TALX Talx (MM)

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