WSTF Westaff (MM)

Westaff, Inc. (NASDAQ:WSTF), a leading provider of staffing services, today reported financial results for its first fiscal quarter, which ended January 20, 2007. Consistent with historical financial reporting, the Company�s first three fiscal quarters comprise twelve weeks, while the fourth fiscal quarter comprises 16 or 17 weeks. Operating income for the first quarter was $653,000, which represents an increase of $875,000 as compared to the first quarter of the prior year. This improvement was largely achieved as a result of reduced operating expenses, which were $1,195,000 less than those incurred in the first quarter of the prior year. The decrease in operating expenses was achieved primarily through decreased salary and related costs, decreased communications and outside services costs, decreases in franchised agents� share of gross profits and decreased depreciation costs. Overall, revenue decreased $8.7 million as compared to the prior year, primarily due to lower domestic sales volumes. Gross margins continued the trend noted in recent press releases, as it grew to 17.6%, from 16.8% in the first quarter of fiscal 2006. This increase is attributable to our continued focus on increasing revenue from higher margin business such as clerical and continued success with our permanent placement program. In light of the decline in revenue, gross profit decreased only $320,000 as compared to the prior year�s first quarter, due to our efforts to improve our gross margins. President and CEO Trish Newman commented, �The first quarter demonstrated some significant positives for Westaff. First, we achieved operating income in our traditionally slowest and weakest quarter, which has frequently generated an operating loss. This provides us good, early indication that the many changes we implemented during fiscal 2006 are paying off. Second, we continued our success of increasing gross margins, which continues to be a significant focus. Third, our Australian operations demonstrated significantly improved operating results, as their operating income increased 46% from the first quarter of last year.� Newman continued, �On the other hand, we have some areas for improvement going forward, which include increasing our domestic revenue base and improving our operating results in the United Kingdom. We have initiatives in place to address both.� The Company continued to strengthen its financial position during the first quarter of fiscal 2007. Working capital increased to $42.9 million at January 20, 2007, from $41.9 million at October 28, 2006. In addition, the Company�s cash balance increased 37% as compared to its balance at October 28, 2006. Both of these achievements are significant in light of the fact our first quarter is historically our slowest quarter. So far in the second quarter of fiscal 2007, the Company is still experiencing some softening in domestic revenue as compared to the second quarter of fiscal 2006, but to a lesser extent than what was experienced in the first quarter. However, gross margins continue to compare favorably to prior periods and if that trend continues, it may offset the decrease in domestic revenue should that continue through the remainder of the second quarter. We are hopeful the trend of decreased operating expenses will also continue, as will an improvement in operating results from international operations. Based on all this, as of this date we believe there is a reasonable chance our second quarter operating results for fiscal 2007 will demonstrate an improvement as compared to the first quarter of fiscal 2007. Westaff will discuss these results on a conference call at 8:00 AM Pacific time on Friday, March 2, 2007. The call will be accessible by dialing 1-877-407-0782 domestically or +1-201-689-8567 internationally. Following the completion of the call, we will post it on our website at www.westaff.com, where it will be available for replay until March 2, 2008. Westaff provides staffing services and employment opportunities for businesses in global markets. Westaff annually employs in excess of 125,000 people and services more than 15,000 client accounts from more than 230 offices located throughout the United States, the United Kingdom, Australia and New Zealand. For more information, please visit our website at www.westaff.com. This press release contains forward-looking statements as defined in the Securities Exchange Act of 1934, and is subject to the safe harbors created by law. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. All forward-looking statements are qualified in their entirety by this cautionary statement. Forward-looking statements contained herein include, but are not limited to, the statements regarding revenue, gross margins, growth rates and the Company�s prospects for fiscal 2007. The forward-looking statements contained herein involve a number of assumptions, risks and uncertainties. Actual results could differ materially from estimates. Among the factors affecting future operating results are: an intensely price competitive market, variability of the amount of collateral that we are required to maintain to support our workers� compensation obligation, the sufficiency of our workers� compensation claims reserve, variability of employee-related costs, including workers� compensation liabilities, variability on our heavy working capital needs and our ability to borrow to meet those needs, our ability to borrow under our credit facilities and our compliance with the debt covenants, possible adverse effects of fluctuations in the general economy, our ability to collect on our accounts receivable, risks related to franchise agent operations, risks related to international operations and fluctuating exchange rates, reliance on executive management and key personnel, our ability to attract and retain the services of qualified temporary personnel, the ability of our customers to terminate our service agreement on short notice, variability of the cost of unemployment insurance for our temporary employees, any difficulty with our information technology system, potential exposure to employment-related claims, risks related to control by a significant shareholder, the volatility of the Company�s stock price, increased regulatory compliance costs and litigation and other claims. Additional information concerning the risks and uncertainties listed above, and other factors you may wish to consider, is contained in the Company�s filings with the Securities and Exchange Commission, including the Company's most recent Annual Report on Form 10-K for the year ended October 28, 2006. Forward-looking statements are based on the beliefs and assumptions of the Company�s management and on currently available information. The Company undertakes no responsibility to publicly update or revise any forward-looking statement except as required by applicable laws and regulations. Westaff, Inc. Unaudited Financial Highlights (In thousands, except per share data) � Fiscal Quarter Ended � January 20, 2007 January 21, 2006 � � Revenue $ 129,949� $ 138,600� Costs of services � 107,032� � 115,363� Gross profit 22,917� 23,237� Gross margin 17.6% 16.8% Franchise agents' share of gross profit 3,539� 4,333� Selling and administrative expenses 17,810� 17,957� Depreciation and amortization � 915� � 1,169� Operating income (loss) 653� (222) Interest expense 319� 309� Interest income � (35) � (18) Income (loss) before income taxes 369� (513) Income tax benefit � (35) � (117) Net income (loss) $ 404� $ (396) � Basic and diluted earnings (loss) per share $ 0.02� $ (0.02) � Weighted average common shares outstanding - basic � 16,590� � 16,378� Weighted average common shares outstanding - diluted � 16,658� � 16,480� Westaff, Inc. Unaudited Financial Highlights (In thousands, except per share data) � Balance Sheet: January 20, 2007 October 28, 2006 � ASSETS Current assets: Cash and cash equivalents $ 4,843� $ 3,545� Trade accounts receivable 72,899� 76,267� Deferred income taxes 6,083� 5,834� Prepaid expenses 4,541� 4,732� Other current assets � 3,153� � 4,694� Total current assets 91,519� 95,072� � Property and equipment, net 14,783� 15,046� Deferred income taxes 12,420� 12,404� Goodwill and other intangible assets 15,826� 15,792� Other long-term assets � 1,116� � 951� Total assets $ 135,664� $ 139,265� � LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Borrowings under revolving credit facilities $ 4,890� $ 4,790� Current portion of capital lease obligations 358� 345� Note payable to related party 2,000� 2,000� Accounts payable 4,837� 5,245� Accrued expenses � 36,523� � 40,800� Total current liabilities 48,608� 53,180� � Long-term capital lease obligations 745� 833� Other long-term liabilities � 19,293� � 19,243� Total liabilities � 68,646� � 73,256� � Stockholders' equity: Common stock 166� 166� Additional paid-in capital 38,776� 38,617� Retained earnings 27,674� 27,270� Accumulated other comprehensive loss � 402� � (44) Total stockholders' equity � 67,018� � 66,009� Total liabilities and stockholders' equity $ 135,664� $ 139,265�