DALLAS, March 31 /PRNewswire-FirstCall/ -- SOURCECORP, Inc.
(Nasdaq: SRCP), a leading provider of business process outsourcing (BPO) and
consulting solutions, today reported revenues from continuing operations for
the fourth quarter and full year 2005 of $98.0 million and $415.9 million
respectively. Reported earnings per share from continuing operations for the
fourth quarter and full year 2005 were a loss of ($1.48) and income of $0.61
respectively.
Fourth Quarter 2005 Operating Results
The Company reported $98.0 million of revenue for the fourth quarter of
2005 compared to $92.0 million for the same quarter of the prior year, an
increase of 6.5 percent. The Company's fourth quarter 2005 revenue increase is
driven by strong contributions from our Information Distribution and Legal
service offerings. Driven by excellent new project growth, our Legal service
offerings had a combined revenue increase of 23.9 percent. The Information
Distribution service offering produced revenue growth of 7.8 percent, which
was driven by growth from current and new customers and the net impact of an
early termination fee. Additionally, revenue in our Information Management
service offering rose 4.8 percent, with the healthcare payer and the mortgage
vertical markets showing continued strength. Partially offsetting these
positive revenue trends was a revenue decline of 5.5 percent in our
HealthSERVE service offerings due primarily to customer discontinuances in the
release of information offering, and revenue losses related to Hurricane
Katrina of approximately $1.4 million.
Significant Events
The Company's reported results were also impacted by other significant
events, which are discussed below:
Settlement Agreement
As previously announced by the Company on December 28, 2005, the Company
received during the fourth quarter of 2005 the final payment (approximately
$8.2 million) that was owed the Company under the $30 million settlement
agreement it announced on September 27, 2005. The settlement agreement
related to the Company's claims against former owners of the Company's
operating subsidiary that was the subject of its internal investigation and
financial restatement.
Tax Expense
Tax expense during the fourth quarter of 2005 includes a benefit of
approximately $1.4 million related to the favorable reduction of certain
federal and state tax contingencies.
Goodwill Impairment
In connection with the preparation and review of the Company's
consolidated financial statements for its Annual Report on Form 10-K for the
year ended December 31, 2005, the Company performed the annual goodwill
impairment test as of October 31, 2005 as required by SFAS No. 142, "Goodwill
and Other Intangible Assets" and, as a result of such test, the Company's
management concluded, and the Company's Audit Committee concurred, that a non-
cash goodwill impairment charge of $38.3 million (approximately $33.3 million
after tax) was required, which was recorded in the quarter ended December 31,
2005. The fourth quarter charge relates to the Company's HealthSERVE
reporting unit within the Healthcare, Regulatory and Legal Compliance
reportable segment.
This impairment charge does not require current or future cash
expenditures and was identified to Apollo Management, L.P. and its acquisition
related affiliates prior to the entry into the Agreement and Plan of Merger,
dated as of March 7, 2006, which was described in the Company's Current Report
on Form 8-K dated March 8, 2006, and discussed below.
Earnings Per Share
The Company reported a loss per share from continuing operations of
($1.48) for the fourth quarter of 2005, compared to income of $0.11 per share
in Q4 of 2004. Excluding the impacts of the above described legal settlement,
goodwill impairment, net tax expense adjustment, and one-time legal and
regulatory expenses, earnings per share from continuing operations would have
been $0.25 compared to $0.15 in Q4 of 2004, as shown below.
Impact on Q4 Earnings and EPS
Of the Above Items
Q4 2005 Q4 2004
Earnings per Earnings per
After-tax Share After-tax Share
Earnings (in From Earnings (in From
thousands) Continuing thousands) Continuing
Operations Operations
As Reported ($23,108) ($1.48) $1,820 $0.11
Legal Settlement ($4,954) ($0.32) 0 0
Resolution of tax
contingencies ($1,432) ($0.09) ($665) ($0.04)
One-time charges 254 $0.02 1,198 $0.08
Goodwill impairment 33,259 $2.13 0 0
As Adjusted $4,019 $0.26 $2,353 $0.15
(Earnings per share calculated on a fully diluted basis)
Full Year 2005 Operating Results
For the fiscal year ended December 31, 2005, the Company reported $415.9
million of revenue compared to $381.6 million in the prior year, an increase
of 9.0 percent. During 2005, the Company recognized remediation revenue of
$8.1 million related to agreements the Company entered into with customers
impacted by the Company's 2004 internal investigation. Excluding the
favorable impact of the remediation revenue, the Company achieved year over
year growth of 6.9 percent. The Company's full year revenue increase,
excluding remediation revenue, is driven by strong contributions from our
Legal and Information Management service offerings, which contributed 20.4
percent and 10.5 percent to growth, respectively. The 20.4 percent revenue
increase from our Legal service offerings was a result of increased consulting
project work and greater mid to large sized projects in our Claims
Administration service offering. The Information Management reporting unit's
10.5 percent contribution was largely attributable to improvements in the
government and mortgage vertical markets. In contrast, the HealthSERVE
service offering's revenue declined 7.7 percent, in large part due to customer
attrition, collection issues and revenue losses related to Hurricane Katrina
in the release of information offering.
Full Year Revenue Results
From Continuing Operations
(in millions)
2004 2005 % Change
As Reported $381.6 $415.9 9.0%
Less: Remediation Revenue --- (8.1) N/A
As Adjusted $381.6 $407.8 6.9%
Cash Flow and Debt
The Company reported fourth quarter operating cash flow from continuing
operations of $22.9 million compared to $13.0 million during the same period
in 2004. The current quarter includes approximately $8.2 million related to
the legal settlement discussed above. The Company reported full year
operating cash flow from continuing operations of $63.8 million, including
approximately $28.2 million related to such legal settlement.
Days sales outstanding were 44 business days compared to 47 business days
for the third quarter of 2005 and 45 days for the fourth quarter of 2004.
During the fourth quarter of 2005, the Company's debt outstanding
decreased to $38.1 million compared to $60.7 million as of September 30, 2005.
The Company's debt to total capital was approximately 11 percent at the end of
the fourth quarter of 2005.
New Business Wins
The Company entered into contracts with new customers, and generated new
business from existing customers and the renewal of existing customers'
contracts during the fourth quarter and the full year of 2005 with an
estimated total undiscounted contract value of approximately $34 million and
$247 million, respectively.
The total estimated undiscounted value of contracts closed is an estimate
of the total expected revenue to be derived over the term of the contract
measured at the approximate time of contract execution. The Company has not
undertaken, and does not undertake, to update such estimates over time.
Anticipated contract volumes and revenue routinely increase or decrease from
the date the contract is executed causing the contract value estimated at
contract execution to change, in some case by material amounts. Further,
contracts from time to time are subsequently partially or completely
terminated by us or by the customer, and such contracts may have represented a
large portion of the expected revenue estimated at the time of contract
execution. As such, estimates on such dates may not represent current
estimates for such contracts.
Potential Merger
On March 8, 2006, the Company announced that it had entered into an
Agreement and Plan of Merger, dated as of March 7, 2006 (the "Merger
Agreement"), among the Company, CorpSource Holdings, LLC ("Purchaser") and
CorpSource MergerSub, Inc. ("Merger Sub"). Purchaser and Merger Sub are
entities affiliated with Apollo Management, L.P. ("Apollo"). The Merger
Agreement contemplates that Merger Sub will be merged with and into the
Company (the "Merger") and each outstanding share of common stock of the
Company will be converted into the right to receive $25.00 per share in cash,
without interest. The consummation of the Merger is subject to various
customary conditions, including adoption of the Merger Agreement by the
Company's stockholders, expiration of the antitrust waiting period, the
absence of a material adverse change in the Company's business and the receipt
of committed debt financing by Purchaser. No assurance can be given that such
conditions will be satisfied or waived.
The Merger Agreement contains representations and warranties by the
Company, Purchaser and Merger Sub. The representations and warranties reflect
negotiations between the parties to the Merger Agreement and, in certain
cases, merely represent allocation decisions among the parties and may not be
statements of fact. As such, the representations and warranties are solely
for the benefit of the parties to the Merger Agreement and may be limited or
modified by a variety of factors, including: subsequent events, information
included in public filings, disclosures made during negotiations,
correspondence between the parties and disclosure schedules to the Merger
Agreement. Accordingly, the representations and warranties may not describe
the actual state of affairs at the date they were made or at any other time
and you should not rely on them as statements of fact.
Given the concurrent filing of the Company's detailed Annual Report on
Form 10-K, the Company does not intend to schedule an investor conference call
to discuss the Company's fourth quarter and year end results.
About SOURCECORP(R)
SOURCECORP, Incorporated provides business process outsourcing solutions
and specialized high value consulting services to clients throughout the
U.S. SOURCECORP leverages deep horizontal process knowledge into information-
intensive industries including commercial, financial, government, healthcare,
and legal. Headquartered in Dallas, the Company serves clients throughout the
United States through a network of locations in the US, Mexico and
India. SOURCECORP is a component of both the S&P Small Cap 600 Index and the
Russell 2000 Index.
For more information about SOURCECORP's solutions, including case-study
examples, visit the SOURCECORP website at http://www.sourcecorp.com .
The statements in this press release that are not historical fact are
forward-looking statements that involve risks and uncertainties, which could
cause actual results to differ materially from such forward-looking
statements. These forward-looking statements include, but are not limited to
any financial estimates, projections, and estimates of future contract values
included in this press release. The aforementioned risks and uncertainties
include, without limitation, the risks and uncertainties relating to: the
satisfaction or waiver of the conditions to the completion of the potential
merger, including stockholder approval, the absence of a material adverse
change and Apollo's receipt of its debt financing; the actual final costs,
outcome and impact of our internal investigation and ongoing SEC
investigation; the outcome of our currently pending putative securities class
action matters; the integration of our operating companies; the timing,
magnitude and impact of technological advances; the occurrences of a
diminution in our existing customers' needs for our services; a change in the
amount companies outsource business processes; impact to margins resulting
from a change in revenue mix as well as the risks and uncertainties detailed
in SOURCECORP's filings with the Securities and Exchange Commission, including
without limitation, those detailed under the heading "Risk Factors" in the
Company's most recent annual report on Form 10-K. SOURCECORP disclaims any
intention or obligation to revise any forward-looking statements, including
financial estimates, whether as a result of new information, future events, or
otherwise, except as required by law.
SOURCECORP(R)
Condensed Consolidated Statements of Operations
In Thousands (Except Per Share Data)
(Unaudited)
Three Months Ended
December 31,
2005 2004
Total Revenue $97,970 $92,033
Cost of services 57,398 55,981
Depreciation 3,670 3,273
Gross Profit 36,902 32,779
SG & A Expenses 30,442 29,651
Goodwill impairment 38,295 0
Amortization 206 277
Contingent consideration overpayment 0 0
Operating Income (loss) (32,041) 2,851
Interest and other income (expense), net 7,294 (1,853)
Income (loss) from continuing operations
before income taxes (24,747) 998
Benefit for income taxes (1,639) (822)
Net income (loss) from continuing operations (23,108) 1,820
Gain from discontinued operations, net of tax --- 45
Net income (loss) $(23,108) $1,865
Net income (loss) per share
Basic
Continuing Operations $(1.48) $0.12
Discontinued Operations 0.00 0.00
Total Operations $(1.48) $0.12
Diluted
Continuing Operations $(1.48) $0.11
Discontinued Operations 0.00 0.00
Total Operations $(1.48) $0.11
Weighted Average Common Shares Outstanding
Basic 15,604 15,681
Diluted 15,604 15,965
SOURCECORP(R)
Condensed Consolidated Statements of Operations
In Thousands (Except Per Share Data)
(Unaudited)
Year Ended
December 31,
2005 2004
Total Revenue $415,885 $381,645
Cost of services 234,041 229,227
Depreciation 14,238 12,677
Gross Profit 167,606 139,741
SG & A Expenses 122,495 109,717
Goodwill impairment 38,295 0
Amortization 825 991
Contingent consideration overpayment 789 10,165
Operating Income 5,202 18,868
Interest and other income (expense), net 25,944 (4,600)
Income from continuing operations
before income taxes 31,146 14,268
Provision for income taxes 21,266 3,569
Net income from continuing operations 9,880 10,699
Gain (loss) from discontinued operations,
net of tax 7 (2,600)
Net income $9,887 $8,099
Net income per share
Basic
Continuing Operations $0.63 $0.67
Discontinued Operations 0.00 (0.16)
Total Operations $0.63 $0.51
Diluted
Continuing Operations $0.61 $0.66
Discontinued Operations 0.00 (0.16)
Total Operations $0.61 $0.50
Weighted Average Common Shares Outstanding
Basic 15,655 15,893
Diluted 16,076 16,217
SOURCECORP(R)
CONDENSED CONSOLIDATED BALANCE SHEETS
In Thousands
(Unaudited)
Year Ended
December 31,
ASSETS 2005 2004
CURRENT ASSETS
Cash $2,317 $3,722
Accounts receivable (net) 68,444 65,315
Deferred tax asset 7,835 5,272
Other current assets 7,561 12,094
Assets of discontinued operations --- 842
Total Current Assets 86,157 87,245
Property, plant & equipment (net) 39,939 39,603
Goodwill and other intangibles (net) 290,180 331,043
Other non-current assets 2,360 11,524
Total Assets $418,636 $469,415
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $48,982 $52,549
Current maturities of long-term obligations 128 258
Income taxes payable 242 ---
Liabilities of discontinued operations --- 326
Total Current Liabilities 49,352 53,133
Long-term debt 37,924 87,547
Deferred taxes and other long-term liabilities 26,999 36,314
Total Liabilities 114,275 176,994
STOCKHOLDERS' EQUITY
Common Stock 157 157
Additional paid-in capital 197,684 193,925
Treasury stock (501) (501)
Deferred compensation (6,002) (4,296)
Retained earnings 113,023 103,136
Total Stockholders' Equity 304,361 292,421
Total Liabilities and Stockholders' Equity $418,636 $469,415
SOURCECORP(R)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
In Thousands
(Unaudited)
Year Ended
December 31,
2005 2004
Income from continuing operations $9,880 $10,699
Adjustments to reconcile net income to cash
provided by operating activities
Depreciation and amortization 15,063 13,668
Deferred tax provision 12,998 3,229
Stock-based compensation expense 3,092 2,383
Goodwill impairment 38,295 ---
Other non-cash changes in income (1,016) ---
Loss on sale of property, plant & equipment 584 858
Changes in working capital (14,933) (1,210)
Net cash provided by operating activities
from continuing operations 63,963 29,627
Net cash used in operating activities
from discontinued operations (171) (2,343)
Net cash provided by operations 63,792 27,284
Cash flows from investing activities
Purchase of property, plant & equipment (13,826) (17,058)
Proceeds from disposition of property,
plant & equipment 52 49
Proceeds from divestiture 2,333 6,805
Cash paid for acquisitions, net of cash
acquired (4,367) (17,495)
Net cash used in investing activities
from continuing operations (15,808) (27,699)
Net cash used in investing activities
from discontinued operations --- (195)
Net cash used in investing activities (15,808) (27,894)
Cash flows from financing activities
Proceeds from common stock issuance, net 682 482
Cash paid for common stock repurchased --- (11,884)
Proceeds from long-term obligations 232,460 300,962
Principal payments on long-term obligations (282,294) (287,035)
Cash paid for debt issuance costs (237) (290)
Net cash (used in) provided by financing
activities from continuing operations (49,389) 2,235
Net (decrease) increase in cash and
cash equivalents (1,405) 1,625
Cash and cash equivalents, beginning of period 3,722 2,097
Cash and cash equivalents, end of period $2,317 $3,722
SOURCE SOURCECORP
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Related links:
http://www.sourcecorp.com
CONTACT:
Barry Edwards, EVP & Chief Financial Officer
of SOURCECORP, +1-214-740-6690
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