CDI Corp. (NYSE:CDI) today reported results for the third quarter ended September 30, 2016.
“Business performance during the third quarter includes actions taken to improve our expense structure and cash conversion, as well as strategic focus with the sale of UK-based AndersElite Limited,” stated President and Interim Chief Executive Officer Michael S. Castleman. “Going forward, we share as a company a clear operating imperative to build on common pillars of our business, such as talent acquisition and management, to deliver improved growth and profitability. This imperative is supported by the tremendous commitment and collaborative spirit of all CDI employees.”
Third Quarter Overview
Recorded revenue of $220.3 million compared to $244.7 million in third quarter 2015; this third quarter 2016 figure excludes approximately $3.5 million of revenue due to the sale of Anders, on September 16, 2016, prior to quarter end
Net loss attributable to CDI of $17.8 million, or $(0.96) per diluted share, versus a net loss of $20.2 million, or $(1.03) per diluted share, in third quarter 2015
Adjusted EBITDA of $0.9 million versus third quarter 2015 Adjusted EBITDA of $3.3 million1
Repurchased 260,960 shares for $1.6 million during the third quarter 2016 and an aggregate of 1,190,356 shares for $7.3 million from inception of the program through September 30, 2016
Implemented a restructuring, resulting in a charge of $3.5 million, to further align our organizational structure, facilities and resource utilization with business volumes and strategic direction
Generated $14.2 million in cash flow from operating activities
| 1Adjusted EBITDA excludes from net loss attributable to CDI, interest, income taxes, depreciation and amortization expense, impairment charges, restructuring and other related costs, share-based compensation expense, leadership transition costs, loss on disposition, certain acquisition-related items, reserve for project-related disputes, earnout adjustments and gain from the sale of a non-operating corporate asset. Adjusted EPS excludes from diluted earnings per common share, impairment charges, restructuring and other related costs, leadership transition costs, loss on disposition, certain acquisition-related items, reserve for project-related disputes, earnout adjustments, amortization of acquired intangibles, gain from the sale of a non-operating corporate asset and the related income tax effect of each of the adjustments. See the financial tables accompanying this release for more information on non-GAAP financial measures and the reconciliation of these measures to GAAP measures. |
Summary Results from Operations for the Third Quarter
For the third quarter 2016, revenue was $220.3 million compared to $244.7 million in the prior-year third quarter. Results for the third quarter of 2016 include $10.5 million in revenue from EdgeRock Technologies, acquired in October 2015 and now comprising our Specialty Talent vertical within the Specialty Talent and Technology Solutions segment. Third quarter 2016 results include partial quarter revenue of $15.8 million for Anders for the period prior to its disposition on September 16, 2016, versus $25.8 million in the full prior-year period. In the third quarter 2016, the Company recorded a pre-tax restructuring charge of $3.5 million and a loss on disposition associated with Anders of $11.3 million.
Enterprise Talent revenue was $127.5 million versus $146.9 million in the prior-year period. Revenue in the North America Staffing vertical declined 7.8%, or $9.4 million, primarily due to the completion of discrete client projects and reduced spending at the Company’s largest client. UK Staffing revenue declined 38.7%, to $15.8 million from $25.8 million, due to the negative impact of foreign currency exchange rates (approximately $2.9 million), the disposition of Anders (approximately $3.5 million) on September 16, 2016, and reductions across engineering and construction sectors, in part associated with the uncertainty following the Brexit referendum.
Specialty Talent and Technology Solutions revenue was $18.9 million, an increase of $11.2 million from the prior year, principally as a result of the inclusion of $10.5 million in revenue from the acquisition of EdgeRock, which currently comprises Specialty Talent. In Technology Solutions, revenue grew 9.7% due to increased spending by certain clients, including new projects.
Engineering Solutions revenue was $60.9 million versus $76.6 million in the prior-year period primarily due to declines in demand for engineering services by downstream and midstream clients in Energy, Chemicals & Infrastructure as a result of completion of several large projects and the impact of the decline in oil and gas prices on new spending. Revenue in Aerospace & Industrial Equipment was down primarily due to reduced spending by a large commercial aviation client and, to a lesser extent, the wind down of the Company’s data acquisition and analysis business during 2015. The slight increase in the Government Services vertical was primarily due to growth in existing naval defense contracts.
MRI revenue in the third quarter was $13.0 million versus $13.5 million in the prior year due to a decline in royalty revenue and, to a lesser extent, contract staffing revenue, partially offset by an increase in franchise fees.
The Company’s gross profit was $40.5 million compared to $46.8 million in the year-ago quarter, primarily due to the decrease in revenue. Gross profit margin rates were 70 basis points lower than the prior-year period related to reductions in gross margins in all segments, partially offset by a positive shift in revenue mix to higher margin Specialty Talent revenue.
The Company reported an operating loss in the third quarter of $17.9 million compared to an operating loss of $22.1 million in the year-ago quarter. Excluding the $11.3 million loss on disposition in 2016 and the $21.5 million impairment charge in 2015, operating results decreased primarily due to the reduction in gross profit and increase in restructuring and other related costs, partially offset by an improvement in operating and administrative expenses.
Operating and administrative expenses in the third quarter improved by $3.2 million, or 6.8%, compared to the third quarter of 2015, primarily due to actions taken by the Company to reduce personnel-related and other costs in response to lower business volume, reduced corporate costs and the disposition of Anders on September 16, 2016, partially offset by the inclusion of EdgeRock.
Additional detailed segment data is included in the tables incorporated in this release and in the Company’s Form 10-Q Report.
Balance Sheet and Liquidity
CDI ended the third quarter with $10.2 million in cash and cash equivalents versus $16.9 million at the end of the fourth quarter 2015 and $26.4 million at the end of the third quarter 2015. Total debt outstanding was $15.0 million at September 30, 2016, versus $18.8 million at December 31, 2015. Net cash provided by operating activities was $6.5 million for the first nine months of 2016 versus $2.4 million in the prior-year period. Total liquidity, including availability under CDI’s bank and credit facilities, totaled $120.6 million at September 30, 2016, versus $137.6 million at the end of the fourth quarter 2015.
Business Outlook
The Company estimates revenue for the fourth quarter of 2016 in the range of $185 million to $195 million, with project completions, project delays and volume declines among large clients within Enterprise Talent, and fewer billing days in the fourth quarter, negatively impacting our estimated fourth quarter revenue compared to the third quarter of 2016. Our guidance compares to revenue in the third quarter, excluding Anders, of $204.4 million.
Conference Call
At 8:30 a.m. Eastern Time on November 3, 2016, Michael S. Castleman, President and Interim CEO, will host a conference call to discuss the 2016 third quarter results and business outlook. The call can be accessed live, via the Internet, at www.cdicorp.com or at 866-803-2143, passcode 3150648.
About CDI
CDI Corp. (NYSE:CDI) seeks to create extraordinary outcomes with our clients by delivering solutions based on highly skilled and professional talent. Our business is comprised of four segments: Enterprise Talent, Specialty Talent & Technology Solutions, Engineering Solutions and MRI. Our client offerings include an array of engineering design project solutions, information technology project solutions and managed services, specialty technology staff augmentation, and program and managed staffing services. Our clients are corporations in multiple industries, including energy, chemicals, infrastructure, aerospace, industrial equipment, technology, as well as municipal and state governments, and the U.S. Department of Defense. We have offices and delivery centers in the United States and Canada. In addition, we also provide recruiting and staffing services through our global MRINetwork® of franchisees. Learn more at www.cdicorp.com.