Editor’s note: Many of the most promising high-tech, biotech and pharmaceutical firms will be presenting at the annual venture capital conference sponsored by the Council for Entrepreneurial Development. The event will be on April 27-28 in Chapel Hill. As it has in the past, Local Tech Wire will profile presenting companies that wished to participate in a Q&A.APEX Analytix executives will be positioning themselves in a rather unique fashion at Venture 2004. The Greensboro firm isn’t necessarily looking for funding.

“At this time, APEX is not actively seeking outside capital, but want to remain engaged as new opportunities in our market surface,” APEX tells Local Tech Wire.

APEX, a company started in 1988 and is focused on audit recovery to help companies improve their financial performance, raised $7 million in 2003. It also is growing, with more than 70 employees. From the start, APEX has generated revenues, profit, and is cash flow positive. Within the next few years, its top management believe APEX will top $100 million in revenues “with very attractive margins.”

In a tight venture market, however, investors continue to contact APEX about possibilities of making a deal. The company tells LTW that it also has access to an outside credit line.

“With a marquis listing of Fortune 500 clients, a strong technology advantage and powerful client references, APEX Analytix is poised for take off,” execs tell LTW. The firm won’t disclose revenues.

Sarbanes-Oxley legislation is helping APEX generate business, given the legislation’s tightened requirements for public companies. APEX says it sees substantial growth opportunities in “proactive” situations where incorrect payments are caught before they are made.

APEX responses to Q&A:

Given the difficult investment climate, have you explored or used other means of getting funds than venture capital? If so, please explain why you remain interested in venture capital.

Our company has been self-funded since inception (1988). In early 2003, we began to explore the best means to take advantage of a significant growth opportunity in the recovery audit industry. As the industry transitions from historical recoveries to proactive prevention, we wanted to be positioned as the leading player in this space. The best means to accomplish this was to seek outside funds to accelerate growth. We have ready access from our bank to an unused credit line, but wanted the discipline and expertise that comes from having the right outside investor.

Are investors telling you that the climate for making deals is improving? Please explain.

We have received far more unsolicited calls from investors than in the recent past. We believe this is due to several factors, including an improving climate for investment, a growing awareness of our industry, and positive accolades we have recently received in the press.

If you had only one chance and one paragraph to convince an investor, how would you answer this question: “Why should an investor choose your company?”

APEX Analytix is a growing, profitable company in an industry about to undergo a tremendous paradigm shift. Although APEX continues to offer recovery audit services on a results only basis to our clients, we are the only firm positioned to help these organizations plug these leaks in their financial systems by using proprietary technology. With a marquis listing of Fortune 500 clients, a strong technology advantage and powerful client references, APEX Analytix is poised for take off.

What is the “pain point” (or points) you address for your customers?

There are two specific pain points, depending upon the level of advancement of their financial organization. First and foremost, we recover monies that have been inadvertently paid out by the company due to complexity, payment errors and internal control weaknesses. For a mature company that has performed this recovery audit process for years, we recover the money but also equip them with the tools to capture those errors themselves. This removes the financial pain of paying contingent fees to outside auditors, but just as importantly, the embarrassment of not finding these errors on their own.

What makes your company unique? Do you have a proprietary and/or a patented technology? Please explain why it is unique and what the status is of any patent filings.

APEX employs proprietary audit techniques and technology, but currently holds no patents. Part of our edge is our deep domain expertise in working with large-scale accounts payable and procurement systems. This domain expertise is built into our software algorithms to find overpayments, while surfacing the fewest possible number of “false alarms”(reducing wasted manual effort). Our extensive use of technology generates significantly higher gross margins than our competitors, making us more profitable per dollar of revenue.

What makes your product(s) and/or services unique vs. your competition? (Who is your competition, and what do they offer?) If you have no competition, why not?

APEX Analytix targets primarily Fortune 500 companies with significant payment volumes. Our approach promotes the detection, recovery and prevention of overpayments. Our two leading competitors, PRG Schultz (publicly held, $400 million in revenues with declining revenues and profits) and Connolly Consulting (privately held, $30-40 million in revenues), rely on a less technology driven approach, and do not believe in the prevention concept. The prevention concept resonates with large companies looking to save costs, and improve their internal control environments. Given the current environment created by Sarbanes-Oxley, it capitalizes on the concepts of prevention, real-time analysis, and compliance.

Does your company already generate revenue? If so, how much? Are you cashflow positive?

APEX has consistently generated revenues and profits since our inception in 1988, while also generating a positive cash flow balance. We are not disclosing financial details at this time.

What is your target market? What is the size of that market in terms of
dollars? What share of that market do you believe you can win?

Our primary target market is the top 2000 companies in the United States. This consists of the Fortune 1000, the top 250 privately held companies and 500+ foreign owned organizations with a large U.S. presence. We are looking to expand internationally this year, but do not want to lose sight of the significant market opportunities domestically. We estimate the worldwide recovery audit market to be approximately $2 billion, but our tools also tap into the demand for spend analysis, contract compliance, diversity reporting, and business intelligence tools. We believe the market for proactive tools will replace a significant portion of the current recovery audit market; however, there is a huge untapped opportunity for expanded audit scope into purchasing transactions. The error ratios are far higher in that segment, but there are stumbling blocks in securing the proper support and contracts from procurement organizations. Our expectation is that there is room for us to become a $100+ million revenue company within 3-4 years, with very attractive margins.

What will you do with the invested funds? What is the timeline for product delivery? If you have existing products and services, how will additional funding help you expand your company, if that is the intention, or will you develop new products?

At this time, APEX is not actively seeking outside capital, but want to remain engaged as new opportunities in our market surface. Our core software product has been in the marketplace for a few years, but is getting tremendous traction now as the paradigm shift from recovery to prevention takes hold. Additionally, we have two recently introduced products in the market, one for vendor/supplier self-service via the web, while the other is an auditing tool customized for retail organizations. In beta testing, we have a dashboard product for managing the procure-to-pay process, pushing out Key Performance Indicators (KPI) to senior financial leadership through a web portal.

What do you want from an investor other than money?

Our interest in an outside investor is to provide strategic input to our company direction, network us with talented executives and service providers, and apply their expertise and perspective gained from their success with other growing organizations. To date, our current investors have done a great job in introducing us to companies in their portfolio to compare notes with, and very knowledgeable service providers.

Why will investors be impressed with your management team?

Our leadership team has a very complementary blend of entrepreneurial spirit and deep executive savvy. Our CEO has an impressive track record of success as a former executive with PRG Schultz & Fuqua, while our founder is very involved as an industry visionary. Discussions with customers, co-workers, competitors and the business community will concur that these are people of integrity who share a great passion for serving their customers.

What is the exit strategy for the investor from your company? Are there potential strategic alliances with larger companies? Do you wish to take the company public? Or do you wish to grow the company and either sell it or acquire other companies?

Within 2-3 years, APEX Analytix will be financially and operationally positioned to go public, if the marketplace is ready, or be acquired by one of the large global service, outsourcing, or software providers. Strategic alliances are a likely possibility to facilitate growth during this time frame, but have not been fully explored at this time.

Fact box: www.localtechwire.com/article.cfm?u=7763