DRCO Dynamics Research Corp. (MM)

Annual Revenue Up 9%, Operating Margin Up 12%, Debt Down 64% ANDOVER, Mass., Feb. 22 /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 fourth quarter and full year ended December 31, 2005. Financial Results Preliminary unaudited revenue for the fourth quarter of 2005 was $71.6 million, compared with $78.2 million for the same period a year ago. Preliminary unaudited revenue for the full year ended December 31, 2005 was $300.4 million, up $24.7 million or 9%, from $275.7 million for the same period in 2004. The growth in 2005 resulted principally from an acquisition completed in September 2004. Operating income for the fourth quarter of 2005 was $6.0 million, or 8.4% of revenue, compared with $5.6 million, or 7.1% of revenue, for the fourth quarter a year ago. For the full year ended December 31, 2005 operating income was $21.3 million, or 7.1% of revenue, compared with $17.5 million, or 6.4% of revenue for the full year 2004. Preliminary unaudited net income was $2.9 million, or $0.31 per diluted share, for the quarter ended December 31, 2005, unchanged from $2.9 million, or $0.31 per diluted share, for the fourth quarter of 2004. For the year ended December 31, 2005 preliminary unaudited net income was $11.4 million, or $1.24 per diluted share, including $0.13 attributable to the sale of stock in the second quarter ended June 30, 2005, compared with $9.4 million, or $1.03 per diluted share, for the year ended December 31, 2004. Business Highlights "I am pleased to report record revenues, record earnings and a significantly reduced level of debt at the end of 2005. Services revenue for the full year increased by 9.3% in 2005 from 2004. Our annual operating margin of 7.1% was at a record level, up nearly 12% over the 2004 operating margin, and we reduced our funded debt by $44 million resulting in a debt to capital ratio of 26%," said James P. Regan, DRC president, chairman and chief executive officer. "We ended the quarter with funded backlog of $145 million, or 6 months, which is consistent with historical levels. Funded bookings were $77 million for the quarter and our book to bill ratio was 1.07. Business development indicators remain strong. First year revenue awaiting award for new and follow on business was $150 million at the end of the year with well over a third of that amount in new business, and we are consistently winning in excess of 35% of new business opportunities. "Throughout 2005 we focused our efforts on two key strategic objectives -- profitable growth and operational efficiency. We continued to invest in business development activities developing new key partnership roles in a number of our customers' highest priority programs laying the foundation for 2006 and beyond. "While 2006 will not be without challenges, the successes of the past year continue the progress being made in DRC's transformation. In 2006 we will sharpen our focus on growth and continued margin improvement. We will concentrate on satisfying our customers while growing our business at both the top and bottom lines. I am confident DRC has the strategies, the business systems and processes, and the customer relationships and contract awards in place for a successful 2006," Regan added. Company Guidance The company estimates revenues in the range of $290 to $305 million and earnings per diluted share in the range of $1.06 to $1.14 for 2006. For the first quarter of the year the company expects to book revenues in the range of $69 to $71 million and report earnings per diluted share of $0.21 to $0.23. Earnings guidance for 2006 periods includes FAS123R stock compensation expense which is estimated to be in the range of $0.06 to $0.08 for the full year. FAS123R stock compensation expense for 2005, which was not included in preliminary unaudited reported earnings was $0.08 for the year and $0.03 for the first quarter. The company will conduct a conference call tomorrow, February 23, 2006 at 8:30 a.m. ET to discuss its 2005 results and 2006 outlook in more detail. The call will be available via telephone at (800) 311-0799, and accessible via Web cast at http://www.drc.com/. A replay of the call will be available on the company's Web site at http://www.drc.com/ and by telephone at (888) 203-1112, passcode #3924085, beginning at 10:30 a.m. ET, February 23, 2006 through 11:59 p.m. March 2, 2006. 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 December 31, 2005 2004 Contract revenue $69,950 $76,273 Product sales 1,647 1,964 Total revenue 71,597 78,237 Cost of contract revenue 57,639 63,492 Cost of product sales 1,264 1,440 Selling, engineering and administrative expenses 5,889 6,741 Amortization of intangible assets 760 989 Total operating costs and expenses 65,552 72,662 Operating income 6,045 5,575 Interest expense, net (1,174) (1,092) Other income (expense), net 55 (125) Income before provision for income taxes 4,926 4,358 Provision for income taxes 1,994 1,496 Net income $2,932 $2,862 NET INCOME PER COMMON AND EQUIVALENT SHARE Basic $0.33 $0.33 Diluted $0.31 $0.31 Weighted average shares outstanding Weighted average shares outstanding - basic 8,954,488 8,601,489 Dilutive effect of options 423,060 557,735 Weighted average shares outstanding - diluted 9,377,548 9,159,224 ATTACHMENT II. DYNAMICS RESEARCH CORPORATION RESULTS OF OPERATIONS (in thousands, except share and per share data) Year ended December 31, 2005 2004 (unaudited) (audited) Contract revenue $293,662 $268,634 Product sales 6,778 7,072 Total revenue 300,440 275,706 Cost of contract revenue 245,566 227,509 Cost of product sales 5,212 5,214 Selling, engineering and administrative expenses 25,318 23,152 Amortization of intangible assets 3,039 2,324 Total operating costs and expenses 279,135 258,199 Operating income 21,305 17,507 Interest expense, net (4,367) (2,225) Other income 2,276 360 Income before provision for income taxes 19,214 15,642 Provision for income taxes 7,781 6,269 Net income $11,433 $9,373 NET INCOME PER COMMON AND EQUIVALENT SHARE Basic $1.30 $1.10 Diluted $1.24 $1.03 Weighted average shares outstanding Weighted average shares outstanding - basic 8,809,644 8,499,013 Dilutive effect of options 443,878 574,035 Weighted average shares outstanding - diluted 9,253,522 9,073,048 ATTACHMENT III. DYNAMICS RESEARCH CORPORATION CONDENSED BALANCE SHEETS (in thousands) December 31, 2005 2004 (unaudited) (audited) Assets Cash and cash equivalents $1,020 $925 Accounts receivable, net 32,894 45,978 Unbilled expenditures and fees on contracts in process 60,210 48,119 Prepaid expenses and other current assets 1,483 5,668 Total current assets 95,607 100,690 Property, plant and equipment, net 12,252 22,139 Goodwill 63,055 63,055 Intangible assets, net 8,480 11,519 Deferred income tax asset 3,916 - Unbilled expenditures and fees on contracts in process 1,549 2,203 Other noncurrent assets 2,894 5,528 Total assets $187,753 $205,134 Liabilities and stockholders' equity Current portion of long-term debt $10,170 $8,357 Notes payable and revolver - 10,000 Accounts payable 25,668 20,550 Accrued payroll and employee benefits 18,761 17,914 Current deferred income taxes 19,825 15,418 Other accrued expenses 6,392 4,447 Current liabilities of discontinued operations - 422 Total current liabilities 80,816 77,108 Long-term debt 15,242 51,485 Accrued pension liability 5,328 11,336 Deferred income taxes - 591 Other long-term liabilities 4,991 3,296 Deferred gain on sale and long term commitments 7,189 - Stockholders' equity 74,187 61,318 Total liabilities and stockholders' equity $187,753 $205,134 ATTACHMENT IV. DYNAMICS RESEARCH CORPORATION SUPPLEMENTAL INFORMATION (unaudited) (dollars in thousands) Three Months Ended Year ended December 31, December 31, 2005 2004 2005 2004 Capital expenditures (total company) $1,198 $1,213 $4,571 $4,544 Depreciation $896 $976 $3,719 $3,624 Bookings $76,642 $92,061 $287,581 $282,260 Funded backlog (total company) $144,571 $165,017 December 31, 2005 2004 Employees (total company) 1,822 1,960 First Call Analyst: FCMN Contact: ecaffrey@drc.com DATASOURCE: Dynamics Research Corporation CONTACT: Elise Caffrey, Vice President & Treasurer of Dynamics Research Corporation, +1-978-289-1545 Web site: http://www.drc.com/

Copyright