Sykes Enterprises (SYKE) Q4 2019 Earnings Call Transcript

Sykes Enterprises (SYKE)
Q4 2019 Earnings Call
Feb 27, 2020, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

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 -- Chief Financial Officer

Thank you, Kerry. Good morning, everyone, 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, 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 steady 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 the engaged 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, healthcare 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 two communication clients, we have called out in the past two quarters, one of which we have now completely exited and the other was our once largest client, communications vertical, which has 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-offs charges merged with 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 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 the 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 one 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 three days comparably and up two 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 40% 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 the 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 whole major 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, on 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 amount and 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 three 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.

Questions & Answers:

Operator

[Operator instructions] The first question will come from Josh Vogel of Sidoti & Company.

Josh Vogel -- Sidoti and Company -- Analyst

Thank you. Good morning, Chuck and John.

John Chapman -- Chief Financial Officer

Good morning.

Josh Vogel -- Sidoti and Company -- Analyst

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 two 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 -- Chief Financial Officer

Yeah. Yeah. 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, etc., etc. That applies to both once the largest client and the other clients where the relationship ended.

We still like the telco vertical. It is operationally intensive. We are winning new telco pieces of business. Is it more operational intensive in some verticals? Yes.

Are the margins worse? No. Are the margins what we need them to be? Yes. So I don't think the telco vertical is structurally broken. I think we had a business that was structurally broken in the telco vertical.

That's by and large, behind us now, in fact, is behind us now. As we cycle through Q1 and Q2, we still have that year-over-year revenue headwind. But you'll see even excluding the two clients we keep calling out, you see revenue in the vertical grow from Q3 onwards, even excluding those. So we're optimistic about the vertical, 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.

Josh Vogel -- Sidoti and Company -- Analyst

That's helpful. Shifting gears a little bit. When we think about your digital business, Clearlink, Symphony, the investments you're making in Excel, 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 -- Chief Financial Officer

OK. So you mean digital business other than those three businesses? Or do you mean digital clients? Or do you mean us providing channels and supporting the digital channels, Josh.

Josh Vogel -- Sidoti and Company -- Analyst

I guess what you would -- yeah, 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 -- Chief Financial Officer

OK. Well, if we look at -- I mean, we don't supply. 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 a large consultancy. It was 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.

And in terms of Excel, we obviously don't consolidate those numbers. But increasingly, we're seeing us using Excel as part of our capability within ourselves, within our Clearlink business. We see that growing. But as a company, I mean I'm not going to stay with Excel as with a private company, but we are very, very excited with the growth that they've 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.

Chuck Sykes -- Chief Executive Officer

Josh, it's Chuck. If you can't tell. Obviously, my voice is not able to work here today. But when you're talking to us, I would think in the context of three 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 three characteristics. There are typically companies that are very light in physical assets.

Some people refer to that as information-enabled assets. The second thing is their very high velocity models, 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 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, 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 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, if 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.

Josh Vogel -- Sidoti and Company -- Analyst

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 -- Chief Financial Officer

Yeah. 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 so without exception being a near and offshore addition, because that's where we 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.

Josh Vogel -- Sidoti and Company -- Analyst

OK. 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 -- Chief Financial Officer

Yeah. That's a really interesting question because before Chinese New Year, we had zero at-home agents. Within a week and a half after Chinese New Year, we had I think 63% of people working, 40% of them were at-home. So 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 in understanding of that model, what you need to do to stand up that quickly.

And we went from zero agents to 40% of those 63% are 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. That 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 yet use the skills and knowledge that are 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 two weeks of getting back.

Josh Vogel -- Sidoti and Company -- Analyst

Yes, for sure. Well, thank you, guys, for taking my questions.

John Chapman -- Chief Financial Officer

Thank you.

Operator

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

Bill Warmington -- Wells Fargo -- Analyst

Good morning, everyone.

John Chapman -- Chief Financial Officer

Hey, Bill.

Bill Warmington -- Wells Fargo -- Analyst

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

John Chapman -- Chief Financial Officer

He is in very annoying pain, and voice.

Bill Warmington -- Wells Fargo -- Analyst

I guess it's hurting us more than it's hurting you there.

Chuck Sykes -- Chief Executive Officer

And that's why John read the script.

Bill Warmington -- Wells Fargo -- Analyst

All right. Well, 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 -- Chief Financial Officer

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 have the connect client that even if they're going to buy traditional engagement services today that we could be their digital partner to grow less 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, 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 was 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, we got a client that went from 20% of your revenues down to 5%, and it is really difficult to deliver any kind of growth, but we have managed at least echo a little bit in 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've been giving us pieces off, we're getting more comfortable, obviously, in terms of the revenue guidance. It's great for this year, and we believe that based on our broad base, it's going to be much more sustainable going into the future years.

Bill Warmington -- Wells Fargo -- Analyst

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 -- Chief Financial Officer

It's interesting because in China, we had clients that say we do not do at-home. But then that was the only option, we were able to do that. Considering the U.S., it's where we've got more start 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 client by client.

But absolutely, I believe, we'd be in the best position both in the U.S., would be in the best position in the Sykes company to react, and I think Sykes would be in one of the best positions in the market to react. We just don't envisage that happening today, but we certainly believe that we could do more than even what China was able to do within two weeks, which is just phenomenal, to turn 40% of people who are active at-home within two weeks. I don't know if you want to add anything, Chuck.

Chuck Sykes -- Chief Executive Officer

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 it will just be the communication infrastructure. And a lot of it is hosted up in the cloud now, so it'd be pretty quick.

Bill Warmington -- Wells Fargo -- Analyst

Wow. OK. Well, again, Chuck I hope you feel better, and thank you very much for your answers.

Chuck Sykes -- Chief Executive Officer

OK, Bill. Thanks.

Operator

The next question will come from Dave Koning of Baird.

Dave Koning -- Baird -- Analyst

Yeah. Hey, guys, thanks. 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, 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 -- Chief Financial Officer

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 over the consolidated, 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 in Qelp.

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 at a target.

So it's a combination of all of those things, David, I wouldn't -- it's definitely not acquisition based. That's what I'm saying. It's all about the operational levers that we've improved over the last 18 months.

Dave Koning -- Baird -- Analyst

Yeah. OK. OK. 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 -- Chief Financial Officer

It's a mix, David. We've got China support of international clients. Vast majority is international clients. But some of it's supporting those clients in the Chinese market.

But we do have a multilingual capability in China as well. So real good Japanese support from China, etc. 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 guess...

Chuck Sykes -- Chief Executive Officer

It's 85.

John Chapman -- Chief Financial Officer

50% is in kind of...

Chuck Sykes -- Chief Executive Officer

Yeah, 85% is sort of...

John Chapman -- Chief Financial Officer

Chinese consultant.

Dave Koning -- Baird -- Analyst

OK. OK. 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-of-way delivery. Is the service, is there any like do your clients ever call and say, "Oh, something changed." Is it completely unnoticeable and no service issues?

John Chapman -- Chief Financial Officer

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. What 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 is ecstatic that it could have been 100% down, and now that only 50% down. But I don't have any formal feedback that I could give you David.

Dave Koning -- Baird -- Analyst

OK. No, that's fine. And then the last one, just the mix between first-half and second-half earnings. The last couple of years.

I'm looking, it looks like a 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 this year?

John Chapman -- Chief Financial Officer

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

Dave Koning -- Baird -- Analyst

OK. Great. Thanks, guys. Nice job.

John Chapman -- Chief Financial Officer

Thank you.

Chuck Sykes -- Chief Executive Officer

Thanks.

Operator

The next question will be from Vincent Colicchio of Barrington.

Vincent Colicchio -- Barrington Research Associates -- Analyst

Yeah. I'm curious. How are you benefiting from consolidation in the market?

John Chapman -- Chief Financial Officer

Yeah. Yeah. I mean, it's certainly not the lion's share of the things we're winning. But we did call out that when two large providers come together and a client then assesses a risk profile about too many eggs in one basket, then they go out to the market.

And we all know this business is great in terms of client tenure is 10 years. What that does do is it makes it difficult to break in. And so the beauty is that where the opportunities happen because of consolidation and we've showed up, we showed up with all of our capabilities. And 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 Colicchio -- Barrington Research Associates -- Analyst

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

John Chapman -- Chief Financial Officer

No. In the U.S., our attrition has come down, but that'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 U.S., I described as stable in terms of labor rates; and in terms of offshore, not much to report in terms of change bends. The only thing 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 that's kind of it's called a sign-on bonuses that we get.

And these can be material if you've got a huge ramp in any one quarter. That's the new thing we're seeing, where some of the states takes months as kind of bonus at the end of that, if we come in, meet their quality metrics and stay. But, again, that's not a material cost and it's now a known 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.

Chuck Sykes -- Chief Executive Officer

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

Vincent Colicchio -- Barrington Research Associates -- Analyst

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?

Chuck Sykes -- Chief Executive Officer

Yeah. Vince, I think the best way we can answer that is with the business we have, one, absolutely in the market that has 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, you know.

So the best thing is just from the clients themselves.

Vincent Colicchio -- Barrington Research Associates -- Analyst

Thanks, guys. Nice quarter.

Chuck Sykes -- Chief Executive Officer

OK. Thanks.

Duration: 40 minutes

Call participants:

John Chapman -- Chief Financial Officer

Josh Vogel -- Sidoti and Company -- Analyst

Chuck Sykes -- Chief Executive Officer

Bill Warmington -- Wells Fargo -- Analyst

Dave Koning -- Baird -- Analyst

Vincent Colicchio -- Barrington Research Associates -- Analyst

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