DRCO Dynamics Research Corp. (MM)

ANDOVER, Mass., May 2 /PRNewswire-FirstCall/ -- Dynamics Research Corporation (NASDAQ:DRCO), a leading 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, 2007. Financial Results The Company reported revenue of $56.8 million for the first quarter of 2007, compared with $68.2 million for the same period in 2006. Completion of the Company's Air National Guard contract in May 2006 and lower subcontractor revenue resulting from the recent, successful transition to the USAF Consolidated Acquisition and Professional Services (CAPS) contract accounted for $9.5 million of the change in revenues for the first quarter of this year, compared with a year ago. Net income was $1.1 million, or $0.12 per diluted share, for the first quarter of 2007 compared with $1.4 million, or $0.15 per diluted share, before the effect of an accounting change for the same period a year ago. Business Highlights "Our financial results for the first quarter of 2007 were solid with several key indicators trending favorably," said Jim Regan, DRC's chairman and chief executive officer. "Revenues exceeded our expectations, with a substantial increase in revenues derived from billable hours compared with the fourth quarter of last year, while subcontractor revenues related to the successful transition to the CAPS contract decreased by $4.5 million on a sequential basis. Operating margin of 4.3% for the quarter just ended also was seasonally strong, comparing favorably with 4.1% for the same period in 2006. "While Federal budgetary pressures have continued to delay contract awards we are having success growing our business base utilizing a number of important contracts we have won over the past year. Looking ahead, we anticipate a pick-up in contract award announcements as the year progresses," Regan added. The Company also received in the first quarter of 2007 new business contract awards having an estimated total value of $62 million. Company Guidance The Company estimates revenues for the calendar year 2007 to be in the range of $225 to $240 million and earnings per diluted share to be in the range of $0.65 to $0.75, unchanged from the Company' previous guidance. For the second quarter of 2007 the Company anticipates revenues in the range of $56 to $58 million and earnings per diluted share of $0.14 to $0.16. Conference Call The Company will conduct a first quarter 2007 conference call on Thursday, May 3, 2007 at 10:30 a.m. ET. The call will be available via telephone at (800) 231-9012, 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 #1628724, beginning at 12:30 p.m. ET May 4, 2007 through 11:59 p.m. ET May 11, 2007. 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. ATTACHMENT I DYNAMICS RESEARCH CORPORATION CONSOLIDATED RESULTS OF OPERATIONS (unaudited) (in thousands, except share and per share data) Three months ended March 31, 2007 2006 Contract revenue $55,912 $66,759 Product sales 868 1,454 Total revenue 56,780 68,213 Cost of contract revenue 46,933 56,945 Cost of product sales 1,148 1,298 Selling, general and administrative expenses 5,598 6,633 Amortization of intangible assets 650 702 Total operating costs and expenses 54,329 65,578 Operating income 2,451 2,635 Interest expense, net (456) (569) Other income (48) 339 Income before provision for income taxes 1,947 2,405 Provision for income taxes 824 1,015 Income before cumulative effect of accounting change 1,123 1,390 Cumulative effect of accounting change (1) - 84 Net income $1,123 $1,474 Earnings per common share Basic Income before cumulative effect of accounting change $0.12 $0.15 Cumulative effect of accounting change - 0.01 Net income per common share $0.12 $0.16 Diluted Income before cumulative effect of accounting change $0.12 $0.15 Cumulative effect of accounting change - 0.01 Net income per common share $0.12 $0.16 Weighted average shares outstanding Basic 9,256,566 9,012,706 Diluted 9,507,446 9,396,644 (1) Due to the adoption of SFAS 123R on January 1, 2006. ATTACHMENT II DYNAMICS RESEARCH CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (in thousands) March 31, December 31, 2007 2006 (Restated) (1) Assets Cash and cash equivalents $389 $7,887 Accounts receivable, net 38,720 27,136 Unbilled expenditures and fees on contracts in process 38,282 36,764 Prepaid expenses and other current assets 3,525 2,713 Total current assets 80,916 74,500 Property, plant and equipment, net 11,193 11,509 Goodwill 63,055 63,055 Intangible assets, net 5,021 5,671 Deferred tax asset 1,507 1,507 Other noncurrent assets 3,076 3,499 Total assets $164,768 $159,741 Liabilities and stockholders' equity Accounts payable $14,807 $18,195 Accrued payroll and employee benefits 15,016 14,473 Deferred income taxes 9,003 9,864 Other accrued expenses 4,729 5,090 Total current liabilities 43,555 47,622 Long-term debt 24,900 15,000 Other long-term liabilities 10,203 12,805 Stockholders' equity 86,110 84,314 Total liabilities and stockholders' equity $164,768 $159,741 (1) The December 31, 2006 balance sheet has been adjusted to correct certain tax liabilities, which resulted in an increase in stockholders' equity of $549, which will be more fully described in the Company's first quarter 2007 Form 10-Q filing with the Securities and Exchange Commission. ATTACHMENT III DYNAMICS RESEARCH CORPORATION SUPPLEMENTAL INFORMATION (unaudited) (dollars in thousands) Contract revenues were earned from the following sectors: Three Months Ended March 31, 2007 2006 National defense and intelligence agencies $44,631 $54,942 Federal civilian agencies 7,563 7,311 State and local government agencies 3,548 4,276 Other 170 230 $55,912 $66,759 Revenues by contract type as a percentage of contract revenue were as follows: Three Months Ended March 31, 2007 2006 Time and materials 57% 61% Cost reimbursable 22% 21% Fixed price, including service-type contracts 21% 18% 100% 100% Prime contract 65% 67% Sub-contract 35% 33% 100% 100% Three Months Ended March 31, 2007 2006 Net cash used in operating activities $(17,315) $(1,558) Capital expenditures $509 $1,061 Depreciation $825 $790 Bookings $78,562 $70,843 March 31, 2007 2006 Funded backlog $114,684 $144,200 Employees 1,501 1,744 DATASOURCE: Dynamics Research Corporation CONTACT: Investors, David Keleher, SVP and Chief Financial Officer of Dynamics Research Corporation, +1-978-289-1615, , or Media, Duyen "Jen" Truong, Sage Communications (for DRC), +1-703-584-5645, Web site: http://www.drc.com/

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