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FORT LAUDERDALE, Fla., April 28 /PRNewswire-FirstCall/ -- Spherion Corporation (NYSE: SFN) today announced financial results for the first quarter ended March 30, 2008.
Spherion President and Chief Executive Officer Roy Krause commented, "Our first quarter results again reflect favorably on our business strategy, especially in light of the continuing decline in U.S. temporary employment. A more favorable Professional Services business mix due to the late 2007 acquisition of Technisource helped drive a higher overall first quarter segment operating profit margin compared with last year. Revenues increased 25% primarily as a result of two strategic acquisitions completed in 2007."
FINANCIAL HIGHLIGHTS
- First quarter 2008 revenues were 25% higher year over year,
$576 million compared with $462 million last year.
- Earnings from continuing operations in the first quarter were $2.2
million, or $0.04 per share, compared with $2.7 million, or $0.05 per
share, in the prior year.
- Adjusted earnings from continuing operations in the first quarter of
2008 were $2.8 million, or $0.05 per share compared with adjusted
earnings in the same prior year period of $4.2 million, or $0.07 per
share. Adjusted earnings from continuing operations exclude
acquisition integration costs in 2008, and in the prior year certain
tax credits and an interest charge related to the purchase of the
remaining interest in our Canadian operations.
- Earnings before interest, taxes, depreciation and amortization (EBITDA)
in the first quarter was $12.7 million compared with $11.7 million in
the first quarter last year.
Krause continued, "The weakening U.S. economy started to impact our business as we progressed through the quarter. Our permanent placement activity slowed and there was a greater seasonal pull back in commercial temporary staffing than we expected. While an economic downturn will have a negative impact on short term profitability, we are encouraged that our business grew, that our segment operating profit margin improved and that Technisource, our most recent acquisition, grew about 11% year over year. Additionally, we used operating cash flow and other resources to reduce debt and buy back stock during the quarter."
OPERATING PERFORMANCE
Within Staffing Services, year over year revenues were up 10.5% due to several 2007 acquisitions. Sequentially, revenues were down 12.9% compared with a sequential decline of 9.7% in the same period last year; a result of a greater seasonal pull back in large accounts. Gross profit margins were 18.5% in the first quarter of 2008 compared with 19.2% in the first quarter of 2007, equal to the year over year decline reported in the fourth quarter of 2007. Selling, general and administrative expenses were $66.9 million and decreased to 18.0% of revenue in the first quarter of 2008 compared with $61.9 million or 18.4% of revenue last year. Segment operating profit was $1.8 million or 0.5% compared with $2.8 million or 0.8% of revenue in the first quarter of 2007.
Within Professional Services, revenues were up 63.2% almost entirely due to acquisitions made in 2007. Gross profit margins in the first quarter of 2008 were 29.1% compared with 32.8% in the prior year reflecting the change in mix resulting from a full quarter of revenue from Technisource and a lower proportion of permanent placement revenue. Permanent placement revenue made up 6.4% of total Professional Services revenue in the current quarter compared with 10.8% in the first quarter of 2007. Selling, general and administrative expenses of $48.8 million decreased to 23.9% of revenue in the first quarter of 2008 compared with $34.5 million or 27.6% of revenue in the first quarter last year. Segment operating profit was $10.7 million compared with $6.5 million last year, or 5.2% of revenue in both periods.
OTHER ITEMS
Spherion also announced today that it substantially completed ahead of schedule the business systems and back office integration of Technisource. All of the Company's 2007 acquisitions are now operating on the Company's standard systems.
The Company purchased 889,200 shares of its common stock during the first quarter of 2008 at an average price of $6.39 per share, and has purchased an additional 298,600 shares through the first four weeks of the quarter. The Company continues to purchase shares under the Board of Directors' authorization of up to $25 million of the Company's outstanding common stock. The remaining authorization will enable us to purchase up to $17.5 million of additional stock.
The Company had net debt of $76.5 million and availability on its credit facilities of $104 million at the end of the quarter. Net debt at the end of 2007 was $92.9 million. Capital expenditures during the first quarter were $2.6 million. During the quarter $17.1 million of insurance deposits were refunded to the Company and the proceeds were used to pay down debt; the Company replaced these insurance deposits with letters of credit.
OUTLOOK
Krause commented, "We are managing our business through this period of economic uncertainty and will adjust our cost structure in line with gross profit trends. We will continue to focus on growing the higher margin areas of our business."
Based on the continuation of recent trends, the Company anticipates revenue for the second quarter will be between $570 and $585 million. This range reflects a year over year decline in comparable revenues (i.e., including the acquisitions in the prior year on a pro forma basis) of about 1% to 4%. Adjusted earnings from continuing operations are expected to be between $0.06 and $0.11 per share, assuming a 40% effective tax rate and excluding costs of $1.0 million related to recent acquisitions. Earnings from continuing operations inclusive of the costs are expected to be between $0.05 and $0.10.
ABOUT SPHERION
Spherion Corporation (NYSE: SFN) is a leading recruiting and staffing company that provides integrated solutions and breakout specialties to meet the evolving needs of companies and job candidates. As an industry pioneer for more than 60 years, Spherion has sourced, screened and placed millions of individuals in temporary, temp-to-hire and full-time jobs.
With approximately 700 locations in the United States and Canada, Spherion delivers innovative workforce solutions that improve business performance. Spherion provides its services to more than 8,000 customers, from Fortune 500 companies to a wide range of small and mid-size organizations. Employing more than 300,000 people annually through its network, Spherion is one of North America's largest employers. Spherion operates under the following brands: Spherion Staffing Services Group for administrative, clerical and light industrial workers; Technisource for technology professionals and solutions; The Mergis Group for accounting and finance and other professional positions; Todays Office Professionals for specialty administrative personnel; and Spherion Recruitment Process Outsourcing. To learn more, visit http://www.spherion.com/
This release contains statements that are forward looking in nature and, accordingly, are subject to risks and uncertainties. Factors that could cause future results to differ from current expectations include risks associated with: Competition - our business operates in highly competitive markets with low barriers to entry; Economic conditions - any significant economic downturn could result in lower revenues or a significant reduction in demand from our customers may result in a material impact on the results of our operations; Corporate strategy - we may not achieve the intended effects of our business strategy; Termination provisions - certain contracts contain termination provisions and pricing risks; Failure to perform - our failure or inability to perform under customer contracts could result in damage to our reputation and give rise to legal claims; Disposition of businesses - the disposition of businesses previously sold may create contractual liabilities associated with indemnifications provided; Business interruptions - natural disasters or failures with hardware, software or utilities could adversely affect our ability to complete normal business processes; Tax filings - regulatory challenges to our tax filing positions could result in additional taxes; Personnel - our business is dependent upon the availability of qualified personnel and we may lose key personnel which could cause our business to suffer; Litigation - we may be exposed to employment-related claims and costs and we are a defendant in a variety of litigation and other actions from time to time; Common stock - the price of our common stock may fluctuate significantly, which may result in losses for our investors; Government Regulation - government regulation may increase our costs; International operations - we are subject to business risks associated with our operations in Canada which could make those operations more costly; Integrating acquisitions - managing or integrating any future acquisitions may strain our resources; and Debt compliance - failure to meet certain covenant requirements under our credit facility could impact part or all of our availability to borrow. These and additional factors discussed in this release and in Spherion's filings with the Securities and Exchange Commission could cause the Company's actual results to differ materially from any projections contained in this release.
Spherion Corporation prepares its financial statements in accordance with generally accepted accounting principles (GAAP). Organic revenue growth is a non-GAAP financial measure, which includes pro-forma revenues of acquired companies. Adjusted earnings from continuing operations is a non-GAAP financial measure, which excludes certain non-operating related charges. Items excluded from the calculation of adjusted earnings from continuing operations include interest expense related to adjustment of the Canadian purchase liability and restructuring and other charges related to acquisitions. EBITDA from continuing operations is a non-GAAP financial measure which excludes interest, taxes, depreciation and amortization from earnings from continuing operations. Organic growth, adjusted earnings and EBITDA from continuing operations are key measures used by management to evaluate its operations. Management includes revenues prior to acquisition date for acquired companies in the organic revenue growth calculation in order to evaluate the Company's operating performance. Organic growth, adjusted earnings and EBITDA from continuing operations should not be considered measures of financial performance in isolation or as an alternative to revenue growth or earnings from continuing operations or net earnings (loss) as determined in the Statement of Earnings in accordance with GAAP, and, as presented, may not be comparable to similarly titled measures of other companies, and therefore this measure has material limitations. Items excluded from adjusted earnings from continuing operations are significant components in understanding and assessing financial performance.
SPHERION CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited, in thousands, except per share amounts)
Three Months Ended
March 30, April 1,
2008 2007
Revenues (1) $576,463 $461,869
Cost of services (2) 448,295 356,148
Gross profit 128,168 105,721
Selling, general and administrative
expenses 119,903 99,620
Amortization of intangibles 2,044 40
Interest expense 1,749 1,951
Interest income (179) (1,283)
Restructuring and other charges 996 -
124,513 100,328
Earnings from continuing operations
before income taxes 3,655 5,393
Income tax expense (1,462) (2,646)
Earnings from continuing operations 2,193 2,747
Loss from discontinued
operations, net of tax (911) (141)
Net earnings $1,282 $2,606
Earnings per share, Basic and
Diluted:
Earnings from continuing
operations $0.04 $0.05
Loss from discontinued
operations (0.02) -
$0.02 $0.05
Weighted-average shares used in
computation of earnings per share:
Basic 55,740 56,551
Diluted 56,303 57,090
(1) Includes sales of all company-owned and licensed offices and
royalties on sales of franchised offices.
(2) Gross profit is revenues less temporary employee wages, employment
related taxes such as FICA, federal and state unemployment taxes,
medical and other insurance for temporary employees, workers'
compensation, benefits, billable expenses and other direct costs.
SPHERION CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except share data)
March 30, December 30,
Assets 2008 2007
Current Assets:
Cash and cash equivalents $11,047 $15,324
Receivables, less allowance for
doubtful accounts of $5,044 and
$6,523, respectively 333,708 347,908
Deferred tax asset 15,129 13,413
Insurance deposit 561 6,986
Other current assets 26,006 22,606
Total current assets 386,451 406,237
Goodwill 144,486 146,584
Property and equipment, net of
accumulated depreciation of $122,892
and $109,229 respectively 74,638 78,077
Deferred tax asset 100,068 102,024
Trade names and other intangibles,
net 74,723 76,776
Insurance deposit - 11,259
Other assets 21,105 23,861
$801,471 $844,818
Liabilities and Stockholders' Equity
Current Liabilities:
Current portion of long-term
debt and revolving lines of
credit $67,591 $86,035
Accounts payable and other
accrued expenses 73,848 79,779
Accrued salaries, wages and
payroll taxes 71,523 78,850
Accrued insurance reserves 21,478 19,174
Accrued income tax payable 1,496 1,042
Other current liabilities 13,519 16,419
Total current liabilities 249,455 281,299
Long-term debt, net of current
portion 19,960 22,148
Accrued insurance reserves 18,290 20,501
Deferred compensation 14,700 17,287
Other long-term liabilities 3,034 2,923
Total liabilities 305,439 344,158
Stockholders' Equity:
Preferred stock, par value $0.01
per share; authorized,
2,500,000 shares; none issued or
outstanding - -
Common stock, par value $0.01
per share; authorized,
200,000,000; issued 65,341,609
shares 653 653
Treasury stock, at cost,
10,216,782 and 9,443,034
shares, respectively (88,396) (83,681)
Additional paid-in capital 848,388 848,628
Accumulated deficit (272,111) (273,393)
Accumulated other comprehensive
income 7,498 8,453
Total stockholders' equity 496,032 500,660
$801,471 $844,818
SPHERION CORPORATION AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION
(unaudited, in thousands, except per share amounts)
Management Guidance Three Months
Three Months Ended Ended
June 29, March 30, April 1,
2008 2008 2007
Adjusted earnings from continuing
operations $2,800 $4,239
Adjustment of Canadian Acquisition - (1,492)
Restructuring and other charges, net
of tax benefit (607) -
Earnings from continuing operations 2,193 2,747
Loss from discontinued operations,
net of tax (911) (141)
Net earnings $1,282 $2,606
Per share-Diluted amounts (1):
Adjusted earnings from continuing
operations $0.06 to $0.11 $0.05 $0.07
Adjustment of Canadian Acquisition - - (0.03)
Restructuring and other charges, net
of tax benefit (0.01) (0.01) -
Earnings from continuing operations $0.05 to $0.10 0.04 0.05
Loss from discontinued operations,
net of tax (0.02) -
Net earnings $0.02 $0.05
Diluted weighted-average shares used
in computation of earnings per
share 56,303 57,090
(1) Earnings per share amounts are calculated independently for each
component and may not add due to rounding.
RECONCILIATION OF EBITDA TO EARNINGS FROM CONTINUING OPERATIONS
Three Months Ended
March 30, April 1,
2008 2007
EBITDA from continuing operations $12,664 $11,659
Interest income 179 1,283
Interest expense (1,749) (1,951)
Depreciation and amortization (2) (7,439) (5,598)
Earnings from continuing operations
before income taxes 3,655 5,393
Income tax expense (1,462) (2,646)
Earnings from continuing operations $2,193 $2,747
EBITDA as a percentage of revenue 2.2% 2.5%
(2) Includes depreciation and amortization from continuing operations
only.
SPHERION CORPORATION AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION
(unaudited)
RECONCILIATION OF YEAR-OVER-YEAR ORGANIC(1) REVENUE GROWTH
Three Months Ended
March 30, 2008
Total Staffing Professional
Company Services Services
Organic revenue growth 0.2% 0.1% 0.5%
Impact of acquisitions
and business reclassifications 24.6% 10.4% 62.7%
GAAP revenue growth 24.8% 10.5% 63.2%
Three Months Ended March 30, 2008
Revenue Growth Rate Revenue Growth Rate
by Skill by Service
Total Light Total Permanent Temporary Managed
Staff- Cleri- Indus- Staff- Place- Staff- Serv-
ing cal trial ing ment ing (2) ices(2)
Staffing
Services
Organic
revenue
growth 0.1% (2.0%) 3.0% 0.1% (15.0%) (1.0%) 10.0%
Impact of
acquisitions
and business
reclassifi-
cations 10.4% 12.8% 7.0% 10.4% 11.1% 15.6% (23.7%)
GAAP revenue
growth 10.5% 10.8% 10.0% 10.5% (3.9%) 14.6% (13.7%)
Three Months Ended March 30, 2008
Revenue Growth Rate Revenue Growth Rate
by Skill by Service
Informa- Perma- Tempo-
Total tion Finance & Total nent rary
Profes- Technol- Account- Oth- Profes- Place- Staff-
sional ogy ing er sional ment ing(2)
Professional
Services
Organic
revenue
growth 0.5% (1.4%) 1.2% 17.4% 0.5% (11.0%) 1.0%
Impact of
acquisitions
and business
reclassifi-
cations 62.7% 91.2% 8.5% (1.6%) 62.7% 7.9% 70.2%
GAAP revenue
growth 63.2% 89.8% 9.7% 15.8% 63.2% (3.1%) 71.2%
(1) Organic revenue growth is calculated assuming that all acquisitions
were consumated on January 1, 2007. This calculation has
the effect of adding revenues for the acquired businesses prior to
their acquisition dates to Spherion Corporation's reported revenues.
In addition, organic revenue growth is calculated assuming that
business reclassifications were effective on January 1, 2007, so that
revenues for this business are included in the same segment, skill
and service in the current and prior period for purposes of
calculating year over year growth.
(2) Effective with the first quarter of 2008, the management of certain
customer contracts was transferred between operating segments,
primarily to Professional Services from Staffing Services, and has
been adjusted for purposes of calculating organic growth.
SPHERION CORPORATION AND SUBSIDIARIES
SEGMENT INFORMATION
(unaudited, dollar amounts in thousands)
Three Months Ended
March 30, April 1, December 30,
2008 2007 2007
Revenues:
Staffing Services $372,010 $336,580 $427,091
Professional Services 204,453 125,289 154,509
Segment revenue $576,463 $461,869 $581,600
Gross profit:
Staffing Services $68,716 $64,650 $85,202
Professional Services 59,452 41,071 49,399
Segment gross profit $128,168 $105,721 $134,601
Segment SG&A
Staffing Services $(66,923) $(61,899) $(73,120)
Professional Services (48,764) (34,531) (41,324)
Segment SG&A $(115,687) $(96,430) $(114,444)
Segment operating profit:
Staffing Services $1,793 $2,751 $12,082
Professional Services 10,688 6,540 8,075
Segment operating profit 12,481 9,291 20,157
Unallocated corporate costs (4,216) (3,190) (4,016)
Amortization of intangibles (2,044) (40) (868)
Interest expense (1,749) (1,951) (1,155)
Interest income 179 1,283 869
Restructuring and other
charges (996) - (700)
Earnings from continuing
operations before income
taxes $3,655 $5,393 $14,287
MEMO:
Gross profit margin:
Staffing Services 18.5% 19.2% 19.9%
Professional Services 29.1% 32.8% 32.0%
Total Spherion 22.2% 22.9% 23.1%
Segment SG&A:
Staffing Services 18.0% 18.4% 17.1%
Professional Services 23.9% 27.6% 26.7%
Total Spherion 20.1% 20.9% 19.7%
Segment operating profit
margin:
Staffing Services 0.5% 0.8% 2.8%
Professional Services 5.2% 5.2% 5.2%
Total Spherion 2.2% 2.0% 3.5%
Supplemental Cash Flow
Information:
Operating cash flow $8,263 $9,587 $19,824
Capital expenditures $2,607 $2,319 $2,318
Depreciation and amortization $7,439 $5,745 $6,225
DSO 53 53 51
SPHERION CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
(unaudited, dollar amounts in thousands)
Three Months Ended
March 30, April 1, December 30,
2008 2007 2007
Staffing Services
Revenue by Skill:
Clerical $241,681 $218,081 $264,668
Light Industrial 130,329 118,499 162,423
Segment Revenue $372,010 $336,580 $427,091
Revenue by Service:
Temporary Staffing $327,861 $286,035 $371,012
Managed Services (1) 39,055 45,244 50,254
Permanent Placement 5,094 5,301 5,825
Segment Revenue $372,010 $336,580 $427,091
Gross Profit Margin by Service:
(As % of Applicable Revenue)
Temporary Staffing 15.6% 16.2% 17.1%
Managed Services 31.9% 28.9% 31.9%
Permanent Placement 100.0% 100.0% 100.0%
Total Staffing Services 18.5% 19.2% 19.9%
Professional Services
Revenue by Skill:
Information Technology $156,407 $82,417 $107,847
Finance & Accounting 28,828 26,283 27,503
Other 19,218 16,589 19,159
Segment Revenue $204,453 $125,289 $154,509
Revenue by Service:
Temporary Staffing (1) $191,303 $111,719 $141,966
Permanent Placement 13,150 13,570 12,543
Segment Revenue $204,453 $125,289 $154,509
Gross Profit Margin by Service:
(As % of Applicable Revenue)
Temporary Staffing 24.2% 24.6% 26.0%
Permanent Placement 100.0% 100.0% 100.0%
Total Professional Services 29.1% 32.8% 32.0%
(1) Effective with the first quarter of 2008, the management of
certain customer contracts was transferred to Professional
Services from Staffing Services.
SOURCE: Spherion Corporation
CONTACT: Investors, Randy Atkinson, +1-954-308-7639,
randalatkinson@spherion.com, or Media, Kip Havel, +1-800-422-3819,
kiphavel@spherion.com, both of Spherion Corporation
Web site: http://www.spherion.com/
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