Medical Staff Network (NYSE:MRN)
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Medical Staffing Network Holdings, Inc. (NYSE: MRN) today reported
revenue of $135.8 million for the third quarter of 2008, a decrease of
12.2% from the third quarter 2007 revenue of $154.7 million. Net income
for the third quarter of 2008 was $2.5 million, or $0.08 per diluted
share, as compared with a net loss of $1.7 million, or $0.06 per diluted
share, for the third quarter of 2007. The net loss for the third quarter
of 2007 included restructuring and other charges of $3.0 million and a
$1.9 million non-cash goodwill impairment charge relating to the third
quarter of 2007 integration plan for the acquisition of InteliStaf
Holdings, Inc. and a loss on early extinguishment of debt of $0.3
million. Cash flow generated from operations was $6.4 million for the
third quarter of 2008, resulting in an increase of cash on hand to $8.8
million at September 28, 2008.
Commenting on the third quarter’s results,
Robert J. Adamson, chairman and chief executive officer, stated, “The
healthcare industry is facing significant challenges due in large part
to the current economic conditions. Hospitals are experiencing
unprecedented low census levels in several states resulting in softer
demand for our services, particularly in Florida and California.
However, the lower levels of demand are regionalized, and there are
areas of the country in which demand remains strong, such as in the
Pacific Northwest. While we are disappointed with our sequential
decrease in revenue, we are very pleased to be able to report a 14%
sequential increase in our AEBITDA, from $6.0 million in the second
quarter of 2008 to $6.9 million in the third quarter of 2008, resulting
from our continued focus on gross margin expansion and cost containment
measures.”
Adamson continued, “In an effort to enhance
the visibility of our revenue stream, we have focused our per diem
branches on expanding the amount of local contracts they staff, and we
have also continued to invest in our vendor management services (VMS)
sales team. Local contracts are longer-length assignments of more than
two weeks staffed by our per diem branches. An increasing portion of our
per diem division’s revenue, approximately 25%
of the division’s third quarter of 2008
revenue, is coming from these local contracts. Additionally, we have had
recent successes in our VMS operations as we have been awarded six
contracts thus far in 2008. These six contracts represent an aggregate
estimated annualized gross revenue opportunity of more than $20 million,
a majority of which is incremental to our current revenue run rate.”
Adamson concluded, “In negotiating the current
difficulties facing healthcare staffing companies, Medical Staffing
Network’s current management team benefits
from its experience in managing through prior industry down cycles. I am
confident that we are taking the correct proactive steps at this time to
maximize our profitability.”
The Company’s local per diem and travel nurse
staffing division revenues for the third quarter of 2008 were down
sequentially from the second quarter of 2008 and the comparable prior
year period due to a lower number of hours worked by per diem nursing
professionals and fewer travel nurses on assignment. The Company’s
allied staffing division revenues were also down sequentially from the
second quarter of 2008 and the comparable prior year period, primarily
due to a lower number of hours worked by clinical research and
rehabilitation professionals, partially offset by a higher number of
hours worked by laboratory, pharmacy and ambulatory professionals.
Gross profit was $34.3 million for the third quarter of 2008, a decrease
of 7.3% from the third quarter of 2007 gross profit of $37.0 million.
Gross margin for the third quarter of 2008 was 25.3%, an increase from
23.9% for the third quarter of 2007. The 140 basis point improvement
over the comparable prior year period was primarily attributable to an
executive-driven bill rate and margin expansion initiative. Selling,
general and administrative expenses were $27.5 million, or 20.2% of
revenues, in the third quarter of 2008 as compared with $28.7 million,
or 18.5% of revenues, for the comparable prior year period. The Company’s
AEBITDA (as defined later) for the three months ended September 28,
2008, was $6.9 million as compared with $8.3 million for the comparable
prior year period.
Revenues were $424.1 million for the nine months ended September 28,
2008, an increase of 25.0% from revenues of $339.2 million for the
comparable prior year period. Net loss for the nine months ended
September 28, 2008, was $49.4 million, or $1.63 per diluted share, while
the Company had a net loss of $0.1 million for the comparable prior year
period. Included in the net loss for the nine months ended September 28,
2008, were pretax non-cash impairment charges to goodwill and other
indefinite lived intangible assets of $59.8 million and $3.1 million,
respectively. The net loss for the nine months ended September 30, 2007,
included restructuring and other charges of $3.0 million and a $1.9
million non-cash goodwill impairment charge relating to the third
quarter integration plan for the acquisition of InteliStaf and a loss on
early extinguishment of debt of $0.3 million. Cash flow generated from
operations was $17.9 million for the nine months ended September 28,
2008.
Gross profit was $105.0 million for the nine months ended September 28,
2008, an increase of 29.5% from the gross profit of $81.1 million for
the comparable prior year period. Gross margin for the nine months ended
September 28, 2008, was 24.8%, a 90 basis point improvement from the
gross margin of 23.9% for the comparable prior year period. Selling,
general and administrative expenses were $86.2 million, or 20.3% of
revenues, for the nine months ended September 28, 2008, as compared with
$67.8 million, or 20.0% of revenues, for the comparable prior year
period. The Company’s AEBITDA for the nine
months ended September 28, 2008, was $19.0 million as compared with
$13.3 million for the comparable prior year period.
Conference Call
The Company’s management will host a
conference call and webcast to discuss the earnings release at 11:00
a.m. Eastern time on Friday, November 7, 2008. A live webcast, as well
as a 30-day replay, of the conference call will be available online at
the Company’s website at www.msnhealth.com
or at www.earnings.com.
Company Summary
Medical Staffing Network Holdings, Inc. is the third largest diversified
healthcare staffing company in the United States as measured by
revenues. The Company is the leading provider of per diem nurse staffing
services and is also a leading provider of travel, allied health and
vendor managed services.
Reasons for Presentation of Non-GAAP Financial Measures
Statements made in this release include non-GAAP financial measures.
Such information is provided as additional information, not as an
alternative to our consolidated financial statements presented in
accordance with generally accepted accounting principles (GAAP), and is
intended to enhance an overall understanding of our current financial
performance. We believe the non-GAAP financial measures provide useful
information to management, investors and prospective investors by
excluding certain charges and other amounts that we believe are not
indicative of our core operating results. These non-GAAP measures are
included to provide management, our investors and prospective investors
with an alternative method for assessing our operating results in a
manner that is focused on the performance of our ongoing operations and
to provide a more consistent basis for comparison between quarters. One
of the non-GAAP financial measures presented is AEBITDA which consists
of net income (loss) before income taxes, interest, loss on early
extinguishment of debt, depreciation and amortization, restructuring and
other charges, outsourcing implementation costs and non-cash impairment
of goodwill, which might not be calculated in the same manner as, and
thus might not be comparable to, similarly titled measures reported by
other companies. The financial statement table included within the
condensed consolidated statements of operations includes a
reconciliation of the non-GAAP financial measure to the most directly
comparable GAAP financial measure.
This press release includes certain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. These
statements include all statements other than those made solely with
respect to historical fact. These statements involve known and
unknown risks, uncertainties and other factors that may cause the
registrant’s actual results and performance
to be materially different from any future results or performance
expressed or implied by these forward-looking statements. These
factors include the following: our ability to maintain the revenue
run-rate experienced in the first few months following the InteliStaf
merger; our ability to maintain the level of success achieved to date
with regards to the InteliStaf integration plan; our ability to attract
and retain qualified nurses and other healthcare personnel; our ability
to maintain demand for services provided by temporary healthcare
professionals if lower than expected levels of patient occupancy at our
hospital and healthcare facility clients continue; the effect of higher
unemployment rates on our ability to successfully recruit additional
healthcare professionals; the effect of the general level of economic
activity on our business as such activity is impacted by factors beyond
our control (i.e. inflation, recession, weather conditions, acts of
war); our ability to remain competitive in obtaining and retaining
hospital and healthcare facility clients and temporary healthcare
professionals; our continued ability to secure and fill new orders from
our hospital and healthcare facility clients; the effect of fluctuations
in hospital and healthcare facility patient occupancy on our business;
our clients’ inability to pay us for our
services; the effects of healthcare reform on our business; our exposure
to increased costs and risks associated with increasing and new
corporate governance regulation compliance; the effect of existing or
future government regulation and federal and state legislative and
enforcement initiatives on our business including Joint Commission
certification; the proper functioning of our information systems; our
ability to successfully implement our acquisition strategies; our
ability to successfully integrate completed acquisitions into our
current operations; our ability to obtain additional financing, if
required, in future periods; our ability to leverage our cost structure;
our ability to recognize the benefits of the realignment of our per diem
branch network; the amount of costs, expenses, and charges related to
the realignment of our per diem branch network; the effect of
significant legal actions and other claims asserted against us on our
business; our ability to sustain the improved self-insurance claims
experience; our continued ability to attract, develop and retain sales
and recruitment personnel; the departure of key officers and senior
management personnel; the effect of our recognition of any impairment to
goodwill on our earnings; the effect of higher than anticipated travel
business housing costs on our margins; the ability of our executive
officers, directors and significant stockholders to influence matters
requiring stockholder approval; our ability to maintain our listing on
the New York Stock Exchange; the provisions in our corporate documents
and Delaware law that could delay or prevent a transaction considered
favorable by our stockholders; and the possible decline in value of our
stock price. Additional information concerning these and other
important factors can be found within the registrant’s
filings with the Securities and Exchange Commission. Forward-looking
statements in this press release should be evaluated in light of these
important factors. Although the registrant believes that these
statements are based upon reasonable assumptions, the registrant cannot
provide any assurances regarding future results. The registrant
undertakes no obligation to revise or update any forward-looking
statements, or to make any other forward-looking statements, whether as
a result of new information, future events or otherwise.
MEDICAL STAFFING NETWORK HOLDINGS, INC.
Condensed Consolidated Statements of Operations
(unaudited; in thousands, except per share data)
Three Months Ended
Nine Months Ended
Sept. 28,
Sept. 30,
Sept. 28,
Sept. 30,
2008
2007
2008
2007
Service revenues
$
135,836
$
154,690
$
424,088
$
339,161
Cost of services rendered
101,525
117,671
319,053
258,077
Gross profit
34,311
37,019
105,035
81,084
Operating expenses:
Selling, general and administrative
27,489
28,671
86,197
67,810
Depreciation and amortization
1,536
1,662
4,582
3,453
Restructuring and other charges
33
2,978
509
2,978
Impairment of goodwill
–
1,925
59,817
1,925
Impairment of intangible assets
–
–
3,100
–
Total operating expenses
29,058
35,236
154,205
76,166
Income (loss) from operations
5,253
1,783
(49,170
)
4,918
Loss on early extinguishment of debt
–
278
–
278
Minority interest in income of subsidiary
83
83
209
83
Interest expense, net
2,643
3,346
8,378
4,065
Income (loss) before provision for
(benefit from) income taxes
2,527
(1,924
)
(57,757
)
492
Provision for (benefit from) income taxes
–
(180
)
(8,334
)
586
Net income (loss)
$
2,527
$
(1,744
)
$
(49,423
)
$
(94
)
Basic and diluted net income (loss) per share
$
0.08
$
(0.06
)
$
(1.63
)
$
–
Weighted average common shares outstanding:
Basic
30,315
30,262
30,314
30,262
Diluted
30,321
30,262
30,314
30,262
Reconciliation to AEBITDA:
Net income (loss)
$
2,527
$
(1,744
)
$
(49,423
)
$
(94
)
Provision for (benefit from) income taxes
–
(180
)
(8,334
)
586
Interest expense, net
2,643
3,346
8,378
4,065
Loss on early extinguishment of debt
–
278
–
278
Depreciation and amortization
1,536
1,662
4,582
3,453
Stock based compensation expense
124
59
374
75
Restructuring and other charges
33
2,978
509
2,978
Impairment of goodwill
–
1,925
59,817
1,925
Impairment of intangible assets
–
–
3,100
–
AEBITDA
$
6,863
$
8,324
$
19,003
$
13,266
Summary Cash Flow Information:
Cash flow provided by operating activities
$
6,445
$
(5,627
)
$
17,917
$
(2,566
)
Operating Statistics:
Hours worked
2,993
3,657
9,417
8,158
MEDICAL STAFFING NETWORK HOLDINGS, INC.
Reconciliation to Adjusted Net Income (1)
(unaudited; in thousands, except per share data)
Three Months Ended
Nine Months Ended
Sept. 28,
Sept. 30,
Sept. 28,
Sept. 30,
2008
2007
2008
2007
Income (loss) from operations, as reported
$
5,253
$
1,783
$
(49,170
)
$
4,918
Restructuring and other charges
33
2,978
509
2,978
Impairment of goodwill
–
1,925
59,817
1,925
Impairment of intangible assets
–
–
3,100
–
Adjusted income from operations (1)
5,286
6,686
14,256
9,821
Loss on early extinguishment of debt
–
(278
)
–
(278
)
Minority interest in income of subsidiary
(83
)
(83
)
(209
)
(83
)
Interest expense, net
(2,643
)
(3,346
)
(8,378
)
(4,065
)
Adjusted income before income taxes (1)
2,560
2,979
5,669
5,395
Adjusted provision for income taxes (2)
1,024
1,192
2,268
2,158
Adjusted net income (1)
$
1,536
$
1,787
$
3,401
$
3,237
Basic and diluted adjusted net income per share (1)
$
0.05
$
0.06
$
0.11
$
0.11
Weighted average common shares outstanding:
Basic
30,315
30,262
30,314
30,262
Diluted
30,321
30,303
30,333
30,328
(1) Certain measurements are being
provided as management believes they are a useful supplement to
actual operating performance and for comparison to prior year
periods. These measurements are not intended to represent actual
operating results and they should not be considered in isolation
or as a substitute for measures of performance in accordance with
United States generally accepted accounting principles (GAAP).
These measurements have certain material limitations as compared
to the use of the most directly comparable GAAP financial
measures. We compensate for these limitations by using these
measurements as only one of several comparative tools, together
with GAAP measurements, to assist in the evaluation of our
operating performance and comparisons to prior year periods.
(2) The provision for income taxes for
the three and nine months ended September 28, 2008 and September
30, 2007, is being calculated assuming there was no need to record
a valuation allowance against the Company’s
net deferred income tax assets. As such, an effective income tax
rate of 40% was used in calculating the adjusted net income for
both the three and nine months ended September 28, 2008 and
September 30, 2007.
MEDICAL STAFFING NETWORK HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(unaudited; in thousands)
Sept. 28,
2008
Dec. 30,
2007
ASSETS
Current assets:
Cash and cash equivalents
$
8,762
$
1,898
Accounts receivable, net
83,989
98,376
Other current assets
5,458
5,529
Total current assets
98,209
105,803
Furniture and equipment, net
11,973
9,944
Goodwill
126,775
184,257
Intangible assets, net
9,720
14,637
Other assets, net
4,933
5,215
Total assets
$
251,610
$
319,856
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses
$
39,253
$
45,702
Accrued payroll and other current liabilities
10,382
12,245
Current portion of long-term debt
1,000
1,000
Total current liabilities
50,635
58,947
Long-term debt
123,000
128,185
Deferred income taxes
–
8,334
Other long-term obligations
7,002
4,219
Total liabilities
180,637
199,685
Minority interest
402
402
Commitments and contingencies
Total stockholders’ equity
70,571
119,769
Total liabilities and stockholders’ equity
$
251,610
$
319,856