Exhibit 99.1
APAC Customer Services Announces First Quarter 2007 Results
-- Grows off-Shore Revenue 61% Year-over-Year
-- Q1 Profitable Due to $17.6 Million Income Tax Benefit
Resulting from Favorable Developments in IRS Appeal
-- Awarded Second United Parcel Service Site
DEERFIELD, Ill.--(BUSINESS WIRE)--May 8, 2007--APAC Customer
Services, Inc. (Nasdaq: APAC), a leading provider of customer care
services and solutions, today reported financial results for its first
fiscal quarter ended April 1, 2007.
Chief Executive Officer Bob Keller commented, "We expected the
first quarter to be challenging, and it was, but we continue to make
progress against our strategic objectives. On a year-over-year basis,
off-shore revenue grew $3.8 million, or 61%, driven by increases in
our healthcare and publishing verticals. In addition, in February
2007, we were selected by United Parcel Service to manage their Tampa
customer interaction center. This award will make UPS, already a large
client, our largest customer and reinforces our belief that we can
differentiate ourselves in this market based on the quality of the
service we deliver. Finally, we opened the first phase of our third
permanent facility in the Philippines late in the quarter.
"Our 2007 first quarter results also include the benefit of the
reversal of a $17.6 million tax liability due to the expected
favorable resolution of our IRS appeal," Mr. Keller continued.
"Ultimately, this would eliminate a significant contingency for the
company and increase borrowing availability under our existing
revolving loan facility."
First Quarter 2007 Results
Revenue for the 2007 first quarter totaled $52.4 million compared
to $60.7 million in the first quarter of 2006. This decrease was
attributable to lower domestic revenues of $12.2 million due primarily
to the expected ramp-down in the Medicare Part D business and the exit
from a large telecommunications client in June 2006. Gross profit for
the 2007 first quarter was $6.3 million, or 12.1%, compared to $7.5
million, or 12.3%, in the prior-year period as the benefit of the
higher off-shore revenue and lower domestic operating costs was more
than offset by decreased domestic revenue contribution and higher
off-shore operating costs. Net income was $15.2 million, or $0.30 per
diluted share, compared to a net loss of $0.7 million, or $0.01 per
share, in the prior year quarter. Excluding the $17.6 million tax
benefit, the company reported a net loss of $2.4 million, or $0.05 per
share. This decline reflects the lost contribution from lower domestic
revenues, higher interest costs and the inability to recognize normal
tax benefits for accounting purposes due to the company's position
relative to its deferred tax assets.
On a sequential basis, first quarter 2007 revenues declined $3.7
million from the 2006 fourth quarter, primarily due to the decline in
the Medicare Part D business. The company's off-shore revenue
increased a modest $660 thousand, or 7%, reflecting its limited
ability to meet the demand for services in its temporary site in
Eastwood, Manila. Gross profit margin also decreased from the 2006
fourth quarter due to both domestic and off-shore activities.
Domestically, gross profit margin was impacted by an increase in labor
rates resulting from both an increase in wage rates due to changing
client mix and a rise in healthcare costs resulting from lower
attrition. From a facilities standpoint, the company had carrying
costs for unused domestic capacity primarily due to the ramp-down of
its Medicare Part D business. Off-shore, the company incurred
increased operating costs to hire and develop its resources ahead of
the new program ramp-up in its new permanent facility. These factors,
together with the impact of lower domestic revenues, contributed to a
$3.1 million decline in operating income from $1.5 million in the
fourth quarter of 2006 to an operating loss of $1.6 million in the
2007 first quarter.
IRS Appeal
In 2002, the company received a cash tax refund associated with
the write-off for tax purposes of its remaining investment in ITI
Holdings, Inc. Following an audit, the Internal Revenue Service
disallowed the deduction, which the company then appealed. During the
first quarter of 2007, the company was advised by the IRS appeals
officer that the IRS was recommending to the Joint Committee on
Taxation that the full deduction taken by the company be allowed. The
company now believes that the IRS clearly agrees with the revised
technical merits supporting its deduction and that it is more likely
than not that the deduction will be allowed. Accordingly, the company
has reversed the previously accrued liability for this matter,
resulting in a $17.6 million income tax benefit. Given the recent
change in the IRS's position, the company is highly confident that its
2002 worthless stock deduction related to the acquisition of ITI will
be allowed in full and expects a final resolution of this matter by
year-end.
Business and Financial Outlook
"The demand for our services in the Philippines remains strong,
and we've begun the orderly transition of our clients out of the
temporary facility in Eastwood and into our new site in Cubao," said
Mr. Keller. "The construction delays we've experienced both postponed
the start-up of new client programs and increased our off-shore
operating costs, and we expect to feel the impact from these delays
for the balance of the year. Additionally, we continue to focus on
improving the efficiency of our domestic capacity and, among other
actions, will relocate our Corpus Christi, TX employees to a smaller
facility and downsize our Tucson, AZ center. We expect to take a $1 to
$2 million restructuring charge in the second quarter primarily
related to the capacity reductions in the Tucson center. These
initiatives will reduce our domestic seat count by approximately 1,200
and are expected to decrease our operating costs by $4 to $5 million
annually."
Mr. Keller continued, "Given the above, we don't expect to
generate an operating profit for the full year 2007. However, with the
additional UPS business and the benefit of reduced domestic operating
costs, we will show significant progress in the second half of the
year. We expect to exit the fourth quarter back on track to deliver
our longer-term goals of low double-digit compounded revenue growth
and double-digit EBITDA margins."
Debt and Liquidity
The company's net debt increased to $22.1 million at the end of
the first quarter of 2007 from $17.5 million at year-end due primarily
to capital expenditures for the company's new facility in the
Philippines. Additionally, DSO improved by three days in the quarter
to 58 days from 61 days in the 2006 fourth quarter.
Finally, first quarter 2007 EBITDA of $1.7 million was down $0.9
million from the prior-year quarter due to the greater operating loss
and free cash flow was down $3.1 million from the first quarter of
2006, primarily due to the lower quarterly earnings and an increase in
capital expenditures associated with the build-out of the company's
third Philippines' facility.
First Quarter 2007 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 Tuesday, May 8, 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 seven 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 May 19, 2007, by dialing
(888) 203-1122, (719) 457-0820 for international participants. The
confirmation number for the replay is 4091022.
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 website
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 the company's
actual results to differ from historical results or those expressed or
implied in the forward-looking statements: its 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 its client contracts; availability of cash flows
from operations and borrowing availability under its loan agreement;
its ability to comply with its debt covenants; the ultimate resolution
of the its dispute with the Internal Revenue Service; its ability to
effectively manage customer care center capacity and offshore growth;
its ability to conduct business internationally, including managing
foreign currency exchange risks; its 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 December 31, 2006. This filing is
available on a website 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 three measures, EBITDA,
adjusted EBITDA and free cash flow, defined as non-GAAP financial
measures by the SEC. 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 December
31, 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 *
------------------------------
April 1, April 2, Fav (Unfav)
2007 2006 %
--------- -------- -----------
Net revenue $ 52,384 $60,723 (14%)
Cost of services 46,067 53,247 13%
--------- -------- -----------
Gross profit 6,317 7,476 (16%)
Operating expenses:
Selling, general and administrative
expenses 7,893 7,890 (0%)
Reversals of restructuring and other
charges (2) (13) (85%)
--------- -------- -----------
Total operating expenses 7,891 7,877 (0%)
--------- -------- -----------
Operating loss (1,574) (401) (293%)
Other income (47) (28) 68%
Interest expense 838 456 (84%)
--------- -------- -----------
Loss before income taxes (2,365) (829) (185%)
Income tax benefit (17,580) (88) N/M
--------- -------- -----------
Net income (loss) $ 15,215 $ (741) N/M
========= ======== ===========
Net income (loss) per share:
Basic $ 0.31 $ (0.01) N/M
========= ======== ===========
Diluted $ 0.30 $ (0.01) N/M
========= ======== ===========
Weighted average number of shares
outstanding:
Basic 49,534 49,455
========= ========
Diluted 50,993 49,455
========= ========
* We operate on a 13 week fiscal quarter that ends on the Sunday
closest to March 31st.
N/M - Percentage change is not meaningful
APAC Customer Services, Inc. and Subsidiaries
Consolidated Condensed Balance Sheets
(Dollars in thousands)
Unaudited
April 1, December 31,
Assets 2007 * 2006 **
- ---------------------------------------------- ---------- ------------
Current Assets:
Cash and cash equivalents $ 1,664 $ 1,305
Accounts receivable 33,622 37,858
Other current assets 7,426 6,717
---------- ------------
Total current assets 42,712 45,880
Property and equipment, net 24,231 23,930
Goodwill and intangibles, net and other assets 22,352 22,244
---------- ------------
Total assets $ 89,295 $ 92,054
========== ============
Liabilities and Shareholders' Equity
- ----------------------------------------------
Current Liabilities:
Short-term debt $ 8,792 $ 13,778
Current portion of long-term debt 1,600 600
Accounts payable and other accrued
liabilities 24,714 48,181
---------- ------------
Total current liabilities 35,106 62,559
---------- ------------
Long-term debt 13,400 4,400
Other liabilities 1,444 1,789
Commitments and contingencies - -
Total shareholders' equity 39,345 23,306
---------- ------------
Total liabilities and shareholders' equity $ 89,295 $ 92,054
========== ============
* We operate on a 13 week fiscal quarter that ends on the Sunday
closest to March 31st.
** 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 *
----------------------
April 1, April 2,
2007 2006
----------- ----------
Operating activities:
Net income (loss) $ 15,215 $ (741)
Adjustments to reconcile net income (loss) to
net cash (used in) provided by operating
activities:
Depreciation and amortization 3,224 3,015
Reversals of non-cash restructuring charges (2) (13)
Deferred income taxes - (254)
Stock compensation expense 396 360
Gain on sale of property and equipment (43) -
Income taxes payable (17,580) 142
Changes in operating assets and liabilities (3,071) 36
----------- ----------
Net cash (used in) provided by operating
activities (1,861) 2,545
Investing activities:
Purchases of property and equipment, net (3,077) (940)
Net proceeds from sale of property and
equipment 14 -
----------- ----------
Net cash used in investing activities (3,063) (940)
Financing activities:
Borrowings on long-term debt 10,000 -
Payments under revolving credit facility, net (4,987) (1,039)
Cash received from exercise of stock options 261 -
----------- ----------
Net cash provided by (used in) financing
activities 5,274 (1,039)
Effect of exchange rate changes on cash 9 (36)
Net change in cash and cash equivalents 359 530
Cash and Cash Equivalents:
Beginning Balance 1,305 960
----------- ----------
Ending Balance $ 1,664 $ 1,490
=========== ==========
* We operate on a 13 week fiscal quarter that ends on the Sunday
closest to March 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)
-------------------------------
April 1, April 2, Fav (Unfav)
2007 2006 %
-------- -------- -----------
Selected Financial Information :
- --------------------------------------
Domestic revenue $42,327 $54,481 (22%)
Offshore revenue 10,057 6,242 61%
-------- -------- -----------
Total net revenue 52,384 60,723 (14%)
Net income (loss) 15,215 (741) N/M
EBITDA (2) 1,697 2,642 (36%)
Adjusted EBITDA (2) 1,695 2,629 (36%)
Free cash flow (3) (1,380) 1,702 (181%)
Statistical Information:
- --------------------------------------
Number of customer care centers 12 ** 13 (8%)
End of period no. of seats
Domestic 4,600 5,408 (15%)
Offshore 2,205 1,219 81%
-------- -------- -----------
Total 6,805 6,627 3%
Annualized rev. per wtd. avg. no. of
seats
Domestic $36,087 $40,774 (11%)
Offshore $18,950 $20,482 (7%)
Total $30,748 $37,006 (17%)
N/M - Percentage change is not meaningful
* We operate on a 13 week fiscal quarter that ends on the Sunday
closest to March 31st.
** One international customer care center is a temporary facility that
we will exit upon transition of employees to the third Philippines
site.
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 March 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, including measuring management incentive plans. In
addition, we use adjusted EBITDA to evaluate the performance of our
current business model against historic performance without the impact
of the restructuring and other charges and asset impairment charges
resulting from our July 2005 strategic alignment. We believe that
EBITDA and adjusted EBITDA are of interest to our investors and
analysts 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 Ended
April 1, 2007 April 2, 2006
-------------- -------------
Net income (loss) $15,215 ($741)
============== =============
Interest expense 838 456
Benefit from income taxes (17,580) (88)
Depreciation and amortization 3,224 3,015
-------------- -------------
EBITDA $1,697 $2,642
============== =============
Reversals of restructuring and other
charges (2) (13)
Asset impairment charges - -
-------------- -------------
Adjusted EBITDA $1,695 $2,629
============== =============
(3) We define free cash flow as EBITDA less capital expenditures.
We use free cash flow, in addition to net cash provided by (used in)
operating activities, to assess our liquidity and performance. We
believe that free cash flow is of interest to our investors and
analysts in relation to our debt covenants as capital expenditures are
a significant use of our cash and our future performance will depend
on our ability to continue to fund our growth.
Free cash flow does not represent funds available for our
discretionary use and is not intended to represent or to be used as a
substitute for cash from operating activities as measured in
accordance with GAAP. The items excluded from 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 Ended
April 1, 2007 April 2, 2006
-------------- -------------
EBITDA $1,697 $2,642
Capital expenditures (3,077) (2,060)
Tenant improvements funded by landlord - 1,120
-------------- -------------
Free cash flow ($1,380) $1,702
============== =============
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 Ended
April 1, 2007 April 2, 2006
-------------- -------------
Net cash (used in) provided by operating
activities ($1,861) $2,545
============== =============
Purchase of property and equipment (3,077) (940)
Income tax benefit (17,580) (88)
Interest expense 838 456
Gain on sale of property and equipment 43 -
Income taxes payable 17,580 (142)
Changes in operating assets and
liabilities 3,071 (36)
Increase in deferred income taxes - 254
Stock compensation expense (396) (360)
Reversals of non-cash restructuring
charges 2 13
-------------- -------------
Free cash flow ($1,380) $1,702
============== =============
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