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Exult Profits From Others' Cost Cutting

January 31, 2003|Debora Vrana | Times Staff Writer

Exult Inc. is starting to reap the benefits of other companies' cost cutting.

The Irvine-based company, which provides human resource services to corporate giants including Bank of America Corp. and oil company BP, reported its first profitable quarter Thursday.

Formed in late 1998, Exult tracks payroll, cuts workers' checks and manages employee benefits for large companies that are looking to cut overhead in the current economic slump by outsourcing such services.

With just seven clients -- all of them Fortune 1,000 companies -- Exult is considered the largest player among human resource outsourcing firms.

Corporations spent $4.1 billion for such services in 2001, according to experts, and they are projected to spend $15 billion by 2006.

For the quarter ended Dec. 31, Exult posted net income of $1.81 million, or 2 cents a share, compared with a loss of $15.7 million, or 15 cents, a year ago. Sales rose 36% to $121.6 million from $89.4 million.

Exult's positive fourth-quarter showing surpassed Wall Street analysts' expectations and sent the stock soaring 16%, or 70 cents a share, in heavy trading to close at $4.99 on Nasdaq.

"We have waited four years for this day," Chief Executive James C. Madden said. "We've proved fundamentally that this business model works."

Revenue from new contracts helped boost fourth-quarter profit, as did cost cutting of its own, including a 13% cut in its workforce last year. Better margins from existing contracts also helped, Madden said.

The quarterly results were "better than what we on Wall Street expected and they achieved profitability," said John K. Mathis, analyst with Goldman Sachs & Co., which has a "buy" rating on the stock. Mathis estimates in his most recent report that Exult will sign one or two major clients in the next few months from a pipeline of $3 billion in qualified leads.

Exult has 1,300 employees and four major service centers in the U.S. and Britain and is expanding a center in India. The firm went public in June 2000.

Madden is a co-founder of the firm along with General Atlantic Partners, a private equity firm in Greenwich, Conn., that owns about 46% of the company.

Some of Exult's clients also have an ownership stake. BP, the world's second-largest publicly traded oil company, owns about 6% of the firm, Madden said.

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