SFN Group Announces Second Quarter 2011 Financial Results

FORT LAUDERDALE, Fla., July 27, 2011 /PRNewswire-FirstCall/ -- SFN Group Inc. (NYSE: SFN) today announced financial results for the second quarter ended June 26, 2011.  

SFN Group president and CEO Roy Krause commented, "We continue to focus on executing our strategy to drive growth among our targeted customer segments. Expansion in our higher margin services and operating discipline in the second quarter contributed to a 70 basis point improvement year over year in Adjusted EBITDA to 3.6%."

FINANCIAL HIGHLIGHTS

• Second quarter 2011 revenues were $512 million, compared with $514 million in the second quarter of last year.
• Earnings from continuing operations in the second quarter 2011 were $8.6 million, or $0.16 per diluted share, compared with $2.7 million, or $0.05 per share, in the prior year.  
• Adjusted EBITDA (defined below) in the second quarter was $18.2 million, or 3.6% of revenues, compared with $14.7 million, or 2.9% of revenues, in the prior year.
• Operating cash flow in the second quarter was $16.5 million and total debt was $6.8 million at the end of the period.  Availability under the credit facility was $155 million as of the end of the quarter.

 

Krause continued, "We are very pleased with our continued ability to expand EBITDA margins and generate strong cash flow. During the second quarter, our small and mid-sized customers grew approximately 12% year over year, while our large customer account base experienced slowing trends through the quarter.  As a result, across all of our services, we are accelerating our investments in sales and recruiting staff and expect to see improving growth trends through the second half of 2011 and beyond."

SECOND QUARTER OPERATING PERFORMANCE

In the second quarter, Professional Services revenues represented 48% of total Company revenues and decreased 2.4% compared with the same prior year period.  Revenues were lower on a year over year basis primarily related to the completion of several professional contingent workforce solutions projects.  Excluding the impact of professional contingent workforce solutions, Professional Services had revenue growth of 3.5% year over year in the second quarter, primarily due to growth among small and mid-sized customers. Gross profit margin of 28.1% was up 250 basis points from the same period last year, primarily a result of increased pay/bill spreads and growth in higher margin services, including permanent placement and Recruitment Process Outsourcing. Segment operating profit was $14.5 million in the second quarter, or 6.0% of revenues, compared with $8.6 million, or 3.5% of revenues in the prior year.

Staffing Services revenues increased 1.7% year over year in the second quarter compared with the same period last year, primarily due to growth in small and mid-sized customers.  Gross profit margin decreased 40 basis points compared with last year primarily as a result increased payroll taxes.  Payroll tax expense increased due to rising state unemployment taxes in 2011 combined with the impact of a payroll tax credit in the second quarter of 2010, which more than offset improvements in pay/bill spreads.  SG&A was 13.9% of revenues in the second quarter of both 2011 and 2010.  Segment operating profit decreased to $3.9 million or 1.4% of revenues, compared with $4.7 million or 1.8% of revenues in the second quarter of last year.

SHARE REPURCHASES

During the second quarter, the Company purchased approximately 1,932,000 of its common shares at an average price of $10.56 per share, under its existing authorization.  Additionally, on May 27, 2011, the Company's Board of Directors approved an additional authorization to purchase up to $75 million of common stock.  There were no purchases during the quarter related to this authorization.

OTHER INFORMATION

As previously announced, the Company has entered into a definitive agreement to be acquired by Randstad Holding nv (Euronext Amsterdam: RAND.AS) for $14.00 per common share through a cash tender offer, which values the Company's equity at approximately $770 million.  Randstad, based in The Netherlands, is a leading global provider of HR Services.  The transaction, which is subject to customary closing conditions, including regulatory approvals and the tender of greater than 50% of SFN Group's outstanding shares, is expected to close late in the third quarter.  

EARNINGS CONFERENCE CALL

The earnings conference call scheduled for Thursday, July 28, 2011 has been cancelled, due to the recently announced pending acquisition of SFN Group, Inc.

ABOUT SFN GROUP, Inc.

SFN Group (NYSE: SFN) is a strategic workforce solutions company that provides professional services and general staffing to help businesses more effectively source, deploy and manage people and the work they do.  As an industry pioneer, SFN Group has sourced, screened and placed millions of individuals in temporary, temp-to-hire and full-time jobs for more than 65 years.

With approximately 560 locations in the United States and Canada, SFN delivers strategic workforce solutions that improve business performance.  From outsourcing to technology to professional services to staffing, SFN delivers the best combination of people, performance and service to improve the way work gets done.  It provides its services to approximately 8,000 customers, from Fortune 500 companies to a wide range of small and mid-size organizations.  The company employs more than 170,000 people annually through its network and is one of North America's largest employers. SFN provides its solutions through a family of specialized businesses:  Technisource, Tatum, The Mergis Group, Todays Office Professionals, SourceRight Solutions and Spherion Staffing Services.  To learn more, visit www.sfngroup.com.

IMPORTANT INFORMATION

This release is neither an offer to purchase nor the solicitation of an offer to sell any securities.  SFN Group will file a solicitation/recommendation statement on Schedule 14D-9 with the SEC as soon as reasonably practicable following the commencement of the offer to purchase.  Investors and security holders of SFN Group are urged to read the solicitation/recommendation statement and any other relevant documents filed with the SEC (when available), because they will contain important information.

Investors and security holders may obtain a free copy of the solicitation/recommendation statement and other documents that SFN Group files with the SEC (when available) through the website maintained by the SEC at www.sec.gov and through the website maintained by SFN Group at www.sfngroup.com.  In addition, the solicitation/recommendation statement and other documents filed by SFN Group with the SEC (when available) may be obtained from SFN Group free of charge by directing a request to SFN Group, Inc., Attn: Corporate Secretary, 2050 Spectrum Boulevard, Fort Lauderdale, Florida  33309, (954) 308-7600.

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 and we may be unable to compete successfully against existing or new competitors; Economic conditions –our business is cyclical, as a result of a significant downturn in the economy, we could experience lower demand from customers and lower revenues; Government Regulation - government regulation may significantly increase our costs, including payroll-related costs and unemployment taxes; Third-Party Vendor Managers – providing our services through third-party vendor managers may expose us to financial losses; Customers – a loss of customers may result in a material impact on our results of operations; Debt and debt compliance – market conditions and failure to meet certain covenant requirements could impact the amount of availability we may borrow under our revolving lines of credit and the cost of our borrowings; Business strategy – we may not achieve the intended effects of our business strategy; Termination provisions - certain customer contracts contain termination provisions and pricing risks that could decrease revenues, profitability and cash flow; 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; Acquisitions – acquisitions could have a material adverse effect on our financial condition, results of operation and cash flows; Business interruptions – business interruptions could have an adverse effect on our operations; Personnel - our business is dependent upon the availability of qualified personnel and we may lose key personnel which could cause our business to suffer; Tax filings – regulatory challenges to our tax filing positions could result in additional taxes; 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; Self-Insurance programs-unexpected changes in claim trend in our self-insured workers' compensation and benefit plans may negatively impact our financial condition and International operations – we are subject to business risks associated with our operations in Canada, which could make those operations significantly more costly.  These and additional factors discussed in this release and in SFN'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.

SFN Group Inc. prepares its financial statements in accordance with generally accepted accounting principles (GAAP).   Adjusted earnings from continuing operations is a non-GAAP financial measure, which excludes certain non-operating related items.  Items excluded from the calculation of adjusted earnings from continuing operations include restructuring and other charges related to acquisition transaction and integration expenses and cost reduction initiatives and an employment tax credit.  Adjusted EBITDA from continuing operations is a non-GAAP financial measure which excludes interest, restructuring and other charges, taxes, depreciation and amortization from earnings (loss) from continuing operations.  Adjusted revenue growth rate is a non-GAAP financial measure, which excludes the impact of changes in revenue levels of contingent workforce services from revenue growth rates calculated on a GAAP basis.  Adjusted earnings, adjusted EBITDA from continuing operations and adjusted revenue growth rate are key measures used by management to evaluate its operations.  Adjusted earnings, adjusted EBITDA from continuing operations and adjusted revenue growth rate should not be considered measures of financial performance in isolation or as an alternative to net earnings (loss) from continuing operations or net earnings (loss) as determined in the Statement of Operations in accordance with GAAP, and, as presented, may not be comparable to similarly titled measures of other companies.

SOURCE SFN Group, Inc.