Medical Staffing Network Holdings, Inc. (NYSE: MRN) today reported
revenue of $143.0 million for the second quarter of 2008, an
increase of 52.2% from the second quarter of 2007 revenue of $94.0
million. Net loss for the second quarter of 2008 was $52.7 million,
or $1.74 per diluted share, as compared with net income of $1.7
million, or $0.06 per diluted share, for the second quarter of
2007. Included in the net loss for the second quarter of 2008 were
pretax non-cash impairment charges to goodwill and other indefinite
lived intangible assets of $59.8�million and $3.1 million,
respectively. Commenting on the second quarter�s results, Robert J.
Adamson, chairman and chief executive officer, stated, �During the
second quarter, despite the continuing effects of economic
headwinds that suppress growth in hospital admissions, our
quarterly revenue was essentially flat on a sequential basis. As a
result of the acquisitions made in 2007 and the double-digit
organic revenue growth in our allied health staffing division, our
revenue increased by more than 50% year-over-year, which has
improved our operating results. In June, we reduced our operating
overhead in excess of $5�million annually. Assuming industry
conditions do not deteriorate further, these cost reductions could
yield improved operating leverage in subsequent quarters.� Adamson
concluded, �We continue to have success in improving our
bill-to-pay rate spread. As a result of this focus, our gross
profit margin increased by 40 basis points year-over-year. Improved
margins, coupled with double-digit organic revenue growth from our
allied health staffing division and the reduction of operating
expenses, are the foundation for our optimism that our third
quarter results will show continued improvement.� Kevin S. Little,
president and chief financial officer, commented, �We recorded
impairment charges to goodwill and other indefinite lived
intangible assets as a result of the challenging industry dynamics
currently being experienced, affecting both quarterly results and
our assessments of future growth rates of the healthcare staffing
industry. These charges are non-cash and have no effect on our
liquidity or debt covenants. In fact, during the second quarter, we
were able to reduce our DSO by three days to 53 days. This
reduction, combined with cash generated by operations of nearly
$9.0 million for the quarter, enabled us to repay all outstanding
borrowings on our revolving credit facility as of the end of
quarter. At June�29, 2008, we had more than $22 million immediately
available for borrowing and $4.5 million in cash on hand.� Gross
profit was $35.7 million for the second quarter of 2008, an
increase of 54.9% from the second quarter of 2007 gross profit of
$23.0 million. Gross margin for the second quarter of 2008 was
24.9%, an increase from 24.5% for the second quarter of 2007. The
40 basis point year-over-year improvement was primarily
attributable to a continued focus on gross margin expansion.
Selling, general and administrative expenses were $29.9 million, or
20.9% of revenues, in the second quarter of 2008 as compared with
$19.3 million, or 20.5% of revenues, for the comparable prior year
period. Excluding stock-based compensation expense of $0.1 million,
other charges of $0.2 million relating to severance payments made
in the second quarter and the aforementioned impairment charges,
the Company�s adjusted earnings before interest, taxes,
depreciation and amortization (AEBITDA) for the second quarter of
2008 increased 60.0% to $6.0 million as compared with $3.8 million
for the second quarter of 2007. Excluding the aforementioned
impairment charges and assuming a 40% effective tax rate, adjusted
net income for the second quarter of 2008 would have been $0.9
million, or $0.03 per diluted share, as compared with $1.5 million,
or $0.05 per diluted share, for the second quarter of 2007.
Revenues were $288.3 million for the six months ended June 29,
2008, an increase of 56.3% from revenues of $184.5 million for the
comparable prior year period. Net loss for the six months ended
June 29, 2008, was $52.0 million, or $1.71 per diluted share,
compared with net income of $1.7 million, or $0.05 per diluted
share, in the prior year period. Included in the net loss for the
six months ended June 29, 2008, were pretax non-cash impairment
charges to goodwill and other indefinite lived intangible assets of
$59.8 million and $3.1 million, respectively. Gross profit was
$70.7 million for the six months ended June 29, 2008, an increase
of 60.5% from the gross profit of $44.1 million for the comparable
prior year period. Gross margin for the six months ended June 29,
2008, was 24.5%, an increase from the gross margin of 23.9% for the
comparable prior year period. The 60 basis point year-over-year
improvement was primarily attributable to a continued focus on
gross margin expansion. Selling, general and administrative
expenses were $59.2 million, or 20.5% of revenues, for the six
months ended June 29, 2008, as compared with $39.1 million, or
21.2% of revenues, for the comparable prior year period. Excluding
stock-based compensation expense of $0.2 million, other charges of
$0.5 million (of which $0.2 million related to the second quarter
severance payments and $0.3 million related to the duplicative
costs incurred in the first quarter in connection with the
termination of an outsourcing initiative) and the aforementioned
impairment charges, the Company�s AEBITDA for the six months ended
June 29, 2008, increased 145.6% to $12.1 million as compared with
$4.9 million for the comparable prior year period. Excluding the
aforementioned impairment charges and assuming a 40% effective tax
rate, adjusted net income for the six months ended June 29, 2008,
would have been $1.6 million, or $0.05 per diluted share, as
compared with $1.5 million, or $0.05 per diluted share, for the six
months ended July 1, 2007. 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 Thursday, August 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; 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;
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 Six Months Ended June 29, � July 1, June 29, �
July 1, 2008 2007 2008 2007 � Service revenues $ 143,029 $ 93,953 $
288,252 $ 184,471 Cost of services rendered � 107,361 � � 70,923 �
217,528 � � 140,406 Gross profit � 35,668 � � 23,030 � 70,724 � �
44,065 � Operating expenses: Selling, general and administrative
29,875 19,279 59,184 39,139 Depreciation and amortization 1,554 893
3,046 1,791 Impairment of goodwill 59,817 � 59,817 � Impairment of
intangible assets � 3,100 � � � � 3,100 � � � Total operating
expenses � 94,346 � � 20,172 � 125,147 � � 40,930 � Income (loss)
from operations (58,678 ) 2,858 (54,423 ) 3,135 Minority interest
in income of subsidiary 71 � 126 � Interest expense, net � 2,694 �
� 344 � 5,735 � � 719 � Income (loss) before provision for (benefit
from) income taxes (61,443 ) 2,514 (60,284 ) 2,416 Provision for
(benefit from) income taxes � (8,717 ) � 795 � (8,334 ) � 766 Net
income (loss) $ (52,726 ) $ 1,719 $ (51,950 ) $ 1,650 � Basic and
diluted net income (loss) per share $ (1.74 ) $ 0.06 $ (1.71 ) $
0.05 � Weighted average common shares outstanding: Basic 30,315
30,262 30,314 30,261 Diluted 30,315 30,305 30,314 30,341 �
Reconciliation to AEBITDA: Net income (loss) $ (52,726 ) $ 1,719 $
(51,950 ) $ 1,650 Provision for (benefit from) income taxes (8,717
) 795 (8,334 ) 766 Interest expense, net 2,694 344 5,735 719
Depreciation and amortization 1,554 893 3,046 1,791 Stock based
compensation expense 125 8 250 16 Restructuring and other charges
166 � 476 � Impairment of goodwill 59,817 � 59,817 � Impairment of
intangible assets � 3,100 � � � � 3,100 � � � AEBITDA $ 6,013 � $
3,759 $ 12,140 � $ 4,942 � Summary Cash Flow Information: Cash flow
provided by operating activities $ 8,880 $ 3,977 $ 11,472 $ 3,062 �
Operating Statistics: Hours worked 3,206 2,287 6,424 4,501 MEDICAL
STAFFING NETWORK HOLDINGS, INC. Reconciliation to Adjusted Net
Income (1) (unaudited; in thousands, except per share data) � �
Three Months Ended Years Ended June 29, � July 1, June 29, � July
1, 2008 2007 2008 2007 Income (loss) from operations, as reported $
(58,678 ) $ 2,858 $ (54,423 ) $ 3,135 Impairment of goodwill 59,817
� 59,817 � Impairment of intangible assets � 3,100 � � � � � 3,100
� � � � Adjusted income from operations (1) 4,239 2,858 8,494 3,135
Minority interest in income of subsidiary (71 ) � (126 ) � Interest
expense, net � (2,694 ) � (344 ) � (5,735 ) � (719 ) Adjusted
income before income taxes (1) 1,474 2,514 2,633 2,416 Adjusted
provision for income taxes (2) � 590 � � 1,006 � � 1,053 � � 966 �
Adjusted net income (1) $ 884 � $ 1,508 � $ 1,580 � $ 1,450 � Basic
and diluted adjusted net income per share (1) $ 0.03 � $ 0.05 � $
0.05 � $ 0.05 � � Weighted average common shares outstanding: Basic
30,315 30,262 30,314 30,261 Diluted 30,338 30,305 30,339 30,341 �
(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 months and years ended December 30, 2007 and December 31,
2006, 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 six
months ended June 29, 2008 and July 1, 2007. MEDICAL STAFFING
NETWORK HOLDINGS, INC. Condensed Consolidated Balance Sheets
(unaudited; in thousands) � � June 29, 2008 Dec. 30, 2007 � ASSETS
Current assets: Cash and cash equivalents $ 4,501 $ 1,898 Accounts
receivable, net 90,683 98,376 Other current assets � 5,285 � 5,529
Total current assets 100,469 105,803 � Furniture and equipment, net
12,246 9,944 Goodwill 125,498 184,257 Intangible assets, net 10,300
14,637 Other assets, net � 4,984 � 5,215 � Total assets $ 253,497 $
319,856 � LIABILITIES AND STOCKHOLDERS� EQUITY Current liabilities:
Accounts payable and accrued expenses $ 43,687 $ 45,702 Accrued
payroll and other current liabilities 12,548 12,245 Current portion
of long-term debt � 1,000 � 1,000 Total current liabilities 57,235
58,947 � Long-term debt 123,250 128,185 Deferred income taxes �
8,334 Other long-term obligations � 4,770 � 4,219 Total liabilities
185,255 199,685 � Minority interest 402 402 � Commitments and
contingencies � Total stockholders� equity � 67,840 � 119,769 �
Total liabilities and stockholders� equity $ 253,497 $ 319,856
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