--- Acquisition Enhances Information Technology
Consulting and Systems Engineering Capabilities --- --- Broadens
Presence in Healthcare and Other High Growth Markets ---
Dynamics Research Corporation (Nasdaq:DRCO), a leading provider of
innovative management consulting, engineering, and technology
solutions, today announced that it has signed a definitive
agreement to acquire privately-held High Performance Technologies,
Inc (HPTi), a leading provider of high-end technology services,
primarily to the federal healthcare and military technology
markets.
HPTi reported revenue of $90 million for calendar 2010 with
nearly 80 percent of sales aligned with DRC's target growth
markets, including healthcare, cyber security, intelligence,
civilian financial agencies and homeland security. HPTi, a high-end
technology solutions provider, synthesizes disciplined
architecture and development with emerging technologies across high
priority federal civilian and defense agencies such as the Veterans
Administration, Treasury, Department of Justice, intelligence
agencies, and selected advanced military technology areas. HPTi is
a highly regarded, go-to partner for its customers known for
solving some of the highest priority, most technically advanced
problems - from high performance computing to enterprise wide
systems engineering and architecture. With 44 percent of staff
holding masters degrees or above, HPTi possesses extraordinary
capabilities to meet customer needs for emerging technologies.
"HPTi has an outstanding reputation in the federal marketplace
with the capabilities to solve some of the most complex, technical
challenges faced by government agencies," said Jim Regan, DRC's
chairman and chief executive officer. "I have known the company and
members of its management team since inception. HPTi is among the
best led organizations in our industry and an outstanding fit for
DRC. HPTi's management team has done a tremendous job of extending
the company's technical abilities, which originated in the defense
arena, to other federal growth markets. We are very enthusiastic
about having the HPTi staff with their impressive capabilities join
the DRC team."
Tim Keenan, HPTi's president, added, "In DRC we have found an
alignment of not only core values but also of market approach. We
are truly pleased to be part of what we believe will be a go-to
source of technology solutions for our combined clients." Mr.
Keenan will report to Mr. Regan in the position of corporate
development and strategy advisor. Scott Miller, HPTi's chief
operating officer, also will report directly to Mr. Regan,
continuing his leadership role for HPTi operations.
HPTi has approximately 440 employees located primarily in the
National Capital Region with principal offices in Reston and
Ballston, Virginia.
Terms of the merger agreement include a cash price of $143
million with closing anticipated for June 30, 2011 following the
expiration of applicable waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976. For tax
purposes, the transaction will be treated as an asset purchase
resulting in tax benefits to DRC, estimated at $23 million. HPTi
earnings before interest, taxes, stock compensation, depreciation
and amortization (EBITDA) for the twelve months ended March 31,
2011 was $11.9 million on revenue of $97 million.
Concurrent with the transaction, DRC will replace its current
credit facility with a $110 million five-year term loan, a $20
million revolving credit facility and $40 million of subordinated
debt with a six-year term. The senior credit facility will be
led by Bank of America and will include SunTrust Bank and PNC Bank
as Lead Arrangers. Ares Capital Corporation will provide the
subordinated debt financing, which was arranged by B Riley.
Total debt at closing is anticipated to be approximately
four-times the most recent twelve months pro-forma EBITDA of $39
million adjusted for the combined businesses. "We are pleased
to have financial support of a bank group, which is among the
strongest and most experienced in our industry," said Dave Keleher,
DRC's senior vice president and chief financial officer.
KippsDeSanto & Co. is acting as exclusive financial advisor
to HPTi in this transaction.
Company Guidance Update
Anticipating a June 30, 2011 closing of the acquisition of HPTi
the Company's estimate of revenue for 2011 has been revised to be
in the range of $331 to $339 million, reflecting organic growth of
3 to 5 percent. The Company's second quarter 2011 revenue
estimate of $68 to $71 million is unchanged, reflecting organic
growth of 7 to 12 percent for the federal business and 4 to 9
percent in total. The acquisition of HPTi significantly
increases the Company's penetration in growth markets to nearly 70
percent of total revenue and raises Company expectations of 2012
organic revenue growth to high single digits.
From an earnings viewpoint, the Company estimates second quarter
results will include transaction costs of $1.3 to $1.5
million. Absent the transaction costs for the second quarter
2011 the Company's earnings estimate of $0.26 to $0.28 per share
remains unchanged. The Company's estimate of full year diluted
earnings per share absent the transaction costs is in the range of
$1.27 to $1.34 per share. The Company estimates earnings
contributions of $0.15 or better per share from the acquisition for
2012.
Conference Call
The Company will conduct a first quarter 2011 conference call on
Friday, June 3, 2011 at 9:00 a.m. ET. The call will be
available via telephone at 877-303-4382, and accessible via Web
cast at www.drc.com. Recorded replays of the conference call
will be available on Dynamics Research Corporation's investor
relations home page at www.drc.com and by telephone at
800-642-1687, passcode #73223938 beginning at 12:00 p.m. ET June 3,
2011.
About Dynamics Research Corporation
Dynamics Research Corporation (DRC) provides measurable
performance improvements for government customers through the
delivery of innovative management, engineering and technology
solutions. DRC offers the capabilities of a large company and
the responsiveness of a small company, 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
and the Washington, D.C. region. For more information please
visit our website at 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.
Supplemental Data
Pro forma Combined EBITDA (dollars in
thousands)
|
Trailing |
|
|
Twelve |
Projected |
|
Months |
Calendar |
|
3/31/2011 |
20111 |
Net Income, Continuing Operations |
$ 22,100 |
$ 19,500 |
Provision for Income Taxes |
8,400 |
8,700 |
Interest Expense |
1,000 |
5,800 |
Depreciation |
4,200 |
4,100 |
Amortization |
1,500 |
4,400 |
Stock Compensation |
2,100 |
1,300 |
Adjusted EBITDA |
$ 39,300 |
$ 43,800 |
(1) 2011 projected balances based
on midpoint of guidance range excluding transaction costs.
|
|
|
Quarterly Backlog Summary (dollars in
thousands)
|
|
|
|
2010 |
2011 |
DRC |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Funded Backlog |
$ 171,855 |
$ 150,609 |
$ 158,046 |
$ 133,516 |
$ 116,773 |
Total Backlog |
411,870 |
362,304 |
426,211 |
400,881 |
385,068 |
|
|
|
|
2010 |
2011 |
HPTi |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Funded Backlog |
$ 48,085 |
$ 41,707 |
$ 61,119 |
$ 46,455 |
$ 40,505 |
Total Backlog |
414,285 |
496,913 |
479,458 |
480,809 |
452,684 |
|
|
|
|
2010 |
2011 |
Combined |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Funded Backlog |
$ 219,941 |
$ 192,316 |
$ 219,165 |
$ 179,972 |
$ 157,278 |
Total Backlog |
826,155 |
859,217 |
905,669 |
881,691 |
837,753 |
Prime/Subcontract Revenue
|
|
|
|
2010 |
2011 |
|
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
DRC |
|
|
|
|
|
Prime |
72% |
72% |
73% |
74% |
74% |
Subcontract |
28% |
28% |
27% |
26% |
26% |
|
|
|
|
|
|
HPTi |
|
|
|
|
|
Prime |
77% |
79% |
83% |
83% |
87% |
Subcontract |
23% |
21% |
17% |
17% |
13% |
|
|
|
|
|
|
Combined |
|
|
|
|
|
Prime |
73% |
74% |
76% |
76% |
78% |
Subcontract |
27% |
26% |
24% |
24% |
22% |
Revenue by Contract Type
|
|
|
|
2010 |
2011 |
|
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
DRC |
|
|
|
|
|
Fixed price, including service-type
contracts |
47% |
44% |
45% |
50% |
49% |
Time and materials |
33% |
35% |
34% |
29% |
29% |
Cost reimbursable |
20% |
21% |
21% |
21% |
22% |
|
|
|
|
|
|
HPTi |
|
|
|
|
|
Fixed price, including service-type
contracts |
35% |
30% |
25% |
28% |
30% |
Time and materials |
39% |
39% |
43% |
43% |
48% |
Cost reimbursable |
26% |
30% |
32% |
28% |
22% |
|
|
|
|
|
|
Combined |
|
|
|
|
|
Fixed price, including service-type
contracts |
44% |
41% |
40% |
44% |
44% |
Time and materials |
34% |
36% |
36% |
33% |
34% |
Cost reimbursable |
22% |
23% |
24% |
23% |
22% |
CONTACT: Investors: Chris Witty
Darrow Associates, Inc.
646.438.9385
cwitty@darrowir.com
Media: Duyen "Jen" Truong
Sage Communications
703.584.5645
duyent@aboutsage.com
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