Adjusted EBITDA of 9.2
Percent on Revenue of $68 Million
Major Homeland Security
Contract Wins Highlight Quarter Results
18 Percent Growth in
Healthcare
Operating Cash Generation at
10.5 Percent of 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 third quarter ended September 30,
2013.
Financial Results
Net income for the quarter ended September 30, 2013 was $1.4
million, or $0.13 per diluted share, as compared with $1.4 million,
or $0.13 per diluted share, for the third quarter of 2012,
excluding a goodwill impairment charge of $36.6 million (pre-tax),
or $2.25 per diluted share, and a legal settlement gain of $2.4
million, or $0.14 per diluted share, both in the prior-year period.
Adjusted earnings before interest, taxes, depreciation and
amortization (EBITDA) for the third quarter of 2013 was $6.2
million, or 9.2 percent of revenue, as compared with $8.9 million,
or 11.6 percent of revenue, as reported for the same period a year
ago. Revenue for the third quarter of 2013 was $67.5 million
compared with $76.8 million for the third quarter of 2012.
For the nine month period ended September 30, 2013 net income
was $3.8 million, or $0.36 per diluted share, compared with $4.6
million, or $0.44 per diluted share, for the same period in 2012,
excluding the third quarter 2012 goodwill impairment charge of
$36.6 million and legal settlement gain of $2.4 million. Adjusted
EBITDA for the first nine months of 2013 was $18.0 million, or 8.5
percent of revenue, as compared to $23.9 million, or 9.8 percent of
revenue, for the same period a year ago. For the nine months ended
September 30, 2013 revenue was $213.2 million compared with $243.5
million for the first nine months of 2012.
During the third quarter, the Company generated $7.1 million of
cash from operations as compared with $12.2 million in last year's
third quarter.
Business Highlights
"The third quarter once again highlighted our strong healthcare
business, our focus on improving bottom line results, and our
ability to generate significant amounts of cash," said Jim Regan,
DRC's chairman and chief executive officer. "Our healthcare revenue
rose 18.3 percent year-over-year as we continued to benefit from
several key contracts and our acknowledged depth in the field. In
addition, while our homeland security revenue was down this
quarter, we announced two significant awards expected to drive
growth next year – the EAGLE II functional category 2 contract and
the $6 billion, multi-agency Continuous Monitoring as a Service
(CMaaS) program. We look forward to further strengthening our
position as a leading provider in technology and management
consulting services on both of these contracts.
"Overall, our qualified pipeline stands at $855 million, up from
last quarter's $775 million, and includes $117 million of bids
submitted and awaiting award. In addition, we have won 96 percent
of re-competes thus far in 2013. While a number of awards have been
delayed and we saw a temporary impact, we were pleased that the
federal government was able to stave off a more-protracted
government shutdown. Going forward, we believe DRC is well
positioned in key priority areas that will benefit from funding
priorities.
"We have also kept a focus on the bottom line – as our gross
profit margin rose to 15.3 percent from 14.6 percent
year-over-year, and our operating margin increased to 6.4 percent
from 5.9 percent, excluding the goodwill impairment charges taken
in 2012. Our cash flow also was strong this quarter, and we
anticipate a solid fourth quarter as well. Heading into 2014, we
will remain aggressive in managing costs, continue to invest in new
business development, reduce our debt and strengthen our operations
– so that DRC is poised for greater returns to our shareholders in
the quarters to come."
Company Guidance
For the fourth quarter of 2013 the Company anticipates revenue
in the range of $61 to $64 million and earnings of $0.14 to $0.16
per diluted share. Guidance reflects an estimated negative impact
from the 16 day federal government shutdown of $2.3 million in
revenue, and $0.03 per diluted share. Anticipated adjusted EBITDA
of $6.3 to $6.7 million for the fourth quarter and $24.3 to $24.7
million for the full year 2013 reflects a negative impact of $0.6
million related to the government shutdown. The Company continues
to consider refinancing its credit facilities. Company guidance for
the fourth quarter does not include any transaction costs or
charges.
Conference Call
The Company will conduct a third quarter 2013 conference call
tomorrow, October 31, 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 # 75634365, beginning at 1:00 p.m. ET on October 31,
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, as well as earnings per diluted
share net of impairment charges and legal settlement gains, neither
of which is 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. We have provided a reconciliation of
non-GAAP earnings per diluted share in Attachments VI and VII 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, |
|
2013 |
2012 |
Revenue |
$ 67,528 |
$ 76,767 |
Cost of revenue |
57,199 |
65,544 |
Gross profit on revenue |
10,329 |
11,223 |
|
|
|
Selling, general and administrative
expenses |
5,102 |
5,684 |
Amortization of intangible assets |
931 |
1,031 |
Impairment of goodwill |
-- |
36,600 |
Operating income (loss) |
4,296 |
(32,092) |
Interest expense, net |
(2,090) |
(2,579) |
Other income, net |
116 |
2,414 |
Income (loss) before provision (benefit) for
income taxes |
2,322 |
(32,257) |
Provision (benefit) for income taxes |
962 |
(11,663) |
Net income (loss) |
$ 1,360 |
$ (20,594) |
|
|
|
Earnings (loss) per common share |
|
|
Basic |
$ 0.13 |
$ (1.99) |
Diluted |
$ 0.13 |
$ (1.99) |
|
|
|
Weighted average shares outstanding |
|
|
Basic |
10,510,218 |
10,360,203 |
Diluted |
10,528,382 |
10,360,203 |
|
|
|
ATTACHMENT II |
|
|
|
DYNAMICS RESEARCH
CORPORATION |
CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS (unaudited) |
(in thousands, except
share and per share data) |
|
|
|
|
Nine Months
Ended |
|
September
30, |
|
2013 |
2012 |
Revenue |
$ 213,201 |
$ 243,470 |
Cost of revenue |
181,846 |
206,124 |
Gross profit on revenue |
31,355 |
37,346 |
|
|
|
Selling, general and administrative
expenses |
16,189 |
18,985 |
Amortization of intangible assets |
2,792 |
3,093 |
Impairment of goodwill |
-- |
48,600 |
Operating income (loss) |
12,374 |
(33,332) |
Interest expense, net |
(6,201) |
(7,979) |
Other income, net |
215 |
2,478 |
Income (loss) before provision (benefit) for
income taxes |
6,388 |
(38,833) |
Provision (benefit) for income taxes |
2,618 |
(13,951) |
Net income (loss) |
$ 3,770 |
$ (24,882) |
|
|
|
Earnings (loss) per common share |
|
|
Basic |
$ 0.36 |
$ (2.40) |
Diluted |
$ 0.36 |
$ (2.40) |
|
|
|
Weighted average shares outstanding |
|
|
Basic |
10,503,919 |
10,356,334 |
Diluted |
10,522,083 |
10,356,334 |
|
|
|
ATTACHMENT
III |
|
|
|
DYNAMICS RESEARCH
CORPORATION |
CONDENSED CONSOLIDATED
BALANCE SHEETS (unaudited) |
(in
thousands) |
|
|
|
|
September 30, |
December 31, |
|
2013 |
2012 |
Assets |
|
|
Current assets |
|
|
Cash and cash equivalents |
$ 924 |
$ 2 |
Contract receivables, net |
46,723 |
48,112 |
Prepaid expenses and other current
assets |
3,173 |
2,538 |
Total current assets |
50,820 |
50,652 |
Noncurrent assets |
|
|
Property and equipment, net |
12,402 |
12,511 |
Goodwill |
163,205 |
163,205 |
Intangible assets, net |
11,825 |
14,617 |
Deferred tax asset |
10,602 |
14,678 |
Other noncurrent assets |
4,113 |
4,388 |
Total noncurrent assets |
202,147 |
209,399 |
Total assets |
$ 252,967 |
$ 260,051 |
|
|
|
Liabilities and stockholders' equity |
|
|
Current liabilities |
|
|
Current portion of long-term debt |
$ 16,500 |
$ 15,125 |
Accounts payable |
21,538 |
24,847 |
Accrued compensation and employee
benefits |
15,931 |
14,933 |
Deferred tax liability |
2,817 |
3,009 |
Other accrued expenses |
3,936 |
5,307 |
Total current liabilities |
60,722 |
63,221 |
Long-term liabilities |
|
|
Long-term debt |
66,633 |
74,018 |
Other long-term liabilities |
33,094 |
34,941 |
Total stockholders' equity |
92,518 |
87,871 |
Total liabilities and stockholders'
equity |
$ 252,967 |
$ 260,051 |
|
|
|
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, |
|
2013 |
2012 |
2013 |
2012 |
Healthcare |
$ 15,610 |
$ 13,190 |
$ 46,847 |
$ 42,661 |
Homeland Security |
8,484 |
11,816 |
27,958 |
36,218 |
Research and Development |
9,990 |
11,822 |
32,194 |
34,397 |
Intelligence, Surveillance and
Reconnaissance |
9,695 |
10,284 |
30,285 |
29,408 |
Federal Regulation and Reform |
5,758 |
6,003 |
18,096 |
18,150 |
Priority Markets |
49,537 |
53,115 |
155,380 |
160,834 |
Defense Readiness, Logistics, and
Command, Control and Communication |
13,414 |
19,659 |
42,630 |
70,688 |
State Government and Other |
4,577 |
3,993 |
15,191 |
11,948 |
Total Markets |
$ 67,528 |
$ 76,767 |
$ 213,201 |
$ 243,470 |
|
|
|
|
|
Revenues by contract type as a
percentage of contract revenue were as follows: |
|
|
|
|
|
|
|
|
|
Three Months
Ended |
Nine Months
Ended |
|
September
30, |
September
30, |
|
2013 |
2012 |
2013 |
2012 |
Fixed price, including service-type
contracts |
42% |
45% |
42% |
46% |
Time and materials |
40 |
37 |
40 |
34 |
Cost reimbursable |
18 |
18 |
18 |
20 |
|
100% |
100% |
100% |
100% |
|
|
|
|
|
Prime contract |
79% |
83% |
79% |
84% |
Sub-contract |
21 |
17 |
21 |
16 |
|
100% |
100% |
100% |
100% |
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended |
Nine Months
Ended |
|
September
30, |
September
30, |
|
2013 |
2012 |
2013 |
2012 |
Net cash provided by operating
activities |
$ 7,082 |
$ 12,188 |
$ 9,276 |
$ 16,306 |
Capital expenditures |
$ 651 |
$ 535 |
$ 1,272 |
$ 750 |
Depreciation |
$ 929 |
$ 981 |
$ 2,749 |
$ 2,999 |
Bookings |
$ 104,823 |
$ 107,956 |
$ 198,201 |
$ 251,637 |
|
|
|
|
|
|
|
|
|
|
|
September 30, |
December 31, |
|
|
|
2013 |
2012 |
|
|
Total backlog |
$ 498,728 |
$ 731,676 |
|
|
Funded backlog |
$ 137,015 |
$ 163,645 |
|
|
Employees |
1,130 |
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 |
Nine Months
Ended |
|
September
30, |
September
30, |
|
2013 |
2012 |
2013 |
2012 |
Net income (loss) |
$ 1,360 |
$ (20,594) |
$ 3,770 |
$ (24,882) |
Add: |
|
|
|
|
Interest expense, net |
2,090 |
2,579 |
6,201 |
7,979 |
Provision (benefit) for income taxes |
962 |
(11,663) |
2,618 |
(13,951) |
Depreciation expense |
929 |
981 |
2,749 |
2,999 |
Amortization expense |
931 |
1,031 |
2,792 |
3,093 |
Share-based compensation |
133 |
171 |
397 |
522 |
Impairment of goodwill |
-- |
36,600 |
-- |
48,600 |
Less: amortization of deferred gain on
sale of building |
(169) |
(169) |
(507) |
(507) |
Adjusted EBITDA(1) |
$ 6,236 |
$ 8,936 |
$ 18,020 |
$ 23,853 |
Adjusted EBITDA, as a percent of revenue |
9.2% |
11.6% |
8.5% |
9.8% |
|
|
|
|
|
(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 |
Nine Months |
|
Ended |
Ended |
|
September 30,
2012 |
September 30,
2012 |
Revenue |
$ 76,767 |
$ 243,470 |
Cost of revenue |
65,544 |
206,124 |
Gross profit |
11,223 |
37,346 |
|
|
|
Selling, general and administrative
expenses |
5,684 |
18,985 |
Amortization of intangible assets |
1,031 |
3,093 |
Non-GAAP operating income |
4,508 |
15,268 |
Interest expense, net |
(2,579) |
(7,979) |
Other income, net |
14 |
78 |
Non-GAAP income before provision for income
taxes |
1,943 |
7,367 |
Non-GAAP provision for income taxes |
557 |
2,769 |
Non-GAAP net income |
$ 1,386 |
$ 4,598 |
|
|
|
Non-GAAP earnings per share: |
|
|
Non-GAAP Basic |
$ 0.13 |
$ 0.44 |
Non-GAAP Diluted |
$ 0.13 |
$ 0.44 |
|
|
|
Weighted average shares outstanding: |
|
|
Basic |
10,360,203 |
10,356,334 |
Diluted |
10,384,518 |
10,394,775 |
|
|
|
ATTACHMENT
VII |
|
|
|
DYNAMICS RESEARCH
CORPORATION |
RECONCILIATION OF
NON-GAAP MEASURES |
(in thousands, except
share and per share data) |
|
|
|
|
Three Months |
Nine Months |
|
Ended |
Ended |
|
September 30,
2012 |
September 30,
2012 |
Operating income (loss) |
$ (32,092) |
$ (33,332) |
Impairment of goodwill |
36,600 |
48,600 |
Non-GAAP operating income |
$ 4,508 |
$ 15,268 |
|
|
|
Other income, net |
$ 2,414 |
$ 2,478 |
Legal settlement gain |
(2,400) |
(2,400) |
Non-GAAP other income, net |
$ 14 |
$ 78 |
|
|
|
Income (loss) before provision (benefit) for
income taxes |
$ (32,257) |
$ (38,833) |
Impairment of goodwill |
36,600 |
48,600 |
Legal settlement gain |
(2,400) |
(2,400) |
Non-GAAP income before provision for income
taxes |
$ 1,943 |
$ 7,367 |
|
|
|
Provision (benefit) for income taxes |
$ (11,663) |
$ (13,951) |
Tax benefit for impairment of goodwill |
13,200 |
17,700 |
Tax provision for legal settlement gain |
(980) |
(980) |
Non-GAAP provision for income taxes |
$ 557 |
$ 2,769 |
|
|
|
Net income (loss) |
$ (20,594) |
$ (24,882) |
Impairment of goodwill, net of taxes |
23,400 |
30,900 |
Legal settlement gain, net of taxes |
(1,420) |
(1,420) |
Non-GAAP net income |
$ 1,386 |
$ 4,598 |
|
|
|
Earnings (loss) per share: |
|
|
GAAP Basic |
$ (1.99) |
$ (2.40) |
Per share effect of goodwill
impairment |
2.26 |
2.98 |
Per share effect of legal settlement
gain |
(0.14) |
(0.14) |
Non-GAAP Basic(1) |
$ 0.13 |
$ 0.44 |
|
|
|
GAAP Diluted |
$ (1.98) |
$ (2.39) |
Per share effect of goodwill
impairment |
2.25 |
2.97 |
Per share effect of legal settlement
gain |
(0.14) |
(0.14) |
Non-GAAP Diluted(1) |
$ 0.13 |
$ 0.44 |
|
|
|
Weighted average shares outstanding: |
|
|
Basic |
10,360,203 |
10,356,334 |
Diluted |
10,384,518 |
10,394,775 |
|
|
|
(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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