million was due to broad-based demand spanning our vertical mix. The remaining $1 million was a foreign exchange benefit. Looking at revenues on a year-over-year comparable basis, we're up 2.4% on a reported basis and up 2.8% on a constant currency basis.

By vertical market and on a constant currency basis, health care was up around 35%, financial services up 14%, technology up 10% and transportation and leisure up 7%, all of which more than offset a 17% decline in communications and 12% decline in the other vertical. It is worth noting that stripping out the impact of the 2 communication clients we have called out in the past 2 quarters, one of which we have now completely exited and the other was our once largest client, the communications vertical would have swung to high single-digit growth.

Fourth quarter 2019 operating margin increased to 7.8% from 6.7% for the comparable period last year. On a non-GAAP basis, which excludes the impact of acquisition-related intangibles and fixed asset write-ups, charges and merger and integration costs, fourth quarter operating margin was 9.2% versus 9% in the same period last year. The increase in the comparable operating margins was due to strong overall demand, higher capacity utilization and rationalization of certain client programs with subpar profitability.

Fourth quarter 2019 diluted earnings per share were up 40% to $0.56 versus $0.40 in the same period last year, driven mostly by a combination of aforementioned factors, combined with lower other expenses in the current quarter, lower effective tax rates and lower shares outstanding due to share repurchases. On a non-GAAP basis, fourth quarter 2019 diluted earnings per share was $0.69 versus $0.58 in the comparable -- on a comparable basis, driven by the same factors. Relative to the business outlook range of $0.64 to $0.68 per diluted share, the $0.03 per diluted share beat relative to the midpoint of the range was mostly due to a lower effective tax rate.

Turning to client mix for a moment. On a consolidated basis, our top 10 clients represented approximately 41% of total revenues for the fourth quarter of 2019, unchanged from a year-ago period. The top 10 clients in the fourth quarter of 2019 compared to the top 10 clients in the same period last year grew by more than 2%. The remaining client portfolio outside the top 10 grew even faster compared to the same period last year. We have no 10% client in the quarter versus one just shy of 10% in the year-ago period, driven by broad-based growth in the fourth quarter despite lower demand from our once largest client in the communications vertical.

Now let's turn to some select cash flow and balance sheet items. During the quarter, capital expenditures increased to 3.3% of revenues from 2.4% in the year-ago period. The increase in capital intensity was largely driven by expansion of seats, mostly offshore and in EMEA, coupled with a technology refresh. Trade DSOs on a consolidated basis for the fourth quarter was 79 days, up 3 days comparably and up 2 days sequentially. The DSO was split 78 days for the Americas and 83 days for EMEA. We collected roughly 10 days' worth of DSOs within a few days of the year-end. Our balance sheet at 31st December 2019 remains strong with cash and cash equivalents of $127.2 million, of which 98.5% or $125.3 million was held in international operations. Our debt, 31st of December 2019, we had $73 million in borrowings outstanding, down $4 million sequentially under our $500 million credit agreement. We continue to hedge some foreign exchange exposure. For the first quarter and full year 2020, we are hedged approximately 76% and 57% at a weighted average rate of PHP 52.42 and PHP 52.26 to the U.S. dollar. In addition, our Costa Rica colon exposure is hedged approximately 21% and 42% at weighted average rates of CRC 606.56 and CRC 590.09 to the U.S. dollar.

Now let's review some seat count capacity utilization metrics. On a consolidated basis, we ended the fourth quarter with approximately 48,200 seats, down approximately 600 seats comparably. Almost all of the comparable reduction was related to actions around capacity rationalization. The fourth quarter seat count can be further broken down to 40,200 in the Americas and 8,000 in the EMEA region. Capacity utilization rates at the end of the fourth quarter of 2019 were 76% for the Americas and 72% for EMEA versus 70% for Americas and 75% for EMEA in the year-ago quarter. The increase in the Americas utilization was driven by higher demand and capacity rationalization of underutilized excess capacity, while the reduction in EMEA was due to capacity expansion and utilization of our at-home platform as a complement to our brick-and-mortar facilities. The utilization rate on a combined basis was 75% versus 71% in the prior year-ago period, with the increase mainly due to higher demand, coupled with capacity rationalization of the underutilized capacity.

Now let's turn to the business outlook. We continue to see broad-based increase in client demand across most verticals. In fact, client demand projections for 2020 are significantly better than we initially indicated in our third quarter 2019 earnings release. To service this higher demand, we expect higher than planned ramp costs, which are expected to be front-end loaded.

Our first quarter and full year 2020 revenue and diluted earnings per share do not reflect the impact of the coronavirus, given its uncertain path within and beyond China. However, China generated roughly $36 million of revenue in 2019 with operating margins, net of overhead allocation, roughly in line with current company average. We believe the revenue and diluted earnings per share impact for the first quarter could be in the range of $1.5 million and $2 million and $0.03 to $0.05, respectively, based on our current labor participation levels at our facilities and home agent utilization post Chinese New Year.

Our revenue and earnings per share assumptions for the first quarter and full year are based on foreign exchange rates as of February 2020. Therefore, the continued volatility in FX between U.S. dollar and the functional currencies of the markets we serve could impact, positive or negative, on revenues and both GAAP and non-GAAP earnings per share relative to the business outlook in the first quarter and full year.

We anticipate total other interest income expense net of approximately $1.2 million for the first quarter and $3.8 million for the full year. The full year 2020 amount is in line with 2019. The amounts in other interest income expense, however, exclude the potential of impact of any future foreign exchange gains and losses.

We expect our full year 2020 effective tax rate to be in line with 2019.

Considering the above factors, we anticipate the following financial results for the 3 months ending 31st March 2020: Revenues in the range of $417 million to $422 million; an effective tax rate, both GAAP and non-GAAP, of 25%; fully diluted share count of approximately 41.5 million; diluted earnings per share of $0.39 to $0.43; non-GAAP diluted earnings per share in the range of $0.49 to $0.53; capital expenditures in the range of $15 million to $20 million.

For the 12 months ending 31st December 2020, we anticipate the following financial results: Revenues in the range of $1.7 billion to $1.72 billion; effective tax rate, both GAAP and non-GAAP, of 24%; fully diluted share count of approximately 41.6 million; diluted earnings per share of approximately $2.02 to $2.16; non-GAAP diluted earnings per share in the range of $2.36 to $2.50; and capital expenditures in the range of $50 million to $60 million.

With that, I'd like to open the call up for questions for myself and Chuck. Operator?

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) The first question will come from Josh Vogel of Sidoti & Company.

--------------------------------------------------------------------------------

Joshua David Vogel, Sidoti & Company, LLC - Analyst [2]

--------------------------------------------------------------------------------

I guess, my first question, we've seen the telco business shrink to about $350 million now. And John, you did mention that outside of the 2 largest clients, you actually did see high single-digit growth in the remaining of the vertical. But I'm just curious about the sector in general. Is it potentially structurally broken? Or the business that you're growing into, does it make as much money as the legacy business? So just wondering what you could -- any insights you could share there.

--------------------------------------------------------------------------------

John Chapman, Sykes Enterprises, Incorporated - Chief Finance Officer [3]

--------------------------------------------------------------------------------

Yes, yes. I mean, Josh, we did -- telco as a vertical is not broken. I mean we did describe that, let's call it, our telco business where we had pricing that was incomparable with where we were delivering the services from. We were delivering onshore services. Clients were going -- looking to go offshore. We had labor challenges, et cetera, et cetera. That applies to both the once largest client and the other clients where we -- the relationship ended.

We do -- we still like the telco vertical. It is operationally intensive. We are winning new telco pieces of business. Is it more operational-intensive than some verticals? Yes. Are the margins worse? No. Are the margins at what we need them to be? Yes. So I don't think the telco vertical is structurally broken. I think we had business that was structurally broken in the telco vertical. That's, by and large, behind us now. In fact, it is behind us now. As we cycle through Q1 and Q2, we'll still have that year-over-year revenue headwind, but you'll see, even excluding the 2 clients we keep calling out, you'll see revenue in the vertical grow from Q3 onwards, even excluding those. So we're optimistic about the vertical. We -- but we do want to be a significant player. It's still a significant piece of the market. And we absolutely believe we can succeed where you price the contracts and where the service is delivered, mainly in the telco vertical, that's going to be on a nearshore and offshore basis.

--------------------------------------------------------------------------------

Joshua David Vogel, Sidoti & Company, LLC - Analyst [4]

--------------------------------------------------------------------------------

That's helpful. Shifting gears a little bit. When we think about your digital business, Clearlink, Symphony, the investments you are making in XSELL, how big was that business in 2019? How did it perform versus '18? And what are your expectations for this year that are built into your guidance?

--------------------------------------------------------------------------------

John Chapman, Sykes Enterprises, Incorporated - Chief Finance Officer [5]

--------------------------------------------------------------------------------

Okay. So you mean digital business other than those 3 businesses? Or do you mean digital clients? Or do you mean us providing channels in the -- supporting the digital channels, Josh?

--------------------------------------------------------------------------------

Joshua David Vogel, Sidoti & Company, LLC - Analyst [6]

--------------------------------------------------------------------------------

I guess what you would...

--------------------------------------------------------------------------------

John Chapman, Sykes Enterprises, Incorporated - Chief Finance Officer [7]

--------------------------------------------------------------------------------

Because I think those are different...

--------------------------------------------------------------------------------

Joshua David Vogel, Sidoti & Company, LLC - Analyst [8]

--------------------------------------------------------------------------------

Yes. I know it's a broad term, but I guess what you would classify as your digital business, the AI, RPA, that type of stuff.

--------------------------------------------------------------------------------

John Chapman, Sykes Enterprises, Incorporated - Chief Finance Officer [9]

--------------------------------------------------------------------------------

Okay. Well, if we look at -- I mean, we don't -- well, with Symphony, remember it was a small asset. I mean we delivered about $7 million of revenue in Symphony, but that grew close to 100%. Not that we consolidated it because when we bought it last year, but that had really nice growth and the margins are better than the average. But again, the Symphony acquisition was not about growing our large consultancy. It was for -- added to our portfolio of services. So that piece of the digital business is $30 million.

Clearlink, we've said, is always about 15% of revenues. We did talk about how -- we were trying to grow on the property and casualty insurance in the digital marketing space. And last year, the revenue growth in Clearlink was -- it was pretty flat. But as a result of us making that decision on P&C, the actual operating margins improved. So again, slightly better than corporate average last year, but we expect that to go back to its double-digit growth in 2020.

So -- and in terms of XSELL, we obviously don't consolidate their numbers, but increasingly, we are seeing us using XSELL as part of our capability within our sales -- within our Clearlink business. We see that growing. But the company, I mean, I'm not going to say with XSELL as they're a private company, but we are very, very excited with the growth that they have seen in 2019, whereas they're more than doubling their business. And we are looking to use more and more of their capabilities and we love having them in the house, if you like, to really educate us on what's happening in the AI world as the services become more AI-enabled.

So yes, so I guess, that probably adds up to close to 20% of our revenues being around Clearlink and Symphony and Qelp, which is interesting because that's roughly around the same number as the amount of business we do in the non-voice channel. So the digital voice channel is the same. It's around that kind of 15% to 20% of revenue.

--------------------------------------------------------------------------------

Charles E. Sykes, Sykes Enterprises, Incorporated - President, CEO & Executive Director [10]

--------------------------------------------------------------------------------

Josh, it's Chuck if you can't tell. Obviously, well, my voice is not able to work here today. But when you're talking to us, I would think in the context of 3 dimensions.

One is digital business. Now, for us, we're talking about our clients in that case. And when we think about our clients in that case, we think of 3 characteristics. They're typically companies that are very light in physical assets. Some people refer to that as information-enabled assets. The second thing is that they're very high-velocity model businesses where the consumer can get immediate consumption of the products or services. The third is that they possess the ability to rapidly scale. So those are the characteristics now. And it's starting to get a little tricky because traditional businesses that have a lot of physical assets are trying to embrace characteristics of digital businesses. But for us, at the time being, that's what we think of as the digital business, so Uber and Netflix and the FinTech companies, that type of stuff. And to John's point, that's about 17% to 18% of our company today. Now we want to grow with those businesses because they're growing so fast, but on the other hand, today, they're pretty small.

Now the second component is digital channels. And yes, we're seeing there and seeing there is that when you think about our channels today, 20% of our business is related to those channels, but here's an interesting caveat. Many of the digital businesses that we're serving are using only voice channels, at least that they're outsourcing to us. And on the other hand, many of our traditional clients are outsourcing to us digital channels. So that's where it gets confused and I'm sure, for you guys, when you're talking. So our nomenclature will be a digital business is describing the client and digital channel is the medium in which we're supporting our clients.

And then in terms of our companies inside, we refer to them as digital technology units. So now on those units, we really want that capability to just become embedded in our operational infrastructure. We really don't want to sell it as a separate add-on service. We just want it to be the way we deliver our traditional engagement services, and it will create new areas of value and differentiation. So anyway, that's the way that we kind of think of the business in that sense. I hope you understand me.

--------------------------------------------------------------------------------

Joshua David Vogel, Sidoti & Company, LLC - Analyst [11]

--------------------------------------------------------------------------------

No, I did. It's always great to hear your voice, and I appreciate all the insight there. I just have one more quick one on seat count. I've noticed that it's increased sequentially the past few quarters. Can you just talk about your plans for 2020 and where you're looking to add seats?

--------------------------------------------------------------------------------

John Chapman, Sykes Enterprises, Incorporated - Chief Finance Officer [12]

--------------------------------------------------------------------------------

Yes. We suspect a lot. Well, first, included in our estimates just now is about 2,500 seats, Josh. The majority of them will be added in the second half of the year and perhaps with the exception being a near and offshore addition because that's where we see -- where we look at -- look forward and see the growth that we see, that's where we see where we want to be adding seats, getting ready for continued growth into 2021.

--------------------------------------------------------------------------------

Joshua David Vogel, Sidoti & Company, LLC - Analyst [13]

--------------------------------------------------------------------------------

Okay. And I'm sorry, if I could just sneak in one more. Just thinking about China, I was curious how many home agents you have there. And then can you just maybe talk about what your business continuity plans are in case the facilities there can't be opened? Where are you rolling that volume over to?

--------------------------------------------------------------------------------

John Chapman, Sykes Enterprises, Incorporated - Chief Finance Officer [14]

--------------------------------------------------------------------------------

Yes. That's a really interesting question because before Chinese New Year, we had 0 at-home agents. Within 1.5 weeks after Chinese New Year, we had 60 -- I think it's 63% of people working, 40% of them were at-home. So while -- even though, I guess, we didn't have a formal-like, let's call it, business continuity plan, we obviously were able to use our skills and understanding of that model, what you need to do to stand up that quickly, and we went from 0 agents to 40% of those 63% at-home.

Now the good news is we've now got over 80% of people are at -- working in a combination of brick-and-mortar and at-home, but it just shows you the advantages of having that capability and understanding how you ramp up quickly at-home agents. So again, that's a huge shout-out really to our Chinese management and employees that they were quickly able to, yes, use the skills and knowledge that's inherent in the company, but to quickly pivot and be agile enough to get to the point where 40% of agents were at-home within 2 weeks of getting back.

--------------------------------------------------------------------------------

Operator [15]

--------------------------------------------------------------------------------

The next question will be from Bill Warmington of Wells Fargo.

--------------------------------------------------------------------------------

William Arthur Warmington, Wells Fargo Securities, LLC, Research Division - MD & Senior Equity Analyst [16]

--------------------------------------------------------------------------------

So I have questions for everybody but Chuck. So Chuck, just rest your voice. I hope you feel better.

--------------------------------------------------------------------------------

John Chapman, Sykes Enterprises, Incorporated - Chief Finance Officer [17]

--------------------------------------------------------------------------------

He's not in -- Bill, he's not in pain. That's why...

--------------------------------------------------------------------------------

Charles E. Sykes, Sykes Enterprises, Incorporated - President, CEO & Executive Director [18]

--------------------------------------------------------------------------------

(inaudible)

--------------------------------------------------------------------------------

William Arthur Warmington, Wells Fargo Securities, LLC, Research Division - MD & Senior Equity Analyst [19]

--------------------------------------------------------------------------------

Well, I guess, it's hurting us more than it's hurting you then.

--------------------------------------------------------------------------------

Charles E. Sykes, Sykes Enterprises, Incorporated - President, CEO & Executive Director [20]

--------------------------------------------------------------------------------

And that's why John read the script.

--------------------------------------------------------------------------------

William Arthur Warmington, Wells Fargo Securities, LLC, Research Division - MD & Senior Equity Analyst [21]

--------------------------------------------------------------------------------

All right. Well, the -- for the first question, I just wanted to ask you if you could talk a little bit about what gives you confidence in the sustainability of the mid-single-digit revenue growth that you're talking about?

--------------------------------------------------------------------------------

John Chapman, Sykes Enterprises, Incorporated - Chief Finance Officer [22]

--------------------------------------------------------------------------------

What gives us confidence is the number of new clients that we've been adding. What gives us confidence is the number of large clients who are maybe, for whatever reason, looking to add a new vendor where our portfolio of services that we are speaking to them about gets them excited that we're able to connect client that even if they're going to buy traditional engagement services today, that we could be their digital partner to grow with in the future because, if you remember, we always talk about this business being a 10-year relationship.

So again, if you think about, let's call it, previous years, we did have disproportionate growth across one large client. And this is all about guys, we need to try and diversify and not over-index in any one geography with any one client in any one vertical. What we'd say, Bill, is we're really excited by the breadth of growth we've got across both, let's call it, the new digital businesses that Chuck's referring to as well as traditional clients that we've been winning. So all I would say is it's broad-based in terms of countries, in terms of clients, in terms of verticals. That gives us confidence that -- we're not saying we're going to always be above the 4% to 6% range, but obviously the last couple of years when you had a client that went from 20% of your revenues down to 5% and it was really difficult to deliver any kind of growth, but we have managed, at least echo a little bit this year -- in '19.

But going forward, we're really hopeful that those new clients, new relationships, expanded lines of business, good list of clients who are winning new business that they are then giving us pieces of -- we're getting more comfortable, obviously, in terms of the revenue guidance. It's great for this year. And we believe that based on that broad base, it's going to be much more sustainable going into the future years.

--------------------------------------------------------------------------------

William Arthur Warmington, Wells Fargo Securities, LLC, Research Division - MD & Senior Equity Analyst [23]

--------------------------------------------------------------------------------

So for my follow-up question, I wanted to ask a coronavirus question based on what's happening in China. How much of your U.S. capacity could you convert to home agent? How long would it take? How much would it cost?

--------------------------------------------------------------------------------

John Chapman, Sykes Enterprises, Incorporated - Chief Finance Officer [24]

--------------------------------------------------------------------------------

It's interesting because in China, it's -- we had clients that said they do not do at-home, but then when was the only option, we were able to do that. Considering the U.S., it's where we've got most at-home agents and we've got the biggest amount of infrastructure in place today and the biggest knowledge of what we would do. I wouldn't like to give you an answer in terms of looking at it client by client, but absolutely, I believe we'd be in the best position, both in the U.S. would be the -- in the best position in the Sykes company to react to it and I think Sykes would be in one of the best positions in the market to react to it. We just don't -- we don't envisage that happening today, but we certainly believe that we could do more than even what China was able to do within 2 weeks, which is just phenomenal, to turn 40% of people who were active at-home within 2 weeks. I don't know if you want to add anything, Chuck.

--------------------------------------------------------------------------------

Charles E. Sykes, Sykes Enterprises, Incorporated - President, CEO & Executive Director [25]

--------------------------------------------------------------------------------

Bill, I bet you, if our clients literally let our existing people work at the center and then work from home, I bet you we can do almost the entire U.S. in less than 90 days because you don't have training, you don't have recruiting and people have desktops and...

--------------------------------------------------------------------------------

John Chapman, Sykes Enterprises, Incorporated - Chief Finance Officer [26]

--------------------------------------------------------------------------------

It was on -- people are available.

--------------------------------------------------------------------------------

Charles E. Sykes, Sykes Enterprises, Incorporated - President, CEO & Executive Director [27]

--------------------------------------------------------------------------------

Yes. It would just be the communication infrastructure. And a lot of it is hosted up in the cloud now. So it would be pretty quick.

--------------------------------------------------------------------------------

Operator [28]

--------------------------------------------------------------------------------

The next question will come from Dave Koning of Baird.

--------------------------------------------------------------------------------

David John Koning, Robert W. Baird & Co. Incorporated, Research Division - Associate Director of Research and Senior Research Analyst [29]

--------------------------------------------------------------------------------

Congrats on a nice year. It was good to see margins up so much in 2019. And revenue for next year, it's great to see. So I guess, first of all, in -- if we look at 2016, '17, '18, those years you had margins come down. '19, they went up nicely. How much of that was just core? And how much was -- I know you had some like Symphony, you did some of the acquisitions in there. If you'd break down the margin expansion by just core and acquisitions, how would that kind of mix?

--------------------------------------------------------------------------------

John Chapman, Sykes Enterprises, Incorporated - Chief Finance Officer [30]

--------------------------------------------------------------------------------

The acquisitions are so small, it makes no difference, David. Even though it's incremental, I mean, I think if you look at EMEA, over the year, Symphony is 30 basis points. But when you actually look at over -- you consolidate it, it doesn't even get a rounding number.

It's hard to see all of the things that contribute other than all the things we've kept mentioning. We removed suboptimal programs. We got -- the U.S. programs we kept. We got adjusted so they work for both the client and ourselves. We've improved their facility utilization and we know how much that benefits. We still got a long way to go, but that is also part of that. And the new business we are winning, we're winning at today's prices, at today's margins as the target. So it's a combination of all of those things, David. I wouldn't -- it's definitely not acquisition-based is what I'm saying. It's all about the operational levers that we've pulled over the last 18 months.

--------------------------------------------------------------------------------

David John Koning, Robert W. Baird & Co. Incorporated, Research Division - Associate Director of Research and Senior Research Analyst [31]

--------------------------------------------------------------------------------

Yes, okay, okay. And then on the China conversation, I guess, it's all delivery out of China, right? It's not China-based revenue from the standpoint of it's not China clients buying from China call centers. It's more -- the delivery is in China serving other countries. Is that right?

--------------------------------------------------------------------------------

John Chapman, Sykes Enterprises, Incorporated - Chief Finance Officer [32]

--------------------------------------------------------------------------------

It's a mix, David. We've got China support of international clients. Vast majority is international clients, but some of it is supporting those clients in the Chinese market. But we do have a multilingual capability in China as well. So we'll do Japanese support from China, et cetera. So it's a mix. I'm looking at the box because I don't really know the exact mix between Chinese delivery and -- but I'd guess so...

--------------------------------------------------------------------------------

Charles E. Sykes, Sykes Enterprises, Incorporated - President, CEO & Executive Director [33]

--------------------------------------------------------------------------------

It's 85.

--------------------------------------------------------------------------------

David John Koning, Robert W. Baird & Co. Incorporated, Research Division - Associate Director of Research and Senior Research Analyst [34]

--------------------------------------------------------------------------------

It's percent, is in kind of...

--------------------------------------------------------------------------------

Charles E. Sykes, Sykes Enterprises, Incorporated - President, CEO & Executive Director [35]

--------------------------------------------------------------------------------

Yes, 85% sort of...

--------------------------------------------------------------------------------

John Chapman, Sykes Enterprises, Incorporated - Chief Finance Officer [36]

--------------------------------------------------------------------------------

Chinese (inaudible).

--------------------------------------------------------------------------------

David John Koning, Robert W. Baird & Co. Incorporated, Research Division - Associate Director of Research and Senior Research Analyst [37]

--------------------------------------------------------------------------------

Okay, okay. And when you did the quick ramp, I mean, it's pretty impressive that 40% could get into the at-home -- just at-home right away delivery. Is the service -- is there any -- like, do you have clients ever call and say, "Oh, something changed." Do they -- is it completely unnoticeable and no service issues?

--------------------------------------------------------------------------------

John Chapman, Sykes Enterprises, Incorporated - Chief Finance Officer [38]

--------------------------------------------------------------------------------

I wouldn't be able to answer that strictly just now, David. All we are is we're capable of doing service with the employees that are trained to do the service, whether that means undoubtedly the client is going to have seen an impact. There's no doubt about that. And again, that's part of what we've included as an estimate of the impact in Q1. I don't think I've got any feedback in terms of -- I'm sure the client's ecstatic that it could have been 100% down and now they're only 50% down, but I don't have any formal feedback that I could give you, David.

--------------------------------------------------------------------------------

David John Koning, Robert W. Baird & Co. Incorporated, Research Division - Associate Director of Research and Senior Research Analyst [39]

--------------------------------------------------------------------------------

Okay. No, that's fine. And then the last one, just the mix between first half and second half earnings in the last couple of years. I'm looking, it looks ballpark, low 40s percent in the first half of earnings and the back half is maybe high 50s percentage of the year. Is that kind of what you're expecting in this year?

--------------------------------------------------------------------------------

John Chapman, Sykes Enterprises, Incorporated - Chief Finance Officer [40]

--------------------------------------------------------------------------------

Yes. You won't see much change, David. Yes.

--------------------------------------------------------------------------------

Operator [41]

--------------------------------------------------------------------------------

The next question will be from Vincent Colicchio of Barrington.

--------------------------------------------------------------------------------

Vincent Alexander Colicchio, Barrington Research Associates, Inc., Research Division - MD [42]

--------------------------------------------------------------------------------

Yes. I'm curious, how are you -- are you benefiting from consolidation in the market?

--------------------------------------------------------------------------------

John Chapman, Sykes Enterprises, Incorporated - Chief Finance Officer [43]

--------------------------------------------------------------------------------

Yes. Yes, I mean, we -- it's certainly not the lion's share of the things we're winning, but we did call out that when 2 large providers come together and a client then assesses in a risk profile about all their eggs -- too many of their eggs in one basket, then they go out to the market. And we all know this business is great in terms of client tenure, that's 10 years. What that does do is it makes it difficult to play a 10. And so the beauty is that where the opportunities happen because of consolidation and we've showed up, we've showed up with all of our capabilities. The clients have told us that we are showing up differently. And they then awarded us business as a result of that differentiation. So sometimes, they've given us little bits and pieces of RPA. Sometimes, it's mainly engagement services. But we have benefited from clients looking to expand their vendor list because of consolidation, yes.

--------------------------------------------------------------------------------

Vincent Alexander Colicchio, Barrington Research Associates, Inc., Research Division - MD [44]

--------------------------------------------------------------------------------

And are wage inflation and attrition levels staying -- are they in levels the same they were last quarter? Is there any change, either on the U.S. or internationally?

--------------------------------------------------------------------------------

John Chapman, Sykes Enterprises, Incorporated - Chief Finance Officer [45]

--------------------------------------------------------------------------------

No. In the U.S., our attrition has come down, but it's actually a function of us exiting those sub-profitable programs and having less telco. Telco does drive higher attrition, both in the U.S. and outside the U.S., but the U.S. I described as stable in terms of labor rates. And in terms of offshore, not much to report in terms of change, Vince.

The only thing -- I mean, we have got a lot of growth in the Philippines. I think a lot of people have been growing in the Philippines. There's a new phenomenon there if we are -- there's kind of, let's call it, sign-on bonuses that we get. These are -- these can be material if you've got a huge ramp in any one quarter. That's the new thing we're seeing where if somebody stays 6 months, they just kind of have a bonus at the end of that as they come in, meet their quality metrics and stay. But again, that's not a material cost and it's not unknown known, and so that's included in how we price. So the overall for salaries and attrition, no real news to give you compared to Q3.

--------------------------------------------------------------------------------

Charles E. Sykes, Sykes Enterprises, Incorporated - President, CEO & Executive Director [46]

--------------------------------------------------------------------------------

One thing, Vince, I would add is that in the U.S., particularly with new business, I would say the market, in terms of pricing, has adjusted to allow us to pay the targeted wage rates as well, so that's really encouraging.

--------------------------------------------------------------------------------

Vincent Alexander Colicchio, Barrington Research Associates, Inc., Research Division - MD [47]

--------------------------------------------------------------------------------

And I have a sort of qualitative question on Symphony. To what extent do you think adding it to the portfolio has helped the perception your existing clients have of what you can offer them?

--------------------------------------------------------------------------------

Charles E. Sykes, Sykes Enterprises, Incorporated - President, CEO & Executive Director [48]

--------------------------------------------------------------------------------

Yes. And I think the best way we can answer that is with the business we have won, it has absolutely been affirmed in the market that it changed the perception of the value that we can deliver long-term. So remember, again, with the relationships being 10 years, clients -- I think John made the comment, a digital partner you can grow with. And so they love seeing these digital technical technology capabilities that we have. So it's encouraging but -- so I'm -- but the best thing is just from the clients themselves.

--------------------------------------------------------------------------------

Operator [49]

--------------------------------------------------------------------------------

And this concludes our question-and-answer session and this also concludes our conference call for today. We want to thank everybody for joining. You may now disconnect. Have a great day.