DALLAS, Texas (August 10, 2005) – SOURCECORP, Inc. (NASDAQ: SRCP), a leading provider of business process outsourcing (BPO) and consulting solutions, today reported revenues for the second quarter of 2005 of $106.5 million and earnings of $0.37 per share from continuing operations.

Second Quarter 2005 Operating Results

The Company today reported $106.5 million of revenue for the second quarter of 2005 compared to $97.1 million for the same quarter of the prior year, an increase of 9.7 percent. During the second quarter of 2005, the Company entered into an agreement with two of its customers impacted by the Company’s 2004 internal investigation.  As a result of the agreement, during the second quarter of 2005 the Company recognized remediation revenue of $2.7 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 6.9 percent.

The Company’s second quarter 2005 revenue increase excluding remediation revenue is largely driven by strong contributions from our Information Management and Legal offerings.  Information Management had higher revenues in the mortgage, government and healthcare payer vertical markets.  The Company also experienced strong revenue volumes from our Legal Class Action Claims Administration offering that benefited from a higher level of medium and large sized projects, as well as increased volumes within Legal Consulting. Offsetting these positive revenue trends was a revenue decline of 9.3% in our HealthSERVE division due primarily to increases in our revenue reserves in our release of information service offering.

Additionally, the second quarter was impacted by higher than expected, special one-time SG & A expenses, which we do not expect to continue. 

The Company reported earnings before taxes from continuing operations of $11.8 million for the second quarter of 2005, an increase of $0.6 million or approximately 5.4 percent from 2004 results of $11.2 million.  In addition, the Company reported fully diluted earnings per share from continuing operations of $0.37 for the second quarter of 2005, a decrease of $0.04 or approximately 9.8 percent versus last year. Excluding the impact of remediation revenue, earnings per share would have been $0.27.  Additionally, a second quarter adjustment to correct previously recorded deferred tax accounts increased our effective tax rate for the quarter from 39 percent to 49 percent, resulting in a $0.08 reduction to earnings per share in the second quarter.  Management determined that the impact of this adjustment to the prior year’s reported financial statements was immaterial; consequently, the entire impact, which was identified as part of the quarterly review process, was reflected in the current quarter.  This change in the tax rate affects the second quarter only.  Our effective tax rate for the remainder of 2005 is expected to return to approximately 39%, with the full-year average tax rate at approximately 41%.

Second Quarter 2005 Cash Flow

The Company reported second quarter operating cash flow from continuing operations of $10.7 million compared to $4.7 million during the same period in 2004.  

Business days sales outstanding increased by three days during the second quarter of 2005 to 46 business days. Excluding the effect of the remediation revenue, days sales outstanding were 47 compared to 45 business days for Q1 2005 and 47 days for the second quarter, 2004.

During the second quarter of 2005, the Company’s debt outstanding decreased to $90.8 million compared to $94.5 million as of March 31, 2005. Our current line of credit agreement is scheduled to mature on April 1, 2006 and all outstanding balances under such agreement were classified to current maturities in the June 30, 2005 consolidated balance sheet.  The Company’s debt to total capital was approximately 22.9 percent at the end of the current quarter.  

New Business Wins

The Company closed new business from new customers, new business from existing customers and renewal of existing customers’ contracts during the second quarter of 2005 with an estimated value of contracts closed of approximately $44.3 million.  “We are pleased with our continued progress in sales during the second quarter of 2005. We believe our business wins are a direct result of the actions we have taken over the last two years in strengthening our national sales presence, an intense focus on customer satisfaction, and the investments made in our technology infrastructure and operating platforms”, stated Mr. Ed H. Bowman, Jr., President and CEO.

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 actual results year-to-date and current trends, the Company is updating its 2005 financial guidance relating to its continuing operations for revenues of approximately $405 million to $415 million from $400 million to $425 million. The Company’s guidance has not changed as it relates to income from continuing operations before income taxes. 

The change in our second quarter effective tax rate from 39 percent to 49 percent, is impacting our 2005 earnings per share guidance by ($.08).   Earnings per share guidance is changing from $1.35 - $1.55 to $1.27 - $1.47. 

Earnings per share guidance of $1.27 to $1.47 includes legal and investigation costs of approximately $0.09, of which approximately $0.05 occurred during the first quarter of 2005, and $0.01 in the second quarter of 2005.

Assuming that we can meet our ongoing expectations for the second half of the year and realize improvement in AR collections, we believe that the Company should be able to achieve operating cash flow for the year of $30 to $45 million, compared to previous guidance of $35 to $50 million.  The primary driver for the reduction in our cash flow guidance is poorer than expected collections performance in our release of information service offering. The change in tax rates referred to above does not impact 2005 cash flow. 

The guidance provided above specifically excludes any direct or indirect effects or impacts on the Company’s financial results from the Company’s internal investigation, including, but not limited to, any associated penalties or potential customer remediation action and positive effects prior period restatements adjustments may have on 2005 financial results including the $4.1 million of remediation revenue recognized in the first quarter and $2.7 million of remediation revenue recognized in the second quarter and any additional amounts that may be recognized throughout the remainder of 2005. 

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 and any discontinuance of a significant customer arrangement.

About SOURCECORP®

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 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.

Contact SOURCECORP:       

Barry Edwards, EVP & Chief Financial Officer: 214.740.6690