FA Play

PHILADELPHIA, April 30 /PRNewswire-FirstCall/ — CDI Corp. today reported net earnings for the first quarter ended March 31, 2008 and announced a quarterly cash dividend.
For the quarter ended March 31, 2008, the company reported net earnings from continuing operations of $7.9 million, or $0.39 per diluted share, on revenue of $293.9 million versus $8.0 million, or $0.40 per diluted share, on revenue of $293.9 million in the prior-year quarter. First quarter 2008 net earnings included a pre-tax charge of $0.6 million for reserves related to an international master licensee of MRI Worldwide Network Limited. First quarter 2007 net earnings included a previously-disclosed $1.6 million pre-tax reversal of a legal accrual. When adjusting for these items, year-over-year net earnings from continuing operations for the first quarter 2008 would have increased by 18.2%. (See attached table for reconciliation).
“As anticipated, year-over-year revenue momentum slowed during the quarter driven primarily by continued softness in IT staffing and some reductions in lower-margin engineering work. We also saw flattening of permanent placement activity at MRI and Anders as client uncertainty led to delayed hiring decisions,” said President and Chief Executive Officer, Roger H. Ballou. “We are pleased, however, that our strategic focus on higher-margin, longer-cycle services continues to produce gross profit margin momentum on a year-over-year basis. Revenue growth in our higher-margin businesses produced a solid overall gross profit increase of $3.2 million or 4.7%.”
The company also announced a quarterly dividend of $0.13 per share to be paid on May 28, 2008 to all shareholders of record as of May 14, 2008.
Additionally, the company reported that it repurchased 72,400 shares of its common stock for a total of $1.8 million during the first quarter of 2008 under the previously-announced Board-authorized repurchase program of up to $50 million of the company’s outstanding common stock.
Business Segment Discussion
The CDI Engineering Solutions segment reported a 3.7% increase in first quarter revenue compared to the year-ago quarter driven by growth in the Process & Industrial and Government Services verticals. Operating profit increased 13.3% due to revenue growth, an increased mix of higher-margin engineering project business and growth in permanent placement. Operating profit growth, when adjusted for the previously-mentioned $1.6 million reversal of a legal accrual in the first quarter of 2007, would have been approximately 36% on a year-over-year basis.
Management Recruiters International, Inc.’s (MRI) first quarter revenue increased by 21.4% versus the prior-year quarter driven by strong growth in contract staffing services revenue. Operating profit declined by 32.2% versus the year-ago quarter driven by the aforementioned charge to earnings of $0.6 million and a decline in royalty revenue. This decline in royalties was driven by sequential slowdowns in consumer products and services and in the industrial and manufacturing sectors.
Revenue at U.K.-based AndersElite was essentially flat versus the prior- year quarter, both in dollars and on a constant currency basis. This reflects softness in permanent placement and contract staffing services demand in the U.K., offsetting strong growth in Australia. Operating profit increased by 3.0% over the first quarter of 2007 driven by effective expense controls and improved productivity, as well as growth in the Australian market.
CDI IT Solutions revenue declined by 14.1% versus the year-ago quarter reflecting decreases in contract staffing services provided to automotive clients and previously-identified staffing reductions by a large IT client. Operating profit declined by 87.2% reflecting the decline in revenue.
Corporate Summary
Corporate overhead costs increased by 7.3% on a year-over-year basis, primarily reflecting higher stock-based and other compensation costs somewhat offset by decreases in compliance spending.
“We ended the quarter with approximately $110 million in cash and cash equivalents,” said Ballou. “With our cash on-hand and untapped borrowing capacity, we should have sufficient resources to support organic revenue growth, capital spending, our stock repurchase program, shareholder dividends and potential acquisitions.
“Our strategy to deliver engineering and professional staffing services on a global basis is producing positive results. During the first quarter 2008, approximately 34% of our revenue was generated from projects and clients outside of the United States compared to approximately 30% in the prior-year quarter. Additionally, our strategy to move our business to higher-margin services is working as gross profit margin increased by over 100 basis points versus the first quarter of 2007.”
Business Outlook
“The current economic environment is creating some headwind, particularly in the area of permanent placement as clients slow their hiring processes. We anticipate that these general conditions could persist for several quarters and have made, and will continue to make, appropriate adjustments to our cost structure. In spite of these economic conditions, we still see the potential to increase revenue by 2% to 4% in the second quarter versus the prior-year quarter, and we still see the potential for full year revenue growth in the range of 3% to 6%,” said Ballou. “Our business model remains solid and our strategy to invest in the growth of higher-margin businesses could generate up to 20% variable contribution margin on revenue growth in the second quarter and 12% to 14% for the full year. ”
Financial Tables Follow

Conference Call/Webcast

CDI Corp. will conduct a conference call at 11 a.m. (ET) today to discuss this announcement. The conference call will be broadcast live over the Internet and can be accessed by any interested party at . An online replay will be available at for 14 days after the call.
Company Information
Headquartered in Philadelphia, CDI Corp. is a leading provider of engineering & information technology outsourcing solutions and professional staffing. Its operating units include CDI Engineering Solutions, CDI IT Solutions, CDI AndersElite Limited, and Management Recruiters International, Inc. Visit CDI at .
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 statements about our strategies for growth and future financial results (such as revenues, variable contribution margin and tax rates), 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: changes in general economic conditions and levels of capital spending by customers in the industries that we serve; competitive market pressures; our ability to maintain and grow our revenue base; the availability and cost of qualified labor; our level of success in attracting, training, and retaining qualified management personnel and other staff employees; changes in customers’ attitudes towards outsourcing; credit risks associated with our customers; changes in tax laws and other government regulations; the possibility of incurring liability for our activities, including the activities of our temporary employees; our performance on customer contracts; adverse consequences arising out of the U.K. Office of Fair Trading investigation; and government policies or judicial decisions adverse to our businesses. More detailed information about some of these risks and uncertainties may be found in our filings with the SEC, particularly in the “Risk Factors” section of our Form 10-K’s and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Form 10-K’s and Form 10-Q’s. 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.
CDI Corp. and Subsidiaries
Consolidated Earnings Release Tables
(Unaudited)
(in thousands, except per share data)

For the three months ended
March 31, December 31,
2008 2007 2007

Revenues $293,880 $293,914 $298,960

Cost of services 222,625 225,872 224,253

Gross profit 71,255 68,042 74,707

Operating and administrative expenses 60,292 55,643 63,013

Operating profit 10,963 12,399 11,694

Other income, net 1,248 435 1,096

Earnings from continuing operations
before income taxes 12,211 12,834 12,790

Income tax expense 4,287 4,787 4,619

Earnings from continuing operations 7,924 8,047 8,171

Earnings (loss) from discontinued
operations - 421 (355)

Net earnings $7,924 $8,468 $7,816

Diluted earnings per share
Earnings from continuing operations $0.39 $0.40 $0.40
Earnings (loss) from discontinued
operations - 0.02 (0.02)
Net earnings $0.39 $0.42 $0.38

Average diluted number of shares 20,405 20,194 20,452

For the three months ended
Selected Balance Sheet Data from March 31, December 31,
continuing operations: 2008 2007 2007

Cash and cash equivalents $110,043 $36,566 $127,059

Accounts receivable, net $223,401 $250,272 $210,629

Current assets $343,628 $299,365 $348,754

Total assets $447,317 $395,298 $450,058

Current liabilities $95,124 $113,607 $102,741

Shareholders’ equity $338,901 $308,771 $334,978

For the three months ended
Selected Cash Flow Data from March 31, December 31,
continuing operations: 2008 2007 2007

Depreciation expense $2,850 $2,593 $2,816

Capital expenditures $4,444 $2,159 $1,997

Dividends paid $2,646 $2,212 $2,649

Free cash flow for the quarter ended
March 31, 2008 is shown below:

Net cash used in operating
activities $(7,210)
Less: capital expenditures (4,444)
Less: dividends paid (2,646)
Free cash flow used in
continuing operations $(14,300)

For the three months ended
Selected Earnings and Other Financial March 31, December 31,
Data from continuing operations: 2008 2007 2007

Revenues $293,880 $293,914 $298,960

Gross profit $71,255 $68,042 $74,707

Gross profit margin 24.3% 23.2% 25.0%

Operating and administrative expenses
as a percentage of revenue 20.5% 18.9% 21.1%

Corporate expenses $5,086 $4,741 $5,163

Corporate expenses as a percentage of
revenue 1.7% 1.6% 1.7%

Operating profit margin 3.7% 4.2% 3.9%

Effective income tax rate 35.1% 37.3% 36.1%

After-tax return on shareholders’
equity (a) 9.8% 8.3% 10.0%

Pre-tax return on net assets (b) 21.4% 17.1% 23.4%

Variable contribution margin (c) NM(c) 20.3% 17.0%

For the three months ended
Reconciliation to adjusted earnings March 31, Increase/
from continuing operations(1): 2008 2007 (Decrease)

Earnings from continuing operations,
as reported $7,924 $8,047 (1.5)%
First quarter adjustments - net of
tax (1) 405 (1,003)
Earnings from continuing operations,
as adjusted $8,329 $7,044 18.2%

(1) The table above reconciles CDI’s first quarter results of operations
on a more comparable basis by adjusting for the unfavorable after-tax
effect of the $0.6 million charge in 2008 related to MRI and the
favorable after-tax effect of the $1.6 million reversal in 2007 of a
legal accrual, due to the Company’s successful appeal of a 2004
lawsuit judgment against the Company.

For the three months ended
Selected Segment Data from March 31, December 31,
continuing operations: 2008 2007 2007

Engineering Solutions (d)
Revenues $156,152 $150,522 $157,581
Gross profit 34,700 29,911 36,128
Gross profit margin 22.2% 19.9% 22.9%

Operating profit 10,821 9,547 9,951
Operating profit margin 6.9% 6.3% 6.3%

Management Recruiters International
Revenues $19,631 $16,173 $21,451
Gross profit 10,694 9,830 12,248
Gross profit margin 54.5% 60.8% 57.1%

Operating profit 2,250 3,318 3,936
Operating profit margin 11.5% 20.5% 18.4%

AndersElite
Revenues $61,740 $61,595 $62,777
Gross profit 15,664 16,175 15,424
Gross profit margin 25.4% 26.3% 24.6%

Operating profit 2,775 2,693 2,307
Operating profit margin 4.5% 4.4% 3.7%

IT Solutions (d)
Revenues $56,357 $65,624 $57,151
Gross profit 10,197 12,126 10,907
Gross profit margin 18.1% 18.5% 19.1%

Operating profit 203 1,582 663
Operating profit margin 0.4% 2.4% 1.2%

For the three months ended
Engineering Solutions Revenue March 31, December 31,
by Vertical (d): 2008 2007 2007

CDI Process and Industrial $117,317 $112,092 $120,451
CDI Government Services 19,845 16,552 18,358
CDI Aerospace 15,875 18,129 16,085
CDI Life Sciences 3,115 3,749 2,687

Total Engineering Solutions Revenue $156,152 $150,522 $157,581

For the three months ended
Selected Earnings Data from March 31, December 31,
discontinued operations (e): 2008 2007 2007

Net Revenues $- $38,027 $-

Earnings (loss) from discontinued
operations, before taxes - 672 (569)

Income tax expense (benefit) - 251 (214)

Earnings (loss) from discontinued
operations, net of taxes $- $421 $(355)

(a) Current quarter combined with the three preceding quarters’ net
earnings from continuing operations divided by the average
shareholders’ equity.

(b) Current quarter combined with the three preceding quarters’ pre-tax
earnings from continuing operations divided by the average net assets.
Net assets include total assets from continuing operations minus total
liabilities from continuing operations excluding cash, external debt
and income tax accounts.

(c) Year-over-year change in operating profit from continuing operations
divided by year-over-year change in revenue from continuing
operations. The calculation for the first quarter of 2008 is not
meaningful (NM) because revenues were relatively flat.

(d) The Company has revised the reporting segments’ prior year data for
Engineering Solutions and IT Solutions for comparative purposes.

(e) In September 2007, the Company sold its Todays Staffing, Inc.
subsidiary. Please see the Company’s consolidated financial
statements and the notes thereto for the year ended December 31, 2007
included in Form 10-K, filed with the Securities and Exchange
Commission on March 7, 2008.

CDI Corp.