APAC Customer Services (APAC)

Q4 2010 Earnings Call

February 18, 2011 11:00 am ET

Executives

Andrew Szafran - Chief Financial Officer and Senior Vice President

Kevin Keleghan - Chief Executive Officer, President and Director

Harriet Fried - Senior Vice President - New York Office

Analysts

Michael Kim - Sandler O'Neill & Partners

Keane McCarthy

David Koning - Robert W. Baird & Co. Incorporated

Josh Vogel - Sidoti & Company, LLC

David Cohen - Midwood Capital

Howard Smith - First Analysis

Matthew McCormack - BGB Securities, Inc.

Presentation

Operator

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Good morning, and welcome to APAC's Fourth Quarter 2010 Earnings Conference Call and Webcast. [Operator Instructions] At this time, I would like to turn the call over to Ms. Harriet Fried of LHA. Please go ahead, ma'am.

Harriet Fried

Good morning, and thanks for joining us for APAC Customer Services earnings call. The company issued a press release yesterday afternoon containing financial results for the fourth quarter of 2010. This release is available on APAC's website, as well as on various financial websites.

Company representatives on today's call are Kevin Keleghan, President and Chief Executive Officer; and Andrew Szafran, Senior Vice President and Chief Financial Officer. Before opening the call, I’d like to remind you that statements about future operating and financial results are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to various risks, uncertainties and other factors that could cause the company’s actual results to differ materially.

Yesterday’s earnings release and the company’s annual report on Form 10-K for the fiscal year ended January 3, 2010 and its quarterly reports on Form 10-Q for the fiscal quarters ended April 4, 2010, July 4, 2010, and October 3, 2010 discuss some of these factors. The company’s forward-looking statements speak only as of today's date.

To supplement the company’s consolidated financial statements, APAC uses certain measures defined as non-GAAP financial measures by the SEC, including EBITDA and adjusted EBITDA. A reconciliation of these results to GAAP is attached to yesterday’s earnings release and additional information can be found in APAC’s annual report on Form 10-K for the fiscal year ended January 3, 2010, and in its subsequent filings on Form 10-Q.

The company has posted a downloadable presentation to accompany the webcast in the Investor Relations section of its website. The presentation can be viewed in the Webcast section of APAC’s IR website by clicking on the link shown under the title of today's event. It will also be posted under Investor Presentations after this call. With that introduction, I'd like to turn over the call to Kevin Keleghan. Go ahead please, Kevin.

Kevin Keleghan

Thank you, Harriet, and I want to thank everyone for joining us on our fourth quarter conference call. I'm starting to feel like a veteran, now that I've been at APAC for five full months, and I continue to feel very good about the long-term prospects of our company.

APAC had a very good 2010. During last quarter's call, we lowered our guidance for the year from $0.42 to $0.41 earnings per share due to some slower-than-planned new client ramps and some softness in the telecom sector. However, we finished the year strong and delivered $0.42, which was at the low end of our original guidance after adjusting for the $0.02 charge for the CEO change.

Adjusting for the extra week in 2009, our top line grew 13 1/2%, which really outpaced the rest of the call center industry.

For 2011, we expect top line growth to be in the high-single digits and EPS of $0.47 to $0.49. We are especially pleased with the strong growth in our non-telecom industry verticals, which averaged approximately 22%, again adjusting for the extra week. Of particular note, healthcare, media and business services were strong contributors.

Also noteworthy is the fact that we are expanding into technology and financial services. Since we are intentionally looking to increase the diversity of the industries we serve, we were very encouraged to be growing in multiple sectors. In contrast, we have faced some strong headwinds in the communications vertical, which historically have been one of our strengths. The communications vertical was down approximately 2% for APAC in 2010, once again adjusting for the extra week due to lower industry volumes, increased competition and excess capacity in their call center network.

We have seen our Communications clients significantly increase their outsourced service capacity during the past year in anticipation of demand for new product launches. This increase in capacity results in the dilution of our call volumes for the steady state business prior to these new product launches, which has resulted in the decline that we experienced.

In addition, despite new product launches during the past year, call volumes are still soft, which challenged us in 2010. We anticipate this trend to continue for the next couple of quarters, while the excess capacity in this sector is rationalized. Since our performance for our clients continues to be top-notch, we anticipate regaining market share as capacity is stabilized. Furthermore, the recent addition of a major new wireless client gives us optimism for growth during the second half of the year in the communications vertical.

You will also notice, we were down in the Travel sector, but I point out this is one of our smallest markets. So despite the headwinds that we are facing with the communications vertical, we anticipate growing this market in the second half of the year and intend to post strong growth in the rest of our business throughout the year.

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