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As One Of The Leaders In Providing
Logistics Services To The Consumer Electronics Market, ATC Technology Is No
Longer Just A Provider Of Transmission Remanufacturing Services
Analyst Interview Covering:
ATC Technology Corporation (ATAC-NASDAQ)
1400 Opus Place, Suite 600
Downers Grove, IL 60515-5707
Craig R. Kennison
Senior Research Analyst
Robert W. Baird
Interview conducted by:
Lynn Fosse, Senior Editor
Published – July 11, 2008
Craig R. Kennison, CFA
Craig is Baird’s senior analyst covering Automotive Services and Consumer
Leisure. Prior to joining Baird in 1999, Craig worked in marketing and sales
for the Eureka Company, which is now Electrolux Home Care Products. In the
2006 and 2007 Forbes.com/StarMine Analyst Awards, Craig was ranked among the
most accurate earnings estimator in automobiles. Craig received both a BA in
Economics, English and Philosophy, and an MBA in Finance from the University
of Wisconsin-Madison, where he is also an alumnus of the Applied Security
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CEOCFO: Mr. Kennison, would you tell us
about the universe that you cover?
Mr. Kennison: “Automotive Services.
Primarily, I cover businesses that auction, recycle, or remanufacture
automotive parts. These businesses tend to benefit from accident frequency
or transmission failures – events that occur in nearly every economic
CEOCFO: Why have you chosen to follow
ATC Technology Corporation?
Mr. Kennison: “It fit our profile. We
like good businesses that are well-managed in industries we understand. We
also like the logistics business, which is poised to grow.”
What is ATC Technology’s current focus; how does it fit into what you cover,
and how will they grow their business?
Mr. Kennison: “It is a great question
because we concentrate on automotive services, yet ATC increasingly is
focused on logistics services. Historically, ATC was almost exclusively in
the business of remanufacturing transmissions – so it fit well within our
automotive list. Today, more than half its revenue comes from its logistics
business – yet many investors still see ATC as an automotive play. As this
perception changes, we think the valuation will improve.
The automotive business is intuitive. When your
transmission fails while under warranty, there is a good chance you will get
a remanufactured transmission from ATC. The transmissions are as good as new
and conserve valuable resources. The logistics business is similar in some
respects. When your cell phone fails, you send it back to your service
provider. Instead of going back to AT&T, for example, it goes to ATC to
handle the return and repair logistics. With the proliferation of consumer
electronics from cell phones to GPS devices – we think ATC has a big
CEOCFO: What do you see as the strengths
of their management team?
Mr. Kennison: “Donald T. Johnson Jr.,
their chairman and CEO, spend 25 years at Caterpillar, Inc. in
remanufacturing and logistics – then 4 years at Ford as a customer of ATC.
Few people on the planet can bring extensive experience to both markets –
and Don Johnson can. We like his plan to grow and diversify the revenue
base. It is a great business, but most of its revenue is tied up in a few
customers. Don wants to minimize the customer concentration risk by winning
new business, and he has a good track record. ATC has been reporting its
pipeline of potential new business for years. Historically, it has closed
about 20-30% of this pipeline. By publishing this pipeline, Don puts his
credibility on the line with Wall Street – and has earned respect by
delivering on his promises.”
CEOCFO: How do you see the current
economic conditions affecting ATC?
Mr. Kennison: “The company should be
able to grow the downturn. ATC has room to grow in the wireless and GPS
device market as the categories expand. Meanwhile, ATC is pitching new
business in the medical device market. On the automotive side, transmissions
fail in every economic environment. While they are under warranty, the OEM
pays for it anyway, so it is not a discretionary consumer purchase.”
CEOCFO: What are the challenges ahead
for ATC and how are they ready to meet them?
Mr. Kennison: “I mentioned the key risk
earlier – customer concentration. ATC needs to win new business to grow the
company and diversify its revenue base.”
CEOCFO: Do they currently have a strong
Mr. Kennison: “Yes. ATC has a $79
million logistics pipeline and $225 million drivetrain pipeline. Recent wins
include AT&T DSL and an expansion with TomTom, which makes GPS devices. And
they have won new business there.”
CEOCFO: To sum it up, what is your
current rating and target price on ATC Technology and why?
Mr. Kennison: “Our rating is
‘Outperform’ and we have a $30.00 target price. We think ATC is positioned
well for growth in a slowing economy. We like the strategy to grow and
diversify the revenue base, and note that ATC has renewed most of its key
relationships recently, often for 2-3 years, so visibility is as good as it
has been in some time.”
Disclosures: 1 Baird maintains a trading market in the securities of ATAC. 3
Baird and/or its affiliates have received investment banking compensation
from ATC Technology Corporation in the past 12 months. 10 Baird and/or its
affiliates have been compensated by ATC Technology Corporation for
non-investment banking-securities related services in the past 12 months.
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