Medical Staffing Network Holdings Announces Second Quarter 2008 Operating Results

2008-08-06 16:00:00

Medical Staffing Network Holdings Announces Second Quarter 2008 Operating Results

Revenue Increased 52% Over Prior Year Quarter; Revenue Essentially

Flat Sequentially

BOCA RATON, Fla.–(EMWNews)–Medical Staffing Network Holdings, Inc. (NYSE: MRN) today reported

revenue of $143.0 million for the second quarter of 2008, an increase of

52.2% from the second quarter of 2007 revenue of $94.0 million. Net loss

for the second quarter of 2008 was $52.7 million, or $1.74 per diluted

share, as compared with net income of $1.7 million, or $0.06 per diluted

share, for the second quarter of 2007. Included in the net loss for the

second quarter of 2008 were pretax non-cash impairment charges to

goodwill and other indefinite lived intangible assets of $59.8 million

and $3.1 million, respectively.

Commenting on the second quarters results,

Robert J. Adamson, chairman and chief executive officer, stated, During

the second quarter, despite the continuing effects of economic headwinds

that suppress growth in hospital admissions, our quarterly revenue was

essentially flat on a sequential basis. As a result of the acquisitions

made in 2007 and the double-digit organic revenue growth in our allied

health staffing division, our revenue increased by more than 50%

year-over-year, which has improved our operating results. In June, we

reduced our operating overhead in excess of $5 million annually.

Assuming industry conditions do not deteriorate further, these cost

reductions could yield improved operating leverage in subsequent

quarters.

Adamson concluded, We continue to have

success in improving our bill-to-pay rate spread. As a result of this

focus, our gross profit margin increased by 40 basis points

year-over-year. Improved margins, coupled with double-digit organic

revenue growth from our allied health staffing division and the

reduction of operating expenses, are the foundation for our optimism

that our third quarter results will show continued improvement.

Kevin S. Little, president and chief financial officer, commented, We

recorded impairment charges to goodwill and other indefinite lived

intangible assets as a result of the challenging industry dynamics

currently being experienced, affecting both quarterly results and our

assessments of future growth rates of the healthcare staffing industry.

These charges are non-cash and have no effect on our liquidity or debt

covenants. In fact, during the second quarter, we were able to reduce

our DSO by three days to 53 days. This reduction, combined with cash

generated by operations of nearly $9.0 million for the quarter, enabled

us to repay all outstanding borrowings on our revolving credit facility

as of the end of quarter. At June 29, 2008, we had more than $22 million

immediately available for borrowing and $4.5 million in cash on hand.

Gross profit was $35.7 million for the second quarter of 2008, an

increase of 54.9% from the second quarter of 2007 gross profit of $23.0

million. Gross margin for the second quarter of 2008 was 24.9%, an

increase from 24.5% for the second quarter of 2007. The 40 basis point

year-over-year improvement was primarily attributable to a continued

focus on gross margin expansion. Selling, general and administrative

expenses were $29.9 million, or 20.9% of revenues, in the second quarter

of 2008 as compared with $19.3 million, or 20.5% of revenues, for the

comparable prior year period.

Excluding stock-based compensation expense of $0.1 million, other

charges of $0.2 million relating to severance payments made in the

second quarter and the aforementioned impairment charges, the Companys

adjusted earnings before interest, taxes, depreciation and amortization

(AEBITDA) for the second quarter of 2008 increased 60.0% to $6.0 million

as compared with $3.8 million for the second quarter of 2007. Excluding

the aforementioned impairment charges and assuming a 40% effective tax

rate, adjusted net income for the second quarter of 2008 would have been

$0.9 million, or $0.03 per diluted share, as compared with $1.5 million,

or $0.05 per diluted share, for the second quarter of 2007.

Revenues were $288.3 million for the six months ended June 29, 2008, an

increase of 56.3% from revenues of $184.5 million for the comparable

prior year period. Net loss for the six months ended June 29, 2008, was

$52.0 million, or $1.71 per diluted share, compared with net income of

$1.7 million, or $0.05 per diluted share, in the prior year period.

Included in the net loss for the six months ended June 29, 2008, were

pretax non-cash impairment charges to goodwill and other indefinite

lived intangible assets of $59.8 million and $3.1 million, respectively.

Gross profit was $70.7 million for the six months ended June 29, 2008,

an increase of 60.5% from the gross profit of $44.1 million for the

comparable prior year period. Gross margin for the six months ended June

29, 2008, was 24.5%, an increase from the gross margin of 23.9% for the

comparable prior year period. The 60 basis point year-over-year

improvement was primarily attributable to a continued focus on gross

margin expansion. Selling, general and administrative expenses were

$59.2 million, or 20.5% of revenues, for the six months ended June 29,

2008, as compared with $39.1 million, or 21.2% of revenues, for the

comparable prior year period.

Excluding stock-based compensation expense of $0.2 million, other

charges of $0.5 million (of which $0.2 million related to the second

quarter severance payments and $0.3 million related to the duplicative

costs incurred in the first quarter in connection with the termination

of an outsourcing initiative) and the aforementioned impairment charges,

the Companys AEBITDA for the six months ended

June 29, 2008, increased 145.6% to $12.1 million as compared with $4.9

million for the comparable prior year period. Excluding the

aforementioned impairment charges and assuming a 40% effective tax rate,

adjusted net income for the six months ended June 29, 2008, would have

been $1.6 million, or $0.05 per diluted share, as compared with $1.5

million, or $0.05 per diluted share, for the six months ended July 1,

2007.

Conference Call

The Companys management will host a

conference call and webcast to discuss the earnings release at 11:00

a.m. Eastern time on Thursday, August 7, 2008. A live webcast, as well

as a 30-day replay, of the conference call will be available online at

the Companys website at www.msnhealth.com

or at www.earnings.com.

Company Summary

Medical Staffing Network Holdings, Inc. is the third largest diversified

healthcare staffing company in the United States as measured by

revenues. The Company is the leading provider of per diem nurse staffing

services and is also a leading provider of travel, allied health and

vendor managed services.

Reasons for Presentation of Non-GAAP Financial Measures

Statements made in this release include non-GAAP financial measures.

Such information is provided as additional information, not as an

alternative to our consolidated financial statements presented in

accordance with generally accepted accounting principles (GAAP), and is

intended to enhance an overall understanding of our current financial

performance. We believe the non-GAAP financial measures provide useful

information to management, investors and prospective investors by

excluding certain charges and other amounts that we believe are not

indicative of our core operating results. These non-GAAP measures are

included to provide management, our investors and prospective investors

with an alternative method for assessing our operating results in a

manner that is focused on the performance of our ongoing operations and

to provide a more consistent basis for comparison between quarters. One

of the non-GAAP financial measures presented is AEBITDA which consists

of net income (loss) before income taxes, interest, loss on early

extinguishment of debt, depreciation and amortization, restructuring and

other charges, outsourcing implementation costs and non-cash impairment

of goodwill, which might not be calculated in the same manner as, and

thus might not be comparable to, similarly titled measures reported by

other companies. The financial statement table included within the

condensed consolidated statements of operations includes a

reconciliation of the non-GAAP financial measure to the most directly

comparable GAAP financial measure.

This press release includes certain forward-looking statements within

the meaning of the Private Securities Litigation Reform Act of 1995. These

statements include all statements other than those made solely with

respect to historical fact. These statements involve known and

unknown risks, uncertainties and other factors that may cause the

registrants actual results and performance

to be materially different from any future results or performance

expressed or implied by these forward-looking statements. These

factors include the following: our ability to maintain the revenue

run-rate experienced in the first few months following the InteliStaf

merger; our ability to maintain the level of success achieved to date

with regards to the InteliStaf integration plan; our ability to attract

and retain qualified nurses and other healthcare personnel; our ability

to maintain demand for services provided by temporary healthcare

professionals if lower than expected levels of patient occupancy at our

hospital and healthcare facility clients continue; the effect of higher

unemployment rates on our ability to successfully recruit additional

healthcare professionals; the effect of the general level of economic

activity on our business as such activity is impacted by factors beyond

our control (i.e. inflation, recession, weather conditions, acts of

war); our ability to remain competitive in obtaining and retaining

hospital and healthcare facility clients and temporary healthcare

professionals; our continued ability to secure and fill new orders from

our hospital and healthcare facility clients; the effect of fluctuations

in hospital and healthcare facility patient occupancy on our business;

our clients inability to pay us for our

services; the effects of healthcare reform on our business; our exposure

to increased costs and risks associated with increasing and new

corporate governance regulation compliance; the effect of existing or

future government regulation and federal and state legislative and

enforcement initiatives on our business including Joint Commission

certification; the proper functioning of our information systems; our

ability to successfully implement our acquisition strategies; our

ability to successfully integrate completed acquisitions into our

current operations; our ability to obtain additional financing, if

required, in future periods; our ability to leverage our cost structure;

the effect of significant legal actions and other claims asserted

against us on our business; our ability to sustain the improved

self-insurance claims experience; our continued ability to

attract, develop and retain sales and recruitment personnel; the

departure of key officers and senior management personnel; the effect of

our recognition of any impairment to goodwill on our earnings; the

effect of higher than anticipated travel business housing costs on our

margins; the ability of our executive officers, directors and

significant stockholders to influence matters requiring stockholder

approval; the provisions in our corporate documents and Delaware law

that could delay or prevent a transaction considered favorable by our

stockholders; and the possible decline in value of our stock price. Additional

information concerning these and other important factors can be found

within the registrants filings with the

Securities and Exchange Commission. Forward-looking statements in

this press release should be evaluated in light of these important

factors. Although the registrant believes that these statements

are based upon reasonable assumptions, the registrant cannot provide any

assurances regarding future results. The registrant undertakes no

obligation to revise or update any forward-looking statements, or to

make any other forward-looking statements, whether as a result of new

information, future events or otherwise.

MEDICAL STAFFING NETWORK HOLDINGS, INC.

Condensed Consolidated Statements of Operations

(unaudited; in thousands, except per share data)

 

 

Three Months Ended

Six Months Ended

June 29,

 

July 1,

June 29,

 

July 1,

2008

2007

2008

2007

 

Service revenues

$

143,029

$

93,953

$

288,252

$

184,471

Cost of services rendered

 

107,361

 

 

70,923

 

217,528

 

 

140,406

Gross profit

 

35,668

 

 

23,030

 

70,724

 

 

44,065

 

Operating expenses:

Selling, general and administrative

29,875

19,279

59,184

39,139

Depreciation and amortization

1,554

893

3,046

1,791

Impairment of goodwill

59,817

59,817

Impairment of intangible assets

 

3,100

 

 

 

3,100

 

 

Total operating expenses

 

94,346

 

 

20,172

 

125,147

 

 

40,930

 

Income (loss) from operations

(58,678

)

2,858

(54,423

)

3,135

Minority interest in income of subsidiary

71

126

Interest expense, net

 

2,694

 

 

344

 

5,735

 

 

719

 

Income (loss) before provision for (benefit from) income taxes

(61,443

)

2,514

(60,284

)

2,416

Provision for (benefit from) income taxes

 

(8,717

)

 

795

 

(8,334

)

 

766

Net income (loss)

$

(52,726

)

$

1,719

$

(51,950

)

$

1,650

 

Basic and diluted net income (loss) per share

$

(1.74

)

$

0.06

$

(1.71

)

$

0.05

 

Weighted average common shares outstanding:

Basic

30,315

30,262

30,314

30,261

Diluted

30,315

30,305

30,314

30,341

 

Reconciliation to AEBITDA:

Net income (loss)

$

(52,726

)

$

1,719

$

(51,950

)

$

1,650

Provision for (benefit from) income taxes

(8,717

)

795

(8,334

)

766

Interest expense, net

2,694

344

5,735

719

Depreciation and amortization

1,554

893

3,046

1,791

Stock based compensation expense

125

8

250

16

Restructuring and other charges

166

476

Impairment of goodwill

59,817

59,817

Impairment of intangible assets

 

3,100

 

 

 

3,100

 

 

AEBITDA

$

6,013

 

$

3,759

$

12,140

 

$

4,942

 

Summary Cash Flow Information:

Cash flow provided by operating activities

$

8,880

$

3,977

$

11,472

$

3,062

 

Operating Statistics:

Hours worked

3,206

Medical Staffing Network Holdings, Inc.
Jeff Yesner, Chief

Accounting Officer, 561-322-1303

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