TALX Corporation (NASDAQ:TALX) today reported that fiscal
first-quarter earnings from continuing operations increased 14
percent to $7.3 million, or $0.22 per diluted share, from the
year-ago $6.4 million, or $0.19 per diluted share. The earnings
improvement primarily reflects the contribution from recent
acquisitions, strong revenue gains in The Work Number services, and
ongoing emphasis on cross-selling. The 2007 first quarter benefited
from $6.7 million in revenues from the company's April 6, 2006
acquisition of Performance Assessment Network, Inc., or pan, a
provider of secure, electronic-based psychometric testing and
assessments, as well as comprehensive talent management services.
pan's results are presented in a new segment, talent management
services. Effective April 1, 2006, the company adopted Statement of
Financial Accounting Standards No. 123r, "Share-Based Payment"
(SFAS 123r). Included in fiscal 2007 first-quarter results was
approximately $813,000, net of taxes, or $0.02 per diluted share,
related to share-based compensation expense. For the full year,
this expense, originally projected at $0.06 per share, is now
expected to be approximately $0.08 per share, divided evenly over
the four fiscal quarters. First-quarter revenues increased 41
percent to $66.2 million from $46.8 million the year before. The
Work Number services' revenues rose 27 percent, and revenues for
the tax management services business increased 28 percent from
year-ago levels. Gross profit for the first quarter expanded 40
percent to $40.9 million from $29.2 million. Gross margin was 61.9
percent, compared to 62.4 percent the year before. Fiscal 2007
first-quarter results were impacted by two items: the inclusion of
expenses related to share-based compensation, which negatively
affected gross margin by 67 basis points, and the acquisition of
pan, which had a lower gross margin than the company's other
segments. Gross profit for The Work Number services increased 29
percent to $20.3 million from $15.7 million, with gross margin
climbing 150 basis points to 78.5 percent from 77.0 percent the
year before. Gross profit for the tax management services business
rose 29 percent to $16.9 million from $13.1 million, with gross
margin improving 30 basis points to 50.9 percent from 50.6 percent
the year before. Gross profit for talent management services was
$3.3 million, and gross margin was 49.6 percent. William W.
Canfield, president and chief executive officer, commented,
"First-quarter results were very encouraging and were ahead of our
expectations. The results reflect our highly scalable business
model, as The Work Number continued to grow at double-digit rates
and we continued to benefit from cross-selling initiatives. We were
particularly pleased with the growth in our mortgage-related
verification business, despite the soft mortgage environment. In
our tax management services businesses, our revenues grew from our
fiscal 2006 acquisitions in both the unemployment tax services and
the tax credits and incentives businesses. Additionally, in the
unemployment tax management business, we realized 7 percent organic
growth, marking our third consecutive quarterly organic gain. "We
are pleased with pan's solid contribution and look forward to
cross-selling these valuable services to our extensive client base.
We see outstanding growth potential as we assist our clients in
identifying and selecting the right talent and implementing an
effective hiring process. "We continue to monitor the status of the
Work Opportunity, or WOTC, and Welfare to Work, or WtW, federal tax
credits, which have been in hiatus since January 1. As a result of
this hiatus, our first-quarter revenues were impacted by
approximately $860,000 and we expect our second-quarter revenues to
be adversely affected by approximately $2 million." L. Keith
Graves, senior vice president and chief financial officer, pointed
out, "Our financial results yielded cash flows from operating
activities of $7.0 million this quarter. As a result of this strong
cash flow, this quarter we repurchased 347,400 shares of our common
stock in accordance with our share repurchase plan. Further, in
July we repurchased an additional 164,000 shares. We are also
pleased with the $75 million private placement of debt we completed
in the quarter, which allowed us to convert a substantial portion
of debt from a variable to a fixed rate, at a time when interest
rates are generally expected to rise. At the same time, we also
renegotiated our existing credit agreement, and, as a result, all
of our debt is now unsecured." Graves also reported, "Fiscal 2007
first-quarter results reflected costs of approximately $0.01 per
share for additional infrastructure costs primarily related to
relocating our corporate offices." He added that similar costs
would continue into the second quarter. The company's effective
income tax rate was slightly higher in the fiscal first quarter
primarily as a result of the implementation of SFAS 123r. The
corresponding income tax benefit of certain elements of share-based
compensation can only be recognized if, and to the extent that
certain future events occur. The total number of employment records
on The Work Number services database increased to 133.1 million at
June 30, 2006, from 109.4 million a year ago, representing a 22
percent gain. The company added 4.1 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 23 percent to 143.0 million at
June 30, 2006, from 116.1 million a year earlier and 5 percent over
the previous sequential quarter total of 136.3 million. Of the
133.1 million records on the database at June 30, 28 percent
represented current employees, while the remainder represented
former employees. TALX is raising guidance for the fiscal year
ending March 31, 2007, with diluted earnings per share from
continuing operations estimated in a range of $1.06 to $1.12,
compared with $1.04 to $1.10 previously. Revenue is projected to be
between $275 million and $280 million, compared with prior guidance
of $273 million to $278 million. Canfield noted, "We are pleased
that our strong first-quarter financial performance and expected
outlook for the rest of the year have allowed us to raise our
guidance in spite of the increased impact of share-based
compensation expense and infrastructure costs and the absence of
WOTC and WtW federal tax credits while these programs remain in
hiatus." TALX also provided initial guidance for the second fiscal
quarter ending September 30, 2006. The company expects revenues
ranging from $66 million to $68 million and diluted earnings per
share from continuing operations of $0.22 to $0.24. Second-quarter
diluted earnings per share from continuing operations in fiscal
2006 were $0.21 and revenues totaled $48.3 million. Results for
fiscal year 2006 included no impact from SFAS 123r. A conference
call to discuss the company's fiscal 2007 first-quarter performance
and its outlook is scheduled for Thursday, July 27, 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. CDT
on Thursday, July 27, through October 26, 2006. The replay number
is (800) 475-6701 and the access code is 836287. 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 second 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, under
the caption "Risk Factors" in "Part I - 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 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.
-0- *T TALX Corporation and Subsidiaries Consolidated Statements of
Earnings (dollars in thousands, except per share information)
(unaudited) Three Months Ended June 30, -------- 2006 2005
-------------- Revenues: The Work Number services $25,897 $20,445
Tax management services 33,158 25,925 Talent management services
6,717 - Maintenance and support 402 424 ------- ------- Total
revenues 66,174 46,794 ------- ------- Cost of revenues: The Work
Number services 5,573 4,704 Tax management services 16,265 12,806
Talent management services 3,385 - Maintenance and support 19 86
------- ------- Total cost of revenues 25,242 17,596 -------
------- Gross profit 40,932 29,198 ------- ------- Operating
expenses: Selling and marketing 11,105 7,730 General and
administrative 14,419 10,084 ------- ------- Total operating
expenses 25,524 17,814 ------- ------- Operating income 15,408
11,384 ------- ------- Other income(expense), net: Interest income
160 157 Interest expense (3,187) (916) Other, net 5 (5) -------
------- Total other income(expense), net (3,022) (764) -------
------- Earnings from continuing operations before income tax
expense 12,386 10,620 Income tax expense 5,067 4,195 -------
------- Earnings from continuing operations 7,319 6,425
Discontinued operations, net of income taxes: Earnings from
discontinued operations, net - 7 Gain on disposal of discontinued
operations, net - 195 ------- ------- Earnings from discontinued
operations - 202 ------- ------- Net earnings $ 7,319 $ 6,627
======= ======= Basic earnings per share: Continuing operations $
0.23 $ 0.20 Discontinued operations - 0.01 ------- ------- Net
earnings $ 0.23 $ 0.21 ======= ======= Diluted earnings per share:
Continuing operations $ 0.22 $ 0.19 Discontinued operations - 0.01
------- ------- Net earnings $ 0.22 $ 0.20 ======= ======= Weighted
average number of shares outstanding(basic) 32,085,129 31,388,772
Weighted average number of shares outstanding(diluted) 33,947,420
33,405,620 TALX Corporation and Subsidiaries Consolidated Balance
Sheets (dollars in thousands, except share information) Assets June
30, 2006 March 31, 2006 ------ ------------- --------------
(unaudited) Current assets: Cash and cash equivalents $ 4,277 $
5,705 Short-term investments 4,105 5,850 Accounts receivable, less
allowance for doubtful accounts of $3,659 at June 30, 2006, and
$3,731 at March 31, 2006 40,219 31,527 Unbilled receivables 4,778
5,911 Prepaid expenses and other current assets 7,434 6,576
Deferred tax assets, net 714 2,580 --------- --------- Total
current assets 61,527 58,149 Property and equipment, net of
accumulated depreciation of $27,331 at June 30, 2006, and $25,227
at March 31, 2006 18,186 16,037 Capitalized software development
costs, net of amortization of $6,866 at June 30, 2006, and $6,329
at March 31, 2006 4,830 4,059 Goodwill 226,045 190,232 Other
intangibles, net 115,536 77,434 Other assets 2,139 1,634 ---------
--------- $ 428,263 $ 347,545 ========= ========= Liabilities and
Shareholders' Equity ------------------------------------ Current
liabilities: Accounts payable $ 2,560 $ 2,257 Accrued expenses and
other liabilities 14,959 19,219 Dividends payable 1,297 1,289
Deferred revenue 7,514 6,893 --------- --------- Total current
liabilities 26,330 29,658 Deferred tax liabilities, net 18,594
17,634 Long-term debt 192,377 110,802 Other liabilities 3,180 3,153
--------- --------- Total liabilities 240,481 161,247 ---------
--------- Commitments and contingencies Shareholders' equity:
Preferred stock, $.01 par value; authorized 5,000,000 shares and no
shares issued or outstanding at June 30, 2006, or March 31, 2006 -
- Common stock, $.01 par value per share; authorized 75,000,000
shares at June 30, 2006 and March 31, 2006; issued 32,417,630
shares at June 30, 2006, and 32,225,321 shares at March 31, 2006
324 322 Additional paid-in capital 181,326 177,463 Deferred
compensation (7,206) (5,076) Retained earnings 19,488 13,467
Accumulated other comprehensive income: Unrealized gain on interest
rate swap contract, net of tax expense of $93 at June 30, 2006, and
$80 at March 31, 2006 135 122 Treasury stock, at cost, 267,400
shares at June 30, 2006 (6,285) - --------- --------- Total
shareholders' equity 187,782 186,298 --------- --------- $ 428,263
$ 347,545 ========= ========= TALX Corporation and Subsidiaries
Consolidated Statements of Cash Flows (dollars in thousands)
(unaudited) Three Months Ended June 30, ---------------------------
2006 2005 ---- ---- Cash flows from operating activities: Net
earnings $ 7,319 $ 6,627 Adjustments to reconcile net earnings to
net cash provided by operating activities: Depreciation and
amortization 4,681 3,059 Non-cash compensation 944 22 Deferred
taxes 1,802 1,215 Gain on swap agreement - (59) Change in assets
and liabilities, excluding those acquired: Accounts receivable, net
(2,775) (1,601) Unbilled receivables 1,133 689 Prepaid expenses and
other current assets (784) 1,022 Other assets (566) (37) Accounts
payable (210) 546 Accrued expenses and other liabilities (4,856)
(2,632) Deferred revenue 309 (359) Other liabilities 27 49 -------
------- Net cash provided by operating activities 7,024 8,541
------- ------- Cash flows from investing activities: Additions to
property and equipment, net (4,458) (1,742) Acquisitions, net of
cash acquired (78,824) (27,351) Purchases of short-term investments
- (4,020) Proceeds from sale of short-term investments 1,745 -
Capitalized software development costs (699) (629) ------- -------
Net cash used in investing activities (82,236) (33,742) -------
------- Cash flows from financing activities: Issuance of common
stock 1,630 1,994 Repurchase of common stock (8,132) - Borrowings
under long-term debt agreements 155,780 84,850 Repayments under
long-term debt agreements (74,205) (67,500) Dividends paid (1,289)
(835) ------- ------- Net cash provided by financing activities
73,784 18,509 ------- ------- Net decrease in cash and cash
equivalents (1,428) (6,692) Cash and cash equivalents at beginning
of period 5,705 11,399 ------- ------- Cash and cash equivalents at
end of period $ 4,277 $ 4,707 ======= ======= *T
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