Strong Sales, Sluggish Profits Make '98 a 'Mixed Bag' for Industry

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Analysts are calling 1998 a mixed bag for the telesevices industry with companies on average posting strong sales figures but struggling to build profits.


A sample of top teleservices companies recently releasing quarterly or yearly earnings were varied. West Teleservices Corp. and Convergys Corp. showed double-digit rises in revenues backed by solid earnings, while TeleSpectrum Worldwide's revenues slowed. Revenue growth for RMH Teleservices Inc. (which just completed its first quarter) was tempered by lower income.


On average, companies saw net profits decline 64.1 percent due to increased labor costs, said Laurie Kolbeins, managing director of Texada Capital, Wayne, PA, which studied 14 publicly traded teleservices companies.


"The growth rate in the industry overall is pretty good. The problem the industry is having is from a cost point of view because companies have to pay higher salaries due to the low unemployment rate," Kolbeins said, adding it is often hard for teleservices companies to compete for skilled staff with other industries that offer higher salaries.


A strong overall performer last year was West Teleservices, Omaha, NE, which saw double-digit increases in revenues and income for the fourth quarter and year as a whole. Revenues for the quarter ended Dec. 31, 1998, were $125.5 million, a 20.3-percent increase from $104.3 million in the same period of 1997, bringing the total revenues for the year to $482.8 million. That is a 21-percent increase from $398.8 million in 1997. Income soared 32.3 percent for the quarter to $11.2 million from $8.5 million for the fourth quarter, 1997. For the year, it jumped 22.9 percent to $45.9 million from $37.4 million.


The company attributed the quarterly results to operation improvements that increased revenue per workstation, better management of direct costs and the opening of four call centers in the quarter. Gains came despite a slowdown in the pay-per-call industry, company officials said.


"This is something we have been talking about for the last year. 900 calls have become unprofitable but this is an anomaly because the rest of the teleservices industry is growing tremendously," said Thomas B. Barker, president/CEO. "We keep strengthening our positioning because while we are projecting the slowdown in the 900 industry, we are making up for it in our outbound and our teleservices divisions."


Convergys, St. Louis, which completed its spin-off from Cincinnati Bell in the fourth quarter, saw its revenues for the quarter ended Dec. 31, 1998, jump 54 percent to $404.7 million from $262.5 million in the same period of 1997 due in large part to its first quarter acquisitions of Transtech and the Teleservices operations of Maritz. Excluding the acquisitions, revenues increased 9 percent for the quarter. For the year, revenues were up 47 percent to $1.45 billion from $986.3 million.


Income increased 21 percent to $34.1 million from $28.2 million, boosted by $9.7 million in equity income from an investment in a cellular partnership. Yearly income dropped two percent to $107.4 million from $109.5 million last year due to interest and amortization expenses associated with the acquisition.


"We are performing better than the teleservices industry average because of our outsourced contracts," said Steven G. Rolls, chief financial officer. "1998 was a very good year for us because of our initial public offering in March and the completion of the spin-off. We also had handsome margin improvement after we made acquisitions. We have become a very acquisitive company with 20 acquisitions in the last 13 years, and we will continue to do that in the future."


"Convergys has targeted certain providers, which is one of the reasons for their success," said Kim Antonaccio, an analyst for Frost & Sullivan. "They form strategic partnerships with clients who rely on Convergys for advice on which way they should take their business."


Telespectrum, King of Prussia, PA, posted income of $3.6 million for the quarter ended Dec. 31 1998, a turnaround compared to the loss of $149.3 million for the same period a year earlier. This included a $139.1 million charge for goodwill impairment. For the year, the company was in the red with a loss of $6.5 million, compared to $160.5 million last year. Meanwhile revenues slowed mildly, down 4 percent for the quarter to $43 million from $44.8 million for the same period last year and down 6.4 percent for the year to $167.4 million from $178.9 million in 1997.


"This is our second consecutive profitable quarter after a period of significant restructuring," said Keith Alessi, chairman, president and CEO. "Net income in the fourth quarter represented a 34-percent increase over the third quarter despite slightly lower revenues. This is evidence that we continue to make progress on numerous efficiency and cost control programs."


RMH, Bryn Mawr, PA, which completed its 1999 fiscal first quarter on Dec. 31, 1998, saw revenues jump 29 percent to $15.8 million from $12.2 million for the same period in 1997. Net income for the quarter was $257,000, down 52.7 percent from the same period last year.


The company noted that while down compared to the year ago period, earnings were up 57 percent from the previous quarter.


"We have improved utilization within our existing call centers and capacity through a new facility in Florida as well as the expansion of one of our New Jersey facilities," said Mike Scharff, vice president and treasurer. "We are also very pleased with the progress we are making in adding new clients and expanding existing client relationships."
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