TALX Reports 54 Percent Growth in Third-Quarter Earnings From Continuing Operations; Raises Full-Year Guidance

TALX Corporation (NASDAQ: TALX) today reported that
earnings from continuing operations increased 54 percent to $7.4
million from the year-ago $4.8 million. On a diluted share basis,
reflecting a three-for-two stock split effective January 17, 2006,
earnings from continuing operations were $0.22 ($0.33 on a pre-split
basis), for the third fiscal quarter ended December 31, 2005, compared
to $0.15 ($0.22 on a pre-split basis), for the year-ago period. The
earnings improvement primarily reflects strong revenue gains in The
Work Number services, overall cost control and the contribution from
recent acquisitions.
   Third-quarter revenues grew 31 percent to $52.3 million from $39.8
million in the year-earlier quarter. The Work Number services'
revenues rose 41 percent, and revenues for the tax management services
business increased 27 percent from year-ago levels.
   Gross profit for the third quarter expanded 37 percent to $33.1
million from $24.1 million, with gross margin rising 270 basis points
to 63.3 percent from 60.6 percent the year before. Gross profit for
The Work Number services increased 50 percent to $17.0 million from
$11.4 million, and gross margin for this segment climbed 460 basis
points to 77.7 percent from 73.1 percent the year before. Gross profit
for the tax management services business rose 28 percent to $15.8
million from $12.3 million, with gross margin improving to 52.6
percent from 52.3 percent the year before.
   Revenues for the first nine months of fiscal 2006 increased 31
percent to $147.5 million from $112.5 million the year before.
Earnings from continuing operations for the first nine months of
fiscal 2006 were $21.0 million, or $0.62 per diluted share on a
post-split basis ($0.93 on a pre-split basis). In the year-ago period,
earnings from continuing operations were $8.9 million, or $0.28 per
diluted share on a post-split basis ($0.41 on a pre-split basis),
which included an SEC settlement charge of $2.5 million, or $0.08 per
diluted share on a post-split basis ($0.12 on a pre-split basis).
Excluding this charge, adjusted earnings from continuing operations
grew 84 percent for the nine-month period, from $11.4 million, or
$0.36 per diluted share on a post-split basis ($0.53 on a pre-split
basis). See attached "Supplemental Financial Information" for a
reconciliation of differences from the comparable GAAP measures in
fiscal year 2005.
   Because of the favorable operating trends, as well as recent
acquisitions, TALX is again raising guidance for the fiscal year
ending March 31, 2006. Revenue is now estimated to be a range of $205
million to $207 million compared with previous guidance of $193
million to $196 million. On a post-split basis, the estimate for
diluted earnings per share from continuing operations is now a range
of $0.86 to $0.87 compared with the previous guidance of $0.80 to 0.83
($1.20 to $1.24 on a pre-split basis).
   TALX also provided initial guidance for the fourth fiscal quarter
ending March 31, 2006. The company expects revenues ranging from $57
million to $59 million, up from the year-earlier $45.9 million, and
diluted earnings per share from continuing operations of $0.25 to
$0.26 on a post-split basis, compared with $0.21 on a post-split basis
in the comparable fiscal 2005 period.
   William W. Canfield, president and chief executive officer,
commented, "We achieved record revenues again this quarter by
continuing to execute our strategies, including making acquisitions
that meet our strict criteria and focusing on key attributes of our
business model, notably scalability, efficiency, and cross-selling
opportunities. As an example, our continuing efforts to expand The
Work Number database, along with our REACH program to increase
clients' use of The Work Number, delivered double-digit improvements
in both revenues and gross profit.
   "The successful integration of acquisitions, including the two
that we announced during our fiscal third quarter, has been a major
contributor to revenue growth and to our overall improvement in gross
margins. While acquisitions were strong contributors to the revenue
increases in our tax management services businesses, we also realized
4 percent organic growth in the unemployment tax management business
during the fiscal third quarter. The tax management services
businesses continued to be significant generators of referrals for The
Work Number, introducing our clients to greater efficiency while
increasing transaction levels for TALX."
   L. Keith Graves, vice president and chief financial officer,
pointed out, "TALX is focused on maintaining a highly disciplined
approach to expense control while expanding an infrastructure that
leverages the complementary nature of our business units. As a result,
this quarter we were able to substantially improve our operating
margin to almost 26 percent of revenues. Further, our solid financial
results for the first nine months of the fiscal year yielded nearly
$25 million in cash from operating activities, which helped us repay
$22 million of debt while funding our acquisitions and capital
expenditures and paying dividends."
   The total number of employment records on The Work Number services
database increased to 125.7 million at December 31, 2005, from 104.1
million a year ago, representing a 21 percent gain. The company added
6.5 million employment records during the quarter, representing a 5
percent increase in total records over the previous sequential
quarter. Total employment records under contract, including those in
the contract backlog to be added to the database, increased 22 percent
to 133.4 million at December 31, 2005, from 109.2 million a year
earlier and 5 percent over the previous sequential quarter total of
126.5 million.
   A conference call to discuss the company's fiscal 2006 third-
quarter performance and its outlook is scheduled for Thursday, January
26, at 9:00 a.m. Central Time. To participate in this call, dial (800)
230-1902. A slide presentation will accompany the call on the Web at
www.talx.com/2006. 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. CDT on Thursday, January 26,
through May 10, 2006. The replay number is [phone] and the
access code is 814727.
   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 2006 and for the fiscal year ending March 31,
2006, 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, 2005, under the caption "Risk
Factors" in "Part I - Item 1," as well as (1) risks related to our
ability to increase the size and range of applications for The Work
Number database and successfully market current and future services
and our dependence on third-party providers to do so; (2) 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; (3) 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; (4) risks associated with our ability to prevent breaches
of confidentiality or inappropriate use of data as we perform
large-scale processing of verifications; (5) risks associated with our
ability to maintain the accuracy, privacy and confidentiality of our
clients' employee data; (6) risks associated with potential challenges
regarding the applicability of the Fair Credit Reporting Act or
similar law; (7) risks associated with changes in economic conditions
or unemployment compensation or tax credit laws; (8) risks related to
Congressional approval of work opportunity ("WOTC") and welfare to
work ("WtW") tax credits; (9) the risk to our future growth due to our
dependence on our ability to effectively integrate acquired companies
and capitalize on cross-selling opportunities; (10) risks related to
the applicability of any new privacy legislation or interpretation of
existing laws; (11) 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; and (12) risks
relating to the applicability of the SUTA Dumping Prevention Act of
2004 to our tax planning services. 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 is a leading provider of payroll-related and
human resources services. Based in St. Louis, Missouri, TALX holds a
leadership position in two key areas - automated employment and income
verification via The Work Number (R) and unemployment tax management
via UC eXpress (R). The TALX suite of electronic services also
includes tax credits and incentives, paperless pay, time tracking, W-2
management, I-9 management, and onboarding services. The company's
common stock trades in the Nasdaq National 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
   Supplemental Financial Information

   The company sometimes uses information derived from consolidated
financial information but not presented in the financial statements
prepared in accordance with generally accepted accounting principles
("GAAP"). Specifically, in this release, the company has used non-GAAP
financial measures to eliminate the effect on fiscal 2005 earnings
from continuing operations and diluted earnings per share of a $2.5
million charge recorded in connection with a settlement with the SEC.
   Non-GAAP financial measures should not be considered as a
substitute for, or superior to, measures of financial performance
prepared in accordance with GAAP. We use these non-GAAP measures
internally to evaluate the performance of the business, including
allocation of assets and resources, planning, comparison of financial
performance between historical periods and evaluation and compensation
of management and staff. We believe that the presentation of these
non- GAAP financial measures provides useful information to investors
because these measures exclude elements that we do not consider to be
indicative of earnings from our ongoing operating activities and allow
for an equivalent comparison to prior-period results.
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Reconciliation of the Nine Months Ended December 31, 2004 Adjusted
Earnings from Continuing Operations to GAAP Earnings from Continuing
Operations:
    GAAP earnings from continuing operations      $  8.9 million
    SEC settlement charge                            2.5 million
    Adjusted earnings from continuing operations  $ 11.4 million

Reconciliation of the Nine Months Ended December 31, 2004 Adjusted
Diluted Earnings Per Share from Continuing Operations to GAAP Diluted
Earnings Per Share from Continuing Operations:
                                                Pre-split  Post-split
    GAAP diluted EPS from continuing operations  $  0.41    $  0.28
    SEC settlement charge                           0.12       0.08
    Adjusted diluted EPS from
      continuing operations                      $  0.53    $  0.36


                    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,
                               2005       2004      2005       2004
Revenues:
  The Work Number services   $21,904    $15,558   $ 64,206   $ 44,163
  Tax management services     29,978     23,605     81,946     66,167
  Maintenance and support        450        677      1,318      2,201
    Total revenues            52,332     39,840    147,470    112,531
Cost of revenues:
  The Work Number services     4,878      4,186     14,287     12,309
  Tax management services     14,204     11,260     39,746     33,267
  Maintenance and support        101        253        287        717
    Total cost of revenues    19,183     15,699     54,320     46,293
    Gross profit              33,149     24,141     93,150     66,238
Operating expenses:
  Selling and marketing        8,587      6,965     24,390     20,603
  General and administrative  11,108      8,460     31,248     24,409
  SEC settlement charge            -          -          -      2,500
    Total operating expenses  19,695     15,425     55,638     47,512
    Operating income          13,454      8,716     37,512     18,726
Other income(expense), net:
  Interest income                167         66        478        122
  Interest expense            (1,356)      (827)    (3,280)    (2,110)
  Other, net                       -          1         (5)         -
    Total other income
     (expense), net           (1,189)      (760)    (2,807)    (1,988)
    Earnings from continuing
     operations before
     income tax expense       12,265      7,956     34,705     16,738
Income tax expense             4,843      3,143     13,707      7,797
  Earnings from continuing
   operations                  7,422      4,813     20,998      8,941
Discontinued operations,
 net of income taxes:
  Earnings(loss)from discontinued
    operations, net               (3)         8          -         15
  Gain on disposal of
   discontinued operations,
   net                           225        145        450        425
    Earnings from discontinued
     operations                  222        153        450        440
Net earnings                 $ 7,644    $ 4,966   $ 21,448   $  9,381
Basic earnings per share:
  Continuing operations      $  0.23    $  0.16   $   0.66   $   0.29
  Discontinued operations       0.01          -       0.02       0.01
    Net earnings             $  0.24    $  0.16   $   0.68   $   0.30
  Diluted earnings per share:
  Continuing operations      $  0.22    $  0.15   $   0.62   $   0.28
  Discontinued operations          -          -       0.02       0.01
    Net earnings             $  0.22    $  0.15   $   0.64   $   0.29

Weighted average number
   of shares outstanding
   (basic)                31,928,437 30,992,405 31,706,367 30,882,218
Weighted average number
   of shares outstanding
   (diluted)              34,083,492 32,719,350 33,715,465 32,384,523


                    TALX Corporation and Subsidiaries
                       Consolidated Balance Sheets
            (dollars in thousands, except share information)
                   Assets            December 31, 2005  March 31, 2005
                                        (unaudited)
Current assets:
  Cash and cash equivalents               $  1,967       $  11,399
  Short-term investments                     5,850           7,615
  Accounts receivable, less allowance for
   doubtful accounts of $4,097 at December
   31, 2005, and $3,173 at March 31, 2005   36,895          19,718
  Work in progress, less progress billings   2,433           3,713
  Prepaid expenses and other current assets  7,424           5,282
  Deferred tax assets, net                   1,980           1,683
    Total current assets                    56,549          49,410
Property and equipment, net of accumulated
 depreciation of $23,322 at December 31,
 2005, and $18,572 at March 31, 2005        14,414          11,414
Capitalized software development costs, net
 of amortization of $5,874 at December 31,
 2005, and $4,605 at March 31, 2005          3,837           3,374
Goodwill                                   185,901         136,143
Other intangibles, net                      78,887          45,448
Other assets                                 1,604           1,130
                                          $341,192        $246,919

      Liabilities and Shareholders' Equity
Current liabilities:
  Accounts payable                        $  2,662        $  2,054
  Accrued expenses and other liabilities    16,317          16,502
  Dividends payable                          1,068             835
  Deferred revenue                          11,280           5,203
    Total current liabilities               31,327          24,594
Deferred tax liabilities, net               12,728          10,083
Long-term debt                             116,802          57,500
Other liabilities                            3,048           2,878
    Total liabilities                      163,905          95,055
Commitments and contingencies
Shareholders' equity:
  Preferred stock, $.01 par value;
    authorized 5,000,000 shares and no
    shares issued or outstanding at
    December 31, 2005 or March 31, 2005          -               -
  Common stock, $.01 par value per share;
    authorized 75,000,000 shares at
    December 31, 2005, and 30,000,000
    shares at March 31, 2005; issued
    21,358,100 shares at December 31,
    2005, and 20,922,011 shares at March
    31, 2005                                   214             209
  Additional paid-in capital               172,877         164,937
  Deferred compensation                     (1,639)           (223)
  Retained earnings (accumulated deficit)    5,749         (12,726)
  Accumulated other comprehensive income:
    Unrealized gain on interest rate
     swap contract, net of tax expense of
     $56 at December 31, 2005, and $39
     at March 31, 2005                          86              59
  Treasury stock, at cost, 42,275 shares
    at March 31, 2005                            -            (392)
      Total shareholders' equity           177,287         151,864
                                          $341,192        $246,919


                    TALX Corporation and Subsidiaries
                  Consolidated Statements of Cash Flows
                         (dollars in thousands)
                               (unaudited)

                                        Nine Months Ended December 31,
                                             2005           2004
Cash flows from operating activities:
    Net earnings                           $21,448         $9,381
    Adjustments to reconcile net
      earnings to net cash provided by
      operating activities:
        Depreciation and amortization        9,369          7,874
        Deferred compensation                  155             14
        Deferred taxes                       2,276            751
        Gain on swap agreement                 (59)             -
        Change in assets and liabilities,
          excluding those acquired:
          Accounts receivable, net         (12,750)        (2,746)
          Work in progress, less progress
            billings                         1,749           (100)
          Prepaid expenses and other
            current assets                  (1,810)         6,316
          Other assets                        (598)           122
          Accounts payable                     287          1,493
          Accrued expenses and other
            liabilities                      2,810           (485)
          Deferred revenue                   1,770            (70)
          Other liabilities                    148           (251)
            Net cash provided by operating
              activities                    24,795         22,299
Cash flows from investing activities:
  Additions to property and equipment       (6,810)        (4,709)
  Change in restricted cash                      -         38,645
  Acquisitions, net of cash received       (86,955)       (59,285)
  Purchases of short-term investments       (5,120)        (6,140)
  Proceeds from sale of short-term
    investments                              6,885              -
  Capitalized software development costs    (1,732)        (1,538)
    Net cash used in investing activities  (93,732)       (33,027)
Cash flows from financing activities:
  Issuance of common stock                   4,231          2,132
  Repurchase of common stock                (1,287)             -
  Borrowings under long-term debt facility 138,802         18,000
  Repayments under long-term debt facility (79,500)        (7,550)
  Dividends paid                            (2,741)        (2,191)
    Net cash provided by financing
     activities                             59,505         10,391
    Net decrease in cash and cash
     equivalents                            (9,432)          (337)
Cash and cash equivalents at beginning
  of period                                 11,399          8,568
Cash and cash equivalents at end of period $ 1,967        $ 8,231
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