TTEC Holdings, Inc. (TTEC) Q2 2013 Earnings Report, Transcript and Summary

Welcome to the Second Quarter 2013 Earnings Conference Call. [Operator Instructions] This call is being recorded at the request of TeleTech. I would now like to turn the call over to Paul Miller, TeleTech Senior Vice President and Corporate Treasurer. Thank you, sir, you may begin.

Yes. Good morning and thank you for joining us today. TeleTech is hosting this call to discuss the second quarter 2013 results ended June 30. Participating on today's call will be Ken Tuchman, our Chairman and Chief Executive Officer; and Regina Paolillo, our Chief Financial Officer. Yesterday, TeleTech issued a press release announcing our financial results for the second quarter 2013 and also filed our quarterly report on Form 10-Q with the SEC. This call will reflect items discussed within those documents, and we may reference them on the call today. We encourage all listeners to read our Form 10-Q. Before we begin, I want to remind you that matters discussed in today's call may include forward-looking statements related to our operating performance, financial goals and business outlook, which are based on management's current belief and assumptions. Please note that these forward-looking statements reflect our opinions as of the date of this call and we undertake no obligation to revise this information as a result of new information that may become available. Forward-looking statements are subject to various risks, uncertainties and other factors that could cause our actual results to differ materially from those described. Such factors include, but are not limited to, reliance on several large clients, the risks associated with lower profitability from, or the loss of, one or more significant clients, execution risks associated with ramping new business or integrating acquired businesses, and the possibility of additional asset impairments and/or restructuring charges. For a more detailed description of our risk factors, please review our most recent SEC filings, along with our 2012 annual report on Form 10-K. A replay of this conference call will be available on our website through August 14. I now turn the call over to Ken Tuchman, our Chairman and Chief Executive Officer.

Thank you, Paul, and good morning to everyone. It's been a very productive quarter for us and we've made progress on many fronts. In Q2, we continued to execute on our mission to become the premier customer engagement company. The investments we're making in leadership, innovation and global sales and marketing are pivotal to achieving this goal. As we continue to help our clients win in the marketplace, we are intensely focused on delivering outcome-based customer experience solutions that deliver measurable results. The consumer marketplace is shifting rapidly and our clients are under enormous pressure to respond. Every CEO I chat with is scrutinizing the impact and actions necessary to maximize customer engagement. At the top of their agenda is removing the friction from the customer experience to improve customer satisfaction and to drive top line growth as well as increase profitability. Our integrated platform is designed to deliver on that need by weeding strategy, technology and services together. The result is deeper engagement and more profitable customer relationships for our clients. With our unwavering strategy, stellar client portfolio, integrated capabilities built around our client needs, a strong leadership team and a disciplined commitment to investing, we are confident that we will achieve our 2013 goals. Let me share a few highlights of our progress, and then Regina will provide a review of our financial results, segment performance and 2013 outlook. Our first goal and top priority is profitable growth. This quarter we booked $105 million in new business, representing our second consecutive quarter at the $100 million mark. We are pleased with the quality and the diversity of these bookings. Our year-to-date bookings of $205 million represents an increase of over 40% compared with the same period last year. Let me give you some color on the makeup of the new bookings. 71% of the bookings were reoccurring revenue, 41% came from emerging segments, 33% was international. We signed over 20 new clients across a range of verticals. And most importantly, 93% came from our embedded base of clients. We're confident that this momentum will lead to accelerated revenue growth in the near future. As you can see, by integrating our cross segment capabilities, we are driving growth in adoption within our existing client base. As of June 30, 27 of our clients have contracted for multiple services from our business segments. One of our best examples of this strategy in action, is a more than 5-year relationship with USAA. We're proud to serve the organization across several of our business segments, which include our Customer Strategy Services, Customer Technology Services and Customer Management Services. This enterprise-wide partnership has provided us with a deeper understanding of their vision and business strategy, giving us the ability to deliver greater value to USAA and its members. This deeper partnership has resulted in USAA recognizing TeleTech with their strategic supplier excellence award. With the highest MPS scores of any company in any industry, USAA is the undisputed leader in customer engagement. To be acknowledged for our role in helping them deliver exceptional service to their members is truly an honor. Our second goal is to increase market share through prudent investments in sales and marketing. This is particularly important, given the buildout of our integrated capabilities. With much of our solution platform in place, we're now executing our vertical market and sales expansion strategy. In June, we brought Keith Gallacher on board as Executive Vice President of Global Markets and Industries to build our vertical-based account organization. Keith's prudent diligence to lead high-performing teams that acquire and develop long-term strategic client relationships is fundamental to accelerating our growth. Keith has a proven track record of doing just this at EDS, CSC, Cognizant and most recently, at Accenture, and he's already having an impact at TeleTech. As a demonstration to our commitment to verticalization, we've added industry leadership in telecom and financial services, and we anticipate hiring a healthcare leader in the second half of this year. Innovation is our third goal. We continue to invest in developing proprietary platforms that enable our clients to more effectively engage with their customers. These offerings differentiate us, allowing us to become more strategically relevant to our clients and continue our shift towards a higher margin business. For example, in our Customer Technology Services segment, investments made in cloud-based technology are delivering results. Our cloud-based solutions enables faster deployment, increased personalization, improved operational performance for our clients. We're pleased with the traction that we're gaining in this high-growth area. In our Customer Strategy Services segment, our analytics capabilities are delivering insight that contribute to both profitability and customer satisfaction. Recently, we completed a customer interaction diagnostic for a major telecom client. The diagnostic revealed the $40 million revenue and cost savings opportunity for the client across the customer engagement life cycle. As data continues to flood the marketplace, we're seeing many similar opportunities to turn analytics into actionable insight for our clients. Our fourth goal is the execution of strategic and accretive acquisitions. Yesterday, we announced the pending acquisition of the Internet sales and marketing firm WebMetro. This acquisition is positioned at the heart of digital marketing. One of the fastest growing sales channels. Let me explain. As you know, search is the place that consumers go when considering purchases. Companies, however, continued to be challenged by converting that interest into sales. Our strategy is to rapidly integrate WebMetro's proprietary platform with Revana's digital sales and marketing engine to close that gap. This new end-to-end capability will tightly integrate sales and marketing across all digital platforms, including web and mobile, and will provide the accelerated growth solutions our clients need today. We continue to build our acquisitions pipeline as well as make investments in internal capabilities, and have the financial flexibility to support our strategic objectives. Leading our progress is an accomplished group of dynamic industry veterans, with the addition of Brian Shepherd, President of our Customer Strategy Services and Customer Technology Services segment; Keith Gallacher, Executive Vice President of Global Markets and Industries; and Margaret McLean, our new General Counsel with Extensive Global and M&A experience; and our newly appointed vertical teams in the first half of 2013. Our leadership team has never been stronger or more committed. Yesterday, we also announced Tracy Bahl has been elected to our Board of Directors. Tracy has over 25 years of experience in the healthcare industry and is a recognized expert in healthcare strategy and delivery. In our 30 years in business, I have never been more proud and confident in our team. In summary, CEOs across the globe are putting customer experience at the top of their agenda. They recognize the difficulty of this complex transformation and are seeking help from prudent strategic partners. As an industry leader with demonstrated capabilities, in integrating an ecosystem of strategy, technology, data and services, we are uniquely positioned to capture this market opportunity. It is within this context that we're more committed than ever to our vision. We remain confident that our strategy and our holistic technology enables services platform are on target with our clients, current and future needs, are moved to an integrated and total value delivered partnership model is gaining measurable traction in the marketplace. I firmly believe this approach will continue to accelerate our market leadership and provide meaningful benefits to our clients, their customers and our shareholders and of course, our employees. With that, I'll hand it over to Regina, to share the details of our financial performance.

Thank you, Ken, and good morning, everyone. I'd like to cover 4 topics today. The highlights of our consolidated results, one-time charges related to the reorganization of our Consulting segment, some details explaining our segment results, and bridging our first half results to our full-year guidance. Second quarter bookings were strong $105 million. Q2 revenue was $289.7 million, compared to $288.8 million in the second quarter of 2012. Adjusted for $14.4 million of revenue related to our exit from Spain in 2012 on a constant currency basis, revenue grew 5%. In Q2 2013, the emerging business segments, CSS, CTS and CGS, comprised 24% of revenue tracking with the 25% we targeted for full year 2014. Our second quarter GAAP operating income was $19.7 million or 6.8% of revenue compared to $6.4 million or 2.2% of revenue in the year ago quarter. The year-over-year GAAP operating margin improvement is primarily due to a significant reduction in restructure and impairment charges. On an adjusted basis, excluding one-time items, our operating income was $23.5 million or 8.1% of revenue, compared to $23.7 million or 8.2% of revenue in the year ago period. SG&A expenses in the quarter were 15.9% of revenue, up slightly from 15.8% in the year ago quarter. Before, approximately $3 million of incremental investments in leadership, technology, R&D and sales and marketing, SG&A is down year-over-year. Our effective tax rate this quarter was 23.3% compared to a negative 25.6% for the same period of 2012. This increase in rate was largely due to the higher restructure and impairment charge in 2012. Second quarter fully diluted GAAP earnings per share was $0.23, up from $0.10 in the year ago quarter. On a non-GAAP basis, EPS was $0.35, up from $0.31 in the year ago quarter. We continue to be committed to early returns to our shareholders, and during the quarter, repurchased approximately 937,000 shares for a total of $21.2 million. In the first half of 2013, we repurchased 1.4 million shares for a total of $31 million. As of June 30, 2013, there was 19.4 million authorized and available for future share repurchases. Free cash flow was $24.2 million compared to $23 million in the year ago quarter. We continue to pace our capital expenditures in line with our growth, and spent $9.6 million on capital items in the second quarter compared to $11 million a year ago. We ended the quarter with $150.6 million in cash, and $122.5 million of total debt, resulting in a net cash position of $28.1 million. Our total debt-to-capital ratio is 20.6%, our current ratio, 2.9x, and our adjusted return on invested capital, 23.5%. In June, we significantly increased our financial flexibility and capital resources by opportunistically securing a new $700 million 5-year revolving credit facility. The facility also has an accordion feature that provides for a total commitment of $1 billion. We expect to utilize the facility to fund working capital, accretive and strategic acquisitions and share repurchases. Our DSO was 76.9 days, relatively unchanged over the year ago quarter. Our site utilization was 75% in the second quarter of 2013, an improvement from 72% in the year ago period. With regard to one-time items in the quarter, we had $3.8 million of restructuring and impairment charges, and $3.7 million on a disconsolidation of a subsidiary. Included in these amounts is $4.8 million of charges related to the Customer Strategy Services segment, $1.1 million of which is in the impairment charges, and $3.7 million of which is below the operating line in other expenses. These charges were largely triggered on a reorganization of the segment to integrate our Peppers & Rogers, iKnowtion and Guidon acquisitions into a unified business with a single strategy and common operating platform globally. These changes, and the related charges, which are primarily non-cash, will ultimately optimize client outcomes and our financial profile as early as the second half of this year. Let me now cover the details of our individual segments including an explanation on some of the variability of revenue in growth -- revenue growth in operating margin. Customer Management Services revenue was $220.6 million, compared to $229.4 million a year ago. CMS continue to make top line progress delivering 2% constant currency growth versus the prior year, when adjusted for the $14.4 million impact from exiting Spain. Operating income was $16.5 million or 7.5% compared to $730,000 or 0.3% in the prior year. The prior year was burdened with significant restructure charges related to the decision to exit Spain. This segment's ability to optimize resources and dynamically align capacity and demand contributed to a non-GAAP operating margin of 8.7% versus 7.8% in the prior year quarter. In the quarter, Customer Growth Services revenue was $22.4 million versus $24.4 million in the prior year. And was impacted by a delay in a significant integrated solution ramp, which shifted the launch of the CGS revenue component. This client, which represents over $9 million of CGS revenue on an annual basis, will launch in Q3 2013. Additionally in the quarter, a large client unexpectedly discontinued one of its products. Despite the delayed ramp and unexpected revenue loss, new bookings in Q1 and Q2 are in line with our expectation and we expect CGS to grow profitably in the second half. The acquisition of WebMetro will positively contribute to CGS's 2013 second half. CGS had an operating loss of $614,000 compared to an operating profit of $1.1 million in the year ago quarter. The decline in operating income was largely due to the impact of the revenue challenges discussed above. Customer Technology Services revenue was $36.6 million, compared to $25 million in the year ago quarter. CTS continue to execute its growth and investment strategy, while the acquisition of TSG is a primary source of the revenue growth, the remainder of the business continues to grow including solid momentum in our cloud-based solutions. CTS operating income was $5.8 million or 15.9% of revenue compared to $4.4 million or 17.5% of revenue in the second quarter of 2012. The change in operating margin percent is primarily due to the increase in amortization expense associated with the acquisition of TSG. The Customer Strategy Services segment Q2 2013 revenue was $10 million, which was flat versus prior year. Segment had an operating loss of $2 million in Q2 2013 compared to an operating profit of $300,000 in the prior year period. As discussed earlier, the Q2 2013 operating margin was impacted by a $1.1 million impairment charge. With its first half bookings and resource paring, we expect CSS to grow profitably in the second half of the year. We continue to project our full year revenue guidance in the range of $1.215 billion to $1.240 billion and our full year operating income guidance in the range of 9.25% to 9.5%. I'd like to take a minute and provide some comments to assist in bridging our first half results to our full year guidance. In the first half of 2013, revenue was $578.1 million, leaving approximately $637 million to $662 million of revenue generation in the second half. The following are a number of drivers to the second half revenue ramp. A strong $205 million of year-to-date bookings through Q2 2013. A sizable pipeline supporting similar bookings level in the second half. The uptick in Q3 and Q4 revenue is consistent with our bookings list, the historical seasonal work we experience and additive seasonal work from our most recent healthcare bookings, including member enrollment which runs October through January. Additionally, as our technology services business grows, we will see increasingly greater lift in Q3 and Q4, coming from our technology product sales and our managed services revenue. In the first half of 2013, our operating margin was 8.2%, requiring 10.2% to 10.6% in the second half. In reality, this ramp is very similar to last year when we ended the first half with 8% and delivered an average of 10% in the second half. The following are a number of drivers to the second half operating margin ramp. Our first half expenses include higher employee tax and benefit costs. Our incremental investments have a higher expense to revenue ratio in the first half versus the second half, given they are generally linear in nature. The impact of each point of delivery center utilization is approximately $500,000, as we reached peaked volumes in our contact centers in the final 4 months of the year. We expect our utilization to increase to between 78% to 80%. We have sufficient discretionary spend within our investment plan and variable compensation programs to continually align the cost structure with revenue and operating margin targets. We had a productive Q2 and expect our progress to yield both revenue and operating income momentum in the second half. Thank you, and with that, I'll turn the call back to Paul.

Great. Thank you Regina. As we open the call for questions [Operator Instructions] Operator, you may now open the line.

[Operator Instructions] Our first request now is from Tobey Sommer, SunTrust.

I was wondering if you could comment about the pricing environment. And then maybe enlighten us as to the organic rate of growth in 2Q in the organic rate of growth implied in your annual guidance?

It's Ken. As far as pricing, we're pretty much seeing the same of what we've seen in the last, I'd say, 12 to 24 months. I think the pricing environment is actually getting better and we feel very comfortable with where pricing is. I think that there is a tremendous realization in the marketplace, not just for us, but probably other providers as well that naturally, there's a fair bit of labor in our cost of goods sold. And that turnover is really important to maintain as low turnover as possible. And so I believe that clients are beginning to realize that the quality is far more important and, therefore, I think there's a bit less pressure on price. What I would say to you though, is that ultimately, our opinion might be skewed because we're very targeted on who we do business with. And our goal is to be focused on clients that are kind of passionate about their customer. And so, therefore, although they're price sensitive just like any good business, they understand that it's very important that it's a win-win deal and that it's mutually beneficial and profitable for both sides. So I would say all in all, we have very little heartburn in the pricing side. I think that it ultimately all leads to -- especially if it's an existing client whether or not you're delivering measurable value that they can see. And right now, that's an area that's really been a significant strong point for us. The second part of your question, why don't we let Regina answer.

Yes, sure. So the overall growth pro forma for the $14.4 million for Spain in the quarter was 5%, about 1% of that is organic and 4% inorganic, both in CSS, as well as CTS, TFG and Guidon. In terms of for the full year, last year we did $1.163 billion of revenue. If you pro forma that for Spain, it's about $1.113 billion. So I use that as the baseline for last year. And if you look at our full year guidance, the organic piece of that is depending on where we end up within that range, is 6% to 8%.

Our next request, from Mike Malouf, Craig-Hallum Capital.

When you take a look at some of the goals that you had put for us previously with regards to sort of out years now that we've gotten Spain behind us and some of the acquisitions that you've done have been incorporated, how do you feel about sort of that 11% to 12% operating margins and the $1.6 billion of revenue in a few years, is that still in the realm of achievable goals?

It's Ken. I think that it's -- I think we feel better about it today than we did when we announced it in May of 2011. And I think that we're very comfortable that when we look back retrospectively in the first quarter on 2013, I think it will be pretty evident to most of our shareholders how we put the proper pieces in place that the pieces are now working together, and that we're continuing to find the efficiencies that we expected as well as continuing to diversify our business, which is allowing us to drive towards higher margins. Again, I don't want to sound like a broken record, but the global market place regardless of the industry is obviously a competitive marketplace. And clients are going to reward you based on the benefits that you can accrete to them. We think that what we've done is created a product set that delivers significantly more than what their other options are. Whether it be internal, external, et cetera. And consequently, we think that when you link these things together, there's a higher margin profile because we're helping them manage the entire ecosystem versus basically taking a prescriptive order for them across one segment. So I want to reaffirm 2 things. As it relates to the margin, we are very confident that we're going to get to the margin that we told the industry in our Analyst Conference and that we've reaffirmed over the last couple of years in the next few years. As it relates to the top line growth, I think we feel very good about where we're going with top line growth. We like the momentum that we're seeing in our pipeline. But more importantly, we like the quality of the types of deals that we're bringing in, the stickiness of the nature of the deals and the fact that the kinds of clients we're bringing on have very, very, very deep opportunities that were -- in many cases, because of the amount of new clients that are coming on, really just at the very beginning of capturing those opportunities. So I hope I answered your question.

That's great. And just a quick follow-up to that. When you take a look at those kind of goals that you put forward, obviously there's a significant portion that is inorganic in that growth, and you just announced WebMetro today. How does the pipeline of acquisitions look for you? Do you see them more as some smaller acquisitions like WebMetro, or do you think over the next year or so that you might see something a little bit more strategic? When I mean strategic, I mean size.

So you mean, are you suggesting more size?

Yes.

Yes. So look, we have been very clear, again since 2011, that to achieve our $1.6 billion goal that we will be doing some deals that will have more size, more girth to them. I think if you really start to pay attention to the leadership team, who they are, what their backgrounds are, how much experience they have in M&A, what's taking place in our M&A department, et cetera, bringing in people like Margaret who have done over 100 deals in the last 7 years, who speaks 5 languages and operated in the last company, $7.5 billion company in over 100 countries, obviously we did not bring her in to focus on employment issues or basic litigation, et cetera. We're on a mission here and we're on a mission to create shareholder value. And I think that it's really important that at some point, our analysts, start to take a look at the board composition and who we've strategically put on this board, why we've put these people on the board, what kinds of backgrounds they have, et cetera. Whether it be a Bob Frerichs from Accenture who was basically one of the founding principals of Accenture. One of the top -- first 25 employees of Anderson consulting became Accenture, and became the chairman of the entire common media group. Whether it be Tracy Bahl who ran a $7 billion business for UnitedHealth Care Group, et cetera, and is a -- works for GA General Atlantic Partners. Therefore, really understands value creation. Whether it be on to [indiscernible] , who is one of the 5 partners at Blackstone that is in the business of creating value, et cetera. I think when you link that together and then you link the Regina Paolillos and her background, at APEX in General Atlantic, et cetera. Suffice to say, we are not allowing grass to grow under our feet and we are on a mission, and we are convicted that we're going to grow this company in a very profitable way and that in the next 24 months, it will be obvious to the marketplace and the analyst that we're not playing in the same neighborhood that we continue to be associated with as it relates to "your grandfather's call center company." And the deals that we're winning are far, far, far more complex than taking orders for a pizza delivery or for flowers or doing basic technical support. And so I think you're seeing -- we're seeing the market starting to shift to much more complex outsourcing where they're asking, where they're looking to outsource digital marketing services, they're looking to outsource data analytics, they're looking to outsource complex systems integration, all of those things are areas that are now in our wheelhouse that we have tremendous talent all around the globe and that we're very focused on and consequently, what these acquisitions have done for us, and the way that we brought them together and the leaders that we put in charge, is it's created tremendous momentum and conviction amongst our employee base. And so therefore, it's what's gives us confidence that we're going to deliver the results. So sorry for the long diatribe but hopefully that shed some clarity.

[Operator Instructions] Our next request now is from Howard Smith, First Analysis.

Yes. Question on the ramp as it relates to bookings and pipeline contributing as we go through this year. I typically think of your wins as an increasingly kind of complex taking several quarters to ramp fully. And so I'm curious with the mix in some of the newer business, is there a change in complexion in the ramp time such that business in Q2 that it's book contribute meaningfully to the year? I have a follow-up.

Yes. Howard, so a couple of things. One, as we diversify the revenue base, we do have areas where that cycle time from proposed to closed and ramp to revenue is much shorter. So you'll see that in our CSS business, you also see that in our CTS business, which has a very nice component of consulting and product sales. I'd also say as we sell cloud business in the first half and managed service business for our premise clients, you see a ramp from that in the second half. The second thing I would say because I think your comments are more related to our BPO businesses, CMS and CGS, is that if you note in Ken's comments, he indicated that 93% of our bookings in the first half, which is over $180 million, came from existing clients. And what's happening with those clients is, yes, we are taking on new lines of business. But also, we are taking more volume in our existing lines of business. And that ramps at a very different level. Second to that, we made the comment, and I just stressed again, that I think that there is a different -- there's a historical ramp relative to seasonal volume, which is embedded in our annual projections and historical numbers. And you see even more of that this year as we've gotten a nice share of what I call the enrollment seasonal work across a number of healthcare.

That's helpful color. And just following up on that enrollment work with the push out of the employer mandate. Are you getting feedback from any of your customers that some of the expected ramp may not be quite as dramatic as you expected in Q4 or too early to judge or not seeing that at all?

Yes. We do have to do estimation but what I would say is we're getting quite the opposite, right? As we talked to our clients and they give us a sense for the -- by now, all of us have signed up and have a planned design. And so we're seeing the opposite. What I also say is that push off of the employer mandate, has nothing to do with the mandate for individual coverage. And they're in line -- the emphasis to the volumes for the healthcare plans.

I also think, Howard, it's a good sign that this morning Humana released their results and said that their members signings were exceeded their expectations by a significant amount. So I mean, I think the market's very active right now is a way of putting it.

Our next request now is from Josh Vogel, Sidoti & Company. Josh Vogel - Sidoti & Company, LLC: Great. Regarding the $3 million in incremental spending for sales and marketing and R&D, was this kind of a one-off event or should we see a similar level of investment each quarter over the back half of the year?

Yes, so first of all, these are not surprise investments -- they're investments that we've been talking about. I think what we've articulated is we probably have to step up of about $35 million of investment across leadership, sales and marketing, R&D and our solution product portfolio. And these are not -- I would not -- also I would not call them one-time. These are then in our run rate. What I would suggest is that they're investments that we're making now in building out the sales team, getting to our verticalization, working on that go-to-market platform, working our R&D and they're ahead of revenue. So quite frankly, if you look at the $205 million of bookings that we had in the first half, while we have been working that in terms of theme and methodology and getting the leadership in, I would highly suggest that, that $205 million does not have in it, right, that new engine, right, the yield of the new engine that we're building in terms of the global markets and industries organization that can collectively sell globally our integrated solutions. Same thing with the R&D. A lot of that R&D is in product and solution that has not hit the market or is early in the market. And so it's just -- it's clearly very distinct and different than Q2 of last year. These are incremental. And we're investing in them now and then expect them to yield into the second half of this year and into '14 into our bookings and then into our revenue. Josh Vogel - Sidoti & Company, LLC: That's helpful. And I'm sorry if I missed it but with regard to the delayed ramp in the CGS, now that we're at the end of July, has that program begun to ramp in line with your expectations?

Yes. That program has a number of waves and I should actually step back. One of the things that may not be apparent is as we do these integrated solutions where a client takes multiple capability, and for example, up front we're leveraging our consulting business for strategy and operational roadmap and technology roadmap. It gets a little bit more difficult for us to have the same science around the time from close to ramp. And this is one of our first very significant large clients who have taken our capability end-to-end, to transform their environment, not just ship their environment to us, but to actually transform it. And as we've gone through that, what we've had more work in terms of transforming that work versus the shift of that work and the shift of that work is now happening. So we will see revenue from that client in Q3 and Q4. Obviously, difficult to make up for the months that we were not doing that work, but feel very confident that, that annual $9 million will hit that by the end of Q4. And this piece of work will also be a nice organic growth into 2014.

Our next request, from Tobey Sommer, SunTrust.

Regarding potential M&A, Ken, are you thinking about a new leg to the stool that you've created or buttressing those that you already have in place?

I think it's safe to say that at this point, we feel very good about kind of the product offering, the product mix. It's really important that we continue to keep building on the digital side of our business and the analytic side of our business. It's also important that we expand some geographies in various different areas. So that's my way of saying to you that I think you'll see that it's more around what we have, everything that we're doing is tied to customer engagement, customer retention and customer loyalty. You're not going to see us go off and do something that's outside of this whole area. We really want to be a company that is solely focused in just this one area. And so I hope I'm answering your question. Obviously, I have to be a little cryptic in how I discuss what we may or may not be looking at. But what I would just say to you is that I don't think we're going to shock anybody with a surprise of how does that make sense or how do they connect that or, et cetera. I'm very confident and that, that we will not be doing that. So I hope that's helpful, if not, ask me a different, another question. I'll try to give you more color on the topic. Regina, do want to add anything?

No.

That was great. That was helpful. Regarding healthcare, are you getting exposure to exchanges and in kind of -- is that an attractive area that interests you if you haven't yet got exposure there?

Yes. The whole Affordable Health Care Act, ObamaCare, whatever you want to call it is, it's a pretty interesting one. I've always said, Tobey, that our business capitalizes off of confusion and commoditization and competition, the 3 C's. The Affordable Health Care Act really plays very nicely into those areas. Confusion will be an understatement. This will make Dodd-Frank look like something small. And so, hence, I think the delay. I guess what I'm trying to say to you is it's going to breed a lot of interactions. So the byproduct of these exchanges is that there's going to be the need for a tremendous amount of support. And I think it's safe to say, when you think about this, the marketplace is going to shift from what's classically been a group marketplace where you sign up companies and then companies remarket the offering to their employee base, to pretty much in many cases, it's going to move to a consumer base model. I think you need to be the judge or the marketplace needs to be the judge, as to whether healthcare companies today are equipped to deal with consumers in the same way that telephone companies, cable companies, et cetera, do so. And so I think it's safe to say that there will be a tremendous requirement that's going to come out of healthcare over the next 5, 10 years. And our goal is to take a lot of the technology we have and build capabilities around this space. So that we can help the payers, as well as the providers, as well as the members, have a more seamless, more frictionless experience. And I think that we'll be in a position, right around first quarter, to really give a lot more color and to kind of demonstrate what we've been up to and kind of where these R&D dollars have been going, et cetera, and I feel confident that we're working on things that the marketplace is going to need.

If I could just sneak in just 2 quick numerical questions. What's the percentage of revenue in the quarter that came from kind of legacy media and telecom customers? And then Ken, in your prepared remarks, I think you mentioned, if I jotted it down correctly, 27 customers that are buying multiple services from you. In order to kind of get a sense for the progress there I was wondering if you could give us a reference point a year or 2 ago and how many customers were in that category?

So let me answer the first one and I'll just caveat this with -- I think you have to remember that the bulk of the revenue that we exited from Spain was telecom. But in the quarter, that vertical represented about 38% of our revenue. So nicely diversified over the last couple of years with financial services growing, transposition growing and healthcare growing, and down because of that diversification, but also down because of the exit in Spain. And then...

I'd just like to add something, Tobey, you've followed us for quite a while and if you look back at your notes, you'll note that Telecom Media used to represent over 51% of our revenue. And I think if you look at "people that you consider to be in our industry," which obviously, we're in tremendous denial about, I think you'd see that their numbers are -- that many of them have a tremendous concentration in that space. This is all deliberate and intentional. And it's all part of our focus to get a balanced portfolio of clients, of vertical -- a vertical diversity and a geographic diversity and a product diversity. And there's a huge focus on that because our goal is to build the business for the next 100 years, not to build a business that's quarter-to-quarter. And it's why, I know we frustrate you, but is why we don't give quarterly guidance because we're working within the goalpost of the year which we think works more for us managing the business instead of fretting over each quarter.

And the second part of the question was on the clients taking multiple services and kind of the trend.

Pretty significant.

Yes. It's pretty significant. I think over the last year, it's probably up 60%. And I don't know if there were some other questions in that but maybe the trends forward.

Well, our goal is over the relatively near future. And I can't define that period of time, let's just say 2 to 3 years that 50% of our core customer base, or more is taking advantage of multiple offerings. And there's a myriad of reasons why that's important to us, but everything from it allowing us to become dramatically more strategically relevant, it makes the client dramatically more sticky, more importantly, it allows us to deliver more value, which we think is ultimately how you build long-term relationships. And obviously, we think that as we transition to more and more business that is more technology focused, and that leverages what our clients needs are against our SaaS-based platforms, our cloud-based platforms and that tends to have less labor component to it, it obviously is a margin driver. And we didn't get into it on this call and I don't really want to get into it right now but we did suggest that our cloud-based business is growing nicely. And that's for another time to talk about. But we are very excited by the opportunities that our software as a service business we think brings us over the next couple of years.

This concludes the second quarter 2013 Earnings Conference Call. You may disconnect now at this time.