--- Adjusted EBITDA of 11.6 Percent on Revenue of $77 Million ---
--- $11.7 Million Free Cash Flow, 15 Percent of Revenue ---
--- $125 Million of New Contract Awards and Funded Bookings of $108 Million ---
--- Goodwill Impairment Charge Concluded at $48.6M, $36.6M Third Quarter Charge ---
ANDOVER, Mass., Oct. 31, 2012 (GLOBE NEWSWIRE) -- Dynamics Research Corporation (Nasdaq:DRCO), a leading provider of innovative management consulting, engineering, science and information technology services and solutions to federal and state governments, today announced operating results for the third quarter ended September 30, 2012.
Financial Results
Results for the third quarter of 2012 included a $36.6 million non-cash goodwill impairment charge. Excluding this charge net income for the third quarter of 2012 was $2.8 million, or $0.27 per diluted share, versus $3.3 million, or $0.32 per diluted share, for the third quarter of 2011. Third quarter 2012 results included other income of $2.4 million, or $0.14 per diluted share, as a result of settlement of a contract claim by a company in which DRC has a 40 percent ownership interest. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for the third quarter of 2012 was $8.9 million, or 11.6 percent of revenue, compared with $11.3 million, or 11.8 percent of revenue, for the third quarter a year ago. Including the goodwill impairment charge the reported loss was $20.6 million for the third quarter of 2012. Revenue for the third quarter of 2012 was $76.8 million, compared with $96.4 million for the same period in 2011.
Excluding the goodwill impairment charges net income for the nine months ended September 30, 2012 was $6.0 million, or $0.58 per diluted share, compared with $8.7 million, or $0.85 per diluted share, for the same period a year ago, excluding second quarter 2011 transaction costs. Adjusted EBITDA for the nine months ended September 30, 2012 was $23.9 million, or 9.8 percent of revenue, compared with $23.6 million, or 10.1 percent of revenue, for the same period a year ago. Including pre-tax goodwill impairment charges of $48.6 million the net loss was $24.9 million for the nine month period ended September 30, 2012. For the nine months ended September 30, 2012 revenue was $243.5 million compared to $234.4 million for the same period in 2011, which included the results of High Performance Technologies, Inc. subsequent to the merger date of June 30, 2011.
Regarding the non-cash goodwill impairment charges, the Company's decision to evaluate whether goodwill was impaired resulted from a significant decline in the market price of the Company's common stock in the second quarter of 2012. The Company's step one evaluation indicated that goodwill was impaired. As a result a preliminary charge of $12.0 million was taken in the second quarter of 2012. The Company's step two evaluation was completed in the third quarter of 2012, resulting in the determination of a total impairment of $48.6 million and an additional charge in the third quarter of $36.6 million.
Business Highlights
"Highlights for the quarter included $125 million in new business contract awards, a quarterly record for DRC, and a third quarter book-to-bill ratio of 1.4-to-one. DRC is executing on a plan to identify and capture its share of opportunities in this highly competitive and challenging environment," said Jim Regan, DRC's chairman and chief executive officer. "Clearly, our business concentration in federal growth market sectors and differentiated capabilities is a source of strength – evidenced by the fact that $76 million of the contract wins were in the healthcare market, with the largest of these being a $50 million contract to support the Food and Drug Administration's scientific computing environment.
"We are continuing to identify additional opportunities, despite market challenges. Notwithstanding the significant number of award decisions made in the quarter just ended, our qualified pipeline remains at $1.0 billion, about the same as three months ago. We also reported another strong quarter from a cash flow perspective, generating $11.7 million of free cash flow and ending the quarter with a $9.5 million cash balance. As we turn the corner into 2013, we will continue focusing on new business development initiatives, de-levering the balance sheet, and delivering bottom line results for our shareholders."
Company Guidance
The Company's estimate for 2012 full year revenue is in the range of $317 to $321 million. The Company estimates 2012 full year earnings, excluding impairment charges, to be in the range of $0.76 to $0.78 per diluted share. For the fourth quarter of 2012, the Company anticipates revenue in the range of $74 to $77 million and earnings of $0.18 to $0.20 per diluted share.
Conference Call
The Company will conduct a third quarter 2012 conference call tomorrow, November 1, 2012 at 10:00 a.m. ET. The call will be available via telephone at 877-303-4382 and accessible via Web cast at www.drc.com. Recorded replays of the conference call will be available on Dynamics Research Corporation's investor relations home page at www.drc.com and by telephone at 800-585-8367, replay passcode # 45264471, beginning at 1:00 p.m. ET on November 1, 2012.
About Dynamics Research Corporation
Dynamics Research Corporation (DRC) is a leading provider of mission-critical technology management services and solutions for government programs. DRC offers the capabilities of a large company and the responsiveness of a small company, backed by a history of excellence and customer satisfaction. Founded in 1955, DRC is a publicly held corporation (Nasdaq:DRCO) and maintains more than 25 offices nationwide with major offices in Andover, Massachusetts and the Washington, D.C. area. For more information please visit our website at www.drc.com.
Safe Harbor
Safe harbor statements under the Private Securities Litigation Reform Act of 1995: Some statements contained or implied in this news release, may be considered forward-looking statements, which by their nature are uncertain. Consequently, actual results could materially and adversely differ and readers are cautioned not to place undue reliance on forward-looking statements. For more detailed information concerning how risks and uncertainties could affect the Company's financial results, please refer to DRC's most recent filings with the SEC. The Company assumes no obligation to update any forward-looking information.
Non-GAAP Financial Information
DRC discloses earnings before interest, taxes, depreciation and amortization and free cash flow, which are not recognized measures under GAAP. We have provided a reconciliation of EBITDA, adjusted to conform to the definition used in our loan agreements and free cash flow in Attachment V of this announcement. When evaluating DRC's financial results investors should evaluate each adjustment to reported GAAP financial measures in the reconciliation as additional information and not use this non-GAAP financial measure as alternatives to reported GAAP financial measures. DRC presents these financial measures because the Company believes they provide investors with important supplemental information to assist them in assessing DRC's financial results.
ATTACHMENT I | ||
DYNAMICS RESEARCH CORPORATION | ||
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (unaudited) | ||
(In thousands, except share and per share data) | ||
Three Months Ended | ||
September 30, | ||
2012 | 2011 | |
Revenue | $ 76,767 | $ 96,379 |
Cost of revenue | 65,544 | 78,941 |
Gross profit | 11,223 | 17,438 |
Selling, general and administrative expenses | 5,684 | 7,041 |
Amortization of intangible assets | 1,031 | 1,553 |
Impairment of goodwill | 36,600 | -- |
Operating income (loss) | (32,092) | 8,844 |
Interest expense, net | (2,579) | (3,027) |
Other income (expense), net | 2,414 | (157) |
Income (loss) before provision (benefit) for income taxes | (32,257) | 5,660 |
Provision (benefit) for income taxes | (11,663) | 2,382 |
Net income (loss) | $ (20,594) | $ 3,278 |
Earnings (loss) per share: | ||
Basic | $ (1.99) | $ 0.32 |
Diluted | $ (1.99) | $ 0.32 |
Weighted average shares outstanding: | ||
Basic | 10,360,203 | 10,244,868 |
Diluted | 10,360,203 | 10,314,413 |
ATTACHMENT II | ||
DYNAMICS RESEARCH CORPORATION | ||
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (unaudited) | ||
(In thousands, except share and per share data) | ||
Nine Months Ended | ||
September 30, | ||
2012 | 2011 | |
Revenue | $ 243,470 | $ 234,375 |
Cost of revenue | 206,124 | 195,746 |
Gross profit | 37,346 | 38,629 |
Selling, general and administrative expenses | 18,985 | 19,519 |
Amortization of intangible assets | 3,093 | 2,301 |
Impairment of goodwill | 48,600 | -- |
Operating income (loss) | (33,332) | 16,809 |
Interest expense, net | (7,979) | (4,047) |
Other income, net | 2,478 | 6 |
Income before provision (benefit) for income taxes | (38,833) | 12,768 |
Provision (benefit) for income taxes | (13,951) | 5,345 |
Net income (loss) | $ (24,882) | $ 7,423 |
Earnings (loss) per share: | ||
Basic | $ (2.40) | $ 0.74 |
Diluted | $ (2.40) | $ 0.73 |
Weighted average shares outstanding: | ||
Basic | 10,356,334 | 10,060,585 |
Diluted | 10,356,334 | 10,205,603 |
ATTACHMENT III | ||
DYNAMICS RESEARCH CORPORATION | ||
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) | ||
(Dollars in thousands) | ||
September 30, | December 31, | |
2012 | 2011 | |
Assets | ||
Current assets | ||
Cash and cash equivalents | $ 9,457 | $ 3,908 |
Contract receivables, net | 51,418 | 66,466 |
Prepaid expenses and other current assets | 3,630 | 2,566 |
Total current assets | 64,505 | 72,940 |
Noncurrent assets | ||
Property and equipment, net | 13,205 | 15,265 |
Goodwill | 163,205 | 211,805 |
Intangible assets, net | 15,648 | 18,741 |
Deferred tax asset | 13,254 | 497 |
Other noncurrent assets | 4,309 | 4,312 |
Total noncurrent assets | 209,621 | 250,620 |
Total assets | $ 274,126 | $ 323,560 |
Liabilities and stockholders' equity | ||
Current liabilities | ||
Current portion of long-term debt | $ 14,438 | $ 12,375 |
Accounts payable | 22,220 | 24,504 |
Accrued compensation and employee benefits | 19,573 | 24,902 |
Deferred tax liability | 3,245 | 3,383 |
Other accrued expenses | 5,611 | 8,556 |
Total current liabilities | 65,087 | 73,720 |
Long-term liabilities | ||
Long-term debt | 91,630 | 102,453 |
Other long-term liabilities | 26,883 | 33,066 |
Total stockholders' equity | 90,526 | 114,321 |
Total liabilities and stockholders' equity | $ 274,126 | $ 323,560 |
ATTACHMENT IV | ||||
DYNAMICS RESEARCH CORPORATION | ||||
SUPPLEMENTAL INFORMATION (unaudited) | ||||
(Dollars in thousands) | ||||
Contract revenues were earned from the following sectors: | ||||
Three Months Ended | Nine Months Ended | |||
September 30, | September 30, | |||
2012 | 2011 | 2012 | 2011 | |
National defense and intelligence agencies | $ 45,468 | $ 59,479 | $ 142,540 | $ 154,761 |
Homeland security | 11,799 | 12,963 | 34,307 | 36,573 |
Federal civilian agencies | 15,401 | 20,148 | 54,592 | 31,738 |
Total revenue from federal agencies | 72,668 | 92,590 | 231,439 | 223,072 |
State and local government agencies | 3,995 | 3,774 | 11,910 | 11,274 |
Other | 104 | 15 | 121 | 29 |
Total revenue | $ 76,767 | $ 96,379 | $ 243,470 | $ 234,375 |
Revenues by contract type as a percentage of contract revenue were as follows: | ||||
Three Months Ended | Nine Months Ended | |||
September 30, | September 30, | |||
2012 | 2011 | 2012 | 2011 | |
Fixed price, including service-type contracts | 45% | 46% | 46% | 48% |
Time and materials | 37 | 33 | 34 | 31 |
Cost reimbursable | 18 | 21 | 20 | 21 |
100% | 100% | 100% | 100% | |
Prime contract | 83% | 82% | 84% | 78% |
Sub-contract | 17 | 18 | 16 | 22 |
100% | 100% | 100% | 100% | |
Three Months Ended | Nine Months Ended | |||
September 30, | September 30, | |||
2012 | 2011 | 2012 | 2011 | |
Net cash provided by operating activities | $ 12,188 | $ 14,277 | $ 16,306 | $ 14,278 |
Capital expenditures | $ 535 | $ 663 | $ 750 | $ 1,525 |
Depreciation | $ 981 | $ 1,067 | $ 2,999 | $ 2,774 |
Bookings | $ 107,956 | $ 160,881 | $ 251,637 | $ 274,634 |
September 30, | December 31, | |||
2012 | 2011 | |||
Total backlog | $ 757,334 | $ 801,932 | ||
Funded backlog | $ 182,431 | $ 183,336 | ||
Employees | 1,265 | 1,534 |
ATTACHMENT V | ||||
DYNAMICS RESEARCH CORPORATION | ||||
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES | ||||
ADJUSTED EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION (ADJUSTED EBITDA) (unaudited) AND | ||||
FREE CASH FLOW (unaudited) | ||||
(Dollars in thousands) | ||||
As presented, adjusted EBITDA is defined as follows: | ||||
Three Months Ended | Nine Months Ended | |||
September 30, | September 30, | |||
2012 | 2011 | 2012 | 2011 | |
Net income (loss) | $ (20,594) | $ 3,278 | $ (24,882) | $ 7,423 |
Add: | ||||
Interest expense, net | 2,579 | 3,027 | 7,979 | 4,047 |
Provision (benefit) for income taxes | (11,663) | 2,382 | (13,951) | 5,345 |
Depreciation expense | 981 | 1,067 | 2,999 | 2,774 |
Amortization expense | 1,031 | 1,553 | 3,093 | 2,301 |
Share-based compensation | 171 | 192 | 522 | 521 |
Impairment of goodwill | 36,600 | -- | 48,600 | -- |
Transaction costs, net of amounts included in net interest expense | -- | -- | -- | 1,703 |
Less: amortization of deferred gain on sale of building | (169) | (169) | (507) | (507) |
Adjusted EBITDA(1) | $ 8,936 | $ 11,330 | $ 23,853 | $ 23,607 |
Adjusted EBITDA, as a percent of revenue | 11.6% | 11.8% | 9.8% | 10.1% |
Three Months Ended | Nine Months Ended | |||
September 30, | September 30, | |||
2012 | 2011 | 2012 | 2011 | |
Net cash provided by operating activities | $ 12,188 | $ 14,277 | $ 16,306 | $ 14,278 |
Less: Additions to property and equipment | (535) | (663) | (750) | (1,525) |
Free cash flow | $ 11,653 | $ 13,614 | $ 15,556 | $ 12,753 |
Free cash flow, as a percent of revenue | 15.2% | 14.1% | 6.4% | 5.4% |
(1) We have calculated adjusted EBITDA to conform with the definition of EBITDA provided in our loan agreements to help investors understand that component of our debt covenant calculations. We may have calculated EBITDA differently than it is calculated by other companies. |
ATTACHMENT VI | ||||
DYNAMICS RESEARCH CORPORATION | ||||
NON-GAAP CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (unaudited) | ||||
(in thousands, except share and per share data) | ||||
Three Months Ended | Nine Months Ended | |||
September 30, | September 30, | |||
2012 | 2011 | 2012 | 2011 | |
Revenue | $ 76,767 | $ 96,379 | $ 243,470 | $ 234,375 |
Cost of revenue | 65,544 | 78,941 | 206,124 | 195,746 |
Gross profit | 11,223 | 17,438 | 37,346 | 38,629 |
Non-GAAP selling, general and administrative expenses | 5,684 | 7,041 | 18,985 | 17,816 |
Amortization of intangible assets | 1,031 | 1,553 | 3,093 | 2,301 |
Non-GAAP operating income | 4,508 | 8,844 | 15,268 | 18,512 |
Non-GAAP interest expense, net | (2,579) | (3,027) | (7,979) | (3,514) |
Other income (loss), net | 2,414 | (157) | 2,478 | 6 |
Non-GAAP income before provision for income taxes | 4,343 | 5,660 | 9,767 | 15,004 |
Non-GAAP provision for income taxes | 1,537 | 2,382 | 3,749 | 6,285 |
Non-GAAP net income | $ 2,806 | $ 3,278 | $ 6,018 | $ 8,719 |
Non-GAAP earnings per share: | ||||
Non-GAAP Basic | $ 0.27 | $ 0.32 | $ 0.58 | $ 0.87 |
Non-GAAP Diluted | $ 0.27 | $ 0.32 | $ 0.58 | $ 0.85 |
Weighted average shares outstanding: | ||||
Basic | 10,360,203 | 10,244,868 | 10,356,334 | 10,060,585 |
Diluted | 10,384,518 | 10,314,413 | 10,394,775 | 10,205,603 |
ATTACHMENT VII | ||||
DYNAMICS RESEARCH CORPORATION | ||||
RECONCILIATION OF NON-GAAP MEASURES | ||||
(in thousands, except share and per share data) | ||||
Three Months Ended | Nine Months Ended | |||
September 30, | September 30, | |||
2012 | 2011 | 2012 | 2011 | |
Selling, general and administrative expenses | $ 5,684 | $ 7,041 | $ 18,985 | $ 19,519 |
Operating transaction costs | -- | -- | -- | (1,703) |
Non-GAAP selling, general and administrative | $ 5,684 | $ 7,041 | $ 18,985 | $ 17,816 |
Operating income (loss) | $ (32,092) | $ 8,844 | $ (33,332) | $ 16,809 |
Impairment of goodwill | 36,600 | -- | 48,600 | -- |
Operating transaction costs | -- | -- | -- | 1,703 |
Non-GAAP operating income | $ 4,508 | $ 8,844 | $ 15,268 | $ 18,512 |
Interest expense, net | $ (2,579) | $ (3,027) | $ (7,979) | $ (4,047) |
Non operating transaction costs | -- | -- | -- | 533 |
Non-GAAP interest expense, net | $ (2,579) | $ (3,027) | $ (7,979) | $ (3,514) |
Income (loss) before provision (benefit) for income taxes | $ (32,257) | $ 5,660 | $ (38,833) | $ 12,768 |
Impairment of goodwill | 36,600 | -- | 48,600 | -- |
Total transaction costs | -- | -- | -- | 2,236 |
Non-GAAP income before provision for income taxes | $ 4,343 | $ 5,660 | $ 9,767 | $ 15,004 |
Provision (benefit) for income taxes | $ (11,663) | $ 2,382 | $ (13,951) | $ 5,345 |
Tax benefit for impairment of goodwill | 13,200 | -- | 17,700 | -- |
Tax benefit for transaction costs | -- | -- | -- | 940 |
Non-GAAP provision for income taxes | $ 1,537 | $ 2,382 | $ 3,749 | $ 6,285 |
Net income (loss) | $ (20,594) | $ 3,278 | $ (24,882) | $ 7,423 |
Impairment of goodwill, net of taxes | 23,400 | -- | 30,900 | -- |
Total transaction costs, net of taxes | -- | -- | -- | 1,296 |
Non-GAAP net income | $ 2,806 | $ 3,278 | $ 6,018 | $ 8,719 |
Earnings (loss) per share: | ||||
GAAP Basic | $ (1.99) | $ 0.32 | $ (2.40) | $ 0.74 |
Per share effect of goodwill impairment | 2.26 | -- | 2.98 | -- |
Per share effect of transaction costs | -- | -- | -- | 0.13 |
Non-GAAP Basic | $ 0.27 | $ 0.32 | $ 0.58 | $ 0.87 |
GAAP Diluted | $ (1.98) | $ 0.32 | $ (2.39) | $ 0.73 |
Per share effect of goodwill impairment | 2.25 | -- | 2.97 | -- |
Per share effect of transaction costs | -- | -- | -- | 0.13 |
Non-GAAP Diluted | $ 0.27 | $ 0.32 | $ 0.58 | $ 0.85 |
Weighted average shares outstanding: | ||||
Basic | 10,360,203 | 10,244,868 | 10,356,334 | 10,060,585 |
Diluted | 10,384,518 | 10,314,413 | 10,394,775 | 10,205,603 |