ICTG Ict Grp., Inc. (MM)

ICT GROUP, INC. (NASDAQ:ICTG) today reported results for the third quarter ended September 30, 2009.

Third Quarter 2009 Financial Performance:

Total revenue for the 2009 third quarter was $102.6 million, compared to $108.3 million reported for last year’s third quarter. Core business revenue comprised primarily of North American customer care, BPO, technology and international operations, increased almost 6% to $99.6 million during the third quarter, and accounted for 97% of total revenue. For the 2008 third quarter, core business revenue was $94.0 million and represented 87% of total revenue. On a constant currency basis (using the same foreign exchange rates in both periods), core business revenue was up 9% year-over-year and 4% sequentially. Core business production volume was 4.7 million hours, up 9% year-over-year and 2% sequentially.

Gross margin was 41.1%, above the Company’s stated goal of 40% for 2009 and ahead of last year’s 39.9%. The Company reported net income of $2.1 million or $0.13 per diluted share for the 2009 third quarter as compared to a net loss of $546,000 or $0.03 per diluted share incurred in the comparable year-ago period. Adjusted net income for the third quarter of 2009, which excludes $583,000 for asset impairments related to Typhoon Ondoy in the Philippines and $554,000 for costs associated with the recently announced merger with Sykes Enterprises, was $3.2 million or $0.20 per diluted share.

“Our results this quarter clearly demonstrate the success of both our cost containment efforts and strategic realignment,” commented John J. Brennan, Chairman and Chief Executive Officer of ICT GROUP. “In addition to the asset impairment charge related to the typhoon, we did experience some disruption in the Philippines which translated into lost production hours and revenue and some added expenses. However, we were still able to grow core business revenue, further improve our gross margin and reduce our SG&A costs. As a result, we exceeded internal expectations and made significant progress this quarter toward attaining our operating margin goals.”

Third Quarter 2009 Operating Performance:

Free cash flow for the third quarter was $8.9 million. At September 30, 2009, cash and cash equivalents was $48.7 million, up from $42.3 million at the end of the second quarter and $31.3 million at year end 2008. The Company had no outstanding debt at September 30, 2009.

The table below shows core business revenue and total revenue for the key vertical markets served by ICT GROUP:

             

Core Revenue

(millions)

 

Total Revenue

(millions)

    3Q2009   3Q2008   3Q2009   3Q2008 Financial Services   $42.9   $41.1   $45.9   $53.9 Telco/Tech   38.1   33.7   38.1   34.0 Health Care   11.0   11.0   11.0   11.1 Other   7.6   8.2   7.6   9.3 Total   $99.6   $94.0   $102.6   $108.3        

Core financial services sector revenue totaled $42.9 million for the 2009 third quarter, up 4% versus the 2008 third quarter and 7% year-over-year when measured on a constant currency basis. Core production hours increased 6% driven largely by customer care, BPO, and first party collections programs for new and existing financial services clients. Core business represented 94% of total financial services revenue compared to 76% last year.

Core telco/technology sector revenue continues to grow rapidly, reaching $38.1 million in the period, representing a 13% increase over the 2008 third quarter and a 19% increase when measured on a constant currency basis. Production hours increased 23%, as the Company continued to expand programs for clients in the U.S., U.K. and Australia.

Core health care revenue in the third quarter was $11.0 million, essentially flat compared to the third quarter of 2008 and the second quarter of 2009. Production hours declined 6% from last year’s third quarter, but were flat with this year’s second quarter.

“We continue to win new business in our key vertical markets from new and existing clients,” commented Mr. Brennan. “Annualized new business wins approximated $30 million with the majority of work split between the telco/technology and financial services sectors. In addition, after a very competitive rebidding process against eight other providers, we were awarded a five-year renewal to manage the Federal Citizen Information Center’s National Contact Center for the U.S. General Services Administration which is valued at approximately $24 million over the life of the contract. Overall, our new business pipeline is strong across most of our key verticals and our major markets.”

At the end of the third quarter, ICT GROUP had 12,341 workstations in production, down slightly from 12,400 at the end of the second quarter. Capacity utilization was 80% in this year’s third quarter, up from 79% in the second quarter of 2009 and up from 76% in last year’s third quarter.

“Overall, I am very pleased with our results this quarter, the progress that management has made during the year and our steady stream of new business wins. Due to the transaction announced on October 6, 2009, the Company will not be providing guidance,” concluded Mr. Brennan.

Conference Call:

The Company will hold a conference call today, Thursday, October 29, at 10:00 a.m. EDT. Investors may access the call by visiting the ICT GROUP website at www.ictgroup.com. If you are unable to participate during the live webcast, a replay of the call will be available on the website through November 5, 2009.

About ICT GROUP:

ICT GROUP, headquartered in Newtown, Pa., is a leading global provider of customer management and business process outsourcing solutions. The Company provides a comprehensive mix of customer care/retention, up-selling/cross-selling, technical support and database marketing as well as e-mail management, data entry, collections, claims processing and document management services, using its global network of onshore, near-shore and offshore operations. ICT GROUP also provides interactive voice response (IVR) and advanced speech recognition solutions as well as hosted Customer Relationship Management (CRM) technologies, available for use by clients at their own in-house facility or on a co-sourced basis in conjunction with the Company’s fully integrated contact center operations. To learn more about ICT GROUP, visit the Company’s website at www.ictgroup.com.

Important Cautionary Information Regarding Forward-Looking Statements:

This press release contains certain forward-looking statements relating to projected revenue associated with new business wins. The forward-looking statements involve assumptions and are subject to substantial risks and uncertainties. Whenever possible, forward-looking statements are preceded by, followed by or include the words "believes," "expects," "anticipates" or similar expressions, which speak only as of the date the statement is made. ICT GROUP assumes no obligation to update any such forward-looking statements. For such statements, ICT GROUP claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

Actual events or results of operations, cash flows and financial condition of ICT GROUP may differ materially from those discussed in the forward-looking statements as a result of various factors, including without limitation, those discussed in ICT GROUP’s annual report on Form 10-K for the year ended December 31, 2008, and other documents, such as current reports on Form 8-K and quarterly reports on Form 10-Q filed by ICT GROUP with the Securities and Exchange Commission. Although ICT GROUP 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 and we undertake no obligation to update such expectations.

Important factors that could cause actual results to differ materially from ICT GROUP’s expectations, or that could materially and adversely affect ICT GROUP’s financial condition, may include, but are not limited to, the following, many of which are outside ICT GROUP’s control: the Company’s pending merger with Sykes Enterprises, Inc., global economic conditions, customer demand for a client's product or service, the client's budgets and plans and political, economic and other conditions affecting the client's industry, interest and foreign currency exchange rates (including the effectiveness of strategies to manage fluctuations in these rates), a client invoking cancellation or similar provisions of the client contract, demand for labor and the resulting impact on labor rates paid by ICT GROUP, unanticipated labor difficulties, unanticipated contract or technical difficulties, identifying and opening planned contact centers within timeframes necessary to meet client demands, reliance on strategic partners, industry and government regulation affecting ICT GROUP or its clients, reliance on telecommunications and computer technology, competitive pressures in ICT GROUP’s industry, the cost to prosecute, defend or settle litigation by or against ICT GROUP, judgments, orders, rulings and other developments in or affecting litigation by or against ICT GROUP, ICT GROUP’s capital and financing needs, changes in tax laws and regulation, ICT GROUP’s ability to integrate acquired businesses, terrorist attacks and the impact of war. These factors, as well as others, such as conditions in the securities markets and actual or perceived results or developments affecting companies in our industry, could affect the trading price of our common stock.

        ICT Group, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited) (In thousands, except per share data)  

Three Months Ended

September 30,

Nine Months Ended

September 30,

2009 2008 2009 2008   REVENUE $ 102,560   $ 108,296   $ 296,968   $ 326,565     OPERATING EXPENSES: Cost of services 60,405 65,103 175,968 202,868 Selling, general and administrative 39,054 42,110 116,849 125,148 Asset impairments 583 - 583 - Merger costs 554 - 554 - Restructuring charges   -     2,334     1,234     2,334     100,596     109,547     295,188     330,350   Operating income (loss) 1,964 (1,251 ) 1,780 (3,785 )   Interest income (expense), net   (24 )   48     (67 )   237   Income (loss) before income taxes 1,940 (1,203 ) 1,713 (3,548 ) Income tax provision (benefit)   (138 )   (657 )   242     (1,634 ) Net income (loss) $ 2,078   $ (546 ) $ 1,471   $ (1,914 )   Diluted earnings (loss) per share $ 0.13   $ (0.03 ) $ 0.09   $ (0.12 )   Shares used in computing diluted earnings (loss) per share   16,219     15,902     16,072     15,866       Reconciliation of Income (Loss) Before Income Taxes to Adjusted Net Income (Loss) to Eliminate the Effect of Charges Related to Asset Impairments, Merger Costs, Restructuring, and a Government Grant (Unaudited) (In thousands, except per share data)   Three Months Ended

September 30,

Nine Months Ended

September 30,

2009 2008 2009 2008   Adjusted Results of Operations: Income (loss) before income taxes $ 1,940 $ (1,203 ) $ 1,713 $ (3,548 ) Asset impairments 583 - 583 - Merger costs 554 - 554 - Restructuring charges - 2,334 1,234 2,334 Government grant adjustment   -     (236 )   -     (790 ) Adjusted income (loss) before income taxes 3,077 895 4,084 (2,004 ) Income tax provision (benefit), as adjusted for the addback items   (125 )   (319 )   18     (1,480 ) Adjusted net income (loss) $ 3,202   $ 1,214   $ 4,066   $ (524 )   Adjusted earnings (loss) per share $ 0.20   $ 0.08   $ 0.25   $ (0.03 )   Shares used in computing adjusted earnings (loss) per share   16,219     15,971     16,072     15,866         ICT Group, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited) (In thousands)     September 30, December 31, 2009 2008   ASSETS   CURRENT ASSETS Cash and cash equivalents $ 48,677 $ 31,283 Accounts receivable, net 74,595 65,156 Other current assets   12,850   12,448 Total current assets 136,122 108,887   PROPERTY AND EQUIPMENT, net 49,018 57,841   OTHER ASSETS   9,867   10,833 $ 195,007 $ 177,561     LIABILITIES AND SHAREHOLDERS' EQUITY   CURRENT LIABILITIES Accounts payable and other current liabilities $ 58,684 $ 47,505   OTHER LIABILITIES 8,405 10,555   TOTAL SHAREHOLDERS' EQUITY   127,918   119,501 $ 195,007 $ 177,561     WORKSTATIONS AT PERIOD END 12,341 12,509                 Core / Non-Core Revenue (Unaudited)       Actuals as Reported On a Constant Currency Basis $ in millions   Total

Revenue

  Core

Revenue

  Non-core

Revenue

Total

Revenue

  Core

Revenue

  Non-core

Revenue

 

3Q09

3Q09

3Q09

3Q09

3Q09

3Q09

  Financial $ 45.9 $ 42.9 $ 3.0 $ 45.9 $ 42.9 $ 3.0 Telco/Tech 38.1 38.1 - 38.1 38.1 - Healthcare 11.0 11.0 - 11.0 11.0 - Other   7.6       7.6       -     7.6       7.6       -   Total   $ 102.6     $ 99.6     $ 3.0   $ 102.6     $ 99.6     $ 3.0                           $ in millions                        

3Q08

3Q08

3Q08

3Q08

3Q08

3Q08

  Financial $ 53.9 $ 41.1 $ 12.8 $ 52.6 $ 40.0 $ 12.6 Telco/Tech 34.0 33.7 0.3 32.3 32.0 0.3 Healthcare 11.1 11.0 0.1 11.1 11.0 0.1 Other   9.3       8.2       1.1     9.3       8.2       1.1   Total   $ 108.3     $ 94.0     $ 14.3   $ 105.3     $ 91.2     $ 14.1                           % Variances                         Financial -15 % 4 % -77 % -13 % 7 % -76 % Telco/Tech 12 % 13 % NA 18 % 19 % NA Healthcare -1 % 0 % NA -1 % 0 % NA Other -18 % -7 % NA -18 % -7 % NA Total     -5 %     6 %     -79 %   -3 %     9 %     -79 %           Actuals as Reported On a Constant Currency Basis $ in millions   Total

Revenue

  Core

Revenue

  Non-core

Revenue

Total

Revenue

  Core

Revenue

  Non-core

Revenue

 

3Q09

3Q09

3Q09

3Q09

3Q09

3Q09

  Financial $ 45.9 $ 42.9 $ 3.0 $ 45.9 $ 42.9 $ 3.0 Telco/Tech 38.1 38.1 - 38.1 38.1 - Healthcare 11.0 11.0 - 11.0 11.0 - Other   7.6       7.6       -     7.6       7.6       -   Total   $ 102.6     $ 99.6     $ 3.0   $ 102.6     $ 99.6     $ 3.0                             $ in millions                          

2Q09

2Q09

2Q09

2Q09

2Q09

2Q09

  Financial $ 44.0 $ 40.0 $ 4.0 $ 44.3 $ 40.3 $ 4.0 Telco/Tech 36.1 36.1 - 37.5 37.5 - Healthcare 10.9 10.9 - 10.9 10.9 - Other   7.4       7.4       -     7.4       7.4       -   Total   $ 98.4     $ 94.4     $ 4.0   $ 100.1     $ 96.1     $ 4.0                           % Variances                         Financial 4 % 7 % -25 % 4 % 6 % -25 % Telco/Tech 6 % 6 % NA 2 % 2 % NA Healthcare 1 % 1 % NA 1 % 1 % NA Other 3 % 3 % NA 3 % 3 % NA Total     4 %     6 %     -25 %   2 %     4 %     -25 %           Reconciliation of Free Cash Flow (Unaudited) (In thousands)   Three Months Ended

September 30,

Nine Months Ended

September 30,

2009 2008 2009 2008   Cash Flow from Operating Activities: Net income (loss) $ 2,078 $ (546 ) $ 1,471 $ (1,914 ) Depreciation and Amortization 5,603 6,583 17,303 20,013 Other Non-cash Charges 1,535 893 3,585 2,090 Changes in Assets and Liabilities   3,231     12,020     6,225     (4,222 ) Net Cash Provided By Operating Activities 12,447 18,950 28,584 15,967 Less Purchases of Property and Equipment   (3,597 )   (4,989 )   (8,669 )   (17,105 ) Free Cash Flow $ 8,850   $ 13,961   $ 19,915   $ (1,138 )                   ICT Group, Inc. Core / Non-Core Hours (Unaudited)                             in thousands   Total

Hours

  Core

Hours

  Non-core

Hours

in thousands   Total

Hours

  Core

Hours

  Non-core

Hours

 

3Q09

3Q09

3Q09

3Q09

3Q09

3Q09

  Financial 2,553 2,370 183 Financial 2,553 2,370 183 Telco/Tech 1,747 1,747 - Telco/Tech 1,747 1,747 - Healthcare 304 304 - Healthcare 304 304 - Other 317   317   - Other 317   317   - Total   4,921   4,738   183 Total   4,921   4,738   183                             in thousands             in thousands              

3Q08

3Q08

3Q08

2Q09

2Q09

2Q09

  Financial 2,989 2,243 746 Financial 2,570 2,335 235 Telco/Tech 1,432 1,420 12 Telco/Tech 1,705 1,705 - Healthcare 326 322 4 Healthcare 303 303 - Other 413   370   43 Other 323   323   - Total   5,160   4,355   805 Total   4,901   4,666   235                             % Variances             % Variances               Financial -15% 6% -75% Financial -1% 1% -22% Telco/Tech 22% 23% NA Telco/Tech 2% 2% NA Healthcare -7% -6% NA Healthcare 0% 0% NA Other -23% -14% NA Other -2% -2% NA Total   -5%   9%   -77% Total   0%   2%   -22%