Industry Roll-Ups See Results Third Quarter
Industry roll-ups Compass and TeleSpectrum both posted significant gains in the quarter as a result of two contrasting modes of operation. Strong non teleservices acquisitions for Compass led to increased earnings while the shedding of its non teleservices divisions and the return to its core business caused higher than expected sales for the quarter for TeleSpectrum, according to analysts
Compass International Corp., New York, the second teleservices company to become a public one-stop-shop for direct marketers, was deemed successful by analysts after it posted a net income of $6.2 million over last year's pro forma third quarter net income of $3.7 million. Analysts said the company made the acquisition of nine strong companies and organized the consolidation well. As a result of the successful acquisitions, several managerial appointments and staff additions were made this month.
With the increase in revenue, earnings per share increased 183 percent, from six cents to 17 cents, which analysts expected. Analysts said they are expecting Compass' revenues for the year to be $144 million which is up from the $120 million they originally predicted.
Telespectrum Worldwide, King of Prussia, PA, beat the analysts expected earnings per share of six cents, with its posting of an EPS at 10 cents. In a report issued by JP Morgan, Telespectrum's success stemmed from higher than expected sales. In last year's third quarter the company posted a loss in net income of $13.3 million but this year the company improved to post a net income gain of $2.7 million.
"Telespectrum's strong third quarter, 1998 is particularly noteworthy owing to this is the industry's seasonally soft quarter," said Vivian Kuan, in her analysis. "The company had to react quickly to the stoppage of work from its former largest client, NTC, which halted calling programs in early July as it underwent regulatory review."
Kuan added NTC accounted for 15 percent of second quarter outbound revenue, or 11 percent of total sales. NTC, at the time was expected to increase its business with Telespectrum.
JP Morgan also underestimated the gross margin. Telespectrum's gross margin was 14.2 percent, while JP Morgan estimated it to be at 13.2 percent. This is an improvement of 1,180 basic points over last year's third quarter.
This was also the first quarter that Telespectrum was run fully by new management in place by Keith E. Alessi, Chairman, president and chief executive who has held his position since March. Alessi has been on a mission to focus on its core business following a spurt of account losses and the sale of some non teleservices division.
The company sold its Harris Direct Mail and Fulfillment Division to DDS Distribution Services Corp. for $23 million, cash and $4 million in contingent payments at the beginning of the second quarter.
"It wasn't as synergistic as we thought it would be," said Richard C. Schwenk, Jr. CFO for Telespectrum. "We believed its skills were in mass fulfillment but it concentrated on specialized fulfillment."
In addition to its changes in management, Telespectrum also expanded its board of directors. The two seats on the board were filled by Michael E. Julian and David L. Kriegel. Julian is chairman and CEO of Jitney Jungle Stores of America, Jackson, MS and Kriegel is chairman and CEO of Drug Emporium Inc., Columbus, OH.
For Compass, the appointments are related to the success of the company, according to Bernard Picchi, an analyst for Lehman Brothers, New York. "The changes in title better reflect what they will be doing."
Picchi said this is true in the case of Mahmud Haq, president of Compass, who will take on the additional role of corporate executive officer. He will be responsible for the corporation's day-to-day operations.
Leeds Hackett, formerly president of one of Compass' founding companies, will be executive vice president/chief financial officer. The position of vice president, corporate development, will be filled by Richard Alston, who will focus on implementing a strategy for acquisitions.
The new positions created are general counsel and secretary and vice president, human resources. They will be filled by Julie Schechter and Dianne Hennessy. Schechter served as general counsel for General Electric Capital Corp., and previously Counsel for American Express Travel Related Services. Hennessy was vice president-human resources for Cowles Business Media and was also regional director of human resources for Hilton Hotels Corp. She will integrate Compass' operating entities, employee policies and benefits, compensation, recruitment and retention programs.
Michael Cunningham will remain as chairman, concentrating on the overall development and implementation of long term planning and strategy, as well as acquisitions and finance.
"After more than doubling the revenue base of Compass through nine acquisitions within the first six months following our initial public offering, we clearly needed to add depth to our management structure as an operating company," Cunningham said. "The appointments allow us to manage our growth more effectively and continue our consolidation efforts, while at the same time enable us to take advantage of our many internal growth opportunities."
Compass operates 15 call centers in 11 states that provide sales services, accounts receivable management, mailing services and teleservices. Telespectrum has more than 2,658 workstations with the capacity to handle 837,270 calling hours per month.