ICT GROUP Reports Second Quarter 2008 Results

Business Wire, July 29, 2008

NEWTOWN, Pa. -- ICT GROUP, INC. (NASDAQ:ICTG), today reported results for the second quarter ended June 30, 2008.

Revenue for the second quarter of 2008 was $109.6 million compared to $112.0 million reported in the second quarter of 2007. For the 2008 second quarter, the Company incurred a net loss of $355,000, or $0.02 per diluted share, which included significant training and ramp-up costs associated with the start-up of a large client program in North America. ICT GROUP's second quarter 2008 guidance included the expected benefit of a government grant that would partially offset these costs. The Company now expects to recognize this government grant, equal to approximately $1.0 million pre-tax, or $0.04 per diluted share, in the third quarter of 2008 instead of the second quarter of 2008, as previously anticipated. In last year's second quarter, the Company reported a net loss of $2.1 million, or $0.13 per diluted share, which included $4.9 million pre-tax related to restructuring charges and settlement of litigation. Excluding the impact of these charges, ICT GROUP would have reported net income of $1.1 million, or $0.07 per diluted share in the second quarter of 2007.

"Roll-out of recent new business wins helped us offset the impact of cutbacks of certain existing financial telesales and market research programs and reduced call volumes in certain customer service programs," commented Mr. Brennan. "Within the current economic downturn, we are continuing to see substantial interest for outsourced customer care and back-office processing as well as for our IVR and web-based initiatives. However, while bidding activity is strong across all our targeted verticals, the decision-making process for our customers has lengthened and some program ramp-ups are slower than expected."

In the 2008 second quarter, 61% of work for U.S. clients was produced at ICT GROUP's lower-priced, offshore facilities compared to 44% in last year's second quarter and 60% in the first quarter of 2008. The significant increase in the percentage of offshore production, principally in the Philippines, has increased the Company's exposure to the effects of foreign currency fluctuations. Had the foreign currency exchange rates for the second quarter of 2007 remained in effect in 2008, pre-tax income would have increased by approximately $1.0 million.

Domestic revenue was $67.7 million in the second quarter, representing 62% of total revenue, a decline of 16% from the comparable year-ago period as a result of the shift of U.S. production to lower-priced, offshore facilities, a reduction in telesales call volumes for certain financial services clients and cutbacks in market research programs. International revenue of $41.9 million was up 33% from second quarter 2007 levels and reflected strong year-over-year growth in Australia, Canada, Mexico and the U.K.

Services revenue accounted for 79% of total revenue for the 2008 second quarter as compared to 75% in the year-ago period. Sales revenue declined to 21% of total revenue in the second quarter of 2008 from 25% in the year-ago period due to reduced call volumes and the continued shift of programs to lower-priced, offshore facilities.

Financial services revenue, which was down only 1% on a year-over-year basis and posted a 6% sequential increase, was driven by strong demand from international clients and from domestic clients seeking to outsource additional customer service, collections and back-office processing programs. Telecommunications revenue increased 8% over the second quarter of 2007 and posted a 1% gain from the first quarter. New programs on behalf of U.S., Canadian and U.K. telecommunications clients helped the Company to compensate for the shift of existing domestic business to lower-priced, offshore facilities. Within the health care vertical, there were reduced call volumes in health insurance and patient assistance programs, which resulted in a 16% decline versus the prior-year period and 12% sequentially.

"Despite the effects of ongoing weakness in the economy, ICT GROUP's sales momentum remained strong as existing and prospective clients continue to view outsourcing as a way to reduce internal costs in an uncertain business environment," continued Mr. Brennan. "In the second quarter, we won new business from large companies in the telecommunications, technology and financial services sectors totaling approximately $25 million, comprised of new and expanded programs from new and existing clients."

Outlook:

"We expect difficult business conditions to persist through the remainder of 2008 due to macro economic events and are revising our revenue and earnings guidance for the balance of the year to reflect the potential for clients to further delay or curtail programs. However, we expect to continue to grow our revenue base and improve our profitability sequentially in the third and fourth quarters, but it will not be as fast as we had originally anticipated," noted Mr. Brennan. "We believe that our current infrastructure will accommodate profitable growth as conditions improve, therefore we will be delaying facility expansion plans, carefully monitoring our staffing requirements and reducing capital expenditures over the near-term. Over the longer term, we believe the demand for the services we provide will continue to expand and that the strategies we have in place will enable ICT GROUP to benefit from the opportunities."