Welcome to the third quarter 2012 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 Karen Breen, TeleTech's Vice President of Investor Relations. Thank you, ma'am, you may begin.

Good morning, and thank you for joining us today. TeleTech is hosting this call to discuss the third quarter 2012 results ended September 30. Participating on today's call will be Ken Tuchman, our Chairman and CEO; and Regina Paolillo, our Chief Financial Officer. Yesterday, we issued a press release announcing our financial results for the third quarter and also filed our quarterly report on Form 10-Q with the SEC. This call will reflect items discussed within those documents, and we will make reference to them on the call today. We encourage all of you to read our quarterly report on Form 10-Q. Before we begin, I want to remind you that matters discussed on today's call may include forward-looking statements relating to our operating performance, financial goals and business outlook, which are based on management's current beliefs and assumptions. Please note that these forward-looking statements reflect our opinions only 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. They include, but are not limited to, reliance on several major clients, the risks associated with lower profitability from or the loss of one or more significant client relationship, execution risks associated with ramping new business or integrating acquired companies 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, including our 2011 annual report on Form 10-K. A replay of this call will be available on our website through November 22. I will now turn the call over to Ken Tuchman, our Chairman and CEO.

Thank you, Karen, and good morning to everyone. It's a pleasure to be with you today to review our financial performance along with the progress we've made on key imperatives. Before we discuss our third quarter results, I wanted to share an important milestone that we celebrated last month. October 22 marked the 30th year anniversary of our founding. As I look back over the last 3 decades, I'm both proud and humbled by what we've accomplished. We've started TeleTech with a simple idea. We wanted to provide an exceptional customer experience so that our clients could benefit from a more loyal customer base. Our passion to deliver and engage in consumer experience has never wavered. And today, our mission is more relevant than ever before. The customer experience is squarely at the forefront of every CEO's agenda, and that is what gives me great optimism about our next 30 years. Our focus on becoming the preeminent global provider of fully integrated customer experience solutions from strategy to execution remain steadfast. And to that end, we continue to concentrate on the following 3 priorities: first, position the company for top line growth; second, invest in innovation and technology-rich solutions that ensure we remain a vital partner to our clients, while also driving higher margin; and third, pursue strategic and accretive acquisitions. We believe that successful achievement of these objectives will lead to superior shareholder returns over the coming years. These initiatives are beginning to pay off, as demonstrated by our third quarter results. Now let me highlight several of our accomplishments this quarter. As we set our sights on 2013, we are keenly focused on profitable top line growth. As discussed before, revenue diversification is central to that strategy. Our diversified revenue business segment, which encompass analytics, strategy and technology…

Thank you, Ken, and good morning, everyone. Let me start with the detailed review of our third quarter results, along with some notable highlights on our 9-month year-to-date number. Revenue for the quarter was $286.3 million compared to $304.2 million in the year ago quarter. The $17.9 million decline was related to the loss of $27.7 million in revenue from exiting certain unprofitable markets and a $4.5 million negative currency impact. Excluding these items, revenue grew 14.3%, or 4.7% over the year ago quarter. Our diversified businesses comprise $62.2 million or 22% of third quarter revenue, up from 18% in the year ago quarter. Revenue for the 9 months was $867.7 million compared to $878.9 million. The $11.1 million decline was attributable to $55.4 million in lost revenue due to the exit of certain unprofitable markets and a $17.7 million negative currency impact. Excluding these items, revenue grew $61.9 million or 7.1% over the same period a year ago. Our third quarter GAAP operating income was $27.4 million or 9.6% of revenue compared to 8.7% in the year ago quarter. Adding back the $2.6 million of restructuring and impairment charges, our non-GAAP operating income was $30 million or 10.5%. Our non-GAAP operating margin of 10.5% included nearly $3 million or a 100 basis point lift from the finalization of certain real estate and employee related expenses that will not reoccur in the fourth quarter. SG&A expenses in the quarter were 15.3% of revenue, up from 14.3% in the year ago quarter, due to higher variable compensation expense. Importantly, the third quarter SG&A of 15.3% is down from 16.1% in the first half of 2012. This is the result of ongoing efficiencies we are realizing as we leverage our general and administrative expenses across an expanding suite of services. As discussed…

Thank you, Regina. We'd now like to open the call for everyone's questions. [Operator Instructions] Carolyn, you can open the call.

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

I'm wondering, as you look out into over the next year or so with regards to the traditional business and I know that you're at 77% utilization right now. Are there any large changes or upgrades with facilities that you need to go through? And can you give us a sense of how your existing facilities are currently relative to where they need to be as far as technology upgrades and maybe even physical upgrades?

This is Ken. The answer is no. If you noticed in our CapEx line, we always report maintenance CapEx capital and we've always been very diligent in modernizing our facilities and making sure that they're state-of-the-art at all times. I just came back last week from the Philippines and I'm very comfortable that all of our sites are in perfect condition and have the latest technology, the latest desktops. And so, no, there is no unique onetime investments to upgrade any of our facilities anywhere in the world.

Okay, great. And if I can just squeeze in just a little bit of a follow-on question. You mentioned that your guidance remains in that 8.5% to 9%, that implies basically that the fourth quarter is anywhere from 7.7% to 9.5% and I'm just wondering if you can give us a little bit of clarity on what would swing that especially given that we're already 1 month into the quarter that dramatically? I mean, what kind of things would you expect that could hit it down to that 7.7% level because that would obviously be a lot different than how the third quarter came in?

First thing I would say is that our approach in articulating our guidance was to continue to indicate that we are in the range, it's not a statement of a lack of confidence of continuation of our profit improvement and our top line growth exiting Spain and other unprofitable markets. The one thing that I would point out very specifically is you'll see in, as I said in the script then you'll see in the queue, that we did have about $2.9 million of onetime items related to the finalization of some real estate and employee liabilities, and that will not be recurring. And so you can see that, that's about almost a point, a little bit more of our normalized operating income. And that will not repeat itself in Q4.

[Operator Instructions] Our next question comes from Tobey Sommer from SunTrust.

This is Frank in for Tobey. I had a question about that Customer Strategy Services, that performed well and iKnowtion and the strategy group has done well in terms of profitability and ramping up. Can you talk a little bit about your long-term margin goals there? And what you see as kind of the profitability level going forward for that group?

Right now, we're in a growth phase. So we think that our margins will be more likely than not a bit depressed as we're ramping the business and growing the business on a global basis. But I think that it's safe to say that the margins are going to be in the 15% to 20% range. And with focus on getting into a sustainable 20%, which is in line with other well-run strategic consulting organizations.

Okay, great. And in terms of new business, how are you seeing things looking in the first part of the fourth quarter? You've had nice wins there, can you talk a little bit about your pipeline, maybe in any impacts of retail or seasonal effects?

Yes, coming off of early in the quarter, I think you can expect that we'll be consistent with our average between $75 million and $100 million that we've had over the last year or so. I think good progress to the $90 million, up from Q2. Pipeline continues to grow and we're starting to make some headway on transformation of the front end into the vertical organization that we're building and expect that to pay off as well. So I think pretty consistent with the historical outside of the dip in Q2, and up from there as we start to monetize some of the investments we're making in the front end.

I think overall, we're very encouraged.

[Operator Instructions] Our next question comes from Shlomo Rosenbaum from Stifel.

Just after you guys exited Spain and with the work that you guys have done there, if we kind of take out that $3 million nonrecurring expense reversal, is this a level of operating margin that you guys feel comfortable with if the business should operate on, give or take with some seasonality?

Yes, I mean I would say that this is very consistent with the direction that was set last year relative to our long-term goal of 11% to 12% OI. And that we're seeing good progress in the utilization in our CMS business. We're making investments to drive the growth in our emerging businesses, but are starting to see some of those margins and that we believe that you'll continue to see progress towards that 11% to 12% over '13 and '14.

Especially as more and more people take advantage of our higher-margin capabilities, which was again, always part of our strategy and that is something that we're definitely seeing starting to take foothold.

Okay. I just want to get a little bit more color on what's been going on in the Customer Technology Services, you guys talked a little bit about a large project, can you just give us a little bit of color just of what's been going on over the last year, because we're seeing like a sequential downtrend in the revenue and I'm not sure if there's -- can you talk about how much of that business is recurring and maybe just go through what's happened over the last few quarters in terms of how much of that was project-related and how much of that is kind of the ongoing work that you guys do?

Yes. So somewhere in the range of 55% to 60% of the business is reoccurring and then the rest is a project based business. The good news is that this business I believe is going on its 21st year of operation. So these guys are pretty used to this type of business. We recently finished a very successful and very significant Salesforce.com implementation on behalf of a large automotive company. And so that has had an impact. That said, we feel very comfortable based on the pipeline that we'll be well on track to seeing nice growth in the 2013 timeframe. And we have very high confidence in this business. Its customer base is extremely loyal, continues to keep coming back for more and issuing us more and more projects. And more importantly, we're expanding CTS's product offering pretty aggressively right now so that they cover all aspects of the customer experience continuum. And we'll have a good chunk of that out built out towards the first quarter of 2013, which just simply means that we will generate, going forward, more revenue on a per client basis because we'll have more offerings that they need for each implementation that we're doing. As well as it will mean that there'll be more overall long-term reoccurring revenue, which is our stated goal.

This concludes the third quarter 2012 earnings conference call. You may disconnect at this time.