APAC CUSTOMER SERVICES, INC. Investor Presentation August 2, 2006
Robert J. Keller, President & CEO George H. Hepburn, SVP & CFO
SLIDE 2 FORWARD LOOKING STATEMENTS Certain statements, including discussions of the Company’s expectations for 2006 and beyond, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are inherently uncertain as they are based on various expectations and assumptions about future events, and they are subject to known and unknown risks, uncertainties and other factors, which may cause actual events and results to differ materially from historical results or the future results expressed or implied by the forward-looking statements. Please refer to the Company’s Annual Report on Form 10-K for the year ended January 1, 2006 and the Company’s Quarterly Reports on Form 10-Q for the quarters ended April 2, 2006 and July 2, 2006 for a description of the factors that could cause such results to differ. The Company intends its forward-looking statements to speak only as of the date made and undertakes no obligation to update or revise any forward-looking statements.
SLIDE 3 INVESTMENT HIGHLIGHTS Pure play provider of customer care services and solutions Strong, stable client portfolio of Fortune 500 companies and other industry leaders Strategy in Place to Drive Profitable Growth
•
Shifting Toward Higher Margin Business Model
•
Leveraging Multiple Flexible Platforms
•
Optimizing Domestic Capacity and Efficiency
•
Accelerating International Capacity and Growth
Attacking large, underpenetrated market Strong, experienced management team
Focused on Growing Value-Added Business to Maximize Shareholder Returns
SLIDE 4 MARKET OPPORTUNITY
•
$50 billion inbound customer care segment of CRM industry*
•
Only 10% has been outsourced
•
APAC supports less than 25% of customer care call activities of existing clients
•
Clients offer significant opportunity to cross-sell and grow organically due to size, stability and scale
•
Healthcare vertical offers huge upside potential
•
Strong trend to outsource to reduce infrastructure costs
•
Industry’s quality concerns and HIPPA issues have been addressed
*Source: Datamonitor, August 2005
SLIDE 5 APAC’S POSITIONING Differentiated by reputation for custom services and service excellence
•
Motivation and caliber of sales organization
Superior technology capabilities
•
Synchronize offering with clients’ IT infrastructure to support delivery of complex applications
1st customer care provider to establish site in Alabong, Manila Early mover advantage in healthcare vertical
SLIDE 6 TARGETED INDUSTRIES AND BLUE CHIP CLIENT BASE APAC’s strategy: to serve the right industries, the right clients, with the right applications
Six high-growth industries with critical customer care needs
•
Healthcare
•
Financial Services
•
Publishing
•
Business Services
•
Travel and Entertainment
•
Communications Our clients are financially strong industry leaders who:
•
Place a premium on customer loyalty and retention
•
Are characterized by complex service needs
•
View APAC as critical to their business success
•
For many, APAC is primary or sole service provider
•
Offer potential for “lifetime” client relationships
Blue chip client list includes UPS, Verizon, Citigroup and WellPoint
SLIDE 7 SERVICE EXCELLENCE DRIVES GROWTH
Vertical: Healthcare Client Initial Assignment: Patient calls in one plan, one region Expanded Assignment: Multiple Plans, Multiple Regions, Provider, Patient
Vertical: Business Service Client Initial Assignment: Package Tracking Expanded Assignment: Customer Service, Package Information, Claims Processing
Vertical: Telecommunications Client Initial Assignment: One region-Wireless Expanded Assignment: Multiple Regions, Customer Service, Technical Support
SLIDE 8
SHIFTING TO HIGHER-MARGIN BUSINESS MODEL
Successfully repositioned APAC in July 2005 by:
•
Exiting outbound customer acquisition business
•
Exiting unprofitable client relationships
•
Significantly reducing SG&A
•
Closing underutilized domestic centers
Adding international capacity
SLIDE 9 SHIFTING TO HIGHER MARGIN BUSINESS MODEL
Developing More Profitable Multi-Platform Offering
Rightsizing domestic capacity
•
Reduced 16 centers to 8 (one client-owned)
•
Downsized to 4,400 seats
AddingatHOME™Service option
•
All applicable targeted verticals participating in APAC’s virtual staffing solution
•
To reach 200+ seats by year-end
Expanding international capacity (Manila, Philippines)
•
1,200+ seat center fully operational
•
425 seat center opened in June 2006
•
2,000 seat center under construction
SLIDE 10
SHIFTING TO HIGHER-MARGIN BUSINESS MODEL
Revenue from strategic business has been increasing
•
Excluding exited business, quarterly revenue grew 26% YOY in Q206
Q2 05
Q3 05
Q4 05
Q1 06
Q2 06
Strategic/Outgoing Business
$
46.3
$
47.3
$
57.6
$
59.8
$
58.2
Exited Business
$
11.9
$
9.0
$
2.1
$
0.9
$
0.0
Total APAC Revenue
$
58.2
$
56.3
$
59.7
$
60.7
$
58.2
SLIDE 11 SHIFTING TO HIGHER-MARGIN BUSINESS MODEL
Business Model Assumptions
End of Period Seat Count
Actual Q2
Actual Q2
Estimate Q4
Estimate YE
Domestic
2005
2006
2006
2007
Domestic-At Site
6,110
5,119
4,400
4,400
Domestic-atHOME™
N/M
44
200
400
Domestic-Subtotal
6,110
5,163
4,600
4,800
Offshore
Site 1
1,219
1,219
1,219
1,219
Site 2
200
425
425
Site 3
600
2,000
Offshore-Subtotal
1,219
1,419
2,244
3,644
Total Seats
7,329
6,582
6,844
8,444
SLIDE 12 SHIFTING TO HIGHER-MARGIN BUSINESS MODEL
Business Model Assumptions
Annualized Revenue Per Average Seat ($000s)
Actual Q2 2005
Actual Q2 2006
Estimate Q4 2006
Domestic
$
36.0
$
38.7
$
41-$43
Offshore
$
14.4
$
20.4
$
18-$20
Total
$
33.3
$
35.1
$
34-$36
Gross Profit Margin
Actual Q2 2005
Actual Q2 2006
Estimate Q4 2006
Gross Profit %
4.9
%
12.5
%
15%-17
%
Note: Offshore margins are approx. 50% greater than domestic margins
SLIDE 13 Q206 RESULTS CONTINUE TO DEMONSTRATE SOLID PROGRESS
Q206 Results
Q205 Results
Total Revenue
$58.2 Mil
$58.2Mil
“Strategic” Revenue
$58.2 Mil
$46.3 Mil
Gross Profit Percent
12.5
%
4.9
%
SG&A (1)
$7.9 Mil
$9.1 Mil
Adjusted EBITDA (1) (2)
$2.4Mil
$(3.2) Mil
Adjusted Free Cash Flow (1) (2)
$(1.4) Mil
$(5.9) Mil
EPS
$
(.02
)
$
(.10
)
•
Gross profit margins improved 760 basis points
•
Adjusted EBITDA improved by $5.6 million
•
Q206 trailing 12-month adjusted EBITDA improved to $9.5 million from $(4.2) million in Q205
(1) Excluding restructuring and other charges (2) See the Company’s Earnings Releases and Form 10-Q for the quarters ending April 2, 2006 and July 2, 2006 for information on and reconciliation of Non-GAAP Financial Measures
SLIDE 14 SEATS-BY VERTICAL
Seats By Vertical-End of Period
Q2 2006
% of Total
Healthcare (1)
2,670
40.6
%
Communications
931
14.1
%
Business Services
748
11.4
%
Financial Services
305
4.6
%
Publishing and Other
667
10.1
%
Available Capacity
1,260
19.1
%
Total Seats
6,582
100.0
%
(1) Includes Medicare Part D Seats
SLIDE 15 BALANCE SHEET HIGHLIGHTS ($MILS)
Q2 2006
Q1 2006
Net Cash/(Debt)
($13.5
)
($9.4
)
Excess Availability
$
7.1
$
10.8
Equity
$
51.0
$
51.5
DSO (Days)
65
59
Capital Expenditures (1)
$
3.8
$
0.9
(1) Capital Expenditures exclude Green Bay reimbursement amounts of $2.1 million in Q206 and $1.1 million in Q106
SLIDE 16
SUMMARY OF KEY STRATEGIC INITIATIVES
Expand offshore and right size domestic capacity
Target optimal client base
Convert strong pipeline of new business opportunities into sales revenue
•
Opportunities range from several hundred to several thousand seats
•
Two significant pieces of business recently awarded
Enhance ability to attract and retain best customer service representatives Implement industry-leading operational processes and auditable standards of performance
On track to achieve revenue forecast of $230 million in 2006 and profitability for 4Q06
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