Overview

We are a leading global provider of outsourced customer management and business process outsourcing solutions. Our primary services include:

• Customer Care Services (including customer care/retention, and technical support);

• Marketing, Technology and Business Process Outsourcing (BPO) Solutions (including database marketing, data entry/management, e-mail response management, remittance processing and other back-office business processing services).

We also continue to provide telesales to our clients. However, as part of a realignment of our services we have limited our North American telesales efforts to accommodate demand from large strategic clients. We have also ceased providing our market research service offerings as part of this realignment.

We provide our services through operations centers located throughout the world, including the U.S., Ireland, the U.K., Canada, Australia, Mexico, the Philippines, Costa Rica, India and Argentina. As of March 31, 2009, we had 40 operating centers from which we support clients primarily in the financial services, healthcare, telecommunications, information technology, business and consumer services, Government and energy services sectors.

Our domestic sales force is organized by specific industry verticals, which enables our sales personnel to develop in-depth industry and product knowledge. We also have sales operations in the U.K., Canada, Mexico, Australia and Argentina.

We invest heavily in systems and software technologies designed to improve productivity in order to lower the effective cost per contact made or received. Our systems and software technologies are also designed to improve our effectiveness by providing our agents with real-time access to customer and product information. We currently offer and/or utilize a comprehensive suite of business process outsourcing (BPO) technologies, available on a hosted basis for use by clients at their own in-house facilities or on a co-sourced basis in conjunction with our fully integrated, Web-enabled centers. Our technologies include automatic call distribution (ACD) voice processing, interactive voice response (IVR), advanced speech recognition (ASR), Voice over Internet Protocol (VoIP), contact management, automated e-mail management and processing, sales force and marketing automation, alert notification and Web self-help.

We believe that we were one of the first fully automated outsourced customer management services companies, and we were among the first such companies to provide collaborative Web browsing services and utilize VoIP capabilities. Through our global implementation of VoIP, we have established a redundant voice and data network infrastructure that can seamlessly route voice traffic to our centers worldwide. We do not provide telecommunications or VoIP services to the general public.

Our clients typically enter into multi-year, contractual relationships with us, that may contain provisions for early contract terminations. The pricing component of a contract is often comprised of a base service charge and separate charges for ancillary services. Our services are generally priced based upon per-minute or hourly rates. On occasion, we perform services for which we are paid incentives based on performance. The nature of our business is such that we generally compete with other outsourced service providers as well as the retained in-house operations of our customers. This can create pricing pressures and impact the rates we can charge in our contracts.

Revenue is recognized as the services are performed, and is generally based on hours or minutes of work performed; however, certain types of revenue relating to upfront project set-up costs are deferred and recognized over a period of time, typically the length of the customer contract. The incremental direct cost associated with this revenue is also deferred over the same period of time. Some of our client contracts have performance standards, which can result in service penalties and other adjustments to monthly billings if the standards are not met. Any required adjustments to our monthly billings are reflected in our revenue on an as-incurred basis.

We refer to our revenue as either Core revenue or Non-Core revenue. Core revenue encompasses customer care, help desk support, technical support, database marketing, lead qualification, technology hosting, data processing, data entry, receivables management and other BPO activities. Non-Core revenue includes financial telesales for North American clients along with market research services. As of December 31, 2008, Management decided no longer to provide market research services.

• Decreased revenue, which dropped 12% compared to the three months ended March 31, 2008.

† Core revenue increased by 2%, while Non-core revenue decreased by 76%.

† Our Core production volume increased by 16%.

† Decline in Non-Core was primarily volume driven as our production hours associated with these services declined by 77%.

• Our cost of services, as a percentage of revenue, declined to 59% from 64% in the prior year quarter.

• Our Philippines operations handled approximately 44% of total production for the first quarter of 2009 as compared to 41% of total production for the first quarter of 2008.

Our future profitability will be impacted by, among other things, our ability to expand our service offerings to existing customers as well as our ability to obtain new customers and grow new vertical markets. Our profitability is also impacted by our ability to manage our costs, perform in accordance with contract requirements to avoid service penalties and mitigate the effects of foreign currency exchange risk. Our business is very labor-intensive and consequently, in an effort to reduce costs and be as competitive as possible in the marketplace, we have been moving many of our domestic operations to near-shore and offshore operations centers, which typically have lower labor costs. Our success is dependent upon our ability to perform work in locations where we can find qualified labor at cost-effective rates and effectively manage that labor in the most profitable manner.

Some of these benefits, however, may be offset by the expanded training and associated costs we have incurred in the past and may continue to incur because of our service mix. Many of our customer service programs require more complex and costly training processes and to the extent we cannot bill these amounts to our clients, our profitability will be impacted. It is also important for us to manage our employee attrition relating to these programs due to the significant investment in training the employees for these programs.

We believe that our 2009 performance will be largely dependent on our ability to continue capturing new business, leveraging the investment we have made in our infrastructure and expanding our business service offerings. We believe that major corporations will continue to utilize the skills of companies like ours and that the services outsourced will continue to expand beyond the contact center services that currently comprise the large majority of our business. We plan to leverage our existing strength in the financial services, insurance and healthcare markets and provide additional business services to our customers. To capitalize on these opportunities, we intend to continue to enhance the technologies we use.

Critical Accounting Policies and Estimates

Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles. These generally accepted accounting principles require our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses during the reporting period. Actual results could differ from those estimates. Our significant accounting policies are described in Note 2 of our audited consolidated financial statements, which are included in our Annual Report on Form 10-K for the year ended December 31, 2008.

Our critical accounting policies are those that are most important to the portrayal of our financial condition and results and require our management's most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. If actual results were to differ significantly from estimates made, the reported results could be materially affected. The accounting policies we consider critical include revenue recognition; allowance for doubtful accounts; impairment of long-lived assets, goodwill and other intangible assets; accounting for income taxes; restructuring; accounting for contingencies; and share-based compensation.

During the three months ended March 31, 2009, we did not make any material changes to our critical accounting policies. For additional discussion of our critical accounting policies, please refer to Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the year ended December 31, 2008.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2009 and 2008:



                                                  Three months ended
                                                      March 31,
     (dollars in thousands)                        2009        2008      % change
     Revenue:                                   $   96,058   $ 108,700      -11.6 %
     Core                                           91,499      89,929        1.7 %
     Non-Core                                        4,559      18,771      -75.7 %
     Core Production Hours (in thousands)            4,611       3,959
     Non-Core Production Hours (in thousands)          245       1,047
     Average Number of Workstations                 12,516      13,767

There are two primary factors which have impacted our revenue during the three months ended March 31, 2009, as compared to the three months ended March 31, 2008. The first factor is the overall economic environment, which has had a significant impact on our Non-Core services. Our Non-Core production hours comprised approximately 5% of our total production hours in the first quarter of 2009 as compared to 21% for the first quarter of 2008. Overall, our Non-Core production decreased by 77% during the first quarter of 2009 as compared to the first quarter of 2008. Our revenue from the financial services industry has absorbed most of this decline and is directly related to the current economic recession.

In the 2009 first quarter, 65% of U.S. production was executed at our lower priced offshore facilities compared to 62% in last year's first quarter. Over 95% of the U.S. production that was moved offshore was performed in the Philippines, which was comparable to the prior year. Accordingly, offshore migration and the resultant lower revenue rates did not have as significant an impact on our total revenue.

The other factor impacting our revenue is changes in foreign currency rates. The changes in foreign exchange rates during the three months ended March 31, 2009 as compared to the foreign exchange rates during the comparable prior year period had a negative impact of $7.4 million on total revenue. The impact was primarily due to changes in the Canadian dollar and the Mexican peso.

Total annualized revenue per average workstation for the three months ended March 31, 2009 decreased by 3% to $30,700 from $31,580 for the three months ended March 31, 2008, primarily due to the impact of changes in foreign exchange rates.

On an annualized basis, foreign exchange reduced our revenue per workstation by $2,340.

                                                      Three months ended
                                                           March 31,
(dollars in thousands)                                 2009          2008       % change
Cost of Services:                                   $   56,849     $ 69,652        -18.4 %
Labor costs                                             42,600       52,291        -18.5 %
Telecom costs                                            4,159        5,025        -17.2 %
Other direct costs                                      10,090       12,336        -18.2 %
Total Cost of Services as a Percentage of Revenue         59.2 %       64.1 %
Total Production Hours (in thousands)                    4,856        5,006

For the three months ended March 31, 2009, the decline in our cost of services over the first quarter of 2009 was driven primarily by the impact of changes in foreign currency exchange rates. Our labor costs are impacted by production hour volume, foreign exchange rates and changes in hourly payroll rates. Our overall production hours declined by 3% and our direct labor cost per production hour for the three months ended March 31, 2009 was $8.77, compared to $10.44 for the three months ended March 31, 2008. This significant drop reflects the impact of foreign exchange rates, which we estimate to have reduced our labor costs by $5.6 million, as compared to what the costs would have been by applying the foreign exchange rates in effect during the three months ended March 31, 2008. The production mix of hours in lower wage contact centers in the Philippines and Latin America versus higher cost centers in the U.S. and Canada had only a minimal impact on our labor costs, as offshore production increased by only 8% during the first quarter of 2009 as compared to the prior year.

The decrease in telecom costs for the three months ended March 31, 2009 was primarily rate-driven as our telephony cost per production hour decreased by 15% from the prior year period.

Other direct costs include billable third party labor costs, training costs and our internal quality assurance costs. The decline is primarily due to declines in quality assurance costs, which are reflective of decreased production volume.

Overall, our cost of services will continue to be impacted by fluctuations in foreign currency exchange rates. The changes in foreign exchange rates during the three months ended March 31, 2009 as compared to the foreign exchange rates during the comparable prior year period reduced our total cost of services by $7.2 million. The impact was primarily due to changes in the Philippine peso, Canadian dollar, and the Mexican peso.

                                                            Three months ended
                                                                 March 31,
(dollars in thousands)                                      2009            2008         % change
Selling, General and Administrative Expenses:            $   39,168       $ 40,828           -4.1 %
Salaries, benefits and other personnel-related costs         15,465         18,278          -15.4 %
Facilities and equipment costs                               13,074         15,246          -14.2 %
Depreciation and amortization                                 5,935          6,705          -11.5 %
Other SG&A costs                                              4,694            599          683.6 %
Total SG&A as a Percentage of Revenue                          40.8 %         37.6 %

Selling, general and administrative ("SG&A") expenses primarily are comprised of salaries and benefits, rental expenses relating to our facilities and some of our equipment, equipment maintenance and depreciation and amortization costs. Other SG&A costs includes gains or losses on our hedging instruments as well as expenses relating to the various forms of business-related insurance we maintain, the expenses we incur for third party service providers including our independent accountants, outside legal counsel, and payroll processing provider.

Our salaries, benefits and other personnel-related costs were lower during the three months ended March 31, 2009, primarily as a result of our 2008 restructuring efforts undertaken to adapt to the current economic environment, which resulted in the elimination of various management personnel. Our facilities costs consist primarily of rental fees, which decreased, also as a result of the restructuring efforts undertaken in 2008. Our depreciation and amortization declines reflect a lower level of utilized assets, as a result of asset impairment charges recorded in December 2008.

Included within other SG&A costs are gains and losses associated with our currency hedging programs and transactional gains and losses associated with foreign exchange. For the three months ended March 31, 2009, we recognized $0.2 million of hedging losses, as compared $2.0 million of hedging gains for three months ended March 31, 2008.

As a percentage of revenue, our SG&A expenses increased for three months ended March 31, 2009 as compared to the same period in the prior year, primarily as a result of our foreign currency hedging losses as well as the foreign currency transactional gains and losses.

Three months ended March 31, (dollars in thousands) 2009 2008 % change Restructuring Charge (Reversal): $ (85 ) $ - n/a

During the first quarter of 2009, we recorded $312,000 of restructuring charges relating to a facility that we vacated during the first quarter, pursuant to an early termination clause in our lease contract. In addition to the facility charges, we also recorded asset impairments of $61,000 and severance of $39,000.

Offsetting these restructuring charges was the reversal of $418,000 of a facility lease accrual brought about by our efforts to negotiate a lease termination for a facility that we had vacated in 2007. Additionally, we recorded an adjustment to the amount of severance costs we estimated at December 31, 2008, which resulted in an additional net reversal of $79,000.

Three months ended March 31, (dollars in thousands) 2009 2008 % change Interest Income (Expense): $ (25 ) $ 122 -120.5 %

Our net interest costs increased primarily because of lower interest rates on invested cash and cash equivalent balances and an increase in interest expense due to higher levels of debt issuance cost amortization. In December 2008, we amended our Credit Facility in which we incurred $397,500 of issuance costs, which are being amortized over an 18-month period and results in a higher quarterly interest expense of $66,000.

Three months ended March 31, (dollars in thousands) 2009 2008 % change Income Tax Provision (Benefit): $ 105 $ (645 ) -116.3 %

Our provision for income taxes for the three months ended March 31, 2009 is based on our current estimate for the fiscal year, as limited by our ability to recognize income tax benefits in the tax jurisdictions for which we are expecting operating losses. Included in our tax benefit during the three months ended March 31, 2008 was $275,000 that we recognized due to an expiring statute for tax credits that we received in a prior period. Based on quarterly changes in our estimated income or loss in each tax jurisdiction, particularly in jurisdictions where we have tax holidays, our effective tax rate can fluctuate from period to period and experience more volatility than in recent years. Our effective income tax rate will also continue be impacted by our ability to realize the tax benefit of any deferred tax assets recorded.

We have experienced, and expect to continue to experience, quarterly variations in operating results, principally as a result of the timing of programs conducted by new and existing clients (particularly programs with substantial amounts of upfront project set-up costs), and selling, general and administrative expenses to support the growth and development of existing and new business units.

Historically, our business tended to be strongest in the second half of the year due to higher call volumes in anticipation of the holiday season, while the first quarter often reflected a slowdown relating to the cessation of that activity. Our operating margins in the first quarter are typically lower due to higher payroll-related taxes with our workforce and other seasonal costs.

Liquidity and Capital Resources

At March 31, 2009, we had $37.6 million of cash and cash equivalents compared to $31.3 million at December 31, 2008. We generate cash through various means, primarily through cash from operations and, when required, through borrowings under our Credit Facility. The primary areas of our business in which we spend cash include capital expenditures, payments of principal and interest on amounts owed under our Credit Facility to the extent we have outstanding borrowings, costs of operations and business combinations.

Cash From Operations

Cash provided by operations for the three months ended March 31, 2009 was $7.3 million, compared to cash provided by operations of $6.0 million for the three months ended March 31, 2008.

Cash provided by operations for the three months ended March 31, 2009 was generated by net losses of $4,000, offset by non-cash adjustments of $6.7 million, primarily depreciation and amortization. Net working capital changes and changes in non-current assets and liabilities increased cash flow from operations by $0.6 million, largely driven by the decrease in accounts receivable which generated $3.8 million of cash flow, partially offset by decreases in accounts payable which had a negative impact on cash flow of $2.5 million.

Cash provided by operations for the three months ended March 31, 2008 was generated by net losses of $1.0 million, offset by non-cash adjustments of $7.3 million, primarily depreciation and amortization. Net working capital changes and changes in non-current assets and liabilities decreased cash flow from operations by $280,000, largely driven by the increase in our accounts payable of $4.0 million, offset by decreases in accrued expenses and income taxes.

Credit Facility

For the three months ended March 31, 2009 and 2008, respectively, we had no borrowings under the Credit Facility. Our Credit Facility is a $75.0 million secured revolving facility with a $5.0 million sub-limit for swing line loans and a $30.0 million sub-limit for multicurrency borrowings. The Credit Facility includes a $50.0 million accordion feature, which will allow us to increase our borrowing capacity to $125.0 million, subject to obtaining commitments for the incremental capacity from existing or new lenders. As of March 31, 2009, we were in compliance with all of the covenants contained in the Credit Facility. During the first quarter of 2009, we paid $225,000 of costs associated with our December 2008 amendment that were unpaid as of December 31, 2008.

Equity Transactions

During the three months ended March 31, 2009 and 2008, we received $27,000 and $207,000, respectively, in proceeds from the exercise of employee stock options. Also, during the three months ended March 31, 2009 and 2008, we paid $85,000 and $114,000, respectively, to satisfy the minimum tax withholding obligations for the vesting of RSUs for which we withheld the issuance of shares.

For the three months ended March 31, 2009, we spent $2.6 million on capital expenditures as compared to $6.4 million for the three months ended March 31, 2008. A portion of our capital expenditures is reflected in our workstation growth. There were 12,523 workstations in operation at March 31, 2009, compared to 12,509 workstations in operation at December 31, 2008 and 13,823 at March 31, 2008.

During the three months ended March 31, 2009, we added a net total of 14 workstations. This included 143 workstations added to various operations centers both domestically and abroad. These additions were partially offset by the elimination of 129 seats that were located in a couple of North American facilities that we vacated in the first quarter. We spent approximately $1.5 million on workstation expansion during the first quarter of 2009. The remainder of our capital expenditures related primarily to upgrades of information technology and software purchases.

During the three months ended March 31, 2008, we added a net total of 113 workstations. This included 313 workstations added to various operations centers both domestically and abroad. These additions were partially offset by the elimination of 200 seats that were located in a North American facility that we vacated in the first quarter after the expiration of our lease. We spent approximately $5.5 million on workstation expansion during the first quarter of 2008. The remainder of our capital expenditures related primarily to upgrades of information technology and software purchases.

We expect our operations to continue to require significant capital expenditures to support the growth of our business. Historically, equipment purchases have been financed through cash generated from operations, the Credit Facility, our ability to acquire equipment through operating leases, and through capital lease obligations with various equipment vendors and lending institutions. We believe that our cash equivalents, the cash flow generated from operations, the ability to acquire equipment through operating leases, and funds available under our Credit Facility will be sufficient to finance our current operations and planned capital expenditures for at least the next twelve months.

Commitments and Obligations

As of March 31, 2009, we are also parties to various agreements that create contractual obligations and commercial commitments. These obligations and commitments will have an impact on future liquidity and the availability of capital resources. We expect to satisfy our contractual obligations through cash flows generated from operations. We would also consider accessing capital markets to meet our needs however, we can give no assurances that this type of financing would be available in the future. There has not been any material change to our outstanding contractual obligations from our disclosure in our Annual Report on Form 10-K for the year ended December 31, 2008.

FORWARD-LOOKING STATEMENTS

This document contains certain forward-looking statements that are subject to risks and uncertainties. Forward-looking statements include statements relating to the appropriateness of our reserves for contingencies, the realizability of . . .