FORT LAUDERDALE, Fla., Oct. 29 /PRNewswire-FirstCall/ -- Spherion Corporation today announced financial results for the third quarter ended September 30, 2007.
Spherion President and Chief Executive Officer Roy Krause commented, "We are very pleased with our third quarter performance. Earnings were significantly higher than last year and revenue trends outpaced the US performance of our major diversified staffing competitors. Operating margins again increased in the quarter, with continued focus on operational discipline."
FINANCIAL HIGHLIGHTS -- Third quarter 2007 revenues were slightly higher year over year, $495 million compared with $492 million last year. -- Earnings from continuing operations in the third quarter were up 72% year over year to $9.0 million, or $0.16 per share, compared with $5.2 million, or $0.09 per share, in the prior year. -- Net earnings, including discontinued operations, for the third quarter of 2007 were $9.5 million, or $0.17 per share, compared with $8.4 million, or $0.15 per share, in the third quarter of 2006. -- Earnings before interest, taxes, depreciation and amortization (EBITDA) in the third quarter reached 4.0% of revenue compared with 2.8% of revenue in the third quarter last year. -- Revenues for the first nine months of 2007 were $1.4 billion, flat with revenues for the same period in 2006. Earnings from continuing operations for the first nine months of 2007 were up 59% to $19.1 million, or $0.34 per share, compared with $12.1 million, or $0.21 per share, for the same period in 2006. Net earnings were $15.5 million, or $0.27 per share, for the first nine months of 2007, compared with $14.9 million, or $0.26 per share, in 2006.
Krause continued, "On September 29, we acquired Todays Staffing, Inc., a recruiting and staffing company with a demonstrated record of success with small and mid-sized accounts concentrated in higher margin clerical services. Assuming performance consistent with the twelve months ended June 30, 2007 and realization of planned synergies, we expect that Todays Staffing will be accretive $0.06 - $0.08 per share in 2008. We are very pleased to confirm that the integration of this business is well underway, and should be completed by year end. We are looking forward to solid performance of this brand, and we are on target to realize in 2008 most anticipated cost synergies."
OPERATING PERFORMANCE
Within Staffing Services, targeted small and mid-sized accounts increased 10.5%. This was offset by a decline in large accounts, resulting in total revenues that were down 1.5% from the prior year. Gross profit margins increased to 20.4% in the third quarter of 2007 compared with 20.3% in the third quarter of 2006, primarily due to growth in the higher margin managed services, including recruitment process outsourcing services. Selling, general and administrative costs decreased significantly to $61.9 million or 17.1% of revenue in the third quarter of 2007, compared with $67.5 million or 18.4% of revenue last year. Segment operating profit was $11.9 million or 3.3% of revenue in the third quarter of 2007, compared with $7.2 million or 1.9% of revenue in the third quarter of 2006.
Professional Services revenue growth was 6.8% on a year over year basis in the third quarter of 2007. Both finance and accounting and information technology grew 6.4% year over year. Gross profit margins in the third quarter of 2007 were 34.0%, compared with 32.2% in the prior year, principally reflecting improvement in temporary staffing margins. Selling, general and administrative expenses were $39.0 million or 29.3% of revenue in the third quarter of 2007 compared with $35.1 million or 28.2% of revenue in the third quarter last year. Segment operating profit increased to $6.2 million or approximately 4.7% of revenue in the third quarter of 2007, compared with $5.0 million or approximately 4.0% of revenue in the same period last year.
OTHER ITEMS
During the third quarter, the Company generated EBITDA of $19.6 million. At the close of the third quarter, the Company had a cash balance of $32.1 million and total availability on its credit facilities of $167 million. Capital expenditures during the third quarter were $2.1 million, and full year capital expenditures are expected to be in the $8-10 million range.
The Company purchased 315,000 shares of its common stock during the third quarter of 2007 at an average price of $7.65 per share. During the first nine months of 2007, the Company purchased a total of 1,077,200 shares at an average price of $8.80 per share.
OUTLOOK
Krause commented, "Based on recent trends, the Company anticipates revenue for the fourth quarter will be between $535 and $550 million, reflecting overall modest organic growth as demand across the industry, especially in larger accounts, remains challenging. Adjusted earnings from continuing operations are expected to be between $0.16 and $0.19 per share, assuming a 40% effective tax rate, and excluding one time costs of $1.0 million related to the acquisition of Todays Staffing. Earnings from continuing operations inclusive of the one time costs are expected to be $0.15 to $0.18 per share."
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 sourced, 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 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. To learn more, visit http://www.spherion.com/. For up-to-date career tips and trends, visit Spherion's career blog, The Big Time(SM), at http://www.spherion.com/careerblog.
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, interest expense related to adjustment of the Canadian purchase liability, and integration costs 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 September 30, October 1, 2007 2006 Revenues (1) $495,168 $492,345 Cost of services (2) 376,164 377,580 Gross profit 119,004 114,765 Selling, general and administrative expenses 105,057 106,390 Interest expense 259 481 Interest income (1,285) (940) 104,031 105,931 Earnings from continuing operations before income taxes 14,973 8,834 Income tax expense (5,989) (3,625) Earnings from continuing operations 8,984 5,209 Earnings from discontinued operations, net of tax 497 3,150 Net earnings $9,481 $8,359 Earnings per share, Basic and Diluted: Earnings from continuing operations $0.16 $0.09 Earnings from discontinued operations 0.01 0.06 $0.17 $0.15 Weighted-average shares used in computation of earnings per share: Basic 56,072 56,545 Diluted 56,749 56,911 (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) Nine Months Ended September 30, October 1, 2007 2006 Revenues (1) $1,435,514 $1,424,465 Cost of services (2) 1,092,129 1,095,927 Gross profit 343,385 328,538 Selling, general and administrative expenses 312,367 309,634 Interest expense 2,591 1,471 Interest income (3,762) (3,066) Restructuring and other charges - (303) 311,196 307,736 Earnings from continuing operations before income taxes 32,189 20,802 Income tax expense (13,069) (8,739) Earnings from continuing operations 19,120 12,063 (Loss) earnings from discontinued operations, net of tax (3,621) 2,810 Net earnings $15,499 $14,873 Earnings per share-Basic: Earnings from continuing operations $0.34 $0.21 (Loss) earnings from discontinued operations (0.06) 0.05 $0.28 $0.26 Earnings per share-Diluted: * Earnings from continuing operations $0.34 $0.21 (Loss) earnings from discontinued operations (0.06) 0.05 $0.27 $0.26 Weighted-average shares used in computation of earnings per share: Basic 56,321 57,451 Diluted 56,978 58,087 (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. * Earnings per share amounts are calculated independently for each component and may not add due to rounding. SPHERION CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data) (unaudited) September 30, December 31, Assets 2007 2006 Current Assets: Cash and cash equivalents $32,077 $54,640 Receivables, less allowance for doubtful accounts of $4,360 and $3,354 301,180 274,185 Deferred tax asset 10,280 11,462 Insurance deposit 18,429 24,501 Other current assets 21,961 16,414 Total current assets 383,927 381,202 Goodwill 84,196 49,703 Property and equipment, net of accumulated depreciation of $104,924 and $93,723 78,708 87,291 Deferred tax asset 114,523 122,867 Insurance deposit 18,199 25,177 Other assets 32,058 27,147 $711,611 $693,387 Liabilities and Stockholders' Equity Current Liabilities: Accounts payable and other accrued expenses $73,776 $78,368 Accrued salaries, wages and payroll taxes 71,650 59,062 Accrued insurance reserves 20,040 22,368 Accrued income tax payable 927 3,512 Current portion of long-term debt and other short-term borrowings 1,327 2,068 Other current liabilities 11,688 8,555 Total current liabilities 179,408 173,933 Long-term debt, net of current portion 2,139 2,377 Accrued insurance reserves 19,077 20,292 Deferred compensation 17,887 18,984 Other long-term liabilities 2,981 6,659 Total liabilities 221,492 222,245 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, 9,371,655 and 8,777,220 shares, respectively (83,176) (77,856) Additional paid-in capital 847,235 844,735 Accumulated deficit (282,866) (300,060) Accumulated other comprehensive income 8,273 3,670 Total stockholders' equity 490,119 471,142 $711,611 $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 Nine Months Ended Dec 30, September October September October 2007 30, 1, 30, 1, 2007 2006 2007 2006 Adjusted earnings from continuing operations $8,596 $5,209 $20,197 $ 12,063 Work Opportunity Tax Credit and other credits 423 - 1,269 - Adjustment of Canadian Purchase Liability (35) - (2,346) - Earnings from continuing operations 8,984 5,209 19,120 12,063 Earnings (loss) from discontinued operations 497 3,150 (3,621) 2,810 Net earnings $9,481 $8,359 $15,499 $14,873 Per share-Diluted amounts: Adjusted earnings from continuing operations $0.16 to $0.19 $0.15 $0.09 $0.35 $0.21 Work Opportunity Tax Credit and other credits - 0.01 - 0.02 - Adjustment of Canadian Purchase Liability - (0.00) - (0.04) - Integration Costs (0.01) - - - - Earnings from continuing operations * $0.15 to $0.18 0.16 0.09 0.34 0.21 Earnings (loss) from discontinued operations 0.01 0.06 (0.06) 0.05 Net earnings * $0.17 $0.15 $0.27 $0.26 Diluted weighted-average shares used in computation of earnings per share 56,749 56,911 56,978 58,087 * Earnings per share amounts are calculated independently for each component and may not add due to rounding. RECONCILIATION OF YEAR-OVER-YEAR REVENUE GROWTH RATE Three Months Ended Nine Months Ended September 30, September 30, 2007 2007 Total Professional Total Professional Company Services Company Services Organic revenue growth rate -0.6% 2.1% 0.3% 4.2% Revenue growth rate contributed from acquisitions 1.2% 4.7% 0.5% 2.1% GAAP revenue growth rate 0.6% 6.8% 0.8% 6.3% RECONCILIATION OF EBITDA TO INCOME FROM CONTINUING OPERATIONS Three Months Ended Nine Months Ended September October September October 30, 1, 30, 1, 2007 2006 2007 2006 EBITDA from continuing operations $19,584 $14,002 $48,202 $35,691 Interest income 1,285 940 3,762 3,066 Interest expense (259) (481) (2,591) (1,471) Depreciation and amortization (5,637) (5,627) (17,184) (16,484) Earnings from continuing operations before income taxes 14,973 8,834 32,189 20,802 Income tax expense (5,989) (3,625) (13,069) (8,739) Earnings from continuing operations $8,984 $5,209 $19,120 $12,063 EBITDA as a percentage of revenue 4.0% 2.8% 3.4% 2.5% SPHERION CORPORATION AND SUBSIDIARIES SEGMENT INFORMATION (unaudited, dollar amounts in thousands) Three Months Ended September 30, October 1, July 1, 2007 2006 2007 Revenues: Staffing Services $362,262 $367,946 $346,303 Professional Services 132,906 124,399 132,174 Segment revenue $495,168 $492,345 $478,477 Gross profit: Staffing Services $73,855 $74,688 $72,596 Professional Services 45,149 40,077 46,064 Segment gross profit $119,004 $114,765 $118,660 Segment operating profit: Staffing Services $11,922 $7,150 $8,704 Professional Services 6,191 4,950 7,425 Segment operating profit 18,113 12,100 16,129 Unallocated corporate costs (3,876) (3,686) (4,911) Amortization of intangibles (290) (39) (208) Interest expense (259) (481) (381) Interest income 1,285 940 1,194 Restructuring charges - - - Earnings from continuing operations before income taxes $14,973 $8,834 $11,823 MEMO: Gross profit margin: Staffing Services 20.4% 20.3% 21.0% Professional Services 34.0% 32.2% 34.9% Total Spherion 24.0% 23.3% 24.8% Segment operating profit margin: Staffing Services 3.3% 1.9% 2.5% Professional Services 4.7% 4.0% 5.6% Total Spherion 3.7% 2.5% 3.4% Supplemental Cash Flow Information: Operating cash flow $11,232 $(2,127) $15,444 Capital expenditures $2,051 $4,923 $1,636 Depreciation and amortization $5,637 $5,627 $5,802 DSO 53 52 50 Nine Months Ended September 30, October 1, 2007 2006 Revenues: Staffing Services $1,045,145 $1,057,230 Professional Services 390,369 367,235 Segment revenue $1,435,514 $1,424,465 Gross profit: Staffing Services $211,101 $208,773 Professional Services 132,284 119,765 Segment gross profit $343,385 $328,538 Segment operating profit: Staffing Services $23,377 $13,035 Professional Services 20,156 17,250 Segment operating profit 43,533 30,285 Unallocated corporate costs (11,977) (11,226) Amortization of intangibles (538) (155) Interest expense (2,591) (1,471) Interest income 3,762 3,066 Restructuring charges - 303 Earnings from continuing operations before income taxes $32,189 $20,802 MEMO: Gross profit margin: Staffing Services 20.2% 19.7% Professional Services 33.9% 32.6% Total Spherion 23.9% 23.1% Segment operating profit margin: Staffing Services 2.2% 1.2% Professional Services 5.2% 4.7% Total Spherion 3.0% 2.1% Supplemental Cash Flow Information: Operating cash flow $36,262 $19,964 Capital expenditures $6,006 $16,895 Depreciation and amortization $17,184 $16,484 DSO 53 52 SPHERION CORPORATION AND SUBSIDIARIES SUPPLEMENTAL FINANCIAL INFORMATION (unaudited, dollar amounts in thousands) Three Months Ended September 30, October 1, July 1, 2007 2006 2007 Staffing Services Revenue by Skill: Clerical $219,546 $230,161 $218,263 Light Industrial 142,716 137,785 128,040 Segment Revenue $362,262 $367,946 $346,303 Revenue by Service: Temporary Staffing $309,739 $316,435 $292,625 Managed Services 46,480 44,830 47,596 Permanent Placement 6,043 6,681 6,082 Segment Revenue $362,262 $367,946 $346,303 Gross Profit Margin by Service: (As % of Applicable Revenue) Temporary Staffing 17.3% 17.4% 17.5% Managed Services 30.4% 28.7% 32.0% Permanent Placement 100.0% 100.0% 100.0% Total Staffing Services 20.4% 20.3% 21.0% Professional Services Revenue by Skill: Information Technology $87,053 $81,817 $85,252 Finance & Accounting 26,980 25,353 28,946 Other 18,873 17,229 17,976 Segment Revenue $132,906 $124,399 $132,174 Revenue by Service: Temporary Staffing $119,071 $111,247 $116,957 Permanent Placement 13,835 13,152 15,217 Segment Revenue $132,906 $124,399 $132,174 Gross Profit Margin by Service: (As % of Applicable Revenue) Temporary Staffing 26.3% 24.2% 26.4% Permanent Placement 100.0% 100.0% 100.0% Total Professional Services 34.0% 32.2% 34.9% Nine Months Ended September 30, October 1, 2007 2006 Staffing Services Revenue by Skill: Clerical $655,890 $667,216 Light Industrial 389,255 390,014 Segment Revenue $1,045,145 $1,057,230 Revenue by Service: Temporary Staffing $888,399 $908,301 Managed Services 139,320 132,006 Permanent Placement 17,426 16,923 Segment Revenue $1,045,145 $1,057,230 Gross Profit Margin by Service: (As % of Applicable Revenue) Temporary Staffing 17.0% 16.9% Managed Services 30.5% 29.0% Permanent Placement 100.0% 100.0% Total Staffing Services 20.2% 19.7% Professional Services Revenue by Skill: Information Technology $254,722 $237,976 Finance & Accounting 82,209 78,385 Other 53,438 50,874 Segment Revenue $390,369 $367,235 Revenue by Service: Temporary Staffing $347,747 $327,460 Permanent Placement 42,622 39,775 Segment Revenue $390,369 $367,235 Gross Profit Margin by Service: (As % of Applicable Revenue) Temporary Staffing 25.8% 24.4% Permanent Placement 100.0% 100.0% Total Professional Services 33.9% 32.6%
