Exhibit 99.1
APAC Customer Services Completes Turnaround Year, Positioning Company
for Future Growth
-- Achieves full-year revenue of $224 million
-- Grows off-shore revenue from continuing clients 157%
quarter-over-quarter and year-over-year
-- Strong quarter-over-quarter and year-over-year margin
improvement
-- Fourth quarter profitable before deferred tax asset valuation
allowance
DEERFIELD, Ill.--(BUSINESS WIRE)--Feb. 23, 2007--APAC Customer
Services, Inc. (Nasdaq: APAC), a leading provider of customer care
services and solutions, today reported financial results for its
fourth fiscal quarter and full fiscal year ended December 31, 2006.
Chief Executive Officer Bob Keller commented, "2006 was a year of
accomplishment for APAC, and our operating performance in the fourth quarter
begins to demonstrate the long-term potential of our business. In the fourth
quarter, we generated $954,000 of income before taxes and increased our gross
profit margin to 16.3% as we continued to grow our off-shore production revenue.
During the period, we expanded our temporary facility in Manila because of
weather-related construction delays in our third permanent facility in the
Philippines. We now expect to open the first phase of the permanent facility
late in the first quarter of 2007 or very early in the second quarter.
"The demand for our services in the Philippines remains strong and we have
significant near-term opportunities to grow our domestic business in 2007. In
spite of our expectation that Medicare Part D revenue will stabilize going
forward at about half the 2006 volume of $33.0 million, given the strength of
our client base, the overall demand for our services, and the improvements we
have made and continue to make in our operations, we expect that we will be
profitable for the 2007 full year."
Mr. Keller added, "Based on both our recent performance and the favorable
trends in our industry, we are optimistic about our future. Looking out over the
next three years, our goal is to achieve low double-digit compounded revenue
growth and EBITDA margins, and year-to-year improvement in earnings per share.
With our strategic realignment behind us and many exciting opportunities in
front of us, we expect to expand margins on a year-over-year basis as our
offshore business continues to grow."
Fourth Quarter Financial Results
Revenue for the quarter totaled $56.1 million compared to $59.7 million in
the fourth quarter of 2005. Excluding revenue from the exited outbound customer
acquisition business from the Company's fourth quarter 2005 results, revenue
decreased $1.5 million, or 2.7%, over the prior-year quarter. This decrease was
attributable to lower domestic revenues resulting primarily from the loss of
T-Mobile as a customer, which more than offset the $5.7 million, or 157%,
increase in the Company's offshore business with continuing clients. Gross
profit for the 2006 fourth quarter was $9.1 million, or 16.3%, compared to $7.8
million, or 13.1%, in the prior-year period. This improvement reflected the
higher contribution from the offshore revenue and a reduction in domestic call
center overhead.
The Company reported a net loss of $24.0 million, or $0.49 per diluted
share, for the 2006 fourth quarter compared to a net loss of $1.5 million, or
$0.03 per diluted share, for the comparable 2005 period. The 2006 fourth quarter
loss was driven by a $27.7 million non-cash valuation allowance related to the
Company's deferred tax assets. Consistent with generally accepted accounting
practices, the recording of this allowance was necessitated as a result of
historic losses and does not impair the Company's ability to utilize these tax
benefits in the future.
Income before taxes was $954,000 for the 2006 fourth quarter compared to a
loss before taxes of $4.9 million in the prior-year quarter. Restructuring
charges of $5.0 million were recorded in the fourth quarter of 2005, while the
fourth quarter of 2006 reflects a $316,000 reversal of prior-year restructuring
charges. Adjusting for these items, fourth quarter 2006 income before taxes
improved by $0.6 million from the prior-year quarter.
The Company's net debt increased to $17.5 million at year-end 2006 from $9.8
million at the end of the 2006 third quarter. This planned increase was due to
an increase in capital expenditures to $4.4 million, primarily for the build-out
of the Company's new Philippines facility. Adjusted EBITDA improved to $4.6
million from $3.5 million in the prior-year quarter due to the improvement in
gross profit.
Full-Year 2006 Financial Results
Revenue for the fiscal year 2006 totaled $224.3 million compared to $239.8
million in fiscal 2005. Excluding revenue from the exited outbound customer
acquisition business from APAC's 2005 and 2006 results, 2006 revenue increased
$22.3 million, or 11.1%, over the prior year, reflecting continued growth in the
Company's higher margin offshore business. Gross profit for fiscal 2006 was
$27.2 million, or 12.1%, compared to $22.7 million, or 9.5%, in the prior-year
period. This improvement reflects the benefit of higher contribution from the
offshore revenue and reductions in domestic call center overhead. For the full
year 2006, the Company reported a net loss of $30.5 million, or $0.62 per
diluted share, which included restructuring and other charges of $2.4 million
and a deferred tax valuation allowance of $27.7 million. This compares to a
full-year 2005 net loss of $22.4 million, or $0.45 per diluted share, which
included $8.2 million in restructuring and other charges and $10.9 million in
asset impairment charges.
Year-end net debt was up $6.5 to $17.5 million from $11.0 million at
year-end 2005 due to an increase in days sales outstanding and higher capital
expenditures. Capital expenditures for 2006 increased to $10.7 million (net of
$3.2 million of reimbursed leasehold improvements) from $8.7 million in 2005 due
to expansion and investments in operations. Adjusted EBITDA improved $6.6
million to $7.7 million for the year ended 2006, up from 2005's $1.1 million due
to the improvement in gross profits and lower selling, general and
administrative expenses.
Fourth Quarter 2006 and Year-end Conference Call
APAC's senior management will hold a conference call to discuss financial
results at 10:00 a.m. CT (11:00 ET) on Friday, February 23, 2007. The conference
call will be available live at the Investor Relations section of APAC Customer
Services' website, http://www.apaccustomerservices.com. Please access the site
at least 15 minutes prior to the scheduled start time in order to download the
required audio software (RealPlayer or Windows Media Player).
A replay of the webcast will be accessible through the Company's website for
7 days following the live event. For those unable to listen to the call via the
Internet, a replay of the call will be available until 11:00 p.m. CT (12:00 ET)
on March 6, 2007, by dialing (888) 203-1122, (719) 457-0820 for international
participants. The confirmation number for the replay is 3394990.
About APAC Customer Services, Inc.
APAC Customer Services, Inc. (Nasdaq: APAC) is a leading provider of
customer care services and solutions for market leaders in healthcare, financial
services, publishing, business services, travel and entertainment, and
communications. APAC partners with its clients to deliver custom solutions that
enhance bottom line performance. For more information, call 1-800-OUTSOURCE.
APAC's comprehensive web site is at http://www.apaccustomerservices.com.
Forward Looking Statements
This document contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Generally, forward-looking
statements include expressed expectations, estimates and projections of future
events and financial performance and the assumptions on which these expressed
expectations, estimates and projections are based. Statements that are not
historical facts, including statements about the beliefs and expectations of the
Company and its management are forward-looking statements. All 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 and uncertainties and other factors that can cause actual events and
results to differ materially from historical results and those projected. Such
statements are based upon the current beliefs and expectations of the Company's
management. The Company intends its forward-looking statements to speak only as
of the date on which they were made. The Company expressly undertakes no
obligation to update or revise any forward-looking statements as a result of
changed assumptions, new information, future events or otherwise.
The following factors, among others, could cause actual results to differ
from historical results or those expressed or implied in the forward-looking
statements: revenue is generated from a limited number of clients and the loss
of one or more significant clients could have a material adverse effect on the
Company; terms of our client contracts; availability of cash flows from
operations and borrowing availability under the Company's loan agreement;
ability to effectively manage customer care center capacity and offshore growth;
ability to conduct business internationally, including managing foreign currency
exchange risks; ability to attract and retain qualified employees; and
fluctuations in revenue associated with the Company's Medicare Part D enrollment
and customer care programs.
Other reasons that may cause actual results to differ from historical
results or those expressed or implied in the forward-looking statements can be
found in the Company's Annual Report on Form 10-K for the year ended January 1,
2006 and its subsequent filings on Form 10-Q for the fiscal quarters ended April
2, 2006, July 2, 2006 and October 1, 2006. These filings are available on a web
site maintained by the SEC at http://www.sec.gov.
About Non-GAAP Financial Measures
To supplement the Company's consolidated financial statements presented in
accordance with accounting principles generally accepted in the United States
(GAAP), the Company uses the following measures defined as non-GAAP financial
measures by the SEC: EBITDA, adjusted EBITDA, free cash flow and adjusted free
cash flow. The presentation of this financial information is not intended to be
considered in isolation or as a substitute for the financial information
prepared and presented in accordance with GAAP. More information on these
non-GAAP financial measures can be found in the Company's Annual Report on Form
10-K for the year ended January 1, 2006 and its subsequent filings on Form 10-Q
for the fiscal quarters ended April 2, 2006, July 2, 2006 and October 1, 2006.
The Company expects to use consistent methods for computation of non-GAAP
financial measures. Its calculations of non-GAAP financial measures may not be
consistent with calculations of similar measures used by other companies. The
accompanying notes to selected financial and statistical data have more details
on the GAAP financial measures that are most directly comparable to non-GAAP
financial measures and the related reconciliations between these financial
measures.
APAC Customer Services, Inc. and Subsidiaries
Consolidated Statements of Operations
(Dollars in thousands, except for per share data)
Unaudited
Thirteen Weeks Ended *
-----------------------------------
December 31, January 1, Fav (Unfav)
2006 2006 %
------------ ---------- -----------
Net revenue $ 56,056 $ 59,669 (6%)
Cost of services 46,927 51,849 9%
------------ ---------- -----------
Gross profit 9,129 7,820 17%
Operating expenses:
Selling, general and
administrative expenses 7,911 7,315 (8%)
Restructuring and other charges (316) 5,005 106%
Asset impairment charges - - -
------------ ---------- -----------
Total operating expenses 7,595 12,320 38%
------------ ---------- -----------
Operating income (loss) 1,534 (4,500) 134%
Other (income) expense (45) 44 202%
Interest expense 625 402 (55%)
------------ ---------- -----------
Income (loss) before income taxes 954 (4,946) 119%
Income tax expense (benefit) 24,954 (3,450) N/M
------------ ---------- -----------
Net loss $ (24,000) $ (1,496) N/M
============ ========== ===========
Net loss per share:
Basic $ (0.49) $ (0.03) N/M
============ ========== ===========
Diluted $ (0.49) $ (0.03) N/M
============ ========== ===========
Weighted average number of shares outstanding:
Basic 49,468 49,455
============ ==========
Diluted 49,468 49,455
============ ==========
Fifty-Two Weeks Ended **
-----------------------------------
December 31, January 1, Fav (Unfav)
2006 2006 %
------------ ---------- -----------
Net revenue $ 224,297 $ 239,845 (6%)
Cost of services 197,095 217,124 9%
------------ ---------- -----------
Gross profit 27,202 22,721 20%
Operating expenses:
Selling, general and
administrative expenses 32,065 34,369 7%
Restructuring and other charges 2,384 8,216 71%
Asset impairment charges - 10,886 100%
------------ ---------- -----------
Total operating expenses 34,449 53,471 36%
------------ ---------- -----------
Operating income (loss) (7,247) (30,750) 76%
Other (income) expense (101) (600) (83%)
Interest expense 2,013 1,408 (43%)
------------ ---------- -----------
Income (loss) before income taxes (9,159) (31,558) 71%
Income tax expense (benefit) 21,380 (9,160) (333%)
------------ ---------- -----------
Net loss $ (30,539) $ (22,398) (36%)
============ ========== ===========
Net loss per share:
Basic $ (0.62) $ (0.45) (38%)
============ ========== ===========
Diluted $ (0.62) $ (0.45) (38%)
============ ========== ===========
Weighted average number of shares outstanding:
Basic 49,458 49,455
============ ==========
Diluted 49,458 49,455
============ ==========
* We operate on a 13 week fiscal quarter that ends on the Sunday closest to
December 31st.
** We operate on a 52 week fiscal year that ends on the Sunday closest to
December 31st.
N/M - Percentage change is not meaningful
APAC Customer Services, Inc. and Subsidiaries
Consolidated Condensed Balance Sheets
(Dollars in thousands)
Unaudited
December 31, January 1
Assets 2006 ** 2006 **
- -------------------------------------------- ------------ ------------
Current Assets:
Cash and cash equivalents $ 1,305 $ 960
Accounts receivable 37,858 37,592
Other current assets 6,717 9,248
------------ ------------
Total current assets 45,880 47,800
Property and equipment, net 23,930 21,536
Goodwill and intangibles, net and other
assets 22,244 41,017
------------ ------------
Total assets $ 92,054 $ 110,353
============ ============
Liabilities and Shareholders' Equity
- --------------------------------------------
Current Liabilities:
Short-term debt $ 13,778 $ 11,971
Accounts payable and other accrued
liabilities 48,181 43,514
------------ ------------
Total current liabilities 61,959 55,485
------------ ------------
Long-term debt 5,000 -
Other liabilities 1,789 2,994
Commitments and contingencies - -
Total shareholders' equity 23,306 51,874
------------ ------------
Total liabilities and shareholders'
equity $ 92,054 $ 110,353
============ ============
** We operate on a 52 week fiscal year that ends on the Sunday closest to
December 31st.
APAC Customer Services, Inc. and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(Dollars in thousands)
Unaudited
Thirteen Weeks Ended* Fifty-Two Weeks Ended**
------------------------- -------------------------
December 31, January 1, December 31, January 1,
2006 2006 2006 2006
------------ ------------ ------------ ------------
Operating
activities:
Net loss $ (24,000) $ (1,496) $ (30,539) $ (22,398)
Depreciation and
amortization 3,372 3,064 12,466 12,118
Non-cash
restructuring (316) 707 201 904
Asset impairment
charges - - - 10,886
Deferred income
taxes 24,791 (3,651) 20,957 (9,007)
Stock
compensation
expense 373 - 1,478 -
(Gain) loss on
sale of
property and
equipment (18) 59 (18) (339)
Changes in
operating
assets and
liabilities (9,516) (2,793) (2,277) 5,431
------------ ------------ ------------ ------------
Net cash (used
in) provided
by operating
activities (5,314) (4,110) 2,268 (2,405)
Investing
activities:
Purchases of
property and
equipment, net (4,418) (2,676) (10,713) (8,699)
Net proceeds
from sale of
property and
equipment 1,966 445 1,976 1,071
------------ ------------ ------------ ------------
Net cash used
in investing
activities (2,452) (2,231) (8,737) (7,628)
Financing
activities:
Borrowings on
long-term debt 5,000 - 5,000 -
Borrowings under
revolving
credit
facility, net 3,614 6,610 1,807 11,971
Payments on
long-term debt - - - (313)
Financing costs - (54) - (822)
Stock
transactions 149 - 149 -
------------ ------------ ------------ ------------
Net cash
provided by
financing
activities 8,763 6,556 6,956 10,836
------------ ------------ ------------ ------------
Effect of
exchange rate
changes on cash (56) (114) (142) (114)
Net change in cash
and cash
equivalents 941 101 345 689
Cash and Cash
Equivalents:
Beginning
Balance 364 859 960 271
------------ ------------ ------------ ------------
Ending Balance $ 1,305 $ 960 $ 1,305 $ 960
============ ============ ============ ============
* We operate on a 13 week fiscal quarter that ends on the Sunday closest to
December 31st.
** We operate on a 52 week fiscal year that ends on the Sunday closest to
December 31st.
APAC Customer Services, Inc. and Subsidiaries
Selected Financial and Statistical Information
(Dollars in thousands, except for per share data)
Unaudited
Thirteen Weeks Ended (1) Fifty-Two Weeks Ended (1)
--------------------------- ----------------------------
December January Fav December January Fav
31, 1, (Unfav) 31, 1, (Unfav)
2006 2006 % 2006 2006 %
--------- -------- -------- --------- --------- --------
Selected
Financial
Information:
- -------------
Domestic
revenue $ 46,659 $54,640 (15%) $195,337 $224,638 (13%)
Offshore
revenue 9,397 5,029 87% 28,960 15,207 90%
--------- -------- -------- --------- --------- --------
Total net
revenue 56,056 59,669 (6%) 224,297 239,845 (6%)
Net loss (24,000) (1,496) N/M (30,539) (22,398) (36%)
EBITDA (2) 4,951 (1,480) 435% 5,320 (18,032) 130%
Adjusted
EBITDA (2) 4,635 3,525 31% 7,704 1,070 N/M
Free cash
flow (3) 533 (4,156) 113% (5,393) (26,731) 80%
Adjusted free
cash flow
(3) 217 849 (74%) (3,009) (7,629) 61%
Statistical
Information:
- -------------
Number of
customer
care centers 11 13 (15%) 11 13 (15%)
End of period
no. of seats
Domestic 4,730 5,313 (11%) 4,730 5,313 (11%)
Offshore 2,098 1,240 69% 2,098 1,240 69%
--------- -------- -------- --------- --------- --------
Total 6,828 6,553 4% 6,828 6,553 4%
Annualized
rev. per
wtd. avg.
no. of seats
Domestic $ 39,436 $41,855 (6%) $ 38,616 $ 37,564 3%
Offshore $ 19,617 $16,183 21% $ 19,624 $ 15,102 30%
Total $ 33,726 $36,930 (9%) $ 34,298 $ 35,172 (2%)
N/M - Percentage change is not meaningful
See attached Notes to Selected Financial and Statistical Information
Notes to Selected Financial and Statistical Information
(1) We operate on a thirteen week fiscal quarter that ends on the Sunday closest
to December 31st and a 52 week fiscal year that ends on the Sunday closest
to December 31st.
(2) We define EBITDA as net income (loss) plus the provision (benefit) for
income taxes, depreciation and amortization, and interest expense. We define
adjusted EBITDA as EBITDA adjusted for restructuring and other charges and
asset impairment charges. We use EBITDA and adjusted EBITDA, in addition to
operating income and cash flows from operating activities, to assess our
liquidity and performance and believe that EBITDA and adjusted EBITDA are of
interest to our investors to be able to evaluate our financial results using
the same measures we use.
EBITDA and adjusted EBITDA do not represent funds available for our
discretionary use and are not intended to represent or to be used as a
substitute for net income (loss) or cash flow from operations data as
measured in accordance with GAAP. The items excluded from EBITDA and
adjusted EBITDA are significant components of our statements of operations
and must be considered in performing a comprehensive assessment of our
overall financial results.
EBITDA and adjusted EBITDA can be reconciled to net income (loss), which we
believe to be the most directly comparable financial measure calculated and
presented in accordance with GAAP, as follows:
For the Thirteen Weeks For the Fifty-Two Weeks
Ended Ended
December 31, January 1, December 31, January 1,
2006 2006 2006 2006
----------------------- -----------------------
Net income (loss) ($24,000) ($1,496) ($30,539) ($22,398)
======================= =======================
Interest expense 625 402 2,013 1,408
Provision (benefit)
for income taxes 24,954 (3,450) 21,380 (9,160)
Depreciation and
amortization 3,372 3,064 12,466 12,118
----------------------- -----------------------
EBITDA $4,951 ($1,480) $5,320 ($18,032)
======================= =======================
Restructuring and
other charges (316) 5,005 2,384 8,216
Asset impairment
charges - - - 10,886
------------ ---------- ------------ ----------
Adjusted EBITDA $4,635 $3,525 $7,704 $1,070
======================= =======================
(3) We define free cash flow as EBITDA less net capital expenditures and
adjusted free cash flow as free cash flow adjusted for restructuring and
other charges and asset impairment charges. We use free cash flow and
adjusted free cash flow, in addition to net cash flow provided by (used in)
operating activities, to assess our liquidity and performance and believe
that free cash flow and adjusted free cash flow are of interest to our
investors in relation to our debt covenants as capital expenditures are a
significant use of our cash.
Free cash flow and adjusted free cash flow do not represent funds available
for our discretionary use and are not intended to represent or to be used as
a substitute for cash flow from operating activities as measured in
accordance with GAAP. The items excluded from free cash flow and adjusted
free cash flow are significant components of our statements of operations
and statements of cash flows and must be considered in performing a
comprehensive assessment of our overall financial results.
For the Thirteen Weeks For the Fifty-Two Weeks
Ended Ended
December 31, January 1, December 31, January 1,
2006 2006 2006 2006
----------------------- -----------------------
EBITDA $4,951 ($1,480) $5,320 ($18,032)
Capital expenditures (4,418) (2,676) (13,963) (8,699)
Tenant improvements
funded by landlord - - 3,250 -
----------------------- -----------------------
Free cash flow $533 ($4,156) ($5,393) ($26,731)
======================= =======================
Restructuring and
other charges (316) 5,005 2,384 8,216
Asset impairment
charges - - - 10,886
----------------------- -----------------------
Adjusted free cash
flow $217 $849 ($3,009) ($7,629)
======================= =======================
Free cash flow and adjusted free cash flow can be reconciled to the net cash
provided by (used in) operating activities, which we believe to be the most
directly comparable financial measure calculated and presented in accordance
with GAAP, as follows:
For the Thirteen Weeks For the Fifty-Two Weeks
Ended Ended
December 31, January 1, December 31, January 1,
2006 2006 2006 2006
----------------------- -----------------------
Net cash (used in)
provided by operating
activities ($5,314) ($4,110) $2,268 ($2,405)
============ ========== ============ ==========
Purchase of property
and equipment (4,418) (2,676) (10,713) (8,699)
Income tax expense
(benefit) 24,954 (3,450) 21,380 (9,160)
Interest expense 625 402 2,013 1,408
Loss (gain) on sale of
property and
equipment 18 (59) 18 339
Changes in operating
assets and
liabilities 9,516 2,793 2,277 (5,431)
Asset impairment
charges - - - (10,886)
Increase (decrease) in
deferred income taxes (24,791) 3,651 (20,957) 9,007
Stock compensation
expense (373) - (1,478) -
Non-cash restructuring 316 (707) (201) (904)
----------------------- -----------------------
Free cash flow $533 ($4,156) ($5,393) ($26,731)
======================= =======================
Restructuring and
other charges (316) 5,005 2,384 8,216
Asset impairment
charges - 0 - 10,886
----------------------- -----------------------
Adjusted free cash
flow $217 $849 ($3,009) ($7,629)
======================= =======================
CONTACT: APAC Customer Services, Inc.
George H. Hepburn III, CFO, 847-374-4995
GHHepburn@apacmail.com
or
Investor Relations:
Lippert/Heilshorn & Associates
Jody Burfening / Harriet Fried, 212-838-3777
HFried@lhai.com