--- 2012 Adjusted EBITDA of
9.9 Percent on Revenue of $317 Million ---
--- 2012 Free Cash Flow of
$23 Million, 7.3 Percent of Revenue ---
--- 2012 Debt Repayments of
$28 Million Drop Leverage to 3.0 Times EBITDA ---
--- Qualified New Business
Pipeline of $1.1 Billion, Up 15 Percent In Past 3 Months
---
Dynamics Research Corporation (Nasdaq:DRCO), a leading technology
and management consulting company focused on driving performance,
process and results for government clients, today announced
operating results for the fourth quarter and year ended December
31, 2012.
Financial Results
Results for the fourth quarter of 2012 included $2.0 million in
charges related to accelerated debt repayment. Excluding these
charges net income for the fourth quarter was $1.9 million, or
$0.18 per diluted share. Adjusted earnings before interest, taxes,
depreciation and amortization (EBITDA) for the fourth quarter of
2012 was $7.7 million, or 10.4 percent of revenue. Including the
accelerated debt repayment charge of $2.0 million, reported net
income for the fourth quarter of 2012 was $0.6 million, or $0.06
per diluted share. Revenue for the fourth quarter of 2012 was $73.5
million, compared with $88.2 million for the same period in
2011.
Excluding accelerated debt repayment and goodwill impairment
charges in 2012, as well as transaction expenses in 2011, adjusted
net income was $7.9 million, or $0.76 per diluted share, for the
year ended December 31, 2012 compared with $12.8 million, or $1.25
per diluted share, for the full year 2011. Adjusted EBITDA for the
year ended December 31, 2012 was $31.5 million, or 9.9 percent of
revenue, compared with $35.8 million, or 11.1 percent of revenue,
for 2011. Including pre-tax accelerated debt repayment and goodwill
impairment charges of $50.6 million, the net loss was $24.2 million
for the year ended December 31, 2012. For the year ended December
31, 2012 revenue was $317.0 million compared to $322.6 million for
2011, including the results of High Performance Technologies, Inc.
subsequent to the merger date June 30, 2011.
Business Highlights
"Fiscal 2012 was a challenging year but one that saw its share
of accomplishments, as we booked $156 million of new contract wins
and ended the year with a solid contract backlog, while at the same
time significantly de-levering our balance sheet," said Jim Regan,
DRC's chairman and chief executive officer. "No doubt the federal
market continues to present uncertainties and challenging
conditions. Nevertheless, we see increasing opportunities going
forward, as evidenced by the growth in our qualified new business
pipeline – which now stands at $1.1 billion, up 15 percent in the
past three months. We are making the necessary investments needed
to capitalize on these opportunities, while concurrently managing
costs to maintain our competitiveness and improve shareholder
value.
"We reported another strong quarter and year from a cash
generation perspective, enabling us to prepay $15 million of
subordinated debt at the end of 2012. In the past 18 months we have
paid off a total of $58 million of the $150 million in debt put in
place for the High Performance Technologies merger completed June
30, 2011. We generated $23 million in free cash flow in 2012,
equivalent to a yield of 7.3 percent on revenue; our free cash flow
yield and federal receivables of 50 days sales outstanding remain
among the strongest in our industry.
"Longer term, as federal priorities are clarified and budget
decisions made, we anticipate improved market visibility. We are
confident the Company is well positioned in the most vital market
sectors, which will remain well funded – with more than 70 percent
of our business base concentrated in the areas of healthcare,
research and development, homeland security, intelligence,
surveillance and reconnaissance, and financial and regulatory
reform."
Company Guidance
For the first quarter 2013 the Company anticipates revenue in
the range of $73 to $75 million and earnings of $0.12 to $0.14 per
diluted share. Considering current uncertainties regarding federal
government expenditure decisions, the Company is at this time
refraining from providing financial guidance for the balance of the
calendar year 2013.
Conference Call
The Company will conduct a fourth quarter and year end 2012
conference call tomorrow, February 21, 2013 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 # 91757014, beginning at 1:00 p.m. ET
on February 21, 2013.
About Dynamics Research Corporation
Dynamics Research Corporation (DRC) provides technology and
management consulting solutions focused on driving performance,
process and results for government clients. DRC offers innovative
solutions and delivers rock solid results. DRC has large company
capabilities and small company agility. 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
Certain statements contained in this news release, which are not
historical facts or are related to future plans, events, revenues
and earnings expectations, objectives and outlooks are forward
looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 and, by their nature, are uncertain
and subject to a number of risks and uncertainties that could
adversely affect the Company's results. We can provide no assurance
that these statements will prove to be correct. Consequently,
actual results could materially differ from these statements. For
more detailed information concerning how these risks and
uncertainties could affect the Company's financial results, please
refer to DRC's most recent forms 10-K and 10-Q and other documents
filed with the Securities and Exchange Commission. Further, the
Company is under no duty or obligation to update or revise any
forward looking statements as a result of events or new
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 adjusted 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 |
|
December
31, |
|
2012 |
2011 |
Revenue |
$ 73,504 |
$ 88,222 |
Cost of revenue |
60,973 |
70,221 |
Gross profit |
12,531 |
18,001 |
|
|
|
Selling, general and administrative
expenses |
5,869 |
6,950 |
Amortization of intangible assets |
1,031 |
1,491 |
Operating income |
5,631 |
9,560 |
Interest expense, net |
(4,676) |
(2,881) |
Other income, net |
131 |
116 |
Income before provision for income taxes |
1,086 |
6,795 |
Provision for income taxes |
439 |
2,761 |
Net income |
$ 647 |
$ 4,034 |
|
|
|
Earnings per share: |
|
|
Basic |
$ 0.06 |
$ 0.39 |
Diluted |
$ 0.06 |
$ 0.39 |
|
|
|
Weighted average shares outstanding: |
|
|
Basic |
10,388,743 |
10,263,300 |
Diluted |
10,415,276 |
10,318,477 |
|
|
|
|
ATTACHMENT II |
|
|
|
DYNAMICS RESEARCH
CORPORATION |
CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS (unaudited) |
(in thousands, except
share and per share data) |
|
|
|
|
|
|
|
Twelve Months
Ended |
|
December
31, |
|
2012 |
2011 |
Revenue |
$ 316,974 |
$ 322,597 |
Cost of revenue |
267,097 |
265,967 |
Gross profit |
49,877 |
56,630 |
|
|
|
Selling, general and administrative
expenses |
24,854 |
26,469 |
Amortization of intangible assets |
4,124 |
3,792 |
Impairment of goodwill |
48,600 |
-- |
Operating income (loss) |
(27,701) |
26,369 |
Interest expense, net |
(12,655) |
(6,928) |
Other income, net |
2,609 |
122 |
Income before provision (benefit) for income
taxes |
(37,747) |
19,563 |
Provision (benefit) for income taxes |
(13,512) |
8,106 |
Net income (loss) |
$ (24,235) |
$ 11,457 |
|
|
|
Earnings (loss) per share: |
|
|
Basic |
$ (2.34) |
$ 1.13 |
Diluted |
$ (2.34) |
$ 1.12 |
|
|
|
Weighted average shares outstanding: |
|
|
Basic |
10,369,228 |
10,108,907 |
Diluted |
10,369,228 |
10,219,408 |
|
|
|
|
ATTACHMENT
III |
|
|
|
DYNAMICS RESEARCH
CORPORATION |
CONDENSED CONSOLIDATED
BALANCE SHEETS (unaudited) |
(in
thousands) |
|
|
|
|
|
|
|
December 31, |
December 31, |
|
2012 |
2011 |
Assets |
|
|
Current assets |
|
|
Cash and cash
equivalents |
$ 2 |
$ 3,908 |
Contract receivables,
net |
48,112 |
66,466 |
Prepaid expenses and other
current assets |
2,538 |
2,566 |
Total current
assets |
50,652 |
72,940 |
Noncurrent assets |
|
|
Property and equipment,
net |
12,511 |
15,265 |
Goodwill |
163,205 |
211,805 |
Intangible assets, net |
14,617 |
18,741 |
Deferred tax asset |
14,678 |
497 |
Other noncurrent
assets |
4,388 |
4,312 |
Total
noncurrent assets |
209,399 |
250,620 |
Total
assets |
$ 260,051 |
$ 323,560 |
|
|
|
Liabilities and stockholders' equity |
|
|
Current liabilities |
|
|
Current portion of
long-term debt |
$ 15,125 |
$ 12,375 |
Accounts payable |
24,847 |
24,504 |
Accrued compensation and
employee benefits |
14,933 |
24,902 |
Deferred taxes |
3,009 |
3,383 |
Other accrued expenses |
5,307 |
8,556 |
Total current
liabilities |
63,221 |
73,720 |
Long-term liabilities |
|
|
Long-term debt |
74,018 |
102,453 |
Other long-term
liabilities |
34,941 |
33,066 |
Total stockholders'
equity |
87,871 |
114,321 |
Total
liabilities and stockholders' equity |
$ 260,051 |
$ 323,560 |
|
|
|
|
ATTACHMENT IV |
|
|
|
|
|
DYNAMICS RESEARCH
CORPORATION |
SUPPLEMENTAL
INFORMATION (unaudited) |
(dollars in
thousands) |
|
|
|
|
|
|
|
|
|
|
Contract revenues were earned
from the following sectors: |
|
|
|
|
|
|
|
|
Three Months
Ended |
Twelve Months
Ended |
|
December
31, |
December
31, |
|
2012 |
2011 |
2012 |
2011 |
National defense and intelligence
agencies |
$ 41,217 |
$ 50,969 |
$ 183,197 |
$ 205,730 |
Homeland security |
11,270 |
12,082 |
47,429 |
48,655 |
Federal civilian agencies |
16,679 |
21,698 |
69,967 |
53,436 |
Total revenue from federal
agencies |
69,166 |
84,749 |
300,593 |
307,821 |
State and local government agencies and
other |
4,338 |
3,473 |
16,381 |
14,776 |
Total
revenue |
$ 73,504 |
$ 88,222 |
$ 316,974 |
$ 322,597 |
|
|
|
|
|
Revenues by contract type as a
percentage of contract revenue were as follows: |
|
|
|
|
|
|
|
|
Three Months
Ended |
Twelve Months
Ended |
|
December
31, |
December
31, |
|
2012 |
2011 |
2012 |
2011 |
Fixed price, including service-type
contracts |
44% |
48% |
45% |
48% |
Time and materials |
37 |
34 |
35 |
32 |
Cost reimbursable |
19 |
18 |
20 |
20 |
|
100% |
100% |
100% |
100% |
|
|
|
|
|
Prime contract |
81% |
84% |
83% |
79% |
Sub-contract |
19 |
16 |
17 |
21 |
|
100% |
100% |
100% |
100% |
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended |
Twelve Months
Ended |
|
December
31, |
December
31, |
|
2012 |
2011 |
2012 |
2011 |
Net cash provided by operating
activities |
$ 7,734 |
$ 11,694 |
$ 24,040 |
$ 25,972 |
Capital expenditures |
$ 291 |
$ 189 |
$ 1,041 |
$ 1,714 |
Depreciation |
$ 884 |
$ 1,049 |
$ 3,883 |
$ 3,823 |
Bookings |
$ 54,358 |
$ 61,506 |
$ 305,995 |
$ 336,140 |
|
|
|
|
|
|
|
|
|
|
|
December 31, |
December 31, |
|
|
|
2012 |
2011 |
|
|
Total backlog |
$ 731,676 |
$ 801,932 |
|
|
Funded backlog |
$ 163,645 |
$ 183,336 |
|
|
Employees |
1,255 |
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 |
Twelve Months
Ended |
|
December
31, |
December
31, |
|
2012 |
2011 |
2012 |
2011 |
Net income (loss) |
$ 647 |
$ 4,034 |
$ (24,235) |
$ 11,457 |
Add: |
|
|
|
|
Interest expense, net |
4,676 |
2,881 |
12,655 |
6,928 |
Provision (benefit) for income taxes |
439 |
2,761 |
(13,512) |
8,106 |
Depreciation expense |
884 |
1,049 |
3,883 |
3,823 |
Amortization expense |
1,031 |
1,491 |
4,124 |
3,792 |
Share-based compensation |
155 |
165 |
677 |
686 |
Impairment of goodwill |
-- |
-- |
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) |
(676) |
(676) |
Adjusted EBITDA(1) |
$ 7,663 |
$ 12,212 |
$ 31,516 |
$ 35,819 |
Adjusted EBITDA, as a percent of revenue |
10.4% |
13.8% |
9.9% |
11.1% |
|
|
|
|
|
|
Three Months
Ended |
Twelve Months
Ended |
|
December
31, |
December
31, |
|
2012 |
2011 |
2012 |
2011 |
Net cash provided by operating
activities |
$ 7,734 |
$ 11,694 |
$ 24,040 |
$ 25,972 |
Less: Additions to property and
equipment |
(291) |
(189) |
(1,041) |
(1,714) |
Free cash flow |
$ 7,443 |
$ 11,505 |
$ 22,999 |
$ 24,258 |
Free cash flow, as a percent of
revenue |
10.1% |
13.0% |
7.3% |
7.5% |
|
|
|
|
|
|
|
|
|
|
(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 |
Year Ended
December 31, |
|
December 31,
2012 |
2012 |
2011 |
Revenue |
$ 73,504 |
$ 316,974 |
$ 322,597 |
Cost of revenue |
60,973 |
267,097 |
265,967 |
Gross profit |
12,531 |
49,877 |
56,630 |
|
|
|
|
Non-GAAP selling, general and administrative
expenses |
5,869 |
24,854 |
24,766 |
Amortization of intangible assets |
1,031 |
4,124 |
3,792 |
Non-GAAP operating income |
5,631 |
20,899 |
28,072 |
Non-GAAP interest expense, net |
(2,636) |
(10,615) |
(6,395) |
Other income, net |
131 |
2,609 |
122 |
Income before provision for income taxes |
3,126 |
12,893 |
21,799 |
Provision for income taxes |
1,255 |
5,004 |
9,046 |
Non-GAAP net income |
$ 1,871 |
$ 7,889 |
$ 12,753 |
|
|
|
|
Non-GAAP earnings per share: |
|
|
|
Non-GAAP Basic |
$ 0.18 |
$ 0.76 |
$ 1.26 |
Non-GAAP Diluted |
$ 0.18 |
$ 0.76 |
$ 1.25 |
|
|
|
|
Weighted average shares outstanding: |
|
|
|
Basic |
10,388,743 |
10,369,228 |
10,108,907 |
Diluted |
10,415,276 |
10,410,698 |
10,219,408 |
|
|
|
|
|
ATTACHMENT
VII |
|
|
|
|
DYNAMICS RESEARCH
CORPORATION |
RECONCILIATION OF
NON-GAAP MEASURES |
(in thousands, except
share and per share data) |
|
|
|
|
|
|
|
|
|
Three Months Ended |
Year Ended
December 31, |
|
December 31,
2012 |
2012 |
2011 |
Selling, general and administrative
expenses |
$ 5,869 |
$ 24,854 |
$ 26,469 |
Operating transaction costs |
-- |
-- |
(1,703) |
Non-GAAP selling, general and administrative
expenses |
$ 5,869 |
$ 24,854 |
$ 24,766 |
|
|
|
|
Operating income (loss) |
$ 5,631 |
$ (27,701) |
$ 26,369 |
Impairment of goodwill |
-- |
48,600 |
-- |
Operating transaction costs |
-- |
-- |
1,703 |
Non-GAAP operating income |
$ 5,631 |
$ 20,899 |
$ 28,072 |
|
|
|
|
Interest expense, net |
$ (4,676) |
$ (12,655) |
$ (6,928) |
Charges related to accelerated debt
repayment |
2,040 |
2,040 |
-- |
Non operating transaction costs |
-- |
-- |
533 |
Non-GAAP interest expense, net |
$ (2,636) |
$ (10,615) |
$ (6,395) |
|
|
|
|
Income (loss) before provision (benefit) for
income taxes |
$ 1,086 |
$ (37,747) |
$ 19,563 |
Impairment of goodwill |
-- |
48,600 |
-- |
Charges related to accelerated debt
repayment |
2,040 |
2,040 |
-- |
Total transaction costs |
-- |
-- |
2,236 |
Non-GAAP income before provision for income
taxes |
$ 3,126 |
$ 12,893 |
$ 21,799 |
|
|
|
|
Provision (benefit) for income taxes |
$ 439 |
$ (13,512) |
$ 8,106 |
Tax benefit for impairment of goodwill |
-- |
17,700 |
-- |
Tax benefit for charges related to
accelerated debt repayment |
816 |
816 |
-- |
Tax benefit for transaction costs |
-- |
-- |
940 |
Non-GAAP provision for income taxes |
$ 1,255 |
$ 5,004 |
$ 9,046 |
|
|
|
|
Net income (loss) |
$ 647 |
$ (24,235) |
$ 11,457 |
Impairment of goodwill, net of income
taxes |
-- |
30,900 |
-- |
Charges related to accelerated debt
repayment, net of income taxes |
1,224 |
1,224 |
-- |
Total transaction costs, net of taxes |
-- |
-- |
1,296 |
Non-GAAP net income |
$ 1,871 |
$ 7,889 |
$ 12,753 |
|
|
|
|
Earnings (loss) per share: |
|
|
|
Basic |
$ 0.06 |
$ (2.34) |
$ 1.13 |
Per share effect of goodwill
impairment |
-- |
2.98 |
-- |
Per share effect of charges related to
accelerated debt repayment |
0.12 |
0.12 |
-- |
Per share effect of transaction
costs |
-- |
-- |
0.13 |
Non-GAAP Basic |
$ 0.18 |
$ 0.76 |
$ 1.26 |
|
|
|
|
Diluted |
$ 0.06 |
$ (2.33) |
$ 1.12 |
Per share effect of goodwill
impairment |
-- |
2.97 |
-- |
Per share effect of charges related to
accelerated debt repayment |
0.12 |
0.12 |
-- |
Per share effect of transaction
costs |
-- |
-- |
0.13 |
Non-GAAP Diluted |
$ 0.18 |
$ 0.76 |
$ 1.25 |
|
|
|
|
Weighted average shares outstanding: |
|
|
|
Basic |
10,388,743 |
10,369,228 |
10,108,907 |
Diluted |
10,415,276 |
10,410,698 |
10,219,408 |
|
|
|
|
CONTACT: Chris Witty
Darrow Associates, Inc.
646.438.9385
cwitty@darrowir.com
Ilina Dimitrova
Sage Communications (for DRC)
703.531.8256
ilinad@aboutsage.com
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