SOS Staffing Services

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SOS Staffing Services

1415 South Main Street
Salt Lake City, Utah 84115
U.S.A.
(801) 484-4400
Fax: (801) 486-3131
Web site: http://www.sosstaffing.com

Public Company
Incorporated: 1973
Employees: 800
Sales: $209.3 million (1997)
Stock Exchanges: NASDAQ
Ticker Symbol: SOSS
SICs: 7363 Help Supply Services

SOS Staffing Services is one of the nation’s largest firms providing temporary employees for clerical, light industrial, technical, and information technology positions. It also provides its customers with consulting services and outsourcing for payroll and drug testing. Most of its more than 140 offices are located in the western United States, although recently it has expanded into other areas. Its rapid growth in the 1990s reflects internal expansion, numerous acquisitions in several new markets, and the trend to rely on more part-time and temporary workers in both business and government.

The Early Years of SOS

SOS followed in the footsteps of national temporary staffing companies which had been started in the 1940s. Kelly Services was started in 1947 and the next year Manpower was created to help alleviate the post-World War II labor shortage. By the 1970s the labor market was shifting from industrial workers to clerical and other office workers. Advanced technology, including computers and solid-state electronics, was replacing many of America’s blue-collar workers.

Meanwhile, Richard D. Reinhold, SOS’ future founder, planned even in high school to run his own business. After graduating in 1960 from the University of Kansas with a B.S. in marketing, Reinhold worked for International Telephone and Telegraph and the Bank of America. During that time, he learned about the exciting possibilities in the new field of temporary staffing. He began working for Employer’s Overload, which in the 1960s was the nation’s third largest temp agency with about 100 offices. Then he helped Century Finance start a new temporary staffing company called Cencor. Reinhold traveled extensively supervising the Cencor offices, an experience which motivated him to start his own business so he could spend more time with his wife Sunny and his young family. He then served as vice-president of Greyhound Temporary Services from 1971 to 1973, in order to gain experience. Soon he decided he had enough experience to start his own firm, and he began forming what would become SOS Staffing Services.

Using market research, Reinhold concluded that seven cities were prime targets for a new temporary labor firm. San Jose, California had the most potential, while Salt Lake City, Utah was ranked seventh. However, his savings of just $12,000 was inadequate to start a firm in the larger market of San Jose, so he narrowed it down to three smaller cities: Grand Rapids, Michigan; Salt Lake City; and Indianapolis, Indiana. In the fall of 1972, he received a call from Russ Christen—a former Cencor manager—who asked Reinhold if any temp firms in Salt Lake City needed a manager. Surprised by the timing of this call, Reinhold decided to make Salt Lake City his new firm’s headquarters, and hire Christen to help get the project onto its feet.

On January 15, 1973 Reinhold started his own company, naming it SOS Staffing Services, with the help of Russ Christen. Reinhold was the founding chairman, president, and CEO. Reinhold and Christen both sold accounts in Salt Lake City and did the office paperwork by hand. Soon they hired Richard Tripp, a Brigham Young University graduate, to run their small office.

Early Challenges in the 1970s

The first year of business proved successful, with SOS providing just under 2,000 hours of temporary help per week. The firm’s original industrial office was leased space at 152 East 700 South; later in 1973, SOS opened its clerical office in a nearby building. The firm enjoyed an 80 percent increase in 1974, with some weeks peaking at over 4,000 hours. However, 1975 was so slow that Reinhold had to use all his reserves just to survive. At one point, he took a two-week vacation and thought about other career options.

In 1976, SOS recovered enough to keep going, but the company suffered from a severe cash flow problem and struggled to pay its temporary employees. In spite of a 20 percent increase in rates, SOS sales in 1977 increased 40 percent; unfortunately, it still looked as though SOS might have to close its doors. Russ Christen saved the day by loaning SOS $25,000 from mortgaging his home. Almost 20 years later, Richard Reinhold wrote that without that loan, “We would just be another company which failed, because it was undercapitalized and the founders were probably too good in sales.”

Growth in the 1980s

By about 1980, SOS was standing on more solid ground and was prepared for a modest expansion. It finally had enough cash flow so Richard Reinhold and his officers did not have to anxiously wait every day for the mailman to bring another check. With the support of a bank, SOS opened new Utah offices in Ogden, Murray, and Orem. Also, the company finally owned its own building at 26 East 800 South in Salt Lake City.

SOS enjoyed the fact that the temporary staffing industry grew rapidly in the 1980s. The annual temporary workers’ payroll jumped from $3.5 billion in 1981 to $14 billion in 1991, according to the National Association of Temporary Services.

This boom was reflected in SOS’ growing business in the 1980s. In 1983, for example, the firm’s sales increased 83 percent. Reinhold later wrote: “Totally unprepared for this increase, we had to have a computer conversion in August and September—at our busiest time of the year. All of us … worked at least 14 hours per day. We were not proud of the service we provided, as every day we had to go to ‘the bottom of the barrel’ to find people to work … As for others, and myself, it took many weeks to recover mentally and physically after that ordeal.”

Russ Christen retired in the late 1980s. Richard Reinhold served as the president of the National Association of Temporary and Staffing Services (NATSS) in 1989 and 1990. When he returned to SOS, he set some major goals for the new decade.

1990s Acquisitions and Expansion

SOS started the decade with just eight offices. It provided clerical and light industrial workers, which were typical of the temps of that time. But the 1990s would see SOS acquire many firms and diversify to work with new kinds of workers, especially those skilled with computers, to meet the demands of a changing American economy.

In 1995 SOS acquired the following firms: Add-a-Temp, Inc. of Las Vegas; Active Personnel Services, Inc. of Phoenix, Arizona; Patient Accounting Management Services of Phoenix, Arizona; and Geomine Personnel, Inc. of Sparks, Nevada. To finance this growth, SOS became a public firm in 1995. It completed its initial public offering in July 1995.

Because there were over 3,500 temporary agencies in 1995, and 10,000 offices in the USA, SOS took the opportunity to acquire the following smaller firms in 1996: Snake River T.E.M.P.S., Inc. of Burley, Idaho; A.C.E. Personnel Services of Yuma, Arizona; VIP Employment Services Limited, LLC of Lakewood, Colorado; Allyn Colorado Enterprises, Inc. of Aspen, Colorado; The Performance Group of Denver, Colorado—the first significant SOS acquisition in the fast-growing information technology field; Impact Staffing, a division of Pacific Design Engineering, Inc. of Portland, Oregon and San Diego, California; Key Personnel Service of Amarillo, Texas; a USA Temps of Prescott, Arizona; Executive Personnel Associates, Inc. of Fort Collins, Colorado; Steamboat Temps, Inc. of Steamboat Springs, Colorado; R.H.W., Inc.—doing business as The Temporary Connection and The Employment Connection out of Billings, Montana; Wolfe & Associates, Inc. of Albuquerque, New Mexico; Workstyle 2000, Inc. of Dallas, Texas; and Human Resources, Inc. of St. George, Utah.

To finance this expansion program, in December 1996 SOS offered 2.2 million shares of its common stock for sale at $9.75 per share. The firm itself offered 2 million of those shares, while the rest were offered by a shareholding charitable foundation founded by Richard Reinhold and a church. This offering was underwritten by Unterberg Harris, Paine Webber, and George K. Baum & Company.

Following this successful offering, Chairman/CEO Richard Reinhold said he was “very pleased with our performance for 1996.” SOS revenues reached $136.2 million, up 56 percent from $87.5 million in 1995. The firm’s net income increased 51 percent from $2.677 million in 1995 to $4.029 million in 1996. SOS added 39 offices in 1996, including those from acquisitions, to reach a total of 87 offices.

SOS continued its expansion in 1997 by purchasing 14 more firms: Computer Group, Inc. of Bellevue, Washington; The Agency of Albuquerque, New Mexico; The Solution Team, Inc. of Oklahoma City, Oklahoma; Toma Employment Service of Las Vegas, Nevada; Bedford Consultants, Inc. of San Francisco, California; Telecom Project Assistance, Inc. of Mountain View, California; Execusoft, Inc. of Orange, California; VIP Plus, Ltd. of Lubbock, Texas (also known as VIP Employment and VIP Workforce); JesCo Technical Services, Inc. of Bellevue, Washington; TempWorks, Inc. of Denver, Colorado; Century Personnel, Inc. of Overland Park, Kansas; TSI of Utah, Inc: of Salt Lake City; Von Stroheim-Seay, Inc.—doing business as Staffing Partners Employment Solutions in Honolulu, Hawaii; and Prestige Consulting Corporation of Salt Lake City, Utah.

The Late-1990s and Beyond

On October 16, 1997 SOS offered 4 million additional shares of its common stock at $16.75 per share. In November the company announced the addition of two new members to its Board of Directors: Samuel C. Frietag, senior managing director for George K. Baum Merchant Bank, and Annette Strauss, the former mayor of Dallas, Texas who was an officer and/or director of several other organizations. Also in November 1997, SOS received ISO-9002 registration as part of its efforts to maintain high standards.

More than once, Forbes included SOS Staffing Services in its list of the nation’s 200 best small companies in the late-1990s, ranking it number 88 in 1996 and number 139 in 1997. SOS enjoyed another great year in 1997, with revenues increasing to $209.3 million from $136.2 million in 1996. And its net income rose from $4 million in 1996 to $7.5 million in 1997. In 1997, SOS supplied over 80,000 temporary workers to about 8,000 businesses, government agencies, and service organizations.

With no total debt in 1997, and a $30 million line of credit available, in 1998 the company was able to continue its acquisitions as follows: Hutton, Graber & Associates of Venice, California; Purchases Mortgage Staffing, Inc.; Computer Professional Resources, Inc. of Prairie Village, Kansas; the temporary and professional employment divisions of TOPS Staffing Services, Inc. of San Diego, California; the information technology staffing division of Aquas, Inc. of Sunnyvale, California; Abacab Software, Inc. of Cupertino, California; and Neosoft Inc. of Cambridge, Massachusetts.

On March 2, 1998 SOS directors elected JoAnn W. Wagner as the new chair of the Board of Directors, to succeed Richard D. Reinhold, the founding chair who resigned to serve his church for two years. Between November 1987 and January 1991, Wagner had served as the president and director of INTERIM Services, Inc., a temporary staffing company. After Interim was acquired by H & R Block in 1991, she worked as Interim’s vice-president of market development until January 1994. She then worked as a consultant for Interim until July 1995. At that time, she joined SOS as a director and consultant and in 1997 became the vice-chair and executive vice-president of corporate development.

Also on March 2, 1998, Peter R. Sollenne was chosen to replace the departing Richard Reinhold on the board of directors. He had joined SOS in August 1997 as its president and chief operating officer. Previously he held management positions with financial and insurance firms and had worked in the staffing industry since 1995, when he became president of San Francisco’s Abar Staffing.

In 1998, Howard W. Scott, Jr. remained as a SOS director and its chief executive officer. A 1957 graduate of Northwestern University, Scott was a 30-year veteran of the staffing industry, including terms as president of CDI Temporary Services from 1978 to 1991 and president of Dunhill Personnel System from 1991 to 1994. In February 1994, he became SOS’ vice-president, and in April 1995 was appointed president and chief operating officer. Beginning in August 1997, he served as the firm’s chief executive officer.

Under the leadership of these various officers and directors, SOS made some major changes near the end of the decade. One development was that the company began supplying its clients with more information technology (IT) personnel, including men and women skilled in IT management and planning for desktop systems, computer networking, and a variety of voice, data, and video applications. The SOS acquisitions of Wolfe & Associates, Hutton, Graber & Associates, and Telecom Project Assistance provided much of the leadership needed in the fast changing field. Those three acquired firms served an impressive list of clients in diverse fields, ranging from health care and biotechnology to financial services and higher education. Representative clients included UCLA, Wells Fargo Bank, and Kaiser Permanente.

According to Gary Crook, SOS chief financial officer, the company usually paid only 25 percent of a traditional staffing firm’s annual revenues to acquire it. To buy a specialty or IT staffing firm, SOS paid an amount equal to that firm’s annual revenues. The advantage of IT acquisitions was that they enjoyed operating margins of 15 percent or more, while traditional firms had operating margins ranging from 5 to 10 percent.

Curtis L. Wolfe of Wolfe & Associates served as president of the SOS Information Technology Division. “The rapid evolution of information technologies has forced businesses to ‘get smart’ fast or risk competing at a disadvantage,” said Wolfe. “That’s where SOS comes in.” SOS’ IT revenue as a percentage of the firm’s total revenues increased from just 5 percent in 1996 to about 22 percent at the end of 1997. In early 1998 the company added a more attractive benefits package to attract the best IT personnel, and it also was working to integrate its IT Division by setting up a computer system to scan in and retrieve resumes.

Although the Information Technology Division was rapidly expanding, at the end of 1997 the firm’s Commercial Division remained its largest. It included AccountStaff temporaries, such as auditors, accountants, financial managers, tax analysts, and collections personnel. The Commercial Division’s Skill Staff provided carpenters and related workers. Also included was PAMS (Patient Accounting Management Services), which supplied specialized clerical help—such as medical insurance coders and claims processors—for hospitals, clinics, and insurance companies.

SOS provided a variety of temporary technical specialists. For example, its 1996 acquisition of CGS Personnel allowed SOS to supply clients with geologists, hydrologists, and environmental engineers and technicians. CGS Personnel had been founded in 1985 as part of the growing trend for temporaries in all fields.

With increasing government regulations, some firms have looked to SOS for consultation on several matters, such as how to administer workers’ compensation and unemployment programs. SOS has also helped companies start drug testing programs, design benefits programs, conduct job risk analysis, and make sure they comply with laws like the 1990 Americans with Disabilities Act. SOS’ experience with its own temporary employees has given it the expertise to advise other firms on such complicated issues.

After first quarter 1998 results showed increased financial performance compared to first quarter 1997, two stock analysts gave SOS good marks. C. E. Unterberg, Towbin, which rated SOS stock as a “good buy,” said, “SOS has demonstrated its ability to grow steadily, both organically and through acquisitions, and we expect this strong performance to continue … Its continuing growth, steadily improving margins, strong balance sheet and management team make SOS shares an outstanding investment.” The Red Chip Review concluded that “SOS continues to outpace our projections … We are maintaining our ‘A’ rating.”

The strong U.S. economy helped SOS expand; however, the long-term economic changes showed the potential to be even more beneficial. In reality, the pattern of workers maintaining one job with one company for many years had pretty much disappeared near the end of the 20th century. That tradition began around 1800 with mass production and centralization resulting in facilities like factories, hospitals, and libraries. With the post World War II development of computers—especially personal computers—and advanced telecommunications, the United States and other advanced nations entered the postindustrial era or Information Age, based on the principles of decentralization, empowerment of the individual, and especially rapid economic change. Frequent retraining became imperative as people frequently changed jobs. Thus, as SOS celebrated its 25th anniversary in 1998, the company was in a good position to reap the rewards of a restless and ever-changing workforce.