HIGHLIGHTS:
-- Net income increased 51% to $8.5 million, or $0.26 per share
-- CORESTAFF to acquire Softek Software, Inc., a provider of SAP and
Baan consultants
-- Operating income from higher-margin, higher-growth IT Services Group
exceeded 70% of total
-- IT Solutions unit formally named Metamor Solutions
Summary Results of Operations (Unaudited)
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Revenues $268,521 $163,284 $726,820 $400,829
Gross profit $68,100 $39,685 $178,128 $98,005
Operating income $18,496 $10,232 $46,494 $24,418
Net income $8,534 $5,669 $21,696 $12,376
Earnings per share $0.26 $0.18 $0.67 $0.42
HOUSTON, Oct. 22 /PRNewswire/ -- CORESTAFF, Inc. (Nasdaq: CSTF), one of
the largest national providers of information technology (IT) services and
staffing services, today announced record results for the quarter and
nine months ended September 30, 1997. Net income for the third quarter
increased 51 percent to $8.5 million, or $0.26 per share, from $5.7 million,
or $0.18 per share, for the third quarter of 1996. Net income for the nine
months ended September 30, 1997 increased 75 percent to $21.7 million, or
$0.67 per share, from $12.4 million, or $0.42 per share, for the first nine
months of 1996.
Revenues in the quarter increased 64 percent to $268.5 million from
$163.3 million in the third quarter of 1996. Gross margin for the quarter was
25.4 percent compared with 24.3 percent for the third quarter of 1996. The
expansion in gross margin reflects CORESTAFF's strategic decision to shift the
business mix toward higher-growth, higher-margin IT services. The IT Services
Group accounted for 54 percent and 63 percent of CORESTAFF's consolidated
revenues and gross profit, respectively, up from 44 percent and 52 percent,
respectively, in the third quarter of 1996.
Operating income increased 81 percent to $18.5 million from $10.2 million
in 1996. The operating margin for the current quarter was 6.9 percent
compared with 6.3 percent for the third quarter of 1996. The higher operating
margin was due, in part, to the expansion in gross margin.
Pro forma operating results, which assume all acquisitions were
consummated as of the beginning of the periods presented, demonstrate the high
internal growth rate of the company during the third quarter and the first
nine months of 1997. Pro forma revenues for the current quarter were $270.1
million, up 25 percent from $216.2 million in the third quarter of 1996. Pro
forma net income rose 18 percent to $8.6 million, or $0.26 per share, compared
with pro forma net income of $7.3 million, or $0.23 per share, in 1996. Pro
forma revenues for the first nine months of 1997 were $757.8 million, up 29
percent from $587.4 million in the first nine months of 1996. Pro forma net
income increased 53 percent to $23.7 million, or $0.73 per share, compared
with pro forma net income of $15.5 million, or $0.52 per share, in 1996.
Commenting on the results, Michael T. Willis, president and chief
executive officer, said, "During the third quarter, we accomplished several
important milestones. These included the continued shift in our business mix
toward higher-margin, higher-growth IT services, improvement of our capital
structure, maintaining high internal growth rates for our business units and
achieving significant earnings growth. We also continued to invest in
infrastructure that will provide a solid foundation to support CORESTAFF's
future growth.
"The operating results for the third quarter reflect further execution of
our business strategy, which focuses on shifting our business mix toward
higher-margin, higher-growth information technology services through internal
growth and acquisitions. During the quarter, our IT Services Group accounted
for over 70 percent of our operating income. So far in 1997, we have acquired
seven IT Services businesses, including three IT solutions businesses, and
have entered into an agreement to acquire Softek Software, Inc. Our plans are
to continue focusing on acquisitions in the IT sector."
IT Services Group Continues Rapid Growth. Revenues and gross profit for
the quarter were up 100 percent and 105 percent, respectively, over the third
quarter of 1996. Gross margin for the current quarter increased to 29.5
percent from 28.8 percent for the third quarter of 1996, primarily due to the
acquisition of IT Solutions' businesses, which have higher growth rates and
margins than the group's IT staff augmentation unit. The IT Solutions unit,
which was formed in the first quarter of 1997, has been formally named Metamor
Solutions, and accounted for approximately 13 percent of the group's revenues
and 20 percent of its gross profit in the third quarter.
Pro forma revenues and gross profit for the quarter increased 34 percent
and 30 percent, respectively, from the third quarter of 1996. These
improvements reflect the continued strong demand for the company's IT
services. Pro forma gross margin for the quarter was 29.5 percent compared
with 30.5 percent for the third quarter of 1996, due to a change in business
mix related to the higher proportion of revenues from large IT staff
augmentation customers. These large customers generally have lower gross
margins than the group's other staff augmentation customers, but comparable or
higher operating margins due to operating leverage. The effects of this
change in business mix were partially offset by the higher internal growth
rate of the higher-margin Metamor Solutions unit.
Staffing Services Group Continues Solid Performance. Revenues and
gross profit for the third quarter were both up 39 percent over the third
quarter of 1996. Gross margin for the quarter was 20.5 percent, compared with
20.6 percent for the third quarter of 1996. Pro forma revenues and gross
profit for the quarter increased 16 percent and 17 percent, respectively, from
the third quarter of 1996, reflecting the high demand for the group's
services.
Announcing Acquisition of Softek Software, Inc. The company has
entered into an agreement to acquire Softek Software, Inc., a California-based
IT Services business. Softek specializes in SAP and Baan implementation
services. The acquisition is expected to close on Friday, October 24, 1997.
During the third quarter, CORESTAFF also made an equity alliance
investment in Citadel Technology, Inc. (OTCBB: NOFF). As part of this new
relationship, Millennium Computer Corp., which is part of Metamor
Solutions, will provide research and development support to Citadel, and
Citadel will market Millennium's "First Step" software product.
During the third quarter, the company also acquired two other IT
Services businesses, MultiVision Consulting, Inc., a SAP National
Implementation Partner, and R.P. Accord Systems, Inc., a provider of Oracle
and PeopleSoft implementation services.
Commenting on acquisitions, Willis said, "Our focus continues to be
on acquiring IT Services businesses. We continue to see strong deal
flow and are being very selective in pursuing those prospects that will
increase the quality of our IT service offerings and improve operating
performance."
Anticipating Fourth-Quarter Restructuring Charge. In anticipation
of further growth in all business units, CORESTAFF has been developing a new,
integrated front and back office information system. As a part of this
project, the company anticipates recording in the fourth quarter of 1997, a
pre tax charge of approximately $5 million to $7 million, or $0.09 to $0.12
per share after tax.
Commenting on the new system, Austin P. Young, executive vice president --
finance and administration, said, "This new system will serve as a platform on
which the company can more effectively manage its anticipated future growth
and improve the productivity of its business units. The restructuring charge
that we anticipate recording in the fourth quarter is a non-recurring charge
related to the deployment of these new systems."
Amended Senior Credit Facility. As previously announced, the company
amended its senior credit facility to increase the commitment by $100 million.
Under terms of the amended facility, the company may borrow the lesser of $350
million or 4.25 times pro forma adjusted EBITDA (earnings before interest,
income taxes, depreciation and amortization) for the preceding 12 months. The
amended facility is on more favorable terms to the company and provides it
with the capital and financial flexibility to support internal growth and
continue its selective acquisition program.
Public Offerings. As previously announced, CORESTAFF sold $230 million of
2.94 percent convertible subordinated notes due 2004. The notes were issued
at an original price of 83.991 percent of the principal amount at maturity,
which represents an original issue discount of 16.009 percent. The notes are
convertible into CORESTAFF common stock at a conversion rate of 23.7397 shares
per $1,000 principal amount at maturity of the notes. The net proceeds of
$187.9 million from the sale of the notes were used to repay a portion of the
indebtedness under the company's senior credit facility.
Concurrent with the notes offering, certain stockholders of the company
sold an aggregate of 6.9 million shares of CORESTAFF common stock. The price
to the public for the common stock was $29 per share. Venture capital firms
that were involved in the formation of the company sold 6.0 million of the 6.9
million shares.
Established in 1993, CORESTAFF, Inc. is one of the largest national
providers of information technology (IT) services and staffing services
through its two business groups: the IT Services Group, which is comprised of
COMSYS Information Technology Services and Metamor Solutions (formerly the IT
Solutions Group), and the Staffing Services Group, which operates under the
name CORESTAFF Services. The company, with pro forma revenues of
approximately $1.0 billion, operates 146 branches in 28 states, the District
of Columbia, the United Kingdom and India.
This press release contains various forward-looking statements and
information that are based on management's belief as well as assumptions made
by and information currently available to management. When used in
this release, the words, "anticipate," "estimate," "project," "expect," and
similar expressions are intended to identify forward-looking statements.
Although the company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct. Such statements are subject to
certain risks, uncertainties and assumptions. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated,
estimated, projected or expected. Among the key factors that may have a
direct bearing on the company's operating results are fluctuations in the
economy, the degree and nature of competition, demand for the company's
services, and the company's ability to integrate the operations of acquired
businesses, to recruit and place temporary and IT professionals, to expand
into new markets, and to maintain profit margins in the face of pricing
pressures. In addition, the information set forth under the captions "Risk
Factors" in the company's Registration Statement on Form S-3 (File No.
333-31509) and in the company's Form 10-K for the fiscal year ended December
31, 1996, describe certain additional risk and uncertainties that could cause
actual results to vary materially from the future results covered in such
forward-looking statements.
CORESTAFF, Inc. and Subsidiaries
Summary Consolidated Financial Data (Unaudited)
(In thousands, except per share amounts)
Historical
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Statement of
Operations Data:
Revenues from
services:
IT Services $144,363 $72,319 $373,719 $168,926
Staffing Services 124,158 88,976 353,101 225,593
Other -- 1,489 -- 6,310
Total 268,521 163,284 726,820 400,829
Gross profit:
IT Services 42,629 20,836 106,407 48,518
Staffing Services 25,471 18,350 71,721 47,919
Other -- 499 -- 1,568
Total 68,100 39,685 178,128 98,005
Selling, general and
administrative expenses 46,236 27,504 122,615 68,499
Depreciation
and amortization 3,368 1,949 9,019 5,088
Operating income 18,496 10,232 46,494 24,418
Interest (expense) and other (3,781) (437) (9,085) (3,061)
Income before income taxes 14,715 9,795 37,409 21,357
Provision for income taxes 6,181 4,126 15,713 8,981
Net income $8,534 $5,669 $21,696 $12,376
Earnings per share $0.26 $0.18 $0.67 $0.42
Number of shares used to
calculate earnings per
share 32,779 32,340 32,558 29,643
Pro Forma (a)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Statement of
Operations Data:
Revenues from services:
IT Services $145,989 $108,991 $404,720 $295,449
Staffing Services 124,158 107,221 353,101 291,980
Other -- -- -- --
Total 270,147 216,212 757,821 587,429
Gross profit:
IT Services 43,139 33,273 119,284 87,682
Staffing Services 25,471 21,794 71,721 60,426
Other -- -- -- --
Total 68,610 55,067 191,005 148,108
Selling, general and
administrative expenses 46,497 35,737 129,386 98,441
Depreciation and
amortization 3,392 3,050 9,851 8,873
Operating
income 18,721 16,280 51,768 40,794
Interest (expense) and other (3,848) (3,714) (10,872) (14,106)
Income before income taxes 14,873 12,566 40,896 26,688
Provision for income taxes 6,247 5,279 17,176 11,210
Net income $8,626 $7,287 $23,720 $15,478
Earnings per share $0.26 $0.23 $0.73 $0.52
Number of shares used to
calculate earnings per
share 32,779 32,340 32,558 29,643
September 30, December 31,
1997 1996
Balance Sheet Data:
Cash and cash equivalents $10,753 $6,521
Working capital 149,763 94,315
Long-term debt, net
of current maturities 226,383 107,839
Stockholders' equity 254,974 230,917
Total assets 551,967 396,397
(a) Pro forma data assume all acquisitions and the sale of the physical
therapy staffing business were consummated as of the beginning of the
periods presented.
SOURCE CORESTAFF, Inc.
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CONTACT:
Austin P. Young, EVP, or Edward L. Pierce,
CFO, both of CORESTAFF, 713-548-3400; Marilyn Windsor, General
Inquiries, 312-640-6692, Janine Warell, Analyst Inquiries,
312-640-6775, or Darcy Bretz, Media Inquiries, 312-640-6756, all
of The Financial Relations Board
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