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
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