DALLAS, Nov. 4 /PRNewswire-FirstCall/ -- SOURCECORP, Inc. (Nasdaq: SRCP),
a leading provider of business process outsourcing (BPO) and consulting
solutions, today reported revenues for the third quarter of 2005 of
$105.5 million and earnings per share of $1.21 from continuing operations.
Third Quarter 2005 Operating Results
The Company today reported $105.5 million of revenue for the third quarter
of 2005 compared to $96.7 million for the same quarter of the prior year, an
increase of 9.1%. During the third quarter of 2005, the Company entered into
an agreement with one of its customers impacted by the Company's 2004 internal
investigation. As a result of the agreement, during the third quarter of 2005
the Company recognized remediation revenue of $1.4 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
7.7%.
Q3 Revenue Results
From Continuing Operations
(in millions)
2004 2005 % Change
As Reported $96.7 $105.5 9.1%
Less: Remediation Revenue --- (1.4) N/A
As Adjusted $96.7 $104.1 7.7%
The Company's third quarter 2005 revenue increase excluding remediation
revenue is driven by strong contributions from our Information Management and
Legal service offerings. Our Information Management service offering produced
revenue growth of 16.4%, excluding remediation revenue, with both the mortgage
and government verticals showing continued strength. Our Legal service
offerings had a combined revenue increase of 12.8%. Growth was excellent in
both Legal Consulting and Legal Class Action Claims Administration. A higher
number of consultants working on more projects benefited consulting revenues,
while greater depth and breadth of middle to large sized projects boosted
revenue growth in class action claims. Additionally, revenue in our
Information Distribution service offering rose 4.7%, a function of current and
new customer statement growth. Offsetting these positive revenue trends was a
revenue decline of 8.5% in our HealthSERVE service offerings due primarily to
less business in the release of information offering than last year and
revenue losses related to Hurricane Katrina of approximately $0.5 million.
Process improvements appear to have stabilized the accounts receivable
challenges that we encountered earlier this year in our HealthSERVE release of
information service offering; however we do not expect to see any material
improvements in performance until early 2006.
Impact of Settlement Agreement
The Company recently announced a $30 million settlement agreement with the
former owners of the operating subsidiary that was the subject of its internal
investigation and financial restatement. The settlement has four major
financial provisions: a cash payment, the return of stock, the release of
associated liabilities, and a secured future payment obligation. Three of the
four financial provisions had a significant impact on third quarter reported
results.
During the quarter, the Company received $20 million in cash and
89,888 shares of stock (valued at approximately $1.8 million). In addition to
the cash and stock, the Company was also able to eliminate from its balance
sheet approximately $1.2 million of related liabilities that were identified
and recorded in connection with our restatement.
The total impact on the current quarter's reported results from the
receipt of cash, the retirement of the stock, and the elimination of the
related liabilities is $22.7 million, all of which are reported net of legal
fees (approximately $0.3 million), and included in "Other income/expense", as
shown below.
Pre-tax Earnings
Financial Impacts of the Settlement Impact in Per Share
Millions Impact
Cash received $20.0 $0.75
Retirement of 89,888 shares 1.8 0.07
Relief of liabilities 1.2 0.05
Legal Fees (0.3) (0.01)
Total Settlement Impact, net of legal fees $22.7 $0.86
As discussed above, a future payment obligation of approximately
$8.2 million is owed to the Company as part of the settlement agreement.
However, the obligation was not recorded as income in the third quarter
because of uncertainty regarding collection.
Additionally, the Company recorded an adjustment of approximately
$0.8 million for excess contingent consideration payments in prior years
related to the operating unit involved in the Company's internal
investigation.
SG&A
The third quarter was impacted by higher than expected, non-recurring SG&A
expenses that approximate $0.9 million (or $0.03 a share). Most were in the
area of legal and professional fees.
Earnings Per Share
The Company reported fully diluted earnings per share from continuing
operations of $1.21 per share for the third quarter of 2005, compared to a
loss of $0.02 per share in the third quarter of 2004. Excluding the impacts
of the remediation revenue, the settlement and the excess contingent
consideration adjustment, earnings per share from continuing operations would
have been $0.33 per share, as shown below.
Impact on third quarter earnings Earnings
and EPS of the above items per share
is as follows: After-tax from
earnings in continuing
thousands operations
As Reported $19,599 $1.21
Less: Remediation Revenue (836) (0.05)
Less: Impact of Settlement (13,871) (0.86)
Add: Contingent Consideration Adjustment 481 0.03
As Adjusted $5,373 $0.33
Discontinued Operations
During the quarter, the Company received proceeds of approximately
$1.5 million ($0.06 per share) associated with the sale of the Direct Mail
business in the prior year. Because of uncertainty related to collection,
income associated with the note receivable was not recorded at the time of the
divestiture resulting in income from discontinued operations in the third
quarter of 2005.
Cash Flow and Debt
The Company reported third quarter operating cash flow from continuing
operations of $34.9 million compared to $10.8 million during the same period
in 2004. Operating cash flow during the current quarter, before adding in the
$20 million settlement, was $14.9 million.
Excluding the effect of remediation revenue, days sales outstanding were
47 business days consistent with 47 business days for the second quarter of
2005 and the third quarter of 2004.
During the third quarter of 2005, the Company's debt outstanding decreased
to $60.7 million compared to $90.8 million as of June 30, 2005. The Company's
debt to total capital was approximately 16% at the end of the current quarter.
On September 29, 2005, the Company refinanced its credit facility. Under
the new credit agreement, the Company may borrow on a revolving credit basis
loans in an aggregate outstanding principal amount up to $100 million subject
to certain financial covenants and ratios. The new credit agreement matures
on September 29, 2008.
New Business Wins
The Company closed contracts from new customers, new business from
existing customers and renewal of existing customers' contracts during the
third quarter of 2005 with an estimated total undiscounted contract value of
approximately $103 million.
Mr. Ed H. Bowman, Jr., President and CEO stated, "Third quarter sales of
$103 million was a record quarter, up 92% from our average in the first two
quarters of this year. Year to date closed contracts of $210 million also
represents a record for year to date sales. We are very pleased with our
continued progress in sales. We believe our increased business wins are a
direct result of the actions we have taken over the last two and one half
years to strengthen our national sales presence and intensify our focus on
customer satisfaction, as well as the investments made in our technology
infrastructure and operating platforms."
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 year-to-date results and current trends, the Company is updating
its 2005 financial guidance relating to revenue from continuing operations
from $405 million to $415 million as previously reported to approximately
$408 million to $412 million.
The Company believes that full year earnings per share from continuing
operations will approximate the previous low end of its range of $1.27.
Guidance specifically includes approximately $2.5 million or $0.09 per share
related to a termination payment from a government agency, the timing of which
is uncertain. Other factors which could impact guidance include: a)
continued higher than expected legal costs and professional fees; and b)
prolonged revenue losses related to the impact from Hurricane Katrina. Losses
related to the hurricane approximated $0.01 per share in the third quarter,
and current guidance includes revenue losses of approximately $0.01 per share
in the fourth quarter.
Our previous earnings per share guidance included legal and investigation
costs of approximately $0.09 per share. We incurred approximately $0.05 per
share during the first quarter of 2005, $0.01 per share in the second quarter
and $0.03 per share in the third quarter of 2005. Incremental costs in the
fourth quarter could affect our ability to achieve our guidance.
The guidance provided above specifically excludes any direct or indirect
affects or impacts on the Company's financial results from the Company's
internal investigation, including, but not limited to:
* Past and future, if any, associated penalties or potential customer
remediation actions
* The positive effects of prior period restatement adjustments,
including remediation revenue received year to date of $8.1 million,
or $0.26 per share and additional amounts that may be recognized for
the remainder of 2005.
* The positive effect of the third quarter settlement.
* The $0.03 per share excess contingent consideration adjustment in the
third quarter.
Assuming that we can meet our ongoing expectations for the fourth quarter,
the Company should achieve operating cash flow for the year of $30 to
$35 million, compared to previous guidance of $35 to $45 million. The
guidance excludes the $20 million settlement payment received in the third
quarter and any subsequent proceeds from collection of the future payment
obligation related to the settlement. The primary driver for the reduction in
our cash flow guidance is an increase in accounts receivable in the
Information Management service offering.
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, any discontinuance
of a significant customer arrangement and collection of the large government
claim.
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
September 30,
2005 2004
Total Revenue $105,530 $96,698
Cost of services 58,289 59,263
Depreciation 3,600 3,241
Gross Profit 43,641 34,194
SG & A Expenses 32,012 24,890
Amortization 207 313
Contingent Consideration Overpayment 789 10,165
Operating Income (loss) 10,633 (1,174)
Interest expense 1,134 822
Interest income (75) (51)
Other (income) expense, net (22,415) 253
Income (loss) from continuing operations
before income taxes 31,989 (2,198)
Provision (benefit) for income taxes 12,390 (1,796)
Net income (loss) from continuing operations 19,599 (402)
Gain (loss) from discontinued operations,
net of tax 888 (275)
Net income (loss) $20,487 $(677)
Net income (loss) per share
Basic
Continuing Operations $1.25 $(0.02)
Discontinued Operations 0.06 (0.02)
Total Operations $1.31 $(0.04)
Diluted
Continuing Operations $1.21 $(0.02)
Discontinued Operations 0.06 (0.02)
Total Operations $1.27 $(0.04)
Weighted Average Common Shares Outstanding
Basic 15,672 15,781
Diluted 16,151 15,781
SOURCECORP(R)
Condensed Consolidated Statements of Operations
In Thousands (Except Earnings Per Share)
(Unaudited)
Nine Months Ended
September 30,
2005 2004
Total Revenue $317,915 $289,612
Cost of services 176,643 173,246
Depreciation 10,568 9,404
Gross Profit 130,704 106,962
SG & A Expenses 92,053 80,066
Amortization 619 714
Contingent Consideration Overpayment 789 10,165
Operating Income 37,243 16,017
Interest expense 3,585 2,180
Interest income (153) (58)
Other (income) expense, net (22,082) 625
Income from continuing operations before
income taxes 55,893 13,270
Provision for income taxes 22,905 4,391
Net income from continuing operations 32,988 8,879
Gain (loss) from discontinued operations,
net of tax 7 (2,645)
Net income $32,995 $6,234
Net income per share
Basic
Continuing Operations $2.11 $0.56
Discontinued Operations 0.00 (0.17)
Total Operations $2.11 $0.39
Diluted
Continuing Operations $2.05 $0.54
Discontinued Operations 0.00 (0.16)
Total Operations $2.05 $0.38
Weighted Average Common Shares Outstanding
Basic 15,672 15,964
Diluted 16,066 16,300
SOURCECORP(R)
CONDENSED CONSOLIDATED BALANCE SHEETS
In Thousands
(Unaudited)
ASSETS September 30, December 31,
2005 2004
CURRENT ASSETS
Cash $4,880 $3,722
Accounts receivable (net) 79,435 65,315
Deferred tax asset 9,912 5,272
Other current assets 6,787 12,094
Assets of discontinued operations 0 842
Total current assets 101,014 87,245
Property, plant & equipment (net) 39,573 39,603
Goodwill and other intangibles (net) 328,681 331,043
Other non-current assets 2,223 11,524
Total Assets $471,491 $469,415
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $50,056 $52,549
Current maturities of long-term obligations 208 258
Income taxes payable 3,898 0
Liabilities of discontinued operations 0 326
Total current liabilities 54,162 53,133
Long-term debt 60,496 87,547
Deferred taxes and other long-term liabilities 30,904 36,314
Total Liabilities 145,562 176,994
STOCKHOLDERS' EQUITY
Common Stock 156 157
Additional paid-in capital 196,991 193,925
Treasury stock (501) (501)
Deferred compensation (6,848) (4,296)
Retained earnings 136,131 103,136
Total Stockholders' Equity 325,929 292,421
Total Liabilities and Stockholders' Equity $471,491 $469,415
SOURCECORP(R)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
In Thousands
(Unaudited)
Nine Months Ended
September 30,
2005 2004
Income from continuing operations $32,988 $8,879
Adjustments to reconcile net income to cash
provided by operating activities
Depreciation and amortization 11,187 10,118
Deferred tax provision 11,982 168
Compensation expense on restricted stock grants 2,247 1,751
Other non-cash changes in income (1,017) ---
Loss on sale of property, plant & equipment 382 265
Changes in working capital (16,697) (5,519)
Net cash provided by operating activities
from continuing operations 41,072 15,662
Net cash used in operating activities from
discontinued operations (171) (1,357)
Net cash provided by operating activities 40,901 14,305
Cash flows from investing activities
Purchase of property, plant & equipment (10,412) (12,590)
Proceeds from disposition of property,
plant & equipment 40 37
Proceeds from divestitures 2,288 6,812
Cash paid for acquisitions, net of cash acquired (4,367) (17,495)
Net cash used in investing activities
from continuing operations (12,451) (23,236)
Net cash used in investing activities
from discontinued operations --- (191)
Net cash used in investing activities (12,451) (23,427)
Cash flows from financing activities
Proceeds from exercise of common stock options 67 481
Cash paid for common stock repurchased --- (10,071)
Proceeds from long-term obligations 183,476 246,956
Principal payments on long-term obligations (210,660) (228,436)
Cash paid for debt issuance costs (175) 0
Net cash (used in) provided by financing
activities from continuing operations (27,292) 8,930
Net increase (decrease) in cash and cash
equivalents 1,158 (192)
Cash and cash equivalents, beginning of period 3,722 2,097
Cash and cash equivalents, end of period $4,880 $1,905
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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