DALLAS, Aug. 10 /PRNewswire-FirstCall/ -- SOURCECORP, Inc. (Nasdaq: SRCP),
a leading provider of business process outsourcing (BPO) and consulting
solutions, today reported revenues for the second quarter of 2005 of
$106.5 million and earnings of $0.37 per share from continuing operations.
Second Quarter 2005 Operating Results
The Company today reported $106.5 million of revenue for the second
quarter of 2005 compared to $97.1 million for the same quarter of the prior
year, an increase of 9.7 percent. During the second quarter of 2005, the
Company entered into an agreement with two of its customers impacted by the
Company's 2004 internal investigation. As a result of the agreement, during
the second quarter of 2005 the Company recognized remediation revenue of
$2.7 million contributing to the year over year revenue increase. Excluding
the positive effect of the remediation revenue, the Company achieved year over
year revenue growth of 6.9 percent.
Q2 Revenue Results
From Continuing Operations
(in millions)
2004 2005 % Change
As Reported $97.1 $106.5 9.7%
Less: Remediation Revenue --- (2.7) N/A
As Adjusted $97.1 $103.8 6.9%
The Company's second quarter 2005 revenue increase excluding remediation
revenue is largely driven by strong contributions from our Information
Management and Legal offerings. Information Management had higher revenues in
the mortgage, government and healthcare payer vertical markets. The Company
also experienced strong revenue volumes from our Legal Class Action Claims
Administration offering that benefited from a higher level of medium and large
sized projects, as well as increased volumes within Legal Consulting.
Offsetting these positive revenue trends was a revenue decline of 9.3% in our
HealthSERVE division due primarily to increases in our revenue reserves in our
release of information service offering.
Additionally, the second quarter was impacted by higher than expected,
special one-time SG & A expenses, which we do not expect to continue.
The Company reported earnings before taxes from continuing operations of
$11.8 million for the second quarter of 2005, an increase of $0.6 million or
approximately 5.4 percent from 2004 results of $11.2 million. In addition,
the Company reported fully diluted earnings per share from continuing
operations of $0.37 for the second quarter of 2005, a decrease of $0.04 or
approximately 9.8 percent versus last year. Excluding the impact of
remediation revenue, earnings per share would have been $0.27. Additionally,
a second quarter adjustment to correct previously recorded deferred tax
accounts increased our effective tax rate for the quarter from 39 percent to
49 percent, resulting in a $0.08 reduction to earnings per share in the second
quarter. Management determined that the impact of this adjustment to the
prior year's reported financial statements was immaterial; consequently, the
entire impact, which was identified as part of the quarterly review process,
was reflected in the current quarter. This change in the tax rate affects the
second quarter only. Our effective tax rate for the remainder of 2005 is
expected to return to approximately 39%, with the full-year average tax rate
at approximately 41%.
Impact on EPS of the above items is as follows: Earnings Per Share from
continuing operations
As Reported $0.37
Less: Remediation Revenue (0.10)
Add: Deferred Tax Adjustment 0.08
As Adjusted $0.35
Second Quarter 2005 Cash Flow
The Company reported second quarter operating cash flow from continuing
operations of $10.7 million compared to $4.7 million during the same period in
2004.
Business days sales outstanding increased by three days during the second
quarter of 2005 to 46 business days. Excluding the effect of the remediation
revenue, days sales outstanding were 47 compared to 45 business days for Q1
2005 and 47 days for the second quarter, 2004.
During the second quarter of 2005, the Company's debt outstanding
decreased to $90.8 million compared to $94.5 million as of March 31, 2005. Our
current line of credit agreement is scheduled to mature on April 1, 2006 and
all outstanding balances under such agreement were classified to current
maturities in the June 30, 2005 consolidated balance sheet. The Company's
debt to total capital was approximately 22.9 percent at the end of the current
quarter.
New Business Wins
The Company closed new business from new customers, new business from
existing customers and renewal of existing customers' contracts during the
second quarter of 2005 with an estimated value of contracts closed of
approximately $44.3 million. "We are pleased with our continued progress in
sales during the second quarter of 2005. We believe our business wins are a
direct result of the actions we have taken over the last two years in
strengthening our national sales presence, an intense focus on customer
satisfaction, and the investments made in our technology infrastructure and
operating platforms," stated Mr. Ed H. Bowman, Jr., President and CEO.
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.
2005 Financial Guidance
Based on actual results year-to-date and current trends, the Company is
updating its 2005 financial guidance relating to its continuing operations for
revenues of approximately $405 million to $415 million from $400 million to
$425 million. The Company's guidance has not changed as it relates to income
from continuing operations before income taxes.
The change in our second quarter effective tax rate from 39 percent to
49 percent, is impacting our 2005 earnings per share guidance by ($.08).
Earnings per share guidance is changing from $1.35 - $1.55 to $1.27 - $1.47.
2005 Earnings Per 2005 Earnings Per
Share Guidance: Low Share Guidance: High
Previous Guidance $1.35 $1.55
Less: Effective tax rate change (0.08) (0.08)
Updated Guidance $1.27 $1.47
Earnings per share guidance of $1.27 to $1.47 includes legal and
investigation costs of approximately $0.09, of which approximately $0.05
occurred during the first quarter of 2005, and $0.01 in the second quarter of
2005.
Assuming that we can meet our ongoing expectations for the second half of
the year and realize improvement in AR collections, we believe that the
Company should be able to achieve operating cash flow for the year of $30 to
$45 million, compared to previous guidance of $35 to $50 million. The primary
driver for the reduction in our cash flow guidance is poorer than expected
collections performance in our release of information service offering. The
change in tax rates referred to above does not impact 2005 cash flow.
The guidance provided above specifically excludes any direct or indirect
effects or impacts on the Company's financial results from the Company's
internal investigation, including, but not limited to, any associated
penalties or potential customer remediation action and positive effects prior
period restatements adjustments may have on 2005 financial results including
the $4.1 million of remediation revenue recognized in the first quarter and
$2.7 million of remediation revenue recognized in the second quarter and any
additional amounts that may be recognized throughout the remainder of 2005.
Other factors that may cause actual results to deviate from previously
provided revenue and earnings per share guidance include, but are not limited
to, variance from expected implementation costs associated with new contracts,
variance from expected revenues or costs associated with existing contracts,
the timing of commencement of new projects, sales results and any
discontinuance of a significant customer arrangement.
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 SmallCap 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 actual final costs of our internal
investigation, the company's ongoing SEC investigation, the potential
impairment of our ability to enter into government contracts as a result of
the conduct that was the subject of our investigation, remediation costs
relating to our investigation, the potential customer impact of the results of
our investigation, the effect of our investigation and financial statement
restatement on the trading price of our stock, the outcome of our currently
pending putative securities class action matters, the risks of integrating our
operating companies, of the timing and magnitude of technological advances, of
the occurrences of a diminution in our existing customers' needs for our
services, of a change in the amount companies outsource business processes, of
the impact to margins resulting from a change in revenue mix as well as the
risks 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 Earnings Per Share)
(Unaudited)
Three Months Ended
June 30,
2005 2004
Total Revenue $106,453 $ 97,098
Cost of services 59,818 57,590
Depreciation 3,545 2,963
Gross Profit 43,090 36,545
SG & A Expenses 29,820 24,108
Amortization 206 312
Operating Income 13,064 12,125
Interest and other (income) expense, net 1,225 948
Income from continuing operations before
income taxes 11,839 11,177
Provision for income taxes 5,805 4,471
Net income from continuing operations 6,034 6,706
Loss from discontinued operations, net of tax (660) (1,860)
Net income $ 5,374 $ 4,846
Net income (loss) per share
Basic
Continuing Operations $ 0.38 $ 0.42
Discontinued Operations (0.04) (0.12)
Total Operations $ 0.34 $ 0.30
Diluted
Continuing Operations $ 0.37 $ 0.41
Discontinued Operations (0.04) (0.11)
Total Operations $ 0.33 $ 0.30
Weighted Average Common Shares Outstanding
Basic 15,673 16,014
Diluted 16,084 16,374
SOURCECORP(R)
Condensed Consolidated Statements of Operations
In Thousands (Except Earnings Per Share)
(Unaudited)
Six Months Ended
June 30,
2005 2004
Total Revenue $212,385 $192,914
Cost of services 118,354 113,983
Depreciation 6,968 6,163
Gross Profit 87,063 72,768
SG & A Expenses 60,041 55,176
Amortization 412 401
Operating Income 26,610 17,191
Interest and other (income) expense, net 2,706 1,723
Income from continuing operations before
income taxes 23,904 15,468
Provision for income taxes 10,515 6,187
Net income from continuing operations 13,389 9,281
Loss from discontinued operations, net of tax (881) (2,370)
Net income $ 12,508 $ 6,911
Net income (loss) per share
Basic
Continuing Operations $ 0.85 $ 0.58
Discontinued Operations (0.05) (0.15)
Total Operations $ 0.80 $ 0.43
Diluted
Continuing Operations $ 0.84 $ 0.57
Discontinued Operations (0.06) (0.15)
$ 0.78 $ 0.42
Weighted Average Common Shares Outstanding
Basic 15,672 16,055
Diluted 16,024 16,411
SOURCECORP(R)
CONDENSED CONSOLIDATED BALANCE SHEETS
In Thousands
(Unaudited)
ASSETS
June 30, December 31,
2005 2004
CURRENT ASSETS
Cash $ 798 $ 3,722
Accounts receivable (net) 78,799 65,315
Deferred tax asset 6,852 5,272
Other current assets 17,230 12,094
Assets of discontinued operations 0 842
Total current assets 103,679 87,245
Property, plant & equipment (net) 40,997 39,603
Goodwill and other intangibles (net) 329,677 331,043
Other non-current assets 1,814 11,524
Total Assets $476,167 $469,415
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 44,005 $ 52,549
Current maturities of long-term obligations 89,152 258
Other current liabilities 8,714 0
Income taxes payable 6,050 0
Liabilities of discontinued operations 0 326
Total current liabilities 147,921 53,133
Long-term debt 1,668 87,547
Deferred taxes and other long-term liabilities 20,192 36,314
Total Liabilities 169,781 176,994
STOCKHOLDERS' EQUITY
Common Stock 157 157
Additional paid-in capital 198,556 193,925
Treasury stock (501) (501)
Deferred compensation (7,470) (4,296)
Retained earnings 115,644 103,136
Total Stockholders' Equity 306,386 292,421
Total Liabilities and Stockholders' Equity $476,167 $469,415
SOURCECORP(R)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
In Thousands
(Unaudited)
Six Months Ended
June 30,
2005 2004
Income from continuing operations $ 13,389 $ 9,281
Adjustments to reconcile net income to cash
provided by operating activities
Depreciation and amortization 7,380 6,564
Deferred tax (benefit) provision (882) 3,153
Compensation expense on restricted stock grants 1,421 1,120
Loss on sale of property, plant & equipment 81 125
Changes in working capital (15,171) (15,374)
Net cash provided by operating activities
from continuing operations 6,218 4,869
Net cash used in operating activities
from discontinued operations (171) (1,034)
Net cash provided by operations 6,047 3,835
Cash flows from investing activities
Purchase of property, plant & equipment (8,431) (8,337)
Proceeds from disposition of property,
plant & equipment 7 21
Proceeds from divestiture 793 750
Cash paid for acquisitions, net of
cash acquired (4,367) (14,958)
Net cash used in investing activities
from continuing operations (11,998) (22,524)
Net cash used in investing activities
from discontinued operations --- (187)
Net cash used in investing activities (11,998) (22,711)
Cash flows from financing activities
Proceeds from exercise of common stock options 32 389
Cash paid for common stock repurchased --- (9,298)
Proceeds from long-term obligations 109,551 174,634
Principal payments on long-term obligations (106,556) (143,510)
Cash paid for debt issuance costs 0 0
Net cash provided by (used for) financing
activities from continuing operations 3,027 22,215
Net increase (decrease) in cash and
cash equivalents (2,924) 3,339
Cash and cash equivalents, beginning of period 3,722 2,097
Cash and cash equivalents, end of period $ 798 $ 5,436
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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