DRCO Dynamics Research Corp. (MM)

Revenue Up 12%, Operating Margin Up 25%, Earnings Per Share Up 36% ANDOVER, Mass., Nov. 1 /PRNewswire-FirstCall/ -- Dynamics Research Corporation (NASDAQ:DRCO), a provider of innovative engineering, technical and information technology services and solutions to federal and state governments today announced operating results for the third quarter ended September 30, 2005. Financial Results Revenue for the third quarter of 2005 was $79.1 million, up $8.7 million or 12%, compared with $70.5 million for the same period a year ago. Revenue for the nine months ended September 30, 2005 was $228.8 million, up $31.4 million or 16%, compared with $197.5 million for the same period in 2004. The growth in 2005 has resulted principally from acquisitions. Operating income for the third quarter of 2005 was $6.2 million, or 7.9% of revenue, compared with $4.4 million, or 6.3% of revenue, for the third quarter a year ago. For the nine months ended September 30, 2005 operating income was $15.3 million, or 6.7% of revenue, compared with $11.9 million, or 6.0% of revenue for the first nine months of 2004. Net income was $3.1 million, or $0.34 per diluted share, for the quarter ended September 30, 2005, compared with $2.3 million, or $0.25 per diluted share, for the third quarter of 2004. For the nine months ended September 30, 2005 net income was $8.5 million, or $0.92 per diluted share, compared with $6.5 million, or $0.72 per diluted share, for the same period in 2004. Business Highlights Regarding performance for the quarter, James P. Regan, President, Chairman and CEO, said, "Our profit margin and earnings exceeded expectations for the quarter. In fact, earnings per share for the third quarter grew by 36% and profit margin grew by 25% on year-over-year comparisons. Seeing the results of our profit margin improvement initiatives, we're delighted with our third quarter earnings performance. "From a revenue standpoint, our growth in the third quarter of 12% reflects a continuing trend in contract award delays. While we see this situation as temporary, we will remain cautious with our short-term outlook until we see evidence of improvement. "Several contract wins in the quarter, bids awaiting award backlog of $488 million, a new business opportunity pipeline which stands at an all-time high, and terrific progress in launching the DESP II program underlie our strong optimism looking forward into 2006," Regan added. Company Guidance The company currently estimates revenues in the range of $303 to $306 million and earnings per diluted share in the range of $1.24 to $1.27 including the $0.13 per share impact of the sale of stock during the second quarter. For the fourth quarter of the year the company expects to book revenues in the range of $74 to $77 million and report earnings per diluted share of $0.31 to $0.34. Conference Call The company will conduct a conference call tomorrow, November 2, 2005 at 8:30 a.m. ET to discuss its third quarter results and the outlook for the remainder of 2005 and 2006 in more detail. The call will be available via telephone at (800) 946-0744, and accessible via Web cast at http://www.drc.com/. Recorded replays of the conference call will be available on Dynamics Research Corporation's investor relations home page at http://www.drc.com/ and by telephone at (888) 203-1112, passcode #4622989 beginning at 10:30 a.m. November 2, 2005 through 11:59 p.m. November 9, 2005. About Dynamics Research Corporation Dynamics Research Corporation is an innovative solutions provider that partners with its customers to apply proven processes and technologies. For 50 years, DRC has delivered technical and information technology services that enhance the performance and cost effectiveness of its customers' mission critical systems. For additional information about DRC please visit the website at http://www.drc.com/. 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 differ. 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. CONTACT: Elise Caffrey, Vice President & Treasurer (978) 289-1545, ATTACHMENT I DYNAMICS RESEARCH CORPORATION RESULTS OF OPERATIONS (unaudited) (in thousands, except share and per share data) Three months ended September 30, 2005 2004 Contract revenue $77,334 $68,659 Product sales 1,779 1,792 Total revenue 79,113 70,451 Cost of contract revenue 64,174 58,022 Cost of product sales 1,242 1,274 Selling, general and administrative expenses 6,722 6,141 Amortization of intangible assets 760 573 Total operating costs and expenses 72,898 66,010 Operating income 6,215 4,441 Interest expense, net (1,061) (559) Other income 119 48 Income before provision for income taxes 5,273 3,930 Provision for income taxes 2,136 1,662 Net income $3,137 $2,268 Earnings per common share Basic $0.35 $0.27 Diluted $0.34 $0.25 Weighted average shares outstanding Weighted average shares outstanding - basic 8,846,245 8,538,353 Dilutive effect of options and restricted stock grants 417,892 551,109 Weighted average shares outstanding - diluted 9,264,137 9,089,462 ATTACHMENT II DYNAMICS RESEARCH CORPORATION RESULTS OF OPERATIONS (unaudited) (in thousands, except share and per share data) Nine months ended September 30, 2005 2004 Contract revenue $223,712 $192,361 Product sales 5,131 5,108 Total revenue 228,843 197,469 Cost of contract revenue 187,927 164,017 Cost of product sales 3,948 3,774 Selling, general and administrative expenses 19,429 16,411 Amortization of intangible assets 2,279 1,335 Total operating costs and expenses 213,583 185,537 Operating income 15,260 11,932 Interest expense, net (3,193) (1,133) Other income 2,221 485 Income before provision for income taxes 14,288 11,284 Provision for income taxes 5,787 4,773 Net income $8,501 $6,511 Earnings per common share Basic $0.97 $0.77 Diluted $0.92 $0.72 Weighted average shares outstanding Weighted average shares outstanding - basic 8,761,800 8,464,854 Dilutive effect of options and restricted stock grants 446,254 567,252 Weighted average shares outstanding - diluted 9,208,054 9,032,106 ATTACHMENT III DYNAMICS RESEARCH CORPORATION CONDENSED BALANCE SHEETS (in thousands) September 30, December 31, 2005 2004 (unaudited) (audited) Assets Cash and cash equivalents $1,639 $925 Accounts receivable, net 36,920 45,978 Unbilled expenditures and fees on contracts in process 65,817 48,119 Prepaid expenses and other current assets 1,675 5,668 Total current assets 106,051 100,690 Property, plant and equipment, net 22,689 22,139 Goodwill 63,055 63,055 Intangible assets, net 9,240 11,519 Deferred income taxes 296 - Unbilled expenditures and fees on contracts in process 262 2,203 Other noncurrent assets 3,138 5,528 Total assets $204,731 $205,134 Liabilities and stockholders' equity Current portion of long-term debt $8,357 $8,357 Notes payable and revolver 7,889 10,000 Accounts payable 26,170 20,550 Accrued payroll and employee benefits 12,970 17,914 Deferred income taxes 16,447 15,418 Other accrued expenses 4,628 4,869 Total current liabilities 76,461 77,108 Long-term debt 45,217 51,485 Deferred income taxes - 591 Accrued pension liability 7,576 11,336 Other long-term liabilities 3,439 3,296 Stockholders' equity 72,038 61,318 Total liabilities and stockholders' equity $204,731 $205,134 Three months ended Nine months ended September 30, September 30, 2005 2004 2005 2004 Capital expenditures $947 $1,149 $3,373 $3,331 Depreciation $915 $876 $2,823 $2,648 Bookings $72,305 $70,096 $210,938 $190,199 September 30, 2005 2004 Funded backlog $147,470 $151,042 Employees 1,829 1,975 DATASOURCE: Dynamics Research Corporation CONTACT: Elise Caffrey, Vice President & Treasurer of Dynamics Research Corporation, +1-978-289-1545, Web site: http://www.drc.com/

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