CDI Corp. Reports Second Quarter 2015 Results

Aug 05, 2015, 20:00 ET from CDI Corp.

PHILADELPHIA, Aug. 5, 2015 /PRNewswire/ -- CDI Corp. (NYSE: CDI) (the "Company") today reported results for the second quarter ended June 30, 2015.

"We continue to make progress on the key elements of our transformation. The impact of our initiatives is not yet evident in our financial results, nor do these results reflect the potential of CDI," said Scott J. Freidheim, Chief Executive Officer and President. "Our performance improvement program continues, with new talent additions, enhancements to our operating processes and systems, and advances in client service relationships. In addition, we continue to focus our corporate development to access new and complementary sources of profitable growth, and we today announce two transactions."

Second Quarter Overview

  • Revenue of $246.8 million, a decrease of 13.2% versus second quarter 2014
  • Adjusted EBITDA of $4.7 million versus $10.2 million in second quarter 2014[1]
  • Adjusted earnings per diluted share of $0.00 versus $0.22 for second quarter 2014[1]
  • Entered definitive agreement to acquire India-based ScaleneWorks, a talent acquisition services company
  • Initiated formation of Congruent Talent, a company created in partnership with two leading certified national minority suppliers to provide large enterprises with scalable and efficient fulfillment of skilled talent while meeting their supplier diversity program objectives
  • Achieved second consecutive quarter of MRI net franchise additions

In the second quarter 2015, the Company's net loss attributable to CDI was $0.2 million versus net income attributable to CDI of $4.4 million in the prior-year second quarter. In the second quarter 2015, the Company's net earnings per diluted share were $(0.01) versus $0.22 per diluted share in the prior-year second quarter.

[1] Adjusted EBITDA is calculated by excluding from net (loss) income attributable to CDI, interest, income taxes, depreciation and amortization expense, restructuring and other related costs, share-based compensation expense, leadership transition costs, loss on disposition and acquisition related costs. Adjusted EPS excludes from diluted earnings per common share restructuring and other related costs, leadership transition costs, loss on disposition, acquisition related costs and the related income tax effect. See the financial tables accompanying this release for more information on non-GAAP financial measures and the reconciliation of these measures to GAAP measures.

Business Segment Results

Global Engineering and Technology Solutions segment (GETS) reported $84.4 million in second quarter revenue, an increase of 0.2% versus the prior-year second quarter. Revenue growth in the Oil, Gas & Chemicals (OGC) vertical increased 13%, offsetting declines in the other verticals. GETS operating profit was $1.5 million compared to $2.2 million in the prior-year quarter. Second quarter 2014 operating profit included a $0.1 million restructuring charge.

Professional Staffing Services segment (PSS) reported $149.4 million in revenue for the second quarter 2015, a decrease of 19.1% compared to the prior-year second quarter with declines across our North American industry verticals and in our UK-based staffing business. PSS operating profit was $3.0 million versus $6.9 million in the prior-year second quarter.

Management Recruiters International, Inc. (MRI) reported second quarter 2015 revenue of $13.0 million, a decrease of 14.9% compared to the prior-year second quarter, driven primarily by a decline in contract staffing revenue. MRI's second quarter 2015 operating profit was $1.6 million compared to $1.8 million in the prior-year second quarter. During the quarter, MRI sold eight new franchises, leading to its second consecutive quarter of net franchise additions.

Balance Sheet and Liquidity

CDI ended the quarter with $39.2 million in cash and cash equivalents versus $36.3 million at the end of fourth quarter 2014, and $32.4 million at the end of second quarter 2014. Total liquidity, including availability under CDI's bank and credit facilities, totaled $98.2 million at June 30, 2015 versus $106.9 million at the end of fourth quarter 2014, and $102.6 million at the end of second quarter 2014. Net cash generated by operations during first half 2015 was $12.2 million versus $0.5 million generated in the prior-year period.

Business Outlook

The Company anticipates revenue for the third quarter 2015 in the range of $240 million to $250 million.  This guidance reflects expected continued weakness in our North American staffing business.

Conference Call

At 8:30 a.m. Eastern time on August 6, 2015, Scott J. Freidheim, CEO and President, and Michael S. Castleman, CFO and Executive Vice President, will host a conference call to discuss the 2015 second quarter results and business outlook. The call can be accessed live, via the Internet, at www.cdicorp.com

About CDI

CDI Corp. (NYSE:  CDI) provides client-focused engineering, information technology and staffing solutions. Our customers operate in a variety of industries, ranging from Oil, Gas & Chemicals to Aerospace & Industrial Equipment, and High Technology, and include corporate, federal, state and municipal entities. We serve customers through offices and delivery centers in the United States, Canada and the United Kingdom. We also provide staffing services through our global MRINetwork® of franchisees.  Learn more at www.cdicorp.com.

Caution Concerning Forward-Looking Statements

This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  All statements that address expectations or projections about the future, including, but not limited to, statements about our strategies for growth and future financial results (such as revenue), are forward-looking statements. Some of the forward-looking statements can be identified by words like "anticipates," "believes," "expects," "may," "will," "could," "should," "intends," "plans," "estimates" and similar expressions. These statements are not guarantees of future performance and involve a number of risks, uncertainties and assumptions that are difficult to predict. Because these forward-looking statements are based on estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond our control or are subject to change, actual outcomes and results may differ materially from what is expressed or forecasted in these forward-looking statements. Important factors that could cause actual results to differ materially from the forward-looking statements include, but are not limited to: weakness in general economic conditions and levels of capital spending by clients in the industries we serve; weakness or volatility in the financial and capital markets, which may result in the postponement or cancellation of our clients' capital projects or the inability of our clients to pay our fees; the termination or non-renewal of a major client contract or project; delays or reductions in government spending; credit risks associated with our clients; competitive market pressures; the availability and cost of qualified personnel; our level of success in attracting, training and retaining qualified management personnel and other staff employees; changes in tax laws and other government regulations including the impact of healthcare reform laws and regulations; the possibility of incurring liability for our business activities, including the activities of our temporary employees; our performance on client contracts; negative outcome of pending and future claims and litigation; and government policies, legislation or judicial decisions adverse to our businesses.  More detailed information about these and other risks and uncertainties may be found in our filings with the SEC, particularly in the "Risk Factors" section of our Form 10-K and the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of our Form 10-Ks and Form 10-Qs. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We assume no obligation to update such statements, whether as a result of new information, future events or otherwise, except as required by law. 

Use of Non-GAAP Financial Measures

This press release contains financial information calculated other than pursuant to U.S. Generally Accepted Accounting Principles (GAAP). In particular, it includes Adjusted EBITDA and Adjusted EBITDA Margin which are adjusted to exclude interest, income taxes, depreciation, amortization, restructuring charges, share-based compensation, leadership transition costs, loss on disposition and acquisition related costs; Adjusted operating expenses, which is the sum of  "Operating and administrative expenses", "Restructuring and other related costs" and "Loss on disposition" in the consolidated statements of operations, depreciation and amortization expense, restructuring and other related costs, share-based compensation expense, leadership transition costs, and loss on disposition and acquisition related costs; and Adjusted EPS which is adjusted to exclude, restructuring charges, leadership transition costs, loss on dispositions, acquisition related costs and the related income tax effect. We present these as supplemental measures of performance.

These non-GAAP measures have limitations as analytical tools, should not be viewed as a substitute for financial information determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of the Company's results as reported under GAAP. Some of the limitations of Adjusted EBITDA, Adjusted operating expenses and Adjusted EPS as analytical tools are: (i) these measures do not reflect all our cash expenditures, or future requirements, for capital expenditures or contractual commitments; (ii) these measures do not reflect changes in, or cash requirements for, our working capital needs; (iii) these measures do not reflect interest expense, or the cash requirements necessary to service interest or principal payments, on our debts; (iv) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA and Adjusted operating expenses does not reflect any cash requirements for such replacements; (v) share-based compensation is and will remain a key element of our overall long-term incentive compensation package, although we exclude it from Adjusted EBITDA and Adjusted operating expenses as an expense when evaluating our ongoing operating performance for a particular period; (vi) these measures do not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations; and (vii) other companies in our industry may calculate these measures differently than we do, limiting their usefulness as comparative measures.

We present these non-GAAP financial measures because we believe these assist investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. These non-GAAP financial measures are also used by management in its evaluation of core operations and financial and operational decision-making. 

Financial Tables Follow

 

 

CDI CORP. AND SUBSIDIARIES

(Amounts in thousands, except per share data)

(Unaudited)



Three Months Ended


Six Months Ended


June 30,


June 30,

Consolidated Statements of Operations:

2015


2014


2015


2014









Revenue

$

246,821



$

284,282



$

504,279



$

560,554


Cost of services

200,174



231,485



410,862



456,994


Gross profit

46,647



52,797



93,417



103,560


Operating and administrative expenses (1)

45,444



46,107



90,717



91,815


Restructuring and other related costs (2)



(298)



47



72


Loss on disposition (3)





310




Operating profit

1,203



6,988



2,343



11,673


Other income (expense), net

(97)



8



(84)



(74)


Income before income taxes

1,106



6,996



2,259



11,599


Income tax expense (1)

1,263



2,544



2,029



5,106


Net (loss) income

(157)



4,452



230



6,493


Less: Income (loss) attributable to noncontrolling interests



25



(83)



29


Net (loss) income attributable to CDI (1)

$

(157)



$

4,427



$

313



$

6,464










Earnings per common share:








Basic

$

(0.01)



$

0.23



$

0.02



$

0.33


Diluted

$

(0.01)



$

0.22



$

0.02



$

0.33


Weighted-average shares outstanding - Basic

19,675



19,565



19,655



19,536


Weighted-average shares outstanding - Diluted

19,675



19,767



19,846



19,763














Selected Balance Sheet Data:









June 30,
 2015


December 31,
 2014













Cash and cash equivalents









$

39,242



$

36,324


Accounts receivable, net









217,120



219,578


Total current assets









274,518



269,095


Total assets









375,534



372,220


Total current liabilities









94,853



82,843


Total CDI shareholders' equity









267,166



273,650

























Six Months Ended










June 30,

Selected Cash Flow Data:









2015


2014













Net cash provided by operating activities









$

12,244



$

503


Depreciation and amortization









5,012



5,483


Capital expenditures









4,768



5,218


Dividends paid to shareholders









5,114



5,075

















Three Months Ended


Six Months Ended


June 30,


June 30,

Selected Earnings and Other Financial Data:

2015


2014


2015


2014













Gross profit margin


18.9

%



18.6

%



18.5

%



18.5

%

Operating and administrative expenses as a percentage of revenue


18.4

%



16.2

%



18.0

%



16.4

%

Operating margin


0.5

%



2.5

%



0.5

%



2.1

%

Effective income tax rate


114.2

%



36.4

%



89.8

%



44.0

%


















Three Months Ended


Six Months Ended


June 30,


June 30,

Non-GAAP Financial Measures:

2015


2014


2015


2014









Adjusted EBITDA (4)

$

4,667



$

10,161



$

9,517



$

19,105


Adjusted EBITDA margin (4)

1.9

%


3.6

%


1.9

%


3.4

%

Adjusted operating expenses (4)

$

41,930



$

42,677



$

83,991



$

84,455


Adjusted EPS (4)

$

0.00



$

0.22



$

0.04



$

0.38



















Three Months Ended


Six Months Ended


June 30,


June 30,

Selected Segment Data:

2015


2014


2015


2014









Global Engineering and Technology Solutions (GETS)








Revenue:








Oil, Gas and Chemicals (OGC)

$

39,368



$

34,725



$

78,160



$

67,268


Aerospace and Industrial Equipment (AIE)

15,615



19,807



31,312



39,653


Hi-Tech

7,901



8,108



15,591



16,018


Other

21,553



21,648



41,895



43,603


Total revenue

$

84,437



$

84,288



$

166,958



$

166,542


Gross profit

$

21,849



$

22,805



$

42,791



$

45,205


Gross profit margin

25.9

%


27.1

%


25.6

%


27.1

%

Operating profit (2), (3)

$

1,487



$

2,215



$

1,835



$

3,771


Operating profit margin

1.8

%


2.6

%


1.1

%


2.3

%









Professional Staffing Services (PSS)








Revenue:








Oil, Gas and Chemicals (OGC)

$

28,997



$

44,417



$

68,620



$

89,480


Aerospace and Industrial Equipment (AIE)

18,820



20,583



38,171



40,500


Hi-Tech

53,705



59,895



105,031



120,029


Other

47,870



59,835



98,996



114,860


Total revenue

$

149,392



$

184,730



$

310,818



$

364,869


Gross profit

$

18,326



$

22,809



$

37,585



$

44,755


Gross profit margin

12.3

%


12.3

%


12.1

%


12.3

%

Operating profit (2)

$

2,957



$

6,867



$

7,113



$

13,012


Operating profit margin

2.0

%


3.7

%


2.3

%


3.6

%









Management Recruiters International (MRI)








Revenue:








Contract Staffing

$

9,628



$

11,808



$

19,946



$

22,880


Royalties and Franchise Fees

3,364



3,456



6,557



6,263


Total revenue

$

12,992



$

15,264



$

26,503



$

29,143


Gross profit

$

6,472



$

7,183



$

13,041



$

13,600


Gross profit margin

49.8

%


47.1

%


49.2

%


46.7

%

Operating profit

$

1,574



$

1,752



$

3,030



$

3,012


Operating profit margin

12.1

%


11.5

%


11.4

%


10.3

%



(1)

In the first quarter of 2014, the Company recorded an aggregate $0.9 million after tax charge related to the separation of the former CEO that is comprised of a $0.7 million pre-tax charge ($0.4 million after tax) to operations associated with the separation arrangement and an additional $0.5 million charge to income tax expense for the write-off of deferred tax assets related to the forfeiture of equity awards.



(2)

In the six months ended June 30, 2015 and 2014, the Company recorded an aggregate charge of $47 thousand and $72 thousand respectively to "Restructuring and other related costs" in the consolidated statements of operations related to restructuring plans undertaken during 2013 and 2014 (six months ended June 30, 2015 comprised of PSS $47 thousand and six months ended June 30, 2014 comprised of GETS $419 thousand, PSS $(249) thousand and Corporate $(98) thousand).



(3)

In the first quarter of 2015, the Company's GETS segment recorded a charge of $0.3 million related to loss on disposition of the Company's controlling interest in a Mexico-based engineering design company.



(4)

Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted operating expenses and Adjusted EPS are non-GAAP financial measures. Adjusted EBITDA is calculated by excluding from net (loss) income attributable to CDI, interest, income taxes, depreciation and amortization expense, restructuring and other related costs, share-based compensation expense, leadership transition costs, loss on disposition and acquisition related costs. Adjusted EBITDA Margin is Adjusted EBITDA as a percentage of revenue.  Adjusted operating expenses excludes from operating expenses, which is the sum of  "Operating and administrative expenses", "Restructuring and other related costs", and "Loss on disposition" in the consolidated statements of operations, depreciation and amortization expense, restructuring and other related costs, share-based compensation expense, leadership transition costs, loss on disposition and acquisition related costs. Adjusted EPS excludes from diluted earnings per common share, restructuring and other related costs, leadership transition costs, loss on disposition and acquisition related costs, and the related specific income tax effect. See reconciliation of these non-GAAP financial measures to U.S. GAAP financial measures below.

 

 

Reconciliations of non-GAAP Financial Measures to U.S. GAAP Financial Measures:



Three Months Ended


Six Months Ended


June 30,


June 30,


2015


2014


2015


2014









Net (loss) income attributable to CDI to Adjusted EBITDA:








Net (loss) income attributable to CDI

$

(157)



$

4,427



$

313



$

6,464


Interest expense, net

47



58



92



103


Income tax expense

1,263



2,544



2,029



5,106


Depreciation and amortization

2,450



2,793



5,012



5,483


Restructuring and other related costs (a)



(298)



47



72


Share-based compensation (b)

812



478



1,349



1,053


Leadership transition (c)



159



113



824


Loss on disposition (d)





310




Acquisition related (e)

252





252




Adjusted EBITDA

$

4,667



$

10,161



$

9,517



$

19,105


Adjusted EBITDA margin

1.9

%


3.6

%


1.9

%


3.4

%









Operating expenses to Adjusted operating expenses:








Operating expenses (f)

$

45,444



$

45,809



$

91,074



$

91,887


Depreciation and amortization

2,450



2,793



5,012



5,483


Restructuring and other related costs (a)



(298)



47



72


Share-based compensation (b)

812



478



1,349



1,053


Leadership transition (c)



159



113



824


Loss on disposition (d)





310




Acquisition related (e)

252





252




Adjusted operating expenses

$

41,930



$

42,677



$

83,991



$

84,455










EPS to Adjusted EPS:








Earnings per common share - diluted

$

(0.01)



$

0.22



$

0.02



$

0.33


Restructuring and other related costs (a)



(0.01)






Leadership transition (c)



0.01



0.01



0.04


Loss on disposition (d)





0.01




Acquisition related (e)

0.01





0.01




Income tax effect (g)





(0.01)



0.01


Adjusted EPS

$

0.00



$

0.22



$

0.04



$

0.38




(a)

Represents "Restructuring and other related costs" in the consolidated statements of operations related to restructuring plans undertaken during 2013 and 2014.



(b)

Represents share-based compensation expense included in "Operating and administrative expense" in the consolidated statements of operations.



(c)

Represents charges associated with the CEO and other executive leadership changes included in "Operating and administrative expense" in the consolidated statements of operations.



(d)

Represents "Loss on disposition" in the consolidated statements of operation related to the disposition of the Company's controlling interest in a Mexico-based engineering design company in the Company's GETS segment.



(e)

Represents incremental third-party costs associated with the acquisition of a business included in "Operating and administrative expense" in the consolidated statements of operations.



(f)

Operating expenses includes "Operating and administrative expenses", "Restructuring and other related costs" and "Loss on disposition" in the consolidated statements of operations.



(g)

Represents the aggregate income tax effect of each of the adjustments to diluted earnings per common share based on the specific income tax effect, including any related deferred tax adjustments.

 

SOURCE CDI Corp.



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