--- Adjusted EBITDA of 11.6
Percent on Revenue of $77 Million ---
--- $11.7 Million Free Cash
Flow, 15 Percent of Revenue ---
--- $125 Million of New
Contract Awards and Funded Bookings of $108 Million
---
--- Goodwill Impairment
Charge Concluded at $48.6M, $36.6M Third Quarter Charge
---
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 operating results for the third
quarter ended September 30, 2012.
Financial Results
Results for the third quarter of 2012 included a $36.6 million
non-cash goodwill impairment charge. Excluding this charge net
income for the third quarter of 2012 was $2.8 million, or $0.27 per
diluted share, versus $3.3 million, or $0.32 per diluted share, for
the third quarter of 2011. Third quarter 2012 results included
other income of $2.4 million, or $0.14 per diluted share, as a
result of settlement of a contract claim by a company in which DRC
has a 40 percent ownership interest. Adjusted earnings before
interest, taxes, depreciation, and amortization (EBITDA) for the
third quarter of 2012 was $8.9 million, or 11.6 percent of revenue,
compared with $11.3 million, or 11.8 percent of revenue, for the
third quarter a year ago. Including the goodwill impairment
charge the reported loss was $20.6 million for the third quarter of
2012. Revenue for the third quarter of 2012 was $76.8 million,
compared with $96.4 million for the same period in 2011.
Excluding the goodwill impairment charges net income for the
nine months ended September 30, 2012 was $6.0 million, or $0.58 per
diluted share, compared with $8.7 million, or $0.85 per diluted
share, for the same period a year ago, excluding second quarter
2011 transaction costs. Adjusted EBITDA for the nine months ended
September 30, 2012 was $23.9 million, or 9.8 percent of revenue,
compared with $23.6 million, or 10.1 percent of revenue, for the
same period a year ago. Including pre-tax goodwill impairment
charges of $48.6 million the net loss was $24.9 million for the
nine month period ended September 30, 2012. For the nine
months ended September 30, 2012 revenue was $243.5 million compared
to $234.4 million for the same period in 2011, which included the
results of High Performance Technologies, Inc. subsequent to the
merger date of June 30, 2011.
Regarding the non-cash goodwill impairment charges, the
Company's decision to evaluate whether goodwill was impaired
resulted from a significant decline in the market price of the
Company's common stock in the second quarter of 2012. The
Company's step one evaluation indicated that goodwill was
impaired. As a result a preliminary charge of $12.0 million
was taken in the second quarter of 2012. The Company's step
two evaluation was completed in the third quarter of 2012,
resulting in the determination of a total impairment of $48.6
million and an additional charge in the third quarter of $36.6
million.
Business Highlights
"Highlights for the quarter included $125 million in new
business contract awards, a quarterly record for DRC, and a third
quarter book-to-bill ratio of 1.4-to-one. DRC is executing on
a plan to identify and capture its share of opportunities in this
highly competitive and challenging environment," said Jim Regan,
DRC's chairman and chief executive officer. "Clearly, our
business concentration in federal growth market sectors and
differentiated capabilities is a source of strength – evidenced by
the fact that $76 million of the contract wins were in the
healthcare market, with the largest of these being a $50 million
contract to support the Food and Drug Administration's scientific
computing environment.
"We are continuing to identify additional opportunities, despite
market challenges. Notwithstanding the significant number of
award decisions made in the quarter just ended, our qualified
pipeline remains at $1.0 billion, about the same as three months
ago. We also reported another strong quarter from a cash flow
perspective, generating $11.7 million of free cash flow and ending
the quarter with a $9.5 million cash balance. As we turn the
corner into 2013, we will continue focusing on new business
development initiatives, de-levering the balance sheet, and
delivering bottom line results for our shareholders."
Company Guidance
The Company's estimate for 2012 full year revenue is in the
range of $317 to $321 million. The Company estimates 2012 full
year earnings, excluding impairment charges, to be in the range of
$0.76 to $0.78 per diluted share. For the fourth quarter of
2012, the Company anticipates revenue in the range of $74 to $77
million and earnings of $0.18 to $0.20 per diluted share.
Conference Call
The Company will conduct a third quarter 2012 conference call
tomorrow, November 1, 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 # 45264471, beginning at 1:00 p.m. ET on November 1,
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. 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 |
CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS (unaudited) |
(In thousands, except
share and per share data) |
|
|
|
Three Months
Ended |
|
September
30, |
|
2012 |
2011 |
Revenue |
$ 76,767 |
$ 96,379 |
Cost of revenue |
65,544 |
78,941 |
Gross profit |
11,223 |
17,438 |
|
|
|
Selling, general and administrative
expenses |
5,684 |
7,041 |
Amortization of intangible assets |
1,031 |
1,553 |
Impairment of goodwill |
36,600 |
-- |
Operating income (loss) |
(32,092) |
8,844 |
Interest expense, net |
(2,579) |
(3,027) |
Other income (expense), net |
2,414 |
(157) |
Income (loss) before provision (benefit) for
income taxes |
(32,257) |
5,660 |
Provision (benefit) for income taxes |
(11,663) |
2,382 |
Net income (loss) |
$ (20,594) |
$ 3,278 |
|
|
|
Earnings (loss) per share: |
|
|
Basic |
$ (1.99) |
$ 0.32 |
Diluted |
$ (1.99) |
$ 0.32 |
|
|
|
Weighted average shares outstanding: |
|
|
Basic |
10,360,203 |
10,244,868 |
Diluted |
10,360,203 |
10,314,413 |
ATTACHMENT II |
|
|
|
DYNAMICS RESEARCH
CORPORATION |
CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS (unaudited) |
(In thousands, except
share and per share data) |
|
|
|
|
|
|
|
Nine Months
Ended |
|
September
30, |
|
2012 |
2011 |
Revenue |
$ 243,470 |
$ 234,375 |
Cost of revenue |
206,124 |
195,746 |
Gross profit |
37,346 |
38,629 |
|
|
|
Selling, general and administrative
expenses |
18,985 |
19,519 |
Amortization of intangible assets |
3,093 |
2,301 |
Impairment of goodwill |
48,600 |
-- |
Operating income (loss) |
(33,332) |
16,809 |
Interest expense, net |
(7,979) |
(4,047) |
Other income, net |
2,478 |
6 |
Income before provision (benefit) for income
taxes |
(38,833) |
12,768 |
Provision (benefit) for income taxes |
(13,951) |
5,345 |
Net income (loss) |
$ (24,882) |
$ 7,423 |
|
|
|
Earnings (loss) per share: |
|
|
Basic |
$ (2.40) |
$ 0.74 |
Diluted |
$ (2.40) |
$ 0.73 |
|
|
|
Weighted average shares outstanding: |
|
|
Basic |
10,356,334 |
10,060,585 |
Diluted |
10,356,334 |
10,205,603 |
ATTACHMENT
III |
|
|
|
DYNAMICS RESEARCH
CORPORATION |
CONDENSED CONSOLIDATED
BALANCE SHEETS (unaudited) |
(Dollars in
thousands) |
|
|
|
|
|
|
|
September 30, |
December 31, |
|
2012 |
2011 |
Assets |
|
|
Current assets |
|
|
Cash and cash equivalents |
$ 9,457 |
$ 3,908 |
Contract receivables, net |
51,418 |
66,466 |
Prepaid expenses and other
current assets |
3,630 |
2,566 |
Total current assets |
64,505 |
72,940 |
Noncurrent assets |
|
|
Property and equipment,
net |
13,205 |
15,265 |
Goodwill |
163,205 |
211,805 |
Intangible assets, net |
15,648 |
18,741 |
Deferred tax asset |
13,254 |
497 |
Other noncurrent assets |
4,309 |
4,312 |
Total noncurrent assets |
209,621 |
250,620 |
Total assets |
$ 274,126 |
$ 323,560 |
|
|
|
Liabilities and stockholders' equity |
|
|
Current liabilities |
|
|
Current portion of long-term
debt |
$ 14,438 |
$ 12,375 |
Accounts payable |
22,220 |
24,504 |
Accrued compensation and
employee benefits |
19,573 |
24,902 |
Deferred tax liability |
3,245 |
3,383 |
Other accrued expenses |
5,611 |
8,556 |
Total current liabilities |
65,087 |
73,720 |
Long-term liabilities |
|
|
Long-term debt |
91,630 |
102,453 |
Other long-term
liabilities |
26,883 |
33,066 |
Total stockholders' equity |
90,526 |
114,321 |
Total liabilities and
stockholders' equity |
$ 274,126 |
$ 323,560 |
ATTACHMENT IV |
|
|
|
|
|
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, |
|
2012 |
2011 |
2012 |
2011 |
National defense and
intelligence agencies |
$ 45,468 |
$ 59,479 |
$ 142,540 |
$ 154,761 |
Homeland security |
11,799 |
12,963 |
34,307 |
36,573 |
Federal civilian agencies |
15,401 |
20,148 |
54,592 |
31,738 |
Total revenue from federal
agencies |
72,668 |
92,590 |
231,439 |
223,072 |
State and local government
agencies |
3,995 |
3,774 |
11,910 |
11,274 |
Other |
104 |
15 |
121 |
29 |
Total revenue |
$ 76,767 |
$ 96,379 |
$ 243,470 |
$ 234,375 |
|
|
|
|
|
Revenues by contract type as a
percentage of contract revenue were as follows: |
|
|
|
|
|
|
|
|
Three Months
Ended |
Nine Months
Ended |
|
September
30, |
September
30, |
|
2012 |
2011 |
2012 |
2011 |
Fixed price, including
service-type contracts |
45% |
46% |
46% |
48% |
Time and materials |
37 |
33 |
34 |
31 |
Cost reimbursable |
18 |
21 |
20 |
21 |
|
100% |
100% |
100% |
100% |
|
|
|
|
|
Prime contract |
83% |
82% |
84% |
78% |
Sub-contract |
17 |
18 |
16 |
22 |
|
100% |
100% |
100% |
100% |
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended |
Nine Months
Ended |
|
September
30, |
September
30, |
|
2012 |
2011 |
2012 |
2011 |
Net cash provided by operating
activities |
$ 12,188 |
$ 14,277 |
$ 16,306 |
$ 14,278 |
Capital expenditures |
$ 535 |
$ 663 |
$ 750 |
$ 1,525 |
Depreciation |
$ 981 |
$ 1,067 |
$ 2,999 |
$ 2,774 |
Bookings |
$ 107,956 |
$ 160,881 |
$ 251,637 |
$ 274,634 |
|
|
|
|
|
|
|
|
|
|
|
September
30, |
December 31, |
|
|
|
2012 |
2011 |
|
|
Total backlog |
$ 757,334 |
$ 801,932 |
|
|
Funded backlog |
$ 182,431 |
$ 183,336 |
|
|
Employees |
1,265 |
1,534 |
|
|
ATTACHMENT V |
|
|
|
|
|
DYNAMICS RESEARCH
CORPORATION |
RECONCILIATION OF
NON-GAAP FINANCIAL MEASURES |
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 |
Nine Months
Ended |
|
September
30, |
September
30, |
|
2012 |
2011 |
2012 |
2011 |
Net income (loss) |
$ (20,594) |
$ 3,278 |
$ (24,882) |
$ 7,423 |
Add: |
|
|
|
|
Interest expense, net |
2,579 |
3,027 |
7,979 |
4,047 |
Provision (benefit) for income
taxes |
(11,663) |
2,382 |
(13,951) |
5,345 |
Depreciation expense |
981 |
1,067 |
2,999 |
2,774 |
Amortization expense |
1,031 |
1,553 |
3,093 |
2,301 |
Share-based compensation |
171 |
192 |
522 |
521 |
Impairment of goodwill |
36,600 |
-- |
48,600 |
-- |
Transaction costs, net of
amounts included in net interest expense |
-- |
-- |
-- |
1,703 |
Less: amortization of deferred gain on
sale of building |
(169) |
(169) |
(507) |
(507) |
Adjusted EBITDA(1) |
$ 8,936 |
$ 11,330 |
$ 23,853 |
$ 23,607 |
Adjusted EBITDA, as a percent of revenue |
11.6% |
11.8% |
9.8% |
10.1% |
|
|
|
|
|
|
Three Months
Ended |
Nine Months
Ended |
|
September
30, |
September
30, |
|
2012 |
2011 |
2012 |
2011 |
Net cash provided by operating
activities |
$ 12,188 |
$ 14,277 |
$ 16,306 |
$ 14,278 |
Less: Additions to property and
equipment |
(535) |
(663) |
(750) |
(1,525) |
Free cash flow |
$ 11,653 |
$ 13,614 |
$ 15,556 |
$ 12,753 |
Free cash flow, as a percent of
revenue |
15.2% |
14.1% |
6.4% |
5.4% |
|
|
|
|
|
|
|
|
|
|
(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 |
Nine Months
Ended |
|
September
30, |
September
30, |
|
2012 |
2011 |
2012 |
2011 |
Revenue |
$ 76,767 |
$ 96,379 |
$ 243,470 |
$ 234,375 |
Cost of revenue |
65,544 |
78,941 |
206,124 |
195,746 |
Gross profit |
11,223 |
17,438 |
37,346 |
38,629 |
|
|
|
|
|
Non-GAAP selling, general and administrative
expenses |
5,684 |
7,041 |
18,985 |
17,816 |
Amortization of intangible assets |
1,031 |
1,553 |
3,093 |
2,301 |
Non-GAAP operating income |
4,508 |
8,844 |
15,268 |
18,512 |
Non-GAAP interest expense, net |
(2,579) |
(3,027) |
(7,979) |
(3,514) |
Other income (loss), net |
2,414 |
(157) |
2,478 |
6 |
Non-GAAP income before provision for income
taxes |
4,343 |
5,660 |
9,767 |
15,004 |
Non-GAAP provision for income taxes |
1,537 |
2,382 |
3,749 |
6,285 |
Non-GAAP net income |
$ 2,806 |
$ 3,278 |
$ 6,018 |
$ 8,719 |
|
|
|
|
|
Non-GAAP earnings per share: |
|
|
|
|
Non-GAAP Basic |
$ 0.27 |
$ 0.32 |
$ 0.58 |
$ 0.87 |
Non-GAAP Diluted |
$ 0.27 |
$ 0.32 |
$ 0.58 |
$ 0.85 |
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
Basic |
10,360,203 |
10,244,868 |
10,356,334 |
10,060,585 |
Diluted |
10,384,518 |
10,314,413 |
10,394,775 |
10,205,603 |
ATTACHMENT
VII |
|
|
|
|
|
DYNAMICS RESEARCH
CORPORATION |
RECONCILIATION OF
NON-GAAP MEASURES |
(in thousands, except
share and per share data) |
|
|
|
|
|
|
Three Months
Ended |
Nine Months
Ended |
|
September
30, |
September
30, |
|
2012 |
2011 |
2012 |
2011 |
Selling, general and administrative
expenses |
$ 5,684 |
$ 7,041 |
$ 18,985 |
$ 19,519 |
Operating transaction costs |
-- |
-- |
-- |
(1,703) |
Non-GAAP selling, general and
administrative |
$ 5,684 |
$ 7,041 |
$ 18,985 |
$ 17,816 |
|
|
|
|
|
Operating income (loss) |
$ (32,092) |
$ 8,844 |
$ (33,332) |
$ 16,809 |
Impairment of goodwill |
36,600 |
-- |
48,600 |
-- |
Operating transaction costs |
-- |
-- |
-- |
1,703 |
Non-GAAP operating income |
$ 4,508 |
$ 8,844 |
$ 15,268 |
$ 18,512 |
|
|
|
|
|
Interest expense, net |
$ (2,579) |
$ (3,027) |
$ (7,979) |
$ (4,047) |
Non operating transaction costs |
-- |
-- |
-- |
533 |
Non-GAAP interest expense, net |
$ (2,579) |
$ (3,027) |
$ (7,979) |
$ (3,514) |
|
|
|
|
|
Income (loss) before provision (benefit) for
income taxes |
$ (32,257) |
$ 5,660 |
$ (38,833) |
$ 12,768 |
Impairment of goodwill |
36,600 |
-- |
48,600 |
-- |
Total transaction costs |
-- |
-- |
-- |
2,236 |
Non-GAAP income before provision for income
taxes |
$ 4,343 |
$ 5,660 |
$ 9,767 |
$ 15,004 |
|
|
|
|
|
Provision (benefit) for income taxes |
$ (11,663) |
$ 2,382 |
$ (13,951) |
$ 5,345 |
Tax benefit for impairment of goodwill |
13,200 |
-- |
17,700 |
-- |
Tax benefit for transaction costs |
-- |
-- |
-- |
940 |
Non-GAAP provision for income taxes |
$ 1,537 |
$ 2,382 |
$ 3,749 |
$ 6,285 |
|
|
|
|
|
Net income (loss) |
$ (20,594) |
$ 3,278 |
$ (24,882) |
$ 7,423 |
Impairment of goodwill, net of taxes |
23,400 |
-- |
30,900 |
-- |
Total transaction costs, net of taxes |
-- |
-- |
-- |
1,296 |
Non-GAAP net income |
$ 2,806 |
$ 3,278 |
$ 6,018 |
$ 8,719 |
|
|
|
|
|
Earnings (loss) per share: |
|
|
|
|
GAAP Basic |
$ (1.99) |
$ 0.32 |
$ (2.40) |
$ 0.74 |
Per share effect of goodwill
impairment |
2.26 |
-- |
2.98 |
-- |
Per share effect of transaction
costs |
-- |
-- |
-- |
0.13 |
Non-GAAP Basic |
$ 0.27 |
$ 0.32 |
$ 0.58 |
$ 0.87 |
|
|
|
|
|
GAAP Diluted |
$ (1.98) |
$ 0.32 |
$ (2.39) |
$ 0.73 |
Per share effect of goodwill
impairment |
2.25 |
-- |
2.97 |
-- |
Per share effect of transaction
costs |
-- |
-- |
-- |
0.13 |
Non-GAAP Diluted |
$ 0.27 |
$ 0.32 |
$ 0.58 |
$ 0.85 |
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
Basic |
10,360,203 |
10,244,868 |
10,356,334 |
10,060,585 |
Diluted |
10,384,518 |
10,314,413 |
10,394,775 |
10,205,603 |
CONTACT: Investors:
Chris Witty
Darrow Associates, Inc.
646.438.9385
cwitty@darrowir.com
Media:
Duyen "Jen" Truong
Sage Communications (for DRC)
703.584.5645
duyent@aboutsage.com
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