Computer Horizons Corp. (Nasdaq: CHRZ), a strategic solutions and professional services company, today announced its financial results for the fourth quarter and full year ended December 31, 2005.
Financial Highlights and Update on Strategic Alternatives Review
In October of 2005, CHC shareholders elected a new Board, which appointed two new senior executives to lead the management team: Dennis J. Conroy, president and chief executive officer, and Brian A. Delle Donne, executive vice president and chief operating officer. The new team concentrated during the fourth quarter on completing and addressing fiscal 2005 activities, and on repositioning CHC for improved performance in 2006.
Mr. Conroy commented, "Results for 2005, a year of turmoil for CHC with many external distractions, were not what any of us would have liked. However, with a sound balance sheet and the recognition of restructuring costs and special charges behind us and, in front of us, the growing impact of our realignment initiatives and a brighter outlook for IT spending, we are increasingly optimistic. We expect a return to modest growth and profitability during 2006 and beyond. On a parallel track, we continue our work with Jefferies Broadview to explore all appropriate strategic alternatives to maximize value for the Company and all its constituencies. We have made significant headway. We are reviewing expressions of interest from various parties, and will continue to keep you apprised as this process unfolds."
CHC recorded consolidated revenues for the fourth quarter of 2005 of $65.8 million, a three percent decrease from the fourth quarter of 2004. The Company reported a net loss of $39.5 million, or $(1.24) per share, for the fourth quarter of 2005, compared with a net loss of $24.3 million, or $(0.78) per share, in the comparable period of 2004. The fourth quarter 2005 net loss includes special charges of $36.6 million, or $(1.15) per share, related to expenses from the 2005 proxy contest/change of control payments, restructuring expenses, a loss on the sale of investments and an increase in the valuation allowance established for deferred tax assets. The fourth quarter 2004 net loss includes special charges of $24.1 million, or $(0.71) per share, primarily relating to the impairment of goodwill. Gross margin for the fourth quarter of 2005 improved to 31.3 percent, up from 29.9 percent in the comparable period in 2004.
CHC recorded consolidated revenues for the full year 2005 of $268.8 million, a two percent increase over the comparable period in 2004. The Company reported a net loss of $46.4 million, or $(1.48) per share, for the full year 2005, compared with a net loss of $25.2 million, or $(0.82) per share, in the comparable period of 2004. Net loss for the full year of 2005 includes special charges of $41.8 million, or $(1.33) per share, related to expenses from the 2005 proxy contest/ change of control payments, restructuring expenses, a loss on the sale of investments, special expenses relating to the termination of the proposed merger with Analysts International and an increase in the valuation allowance established for deferred tax assets. The net loss for the full year of 2004 included special charges of $23.1 million, or $(0.68) per share, primarily relating to the impairment of goodwill and restructuring charges.
Commenting on CHC's financial position, Michael J. Shea, chief financial officer of Computer Horizons, said, "Our balance sheet remains healthy, with no debt and $51.4 million in working capital. SG&A expenses increased in the fourth quarter as a result of several non-recurring costs and I anticipate a reduction in SG&A in the first quarter of 2006. With the realignment initiatives implemented during the fourth quarter, I believe we've entered 2006 on solid footing and we should continue to see an improvement in our financials as the year progresses."
Repositioning the Business
During the fourth quarter, the new CHC executive team conducted a review of the Company's strategic and operational strengths and weaknesses, and formulated a plan for improved performance. Mr. Conroy commented, "We discovered at CHC a foundation of talent, brand recognition and service offerings that enjoy rising market demand. We also discerned a need for: clearer, measured accountabilities; strengthened standards of performance; more sharply focused and clearly articulated service offerings; closer collaboration between sales and delivery; and, realigned goals and incentives."
As announced on December 1, 2005, CHC repositioned its Commercial Services unit to implement a set of strategic and tactical initiatives that address the above requirements, while at the same time, streamlining operations to reduce redundancies and inefficiencies. Similarly, the Federal business unit completed a restructuring and rationalization of its services, while working to strengthen business development. With these steps and its conversion to an unrestricted services provider, the Federal business is poised for growth in 2006. Chimes moves into 2006 with an expanded suite of services, stronger focus on sales and continued emphasis on customer service. Mr. Conroy comments: "In all three businesses, we have put in place some new leaders at sales and operating levels, altered compensation programs to facilitate profitable growth, and selectively invested to support operations."
The Company also took steps to lower operating overhead and recognized a related $1.5 million restructuring charge during the fourth quarter. CHC expects an approximate $4.2 million reduction in annual costs, which is designed to deliver growth and profitability for 2006 and beyond.
Looking Forward
In light of the restructuring completed in the fourth quarter of 2005, the Company expects to report modest profitability in the first quarter of 2006. For the full year 2006, the Company expects revenues to be in the range of $280 to $290 million. Diluted earnings per share are expected to be in the range of $0.20 to $0.25 per share.
Operational Review by Business Segment
Condensed financial information is presented below for each of the Company's business segments. Total income /(loss) before income taxes excludes interest income/expense, amortization, and special charges / credit. [See Reconciliation of Segments Income / (Loss) Before Income Taxes to Consolidated Income /(Loss) Before Income Taxes.]
(in thousands)
THREE MONTHS ENDED TWELVE MONTHS ENDED
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2005 2004 2005 2004
Revenues :
Commercial $46,931 $50,179 $195,435 $191,096
Federal 11,175 11,647 44,980 48,339
Chimes 7,674 5,808 28,421 23,092
Total Revenues 65,780 67,634 268,836 262,527
Gross Profit :
Commercial 8,470 9,337 36,786 38,005
Federal 4,685 5,465 20,408 22,221
Chimes 7,456 5,419 27,483 21,696
Total Gross Profit 20,611 20,221 84,677 81,922
% 31.3% 29.9% 31.5% 31.2%
Operating Income :
Commercial 818 1,387 8,155 8,350
Federal 1,097 1,223 4,449 6,468
Chimes 1,585 203 5,801 1,420
Total Operating Income 3,500 2,813 18,405 16,238
% 5.3% 4.2% 6.8% 6.2%
Corporate Allocation :
Commercial 4,687 3,841 17,375 15,601
Federal 515 408 1,846 1,793
Chimes 860 493 2,848 2,065
Total Corporate Allocation 6,062 4,742 22,069 19,459
% 9.2% 7.0% 8.2% 7.4%
Total Income / (Loss) before Income
Taxes :
Commercial (3,869) (2,454) (9,220) (7,251)
Federal 582 815 2,603 4,675
Chimes 725 (290) 2,953 (645)
Total Income / (Loss) before
Income Taxes $(2,562) $(1,929) $(3,664) $(3,221)
% -3.9% -2.9% -1.4% -1.2%
Reconciliation of Segments Income/(Loss) Before Income Taxes to
Consolidated Income / (Loss) Before Income Taxes
(in thousands)
THREE MONTHS ENDED TWELVE MONTHS ENDED
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2005 2004 2005 2004
Total Segment Income / (Loss)
Before Income Taxes : $(2,562) $(1,928) $(3,664) $(3,220)
Adjustments :
Change of Control Charges (13,247) -- (13,247) --
Special (charges) / credits (1,236) (5,728) 939
Write-off of assets -- (910) -- (910)
Restructuring Charges (1,459) (2,859) (2,175) (2,859)
Goodwill Impairment -- (20,306) -- (20,306)
Amortization of intangibles (233) (483) (1,080) (1,695)
Net Loss on Investments (1,180) -- (1,180) --
Net interest income 269 29 822 234
Total adjustments (17,086) (24,529) (22,588) (24,597)
Consolidated Income / (Loss)
Before Income Taxes $(19,648) $(26,457) $(26,252) $(27,817)
Highlights from the Commercial Sector
* Revenues for the fourth quarter were $46.9 million, a six percent
decrease from the fourth quarter of 2004 and a decrease of five percent
sequentially as the Company deemphasized certain underperforming parts
of the business, and heightened its focus on more profitable services
and relationships.
* The Company was added to three new preferred vendor lists and renewed at
several others during the fourth quarter of 2005.
* Total billable headcount at the end of the fourth quarter of 2005 was
approximately 1,730 an eight percent decrease from the fourth quarter of
2004 and down seven percent from the third quarter of 2005.
* CHC's Commercial business entered 2006 well-positioned for a return to
profitability.
Highlights from the Federal Government Sector
* Revenues for the fourth quarter were $11.2 million, a four percent
decrease over the comparable period in 2004 and an increase of three
percent over the third quarter of 2005. The year-over-year revenue
decrease is attributable to the transition of restricted contracts. As
previously announced, RGII anticipates the return to strong organic
growth in 2006.
* During the fourth quarter, RGII was awarded several multiple year
contracts totalling over $16.4 million by the Dept. of the Navy - Naval
Medical Information Management Center (NMIMC), and the Technology
Management, Integration and Standards (TMI&S) Directorate. RGII also
supported a Hurricane Katrina relief project from its call center in
Oklahoma City, OK which contributed over $1 million in revenue.
* Funded backlog as of December 31, 2005 for RGII was approximately $15.7
million and contracted (unfunded) backlog approximated $118.7 million.
Chimes, Inc. Highlights
* Chimes reported $7.7 million in revenue for the fourth quarter of 2005,
a 32 percent increase from the comparable period in 2004, and a four
percent increase from the third quarter of 2005.
* Two new customer implementations took place during the fourth quarter,
through Chimes' Strategic Alliance partners.
* Chimes expanded business at several existing customers.
* Chimes pre-tax bottom-line results significantly improved, from a loss
of $(300,000) in the fourth quarter of 2004 to income of over $700,000
in the fourth quarter of 2005.
About Computer Horizons Corp.
Computer Horizons Corp. (Nasdaq: CHRZ) provides professional information technology (IT) services to a broad array of vertical markets, including financial services, healthcare, pharmaceutical, telecom, consumer packaged goods, as well as the Federal government, through its wholly-owned subsidiary, RGII Technologies, Inc. CHC's wholly-owned subsidiary, Chimes, uses its proprietary technology to enable its Global 2000 customer base to align and integrate business planning with human resource management across an enterprise's business functions. For more information on Computer Horizons, visit http://www.computerhorizons.com.
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In some cases, forward-looking statements can be identified by words such as "believe," "expect," "anticipate," "plan," "potential," "continue" or similar expressions. Forward-looking statements also include the assumptions underlying or relating to any of the foregoing statements. Such forward- looking statements are based upon current expectations and beliefs and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements including, but not limited to, risks associated with unforeseen technical difficulties, the ability to meet customer requirements, market acceptance of service offerings, changes in technology and standards, the ability to complete cost reduction initiatives, dependencies on certain technologies, delays, market acceptance and competition, as well as other risks described from time to time in the Company's filings with the Securities and Exchange Commission, press releases and other communications. All forward-looking statements included in this press release are based on information available to the Company on the date hereof. The Company undertakes no obligation (and expressly disclaims any such obligation) to update forward-looking statements made in this press release to reflect events or circumstances after the date of this press release or to update reasons why actual results would differ from those anticipated in such forward-looking statements.
Corporate Contacts:
David Reingold/Lauren Felice
Investor Relations, Marketing
Computer Horizons Corp.
(973) 299-4105/4061
dreingold@computerhorizons.com
lfelice@computerhorizons.com
Computer Horizons Corp. and Subsidiaries
Consolidated Condensed Statements of Operations
(Unaudited - In thousands, except per share data)
THREE MONTHS ENDED TWELVE MONTHS ENDED
Dec. 31 Dec. 31 Dec. 31 Dec. 31
2005 2004 2005 2004
Revenues
Commercial $46,931 $50,179 $195,435 $191,096
Federal 11,175 11,647 44,980 48,339
Chimes 7,674 5,808 28,421 23,092
Total 65,780 67,634 268,836 262,527
Direct Costs 45,169 47,413 184,159 180,606
Gross Profit 20,611 20,221 84,677 81,921
Selling, General & Admin. 23,173 22,149 88,341 85,141
Change of Control Charges 13,247 -- 13,247 --
Special Charges /(Credits) 1,236 5,728 (939)
Restructuring Charges 1,459 2,859 2,175 2,859
Write-off of assets -- 910 -- 910
Goodwill impairment -- 20,306 -- 20,306
Amortization of Intangibles 233 483 1,080 1,695
Income / (Loss) from
Operations (18,737) (26,486) (25,894) (28,051)
Loss on Investments (1,180) -- (1,180) --
Net Interest Income 269 29 822 234
Income / (Loss) Before
Income Taxes (19,648) (26,457) (26,252) (27,817)
Income (Taxes) / Benefit (19,808) 2,210 (20,168) 2,690
Minority Interest -- (23) -- (45)
Net Income / (Loss) $(39,456) $(24,270) $(46,420) $(25,172)
Earnings / (Loss) per
share - Basic and Diluted $(1.24) $(0.78) $(1.48) $(0.82)
Weighted Average Number of
Shares Outstanding -
Basic and Diluted 31,757,000 31,061,000 31,399,000 30,870,000
Computer Horizons Corp. and Subsidiaries
Consolidated Balance Sheet
(Unaudited - In thousands)
December 31, 2005 December 31, 2004
ASSETS
Current Assets :
Cash and cash equivalents* $46,365 $33,649
Accounts receivable, less allowance for
doubtful accounts 48,124 51,322
Deferred income taxes -- 1,868
Refundable income taxes 6,430 4,088
Other receivables -- 1,443
Prepaid expenses and other 4,108 4,107
Total Current Assets 105,027 96,477
Property and equipment, net 5,065 5,995
Other assets - net :
Goodwill 27,625 27,625
Intangibles 1,938 3,253
Deferred income taxes --- 17,698
Other assets 3,687 8,036
Total Assets $143,342 $159,084
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities :
Accounts payable* $36,252 $7,615
Accrued payroll, payroll taxes
and benefits 10,548 8,489
Income taxes payable 1,150 1,377
Restructuring reserve 1,668 3,351
RGII contingency payment -- 1,851
Other accrued expenses 4,005 4,912
Total Current Liabilities 53,623 27,595
Deferred compensation 2,468 2,633
Change of Control Payable 2,938 --
Supplemental executive retirement plan -- 2,162
Other liabilities 286 913
Total Liabilities 59,315 33,303
Shareholders' Equity :
Common stock 3,315 3,315
Additional paid in capital 148,083 151,281
Accumulated comprehensive loss (642) (2,200)
Retained earnings / (deficit) (60,491) (14,072)
90,265 138,324
Less treasury shares (6,238) (12,543)
Total Shareholders' Equity 84,027 125,781
Total Liabilities and
Shareholders' Equity $143,342 $159,084
* Cash and cash equivalents at December 31, 2005 and December 31, 2004
include approximately $29.4 million and $2.1 million, respectively, of
cash to be disbursed to Chimes vendors (i.e., Accounts Payable) in
accordance with the client payment terms.
Computer Horizons Corp. and Subsidiaries
Consolidated Statement of Cash Flows
(Unaudited - In thousands)
Dec. 31, 2005 Dec. 31, 2004
Cash flows from operating activities
Net income / (loss) $(46,420) $(25,172)
Adjustments to reconcile net loss to
net cash provided by/(used in)
operating activities:
Deferred taxes 19,567 (1,254)
Depreciation 4,181 4,821
Amortization of intangibles 1,080 1,695
Provision for bad debts 1,632 969
Loss on Investments 1,264 --
Gain on sale of assets (327) --
Goodwill impairment charge -- 20,306
Write-off of assets -- 910
Changes in assets and liabilities, net of
acquisitions:
Accounts receivable 1,566 (696)
Other receivables 1,443 (1,040)
Prepaid expenses and other current assets (1) 254
Other assets 4,349 (245)
Refundable income taxes (2,342) (4,088)
Accrued payroll, payroll taxes and
benefits 2,060 (49)
Accounts payable 28,637 (1,072)
Income taxes payable (227) 134
RGII contingency payments (1,851) 1,221
Other accrued expenses and restructuring
reserve (2,590) 582
Change of control payable 2,938 --
Deferred compensation (165) 530
Supplemental executive retirement plan (2,162) 480
Other liabilities (627) 317
Net cash provided by / (used in)
operating activities 12,005 (1,397)
Cash flows from investing activities
Proceeds from sale of assets 562 --
Purchases of furniture and equipment (3,252) (2,050)
Acquisitions, net of cash acquired -- (14,714)
Acquisition of goodwill -- (2,461)
Net cash provided by / (used in)
investing activities (2,690) (19,225)
Cash flows from financing activities
Stock options exercised 2,440 774
Stock issued on employee stock
purchase plan 667 623
Net cash provided by / (used in)
financing activities 3,107 1,397
Foreign currency gains/ (losses) 294 264
Net increase/ (decrease) in cash and
cash equivalents 12,716 (18,961)
Cash and cash equivalents at beginning of year 33,649 52,610
Cash and cash equivalents at end of period $46,365 $33,649