Pitchbook

1
A publication of WACHOVIA CAPITAL MARKETS, LLC 7
Saint Paul Street ? 5th Floor ? Baltimore, MD
21202
OutsourceWorld Conference 2006 Wednesday, October
18, 2006
An Analysts View of IT/BPO Services Presentati
on by Ed Caso Senior IT/BPO Services Analyst
Source Microsoft Office
Edward S. Caso, Jr., CFA Managing Director (443)
263-6524 edward.caso_at_wachovia.com Eric J.
Boyer Associate Analyst [phone] eric.boyer_at_
wachovia.com Dhruv Maniktala, CFA Associate
Analyst [phone] dhruv.maniktala_at_wachovia.co
m
All relevant disclosures and certifications
appear on page 10 of this report Wachovia Capital
Markets, LLC does and seeks to do business with
companies covered in its research reports.  As a
result, investors should be aware that the firm
may have a conflict of interest that could affect
the objectivity of the report and investors
should consider this report as only a single
factor in making their investment decision.
2
Ed Caso - Bio

• Edward S. Caso, Jr.
• Managing Director and Senior IT Services Analyst
• Wachovia
• Equity Research 20 years (last 12 years focused
  on IT/BPO Services)
• Wachovia
• Alex. Brown
• Goldman Sachs
• Current Coverage
• Commercial Consulting/ Integration Accenture,
  BearingPoint, CIBER, Diamond
• Outsourcing Computer Sciences, Hewitt
  Associates, Perot Systems, Unisys
• Offshore Cognizant, Keane, Sapient
• Government Services CACI, DynCorp, ManTech, SI
  Intl, SRA Intl
• Bucknell University - BA (Mathematics/ Economics)
• Cornell University - MBA (Finance/ Accounting)
• Chartered Financial Analyst (CFA)

3
INVESTMENTS What We Look For

• Market Positioning (are you yesterdays model?)
• Growth opportunity within existing client base
• New business capabilities (have or making BP
  investment)
• Consistent long-term (annual) organic growth
• Opportunity for operating margin expansion
• Positive cash flow and a solid balance sheet
• Shareholder friendly
• But most importantly, a strong management team

4
Daily Indexed Price Performance
(October 3, 2003 October 4, 2006)
Source FactSet
5
Systems Integration/ Application Dev.
Maintenance
ISSUES/ CONCERNS
POSITIVES

• Sensitive to overall investment spending
• Beneficiary of systems consolidation driven by
  efficiency focus or MA
• Beneficiary move to Internet- and wireless based
  solutions
• Ongoing testing improves quickly
• 1998 was last big mission critical upgrade
• Uptick in SAP and Oracle integration work
• Utilization stable with signs of upward bias

• Uneven pace of Economic recovery
• Off-shore keeps pressure on pricing
• G2000 mindset keeps pressure on pricing
• Lack of big theme (e.g. Y2k, Dot.coms)
• Signs of voluntary turnover rising

6
Outsourcing IT Services Market
ISSUES/ CONCERNS
POSITIVES

• Common acceptance of outsourcing
• Multi-year contracts offer revenue visibility
• Door opener for incremental work
• Beneficiary of reduced telecom costs allowing for
  increased distributed processing
• Helps facilitate change (internal politics)
• Several flavors with varying margins
• ITO (infrastructure, lowest margin)
• ADMO (software, good margin)
• BPO (people based - okay margin)
• BPO (volume based - very good margin)

• Intermediaries (e.g. TPI, Everest) have put
  meaningful pressure on pricing
• Deal sizes getting smaller- dollar and length
• Growing need for global solution capabilities
• Contract flexibility is difficult without
  severe margin risk - contentious relationships
• Most contracts are re-negotiated
• Capital intensive, although becoming less so
• Offshore providers moving into traditional ITO
  and BPO services

7
Offshore IT Services Market
ISSUES/ CONCERNS
POSITIVES

• Clients now assume offshore component
• Price advantage (fully loaded) remains large
• Demand is very strong
• Master Services Agreements offer better growth
  and economics than large outsourcing deals
• Expanding breadth of service offerings
• Emerging European opportunity
• Tier I established - TCS, INFY, WIT, CTSH, ACN,
  IBM
• Strong, established brands, perceived quality
• Pricing premium
• Ability to recruit / train on scale basis

• Employee turnover rising
• Wages rising for experienced professionals and
  now freshers
• Need strong recruiting/training processes
• Rising CAPX requirements, especially for Tier
  II providers
• Political risk - more noise than reality
• Need to build better new business capabilities
• China Eastern Europe, still a ways off

8
Key Conclusions

• Commercial-focused providers need to adapt to a
  global delivery model
• Latecomers will need to acquire offshore factory,
  or become front-end for an established offshore
  player that needs clients or vertical knowledge
• Mega outsourcing rarely worksbite sized deals
  are optimalopens opportunity for new vertical
  focused BPO providers
• Consolidation is natural next step as markets
  mature
• Acquisitions should be for new offerings/
  clients, never for just people
• Public consolidators need to do deals that are
  year one accretive
• Be big, or be nicheand niches get only so big,
  so have an exit strategy
• Remember, it is always about management

9
Wachovia IT/BPO Equity Research Products

• Weekly (email) newsletter
• 10 years and going strong
• over 2,500 now get it
• summary of our research, news items,
  valuation update
• Quarterly statistical reports (consultants
  govt space)
• everything that is public info
• financial statement analysis plus additional
  metrics
• Theme reports Field trip summaries
• Individual company reports
• Send email to edward.caso_at_wachovia.com to get on
  our weekly list.

10
Page 10