Sitel (NYSE:SWW)
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SITEL Corporation (NYSE:SWW), a leading global provider
of outsourced customer support services, announced today its
preliminary financial results for the first quarter of 2006 ended
March 31, 2006.
Revenue of $275.1 million exceeded the Company's previously
announced outlook range of $260 million to $270 million. Earnings per
share of $0.03 were within the previously announced outlook range of
$0.03 to $0.05.
Summary of results for the first quarter of 2006:
-- Revenue of $275.1 million in Q1 06 increased 9.5% over Q1 05.
-- Operating income of $9.3 million for Q1 06 was up 63% from
$5.7 million in Q1 05.
-- Net income of $2.5 million, or $0.03 per diluted share, in Q1
06 was up from a net income of $1.1 million, or $0.01 per
diluted share, in Q1 05. The Q1 06 results include
approximately $0.01 per share or $800,000 of costs incurred
for external audit and legal fees related to the previously
announced review of a foreign subsidiary.
-- Capital expenditures, including capital leases, were $5.6
million, and estimated depreciation was $8.2 million. The
Company ended the quarter with $27 million in cash and $23
million available under our credit facility.
Commenting on the first quarter results, Jim Lynch, Chairman and
CEO of SITEL Corporation, said, "We are pleased with our performance
trend. Our performance was particularly impressive considering we had
no revenue in the first quarter of 2006 from the Company's largest
contract with General Motors, which recently ended. This marks the
18th consecutive quarter the Company has delivered revenue growth on a
year-over-year basis. Mr. Lynch continued, "Our efforts are gaining
traction, particularly in Europe where we are having success in
turning around some previously under-performing business units. As we
continue to focus on profitable growth, we expect to deliver
improvements in net income throughout the year."
Business unit highlights for the first quarter of 2006
The Company experienced continued growth in both new and existing
business. New business contracts in Europe reflect the growing
strength of this region and the benefits of having a truly global
footprint. Announced contract wins during the quarter included: a
contract with Europe Sony Service Centre Europe NV and Sony
e-Solutions Europe BV, both divisions of Sony Europe, to take over
operations of Sony's main contact center in Europe; a contract with
PagesJaunes (a subsidiary of France Telecom) to support an estimated 1
million directory inquiries per month from SITEL's La Rochelle, France
contact center; and a four year contract with a major North American
communications company to provide customer care in support of its B to
B Internet services utilizing around 150 workstations. Also, during
the quarter, the Company grew revenue from new contract wins and
expanded programs with existing clients from around the world.
Highlights include: the award of a 350 seat contract in Manila from
one of the Company's major financial services clients; growth from the
North America Telecommunications and Financial Services business
units; an initial award of a 250 seat contract for a European
telecommunications provider; and significant new client growth across
many of its businesses internationally, including the Belgium and
Netherlands business units, who both added significant new clients.
Overall in Europe, the Company is in start-up phase with seven major
clients. Program expansion across the majority of the Company's
offshore client base added to positive revenue growth momentum.
In the first quarter of 2006, business units in North America
delivered a 4% increase in revenue to $128.0 million from $122.9
million in the first quarter of 2005. These gains were made despite
the end of the Company's largest contract with General Motors. Revenue
in all of the vertical business units in North America was up in the
first quarter of 2006 compared to the year earlier quarter. The
Consumer business unit more than doubled its revenue during the
quarter, primarily as a result of a government contract performed in
the fourth quarter of 2005 and first quarter of 2006. Offshore
locations also increased revenue, with the Philippines business almost
tripling its revenue in the current quarter compared to the year
earlier quarter. As workstation utilization continued to improve and
as higher margin offshore business grew, many business units in North
America recorded double digit growth in their operating income in the
first quarter compared to the year earlier period. In particular the
Consumer, Insurance, and Telecommunication business units saw
significant strength. SITEL Risk Management, the collection arm of the
Company, also showed improvement in their post charge-off business.
For business units in Europe, revenue in the first quarter of 2006
increased 14.9% to $120.5 million from revenue of $104.9 million in
the first quarter of last year. Double-digit revenue growth from
business units in the Netherlands, Poland, Belgium, Germany and Spain
led the way in the overall improvement. The turnaround within Europe
is on track as operating margins in this region doubled in the current
quarter compared to the first quarter of 2005. The UK, Belgium,
France, and Nordics business units in total improved their operating
income by more than $2 million versus first quarter last year and $4
million sequentially. The turnaround in margin performance reflects
the successful efforts of the Company's restructuring, which began in
the fourth quarter of 2004 in combination with revenue growth.
Workstation utilization is improving throughout Europe, with over
10,600 of the total 11,500 workstations now under contract.
Revenue in the first quarter of 2006 from business units in Latin
America, excluding unconsolidated joint ventures, increased 57% to
$15.4 million from $9.8 million in the first quarter of 2005. This
region continues to expand, especially for offshore initiatives,
resulting in solid operating margins. SITEL's unconsolidated joint
ventures also continue to expand with Colombia growing by more than
50% and Mexico continuing a long trend of quarterly revenue growth.
For the business units in the Asia Pacific area, the Singapore
business unit more than doubled its revenue in the first quarter of
2006 compared to the year earlier period, while New Zealand and
Australia continued to exhibit strong performance. Ramp up costs of
offshore operations for clients in Australia offset gains in operating
income from the other two units.
In addition to the Company's core business, SITEL Services, the
newly formed SITEL Systems and SITEL Solutions businesses continued to
position and establish themselves, and are poised for growth in the
second half of 2006. These groups both capitalize on the Company's 20
years of contact center operations experience. At the core of their
offerings is the ability to bring straightforward solutions to
clients' complex customer management challenges leveraging both
SITEL's practical experience and the unique IT and telephony solutions
demanded by the contact center industry to provide both current
clients and third party companies with the very best customer touch
models and applications.
Mr. Lynch further commented, "We are seeing strength in the
marketplace as capacity is pushed to its limits driven by strong
demand from both existing and new clients. As an industry leader in
service delivery and a global footprint, we are uniquely positioned to
take advantage of this improving market environment. I am confident
our success will continue as we move out of a significant ramp period
in the first half of 2006 and deliver improving profitability and
value for our shareholders."
Outlook
For the second quarter of 2006, the Company expects revenue to be
within a range of $265 million to $275 million and earnings from $0.10
per share to $0.13 per share. The earnings outlook includes $6
million, or $0.08 per share, recorded in the second quarter from a
settlement of a dispute with a business partner over the handling of
certain business transactions. For the settlement, SITEL received a
payment of $5 million in the second quarter of 2006 and will receive
an additional $1 million in installments during the second half of the
year. The second quarter outlook anticipates several European
contracts in start-up phase, which temporarily dilute margins until
they are fully operational in the third and fourth quarters leading to
margins in Europe growing at a faster rate than the expected revenue
growth.
The full year 2006 previous revenue outlook is unchanged at a
range of $1 billion to $1.1 billion. For the full year 2006, the
earnings outlook has been adjusted to a range of $0.32 to $0.36 per
share increased from the previous outlook of $0.30 to $0.33 per share
mainly to reflect the $0.08 per share settlement received less the
earnings impact associated with the loss of a client served by the
settlement business partner and additional cost associated with
finalizing the review and audit related to the foreign subsidiary.
The above comments are based on current expectations, exclude any
non-recurring items, unless otherwise stated, and supersede any prior
outlook provided by the Company.
Restatement and Filing Form 10-K
The Company previously announced the Audit Committee of the Board
of Directors was reviewing accounting errors and other irregularities
at one of the Company's international subsidiaries. The Company also
announced that it expected that a restatement for the fiscal years
2000 through 2004 and potentially for the first three quarters of 2005
will be required to correct the accounting errors at that subsidiary.
The results discussed in this earnings release are subject to the
completion of the restatement and therefore are considered
preliminary. The preliminary results and historic comparables included
in today's announcement reflect the effect of the restatement portion
for the first quarter of 2005 currently identified by the Company.
Current estimates of the restatements required may need to be
adjusted, perhaps materially, when the restated financial statements
are filed. While the results reported today are unaudited, SITEL
believes that these results accurately reflect, in all material
respects, the results based on current information and on the portion
of the restated adjustments that have been identified to date. Please
refer to the following for a comparison of the restated preliminary
results to those originally reported for the first quarter of 2005.
Effects of the preliminary restatement
Because the restatements are not yet completed, the expected
impact of the restatement for the first quarter of 2005 contained
herein is preliminary and subject to a final review by management and
the Audit Committee of the Board of Directors and review by our
external auditors.
Three months ended March 31, 2005
The effects of the adjustments identified to date will reduce
earnings in the first quarter of 2005 by $400,000. These adjustments
reflect an increase in operating, selling and administrative expenses
of $100,000 (from the previously reported $80.0 million to the
restated $80.1 million) resulting primarily from additional
depreciation as well as penalties from the failure to remit certain
taxes and an increase in interest expense of $300,000 (from the
previously reported $2.9 million to the restated $3.2 million)
resulting primarily from the failure to remit certain taxes.
As a result of the reviews, the Company was required to delay the
filing of its 2005 Annual Report on Form 10-K, which was due March 16,
2006, in order to allow for the Company and Audit Committee's
evaluation of these issues to be concluded and for its external
auditors to complete an audit of the Company's financial statements.
The Company will therefore also be required to delay the filing of its
first quarter 2006 Quarterly Report on Form 10-Q, which is due May 10,
2006.
Conference Call
SITEL executive management will host a conference call to discuss
first quarter 2006 financial results tomorrow, May 11, 2006 at 8:30
a.m. ET. To participate, for domestic callers, please dial
1-800-230-1092 and for international callers, please dial
1-612-332-0107.
Replay of the conference call will be available in the U.S. by
dialing 800-475-6701 and International by dialing 320-365-3844 (Access
Code) 827669, starting at 12:00 p.m. ET on May 11, 2006 and will play
for seven days. The conference call will be simulcast live on the
Internet via SITEL's web site at www.sitel.com. Replay will be
available for seven days.
About SITEL
SITEL is a leading global provider of outsourced customer support
services. On behalf of many of the world's leading organizations,
SITEL designs and improves customer contact models across its clients'
customer acquisition, retention and development cycles. SITEL manages
approximately two million customer interactions per day via the
telephone, e-mail, Internet and traditional mail. SITEL has
approximately 39,000 employees in 90 global contact centers, utilizing
more than 32 languages and dialects to serve customers in 56
countries. SITEL is a leader in the contact center industry. Please
visit SITEL's web site at www.sitel.com for further information.
This news release contains forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. The words "expects," "anticipates," "will," and similar
expressions in this news release identify forward-looking statements,
which speak only as of the date the statement is made. SITEL assumes
no obligation to update any such forward-looking statement. Although
SITEL believes that the expectations reflected in such forward-looking
statements are reasonable, there can be no assurance that such
expectations will prove to be correct. Because forward-looking
statements involve risks and uncertainties, future events and actual
results could differ materially from those set forth in, contemplated
by or underlying the forward-looking statements. Important factors
that could cause actual results to differ materially from SITEL's
expectations may include, but are not limited to the following, many
of which are outside SITEL's control: results of the review into the
accounting errors and other irregularities, completion of the audit of
the Company's financial statements, client budgets and plans,
effectiveness of cost control initiatives, effectiveness of revenue
enhancement initiatives, delays in approving new contact center
initiatives or in moving forward with previously approved initiatives,
terms of final contracts to be completed with clients, ability to
negotiate contracts on acceptable terms, contract termination
provisions, delays in ramp up of services, customer demand for client
products and services, the demand for off-shore services, delays in
securing necessary regulatory approvals, licenses, leases, personnel,
services and equipment for new facilities, competitive pressures in
SITEL's and its clients' industries and in local markets, reliance on
major clients, subcontractors and strategic partners, mergers and
restructurings involving clients or prospective clients, industry
regulation, reliance on telecommunications and computer technology,
unanticipated labor, contract or technical difficulties, general and
local economic trends and conditions, the effects of leverage,
currency translation, uncertainties of litigation, risks associated
with operating a global business, and dependence on credit
availability and credit market conditions. SITEL's Form 10-K, 10-Q and
8-K reports filed with the Securities and Exchange Commission describe
other important factors that may impact SITEL's business, results of
operation and financial condition and cause actual results to differ
materially from those set forth in, contemplated by or underlying the
forward-looking statements.
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SITEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(PRELIMINARY AND UNAUDITED)
(in thousands, except per share data)
Three months ended March 31, 2006 2005
---------------------------------------------------------------
As restated
Revenue $275,110 $251,169
---------------------------------------------------------------
Operating expenses:
Direct labor and telecommunications
expenses 172,088 152,484
Subcontracted and other services
expenses 8,620 12,880
Operating, selling and administrative
expenses 85,095 80,088
Asset impairment and restructuring
expenses -- --
---------------------------------------------------------------
Total operating expenses 265,803 245,452
---------------------------------------------------------------
Operating income 9,307 5,717
---------------------------------------------------------------
Other income (expense):
Interest expense (3,725) (3,162)
Interest income 75 120
Equity in earnings of affiliates 289 (107)
Other expense, net 119 (10)
---------------------------------------------------------------
Total other expense, net (3,242) (3,159)
---------------------------------------------------------------
Income (loss) before income taxes,
minority interest and change in
accounting method 6,065 2,558
Income tax expense 2,892 1,108
Minority interest 712 360
---------------------------------------------------------------
Net income (loss) $2,461 $1,090
===============================================================
Weighted average common shares
outstanding:
Basic 74,162 73,736
Diluted 74,901 74,340
Earnings per share:
Basic $0.03 $0.01
Diluted $0.03 $0.01
SITEL Corporation
Revenue Statistics - First Quarter 2006 Earnings Release
(Preliminary and Unaudited)
% of Total Revenue Q105 Q205 Q305 Q405 2005 Q106
------ ------ ------ ------ ------ ------
Customer Acquisition 17.4% 16.1% 15.1% 14.4% 15.7% 16.5%
Customer Care 57.1% 60.4% 61.7% 65.1% 61.2% 60.1%
Technical Support 18.0% 17.6% 16.9% 15.1% 16.9% 15.6%
Risk Management 6.3% 5.5% 5.4% 4.6% 5.4% 5.8%
Other 1.2% 0.4% 0.9% 0.8% 0.8% 2.0%
------ ------ ------ ------ ------ ------
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ====== ======
Geographic Mix
% of Total Revenue Q105 Q205 Q305 Q405 2005 Q106
------ ------ ------ ------ ------ ------
North America 49.0% 47.7% 49.4% 53.7% 50.1% 46.7%
Europe 42.9% 42.2% 39.1% 37.5% 40.3% 44.1%
Asia Pacific 4.9% 5.7% 6.1% 4.5% 5.3% 4.3%
Latin America 3.2% 4.4% 5.4% 4.3% 4.3% 4.9%
------ ------ ------ ------ ------ ------
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ====== ======
Industry Mix
% of Total Revenue Q105 Q205 Q305 Q405 2005 Q106
------ ------ ------ ------ ------ ------
Insurance 6.1% 5.9% 5.9% 5.7% 5.9% 5.9%
Financial Services 17.2% 17.1% 17.8% 16.0% 17.0% 18.6%
Consumer Products 19.7% 21.4% 21.1% 19.7% 20.5% 13.5%
Technology 26.3% 25.8% 24.1% 22.0% 24.4% 23.8%
Energy and Utilities 7.5% 7.5% 7.6% 7.2% 7.4% 7.2%
Telecommunications, ISP, and
Cable 18.6% 19.9% 20.1% 18.8% 19.3% 22.1%
Other 4.6% 2.4% 3.4% 10.6% 5.5% 8.9%
------ ------ ------ ------ ------ ------
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ====== ======
*T