Warrantech In Turnaround

By Alan Wolf On Jul 23 2001 - 6:00am




What a difference a couple of years can make.

It wasn't too long ago that Warrantech Corp., the extended service contract provider, found itself on the ropes after a one-two punch that might have KO'd a lesser competitor. But thanks to a bold turnaround plan implemented by chairman and CEO Joel San Antonio, the company has swung back into the black and its future is beginning to look bright.

The company's troubles began as the 1990s ended, when the Securities and Exchange Commission changed the accounting rules under which Warrantech and its peers did their bookkeeping. Unfortunately for Warrantech, the SEC's auditors initiated enforcement of the new rules just prior to the company's reporting period, causing it to miss its filing deadline. The result: a delisting from NASDAQ, where its shares had long been publicly traded.

The second swift kick came from Staples, Warrantech's largest client, which decided to take its extended warranty business inhouse. The loss of Staples' business sent Warrantech reeling, and left it with a clutter of small accounts. Earnings nosedived, with the company reporting a loss of $8.2 million in net income for the 12 months ended March 2000.

But from that debacle San Antonio learned a valuable lesson about over-dependence on one or two high-volume accounts. Indeed, as he went about reorchestrating the business, he came to embrace the notion of multiple smaller accounts that can provide high margins and a cushion against defections — an acceptable trade-off for their lower volume.

Already that strategy has resulted in the recent additions of three smaller, but high profile accounts — Boomer McLoud, Wireless Zone and Handspring — plus the renewal of a fourth, South Florida's BrandsMart USA.

The three-year deal with Boomer McLoud calls for the 60-store mobile audio chain to market Warrantech's Repair Master product, a prepaid repair card.

Warrantech has also signed a three-year agreement with the 150-unit Wireless Zone chain, which will sell Warrantech's innovative Xchange Card, which guarantees a new replacement should the purchased product fail.

For Handspring, Warrantech will provide service contract administration for the full line of Visor handheld computers and its VisorPhone Springboard module.

Meanwhile, Warrantech extended its 11-year relationship with BrandsMart last month for an additional five years. Said San Antonio, "The fact that long-term customers such as BrandsMart USA continue to renew their agreements shows that Warrantech provides significant value to them and their customers."

At the same time, San Antonio has begun to cast his net offshore in search of lucrative waters. The target: Latin America, which represents a significant growth opportunity, the company said. Already it maintains a call center in Puerto Rico for Spain's Grupo Telefonica, and has begun signing up retailers, including RadioShack, in Chile and Peru.

While getting the company's account base on solid footing, San Antonio, along with president Ron Glime, has begun to consolidate the business and hack away at costs. Among the dramatic measures they have taken was the selling of their United Kingdom operations, the folding of their Connecticut offices into headquarters here and the rollout of an automated call center phone service.

The efforts, said Glime, are beginning to bear fruit, as the company has now shown a profit for every quarter of 2001, and net income for the 12 months ended March 31 hit $1.9 million.

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