TALX Talx (MM)

TALX Corporation (NASDAQ: TALX) today reported that fiscal fourth-quarter earnings from continuing operations increased 27 percent to $9.0 million from the year-ago $7.1 million. On a diluted share basis, earnings from continuing operations were $0.26, compared to $0.21 for the year-ago period. The earnings improvement primarily reflects strong revenue gains in The Work Number services, the contribution from fiscal 2006 acquisitions, and overall cost control. Fourth-quarter revenues grew 31 percent to $60.0 million from $45.9 million in the year-earlier quarter. The Work Number services' revenues rose 28 percent, and revenues for the tax management services business increased 35 percent from year-ago levels. Gross profit for the fourth quarter expanded 36 percent to $37.3 million from $27.4 million, with gross margin rising 240 basis points to 62.2 percent from 59.8 percent the year before. Gross profit for The Work Number services increased 35 percent to $20.1 million from $14.9 million, and gross margin for this segment climbed 390 basis points to 74.0 percent from 70.1 percent the year before. Gross profit for the tax management services business rose 38 percent to $16.9 million from $12.2 million, with gross margin improving 120 basis points to 52.1 percent from 50.9 percent the year before. Revenues for the full year increased 31 percent to $207.4 million from $158.4 million the year before. Earnings from continuing operations for the period were $30.0 million, or $0.89 per diluted share. In the year-ago period, earnings from continuing operations were $16.0 million, or $0.49 per diluted share, which included an SEC settlement charge of $2.5 million, or $0.08 per diluted share. Excluding this charge, adjusted earnings from continuing operations grew 62 percent for the year, from $18.5 million, or $0.57 per diluted share. See attached "Supplemental Financial Information" for a reconciliation of differences from the comparable GAAP measures in fiscal year 2005. William W. Canfield, president and chief executive officer, commented, "Through organic growth, as well as acquisitions and our ongoing emphasis on cross-selling, we again achieved record revenues this quarter. In The Work Number services, our continued focus on expanding the database and maximizing our clients' use of it yielded a 28 percent rise in revenues. In our tax management services, our acquisition strategy has enhanced our expertise in certain state and federal tax credits, as well as provided strong revenue gains this quarter. Additionally, in the unemployment tax management business, we realized 2 percent organic growth this quarter, marking our second consecutive quarterly gain. "We expect to continue to benefit from the solid contributions of our acquisition strategy. In addition to the four acquisitions we completed in fiscal 2006, we began fiscal 2007 with the acquisition of a new line of business for us, Performance Assessment Network, or pan. pan provides secure, electronic-based psychometric testing and assessments, as well as comprehensive talent management services. These services fit nicely with our existing front-end hiring solutions, which include paperless new hires, I-9 form management, prior employment verifications, and tax credit identification. We believe our well-established corporate client base will provide additional avenues for pan's growth and look forward to sharing pan's expertise with our clients." L. Keith Graves, senior vice president and chief financial officer, pointed out, "Through our scalable business model and continued focus on cost control, we increased our operating margin by 330 basis points, to 29.3 percent this quarter. For the year, our earnings from continuing operations were up 87 percent compared to fiscal 2005. As a result of the strong financial performance in fiscal 2006, we realized cash flows from operating activities of $39 million, which helped us repay $28 million of debt while funding our capital expenditures and paying dividends." The company's income tax expense was slightly higher in the fiscal fourth quarter as a result of an adjustment to deferred taxes. The company expects its effective income tax rate to return to historical levels for fiscal 2007. The total number of employment records on The Work Number services database increased to 129.0 million at March 31, 2006, from 106.9 million a year ago, representing a 21 percent gain. The company added 3.3 million employment records during the quarter, representing a 3 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 21 percent to 136.3 million at March 31, 2006, from 113.1 million a year earlier and 2 percent over the previous sequential quarter total of 133.4 million. Of the 129.0 million records on the database at March 31, 2006, 29 percent represent current employees, while the remainder represent former employees. Effective April 1, 2006, the company has adopted Statement of Financial Accounting Standards No. 123r, "Share-Based Payment" (SFAS 123r). The impact of the adoption of this statement is included in the forward-looking guidance below and is expected to be approximately $0.06 per diluted share in fiscal 2007, expensed evenly over the four fiscal quarters. TALX provided guidance for financial performance for the full year and first quarter of fiscal 2007. For the fiscal year ending March 31, 2007, the company anticipates total revenues to be in the range of $273 million to $278 million and diluted earnings per share from continuing operations to be in the range of $1.04 to $1.10, which includes the $0.06 charge related to SFAS 123r. For the first fiscal quarter, the company anticipates total revenues to be in the range of $64 million to $66 million, compared to $46.8 million in the prior year. Diluted earnings per share from continuing operations are anticipated to be in the range of $0.19 to $0.21, which includes the $0.015 charge related to SFAS 123r. First-quarter diluted earnings per share from continuing operations in fiscal 2006 were $0.19, without consideration of SFAS 123r. First-quarter earnings growth is not expected to match the projected percentage increase for the full year due to the inclusion of costs aimed at supporting the company's growth such as headquarters relocation, creation of a shared services function, integration of recent acquisitions, and enhancements to the business continuity infrastructure. The bulk of these expenses will be incurred in the first quarter and are not expected to have a material impact on full-year earnings. A conference call to discuss the company's fiscal 2006 fourth- quarter performance and its outlook is scheduled for Thursday, May 11, at 9:00 a.m. Central Time. To participate in this call, dial (800) 230-1085. 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, May 11, through July 27, 2006. The replay number is (800) 475-6701 and the access code is 827351. 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 first 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, 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 the recent expiration of, and dependence on 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 relating to doing business with the federal government following our April 2006 acquisition of pan; (11) risks related to the applicability of any new privacy legislation or interpretation of existing laws; (12) 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 (13) 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, paperless new hire services, and assessments and talent management. 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. -0- *T 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. Reconciliation of the Year ended March 31, 2005 Adjusted Earnings from Continuing Operations to GAAP Earnings from Continuing Operations: GAAP earnings from continuing operations $ 16.0 million SEC settlement charge 2.5 million Adjusted earnings from continuing operations $ 18.5 million Reconciliation of the Year Ended March 31, 2005 Adjusted Diluted Earnings Per Share from Continuing Operations to GAAP Diluted Earnings Per Share from Continuing Operations: GAAP diluted EPS from continuing operations $ 0.49 SEC settlement charge 0.08 Adjusted diluted EPS from continuing operations $ 0.57 TALX Corporation and Subsidiaries Consolidated Statements of Earnings (dollars in thousands, except per share information) (unaudited) Three Months Ended Year Ended March 31, March 31, 2006 2005 2006 2005 Revenues: The Work Number services $27,125 $21,210 $ 91,331 $ 65,373 Tax management services 32,474 24,041 114,420 90,208 Maintenance and support 358 613 1,676 2,814 Total revenues 59,957 45,864 207,427 158,395 Cost of revenues: The Work Number services 7,052 6,336 21,339 18,645 Tax management services 15,543 11,797 55,289 45,064 Maintenance and support 65 291 352 1,008 Total cost of revenues 22,660 18,424 76,980 64,717 Gross profit 37,297 27,440 130,447 93,678 Operating expenses: Selling and marketing 8,310 7,090 32,700 27,693 General and administrative 11,410 8,436 42,658 32,845 SEC settlement charge - - - 2,500 Total operating expenses 19,720 15,526 75,358 63,038 Operating income 17,577 11,914 55,089 30,640 Other income(expense), net: Interest income 215 102 693 224 Interest expense (1,885) (834) (5,165) (2,944) Other, net - (5) (5) (5) Total other income (expense), net (1,670) (737) (4,477) (2,725) Earnings from continuing operations before income tax expense 15,907 11,177 50,612 27,915 Income tax expense 6,930 4,090 20,637 11,887 Earnings from continuing operations 8,977 7,087 29,975 16,028 Discontinued operations, net of income taxes: Earnings(loss)from discontinued operations, net (1) - (1) 15 Gain on disposal of discontinued operations, net 66 142 516 567 Earnings from discontinued operations 65 142 515 582 Net earnings $ 9,042 $ 7,229 $ 30,490 $16,610 Basic earnings per share: Continuing operations $ 0.28 $ 0.22 $ 0.94 $ 0.52 Discontinued operations - 0.01 0.02 0.02 Net earnings $ 0.28 $ 0.23 $ 0.96 $ 0.54 Diluted earnings per share: Continuing operations $ 0.26 $ 0.21 $ 0.89 $ 0.49 Discontinued operations - 0.01 0.01 0.02 Net earnings $ 0.26 $ 0.22 $ 0.90 $ 0.51 Weighted average number of shares outstanding (basic) 31,992,969 31,174,664 31,775,969 30,953,408 Weighted average number of shares outstanding (diluted) 34,236,268 32,986,658 33,828,651 32,451,456 TALX Corporation and Subsidiaries Consolidated Balance Sheets (dollars in thousands, except share information) Assets March 31, 2006 March 31, 2005 (unaudited) Current assets: Cash and cash equivalents $ 5,705 $ 11,399 Short-term investments 5,850 7,615 Accounts receivable, less allowance for doubtful accounts of $3,731 at March 31, 2006, and $3,173 at March 31, 2005 31,527 19,718 Work in progress, less progress billings 5,911 3,713 Prepaid expenses and other current assets 6,576 5,282 Deferred tax assets, net 2,580 1,683 Total current assets 58,149 49,410 Property and equipment, net of accumulated depreciation of $25,227 at March 31, 2006, and $18,572 at March 31, 2005 16,037 11,414 Capitalized software development costs, net of amortization of $6,329 at March 31, 2006, and $4,605 at March 31, 2005 4,059 3,374 Goodwill 190,232 136,143 Other intangibles, net 77,434 45,448 Other assets 1,634 1,130 $ 347,545 $246,919 Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 2,257 $ 2,054 Accrued expenses and other liabilities 19,219 16,502 Dividends payable 1,289 835 Deferred revenue 6,893 5,203 Total current liabilities 29,658 24,594 Deferred tax liabilities, net 17,634 10,083 Long-term debt 110,802 57,500 Other liabilities 3,153 2,878 Total liabilities 161,247 95,055 Commitments and contingencies Shareholders' equity: Preferred stock, $.01 par value; authorized 5,000,000 shares and no shares issued or outstanding at March 31, 2006 or 2005 - - Common stock, $.01 par value per share; authorized 75,000,000 shares at March 31, 2006, and 30,000,000 shares at March 31, 2005; issued 32,225,321 shares at March 31, 2006, and 20,922,011 shares at March 31, 2005 322 209 Additional paid-in capital 177,463 164,937 Deferred compensation (5,076) (223) Retained earnings (accumulated deficit) 13,467 (12,726) Accumulated other comprehensive income: Unrealized gain on interest rate swap contract, net of tax expense of $80 at March 31, 2006, and $39 at March 31, 2005 122 59 Treasury stock, at cost, 42,275 shares at March 31, 2005 - (392) Total shareholders' equity 186,298 151,864 $347,545 $246,919 TALX Corporation and Subsidiaries Consolidated Statements of Cash Flows (dollars in thousands) (unaudited) Year Ended March 31, 2006 2005 Cash flows from operating activities: Net earnings $30,490 $16,610 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 13,242 10,624 Deferred compensation 399 35 Deferred taxes 3,235 2,518 Gain on swap agreement (59) - Change in assets and liabilities, excluding those acquired: Accounts receivable, net (7,780) (2,990) Work in progress, less progress billings (1,799) (1,999) Prepaid expenses and other current assets (1,149) 5,554 Other assets (702) 119 Accounts payable 22 461 Accrued expenses and other liabilities 5,992 (1,560) Deferred revenue (2,774) 460 Other liabilities 253 217 Net cash provided by operating activities 39,370 30,049 Cash flows from investing activities: Additions to property and equipment (10,471) (6,382) Change in restricted cash - 38,645 Acquisitions, net of cash received (87,079) (59,316) Purchases of short-term investments (5,120) (11,340) Proceeds from sale of short-term investments 6,885 5,200 Capitalized software development costs (2,408) (2,001) Net cash used in investing activities (98,193) (35,194) Cash flows from financing activities: Issuance of common stock 4,923 3,496 Repurchase of common stock (1,287) - Borrowings under long-term debt facility 138,802 18,000 Repayments under long-term debt facility (85,500) (10,500) Dividends paid (3,809) (3,020) Net cash provided by financing activities 53,129 7,976 Net increase (decrease) in cash and cash equivalents (5,694) 2,831 Cash and cash equivalents at beginning of period 11,399 8,568 Cash and cash equivalents at end of period $ 5,705 $11,399 *T