smith barney citigroup 18th annual global industrial...
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American Power Conversion (Nasdaq: APCC)
March 9, 2005Grand Hyatt, New York, NYDon Muir, APC Senior Vice President Finance and Administration, CFO
Smith Barney Citigroup18th Annual Global Industrial Manufacturing Conference
© 2005 American Power Conversion Corporation
Presentation of Results
Today’s presentation contains information regarding the historical performance of APC, including the presentation of historical netincome. These results may be presented both in accordance with Generally Accepted Accounting Principles (GAAP) and in non-GAAP format.
A reconciliation from non-GAAP amounts to GAAP for APC’s historical performance is posted on the investor relations section of the Company’s Web site at http://investor.apcc.com
© 2005 American Power Conversion Corporation
Safe Harbor Provision
This presentation contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. All statements in this presentation that do not describe historical facts, such as statements concerning the Company’s future prospects, are forward-looking statements. All forward-looking statements are not guarantees and are subject to risks and uncertainties that could cause actual results to differ from those projected. The factors that could cause actual results to differ materially include the following: costs to comply with the provisions of the Sarbanes-Oxley Act of 2002 are greater than currently anticipated; the impact of increasing competition which could adversely affect the Company’s revenues and profitability; the impact of foreign currency exchange rate fluctuations; the impact on demand, component availability and pricing, and logistics, and the disruption of Asian manufacturing operations that result from labor disputes, war, acts of terrorism or political instability; ramp up, expansion and rationalization of global manufacturing capacity; the potential impact of complying with changing environmental regulations; impact on order management and fulfillment, financial reporting and supply chain management processes as a result of the Company’s reliance on a variety of computer systems, including Oracle 11i which is periodically upgraded; the discovery of a latent defect in any of the Company’s products; the Company’s ability to effectively align operating expenses and production capacity with the current demand environment; general worldwide economic conditions, and, in particular, the possibility that the PC and related markets decline; growth rates in the power protection industry and related industries, including but not limited to the PC, server, networking, telecommunications and enterprise hardware industries; competitive factors and pricing pressures; product mix changes and the potential negative impact on gross margins from such changes; changes in the seasonality of demand patterns; inventory risks due to shifts in market demand; component constraints, shortages, pricing and quality; risk of nonpayment of accounts receivable; the uncertainty of the litigation process including risk of an unexpected, unfavorable result of current or future litigation; and the risks described from time to time in the Company’s filings with the Securities and Exchange Commission. The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date they are made. The Company disclaims any obligation to publicly update or revise any such statements to reflect any change in Company expectations or in events, conditions, or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.
© 2005 American Power Conversion Corporation
APC Initiatives Support Targeted Mission
• APC’s MissionTo create delighted customers by improving the manageability, availability, and performance of information and communication systems through the rapid delivery of innovative solutions to real customer problems
• APC’s VisionAPC products ensuring availability wherever data is created, transmitted or stored
• APC’s Market PositioningGlobal, End-to-End, Nonstop Networking
• APC’s Products and SystemsSurge suppressors, uninterruptible power supplies (UPS), power distribution, power management software, DC power systems, precision cooling equipment, and services
© 2005 American Power Conversion Corporation
Consumer: Technology in the Home
Technology TrendsVoIP, Biometrics, Convergence, Digital Living and Wireless
OpportunitiesNew product categoriesGeographic expansionChannel expansion
CompetitionBelkin (cables, surge protection, UPS)Monster (A/V surge protection and UPS)Phoenixtec (Asia and OEM provider of UPSs)
New: Backup power for PCs
New: Products for the Audio Visual Market
© 2005 American Power Conversion Corporation
Mid-market: Core APC Customer
Technology TrendsServer consolidation, IP telephony, disaster recovery, Sarbanes-Oxley
OpportunitiesVerticals, such as healthcareBrand the data center with InfraStruXureExpand the sale with end-to-end solutions
CompetitionLiebert (Emerson Electric)Eaton Power Quality (formerly Powerware)MGE New: Smart-UPS RT
New: Smart-UPS® VT, 10 – 40 kVA for small data centers
New: Smart-UPS, next generation
© 2005 American Power Conversion Corporation
Technology TrendsServer consolidation, IP telephony, disaster recovery, Sarbanes-Oxley
OpportunitiesBrand the data center with InfraStruXureServicesExpand the sale with end-to-end solutions globallyIndustrial
CompetitionLiebert (Emerson Electric)Eaton Power Quality (formerly Powerware)MGE
Enterprise: End-to-End Solutions
New: InfraStruXure Express, On-demand mobile data center
New: InfraStruXure™with Integrated Cooling
© 2005 American Power Conversion Corporation
Solid Historical Sales Performance
$0$200$400$600$800
$1,000$1,200$1,400$1,600$1,800
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Other
LargeSystemsSmallSystems
2004: $1.7 B up 16%
CAGR: ~30%
$ M
illio
n
© 2005 American Power Conversion Corporation
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
History of Strong Profitability$
Mill
ion
$182$169
GAAP Non-GAAP
Non-GAAP
CAGR: 25% • 2004 GAAP Net Income Up 3% YOY
• 2004 Non-GAAP Net Income down 4% YOY
© 2005 American Power Conversion Corporation
Fourth Quarter 2004 Revenue Tops Half Billion Mark for First Time in Company History
$431$511
050
100150200250300350400450500
Q4 2003 Q4 2004
$ M
illio
n
Q4 04 Revenue up 19%Q4 04 Net Income down 9%
Q4 04 Non-GAAP Net Income down 13%
GAAP Non-GAAP
$58$61
$53 $53
$0
$10
$20
$30
$40
$50
$60
Q4 2003 Q4 2004
© 2005 American Power Conversion Corporation
Fourth Quarter 2004: Record Quarter for Small and Large Systems Segment
Large Systems: $108 million (21%)
Small Systems: $380 million (75%)
Q4 04 Revenue Composition by Segment, % of Revenues
Other: $19 million (4%)
YOY Growth QOQ Growth
Small 14% 11%
Large 41% 38%
Other 9% 15%
© 2005 American Power Conversion Corporation
Record Year for Small and Large Systems Segment
Large Systems: 19%
Small Systems: 77%
2004 Revenue Composition by Segment, % of Revenues
Other: 4%
2004 Revenue $M YOY Growth
Small Systems $1,300 13%
Large Systems $322 34%
Other $66 4
© 2005 American Power Conversion Corporation
Balanced Geographic Distribution of Revenue 2004 Revenue Growth Across All Regions
% of total 2004 revenue by major geographic region
2004 % Change Constant $Americas 14% 14%
EMEA 17% 11%
Asia 19% 14%Americas 50%EMEA: 32%
Asia: 18%
© 2005 American Power Conversion Corporation
Historical APC Revenue Growth versus IT Spending Growth Worldwide
-10.00%-5.00%0.00%5.00%
10.00%15.00%20.00%25.00%30.00%
1998 1999 2000 2001 2002 2003 2004
IT Spending GrowthAPC Revenue Growth
Source: IDC and Company Estimates
© 2005 American Power Conversion Corporation
Historical Quarterly Margin Trends, 1995-Q4 2004
Note: Results are presented as non-GAAP, a reconciliation for each period is available at http://investor.apcc.com
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%Q1
199
5
Q4 1
995
Q3 1
996
Q2 1
997
Q1 1
998
Q4 1
998
Q3 1
999
Q2 2
000
Q1 2
001
Q4 2
001
Q3 2
002
Q2 2
003
Q1 2
004
Q4 2
004
Small SystemsGross Margin
Gross Margin
OPEX to Sales
Operating Profit
© 2005 American Power Conversion Corporation
Expanding Market Opportunity Represents Growth Opportunity
0
2
4
6
8
10
12
14
1997 Today
APC Revenue
APC MarketOpportunity
$ B
illio
n
Source: Company and Industry Estimates
© 2005 American Power Conversion Corporation
$14 Billion Market Opportunity, by Major Product Category
Single Phase UPS
3 Phase UPS
Physical InfrastructureServicesCooling
Mobile Accessories
Surge Protection
NCPI Management Other
Industrial Power DC Power
Power Distribution
Source: Company and Industry Estimates
© 2005 American Power Conversion Corporation
InfraStruXure Addresses a $7 Billion Market Opportunity
Source: Company and Industry Estimates
Single Phase UPS 3 Phase UPS
Cooling
DC Power Systems
NCPI Management
Physical Infrastructure
Power Distribution
Power Generation
ServicesSurge Protection
© 2005 American Power Conversion Corporation
Rack-based architecture for power, cooling, and environmental management
Changing the way the world designs data centers
Symmetra PX
InfraStruXure PDU
NetShelter VX
NetworkAIR FM
$50-$400K
Closets (1-3 Racks) Small Data Centers (5-20 racks)
Smart-UPS
NetShelter® VX
NetworkAIR™ PA
$1 - $10K
InfraStruXure
Computer Rooms (1-5 Racks)
Symmetra® RM
NetShelter VX
NetworkAIR PA
$4 - $25K
Symmetra PX
InfraStruXure PDU
NetShelter VX
NetworkAIR FM
$130 K - $1 M plus
Medium Data Centers (20-100 racks) Large Data Centers (>100 racks)
Symmetra MW
InfraStruXure PDU
NetShelter VX
NetworkAIR FM
$250 K and up
InfraStruXure for:
© 2005 American Power Conversion Corporation
Investment in Education and Adoption Programs Driving Top Line ResultsQ4 2004 InfraStruXure™ Revenue
and Education UpdateRecord fourth quarter revenue
Up 96% year-over-yearUp 50% quarter-over-quarter
Full year revenue up ~90% year-over-yearTrained nearly 100,000 channel partners and end users in 2004Detecting 50% more qualified projects than in 20032005 plans call for continued investment in demand generation and education programs
© 2005 American Power Conversion Corporation
Commitment to Shareholder Value: APC Returned approximately $220 million to Shareholders in 2004
APC commenced and completed $150 million stock buyback in Q3 2004
Bought back and retired approximately 9.3 million shares at an average price of $16.09
APC pays quarterly dividend
$0.10 per share quarterly dividend Dividend instituted in June 2003 at $0.08 per shareIncreased 25% in June 2004
0
100
200
300
400
500
600
700
800
900
Q1
2001
Q2
2001
Q3
2001
Q4
2001
Q1
2002
Q2
2002
Q3
2002
Q4
2002
Q1
2003
Q2
2003
Q3
2003
Q4
2003
Q1
2004
Q2
2004
Q3
2004
Q4
2004
$ M
illio
n
Cash and InvestmentsYear end 2004: $721 M
© 2005 American Power Conversion Corporation
APC: Investing in Expanding Market Opportunities
APC is a strong company with good opportunities investing heavily in delivering innovation to the market
Solid FundamentalsSolid profitability and strong balance sheet with healthy cash positionInvesting in future products plus sales and marketing programsGlobal manufacturing, sales and support
Global, End-to-end, Nonstop networkingActively supporting APC’s comprehensive line of business segments and geographies from consumer to mid-market to enterpriseNew product categories; New price points; New markets