SFN Group Announces Third Quarter 2010 Financial Results

Oct 27, 2010, 16:10 ET from SFN Group, Inc.

FORT LAUDERDALE, Fla., Oct. 27 /PRNewswire-FirstCall/ -- SFN Group Inc. (NYSE: SFN) today announced financial results for the third quarter ended September 26, 2010.  

SFN Group president and CEO Roy Krause commented, "Our third quarter results again reflect improving industry trends and disciplined strategy execution.  Our team continues to effectively drive revenue growth across the business, while improving gross profit margins and managing expenses.  Adjusted EBITDA as a percentage of revenue increased to 3.6% and we achieved strong operating cash flow."

FINANCIAL HIGHLIGHTS

  • Third quarter 2010 revenues were $527 million compared with $420 million last year.  
  • Earnings from continuing operations in the third quarter were $6.0 million, or $0.11 per share, compared with breakeven results, in the prior year.  
  • Adjusted earnings from continuing operations (defined below) in the third quarter were $6.0 million, or $0.11 per share, compared with adjusted earnings from continuing operations in the same prior year period of $0.5 million, or $0.01 per share.
  • Adjusted EBITDA (defined below) in the third quarter was $18.9 million, or 3.6% of revenues, compared with $9.2 million, or 2.2% of revenues, in the prior year.  
  • Total debt was $33.0 million at the end of the third quarter.  Availability under the credit facility was $134.1 million as of the end of the quarter.

Krause continued, "Long-term industry dynamics are positive and current industry trends continue to improve even in the face of slower U.S. economic growth.  Our business is positioned well to respond to market opportunities and we continue to invest in strategic growth areas such as recruitment process outsourcing and professional services where we have leading market positions."

THIRD QUARTER OPERATING PERFORMANCE

In the third quarter, Professional Services revenues were up 37.7% compared with the same prior year period.  Professional Services represented 47.8% of total Company revenues and experienced increases due to the first quarter 2010 Tatum LLC acquisition and continued year over year growth in all skills and services.  Gross profit margin of 26.7% is up 230 basis points from the same period last year, primarily as a result of improved temporary staffing margins and growth in higher margin outsourcing and permanent placement services. Segment operating profit was $11.8 million in the third quarter or 4.7% of revenues, compared with $7.1 million or 3.9% of revenues in the prior year.  

Staffing Services revenues increased 16.0% year over year in the third quarter compared with the same period last year.  Gross profit margins increased 90 basis points from the same period last year primarily as a result of increased pay/bill spreads.  SG&A increased modestly compared with the prior year, allowing segment operating profit to increase to $5.9 million or 2.1% of revenues, compared with $0.2 million, or 0.1% of revenues, last year.

OUTLOOK

Revenue trends in the first three weeks of October reflect normal seasonal ramping and continued growth in most areas of the business resulting in anticipated growth in total Company revenues for the fourth quarter of 3% to 5% compared with the third quarter of 2010. Based on our third quarter results, continued revenue growth trends and improving operating leverage, we now anticipate that we will achieve results in the upper half of our full year Adjusted EBITDA target range of 2.75% to 3.0% for 2010.

INVITATION TO CONFERENCE CALL

Management will host its conference call on October 28, 2010 at 9:00 a.m. Eastern time to discuss information contained in this release. The call may be accessed in one of the following ways:

Via the Telephone:

Please dial 1-(800) 230-1093

The conference call leader is Roy Krause

The pass code: SFN Group Third Quarter Earnings Call

Via the Internet:  

You may access the call via the Internet through the Company's Web site: www.sfngroup.com.

Replay:

A replay of the call will be available one hour after the live call has ended. You may listen to the replay of the call over the Internet through www.sfngroup.com.  

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 60 years.

With approximately 550 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 160,000 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.

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 – if the current economic downturn continues for a significant period or there is further deterioration 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 affect 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; 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 (loss) from continuing operations is a non-GAAP financial measure, which excludes certain non-operating related items.  Items excluded from the calculation of adjusted earnings (loss) from continuing operations include restructuring and other charges related to acquisition transaction and integration expenses and cost reduction initiatives.  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 earnings (loss) and adjusted EBITDA from continuing operations are key measures used by management to evaluate its operations.  Adjusted earnings (loss) and adjusted EBITDA from continuing operations 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.

SFN GROUP, INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except per share amounts)














Three Months Ended


September 26,


September 27,


2010


2009

Revenues(1)

$

527,123


$

420,197

Cost of services


414,465



338,558

    Gross profit(2)


112,658



81,639

Selling, general and administrative expenses


98,383



77,460

Amortization of intangibles


2,105



1,624

Interest expense


1,574



1,228

Interest income


(34)



(41)

Restructuring and other charges


-



896



102,028



81,167







Earnings from continuing operations before income taxes


10,630



472

Income tax expense


(4,666)



(525)







Earnings (loss) from continuing operations


5,964



(53)

   Earnings from discontinued operations, net of tax


-



-

Net earnings (loss)

$

5,964


$

(53)







Earnings (loss) per share, Basic and Diluted:






    Earnings from continuing operations

$

0.11


$

-

    Earnings from discontinued operations


-



-


$

0.11


$

-







Weighted-average shares used in computation of earnings per share:






    Basic


52,702



51,743

    Diluted


54,746



51,743







(1) Includes sales of all company-owned and franchised offices and royalties on sales of area-based 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.



SFN GROUP, INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except per share amounts)








Nine Months Ended


September 26,


September 27,


2010


2009

Revenues(1)

$

1,504,213


$

1,255,246

Cost of services


1,201,903



1,007,356

    Gross profit(2)


302,310



247,890

Selling, general and administrative expenses


278,686



243,923

Amortization of intangibles


6,128



4,879

Interest expense


4,723



2,713

Interest income


(92)



(131)

Restructuring and other charges


3,302



5,069



292,747



256,453







Earnings (loss) from continuing operations before income taxes


9,563



(8,563)

Income tax (expense) benefit


(3,895)



2,460







Earnings (loss) from continuing operations


5,668



(6,103)

   Loss from discontinued operations, net of tax


(160)



(399)

Net earnings (loss)

$

5,508


$

(6,502)







Earnings (loss) per share, Basic:(3)






   Earnings (loss) from continuing operations

$

0.11


$

(0.12)

   Loss from discontinued operations


-



(0.01)


$

0.11


$

(0.12)







Earnings (loss) per share, Diluted:(3)






   Earnings (loss) from continuing operations

$

0.10


$

(0.12)

Loss from discontinued operations


-



(0.01)


$

0.10


$

(0.12)







Weighted-average shares used in computation of loss per share:






    Basic


52,363



52,022

    Diluted


54,467



52,022







(1) Includes sales of all company-owned and franchised offices and royalties on sales of area-based 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.

(3) Loss per share amounts are calculated independently for each component and may not add due to rounding.



SFN GROUP, INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)














(unaudited)





September 26,


December 27,

Assets

2010


2009

Current Assets:






    Cash and cash equivalents

$

5,800


$

8,034

    Receivables, less allowance for doubtful accounts of $2,999 and $2,261, respectively


297,926



228,180

    Deferred tax asset


11,684



10,236

    Other current assets


13,204



11,430

         Total current assets


328,614



257,880

Property and equipment, net of accumulated depreciation of $151,317






    and $140,985 respectively


40,287



49,737

Deferred tax asset


131,153



135,695

Goodwill


31,073



810

Trade names and other intangibles, net


62,909



57,427

Other assets


21,004



22,042


$

615,040


$

523,591







Liabilities and Stockholders' Equity






Current Liabilities:






    Current portion of long-term debt and revolving line of credit

$

30,734


$

12,352

    Accounts payable and other accrued expenses


85,181



57,403

    Accrued salaries, wages and payroll taxes


67,229



46,381

    Accrued insurance reserves


20,331



19,037

    Accrued income tax payable


-



806

    Other current liabilities


6,093



6,399

         Total current liabilities


209,568



142,378

Long-term debt, net of current portion


2,221



1,246

Accrued insurance reserves  


18,745



14,617

Deferred compensation


15,827



14,702

Other long-term liabilities


5,503



4,692

         Total liabilities


251,864



177,635

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, 14,271,700 and 15,896,160 shares, respectively


(98,116)



(113,421)

    Additional paid-in capital


849,900



853,516

    Accumulated deficit


(392,702)



(398,210)

    Accumulated other comprehensive income


3,441



3,418

         Total stockholders' equity


363,176



345,956


$

615,040


$

523,591



SFN GROUP, INC. AND SUBSIDIARIES

RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION

(unaudited, in thousands, except per share amounts)



























Three Months Ended



Nine Months Ended



September 26,



September 27,



September 26,



September 27,



2010



2009



2010



2009













Adjusted earnings (loss) from continuing operations

$

5,964


$

493


$

7,679


$

(3,016)













Restructuring and other charges, net of tax benefit


-



(546)



(2,011)



(3,087)













Earnings (loss) from continuing operations


5,964



(53)



5,668



(6,103)













Earnings (loss) from discontinued operations, net of tax


-



-



(160)



(399)













Net earnings (loss)

$

5,964


$

(53)


$

5,508


$

(6,502)













Per share-Diluted amounts (1) :
























Adjusted earnings (loss) from continuing operations

$

0.11


$

0.01


$

0.14


$

(0.06)













Restructuring and other charges, net of tax benefit


-



(0.01)



(0.04)



(0.06)













Earnings (loss)  from continuing operations


0.11



-



0.10



(0.12)













Loss from discontinued operations, net of tax


-



-



-



(0.01)













Net earnings (loss)

$

0.11


$

-


$

0.10


$

(0.12)













Weighted-average shares used in computation of earnings
(loss) per share


54,746



51,743



54,467



52,022













(1)  Earnings (loss) per share amounts are calculated independently for each component and may not add due to rounding.



RECONCILIATION OF ADJUSTED EBITDA TO EARNINGS (LOSS) FROM CONTINUING OPERATIONS















Three Months Ended



Nine Months Ended



September 26,



September 27,



September 26,



September 27,



2010



2009



2010



2009













Adjusted EBITDA from continuing operations

$

18,936


$

9,162


$

38,210


$

19,156













Interest income


34



41



92



131













Interest expense


(1,574)



(1,228)



(4,723)



(2,713)













Restructuring and other charges


-



(896)



(3,302)



(5,069)













Depreciation and amortization


(6,766)



(6,607)



(20,714)



(20,068)













Earnings (loss) from continuing operations
before income taxes


10,630



472



9,563



(8,563)













Income tax (expense) benefit


(4,666)



(525)



(3,895)



2,460













Earnings (loss) from continuing operations

$

5,964


$

(53)


$

5,668


$

(6,103)













Adjusted EBITDA  as a percentage of revenue


3.6%



2.2%



2.5%



1.5%



SFN GROUP, INC. AND SUBSIDIARIES

SEGMENT INFORMATION

(unaudited, dollar amounts in thousands)



































Three Months Ended


Nine Months Ended



September 26,


June 27,


September 27,



September 26,


September 27,



2010


2010


2009



2010


2009

















Revenues:
















Professional Services

$

251,857


$

250,087


$

182,911


$

721,519


$

559,372


Staffing Services


275,266



263,876



237,286



782,694



695,874


Segment revenue

$

527,123


$

513,963


$

420,197


$

1,504,213


$

1,255,246

















Gross profit:
















Professional Services

$

67,219


$

63,949


$

44,574


$

181,115


$

141,094


Staffing Services


45,439



41,443



37,065



121,195



106,796


Segment gross profit

$

112,658


$

105,392


$

81,639


$

302,310


$

247,890

















Segment SG&A:
















Professional Services

$

(55,422)


$

(55,318)


$

(37,454)


$

(156,880)


$

(123,843)


Staffing Services


(39,529)



(36,774)



(36,912)



(111,706)



(110,853)


Segment SG&A

$

(94,951)


$

(92,092)


$

(74,366)


$

(268,586)


$

(234,696)

















Segment operating profit (loss):
















Professional Services

$

11,797


$

8,631


$

7,120


$

24,235


$

17,251


Staffing Services


5,910



4,669



153



9,489



(4,057)


Segment operating profit


17,707



13,300



7,273



33,724



13,194


















Unallocated corporate costs


(3,432)



(3,518)



(3,094)



(10,100)



(9,227)


Amortization of intangibles


(2,105)



(2,116)



(1,624)



(6,128)



(4,879)


Interest expense


(1,574)



(1,688)



(1,228)



(4,723)



(2,713)


Interest income


34



27



41



92



131


Restructuring and other charges


-



(974)



(896)



(3,302)



(5,069)


















Earnings (loss) from continuing operations
















 before income taxes

$

10,630


$

5,031


$

472


$

9,563


$

(8,563)

















MEMO:































Gross profit margin:
















Professional Services


26.7%



25.6%



24.4%



25.1%



25.2%


Staffing Services


16.5%



15.7%



15.6%



15.5%



15.3%


Total SFN Group, Inc.


21.4%



20.5%



19.4%



20.1%



19.7%

































Segment SG&A:
















Professional Services


22.0%



22.1%



20.5%



21.7%



22.1%


Staffing Services


14.4%



13.9%



15.6%



14.3%



15.9%


Total SFN Group, Inc.


18.0%



17.9%



17.7%



17.9%



18.7%

































Segment operating profit (loss):
















Professional Services


4.7%



3.5%



3.9%



3.4%



3.1%


Staffing Services


2.1%



1.8%



0.1%



1.2%



(0.6%)


Total SFN Group, Inc.


3.4%



2.6%



1.7%



2.2%



1.1%

































Segment revenue per billing day:
















Professional Services

$

3,998


$

3,938


$

2,903


$

3,797


$

2,944


Staffing Services

$

4,369


$

4,156


$

3,766


$

4,119


$

3,662


Total SFN Group, Inc. (1)

$

8,367


$

8,094


$

6,670


$

7,917


$

6,607

































Supplemental Cash Flow and Other Information:
















Operating cash flow

$

13,239


$

(91)


$

(7,822)


$

16,863


$

30,574


Capital expenditures

$

1,284


$

1,231


$

303


$

3,025


$

1,834


Depreciation and amortization

$

6,766


$

7,056


$

6,607


$

20,714


$

20,068


DSO


52



50



50



52



50


Billing Days


63.0



63.5



63.0



190.0



190.0

















 (1) Segment Revenue per billing day is calculated independently for each segment and may not add due to rounding.  



SFN GROUP, INC. AND SUBSIDIARIES

SUPPLEMENTAL FINANCIAL INFORMATION

(unaudited, dollar amounts in thousands)



















Three Months Ended


Nine Months Ended



 September 26, 2010



June 27, 2010



September 27, 2009


September 26, 2010


September 27, 2009

Professional Services















Revenues by Skill:
















Information Technology

$

128,413


$

126,972


$

109,155


$

373,379


$

338,533


Finance & Accounting


45,381



43,076



20,490



123,493



65,337


Administration


15,189



14,985



10,341



44,135



39,664


Other


62,874



65,054



42,925



180,512



115,838


Segment Revenues

$

251,857


$

250,087


$

182,911


$

721,519


$

559,372

















Revenues by Service:
















Temporary Staffing

$

192,831


$

190,464


$

143,415


$

556,035


$

455,869


Outsourcing & Other


51,634



53,584



34,647



147,613



88,834


Permanent Placement


7,392



6,039



4,849



17,871



14,669


Segment Revenues

$

251,857


$

250,087


$

182,911


$

721,519


$

559,372

















Gross Profit Margin by Service:
















(As % of Applicable Revenues)
















Temporary Staffing


25.0%



23.9%



23.2%



23.8%



23.6%


Outsourcing & Other


22.4%



23.2%



18.5%



21.0%



21.3%


Permanent Placement


100.0%



100.0%



100.0%



100.0%



100.0%


Total Professional Services


26.7%



25.6%



24.4%



25.1%



25.2%

















Revenues per billing day by Skill: (1)
















Information Technology

$

2,038


$

2,000


$

1,733


$

1,965


$

1,782


Finance & Accounting

$

720


$

678


$

325


$

650


$

344


Administration

$

241


$

236


$

164


$

232


$

209


Other

$

998


$

1,024


$

681


$

950


$

610

















Revenues per billing day by Service: (1)
















Temporary Staffing

$

3,061


$

2,999


$

2,276


$

2,927


$

2,399


Outsourcing & Other

$

820


$

844


$

550


$

777


$

468


Permanent Placement

$

117


$

95


$

77


$

94


$

77

















Staffing Services















Revenues by Skill:
















Clerical

$

145,438


$

141,808


$

135,650


$

426,139


$

424,606


Light Industrial


129,828



122,068



101,636



356,555



271,268


Segment Revenues

$

275,266


$

263,876


$

237,286


$

782,694


$

695,874

















Revenues by Service:
















Temporary Staffing

$

273,364


$

261,904


$

235,937


$

776,962


$

691,441


Permanent Placement


1,902



1,972



1,349



5,732



4,433


Segment Revenues

$

275,266


$

263,876


$

237,286


$

782,694


$

695,874

















Gross Profit Margin by Service:
















(As % of Applicable Revenues)
















Temporary Staffing


15.9%



15.1%



15.1%



14.9%



14.8%


Permanent Placement


100.0%



100.0%



100.0%



100.0%



100.0%


Total Staffing Services


16.5%



15.7%



15.6%



15.5%



15.3%

















Revenues per billing day by Skill: (1)
















Clerical

$

2,309


$

2,233


$

2,153


$

2,243


$

2,235


Light Industrial

$

2,061


$

1,922


$

1,613


$

1,877


$

1,428

















Revenues per billing day by Service: (1)
















Temporary Staffing

$

4,339


$

4,124


$

3,745


$

4,089


$

3,639


Permanent Placement

$

30


$

31


$

21


$

30


$

23

















 (1) Segment Revenue per billing day is calculated independently for each segment and may not add due to rounding.  



SOURCE SFN Group, Inc.



RELATED LINKS

http://www.sfngroup.com