FORT LAUDERDALE, Fla., July 30 /PRNewswire-FirstCall/ -- Spherion Corporation today announced financial results for the second quarter ended July 1, 2007.
Spherion President and Chief Executive Officer Roy Krause commented, "We are very pleased with our second quarter results, driven by disciplined execution of our business strategy. Revenues grew year over year and we continued to expand our gross profit. Operating margins and earnings also increased in the second quarter, evidence that our business strategy is working."
FINANCIAL HIGHLIGHTS
-- Second quarter 2007 revenues were $478.5 million compared with $470.8
million in the second quarter of 2006. Revenue grew 1.6% year over
year and grew organically 0.9% adjusting for the acquisition of Resulte
Universal.
-- Earnings from continuing operations were $7.4 million or $0.13 per
share in the second quarter of 2007, which includes costs related to
the purchase of the minority interest in our Canadian operation of
approximately $0.01 per share. Adjusted earnings per share from
continuing operations were $7.8 million or $0.14 per share in the
second quarter of 2007. Earnings from continuing operations in the
second quarter of 2006 were $4.8 million or $0.08 per share.
-- Net earnings, including discontinued operations, for the second quarter
of 2007 were $3.4 million or $0.06 per share, compared with $3.6
million or $0.06 per share in the second quarter of 2006.
-- Revenues for the first six months of 2007 were $940.3 million compared
with $932.1 for the same period in 2006. Earnings from continuing
operations for the first six months of 2007 were $10.1 million or $0.18
per share compared with $6.9 million or $0.12 per share for the same
period in 2006. Net earnings were $6.0 million or $0.11 per share for
the first six months of 2007, compared with $6.5 million or $0.11 per
share in 2006.
Krause continued, "We have been operating this year in an economy that has been growing at a modest pace, but have been able to achieve revenue growth, significant margin improvements and higher earnings. Operating cash flow was $15.5 million during the quarter and our balance sheet remains strong. We successfully completed the integration of Resulte, the acquisition announced early in the second quarter and believe this addition will help us accelerate growth in our professional business. We continue to stay focused on operational discipline, growing our targeted customer segments and professional business expansion."
OPERATING PERFORMANCE
Within Staffing Services, revenues were approximately flat with the prior year, reflecting growth of 8.2% from our targeted small and mid sized customers, offset by a decline in large staffing accounts. Gross profit margins increased to 21.0% in the second quarter of 2007 compared with 20.2% in the second quarter of 2006, primarily due to growth in the higher margin managed services, including recruitment process outsourcing services. Temporary staffing gross profit margins were 40 basis points higher than the prior year primarily due to improvements in payroll taxes and insurance costs. Selling, general and administrative costs decreased to $63.9 million or 18.5% of revenue in the second quarter of 2007, compared with $65.4 million or 18.9% of revenue last year. Segment operating profit was $8.7 million or 2.5% of revenue in the second quarter of 2007, compared with $4.8 million and 1.4% of revenue in the second quarter of 2006.
Professional Services revenue growth was 6.6% on a year over year basis in the second quarter of 2007; 3.6% adjusting for the acquisition of Resulte. Growth was led by finance and accounting at 9.6% year over year. Gross profit margins in the second quarter of 2007 were 34.9%, compared with 33.3% in the prior year, reflecting strong improvement in temporary staffing margins. Selling, general and administrative expenses were $38.6 million or 29.2% of revenue in the second quarter of 2007 compared with $34.6 million or 27.9% of revenue in the second quarter last year. Segment operating profit increased to $7.4 million or approximately 5.6% of revenue in the second quarter of 2007, compared with $6.7 million or approximately 5.4% of revenue in the same period last year.
OTHER ITEMS
During the quarter, the Company sold its outplacement consulting business. The sale resulted in a pre-tax loss of $5.4 million, of which $4.5 million was non-cash and predominantly comprised of a goodwill write off related to the business sold. The $3.3 million after tax loss on sale and operating results of prior periods are reported as part of discontinued operations.
Immediately after the end of the quarter, the Company purchased the remaining 15% interest in its Canadian operations. During the quarter, the Company recorded expense of $0.8 million pre-tax or approximately $0.01 per share to increase its purchase liability to equal the $5.8 million purchase price, which will be paid during the third and fourth quarters.
The Company purchased 562,200 shares of its common stock during the second quarter of 2007 at an average price of $9.43 per share.
OUTLOOK
Krause commented, "Based on recent trends, the Company anticipates revenue for the third quarter will be between $490 and $505 million, reflecting modest growth as demand across the industry remains somewhat challenging. Earnings from continuing operations are expected to be between $0.14 and $0.18 per share, assuming a 40% effective tax rate."
ABOUT SPHERION
Spherion Corporation is a leading recruiting and staffing company that provides integrated solutions to meet the evolving needs of companies and job candidates. As an industry pioneer for more than 60 years, Spherion has screened and placed millions of individuals in temporary, temp-to-hire and full-time jobs. Positions range from administrative and light industrial to a host of professions that include accounting/finance, information technology, engineering, manufacturing, legal, human resources and sales/marketing.
With approximately 650 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 nearly 300,000 people annually through its network, Spherion is one of North America's largest employers. 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 impacted by acquired companies. Adjusted earnings from continuing operations is a non- GAAP financial measure, which excludes certain non-operating related charges and gains. Items excluded from the calculation of adjusted earnings from continuing operations include work opportunity tax credits and interest expense related to adjustment of the Canadian purchase liability. Organic growth and adjusted earnings from continuing operations is a key measure 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. Management does not consider the items excluded to be operating costs/gains and therefore, excludes them from the evaluation of the Company's operating performance. Organic growth and adjusted earnings 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
July 1, July 2,
2007 2006
Revenues (1) $ 478,477 $ 470,766
Cost of services (2) 359,817 359,331
Gross profit 118,660 111,435
Selling, general and administrative
expenses 107,650 103,937
Interest expense 381 506
Interest income (1,194) (1,084)
Restructuring and other charges - (303)
106,837 103,056
Earnings from continuing operations
before income taxes 11,823 8,379
Income tax expense (4,434) (3,556)
Earnings from continuing operations 7,389 4,823
Discontinued operations:
Loss from discontinued
operations, net of tax (684) (1,212)
Loss on sale of business, net of
tax (3,293) -
(3,977) (1,212)
Net earnings $ 3,412 $ 3,611
Earnings per share-Basic and Diluted:
Earnings from continuing
operations $ 0.13 $ 0.08
Loss from discontinued operations (0.07) (0.02)
$ 0.06 $ 0.06
Weighted-average shares used in
computation of earnings per share:
Basic 56,334 57,320
Diluted 57,091 57,991
(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 STATEMENTS OF EARNINGS
(unaudited, in thousands, except per share amounts)
Six Months Ended
July 1, July 2,
2007 2006
Revenues (1) $ 940,346 $ 932,120
Cost of services (2) 715,965 718,347
Gross profit 224,381 213,773
Selling, general and administrative
expenses 207,310 203,244
Interest expense 2,332 990
Interest income (2,477) (2,126)
Restructuring and other charges - (303)
207,165 201,805
Earnings from continuing operations
before income taxes 17,216 11,968
Income tax expense (7,080) (5,114)
Earnings from continuing operations 10,136 6,854
Discontinued operations:
Loss from discontinued
operations, net of tax (825) (340)
Loss on sale of business,
net of tax (3,293) -
(4,118) (340)
Net earnings $ 6,018 $ 6,514
Earnings per share-Basic and Diluted:
Earnings from continuing
operations $ 0.18 $ 0.12
Loss from discontinued
operations (0.07) (0.01)
$ 0.11 $ 0.11
Weighted-average shares used in
computation of earnings per share:
Basic 56,444 57,899
Diluted 57,092 58,671
(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
(in thousands, except share data)
(unaudited)
July 1, December 31,
Assets 2007 2006
Current Assets:
Cash and cash equivalents $ 65,141 $ 54,640
Receivables, less allowance for
doubtful accounts of $3,998 and
$3,354 262,482 274,185
Deferred tax asset 10,798 11,462
Insurance deposit 19,521 24,501
Other current assets 20,865 16,414
Total current assets 378,807 381,202
Goodwill 59,437 49,703
Property and equipment, net of
accumulated depreciation of $101,651
and $93,723 80,444 87,291
Deferred tax asset 119,674 122,867
Insurance deposit 18,271 25,177
Other assets 30,468 27,147
$ 687,101 $ 693,387
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and other
accrued expenses $ 65,205 $ 78,368
Accrued salaries, wages and
payroll taxes 61,380 59,062
Accrued insurance reserves 20,433 22,368
Accrued income tax payable 891 3,512
Current portion of long-term
debt and other short-term
borrowings 1,309 2,068
Other current liabilities 15,334 8,555
Total current liabilities 164,552 173,933
Long-term debt, net of current
portion 2,349 2,377
Accrued insurance reserves 19,764 20,292
Deferred compensation 18,008 18,984
Other long-term liabilities 3,468 6,659
Total liabilities 208,141 222,245
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,
9,167,231 and 8,777,220 shares,
respectively (81,712) (77,856)
Additional paid-in capital 846,137 844,735
Accumulated deficit (292,347) (300,060)
Accumulated other comprehensive
income 6,229 3,670
Total stockholders' equity 478,960 471,142
$ 687,101 $ 693,387
SPHERION CORPORATION AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION
(unaudited, in thousands, except per share amounts)
Management Guidance
Three Months
Ended Three Months Ended Six Months Ended
Sept 30, July 1, July 2, July 1, July 2,
2007 2007 2006 2007 2006
Adjusted earnings from
continuing operations $7,785 $4,823 $11,601 $6,854
Work Opportunity Tax
Credit and other credits 423 - 846 -
Adjustment of Canadian
Purchase Liability (819) - (2,311) -
Earnings from continuing
operations 7,389 4,823 10,136 6,854
Loss from discontinued
operations (3,977) (1,212) (4,118) (340)
Net earnings $3,412 $3,611 $6,018 $6,514
Per share-Diluted amounts:
Adjusted earnings from
continuing operations $ 0.14 $ 0.08 $0.20 $ 0.12
Work Opportunity Tax Credit
and other credits 0.01 - 0.01 -
Adjustment of Canadian
Purchase Liability (0.01) - (0.04) -
Earnings from continuing
operations * $0.14 to $0.18 $0.13 $0.08 $0.18 $0.12
Loss from discontinued
operations (0.07) (0.02) (0.07) (0.01)
Net earnings $ 0.06 $ 0.06 $0.11 $ 0.11
Diluted weighted-average shares
used in computation of earnings
per share 57,091 57,991 57,092 58,671
RECONCILIATION OF YEAR-OVER-YEAR REVENUE GROWTH RATE
Three Months Ended Six Months Ended
July 1, 2007 July 1, 2007
Profes- Profes-
Total sional Total sional
Company Services Company Services
Organic revenue growth rate 0.9% 3.6% 0.7% 5.3%
Revenue growth rate contributed from
acquisitions 0.7% 3.0% 0.2% 0.7%
GAAP revenue growth rate 1.6% 6.6% 0.9% 6.0%
* Earnings per share amounts are calculated independently for each
component and may not add due to rounding.
SPHERION CORPORATION AND SUBSIDIARIES
SEGMENT INFORMATION
(unaudited, dollar amounts in thousands)
Three Months Ended
July 1, July 2, April 1,
2007 2006 2007
Revenues:
Staffing Services $ 346,303 $ 346,763 $ 336,580
Professional Services 132,174 124,003 125,289
Segment revenue $ 478,477 $ 470,766 $ 461,869
Gross profit:
Staffing Services $ 72,596 $ 70,142 $ 64,650
Professional Services 46,064 41,293 41,071
Segment gross profit $ 118,660 $ 111,435 $ 105,721
Segment operating profit:
Staffing Services $ 8,704 $ 4,770 $ 2,751
Professional Services 7,425 6,714 6,540
Segment operating profit 16,129 11,484 9,291
Unallocated corporate costs (4,911) (3,941) (3,190)
Amortization of intangibles (208) (45) (40)
Interest expense (381) (506) (1,951)
Interest income 1,194 1,084 1,283
Restructuring charges - 303 -
Earnings from continuing operations
before income taxes $ 11,823 $ 8,379 $ 5,393
MEMO:
Gross profit margin:
Staffing Services 21.0% 20.2% 19.2%
Professional Services 34.9% 33.3% 32.8%
Total Spherion 24.8% 23.7% 22.9%
Segment operating profit margin:
Staffing Services 2.5% 1.4% 0.8%
Professional Services 5.6% 5.4% 5.2%
Total Spherion 3.4% 2.4% 2.0%
Supplemental Cash Flow Information:
Operating cash flow $ 15,544 $ 4,085 $ 9,587
Capital expenditures $ 1,636 $ 5,055 $ 2,319
Depreciation and amortization $ 5,802 $ 5,459 $ 5,745
DSO 50 53 53
SPHERION CORPORATION AND SUBSIDIARIES
SEGMENT INFORMATION
(unaudited, dollar amounts in thousands)
Six Months Ended
July 1, 2007 July 2, 2006
Revenues:
Staffing Services $ 682,883 $ 689,284
Professional Services 257,463 242,836
Segment revenue $ 940,346 $ 932,120
Gross profit:
Staffing Services $ 137,246 $ 134,085
Professional Services 87,135 79,688
Segment gross profit $ 224,381 $ 213,773
Segment operating profit:
Staffing Services $ 11,455 $ 5,885
Professional Services 13,965 12,300
Segment operating profit 25,420 18,185
Unallocated corporate costs (8,101) (7,540)
Amortization of intangibles (248) (116)
Interest expense (2,332) (990)
Interest income 2,477 2,126
Restructuring charges - 303
Earnings from continuing
operations before income taxes $ 17,216 $ 11,968
MEMO:
Gross profit margin:
Staffing Services 20.1% 19.5%
Professional Services 33.8% 32.8%
Total Spherion 23.9% 22.9%
Segment operating profit margin:
Staffing Services 1.7% 0.9%
Professional Services 5.4% 5.1%
Total Spherion 2.7% 2.0%
Supplemental Cash Flow Information:
Operating cash flow $ 25,131 $ 22,091
Capital expenditures $ 3,955 $ 11,972
Depreciation and amortization $ 11,547 $ 10,857
DSO 50 53
SPHERION CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
(unaudited, dollar amounts in thousands)
Three Months Ended
July 1, July 2, April 1,
2007 2006 2007
Staffing Services
Revenue by Skill:
Clerical $ 218,263 $ 220,166 $ 218,081
Light Industrial 128,040 126,597 118,499
Segment Revenue $ 346,303 $ 346,763 $ 336,580
Revenue by Service:
Temporary Staffing $ 292,625 $ 296,534 $ 286,035
Managed Services 47,596 44,827 45,244
Permanent Placement 6,082 5,402 5,301
Segment Revenue $ 346,303 $ 346,763 $ 336,580
Gross Profit Margin by Service:
(As % of Applicable Revenue)
Temporary Staffing 17.5% 17.1% 16.2%
Managed Services 32.0% 31.2% 28.9%
Permanent Placement 100.0% 100.0% 100.0%
Total Staffing Services 21.0% 20.2% 19.2%
Professional Services
Revenue by Skill:
Information Technology $ 85,252 $ 80,106 $ 82,417
Finance & Accounting 28,946 26,413 26,283
Other 17,976 17,484 16,589
Segment Revenue $ 132,174 $ 124,003 $ 125,289
Revenue by Service:
Temporary Staffing $ 116,957 $ 109,859 $ 111,719
Permanent Placement 15,217 14,144 13,570
Segment Revenue $ 132,174 $ 124,003 $ 125,289
Gross Profit Margin by Service:
(As % of Applicable Revenue)
Temporary Staffing 26.4% 24.7% 24.6%
Permanent Placement 100.0% 100.0% 100.0%
Total Professional Services 34.9% 33.3% 32.8%
SPHERION CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
(unaudited, dollar amounts in thousands)
Six Months Ended
July 1, 2007 July 2, 2006
Staffing Services
Revenue by Skill:
Clerical $ 436,344 $ 437,055
Light Industrial 246,539 252,229
Segment Revenue $ 682,883 $ 689,284
Revenue by Service:
Temporary Staffing $ 578,660 $ 591,866
Managed Services 92,840 87,176
Permanent Placement 11,383 10,242
Segment Revenue $ 682,883 $ 689,284
Gross Profit Margin by Service:
(As % of Applicable Revenue)
Temporary Staffing 16.9% 16.6%
Managed Services 30.5% 29.2%
Permanent Placement 100.0% 100.0%
Total Staffing Services 20.1% 19.5%
Professional Services
Revenue by Skill:
Information Technology $ 167,669 $ 156,159
Finance & Accounting 55,229 53,032
Other 34,565 33,645
Segment Revenue $ 257,463 $ 242,836
Revenue by Service:
Temporary Staffing $ 228,676 $ 216,213
Permanent Placement 28,787 26,623
Segment Revenue $ 257,463 $ 242,836
Gross Profit Margin by Service:
(As % of Applicable Revenue)
Temporary Staffing 25.5% 24.5%
Permanent Placement 100.0% 100.0%
Total Professional Services 33.8% 32.8%
