Dynamics Research Corporation (Nasdaq:DRCO), a leading provider of
innovative management consulting, engineering, science and
information technology services and solutions to federal and state
governments, today announced preliminary operating results for the
second quarter ended June 30, 2012. The preliminary results are
subject to change based upon the conclusion of impairment testing
being undertaken by the Company.
Preliminary Financial Results
The Company reported preliminary net income for the second
quarter of 2012 of $1.4 million, or $0.14 per diluted share, versus
$2.7 million, or $0.27 per diluted share, for the second quarter of
2011, excluding transaction costs of $2.2 million. Preliminary
earnings before interest, taxes, depreciation, and amortization
(EBITDA) for the second quarter of 2012 was $7.1 million, or 8.7
percent of revenue, up 14 percent from $6.2 million, or 9.1 percent
of revenue, for the second quarter a year ago. Revenue for the
second quarter of 2012 of $80.8 million was $12.3 million higher
than $68.5 million for the same period in 2011 as a result of the
merger with High Performance Technologies, Inc. on June 30,
2011.
For the six month period ended June 30, 2012, preliminary net
income was $3.2 million, or $0.31 per diluted share, compared with
$5.4 million, or $0.54 per diluted share, for the same period in
2011, excluding the second quarter 2011 transaction costs of $2.2
million. Preliminary EBITDA for the first six months of 2012 was
$14.9 million, or 8.9 percent of revenue, up 22 percent from $12.3
million, or 8.9 percent of revenue, for the same period a year ago.
For the six months ended June 30, 2012, revenue of $166.7 million
was $28.7 million higher than $138.0 million for the same period in
2011 as a result of the merger with High Performance Technologies,
Inc. on June 30, 2011.
As noted in the Company's most recent quarterly report filed
with the SEC, the Company experienced in the second quarter of 2012
a significant decline in the market price of the Company's common
stock, which has elevated the risk of goodwill impairment. The
Company's step one goodwill impairment test as of June 30, 2012
presently is not complete. As a result, the Company has not reached
a conclusion as to whether goodwill, which had a book value of $212
million as of March 31, 2012, is impaired and for this reason the
Company's results are preliminary. Prior to filing its Form 10-Q
for the second quarter of 2012, the Company expects to complete the
step one impairment test and estimate the range of impairment, if
any. The Company's evaluation could result in a non-cash impairment
charge for a substantial portion of the $212 million book value of
goodwill for the second quarter of 2012. In the event an impairment
charge is recorded, the Company's net income would be negatively
affected, although revenue and cash flow from operations would not
be impacted. The Company expects to conclude its evaluation of
goodwill impairment during the third quarter of 2012.
Business Highlights
"Federal government cost management actions, which are effecting
award decisions, continue to impact our operating results and
outlook for the year," said Jim Regan, DRC's chairman and chief
executive officer. "In response to the challenging conditions
facing our industry we have been aggressively pursuing new
business, pricing competitively and reducing costs.
"Notwithstanding these industry issues we continued to post
strong EBITDA margins this quarter and generated free cash flow of
$5.6 million, or 7 percent of revenue. We are well positioned in
the market and are experiencing an uptick in bidding and proposal
activity. The estimated total contract value of our qualified
pipeline of new business opportunities now stands at $953 million,
up $101 million in just three months, and includes $303 million in
bids submitted and awaiting award. We also saw an improvement in
new business wins in the second quarter, as well as solid funded
bookings, which resulted in a book-to-bill ratio of 1.1-to-one. We
expect that our differentiated capabilities, combined with strong
presence in important growth markets, will enable us to capture our
share of opportunities as the pace of award decisions picks
up."
Company Guidance
The Company's estimate for 2012 full year revenue is in the
range of $318 to $326 million. The Company's estimates for 2012
full year earnings, excluding any potential impairment charge, is
in the range of at $0.68 to $0.72 per diluted share. For the third
quarter of 2012, the Company anticipates revenue in the range of
$77 to $79 million and earnings per diluted share of $0.13 to $0.15
excluding the impact of any potential impairment charge.
Conference Call
The Company will conduct a second quarter 2012 conference call
tomorrow, July 26, 2012 at 10:00 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 800-585-8367, replay
passcode # 93583823, beginning at 1:00 p.m. ET on July 27,
2012.
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 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. area. For more information please visit our
website at 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 and adversely differ and readers are cautioned not to
place undue reliance on forward-looking statements. 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. In addition to that information, the
possibility of an impairment charge, which could result in a
substantial reduction against goodwill and a commensurate charge
against earnings, could have a material adverse impact on the
preliminary results reported in this press release and on results
during a subsequent period. While the Company will reflect the
outcome of its impairment testing in its Form 10-Q and final
reported results for the second quarter ended June 30, 2012 the
Company assumes no obligation to update any forward-looking
information.
Non-GAAP Financial Information
DRC discloses earnings before interest, taxes, depreciation and
amortization and free cash flow, which are not recognized measures
under GAAP. We have provided a reconciliation of EBITDA,
adjusted to conform to the definition used in our loan agreements
and free cash flow in Attachment V of this announcement. When
evaluating DRC's financial results investors should evaluate each
adjustment to reported GAAP financial measures in the
reconciliation as additional information and not use this non-GAAP
financial measure as alternatives to reported GAAP financial
measures. DRC presents these financial measures because the
Company believes they provide investors with important supplemental
information to assist them in assessing DRC's financial
results.
|
ATTACHMENT I |
|
|
|
DYNAMICS RESEARCH
CORPORATION |
PRELIMINARY CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS (unaudited) |
(In thousands, except
share and per share data) |
|
|
|
|
|
|
|
Three Months
Ended |
|
June
30, |
|
2012 |
2011 |
Revenue |
$ 80,834 |
$ 68,472 |
Cost of revenue |
68,307 |
58,045 |
Gross profit |
12,527 |
10,427 |
|
|
|
Selling, general and administrative
expenses |
6,410 |
6,809 |
Amortization of intangible assets |
1,031 |
374 |
Operating income |
5,086 |
3,244 |
Interest expense, net |
(2,621) |
(768) |
Other income (expense), net |
(71) |
67 |
Income from continuing operations before
provision for income taxes |
2,394 |
2,543 |
Provision for income taxes |
973 |
1,106 |
Net income |
$ 1,421 |
$ 1,437 |
|
|
|
Earnings per share: |
|
|
Basic |
$ 0.14 |
$ 0.14 |
Diluted |
$ 0.14 |
$ 0.14 |
|
|
|
Weighted average shares outstanding: |
|
|
Basic |
10,319,901 |
10,050,545 |
Diluted |
10,352,869 |
10,194,171 |
|
|
ATTACHMENT II |
|
|
|
DYNAMICS RESEARCH
CORPORATION |
PRELIMINARY CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS (unaudited) |
(In thousands, except
share and per share data) |
|
|
|
|
|
|
|
Six Months
Ended |
|
June
30, |
|
2012 |
2011 |
Revenue |
$ 166,703 |
$ 137,996 |
Cost of revenue |
140,580 |
116,805 |
Gross profit |
26,123 |
21,191 |
|
|
|
Selling, general and administrative
expenses |
13,301 |
12,478 |
Amortization of intangible assets |
2,062 |
748 |
Operating income |
10,760 |
7,965 |
Interest expense, net |
(5,400) |
(1,020) |
Other income, net |
64 |
163 |
Income from continuing operations before
provision for income taxes |
5,424 |
7,108 |
Provision for income taxes |
2,212 |
2,963 |
Net income |
$ 3,212 |
$ 4,145 |
|
|
|
Earnings per share: |
|
|
Basic |
$ 0.31 |
$ 0.42 |
Diluted |
$ 0.31 |
$ 0.41 |
|
|
|
Weighted average shares outstanding: |
|
|
Basic |
10,330,851 |
9,971,411 |
Diluted |
10,372,116 |
10,145,738 |
|
|
ATTACHMENT
III |
|
|
|
DYNAMICS RESEARCH
CORPORATION |
PRELIMINARY CONDENSED
CONSOLIDATED BALANCE SHEETS (unaudited) |
(Dollars in
thousands) |
|
|
|
|
|
|
|
June 30, |
December 31, |
|
2012 |
2011 |
Assets |
|
|
Current assets |
|
|
Cash and cash equivalents |
$ 8 |
$ 3,908 |
Contract receivables, net |
64,072 |
66,466 |
Prepaid expenses and other
current assets |
4,250 |
2,566 |
Total current assets |
68,330 |
72,940 |
|
|
|
Noncurrent assets |
|
|
Property and equipment,
net |
13,651 |
15,265 |
Goodwill |
211,805 |
211,805 |
Intangible assets, net |
16,679 |
18,741 |
Deferred tax asset |
-- |
497 |
Other noncurrent assets |
3,974 |
4,312 |
Total noncurrent assets |
246,109 |
250,620 |
Total assets |
$ 314,439 |
$ 323,560 |
|
|
|
Liabilities and stockholders' equity |
|
|
Current liabilities |
|
|
Current portion of long-term
debt |
$ 13,750 |
$ 12,375 |
Accounts payable |
22,915 |
24,504 |
Accrued compensation and
employee benefits |
20,083 |
24,902 |
Deferred tax liability |
3,479 |
3,383 |
Other accrued expenses |
5,245 |
8,556 |
Total current liabilities |
65,472 |
73,720 |
Long-term liabilities |
|
|
Long-term debt |
96,170 |
102,453 |
Deferred tax liability |
2,536 |
-- |
Other long-term
liabilities |
31,845 |
33,066 |
Total stockholders' equity |
118,416 |
114,321 |
Total liabilities and
stockholders' equity |
$ 314,439 |
$ 323,560 |
|
|
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, |
|
2012 |
2011 |
2012 |
2011 |
National defense and
intelligence agencies |
$ 46,547 |
$ 47,471 |
$ 97,072 |
$ 95,282 |
Homeland security |
11,062 |
11,322 |
22,508 |
23,610 |
Federal civilian agencies |
19,222 |
5,782 |
39,191 |
11,590 |
Total revenue from federal
agencies |
76,831 |
64,575 |
158,771 |
130,482 |
State and local government
agencies |
4,003 |
3,886 |
7,915 |
7,500 |
Other |
-- |
11 |
17 |
14 |
Total revenue |
$ 80,834 |
$ 68,472 |
$ 166,703 |
$ 137,996 |
|
|
|
|
|
Revenues by contract type as a
percentage of contract revenue were as follows: |
|
|
|
|
|
|
|
|
Three Months
Ended |
Six Months
Ended |
|
June
30, |
June
30, |
|
2012 |
2011 |
2012 |
2011 |
Fixed price, including
service-type contracts |
47% |
51% |
46% |
50% |
Time and materials |
33 |
30 |
34 |
30 |
Cost reimbursable |
20 |
19 |
20 |
20 |
|
100% |
100% |
100% |
100% |
|
|
|
|
|
Prime contract |
85% |
76% |
85% |
75% |
Sub-contract |
15 |
24 |
15 |
25 |
|
100% |
100% |
100% |
100% |
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended |
Six Months
Ended |
|
June
30, |
June
30, |
|
2012 |
2011 |
2012 |
2011 |
Net cash provided by operating
activities |
$ 5,738 |
$ 9,504 |
$ 4,118 |
$ 1 |
Capital expenditures |
$ 123 |
$ 542 |
$ 215 |
$ 862 |
Depreciation |
$ 1,004 |
$ 842 |
$ 2,018 |
$ 1,707 |
Bookings |
$ 85,346 |
$ 54,730 |
$ 143,681 |
$ 113,753 |
|
|
|
|
|
|
|
|
|
|
|
June 30, |
December 31, |
|
|
|
2012 |
2011 |
|
|
Total backlog |
$ 669,899 |
$ 801,932 |
|
|
Funded backlog |
$ 150,557 |
$ 183,336 |
|
|
Employees |
1,380 |
1,534 |
|
|
|
|
ATTACHMENT V |
|
|
|
|
|
DYNAMICS RESEARCH
CORPORATION |
RECONCILIATION OF
NON-GAAP FINANCIAL MEASURES |
PRELIMINARY ADJUSTED
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION
(ADJUSTED EBITDA) (unaudited) AND |
FREE CASH FLOW
(unaudited) |
(Dollars in
thousands) |
|
|
|
|
|
As presented, adjusted EBITDA is defined as
follows: |
|
|
|
|
|
|
|
|
|
|
Three Months
Ended |
Six Months
Ended |
|
June
30, |
June
30, |
|
2012 |
2011 |
2012 |
2011 |
Net income (preliminary) |
$ 1,421 |
$ 1,437 |
$ 3,212 |
$ 4,145 |
Add: |
|
|
|
|
Interest expense, net |
2,621 |
768 |
5,400 |
1,020 |
Provision for income taxes |
973 |
1,106 |
2,212 |
2,963 |
Depreciation expense |
1,004 |
842 |
2,018 |
1,707 |
Amortization expense |
1,031 |
374 |
2,062 |
748 |
Share-based compensation |
175 |
142 |
351 |
329 |
Transaction costs, net of
amounts included in net interest expense |
-- |
1,703 |
-- |
1,703 |
Less: amortization of deferred gain on
sale of building |
(169) |
(169) |
(338) |
(338) |
Adjusted EBITDA(1) |
$ 7,056 |
$ 6,203 |
$ 14,917 |
$ 12,277 |
Adjusted EBITDA, as a percent of revenue |
8.7% |
9.1% |
8.9% |
8.9% |
|
|
|
|
|
|
Three Months
Ended |
Six Months
Ended |
|
June
30, |
June
30, |
|
2012 |
2011 |
2012 |
2011 |
Net cash provided by operating
activities |
$ 5,738 |
$ 9,504 |
$ 4,118 |
$ 1 |
Less: Additions to property and
equipment |
(123) |
(542) |
(215) |
(862) |
Free cash flow |
$ 5,615 |
$ 8,962 |
$ 3,903 |
$ (861) |
Free cash flow, as a percent of
revenue |
6.9% |
13.1% |
2.3% |
-0.6% |
|
(1) We have calculated adjusted EBITDA to conform with the
definition of EBITDA provided in our loan agreements to help
investors understand that component of our debt covenant
calculations. We may have calculated EBITDA differently than
it is calculated by other companies.
|
|
ATTACHMENT VI |
|
|
|
DYNAMICS RESEARCH
CORPORATION |
NON-GAAP CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS (unaudited) |
(in thousands, except
share and per share data) |
|
|
|
|
|
|
|
Three Months Ended |
Six Months Ended |
|
June 30,
2011 |
June 30,
2011 |
Revenue |
$ 68,472 |
$ 137,996 |
Cost of revenue |
58,045 |
116,805 |
Gross profit |
10,427 |
21,191 |
|
|
|
Non-GAAP selling, general and administrative
expenses |
5,106 |
10,775 |
Amortization of intangible assets |
374 |
748 |
Non-GAAP operating income |
4,947 |
9,668 |
Non-GAAP interest expense, net |
(235) |
(487) |
Other income, net |
67 |
163 |
Income from continuing operations before
provision for income taxes |
4,779 |
9,344 |
Provision for income taxes |
2,046 |
3,903 |
Non-GAAP net income |
$ 2,733 |
$ 5,441 |
|
|
|
Non-GAAP earnings per share: |
|
|
Non-GAAP Basic |
$ 0.27 |
$ 0.55 |
Non-GAAP Diluted |
$ 0.27 |
$ 0.54 |
|
|
|
Weighted average shares outstanding: |
|
|
Basic |
10,050,545 |
9,971,411 |
Diluted |
10,194,171 |
10,145,738 |
|
|
ATTACHMENT
VII |
|
|
|
DYNAMICS RESEARCH
CORPORATION |
RECONCILIATION OF
NON-GAAP MEASURES |
(in thousands, except
share and per share data) |
|
|
|
|
Three Months Ended |
Six Months Ended |
|
June 30,
2011 |
June 30,
2011 |
GAAP selling, general and administrative
expenses |
$ 6,809 |
$ 12,478 |
Operating transaction costs |
(1,703) |
(1,703) |
Non-GAAP selling, general and
administrative |
$ 5,106 |
$ 10,775 |
|
|
|
GAAP operating income |
$ 3,244 |
$ 7,965 |
Operating transaction costs |
1,703 |
1,703 |
Non-GAAP operating income |
$ 4,947 |
$ 9,668 |
|
|
|
GAAP interest expense, net |
$ (768) |
$ (1,020) |
Non operating transaction costs |
533 |
533 |
Non-GAAP interest expense, net |
$ (235) |
$ (487) |
|
|
|
GAAP income from continuing operations before
provision for income taxes |
$ 2,543 |
$ 7,108 |
Total transaction costs |
2,236 |
2,236 |
Non-GAAP income from continuing operating
before provision for income taxes |
$ 4,779 |
$ 9,344 |
|
|
|
GAAP provision for income taxes |
$ 1,106 |
$ 2,963 |
Tax benefit for transaction costs |
940 |
940 |
Non-GAAP provision for income taxes |
$ 2,046 |
$ 3,903 |
|
|
|
GAAP net income |
$ 1,437 |
$ 4,145 |
Total transaction costs, net of taxes |
1,296 |
1,296 |
Non-GAAP net income |
$ 2,733 |
$ 5,441 |
|
|
|
Earnings per share: |
|
|
GAAP Basic |
$ 0.14 |
$ 0.42 |
Per share effect of transaction
costs |
0.13 |
0.13 |
Non-GAAP Basic |
$ 0.27 |
$ 0.55 |
|
|
|
GAAP Diluted |
$ 0.14 |
$ 0.41 |
Per share effect of transaction
costs |
0.13 |
0.13 |
Non-GAAP Diluted |
$ 0.27 |
$ 0.54 |
|
|
|
Weighted average shares outstanding: |
|
|
Basic |
10,050,545 |
9,971,411 |
Diluted |
10,194,171 |
10,145,738 |
CONTACT: Investors:
Chris Witty
Darrow Associates, Inc.
646.438.9385
cwitty@darrowir.com
Duyen "Jen" Truong
Sage Communications (for DRC)
703.584.5645
duyent@aboutsage.com
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