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APAC Customer Services, Inc. Q1 2010 Earnings Call Transcript

APAC Customer Services, Inc. Q1 2010 Earnings Call Transcript

APAC Customer Services, Inc. (APAC)

Q1 2010 Earnings Call

May 13, 2010 11:00 am ET

Executives

Harriet Fried – Lippert, Heilshorn & Associates

Michael P. Marrow – President, Chief Executive Officer & Director

Andrew B. Szafran – Chief Financial Officer & Director

Analysts

Howard Smith – First Analysis Securities Corp.

David J. Koning – Robert W. Baird & Company

Matthew J. McCormack – BGB Securities

Robert Riggs – William Blair & Company

Michael Kim – Imperial Capital, LLC

Cynthia Houlton – HFP Capital Markets

Ron Chez

[George Mila]

Presentation

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Operator

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Welcome to APAC’s first quarter 2010 earnings conference call and webcast. This call is being recorded. At this time I would like to turn the call over to Ms. Harriet Fried of LHA.

Harriet Frie

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Thanks for joining us for the first quarter 2010 conference call for APAC Customer Services. The company issued a press release yesterday afternoon containing financial results for the quarter. This release is available on APAC’s website as well as on various financial websites. The company representatives on today’s call are Mike Marrow, 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 as today’s earnings release and the company’s annual report on Form 10K for the fiscal year ended January 3, 2010 discusses some of these factors.

The company’s forward-looking statements speak only as of today’s date. Some of the company’s consolidated financial statements that use EBITDA, a measure defined as a non-GAAP financial measure by the SEC. 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 10K for the fiscal year ended January 3, 2010.

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 investor relations website by clicking on the link shown under the title for today’s event. It will also be posted under investor presentations after this call.

I would now like to turn the call over to Mike Marrow.

Michael P. Marrow

Thanks for joining us on our first quarter conference call. As we noted in our press release we had a very solid quarter and we’re off to another good year. Andrew Szafran, our Chief Financial Officer is going to provide additional detail around our results during the course of today’s call. Before he gets started I would like to briefly comment on our guidance for 2010 as well as the class action settlement we discussed in our press release.

As we noted in our press release we are reaffirming our guidance for 2010 where we expect revenue to be in the range of $320 to $330 million and our full year EPS to be in the range of $0.44 to $0.46. With Q1 revenue exceeding consensus by nearly $4 million and EPS exceeding consensus by $0.01 some may think that we’re being overly conservative with our guidance. Although we don’t provide quarterly guidance I think it’s important to note that historically our first and fourth quarters have been the strongest. Consensus has us with EPS at $0.11 each of the fourth quarters this year. That flat $0.11 per quarter does not quite line up with the seasonality we have seen in past years. Again, historically our EPS is higher in the first and fourth quarters as compared to the second and third quarters.

Let me now address our decision to settle the collective action suit that was filed against us. Our estimates of the cost of defending and winning this litigation which we firmly believe would have been the outcome reached the point where the total future costs would have exceeded the cost to settle the case now. Also, settling at this stage avoids the tremendous distraction to our business associated with having to defend this type of litigation. With this behind us we can be laser focused on producing great results.

Now, I’m going to turn the call over to Andrew to discuss our results for the third quarter. Following Andrew’s discussion I would like to review some of the success we have had in the first quarter. After that, we’ll open the call to questions.

Andrew B. Szafran

Our results for the quarter are really good and I’m pleased to walk everyone through the numbers. For those of you following along via the webcast, my commentary begins on page five of the presentation. First quarter 2010 revenue of $85.3 million was up 16.4% from $73.2 million in the first quarter of 2009. Our growth came both organically from existing clients as well as from new clients signed up in the back half of last year.

Gross profit in Q1 was quite strong at $20.4 million with a gross margin of 24% compared to a gross profit of $18.6 million or 25.3% gross margin in the prior year’s quarter. Gross margins are also up sequentially from the 20.1% level of the fourth quarter. This reflects our progress in ramping up new business. Our operating expenses increased this quarter to $10.5 million or 12.4% of sales from $7.7 million a year ago. However, this amount includes a charge of $2.4 million to settle the previously disclosed collective action.

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