Sykes Enterprises (SYKE) Q1 2020 Earnings Call Transcript

Sykes Enterprises (SYKE)
Q1 2020 Earnings Call
May 05, 2020, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to Sykes Enterprises Inc.'s first-quarter 2020 earnings call. On the earnings call today from management are 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. 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. [Operator Instructions] Please note the call is being recorded.

I would now like to turn the conference over to CEO Chuck Sykes. Please go ahead, sir.

Chuck Sykes -- Chief Executive Officer

Thank you, operator. Good morning, everyone, and thank you for joining us today to discuss Sykes Enterprises' first-quarter 2020 financial results. On today's call, I will provide insight in how our business is doing operationally and is boosting our market positioning amid the COVID-19 pandemic, and John will walk you through the numbers. And then we'll turn the call over for Q&A.

I want to begin by saying that our thoughts are with those affected by COVID-19, and to those who have lost loved ones, we extend our deepest sympathies as this pandemic has spread with great intensity. I also want to say how grateful we are to all of our employees. Everyone has stepped up heroically. In particular, we are especially thankful to our front-line personnel, operations and IT teams, who have been able to demonstrate great agility and tenacity in the face of this unprecedented event.

Of course, these folks have had the support of exceptional leaders across all functional groups. Each of them has their own interconnected workstream of deliverables to contribute to the heightened state of our operational readiness. This has enabled us to distinguish ourselves in the eyes of our clients, both in terms of adaptability and engagement. Amid all of this, we have been hypervigilant in maintaining employee safety with new and enhanced safeguards while minimizing disruption to their livelihoods as they continue to do an amazing job of delivering to our clients and customers.

Let's discuss how we are distinguishing ourselves. I want to frame my remarks in a broader and more historical context to help you better understand why we are winning mind share with our current and prospective clients. Those of you who have been following us at the company will recall that back in August 2012, we made a highly strategic acquisition of best-of-breed work-from-home agent platform, Alpine Access. Founded in 1998, Alpine was a home agent-borne business model, which, over the years, leveraged the power of cloud computing combined with transformative operational know-how to deliver burst capacity of home agents to clients.

It is important to note that work at home isn't just replicating what you do in a brick-and-mortar environment as many of our clients are beginning to appreciate. Rather, work at home requires a reengineering the entire operational value chain, encompassing functions like recruiting, training, interaction management, performance management, workforce management and risk management. It is akin to transitioning a business model from a physical-first experience to a digital-first experience, which is a very high bar. As such, all business processes around client programs need to be reevaluated, reimagined, reconfigured and refined in order to deliver performance excellence at parity with brick-and-mortar facilities.

Ever since the acquisition, we have gained tremendous knowledge and created as practices around the inner workings of the home agent model. Because we have had such a long stretch of time running this model across various clients, industry verticals and geographies, we were able to respond rapidly to the pandemic and we have taken our best practices to extend the home agent model at scale as a complement to our brick-and-mortar facilities all around the world. On our fourth-quarter earnings call, we gave you a taste of the power of our home agent capability as it relates to China to appreciate the scale and scope of our agility, which we believe distinguishes us from our peers in a span of roughly 30 days. Starting from March 12, we were able to migrate more than half of our brick-and-mortar agent base to our at-home agent platform.

And as John will highlight shortly, the impact was relatively minimal considering the speed and magnitude of the shift. To put these numbers in further context, before March 12, 100% of the agents that represent the 73% capacity utilization number on a consolidated basis in the first quarter were in a brick-and-mortar facility. Fast forward 30 days, almost 60% of those brick-and-mortar agents were now working from home, with the remaining roughly 30% in brick-and-mortar facilities. The remaining 10% of the agents were idle with most of them in the Philippines and El Savador.

By reporting segments, the data is even more impressive. EMEA has transitioned close to 85% of its brick-and-mortar agents to work from home with 15% of the agents remaining in brick-and-mortar facilities. While in the Americas region, more than 50% of the agents have transitioned to home, around 35% are in brick-and-mortar and 15% are idle. The differential between EMEA and the Americas is due to a couple of factors.

Part of the delta was initially due to abrupt and ironclad lockdowns instituted in certain geographies, particularly in offshore jurisdictions. As time has gone on, the difference between EMEA and the Americas is client willingness to home agent certain lines of business for various reasons. Coming second are constraints on technical infrastructure, such as, but not limited to, pervasive and reliable broadband and dedicated workspace at home. This is particularly the case in the Philippines and El Salvador.

That said, we believe, for now, we are reaching an optimal point with a delivery mix in the Americas region that has reduced facility density sufficiently while delivering clients the solution they are seeking. So what does this data play look like from here? As the pandemic continues to unfold, we are a scenario play in how things change in the short to medium term. The good news is that a number of clients that have been very brick-and-mortar-centric have taken big steps in embracing home agents. These clients range across virtually all verticals and complex lines of businesses.

Although they are segmenting which business goes home and which business stays in brick-and-mortar, one thing that is becoming very clear to our clients is that agents now working from home are performing at or above the quality levels of brick-and-mortar operations. Nevertheless, we are working with clients to see how much of a shift to at-home is permanent. This will take on a greater emphasis as the unwinding of lockdowns occurs in fits and starts. On the other side, like everyone else, we are dealing with unknowns from a demand perspective.

Just in the last 30 days, almost 26 million consumers in the United States have filed for unemployment, and how this gets reconciled against the trajectory of the pent-up demand remains to be seen. Another area we are trying to gauge in terms of growth is how clients manage their own in-house service centers, more importantly, whether this pandemic serves as a catalyst for clients to shift more business to outsourcers and, relatedly, how clients then allocate both current and future demand among vendors whose financial profile is coming under increasing scrutiny. Of course, none of this takes into account the potential shifts in consumer behavior and supply chains across our industry, but we believe we are much more resilient and well-positioned given that our business model is agile, enabled by a diverse suite of capabilities. Coupling that with our strong financial position, which is increasingly becoming top of mind for clients, we believe we can continue to proactively reinvest in our business and capitalize on opportunities in what will likely remain a volatile marketplace.

And with that, I'd like to turn the call over to John Chapman. John?

John Chapman -- Chief Financial Officer

Thank you, Chuck. I would like to discuss our quarterly financial results, particularly key P&L, cash flow and balance sheet highlights. As Chuck mentioned, our team deserves tremendous credit for an amazing job in responding to the COVID-19 pandemic. A data point that further underscores Chuck's remarks is that we have around six times as many home agents ramped in less than 30 days than the total number of home agents over the last eight years through February 2020.

With that, let's start with actual revenues relative to what we projected. In the quarter, we reported revenues of $411.2 million versus our projected outlook of $417 million to $422 million. This was roughly $8 million below the midpoint of our business outlook of $419.5 million. Of the $8 million gap, approximately $5 million was due to abrupt COVID-19-related lockdowns where our agents were not able to access facilities, with the remaining $3 million due to foreign exchange volatility.

The $5 million revenue gap impacted operating margins by roughly $5 million or 120 basis points. We continued and continue to pay employees in certain jurisdictions even if they were idle, and in some instances, we are paying a wage premium to those who are working. Turning to our revenues. On a year-over-year comparable basis, we were up 2% on a reported basis and up 2.7% on a constant-currency basis.

By vertical market, and on a constant-currency basis, technology was up around 18%; financial services, up 8%; healthcare, up 4%, all of which was more than offset by the 11% decline in the other vertical, 9% decline in communications and a 0.2% decline in travel and transportation. It is worth noting that stripping out our once largest communications client, the communications vertical would have had a significant double-digit swing in growth. First-quarter 2020 operating margin increased to 5.9% from 4.2% 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 and merger and integration costs, first-quarter 2020 operating margin increased to 7.2% from 6.7% in the same period last year.

The increase in the comparable operating margin was due to the strong overall demand, higher capacity utilization and rationalization of certain client programs with subpar profitability. Further, in the absence of COVID-19-related negative impacts, we estimated operating income for the first quarter of 2020 would have been approximately $5 million or 120 basis points higher. First-quarter 2020 operating margin also reflects the benefit of approximately $2.1 million or 50 basis points, which swung from an expense of approximately $1.2 million or 30 basis points in year-ago quarter related to the mark-to-market adjustment of stock-based deferred comp programs funded through Rabbi Trust investments, which are impacted by a decrease in the global financial markets in the first quarter of 2020 and an increase in the prior year-ago quarter. First-quarter 2020 diluted earnings per share were up 22% to $0.34 versus $0.28 in the same period last year, driven mostly by a combination of higher demand, operating margins and capacity utilization, all of which were tempered by $0.09 of COVID-19-related negative impacts.

On a non-GAAP basis, first-quarter 2020 diluted earnings per share were $0.44 versus $0.45 on a comparable basis, which were tempered by $0.09 of COVID-19-related negative impacts. Turning to our client mix for a moment. On a consolidated basis, our top 10 clients represented approximately 45% of total revenues during the first quarter of 2020, up from 42% from the year-ago period. The top 10 clients in the first quarter of 2020 compared to the top 10 in the same period last year grew roughly at a robust 8%, driven by new program wins that we're rapidly ramping and more than offsetting the drag from our once largest client.

We had no 10% client in both comparable quarters. Now let me turn to select cash flow and balance sheet items. During the quarter, cash flow from operations declined to $28.5 million from $39.3 million, with a decrease due to working capital swing factors in support of revenue growth. Capital expenditure increased to 2.9% of revenues from 1.4% of revenues 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 first quarter of -- first quarter were 80 days, up four days comparably and up one day sequentially. The increase in DSOs compared to last year is primarily due to a drop-off in clients that were mandating receivable factoring. The DSO was split between 79 days for the Americas and 81 days for EMEA.

We collected roughly 13 days' worth of DSOs in a couple of weeks since quarter-end, and we expect some clients to stretch out payment terms even further as they manage liquidity needs more aggressively. Our balance sheet at March 31, 2020 remains strong with cash and cash equivalents of $118.4 million, of which approximately 92.2% or $109.1 million was held in international operations. At March 31, we had $75 million in borrowings outstanding, up $2 million sequentially under our $500 million credit agreement. During the quarter, we repurchased approximately 900,000 shares at an average price of $26.60 per share for a total of $22.9 million.

We continue to hedge some of our foreign exchange exposure. For the second quarter and full year, we're hedged approximately 77% and 65% at a weighted average rate of PHP 52.53 and PHP 52.16 to the U.S. dollar, respectively. In addition, our Costa Rica colon exposure for the second quarter and full-year 2020 is hedged approximately 44% for both periods at rates of CRC 596.55 and CRC 589.45 to the USD, respectively.

Now let's review some seat count capacity utilization metrics. On a consolidated basis, we ended first quarter with approximately 48,600 seats, up approximately 700 seats comparably. The seat expansion is split roughly evenly between the Americas and EMEA and is driven by the rapid and -- the ramp of existing and new client programs. The first-quarter seat count can be further broken down to 40,600 in the Americas and 8,000 in EMEA.

Capacity utilization rates at the end of the first quarter of 2020 was 74% for the Americas and 69% for the EMEA region versus 71% for the Americas and 73% for the EMEA in the year-ago quarter. The decrease in the Americas utilization was driven by higher demand, while reduction in EMEA was mostly due to utilization of our at-home platform as a complement to our brick-and-mortar facilities. The capacity utilization rate on a combined basis was 73% versus 72% in the prior year-ago quarter, with the increase mainly due to higher demand, coupled with our ability to rapidly mobilize our brick-and-mortar agents to at-home to service that demand. Before closing, I would like to state that given the unprecedented nature of this event, we believe it is prudent to suspend providing business outlook for the time being.

As the pandemic unfolds, the impact to clients, lines of business, geographies and verticals in which the company operates is not likely to be uniform. With a robust and tenured home agent model, we can pivot from purely virtual to hub-and-spoke delivery. We have been agile and shifting work from brick-and-mortar facilities to home agents. Clients are validating this differentiation by shifting demand in our direction from other providers.

Thus far, we are experiencing strong demand from certain lines of business, such as customer support for food delivery and digital business services providers. Similarly, we are picking up opportunities related to hardship support for bank and credit card clients, along with support for fintech apps. The same goes for opportunities with clients in the communications and retail verticals as more people work from home. Some of this is expected to be offset by forecasted downturn in demand in the travel vertical.

Similarly, and broadly speaking, it is challenging to model demand trends given the surge in global unemployment levels and their impact on final demand, as well as expectations of pent-up demand. Second, the track of the virus remains uncertain as the year progresses and how some federal state and municipal authorities react could impact access to labor. Third, it remains uncertain how clients will change service level expectations along with their service delivery strategies. And finally, reviewing historical trends to assess future demand trajectory, which we typically utilize as a way to calibrate client forecast, are likely to have limited application given the scope and speed of dislocation in the marketplace.

That said, with our strong financial position relative to many in the industry and a highly differentiated business model, which is being validated by client actions, we believe we are well-positioned to navigate the current backdrop and emerge even stronger as we have the wherewithal to continue reinvesting in the business. With that, I'd like to open the call up for questions. Operator?

Questions & Answers:

Operator

[Operator instructions] The first question comes from Josh Vogel of Sidoti & Company. Please go ahead.

Josh Vogel -- Sidoti and Company -- Analyst

Thank you. Good morning, Chuck and John. Hope you guys are both doing well. First question just based on the comments that you had, John, just talking about the jump in demand from food delivery and digital business service providers, as well as hardship support for bank and fintech clients.

Is this surge that you're seeing, is it more short term in nature? Or do you think this could be played out over the long term?

John Chapman -- Chief Financial Officer

There's a small amount of that that you described. So it's been very small. I think on some of them, we've seen the acceleration of ramps more than a temporary increase that we think will go away in those programs. So it's not like, I guess, a government program that maybe there's a huge end swing just now and it will quickly go away.

There is a few hundred seats you could describe as surge, but the majority of that is what we believe will be long-term growth that we're excited about. And especially on the food delivery service side and digital, that was always in our footprint. It's just we definitely got that accelerated. Just like in some programs, where we were ramping offshore, especially in the Philippines with the challenges we had there, and we've seen some of those programs not so much paused but slowed down.

So we've kind of got these two things working with us just now, but we just wanted to call out that not every vertical is negatively impacted. We do have some really nice positives. And the majority of those positives, we believe, will be longer term and not just kind of here today and gone tomorrow.

Josh Vogel -- Sidoti and Company -- Analyst

OK. Great. And shifting gears, just thinking about what the new normal could look like coming out of this and maybe the new state of operations, having half the labor in brick-and-mortar versus at-home, I'm just curious your thoughts around what the business model could look like structurally if half the workforce is at-home versus brick-and-mortar. Does it give you an opportunity to pare down your physical footprint? And what could this potentially do to your margin profile? And I know you've always thrown out 8% to 10% targets.

So just thoughts on that, please.

Chuck Sykes -- Chief Executive Officer

Yes. Josh, it's Chuck as if you can't tell. Actually, you see this more is a positive long term. And the reason why -- and so if you take all of our people today and move them all to home agents and kept our centers and they were empty, OK, if you looked at that ratio of agents to seats, it would still be, what, 73%.

And our profit margins would still be pretty much intact because there's not a whole lot of extra variable costs that we incur by moving our guys to home agent with our platform. Now the one caveat is that, today, before COVID, our home agent people were typically in their upper 30s, early 40s, it was more of a lifestyle, they work fewer hours; and our brick-and-mortar, we got more hours. Now the reason why I bring that up is because home agent, in general, does not have a better profit margin profile. But here is the big question.

If this becomes the new normal and the majority of people now have to work from home and they need the income versus a lifestyle, then those hours are equaling what they usually do in the center, if not more, because they don't have commute time and things like that. So in that instance, we actually would have a more profitable business model if it was purely home agent. So what we have right now is we're not sure if our clients are going to allow us to just completely go 100% at home. Even if they don't, we don't see any deterioration in our current expectation of margins.

And if they do allow us to go 100% at home, then to your point, we have millions of real estate expense that we can eliminate, so we don't see downside risk from it. If anything, we see a steady state, and we see an exciting opportunity for a change in the operating model. So I hope that helps, and you can understand me.

Josh Vogel -- Sidoti and Company -- Analyst

Yes, it does. It's always great to hear your voice, Chuck. Just building off of that comment that you're not sure yet if clients will allow you to go completely 100% at home, outside of potential security or confidentiality, what are some of the reasons that clients would not -- or would want to stay in a brick-and-mortar facility?

Chuck Sykes -- Chief Executive Officer

I have to say out of concerns for security, obviously, I think it's internal bias they're comfortable with. There really is no logical reason to not want to be at-home, seriously, and in this environment, it's even more difficult to want to justify why you want to be in the center now. The security aspect for some of our clients is a hard one to get over. What we're saying is that almost every client in every industry in every country has embraced home agents.

So the fear of the pandemic and the response of having to respond legally forced them to get over these concerns. And I think a lot of it's going to stick, I really do. So only in cases where you have maybe exposure, if I'm a client and something bad happens, some fraud issue happens and people felt that we were irresponsible for having people at home not working in a secured facility, I think you would find that area is going to stay in a facility. So certain banking clients, for sure or if we're handling certain things around fraud, in particular, things like that.

But really, there isn't really, in my mind, a business reason outside of fear, the certain things around security, that home agent won't work. So I think there's going to be a big change in the business. I really do. The only exception to that is offshoring.

So if you really want to embrace offshoring, we think maybe in our offshore operations we'll have 20% working from home now, but that's going from zero. So that is probably a legitimate business reason, for sure is the offshore but not domestically. I don't know, John, is there anything more you'd add to that?

John Chapman -- Chief Financial Officer

No. Other than the security aspect, that's always been what we felt held us back. And just going back to Chuck's comments on the margin profile, there is nothing negative about the at-home model. I mean, if we can -- if we do get to understand what the new normal is and if those -- if not as lower site occupancy and we can deal with that, we'll just have to figure out how we do that.

If we can get back to more normal utilization in center but yet, there is still a significantly higher percentage at-home, that gives us operational ability to reduce costs. It's physical SG&A costs. And as you know, one of the benefit of at-home is it being so much more flexible in terms of if you do get a downturn, it's not like you've got large G&A around your neck and you've got to now get rid of. And one thing I would say is in the at-home is a building is great, I mean, but it's always been a limiting factor in terms of how quickly we can grow and how quickly we can ramp.

It was always based on how many people can we hire in that geography in a month and get a quality ramp in that building that's got only X number of training rooms and X classes you can put on, etc. So I think as we work through this and we understand how much recall there's going to be back in-center, I absolutely believe that no matter how much that is, a significantly higher piece is going to be left at home, and that's going to give us significant opportunity to hopefully reassess what our margin expectations are for the business. So that's my hope as we go forward. But certainly, I don't think there's any -- outside the security, like Chuck, I don't see any other reason why a client would not want to embrace that.

What I would say is, it's one thing putting agents at home, it's another thing adequately managing them. And that's what, I think, Syke's expertise of managing our home agents. Especially when you look at our EMEA model, which we've spoken about over the last couple of years about how the site utilization was coming down, but the margins were going up, and that was because we were successfully implementing this blended model of at-home and brick-and-mortar working cohesively together. And in the U.S., our at-home model until now was very much in the brick-and-mortar or at home.

We're now really taking the learnings that we've had in Europe and making sure we threw that across the world as to how we manage disparate workforces. No matter whether they're in office in line of sight of a team lead or at-home virtually, we understand how to manage that program and build it seamlessly back to clients. And that's where when you look at that, the impact of that, our experience, hopefully, we believe, help us grab market share and -- increase our market share as we go forward because of the expertise that we've had in this since 2012.

Josh Vogel -- Sidoti and Company -- Analyst

Thank you for all that insight there. Just one more quick one. When I think about the travel vertical, can you give some thoughts around what the true discretionary portion is within that? And then I guess if we'd look at the $1.6 billion base of business coming out of 2019, looking at that total pie, what portion do you think is susceptible to an impact from COVID then? Thank you.

John Chapman -- Chief Financial Officer

Susceptible to COVID, that's a long way. In terms of the travel, you've mentioned, I would say we had about a 5% of that number would be what you described as travel – basically, people are not flying and not booking holidays and not needing customer care. That's the element, I would say, is discretionary. And that vertical performed perfectly well in Q1.

I think it will be OK in Q2. The question is for Q3, where does that business going to go. How quickly are things going to open up? And again, that unknown is really part of the reason why we've really just said, let's take a pause on guidance at the moment. But I would say it is roughly $9 million in $100 million worth of business is that discretionary piece.

How far that will go down, we don't know it as yet.

Josh Vogel -- Sidoti and Company -- Analyst

OK. Well, thank you guys for taking my questions. Glad to hear you're doing well and stay safe out there.

John Chapman -- Chief Financial Officer

Thank you.

Operator

The next question comes from Bill Warmington of Wells Fargo. Please go ahead.

Bill Warmington -- Wells Fargo Securities -- Analyst

Good morning, everyone. I wanted to ask about some modeling we're trying to do for Q2. Seasonally, normally, there'd be maybe a 3% sequential decline there, and then perhaps, some softness there also from the travel vertical that you mentioned. But I was also trying to -- I was trying to get a sense for kind of the revenue trajectory, whether that would make sense the way I'm modeling it, and then also what the -- can we expect the margin impact to be dollar-for-dollar like the $5 million was in Q1?

John Chapman -- Chief Financial Officer

Yeah. I mean, it's difficult, Bill. I mean, I know you're trying to get guidance from us in Q2, but we really don't want to go there. Let's just take the $5 million because I think it's worthwhile just explaining how we came to that number.

The $5 million is not really the total cost of COVID. That was purely, when we looked at our facilities that basically got closed down immediately, and we had no access to use those employees, that was the revenue margin we lost in the last two and a half weeks in March. So 90% of that is really the hard close we had in -- not in the Philippines but in Manila and in El Salvador. And so that's why it was dollar-for-dollar because, literally, we had 100% of our people there but we just couldn't access 13,000 people.

Now what I would say is, as we sit today, that 13,000 number is down to a number of 4,000, so it's 70% less than it was. And so there was a dollar-for-dollar effect in the end of Q1. That's not the same as where it is today, which is 70% less. But we still got roughly 4,000 people that we've got that we're paying, there are still employees that we're still trying to work hard to get them at work.

That is going to impact Q2. And now most of those -- that labor is offshore, but you can then, if you want to model it, model what that would do to the revenue number, etc. And what I would say in terms of Q2, in terms of your modeling, you're looking out, Bill?

Bill Warmington -- Wells Fargo Securities -- Analyst

Got it. And then I wanted to also ask your thoughts on heading into a recession. Last downturn, 2008, 2009, I think revenues were down 5% or 6%. Margins were down 200, 300 basis points from the peak.

I know there are a lot of caveats around the timing and the magnitude, but what do you think heading into this one?

Chuck Sykes -- Chief Executive Officer

Yes. Bill, I wouldn't say there's a couple of things that are different. First of all, recession affects people at a slower pace. It kind of dreads in over time, and this issue is crazy in the sense that every client in every country has been hit simultaneously.

So now the next thing is that we're now shifting completely to home agents, and that's a positive because in the recession last time, sitting here today, we really couldn't say which clients we think are going to be struggling. But in this case, we can pretty much identify the ones that we think or really hit, just like we're talking about travel or just like we're thinking about big-box retailers. In essence, if you think about it, whatever trend was in place prior to COVID, so people working from home was a trend going up, gate economy. Cloud computing was a trend.

E-commerce was a trend. All of those factors now have been accelerated. They have not gone away. If you have a negative trend, like big-box retailers for nonessential goods, OK, that is going to really probably extrapolate out and hurt significantly.

So we're able to sit back and look at our business and get a pretty good idea. As we look at our portfolio, we see a lot of demand and it's pent-up. But the other thing that is making it different is that last time, it was still brick-and-mortar. So what happens is you've got 80 centers all around the world, and business starts subsiding.

So a facility starts going from 85% down to 60%, and you have to have a sales model to put that center to work. You may recall we were using that term called Swiss cheese, where basically we have like potholes and vacancy in all of our centers. Well, the good thing about this situation is that they've all converted to home. So we have clients today, particularly in North America, that are giving us hundreds and hundreds of seats at that hole, and we can capture it right now, whereas in the recession before, we had to have the centers in the right market to capture that demand.

So that's a big difference. So this is going to be something that we think is going to be murky for Q2, Q3. We got to see a second spike happens and how governments respond and that kind of stuff, but we should have that through or at least behind us, Q2, Q3. But on the other hand, what we see is when we exit out, if we have an operating model that now can capture all the demand and we don't really have to worry about whether or not we have the right facilities in the right places, we think we'll cycle through this very quickly.

So it's a big change in the operating model and I think it will make the last recession, the response very different. This will be much more acute in Q2, Q3. And as we exit the year, we actually are quite optimistic about the future because we're in an industry that is desperately needed, and that's a good place to be. It's a hard thing to say candidly when you've got so many people hurting right now.

But it is true. We're pretty much an essential service to our clients. So anyway, hopefully, that gives you a little different color. Home agent and the sudden impact of simultaneously hitting everybody, a little easier to determine, I think, who is going to come out stronger and who's not.

And I don't see this going out over two to three years, the way the recession kind of lingered and just kept hitting companies at different stages of the recession.

Bill Warmington -- Wells Fargo Securities -- Analyst

Thank you very much for that color. One more if I could. You guys have a pretty complete global coverage across channels, and you've got a pretty strong balance sheet. I think you're one of the few players in the space with a net cash position.

And I wanted to ask whether you're -- whether that's helping you guys pick up share specifically around vendor consolidation, whether you guys are actually benefiting.

John Chapman -- Chief Financial Officer

Sure. I don't think we've seen any of that as yet, Bill. What I do know is our blue-chip clients are clearly making sure that they understand the financial position of their supply chain, and many of them have been reaching out and making sure they understand our position, and I'm sure they're looking at us relative to our competitors, and I don't think it's going to hurt us having such a strong balance sheet and position that we've got. And I don't see this as being an immediate reaction from a client to consolidate its vendor list.

I mean, I think, one, that's short term anyway and want to make sure that maintains as much capacity as it can, especially when we're not the only ones in these geographies that have got struggled to get all of their employees in the right place to deliver services for clients. Clients are putting up with service levels that are not where their customers will expect them to be once they're outside this. I think consumers will understand why long wait times and service levels might be low, but that will go away. I just don't see how clients will look to short-term vendor consolidation.

Bill Warmington -- Wells Fargo Securities -- Analyst

Got it. Well, thank you very much for the insight.

John Chapman -- Chief Financial Officer

OK.

Operator

The next question comes from Vincent Colicchio of Barrington. Please go ahead.

Vincent Colicchio -- Barrington Research -- Analyst

Yeah. Most of mine were asked. But if we look at the sales pipeline, Chuck, could you characterize how much you're seeing delays versus cancellations?

John Chapman -- Chief Financial Officer

I wouldn't say we're seeing any cancellations then -- I wouldn't use the word cancellations anywhere. Professional services, Symphony business has had significant delays because a lot of that works in client sites, etc. But that's only $7 million of business annually, so that's not huge. What I would say is -- and again, I think I've touched on it, is we've seen some acceleration and ramps in a few places, especially in the food delivery side and digital services.

And we've seen some ramps that you describe has slowed, but the end game is still the end game. It's just going to take us longer to get there in terms of some of the challenges in the labor in some of those markets. But I would not describe anything in the canceled or postponed. I would say it's, in some cases, accelerated, in some cases, delayed, and in some cases, slowed.

Vincent Colicchio -- Barrington Research -- Analyst

And then Chuck had spoken quite a bit about the willingness for the at-home model for even historically sensitive industries. I'm wondering if you can provide a little bit more color on financial services and healthcare in particular, obviously, very sensitive areas. Is there a portion of both of those verticals where you think there's no way they're going to use the at-home? I assume it's not everything. Is there any way to characterize that?

Chuck Sykes -- Chief Executive Officer

Yes. I would say that -- and if we're handling fraud transactions, they're going to want that to be in the center. If we're doing healthcare, if we have to access the information on the screen, that violates privacy issues, then that is probably going to want to be in the center as well. But if you're doing basic billing questions and it's just kind of a claim that's up on the screen and you see, John went to his docs or it was his bill, but you don't really understand what the underlying health issue is, that will be at-home.

People will be comfortable with that at home. In fact, as we speak, we are ramping financial programs home agents for the first time, new work, new work that's ever been outsourced to third-party as home agent. We're ramping hundreds of seats right now in the United States. We're also ramping healthcare in the same way.

And this was not reacting to the COVID issue. This was a decision about forward-looking changes to the operating model. One used to say necessity is the mother of all innovation. And as pandemic, if you think about the millennium, we had tariffs and tax in 9/11/2001 right on the heels of the dot-com bubble.

We had the great recession now in 2008. Then all this I'm talking about in 10, 11 years later, now we have a pandemic. I mean we've had almost three global issues that have impacted the world that I think makes people stop and think we better have operating models that can respond to an uncertain environment, which we're certainly in now and seeing. So I think those very earnest to change are going to come down meaningfully.

But to answer your question, though, the ones where the fraud concerns or security concerns are just too much, they'll stay, I mean, in the centers for a little bit. But there's a lot of technology that we're getting ready to deploy that I think may also help overcome some of those concerns. So it's going to be interesting to see.

Vincent Colicchio -- Barrington Research -- Analyst

Thanks for the color. That's it for me. Thank you.

Operator

The next question comes from Dave Koning of Baird. Please go ahead.

Dave Koning -- Baird -- Analyst

Hey, guys, thanks. And I guess, first of all, my question, when we think about the way you guided Q1, I think, was kind of up mid-single digits. You said it ended up, up 2% to 3%. So really not that far off.

But I would imagine trends kind of held up pretty well through mid-March. But maybe you could give a little insight to like what year-over-year growth was kind of exiting March, and maybe what you're seeing kind of real-time through April, just to give a little context for how do you think about recent trends.

John Chapman -- Chief Financial Officer

I mean, the only point, David, on Q1 is absent COVID, we would have been in close to the 4% constant-currency organic growth in Q1. Other than telling you that -- now you can see the impact in the late March and telling you that was 13,000 people and we've now got that down to 4,000, that's kind of the number I think you should use. I don't really want to start talking about April yet. I mean, we're just about through it, but I don't want to start talking about exactly where they are other than demand is still strong.

And it's really our ability to get these folks that are still not capable of working either in a center or at-home back to work. That's what's going to be the guiding factor for us to get back to what I would call normal seasonality.

Dave Koning -- Baird -- Analyst

Yes. OK. That's helpful. And then I guess the other thing is your cash balance is really strong, I guess, relative to a lot in the industry.

Does this give you guys a big advantage, either from a customer standpoint, clients wanting to choose you, given the relative stability; and B, maybe even give you some -- I guess some ability to make acquisitions right now in a time where maybe some competitors are a little bit disrupted and you can maybe get pretty attractive valuations to buy something?

John Chapman -- Chief Financial Officer

Yes. I'm sure there are some compares to our significantly disrupted dividend. But what I would say is that while we always would want to keep an eye on opportunities that are out there, that's not our driving force. Our driving force is keeping our employees safe, again, as many of those working as possible, deliver for our clients and look after our balance sheet for our shareholders and basically be ready for the leap that we think will come when we go out of this in Q4 as the model proves that we are resilient, got the capabilities and can manage a disparate workforce, manage programs no matter whether they're distributed in a home or in an office.

That's what we're focused on. Will there be opportunities that we will look at? Absolutely. And are clients making sure they understand their -- where supply chain is in terms of financial strength? Yes. Does that leave us in probably the prime position? Yes.

Absolutely, it does. But it's a combination of things. Clients will not just give you business because you've got a strong balance sheet. I think they'll give us business because of the strength of our operational capability more than them.

But it's nice to have it at this point in time. That's for sure.

Dave Koning -- Baird -- Analyst

Great. And I guess just one quick one on tax rate. If margins, like, move around a lot. Like, are there certain fixed components of the tax rate that can make the tax rate change a lot, or mid-20s is pretty good?

John Chapman -- Chief Financial Officer

No, you're good. You're good. Tax rate won't move much, David. No.

I don't see this impacting tax rates much.

Dave Koning -- Baird -- Analyst

All right. Sounds good. Thanks. Glad everybody's well.

John Chapman -- Chief Financial Officer

Thank you.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Chuck Sykes for any closing remarks.

Chuck Sykes -- Chief Executive Officer

Yes. All right. Well, thank you, everyone, as always, and we're looking forward to joining in the next quarter. Stay safe.

Operator

[Operator signoff]

Duration: 58 minutes

Call participants:

Chuck Sykes -- Chief Executive Officer

John Chapman -- Chief Financial Officer

Josh Vogel -- Sidoti and Company -- Analyst

Bill Warmington -- Wells Fargo Securities -- Analyst

Vincent Colicchio -- Barrington Research -- Analyst

Dave Koning -- Baird -- Analyst

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