Talx (NASDAQ:TALX)
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TALX Corporation (NASDAQ: TALX) today reported that fiscal third-quarter
diluted earnings per share from continuing operations increased 23
percent to $0.27, which includes share-based compensation expense of
$0.02, from the year-ago $0.22 per diluted share. The improvement in
earnings from continuing operations to $8.7 million from $7.4 million
reflected strong performance in both The Work Number(R) services and tax
management services. Results also benefited from the company’s
ongoing emphasis on cost control, as demonstrated by the rate of
increase in gross profit outpacing the year-over-year revenue increase.
Third-quarter revenues increased 24 percent to $65.0 million from $52.3
million the year before. The Work Number services’
revenues rose 18 percent, and revenues for the tax management services
business increased 15 percent from year-ago levels. The 2007 third
quarter also benefited from $4.4 million in revenues from the company’s
April 6, 2006, acquisition of Performance Assessment Network, Inc., or
pan.
Gross profit for the third quarter expanded 26 percent to $41.9 million
from $33.1 million. Gross margin improved 110 basis points to 64.4
percent from 63.3 percent the year before, despite the impact of
expenses related to share-based compensation, which negatively affected
gross margin by 25 basis points in the 2007 third quarter. Gross profit
for The Work Number services increased 23 percent to $20.9 million from
$17.0 million. Gross profit for the tax management services business
rose 19 percent to $18.8 million from $15.8 million, and gross profit
for talent management services was $1.8 million.
William W. Canfield, president and chief executive officer, commented,
"Our efficiency-oriented, scalable approach to providing clients with
electronic, easy-to-use solutions to simplify HR and payroll processes
continued to drive improvement in our performance. In The Work Number,
our revenues and margins strengthened again as we continued to grow and
leverage the database, allowing our verifier clients to quickly make
credit decisions. The pilot for our new One Stop Verification Service is
on schedule, as we continue to seek ways to add value to our innovative
Work Number service.
"In our tax management services businesses, our continued emphasis on
excellent client service has helped boost organic unemployment revenues
7 percent above year-ago levels, our fifth consecutive quarterly organic
gain. In our tax credits and incentives business, we expect revenues to
increase approximately $4 million during the first six to nine months of
calendar year 2007 as we resume processing accumulated federal credits.
Legislation reinstating Welfare to Work and Work Opportunity Tax Credits
was signed into law in late December, including a provision to make the
credits retroactive to January 1, 2006, and extending through December
31, 2007.
"We are also excited to report that we recently signed a major contract
to provide the nation’s second largest
employer with both The Work Number and unemployment tax services. This
large contract will add significant revenue to The Work Number through
the addition of approximately 800,000 active employee records and will
result in more than $750,000 in annual revenue to our unemployment tax
segment. We look forward to providing our streamlined, efficient
services to this key client as a catalyst for our continued growth in
fiscal 2008."
L. Keith Graves, senior vice president and chief financial officer,
pointed out, "As a result of our higher gross profit, as well as
continued focus on cost control, operating income increased almost $5
million compared to the year-ago quarter. Our operating margin improved
230 basis points to 28.0 percent from 25.7 percent year-over-year,
despite the impact of expenses related to share-based compensation,
which negatively affected operating margin by 122 basis points in the
2007 third quarter. Because of our strong operating results and positive
changes in working capital, our operating cash flow was a healthy $15.9
million this quarter, compared to $9.4 million a year ago, allowing us
to pay down $8.3 million on our debt."
The company’s effective income tax rate was
slightly higher in the fiscal third quarter compared to a year ago,
primarily as a result of the implementation of SFAS 123r. The
corresponding income tax benefit of certain elements of share-based
compensation can be recognized only if, and to the extent that, certain
future events occur. The company expects this rate to continue through
the 2007 fiscal year.
The total number of employment records on The Work Number services
database increased 14 percent to 142.8 million at December 31, 2006,
from 125.7 million a year ago. The company added 4.5 million employment
records during the quarter. Total employment records under contract,
including those in the contract backlog to be added to the database,
increased 19.5 million, or 15 percent, to 152.9 million at December 31,
2006, from 133.4 million a year earlier. Of the 142.8 million records on
the database at December 31, 2006, 28 percent represented current
employees, while the remainder represented former employees.
Canfield noted, "Within our talent management services segment, we
expect revenues from our contract with the Transportation Security
Administration, or TSA, to continue to ramp to the historical run-rate
by the end of the fiscal fourth quarter.
"We are pleased that our strong financial performance and expected
outlook for the rest of the year have allowed us to maintain our full-
year financial guidance for diluted earnings per share, while narrowing
the band to $1.08 to $1.10, with revenue between $272 million and $274
million."
TALX also provided initial guidance for the fourth fiscal quarter ending
March 31, 2007. The company expects revenues ranging from $75 million to
$77 million and diluted earnings per share from continuing operations of
$0.35 to $0.37, including share-based compensation expense of $0.02.
Fourth-quarter diluted earnings per share from continuing operations in
fiscal 2006 were $0.26 and revenues totaled $60.0 million. Results for
fiscal year 2006 included no impact from SFAS 123r.
A conference call to discuss the company’s
fiscal 2007 third-quarter performance and its outlook is scheduled for
Thursday, January 25, at 9:00 a.m. Central Time. To participate in this
call, dial (888) 639-6205. A slide presentation will accompany the call
on the Web at www.talx.com/2007.
Other information of investor interest can be found at www.talx.com/investor,
and the company’s corporate governance website
is located at www.talx.com/governance.
A digitized replay of the call will be available from 2:30 p.m. CST on
Thursday, January 25, through May 9, 2007. The replay number is (800)
475-6701 and the access code is 857706.
Statements in this news release expressing or indicating the beliefs and
expectations of management regarding future performance are
forward-looking statements including, without limitation, favorable
operating trends, anticipated revenue and earnings in the fourth quarter
of fiscal 2007 and for the fiscal year ending March 31, 2007, and any
other plans, objectives, expectations and intentions contained in this
release that are not historical facts. These statements reflect our
current views with respect to future events and are based on assumptions
and subject to risks and uncertainties. These risks and uncertainties
include, without limitation, the preliminary nature of our estimates,
which are subject to change as we collect additional information and
they are reviewed internally and by our external auditors, as well as
the risks detailed in the company’s Form 10-K
for the fiscal year ended March 31, 2006, in "Part I –
Item 1A. – Risk Factors" and in the company’s
Form 10-Q for the quarter ended June 30, 2006, in "Part II. Other
Information – Item 1A. Risk Factors," as well
as (1) the risk that our revenues from The Work Number may fluctuate in
response to changes in certain economic conditions such as interest
rates and employment trends; (2) risks associated with our ability to
prevent breaches of confidentiality or inappropriate use of data as we
perform large-scale processing of verifications; (3) risks associated
with our ability to maintain the accuracy, privacy and confidentiality
of our clients' employee data; (4) risks related to our ability to
increase the size and range of applications for The Work Number database
and to successfully market current and future services and related to
our dependence on third party providers to do so; (5) proceedings by
Federal and state regulators related to our business, including the
inquiry by the Federal Trade Commission related to our acquisitions in
the unemployment compensation and Work Number businesses; (6) the risk
of interruption of our computer network and telephone operations,
including potential slow-down or loss of business as potential clients
review our operations; (7) risks associated with potential challenges
regarding the applicability of the Fair Credit Reporting Act or similar
law; (8) risks relating to the dependence of the market for The Work
Number on mortgage documentation requirements in the secondary market
and the risk that our revenues and profitability would be significantly
harmed if those requirements were relaxed or eliminated; (9) risks
related to the applicability of any new privacy legislation or
interpretation of existing laws; (10) the risk that our revenues from
unemployment tax management services may fluctuate in response to
changes in economic conditions; (11) risks related to changes in tax
laws, including the potential for nonrenewal or elimination of the work
opportunity, or WOTC, and welfare to work, or WtW, tax credits; (12) the
risk to our future growth due to our dependence on our ability to
effectively integrate acquired companies and capitalize on cross-selling
opportunities; and (13) risks relating to doing business with the
federal government following our April 2006 acquisition of pan. These
risks, uncertainties and other factors may cause our actual results,
performance or achievements to be materially different from those
expressed or implied by our forward-looking statements. We do not
undertake any obligation or plan to update these forward-looking
statements, even though our situation may change.
TALX Corporation, based in St. Louis, Missouri, is a leading provider of
human resource and payroll-related services and holds a leadership
position in automated employment and income verification as well as
unemployment tax management. TALX provides over 9,000 clients, including
three-fourths of Fortune 500 companies, with Web-based services focused
in three employment-related areas: hiring, pay reporting, and
compliance. Hiring services include assessments and talent management,
paperless new hires, and tax credits and incentives. Pay reporting
services include electronic time tracking, paperless pay, and W-2
management. Compliance services include employment and income
verifications through The Work Number, unemployment tax management, and
I-9 management. The company's common stock trades in The NASDAQ Global
Select Market under the symbol TALX. For more information about TALX
Corporation, call 314-214-7000 or access the company's Web site at www.talx.com.
TALX Corporation and Subsidiaries
Consolidated Statements of Earnings
(dollars in thousands, except per share information)
(unaudited)
Three Months Ended Nine Months Ended
December 31, December 31,
2006 2005 2006 2005
Revenues:
The Work Number services $25,782 $21,904 $ 77,226 $ 64,206
Tax management services 34,500 29,978 100,077 81,946
Talent management services 4,357 - 18,382 -
Maintenance and support 394 450 1,187 1,318
Total revenues 65,033 52,332 196,872 147,470
Cost of revenues:
The Work Number services 4,897 4,878 14,922 14,287
Tax management services 15,705 14,204 47,456 39,746
Talent management services 2,544 - 9,643 -
Maintenance and support 12 101 50 287
Total cost of revenues 23,158 19,183 72,071 54,320
Gross profit 41,875 33,149 124,801 93,150
Operating expenses:
Selling and marketing 11,283 8,587 33,256 24,390
General and administrative 12,374 11,108 40,798 31,248
Total operating expenses 23,657 19,695 74,054 55,638
Operating income 18,218 13,454 50,747 37,512
Other income(expense), net:
Interest income 254 167 604 478
Interest expense (3,696) (1,356) (10,430) (3,280)
Other, net - - 24 (5)
Total other income
(expense), net (3,442) (1,189) (9,802) (2,807)
Earnings from continuing
operations before
income tax expense 14,776 12,265 40,945 34,705
Income tax expense 6,044 4,843 16,749 13,707
Earnings from continuing
Operations 8,732 7,422 24,196 20,998
Discontinued operations,
net of income taxes:
Earnings from discontinued
operations, net - (3) - -
Gain on disposal of
discontinued operations, net - 225 - 450
Earnings from discontinued
operations - 222 - 450
Net earnings $ 8,732 $ 7,644 $ 24,196 $ 21,448
Basic earnings per share:
Continuing operations $ 0.28 $ 0.23 $ 0.77 $ 0.66
Discontinued operations - 0.01 - 0.02
Net earnings $ 0.28 $ 0.24 $ 0.77 $ 0.68
Diluted earnings per share:
Continuing operations $ 0.27 $ 0.22 $ 0.73 $ 0.62
Discontinued operations - - - 0.02
Net earnings $ 0.27 $ 0.22 $ 0.73 $ 0.64
Weighted average number
of shares outstanding
(basic) 31,060,477 31,928,437 31,592,367 31,706,367
Weighted average number
of shares outstanding
(diluted) 32,661,922 34,083,492 33,136,722 33,715,465
TALX Corporation and Subsidiaries
Consolidated Balance Sheets
(dollars in thousands, except share information)
Assets Dec. 31, 2006 March 31, 2006
(unaudited)
Current assets:
Cash and cash equivalents $ 7,006 $ 5,705
Short-term investments - 5,850
Accounts receivable, less allowance for
doubtful accounts of $3,380 at December
31, 2006, and $3,731 at March 31, 2006 33,931 31,527
Unbilled receivables 3,511 5,911
Prepaid expenses and other current assets 8,468 6,576
Deferred tax assets, net 518 2,580
Total current assets 53,434 58,149
Property and equipment, net of accumulated
depreciation of $31,608 at December 31,
2006, and $25,227 at March 31, 2006 24,364 16,037
Capitalized software development costs, net
of amortization of $7,970 at December 31,
2006, and $6,329 at March 31, 2006 6,762 4,059
Goodwill 229,751 190,232
Other intangibles, net 130,279 77,434
Other assets 2,392 1,634
$446,982 $347,545
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 1,332 $ 2,257
Accrued expenses and other liabilities 17,162 19,219
Dividends payable 1,563 1,289
Deferred revenue 5,561 5,859
Total current liabilities 25,618 28,624
Deferred tax liabilities, net 44,399 17,634
Long-term debt 191,577 110,802
Other liabilities 3,536 4,187
Total liabilities 265,130 161,247
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value;
authorized 5,000,000 shares and no
shares issued or outstanding at
December 31, 2006, or March 31, 2006 - -
Common stock, $.01 par value per share;
authorized 75,000,000 shares at
December 31, 2006 and March 31, 2006;
issued 32,417,630 shares at December 31,
2006, and 32,225,321 shares at March 31,
2006 324 322
Additional paid-in capital 177,965 177,463
Deferred compensation - (5,076)
Retained earnings 28,772 13,467
Accumulated other comprehensive income:
Unrealized gain on interest rate
swap contract, net of tax expense of
$37 at December 31, 2006, and $80 at
March 31, 2006 56 122
Treasury stock, at cost, 1,163,546 shares
at December 31, 2006 (25,265) -
Total shareholders' equity 181,852 186,298
$446,982 $347,545
TALX Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
Nine Months Ended Dec. 31,
2006 2005
Cash flows from operating activities:
Net earnings $ 24,196 $ 21,448
Adjustments to reconcile net
earnings to net cash provided by
operating activities:
Depreciation and amortization 14,952 9,369
Non-cash compensation 2,548 155
Deferred taxes 3,972 2,276
Gain on swap agreement - (59)
Change in assets and liabilities,
excluding those acquired:
Accounts receivable, net 3,447 (12,750)
Unbilled receivables 2,400 1,749
Prepaid expenses and other
current assets (1,651) (1,810)
Other assets (217) (598)
Accounts payable (1,438) 287
Accrued expenses and other
liabilities (3,608) 2,810
Deferred revenue (610) 1,770
Other liabilities 1,349 148
Net cash provided by operating
activities 45,340 24,795
Cash flows from investing activities:
Additions to property and equipment, net (14,912) (6,810)
Acquisitions, net of cash acquired (80,147) (86,955)
Purchases of short-term investments - (5,120)
Proceeds from sale of short-term
investments 5,850 6,885
Capitalized software development costs (3,735) (1,732)
Net cash used in investing activities (92,944) (93,732)
Cash flows from financing activities:
Issuance of common stock 3,658 4,231
Tax benefit on exercise of stock options 1,545 -
Repurchase of common stock (31,901) (1,287)
Borrowings under long-term debt agreements 164,761 138,802
Repayments under long-term debt agreements (85,005) (79,500)
Dividends paid (4,153) (2,741)
Net cash provided by financing
activities 48,905 59,505
Net increase (decrease) in cash and cash
equivalents 1,301 (9,432)
Cash and cash equivalents at beginning
of period 5,705 11,399
Cash and cash equivalents at end of period $ 7,006 $ 1,967