DRCO Dynamics Research Corp. (MM)

- Strong Bookings, Pending Kadix Acquisition Prompt Company to Raise Projections - ANDOVER, Mass., July 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 second quarter ended June 30, 2008. Financial Results The Company reported revenue of $55.3 million and earnings of $0.17 per diluted share for the second quarter of 2008, compared with revenue of $58.0 million and earnings of $0.16 per diluted share for the same period in 2007. For the six months ended June 30, 2008 revenue was $111.8 million compared with $114.8 million for the same period in 2007. For the six month period ended June 30, 2008 the net loss was $3.6 million, or $0.38 per diluted share, which included a first quarter 2008 provision for litigation of $8.8 million, which reduced earnings by $0.70 per diluted share. Excluding the litigation provisions in 2008 and 2007, net income would have been $3.1 million, or $0.32 per diluted share for the six months ended June 30, 2008, compared with $2.7 million, or $0.29 per diluted share for the same period in 2007. Business Highlights "The second quarter 2008 results mark the eighth consecutive quarter of year-over-year earnings increases," said Jim Regan, DRC's chairman and chief executive officer. "We continue to transition our business mix away from lower-end small business set-aside advisory and assistance services work to higher-end value added services. Revenue growth in the first half of the year has been strong in the military training, homeland security, and state child welfare system businesses. The profit increase generated from this shift to a more favorable mix fully offsets the on-going loss of Advisory & Assistance Services work of approximately $5 million per quarter on the year-over-year comparisons with the prior year." "In the business development area we have had another very successful quarter," Regan continued. "Our book-to bill ratio was 1.2 to 1, and our new business wins for the quarter were $26 million in total contract value. For the first half of the year the annual revenue value of our new business wins totaled an estimated $60 million, surpassing the $54 million total for all of 2007." "Looking forward the outlook for growth in the military training, homeland security, federal civilian agency and state businesses remains strong. Further, the pending acquisition of Kadix Systems, LLC, announced today, which we plan to complete in the next few days, significantly strengthens our presence in a large high-growth market and will accelerate our market penetration with the Department of Homeland Security," Regan concluded. Company Guidance The Company's estimate for revenue for 2008, including the acquired Kadix operations from the expected date of acquisition, is in the range of $240 to $250 million. Regarding earnings for the year, excluding the $0.70 litigation provision taken in the first quarter, the Company anticipates results to be in the range of $0.72 to $0.78 per diluted share. For the third quarter of 2008 the Company anticipates revenue in the range of $63 to $65 million and earnings per diluted share of $0.17 to $0.20. Conference Call The Company will conduct a second quarter 2008 conference call on Thursday, July 31, 2008 at 4:30 p.m. ET. The call will be available via telephone at (877) 741-4251, 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 #4038479, beginning at 7:30 p.m. ET July 31, 2008 through 11:59 p.m. ET August 7, 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 July 31, 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 STATEMENT OF OPERATIONS (unaudited) (in thousands, except share and per share data) Three Months Ended June 30, 2008 2007 Contract revenue $53,708 $57,030 Product sales 1,585 980 Total revenue 55,293 58,010 Cost of contract revenue 45,599 47,460 Cost of product sales 1,393 1,200 Total cost of revenue 46,992 48,660 Gross profit on contract revenue 8,109 9,570 Gross profit (loss) on product sales 192 (220) Total gross profit 8,301 9,350 Selling, general and administrative expenses 5,147 5,763 Amortization of intangible assets 510 651 Operating income 2,644 2,936 Interest expense, net (142) (473) Other income, net 239 122 Income before provision for income taxes 2,741 2,585 Provision for income taxes 1,112 1,071 Net income $1,629 $1,514 Earnings per common share Basic $0.17 $0.16 Diluted $0.17 $0.16 Weighted average shares outstanding Basic 9,443,347 9,317,297 Diluted 9,724,839 9,650,919 ATTACHMENT II DYNAMICS RESEARCH CORPORATION CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (unaudited) (in thousands, except share and per share data) Six Months Ended June 30, 2008 2007 Contract revenue $108,481 $112,942 Product sales 3,290 1,848 Total revenue 111,771 114,790 Cost of contract revenue 91,811 94,393 Cost of product sales 2,998 2,348 Total cost of revenue 94,809 96,741 Gross profit on contract revenue 16,670 18,549 Gross profit (loss) on product sales 292 (500) Total gross profit 16,962 18,049 Selling, general and administrative expenses 10,548 11,361 Provision for litigation 8,819 181 Amortization of intangible assets 1,019 1,301 Operating income (loss) (3,424) 5,206 Interest expense, net (281) (929) Other income, net 168 255 Income (loss) before provision for income taxes (3,537) 4,532 Provision for income taxes 90 1,895 Net income (loss) $(3,627) $2,637 Earnings (loss) per common share Basic $(0.38) $0.28 Diluted $(0.38) $0.27 Weighted average shares outstanding Basic 9,430,607 9,308,558 Diluted 9,430,607 9,609,575 ATTACHMENT III DYNAMICS RESEARCH CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (in thousands) June 30, December 31, 2008 2007 Assets Current assets Cash and cash equivalents $108 $2,006 Contract receivables, net 64,239 63,570 Prepaid expenses and other current assets 2,723 2,508 Total current assets 67,070 68,084 Noncurrent assets Property and equipment, net 9,576 10,182 Goodwill 63,055 63,055 Intangible assets, net 2,050 3,069 Deferred tax asset 1,484 1,484 Other noncurrent assets 4,303 4,079 Total noncurrent assets 80,468 81,869 Total assets $147,538 $149,953 Liabilities and stockholders' equity Current liabilities Accounts payable $13,626 $12,163 Accrued compensation and employee benefits 13,433 13,409 Deferred taxes 5,696 8,486 Other accrued expenses 12,727 3,078 Total current liabilities 45,482 37,136 Long-term liabilities Long-term debt 607 7,737 Other long-term liabilities 7,931 8,576 Total stockholders' equity 93,518 96,504 Total liabilities and stockholders' equity $147,538 $149,953 ATTACHMENT IV DYNAMICS RESEARCH CORPORATION SUPPLEMENTAL INFORMATION (unaudited) (dollars in thousands) Contract revenues were earned from the following sectors: Three Months Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007 National defense and intelligence agencies $37,217 $45,219 $78,245 $89,850 Federal civilian agencies 8,362 7,924 16,240 15,487 State and local government agencies 7,365 3,767 12,609 7,315 Other 764 120 1,387 290 $53,708 $57,030 $108,481 $112,942 Revenues by contract type as a percentage of contract revenue were as follows: Three Months Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007 Time and materials 46% 56% 50% 56% Cost reimbursable 21 22 20 22 Fixed price, including service-type contracts 33 22 30 22 100% 100% 100% 100% Prime contract 64% 57% 62% 56% Sub-contract 36 43 38 44 100% 100% 100% 100% Three Months Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007 Net cash provided by (used in) operating activities $3,873 $11,562 $5,497 $(5,753) Capital expenditures $411 $231 $813 $740 Depreciation $719 $751 $1,419 $1,576 Bookings $65,200 $56,557 $128,250 $135,119 June 30, December 31, 2008 2007 Funded backlog $115,414 $116,471 Employees 1,272 1,414 ATTACHMENT V DYNAMICS RESEARCH CORPORATION RECONCILIATION OF NON-GAAP MEASURES (unaudited) (continued) (in thousands, except share and per share data) Six Months Ended June 30, 2008 2007 Contract revenue $108,481 $112,942 Product sales 3,290 1,848 Total revenue 111,771 114,790 Cost of contract revenue 91,811 94,393 Cost of product sales 2,998 2,348 Total cost of revenue 94,809 96,741 Gross profit on contract revenue 16,670 18,549 Gross profit on product sales 292 (500) Total gross profit (loss) 16,962 18,049 Selling, general and administrative expenses 10,548 11,361 Amortization of intangible assets 1,019 1,301 Non-GAAP operating income 5,395 5,387 Interest expense, net (281) (929) Other income, net 168 255 Non-GAAP income before provision for income taxes 5,282 4,713 Non-GAAP provision for income taxes 2,214 1,967 Non-GAAP net income $3,068 $2,746 Non-GAAP Earnings per common share Basic $0.33 $0.29 Diluted $0.32 $0.29 Weighted average shares outstanding Basic 9,430,607 9,308,558 Diluted (Non-GAAP for 2008) 9,721,165 9,609,575 DYNAMICS RESEARCH CORPORATION RECONCILIATION OF NON-GAAP MEASURES (unaudited) (in thousands, except share and per share data) Six Months Ended June 30, 2008 2007 GAAP operating income (loss) $(3,424) $5,206 Provision for litigation 8,819 181 Non-GAAP operating income $5,395 $5,387 GAAP income (loss) before provision for income taxes $(3,537) $4,532 Provision for litigation 8,819 181 Non-GAAP income before provision for income taxes $5,282 $4,713 GAAP provision for income taxes $90 $1,895 Tax benefit for provision for litigation 2,124 72 Non-GAAP provision for income taxes $2,214 $1,967 GAAP net income (loss) $(3,627) $2,637 Provision for litigation, net of tax benefit 6,695 109 Non-GAAP net income $3,068 $2,746 Earnings (loss) per common share GAAP Basic $(0.38) $0.28 Per share effect of provision for litigation 0.71 0.01 Non-GAAP Basic $0.33 $0.29 GAAP Diluted $(0.38) $0.27 Per share effect of provision for litigation $0.70 0.02 Non-GAAP Diluted $0.32 $0.29 Weighted average shares outstanding GAAP and Non-GAAP Basic 9,430,607 9,308,558 GAAP Diluted 9,430,607 9,609,575 Non-GAAP Diluted 9,721,165 9,609,575 DATASOURCE: Dynamics Research Corporation CONTACT: Investors, Dave Keleher, SVP and Chief Financial Officer of Dynamics Research Corporation, +1-978-289-1615, ; or Media, Duyen "Jen" Truong, Sage Communications for Dynamics Research Corporation, +1-703-584-5645, Web site: http://www.drc.com/

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