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SFN Group, Inc. Announces First Quarter 2011 Financial Results


News provided by

SFN Group, Inc.

Apr 26, 2011, 04:48 ET

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

SFN Group president and CEO Roy Krause commented, "We continued to focus on growth among our targeted customer segments and improved our adjusted EBITDA margin 90 basis points year over year in the first quarter.  Demand for services within our industry continues to be solid and we remain committed to our strategy of driving profitable revenue growth among our targeted customer segments."

FINANCIAL HIGHLIGHTS

  • First quarter 2011 revenues were $500 million compared with $463 million in the first quarter of last year, an increase of 8.1%.  
  • Earnings from continuing operations in the first quarter 2011 were $2.7 million, or $0.05 per diluted share, compared with a loss of $3.2 million or ($0.06) per share, in the prior year.  
  • Adjusted earnings from continuing operations (defined below) in the first quarter were $2.7 million, or $0.05 per diluted share, compared with an adjusted loss from continuing operations in the same prior year period of $1.8 million, or ($0.03) per share.
  • Adjusted EBITDA (defined below) in the first quarter was $9.7 million, or 1.9% of revenues, compared with $4.6 million, or 1.0% of revenues, in the prior year.  
  • Operating cash flow in the first quarter was $6.0 million and total debt was $6.1 million at the end of the period.  Availability under the credit facility was $151.2 million as of the end of the quarter.

Krause continued, "We generated solid operating cash flow during the quarter and have a strong balance sheet to support our growth initiatives.  We further invested in sales and recruiting staff in the first quarter to capitalize upon organic growth opportunities and through our focus on operating effectiveness are committed to increasing our adjusted EBITDA margins to be between 3.5% and 3.9% for full year 2011."

FIRST QUARTER OPERATING PERFORMANCE

In the first quarter, Professional Services revenues were up 8.8% compared with the same prior year period.  Professional Services represented 47.7% of total Company revenues and experienced growth, in particular, in finance & accounting staffing, permanent placement and recruitment process outsourcing. Gross profit margin of 25.3% was up 260 basis points from the same period last year, primarily as a result of increased pay/bill spreads and growth in higher margin services.  Segment operating profit was $7.1 million in the first quarter, or 3.0% of revenues, compared with $3.8 million, or 1.7% in the prior year.  

Staffing Services revenues increased 7.4% year over year in the first quarter compared with the same period last year.  Gross profit margin increased 50 basis points compared with last year primarily as a result of increased pay/bill spreads and lower workers' compensation costs, partially offset by higher payroll taxes.  SG&A was 13.5% of revenue in the first quarter 2011, down from 14.5% in the same prior year period, reflecting continued productivity gains.  Segment operating profit increased to $3.0 million or 1.2% of revenues, compared with a loss of $1.1 million or (0.4%) of revenues in the first quarter of last year.

SHARE REPURCHASES

During the first quarter, the Company purchased approximately 655,000 of its common shares at an average price of $12.67 per share.  Under its existing authorization, the Company may purchase up to an average of 50,000 shares per week or 2.6 million shares on an annual basis.

OUTLOOK

Revenue trends in the first three weeks of April are consistent with anticipated year over year growth of between 2.5% and 4.5% in the second quarter. Based on continued growth in our business, particularly within our higher margin services, we expect to improve our operating leverage and increase our adjusted EBITDA margin in the second quarter 2011 by approximately 50 to 60 basis points compared with the same period in 2010.

INVITATION TO CONFERENCE CALL

Management will host its conference call on April 27, 2011 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) 230-1092

The conference call leader is Roy Krause

The pass code: SFN Group First 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, Inc. (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.

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 (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 (or adjusted EBITDA) 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


March 27,


March 28,


2011


2010

Revenues(1)

$

500,436


$

463,127

Cost of services


401,681



378,867

    Gross profit(2)


98,755



84,260

Selling, general and administrative expenses


92,082



84,693

Amortization of intangibles


1,548



1,907

Interest expense


912



1,461

Interest income


(45)



(31)

Restructuring and other charges


-



2,328



94,497



90,358







Earnings (loss) from continuing operations before income taxes


4,258



(6,098)

Income tax (expense) benefit


(1,566)



2,922







Earnings (loss) from continuing operations


2,692



(3,176)

   Earnings from discontinued operations, net of tax


-



-

Net earnings (loss)

$

2,692


$

(3,176)







Earnings (loss) per share, Basic and Diluted:






    Earnings (loss) from continuing operations

$

0.05


$

(0.06)

    Earnings from discontinued operations


-



-


$

0.05


$

(0.06)







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






    Basic


52,726



51,766

    Diluted


55,459



51,766



















(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 BALANCE SHEETS

(in thousands, except share data)














(unaudited)





March 27,


December 26,

Assets

2011


2010

Current Assets:






    Cash and cash equivalents

$

16,818


$

18,478

    Receivables, less allowance for doubtful accounts of $3,289 and $3,382, respectively


280,410



291,691

    Deferred tax asset


26,298



26,974

    Other current assets


10,992



9,930

         Total current assets


334,518



347,073

Property and equipment, net of accumulated depreciation of $157,329






    and $154,465 respectively


38,766



40,179

Deferred tax asset


110,704



110,000

Goodwill


31,073



31,073

Trade names and other intangibles, net


59,270



60,810

Other assets


23,154



23,073


$

597,485


$

612,208







Liabilities and Stockholders' Equity






Current Liabilities:






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

$

3,580


$

2,592

    Accounts payable and other accrued expenses


88,382



100,129

    Accrued salaries, wages and payroll taxes


67,316



68,157

    Accrued insurance reserves


21,601



21,501

    Accrued income tax payable


461



1,016

    Other current liabilities


6,018



7,832

         Total current liabilities


187,358



201,227

Long-term debt, net of current portion


2,513



2,422

Accrued insurance reserves  


16,062



18,214

Deferred compensation


18,269



17,559

Other long-term liabilities


2,557



2,910

         Total liabilities


226,759



242,332

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, 14,479,967 and 14,683,747 shares, respectively


(104,815)



(102,006)

    Additional paid-in capital


851,830



851,023

    Accumulated deficit


(380,625)



(383,317)

    Accumulated other comprehensive income


3,683



3,523

         Total stockholders' equity


370,726



369,876


$

597,485


$

612,208

SFN GROUP, INC. AND SUBSIDIARIES

RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION

(unaudited, in thousands, except per share amounts)







RECONCILIATION OF ADJUSTED EARNINGS (LOSS) FROM CONTINUED OPERATIONS TO NET EARNINGS (LOSS)



Three Months Ended



March 27,


March 28,



2011


2010






Adjusted earnings (loss) from continuing operations

$

2,692

$

(1,758)






Restructuring and other charges, net of tax benefit


-


(1,418)






Earnings (loss) from continuing operations


2,692


(3,176)






Earnings from discontinued operations, net of tax


-


-






Net earnings (loss)

$

2,692

$

(3,176)






Per share-Diluted amounts:










Adjusted earnings (loss) from continuing operations

$

0.05

$

(0.03)






Restructuring and other charges, net of tax benefit


-


(0.03)






Earnings (loss)  from continuing operations


0.05


(0.06)






Earnings from discontinued operations, net of tax


-


-






Net earnings (loss)

$

0.05

$

(0.06)






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


55,459


51,766











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







Three Months Ended



March 27,


March 28,



2011


2010






Adjusted EBITDA from continuing operations

$

9,737

$

4,552






Interest income


45


31






Interest expense


(912)


(1,461)






Restructuring and other charges


-


(2,328)






Depreciation and amortization


(4,612)


(6,892)






Earnings (loss) from continuing operations before income taxes


4,258


(6,098)






Income tax (expense) benefit


(1,566)


2,922






Earnings (loss) from continuing operations

$

2,692

$

(3,176)






Adjusted EBITDA  as a percentage of revenue


1.9%


1.0%

SFN GROUP, INC. AND SUBSIDIARIES

SEGMENT INFORMATION

(unaudited, dollar amounts in thousands)


























Three Months Ended




March 27,


December 26,


March 28,




2011


2010


2010












Revenues:











Professional Services

$

238,805


$

254,404


$

219,575


Staffing Services


261,631



294,759



243,552


Segment revenue

$

500,436


$

549,163


$

463,127












Gross profit:











Professional Services

$

60,472


$

71,825


$

49,947


Staffing Services


38,283



49,864



34,313


Segment gross profit

$

98,755


$

121,689


$

84,260












Segment SG&A:










Professional Services

$

(53,389)


$

(57,455)


$

(46,140)


Staffing Services


(35,256)



(41,142)



(35,403)


Segment SG&A

$

(88,645)


$

(98,597)


$

(81,543)












Segment operating profit (loss):










Professional Services

$

7,083


$

14,370


$

3,807


Staffing Services


3,027



8,722



(1,090)


Segment operating profit


10,110



23,092



2,717













Unallocated corporate costs


(3,437)



(2,832)



(3,150)


Amortization of intangibles


(1,548)



(2,104)



(1,907)


Interest expense


(912)



(1,159)



(1,461)


Interest income


45



37



31


Restructuring and other charges


-



-



(2,328)













Earnings (loss) from continuing operations before income










 taxes


$

4,258


$

17,034


$

(6,098)












MEMO:





















Gross profit margin:










Professional Services


25.3%



28.2%



22.7%


Staffing Services


14.6%



16.9%



14.1%


Total SFN Group, Inc.


19.7%



22.2%



18.2%























Segment SG&A:











Professional Services


22.4%



22.6%



21.0%


Staffing Services


13.5%



14.0%



14.5%


Total SFN Group, Inc.


17.7%



18.0%



17.6%























Segment operating profit (loss):










Professional Services


3.0%



5.6%



1.7%


Staffing Services


1.2%



3.0%



(0.4%)


Total SFN Group, Inc.


2.0%



4.2%



0.6%























Segment revenue per billing day:










Professional Services

$

3,731


$

4,070


$

3,458


Staffing Services

$

4,088


$

4,716


$

3,835


Total SFN Group, Inc. (1)

$

7,819


$

8,787


$

7,293























Supplemental Cash Flow and Other Information:










Operating cash flow

$

6,039


$

46,460


$

3,715


Capital expenditures

$

1,241


$

1,575


$

510


Depreciation and amortization

$

4,612


$

6,112


$

6,892


DSO



45



43



45


Billing Days



64.0



62.5



63.5



































(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





March 27, 2011



December 26, 2010



March 28, 2010

Professional Services









Revenues by Skill:










Information Technology

$

124,622


$

130,741


$

117,994


Finance & Accounting


44,870



47,888



35,036


Administration


14,851



14,981



13,961


Other



54,462



60,794



52,584


Segment Revenues

$

238,805


$

254,404


$

219,575












Revenues by Service:










Temporary Staffing

$

188,714


$

197,305


$

172,740


Outsourcing & Other


42,206



49,595



42,395


Permanent Placement


7,885



7,504



4,440


Segment Revenues

$

238,805


$

254,404


$

219,575












Gross Profit Margin by Service:










(As % of Applicable Revenues)










Temporary Staffing


22.8%



25.6%



22.3%


Outsourcing & Other


22.6%



27.8%



16.4%


Permanent Placement


100.0%



100.0%



100.0%


Total Professional Services


25.3%



28.2%



22.7%












Revenues per billing day by Skill: (1)










Information Technology

$

1,947


$

2,092


$

1,858


Finance & Accounting

$

701


$

766


$

552


Administration

$

232


$

240


$

220


Other


$

851


$

973


$

828












Revenues per billing day by Service: (1)










Temporary Staffing

$

2,949


$

3,157


$

2,720


Outsourcing & Other

$

659


$

794


$

668


Permanent Placement

$

123


$

120


$

70












Staffing Services









Revenues by Skill:










Clerical


$

146,596


$

163,074


$

138,893


Light Industrial


115,035



131,685



104,659


Segment Revenues

$

261,631


$

294,759


$

243,552












Revenues by Service:










Temporary Staffing

$

259,548


$

292,994


$

241,694


Permanent Placement


2,083



1,765



1,858


Segment Revenues

$

261,631


$

294,759


$

243,552












Gross Profit Margin by Service:










(As % of Applicable Revenues)










Temporary Staffing


13.9%



16.4%



13.4%


Permanent Placement


100.0%



100.0%



100.0%


Total Staffing Services


14.6%



16.9%



14.1%












Revenues per billing day by Skill: (1)










Clerical


$

2,291


$

2,609


$

2,187


Light Industrial

$

1,797


$

2,107


$

1,648












Revenues per billing day by Service: (1)










Temporary Staffing

$

4,055


$

4,688


$

3,806


Permanent Placement

$

33


$

28


$

29













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

SOURCE SFN Group, Inc.

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