DRCO Dynamics Research Corp. (MM)

- Operating Results at High End of Expectations ANDOVER, Mass., April 30 /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, 2008. Financial Results The Company reported revenue of $56.5 million for the first quarter of 2008, compared with $56.8 million for the same period in 2007. The reported net loss for the quarter of $5.3 million, or $0.56 per diluted share included an $8.8 million provision for litigation, which reduced diluted earnings per share by $0.71. Excluding the litigation provision, net income was $1.4 million, or $0.15 per diluted share, for the first quarter of 2008 compared with $1.1 million, or $0.12 per diluted share for the first quarter of 2007. Business Highlights "From an operating viewpoint we're off to a great start in 2008. For the first quarter our book-to-bill ratio was 1.16-to-one, new business awards totaled $47 million, revenues exceeded our expectations, indirect costs continue to be well in control, and earnings, excluding the litigation provision, were up twenty-five percent over the first quarter a year ago," said Jim Regan, DRC's chairman and chief executive officer. "In the first quarter we won and started work on a new $25 million state child welfare system project, and we were one of 22 companies to receive an award under the $5 billion TEAMS contract, designed to enable the military health systems community to procure services in managing health care costs. This contract adds to our extensive and diverse portfolio of agency specific multiple award schedule task order contracts. Federal customers are increasingly turning to these vehicles to procure services. The array of these contracts held by DRC provides us with direct access to customers seeking our solutions and services." Regarding the legal developments, which were discussed in the Company's April 1, 2008 press release, Mr. Regan added, "I am encouraged that the legal proceedings on the U.S. Attorney's civil claims filed in 2003, related to activities of two rogue employees which occurred a decade ago and in which the Company had no direct involvement or knowledge of, appear to be nearing closure. We have earnestly attempted to settle this matter in the past and are hopeful that a final resolution can now be achieved." Company Guidance The Company estimate for revenues for the calendar year 2008 is unchanged, in the range of $220 to $235 million. Regarding earnings for the calendar year, excluding the $0.71 litigation provision taken in the first quarter, the Company anticipates results to be in the range of $0.70 to $0.80 per diluted share. For the second quarter of 2008 the Company anticipates revenues in the range of $55 to $57 million and earnings per diluted share of $0.16 to $0.18. Conference Call The Company will conduct a first quarter 2008 conference call on Thursday, May 1, 2008 at 10:00 a.m. ET. The call will be available via telephone at (877) 723-9511, 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 #1426865, beginning at 1:00 p.m. ET May 1, 2008 through 11:59 p.m. ET May 8, 2008. 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; Reston, Virginia; and Fairborn, Ohio. For more information please visit our website at http://www.drc.com/. Safe Harbor 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. The non-GAAP measures used by the Company exclude the provision for litigation charges and related effect for income taxes. The required reconciliations and other disclosures for the non-GAAP measures used by the Company are set forth later in this press release and/or the Current Report on Form 8-K furnished with the SEC on May 1, 2008. CONTACTS: Investors: Dave Keleher SVP and Chief Financial Officer 978.289.1615 Media: Duyen "Jen" Truong Sage Communications (for DRC) 703.584.5645 ATTACHMENT I DYNAMICS RESEARCH CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Three Months Ended March 31, 2008 2007 Contract revenue $54,773 $55,912 Product sales 1,705 868 Total revenue 56,478 56,780 Cost of contract revenue 46,212 46,933 Cost of product sales 1,604 1,148 Total cost of revenue 47,816 48,081 Gross profit on contract revenue 8,561 8,979 Gross profit on product sales 101 (280) Total gross profit 8,662 8,699 Selling, general and administrative expenses 5,402 5,598 Provision for litigation 8,819 - Amortization of intangible assets 509 650 Operating income (loss) (6,068) 2,451 Interest expense, net (139) (456) Other income (71) (48) Income (loss) before provision for income taxes (6,278) 1,947 Provision (benefit) for income taxes (1,022) 824 Net income (loss) $(5,256) $1,123 Earnings (loss) per common share Basic $(0.56) $0.12 Diluted $(0.56) $0.12 Weighted average shares outstanding Basic 9,436,054 9,256,566 Diluted 9,436,054 9,507,446 ATTACHMENT II DYNAMICS RESEARCH CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (in thousands) March 31, December 31, 2008 2007 Assets Current assets Cash and cash equivalents $1,061 $2,006 Contract receivables, net 61,911 63,570 Prepaid expenses and other current assets 3,373 2,508 Total current assets 66,345 68,084 Noncurrent assets Property and equipment, net 9,884 10,182 Goodwill 63,055 63,055 Intangible assets, net 2,560 3,069 Deferred tax asset 1,484 1,484 Other noncurrent assets 3,918 4,079 Total noncurrent assets 80,901 81,869 Total assets $147,246 $149,953 Liabilities and stockholders' equity Current liabilities Accounts payable $8,118 $12,163 Accrued compensation and employee benefits 11,119 13,409 Deferred taxes 9,819 8,486 Other accrued expenses 13,349 3,078 Total current liabilities 42,405 37,136 Long-term liabilities Long-term debt 5,000 7,737 Other long-term liabilities 8,172 8,576 Total stockholders' equity 91,669 96,504 Total liabilities and stockholders' equity $147,246 $149,953 ATTACHMENT III DYNAMICS RESEARCH CORPORATION SUPPLEMENTAL INFORMATION (unaudited) (dollars in thousands) Contract revenues were earned from the following sectors: Three Months Ended March 31, 2008 2007 National defense and intelligence agencies $41,028 $44,631 Federal civilian agencies 7,878 7,563 State and local government agencies 5,244 3,548 Other 623 170 $54,773 $55,912 Revenues by contract type as a percentage of contract revenue were as follows: Three Months Ended March 31, 2008 2007 Time and materials 55% 57% Cost reimbursable 19 22 Fixed price, including service-type contracts 26 21 100% 100% Prime contract 61% 57% Sub-contract 39 43 100% 100% Three Months Ended March 31, 2008 2007 Net cash provided by (used in) operating activities $1,605 $(17,315) Capital expenditures $402 $509 Depreciation $700 $825 Bookings $63,050 $78,562 March 31, December 31, 2008 2007 Funded backlog $113,682 $116,471 Employees 1,305 1,414 ATTACHMENT IV DYNAMICS RESEARCH CORPORATION RECONCILIATION OF NON-GAAP MEASURES (unaudited) (in thousands, except share and per share data) Three Months Ended March 31, 2008 2007 GAAP operating income (loss) $(6,068) $2,451 Provision for litigation 8,819 - Non-GAAP operating income $2,751 $2,451 GAAP income (loss) before provision for income taxes $(6,278) $1,947 Provision for litigation 8,819 - Non-GAAP income before provision for income taxes $2,541 $1,947 GAAP provision (benefit) for income taxes $(1,022) $824 Tax benefit for provision for litigation 2,118 - Non-GAAP provision for income taxes $1,096 $824 GAAP net income (loss) $(5,256) $1,123 Provision for litigation, net of tax benefit 6,701 - Non-GAAP provision for income taxes $1,445 $1,123 Earnings (loss) per common share GAAP Basic $(0.56) $0.12 Per share effect of provision for litigation 0.71 - Non-GAAP Basic $0.15 $0.12 GAAP Diluted $(0.56) $0.12 Per share effect of provision for litigation 0.71 - Non-GAAP Diluted $0.15 $0.12 Weighted average shares outstanding GAAP Basic, GAAP Diluted and Non-GAAP Basic 9,436,054 9,256,566 Non-GAAP Diluted 9,728,042 9,507,446 Contract revenue $54,773 $55,912 Product sales 1,705 868 Total revenue 56,478 56,780 Cost of contract revenue 46,212 46,933 Cost of product sales 1,604 1,148 Total cost of revenue 47,816 48,081 Gross profit on contract revenue 8,561 8,979 Gross profit on product sales 101 (280) Total gross profit 8,662 8,699 Selling, general and administrative expenses 5,402 5,598 Amortization of intangible assets 509 650 Non-GAAP operating income 2,751 2,451 Interest expense, net (139) (456) Other income (71) (48) Non-GAAP income before provision for income taxes 2,541 1,947 Non-GAAP provision for income taxes 1,096 824 Non-GAAP net income $1,445 $1,123 Non-GAAP earnings per common share Basic $0.15 $0.12 Diluted $0.15 $0.12 Non-GAAP weighted average shares outstanding Basic 9,436,054 9,256,566 Diluted 9,728,042 9,507,446 DATASOURCE: Dynamics Research Corporation CONTACT: Investors, Dave Keleher of Dynamics Research Corporation, SVP and Chief Financial Officer, +1-978-289-1615, ; or Media, Duyen "Jen" Truong of Sage Communications, +1-703-584-5645, , for DRC Web site: http://www.drc.com/

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