DRCO Dynamics Research Corp. (MM)

ANDOVER, Mass., May 2 /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 first quarter ended March 31, 2006. Financial Results Revenue for the first quarter of 2006 was $68.2 million, compared with $73.5 million for the same period a year ago. Operating income for the first quarter of 2006 was $2.8 million, or 4.1% of revenue, compared with $4.6 million, or 6.2% of revenue, for the first quarter a year ago. Net income was $1.5 million, or $0.16 per diluted share, for the quarter ended March 31, 2006, compared with $2.1 million, or $0.23 per diluted share, for the first quarter of 2006. Diluted earnings per share includes a $0.02 effect of FAS 123R for the first quarter of 2006. Business Highlights "Revenues were lower than expected for the quarter due to a delayed start on a significant new task order awarded early in the quarter. Delays in contract awards and funding and slower than expected ramp-up on new contracts awarded also lowered revenues in the quarter. In addition, while awaiting award of a new contract with a significant customer we made the decision to continue performing work for this customer in order to avoid a break in service," reported James P. Regan, DRC chairman, president and chief executive officer. "Earnings were impacted by these factors and also by a higher than anticipated level of business development and bid and proposal activity during the quarter. We are continuing to make critical investments to position DRC for capturing new business opportunities, but continued award delays have caused us to re-examine our cost structure. To bring it back in line with current revenue expectations, we have taken the actions necessary to achieve the earnings guidance provided. The costs associated with these actions will be absorbed in the second quarter and the effects will be fully apparent in the earnings improvement we are projecting in the second half of the year. "During the first quarter we received new and renewal business with a potential value of $78 million. Our new business awards during the quarter were $20 million compared with $43 million in all of 2005. We ended the quarter with funded backlog of $144 million. Funded bookings were $71 million for the quarter and our book to bill ratio was 1.0. Business development indicators remain strong. First year revenue awaiting award for new and follow on business was $141 million at the end of the quarter $98 million of which was new business, and we are consistently winning new business opportunities at targeted levels," Regan added. Company Guidance The company estimates revenues in the range of $265 to $280 million and earnings per diluted share in the range of $0.65 to $0.79 for 2006. For the second quarter of the year the company expects to book revenues in the range of $64 to $66 million and report earnings per diluted share of $0.02 to $0.05. Conference Call The company will conduct a first quarter 2006 conference call on Wednesday, May 3, 2006 at 8:30 a.m. ET. The call will be available via telephone at (800) 458-9009, 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 #3661414, beginning at 10:00 a.m. ET May 3, 2006 through 11:59 p.m. ET May 10, 2006. About Dynamics Research Corporation DRC is headquartered in Andover, Massachusetts and has major offices in Vienna, Virginia and Fairborn, Ohio. The company has 27 additional field offices throughout the United States providing direct support to all branches of the Department of Defense and several state government agencies. Dynamics Research Corporation is an innovative solutions provider that partners with its customers to apply proven processes and technologies. For more than 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 our 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 March 31, 2006 2005 Contract revenue $66,759 $71,839 Product sales 1,454 1,703 Total revenue 68,213 73,542 Cost of contract revenue 56,876 60,806 Cost of product sales 1,298 1,409 Selling, general and administrative expenses 6,556 6,021 Amortization of intangible assets 702 754 Total operating costs and expenses 65,432 68,990 Operating income 2,781 4,552 Interest expense, net (569) (1,086) Other income 339 25 Income before provision for income taxes 2,551 3,491 Provision for income taxes 1,077 1,400 Net income (1) $1,474 $2,091 Earnings per common share Basic (1) $0.16 $0.24 Diluted (1) $0.16 $0.23 Weighted average shares outstanding Basic 9,012,706 8,695,638 Diluted 9,396,644 9,220,103 (1) Includes $84, or $0.01 per common share, attributable to the cumulative effect of the change in accounting principle for the adoption of SFAS 123R. ATTACHMENT II DYNAMICS RESEARCH CORPORATION CONDENSED BALANCE SHEETS (in thousands) March 31, December 31, 2006 2005 (unaudited) (audited) Assets Cash and cash equivalents $2,970 $1,020 Accounts receivable, net 37,988 32,894 Unbilled expenditures and fees on contracts in process 52,743 60,210 Prepaid expenses and other current assets 2,876 1,483 Total current assets 96,577 95,607 Property, plant and equipment, net 12,523 12,252 Goodwill 63,055 63,055 Intangible assets, net 7,778 8,480 Other noncurrent assets 8,220 8,359 Total assets $188,153 $187,753 Liabilities and stockholders' equity Current portion of long-term debt $7,857 $10,170 Accounts payable 23,807 25,668 Deferred income taxes 17,855 19,825 Accrued payroll and employee benefits 18,109 18,761 Other accrued expenses 5,076 6,392 Total current liabilities 72,704 80,816 Long-term debt 21,314 15,242 Other long-term liabilities 17,490 17,508 Stockholders' equity 76,645 74,187 Total liabilities and stockholders' equity $188,153 $187,753 ATTACHMENT III DYNAMICS RESEARCH CORPORATION SUPPLEMENTAL INFORMATION (unaudited) (dollars in thousands) Contract revenues were earned from the following sectors: Three Months Ended March 31, 2006 2005 National defense and intelligence agencies $54,942 $56,014 Federal civilian agencies 7,311 9,215 State and local government agencies 4,276 5,694 Other 230 916 $66,759 $71,839 Revenues by contract type as a percentage of contract revenue were as follows: Three Months Ended March 31, 2006 2005 Time and materials 61% 55% Cost reimbursable 21% 20% Fixed price, including service-type contracts 18% 25% 100% 100% Prime contact 67% 70% Sub-contract 33% 30% 100% 100% Three Months Ended March 31, 2006 2005 Net cash (used in) provided by operating activities $(1,558) $2,761 Capital expenditures $1,061 $1,218 Depreciation $790 $942 Bookings $70,843 $94,442 March 31, 2006 2005 Funded backlog $144,200 $186,273 Employees 1,744 1,933 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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