--- Adjusted EBITDA of 7.9
Percent on Revenue of $72 Million ---
--- New Business Pipeline Up
25 Percent Sequentially; $200 Million Awaiting Award
---
--- 11 Percent Growth in
Healthcare Revenue ---
Dynamics Research Corporation (Nasdaq:DRCO), a leading technology
and management consulting company focused on driving performance
and process improvement for government clients, today announced
operating results for the second quarter ended June 30, 2013.
Financial Results
Net income for the quarter ended June 30, 2013 was $1.2 million,
or $0.11 per diluted share, as compared with $1.4 million, or $0.14
per diluted share, for the second quarter of 2012, excluding a
goodwill impairment charge of $12 million (pre-tax), or $0.73 per
share, reported in the second quarter a year ago. Adjusted earnings
before interest, taxes, depreciation and amortization (EBITDA) for
the second quarter of 2013 was $5.7 million, or 7.9 percent of
revenue, as compared with $7.1 million, or 8.7 percent of revenue,
for the same period a year ago. Revenue for the second quarter of
2013 was $72.1 million compared with $80.8 million for the same
period in 2012.
For the six month period ended June 30, 2013 net income was $2.4
million, or $0.23 per diluted share, compared with $3.2 million, or
$0.31 per diluted share, for the same period in 2012, excluding the
second quarter 2012 goodwill impairment charge of $12 million.
Adjusted EBITDA for the first six months of 2013 was $11.8 million,
or 8.1 percent of revenue, as compared to $14.9 million, or 8.9
percent of revenue, for the same period a year ago. For the six
months ended June 30, 2013 revenue was $145.7 million compared with
$166.7 million for the same period in 2012.
During the second quarter, the Company generated $9.0 million of
cash from operations as compared with $5.7 million in the same
period a year ago.
Business Highlights
"Second quarter results were again consistent with our
expectations, reflecting more stability in our end markets than
existed a year ago," said Jim Regan, DRC's chairman and chief
executive officer. "While industry conditions certainly remain
challenging there are indications of greater visibility going
forward, and our qualified pipeline now stands at $775 million – up
25 percent over the past three months. This includes over $200
million in near-term bids submitted and awaiting award.
"Revenue in our priority markets was $52.6 million, flat with
the second quarter a year ago and down only slightly from $53.2
million for the first quarter of this year. Healthcare revenue was
up 11 percent year-over-year, offset by weakness in homeland
security revenue, while defense readiness, logistics and C3 revenue
was off sharply from the year-ago period, continuing to reflect
current spending trends. However, we won 92 percent of $42 million
in re-compete award decisions made over the last three months and
booked $17 million of new business. Funded bookings continued to be
soft, as we await the beginning of government fiscal year option
exercises; in addition, we are seeing an increase in the use of
incremental funding, rather than full funding, upon option
exercise. Our book-to-bill ratio was 0.7-to-one for the quarter,
while the trailing twelve month book-to-bill was 0.9-to-one.
"Longer term, we are encouraged by early indicators of market
stabilization, strong re-compete performance and customer
satisfaction, as well as by the high level of bidding activity we
are currently experiencing approaching the government's fiscal year
end."
Company Guidance
For the third quarter 2013 the Company anticipates revenue in
the range of $68 to $71 million and earnings of $0.12 to $0.14 per
diluted share. Considering current uncertainties regarding federal
government expenditure decisions, the Company continues to refrain
from providing financial guidance for the balance of the calendar
year 2013.
Conference Call
The Company will conduct a second quarter 2013 conference call
tomorrow, August 1, 2013 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 # 14753510, beginning at 1:00 p.m. ET on August 1,
2013.
About Dynamics Research Corporation
Dynamics Research Corporation (DRC) provides technology and
management consulting solutions focused on driving performance,
process and results for government clients. DRC offers innovative
solutions and delivers rock solid results. DRC has large company
capabilities and small company agility. 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. region. For more
information please visit our website at www.drc.com.
Safe Harbor
Certain statements contained in this news release, which are not
historical facts or are related to future plans, events, revenues
and earnings expectations, objectives and outlooks are forward
looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 and, by their nature, are uncertain
and subject to a number of risks and uncertainties that could
adversely affect the Company's results. We can provide no
assurance that these statements will prove to be
correct. Consequently, actual results could materially differ
from these statements. For more detailed information
concerning how these risks and uncertainties could affect the
Company's financial results, please refer to DRC's most recent
forms 10-K and 10-Q and other documents filed with the Securities
and Exchange Commission. Further, the Company is under no duty
or obligation to update or revise any forward looking statements as
a result of events or new information.
Non-GAAP Financial Information
DRC discloses adjusted earnings before interest, taxes,
depreciation and amortization, which is not a recognized measure
under GAAP. We have provided a reconciliation of adjusted
EBITDA, adjusted to conform to the definition used in our loan
agreements, to net income 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 |
|
June
30, |
|
2013 |
2012 |
Revenue |
$ 72,111 |
$ 80,834 |
Cost of revenue |
61,963 |
68,307 |
Gross profit on revenue |
10,148 |
12,527 |
|
|
|
Selling, general and administrative
expenses |
5,350 |
6,410 |
Amortization of intangible assets |
930 |
1,031 |
Impairment of goodwill |
-- |
12,000 |
Operating income (loss) |
3,868 |
(6,914) |
Interest expense, net |
(1,936) |
(2,621) |
Other income, net |
32 |
(71) |
Income (loss) before provision (benefit) for
income taxes |
1,964 |
(9,606) |
Provision (benefit) for income taxes |
792 |
(3,527) |
Net income (loss) |
$ 1,172 |
$ (6,079) |
|
|
|
Earnings (loss) per common share |
|
|
Basic |
$ 0.11 |
$ (0.59) |
Diluted |
$ 0.11 |
$ (0.59) |
|
|
|
Weighted average shares outstanding |
|
|
Basic |
10,499,217 |
10,319,901 |
Diluted |
10,517,381 |
10,319,901 |
|
ATTACHMENT II |
|
|
|
DYNAMICS RESEARCH
CORPORATION |
CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS (unaudited) |
(in thousands, except
share and per share data) |
|
|
|
|
|
|
|
Six Months
Ended |
|
June
30, |
|
2013 |
2012 |
Revenue |
$ 145,673 |
$ 166,703 |
Cost of revenue |
124,647 |
140,580 |
Gross profit on revenue |
21,026 |
26,123 |
|
|
|
Selling, general and administrative
expenses |
11,087 |
13,301 |
Amortization of intangible assets |
1,861 |
2,062 |
Impairment of goodwill |
-- |
12,000 |
Operating income (loss) |
8,078 |
(1,240) |
Interest expense, net |
(4,111) |
(5,400) |
Other income, net |
99 |
64 |
Income (loss) before provision (benefit) for
income taxes |
4,066 |
(6,576) |
Provision (benefit) for income taxes |
1,656 |
(2,288) |
Net income (loss) |
$ 2,410 |
$ (4,288) |
|
|
|
Earnings (loss) per common share |
|
|
Basic |
$ 0.23 |
$ (0.42) |
Diluted |
$ 0.23 |
$ (0.42) |
|
|
|
Weighted average shares outstanding |
|
|
Basic |
10,503,740 |
10,330,851 |
Diluted |
10,521,904 |
10,330,851 |
|
ATTACHMENT
III |
|
|
|
DYNAMICS RESEARCH
CORPORATION |
CONDENSED CONSOLIDATED
BALANCE SHEETS (unaudited) |
(in
thousands) |
|
|
|
|
|
|
|
June 30, |
December 31, |
|
2013 |
2012 |
Assets |
|
|
Current assets |
|
|
Cash and cash equivalents |
$ 718 |
$ 2 |
Contract receivables, net |
51,000 |
48,112 |
Prepaid expenses and other
current assets |
3,742 |
2,538 |
Total current assets |
55,460 |
50,652 |
Noncurrent assets |
|
|
Property and equipment,
net |
12,940 |
12,511 |
Goodwill |
163,205 |
163,205 |
Intangible assets, net |
12,756 |
14,617 |
Deferred tax asset |
11,871 |
14,678 |
Other noncurrent assets |
3,996 |
4,388 |
Total noncurrent assets |
204,768 |
209,399 |
Total assets |
$ 260,228 |
$ 260,051 |
|
|
|
Liabilities and stockholders' equity |
|
|
Current liabilities |
|
|
Current portion of long-term
debt |
$ 16,500 |
$ 15,125 |
Accounts payable |
23,762 |
24,847 |
Accrued compensation and
employee benefits |
15,235 |
14,933 |
Deferred tax liability |
3,480 |
3,009 |
Other accrued expenses |
3,435 |
5,307 |
Total current liabilities |
62,412 |
63,221 |
Long-term liabilities |
|
|
Long-term debt |
72,441 |
74,018 |
Other long-term
liabilities |
34,422 |
34,941 |
Total stockholders' equity |
90,953 |
87,871 |
Total liabilities and
stockholders' equity |
$ 260,228 |
$ 260,051 |
|
ATTACHMENT IV |
|
|
|
|
|
DYNAMICS RESEARCH
CORPORATION |
SUPPLEMENTAL
INFORMATION (unaudited) |
(dollars in
thousands) |
|
|
|
|
|
|
|
|
|
|
Contract revenues were earned
from the following sectors: |
|
|
|
|
|
|
Three Months
Ended |
Six Months
Ended |
|
June
30, |
June
30, |
|
2013 |
2012 |
2013 |
2012 |
Healthcare |
$ 15,940 |
$ 14,341 |
$ 31,237 |
$ 29,471 |
Homeland Security |
9,437 |
12,089 |
19,474 |
24,402 |
Research and Development |
10,832 |
10,660 |
22,204 |
22,575 |
Intelligence, Surveillance and
Reconnaissance |
10,217 |
9,613 |
20,590 |
19,124 |
Federal Regulation and
Reform |
6,202 |
5,911 |
12,338 |
12,147 |
Priority Markets |
52,628 |
52,614 |
105,843 |
107,719 |
Defense Readiness, Logistics,
and Command, Control and Communication |
13,914 |
24,402 |
29,216 |
51,029 |
State Government and Other |
5,569 |
3,818 |
10,614 |
7,955 |
Total Markets |
$ 72,111 |
$ 80,834 |
$ 145,673 |
$ 166,703 |
|
|
|
|
|
Revenues by contract type as a
percentage of contract revenue were as follows: |
|
|
|
|
|
|
Three Months
Ended |
Six Months
Ended |
|
June
30, |
June
30, |
|
2013 |
2012 |
2013 |
2012 |
Fixed price, including
service-type contracts |
42% |
47% |
42% |
46% |
Time and materials |
40 |
33 |
40 |
34 |
Cost reimbursable |
18 |
20 |
18 |
20 |
|
100% |
100% |
100% |
100% |
|
|
|
|
|
Prime contract |
79% |
85% |
80% |
85% |
Sub-contract |
21 |
15 |
20 |
15 |
|
100% |
100% |
100% |
100% |
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended |
Six Months
Ended |
|
June
30, |
June
30, |
|
2013 |
2012 |
2013 |
2012 |
Net cash provided by operating
activities |
$ 8,952 |
$ 5,738 |
$ 2,194 |
$ 4,118 |
Capital expenditures |
$ 337 |
$ 123 |
$ 621 |
$ 215 |
Depreciation |
$ 920 |
$ 1,004 |
$ 1,820 |
$ 2,018 |
Bookings |
$ 48,675 |
$ 85,346 |
$ 93,378 |
$ 143,681 |
|
|
|
|
|
|
|
|
|
|
|
June 30, |
December 31, |
|
|
|
2013 |
2012 |
|
|
Total backlog |
$ 514,665 |
$ 731,676 |
|
|
Funded backlog |
$ 102,741 |
$ 163,645 |
|
|
Employees |
1,159 |
1,255 |
|
|
|
ATTACHMENT V |
|
|
|
|
|
DYNAMICS RESEARCH
CORPORATION |
RECONCILIATION OF
NON-GAAP FINANCIAL MEASURES |
ADJUSTED EARNINGS
BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION (ADJUSTED
EBITDA) (unaudited) |
(Dollars in
thousands) |
|
|
|
|
|
As presented, adjusted EBITDA is
defined as follows: |
|
Three Months
Ended |
Six Months
Ended |
|
June
30, |
June
30, |
|
2013 |
2012 |
2013 |
2012 |
Net income (loss) |
$ 1,172 |
$ (6,079) |
$ 2,410 |
$ (4,288) |
Add: |
|
|
|
|
Interest expense, net |
1,936 |
2,621 |
4,111 |
5,400 |
Provision (benefit) for income
taxes |
792 |
(3,527) |
1,656 |
(2,288) |
Depreciation expense |
920 |
1,004 |
1,820 |
2,018 |
Amortization expense |
930 |
1,031 |
1,861 |
2,062 |
Share-based compensation |
131 |
175 |
264 |
351 |
Impairment of goodwill |
-- |
12,000 |
-- |
12,000 |
Less: amortization of deferred gain on
sale of building |
(169) |
(169) |
(338) |
(338) |
Adjusted EBITDA(1) |
$ 5,712 |
$ 7,056 |
$ 11,784 |
$ 14,917 |
Adjusted EBITDA, as a percent of revenue |
7.9% |
8.7% |
8.1% |
8.9% |
|
|
|
|
|
|
|
|
|
|
(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
adjusted 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 |
Six Months |
|
Ended |
Ended |
|
June 30, 2012 |
June 30, 2012 |
Revenue |
$ 80,834 |
$ 166,703 |
Cost of revenue |
68,307 |
140,580 |
Gross profit |
12,527 |
26,123 |
|
|
|
Selling, general and administrative
expenses |
6,410 |
13,301 |
Amortization of intangible assets |
1,031 |
2,062 |
Non-GAAP operating income |
5,086 |
10,760 |
Interest expense, net |
(2,621) |
(5,400) |
Other income (loss), net |
(71) |
64 |
Non-GAAP income before provision for income
taxes |
2,394 |
5,424 |
Non-GAAP provision for income taxes |
973 |
2,212 |
Non-GAAP net income |
$ 1,421 |
$ 3,212 |
|
|
|
Non-GAAP earnings per share: |
|
|
Non-GAAP Basic |
$ 0.14 |
$ 0.31 |
Non-GAAP Diluted |
$ 0.14 |
$ 0.31 |
|
|
|
Weighted average shares outstanding: |
|
|
Basic |
10,319,901 |
10,330,851 |
Diluted |
10,352,869 |
10,372,116 |
|
ATTACHMENT
VII |
|
|
|
DYNAMICS RESEARCH
CORPORATION |
RECONCILIATION OF
NON-GAAP MEASURES |
(in thousands, except
share and per share data) |
|
|
|
|
Three Months |
Six Months |
|
Ended |
Ended |
|
June 30, 2012 |
June 30, 2012 |
Operating income (loss) |
$ (6,914) |
$ (1,240) |
Impairment of goodwill |
12,000 |
12,000 |
Non-GAAP operating income |
$ 5,086 |
$ 10,760 |
|
|
|
Income (loss) before provision (benefit) for
income taxes |
$ (9,606) |
$ (6,576) |
Impairment of goodwill |
12,000 |
12,000 |
Non-GAAP income before provision for income
taxes |
$ 2,394 |
$ 5,424 |
|
|
|
Provision (benefit) for income taxes |
$ (3,527) |
$ (2,288) |
Tax benefit for impairment of goodwill |
4,500 |
4,500 |
Non-GAAP provision for income taxes |
$ 973 |
$ 2,212 |
|
|
|
Net income (loss) |
$ (6,079) |
$ (4,288) |
Impairment of goodwill, net of taxes |
7,500 |
7,500 |
Non-GAAP net income |
$ 1,421 |
$ 3,212 |
|
|
|
Earnings (loss) per share: |
|
|
GAAP Basic |
$ (0.59) |
$ (0.42) |
Per share effect of goodwill
impairment |
0.73 |
0.73 |
Non-GAAP Basic |
$ 0.14 |
$ 0.31 |
|
|
|
GAAP Diluted |
$ (0.59) |
$ (0.41) |
Per share effect of goodwill
impairment |
0.72 |
0.72 |
Non-GAAP Diluted(1) |
$ 0.14 |
$ 0.31 |
|
|
|
Weighted average shares outstanding: |
|
|
Basic |
10,319,901 |
10,330,851 |
Diluted |
10,352,869 |
10,372,116 |
|
|
|
|
|
|
(1) May not add due to
rounding. |
CONTACT: Investors:
Chris Witty
Darrow Associates, Inc.
646.438.9385
cwitty@darrowir.com
Media:
Ilina Dimitrova
Sage Communications (for DRC)
703.531.8256
ilinad@aboutsage.com
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