DRCO Dynamics Research Corp. (MM)

ANDOVER, Mass., Oct. 31 /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 third quarter ended September 30, 2007. Financial Results The Company reported revenue of $58.3 million for the third quarter of 2007, compared with $63.2 million for the same period in 2006. Revenues for the third quarter of 2006 included approximately $7 million of subcontractor revenue, which is not reflected in results for the third quarter of this year as a result of the recent transition to the USAF Consolidated Acquisition and Professional Services (CAPS) contract. Absent the effect of this transition, revenues for the third quarter of this year grew by 4.0 percent on a year- over-year comparison. Net income was $1.9 million, or $0.20 per diluted share, for the third quarter of 2007 compared with $0.9 million, or $0.10 per diluted share, for the same period a year ago. For the nine months ended September 30, 2007 revenue was $173.1 million, compared with $198.7 million for the same period in 2006. Lower subcontractor revenues related to the transition to the CAPS contract and the completion of the Air National Guard contract in May 2006 accounted for $21 million and $6 million, respectively, of the change in revenue from 2006 to 2007. Net income was $4.6 million, or $0.47 per diluted share, for the nine months ended September 30, 2007, compared with $2.6 million, or $0.26 per diluted share, for the first nine months of 2006, before the effect of an accounting change. Business Highlights "We're pleased with our continued progressive improvement in revenue and earnings growth, resulting from a strong flow of new contract wins and indirect cost reductions taken over the past year. While we are pleased with the progress we have made, we are now looking to build further on the strength of our improving financial results. With the objective to improve organic growth, we have focused our business development activities on selected federal market opportunities, which will be 2008 spending priorities for our customers. Nevertheless, we remain cautious in our outlook due to continued federal spending constraints and uncertainties," said Jim Regan, DRC's chairman and chief executive officer. Company Guidance For the fourth quarter of 2007 the Company anticipates revenues in the range of $55 to $58 million and earnings per diluted share of $0.20 to $0.23. The Company estimates revenues for the calendar year 2007 to be in the range of $228 to $231 million and earnings per diluted share to be in the range of $0.68 to $0.70. Conference Call The Company will conduct a third quarter 2007 conference call on Thursday, November 1, 2007 at 11:00 a.m. ET. The call will be available via telephone at (800) 500-3170, 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 #4644659, beginning at 2:00 p.m. ET November 1, 2007 through 11:59 p.m. ET November 8, 2007. About Dynamics Research Corporation Dynamics Research Corporation (DRC) is a leading provider of mission- critical technology management services and solutions for government programs. DRC offers forward-thinking solutions backed by a history of excellence and customer satisfaction. Founded in 1955, DRC is a publicly held corporation (NASDAQ:DRCO) and maintains more than 25 offices nationwide with major offices in Andover, Massachusetts; Vienna, Virginia; and Fairborn, Ohio. For more information 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. Investors: David Keleher SVP and Chief Financial Officer 978.289.1615 Media: Duyen "Jen" Truong, Sage Communications (for DRC) 703.584.5645 DYNAMICS RESEARCH CORPORATION CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (unaudited) (in thousands, except share and per share data) Three Months Ended September 30, 2007 2006 Contract revenue $57,180 $61,547 Product sales 1,148 1,614 Total revenue 58,328 63,161 Cost of contract revenue 47,808 53,756 Cost of product sales 1,212 1,217 Selling, general and administrative expenses 5,262 5,559 Amortization of intangible assets 650 702 Total operating costs and expenses 54,932 61,234 Operating income 3,396 1,927 Interest expense, net (373) (558) Other income 323 78 Income before provision for income taxes 3,346 1,447 Provision for income taxes 1,427 526 Net income $1,919 $921 Earnings per common share Basic $0.21 $0.10 Diluted $0.20 $0.10 Weighted average shares outstanding Basic 9,354,332 9,133,552 Diluted 9,702,910 9,395,360 DYNAMICS RESEARCH CORPORATION CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (unaudited) (in thousands, except share and per share data) Nine Months Ended September 30, 2007 2006 Contract revenue $170,122 $194,026 Product sales 2,996 4,626 Total revenue 173,118 198,652 Cost of contract revenue 142,201 169,054 Cost of product sales 3,560 3,771 Selling, general and administrative expenses 16,623 18,228 Amortization of intangible assets 1,951 2,107 Total operating costs and expenses 164,335 193,160 Operating income 8,783 5,492 Interest expense, net (1,302) (1,693) Other income 397 429 Income before provision for income taxes 7,878 4,228 Provision for income taxes 3,322 1,741 Income before cumulative effect of accounting change 4,556 2,487 Cumulative effect of accounting change (1) - 84 Net income $4,556 $2,571 Earnings per common share Basic Income before cumulative effect of accounting change $0.49 $0.27 Cumulative effect of accounting change - 0.01 Net income per common share $0.49 $0.28 Diluted Income before cumulative effect of accounting change $0.47 $0.26 Cumulative effect of accounting change - 0.01 Net income per common share $0.47 $0.27 Weighted average shares outstanding Basic 9,326,367 9,079,601 Diluted 9,644,760 9,424,170 (1) Due to the adoption of SFAS 123R on January 1, 2006. DYNAMICS RESEARCH CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (in thousands) September 30, December 31, 2007 2006 (Restated) (1) Assets Cash and cash equivalents $1,323 $7,887 Accounts receivable, net 34,676 27,072 Unbilled expenditures and fees on contracts in process 31,496 36,174 Prepaid expenses and other current assets 3,543 2,933 Total current assets 71,038 74,066 Property and equipment, net 10,400 11,509 Goodwill 63,055 63,055 Intangible assets, net 3,720 5,671 Deferred tax asset 1,680 1,507 Other noncurrent assets 3,963 4,044 Total assets $153,856 $159,852 Liabilities and stockholders' equity Accounts payable $13,060 $18,195 Accrued compensation and employee benefits 14,727 14,473 Deferred income taxes 6,748 9,864 Other accrued expenses 4,959 5,201 Total current liabilities 39,494 47,733 Long-term debt 11,748 15,000 Other long-term liabilities 11,634 12,805 Stockholders' equity 90,980 84,314 Total liabilities and stockholders' equity $153,856 $159,852 (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 was more fully described in the Company's first quarter 2007 Form 10-Q filing with the Securities and Exchange Commission. 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, 2007 2006 2007 2006 National defense and intelligence agencies $45,511 $50,579 $135,360 $158,995 Federal civilian agencies 7,921 6,634 23,408 22,983 State and local government agencies 3,522 3,966 10,837 11,236 Other 226 368 517 812 $57,180 $61,547 $170,122 $194,026 Revenues by contract type as a percentage of contract revenue were as follows: Three Months Ended Nine Months Ended September 30, September 30, 2007 2006 2007 2006 Time and materials 59% 64% 57% 62% Cost reimbursable 21 17 22 19 Fixed price, including service-type contracts 20 19 21 19 100% 100% 100% 100% Prime contract 54% 67% 55% 68% Sub-contract 46 33 45 32 100% 100% 100% 100% Three Months Ended Nine Months Ended September 30, September 30, 2007 2006 2007 2006 Net cash provided by (used in) operating activities $2,526 $2,026 $(3,227) $3,372 Capital expenditures $445 $492 $1,185 $2,063 Depreciation $718 $805 $2,294 $2,425 Bookings $43,705 $60,205 $178,824 $191,992 September 30, 2007 2006 Funded backlog $98,610 $97,911 Employees 1,496 1,541 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 of Sage Communications for Dynamics Research Corporation, +1-703-584-5645, Web site: http://www.drc.com/

Copyright