Adjusted EBITDA of 9.2 Percent on Revenue of $68 Million
Major Homeland Security Contract Wins Highlight Quarter Results
18 Percent Growth in Healthcare
Operating Cash Generation at 10.5 Percent of Revenue
ANDOVER, Mass., Oct. 30, 2013 (GLOBE NEWSWIRE) -- Dynamics Research Corporation (Nasdaq:DRCO), a leading technology and management consulting company focused on driving performance and process improvement for government clients, today announced operating results for the third quarter ended September 30, 2013.
Financial Results
Net income for the quarter ended September 30, 2013 was $1.4 million, or $0.13 per diluted share, as compared with $1.4 million, or $0.13 per diluted share, for the third quarter of 2012, excluding a goodwill impairment charge of $36.6 million (pre-tax), or $2.25 per diluted share, and a legal settlement gain of $2.4 million, or $0.14 per diluted share, both in the prior-year period. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for the third quarter of 2013 was $6.2 million, or 9.2 percent of revenue, as compared with $8.9 million, or 11.6 percent of revenue, as reported for the same period a year ago. Revenue for the third quarter of 2013 was $67.5 million compared with $76.8 million for the third quarter of 2012.
For the nine month period ended September 30, 2013 net income was $3.8 million, or $0.36 per diluted share, compared with $4.6 million, or $0.44 per diluted share, for the same period in 2012, excluding the third quarter 2012 goodwill impairment charge of $36.6 million and legal settlement gain of $2.4 million. Adjusted EBITDA for the first nine months of 2013 was $18.0 million, or 8.5 percent of revenue, as compared to $23.9 million, or 9.8 percent of revenue, for the same period a year ago. For the nine months ended September 30, 2013 revenue was $213.2 million compared with $243.5 million for the first nine months of 2012.
During the third quarter, the Company generated $7.1 million of cash from operations as compared with $12.2 million in last year's third quarter.
Business Highlights
"The third quarter once again highlighted our strong healthcare business, our focus on improving bottom line results, and our ability to generate significant amounts of cash," said Jim Regan, DRC's chairman and chief executive officer. "Our healthcare revenue rose 18.3 percent year-over-year as we continued to benefit from several key contracts and our acknowledged depth in the field. In addition, while our homeland security revenue was down this quarter, we announced two significant awards expected to drive growth next year – the EAGLE II functional category 2 contract and the $6 billion, multi-agency Continuous Monitoring as a Service (CMaaS) program. We look forward to further strengthening our position as a leading provider in technology and management consulting services on both of these contracts.
"Overall, our qualified pipeline stands at $855 million, up from last quarter's $775 million, and includes $117 million of bids submitted and awaiting award. In addition, we have won 96 percent of re-competes thus far in 2013. While a number of awards have been delayed and we saw a temporary impact, we were pleased that the federal government was able to stave off a more-protracted government shutdown. Going forward, we believe DRC is well positioned in key priority areas that will benefit from funding priorities.
"We have also kept a focus on the bottom line – as our gross profit margin rose to 15.3 percent from 14.6 percent year-over-year, and our operating margin increased to 6.4 percent from 5.9 percent, excluding the goodwill impairment charges taken in 2012. Our cash flow also was strong this quarter, and we anticipate a solid fourth quarter as well. Heading into 2014, we will remain aggressive in managing costs, continue to invest in new business development, reduce our debt and strengthen our operations – so that DRC is poised for greater returns to our shareholders in the quarters to come."
Company Guidance
For the fourth quarter of 2013 the Company anticipates revenue in the range of $61 to $64 million and earnings of $0.14 to $0.16 per diluted share. Guidance reflects an estimated negative impact from the 16 day federal government shutdown of $2.3 million in revenue, and $0.03 per diluted share. Anticipated adjusted EBITDA of $6.3 to $6.7 million for the fourth quarter and $24.3 to $24.7 million for the full year 2013 reflects a negative impact of $0.6 million related to the government shutdown. The Company continues to consider refinancing its credit facilities. Company guidance for the fourth quarter does not include any transaction costs or charges.
Conference Call
The Company will conduct a third quarter 2013 conference call tomorrow, October 31, 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 # 75634365, beginning at 1:00 p.m. ET on October 31, 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 adjusted earnings before interest, taxes, depreciation and amortization, as well as earnings per diluted share net of impairment charges and legal settlement gains, neither of which is a recognized measure under GAAP. We have provided a reconciliation of adjusted EBITDA, adjusted to conform to the definition used in our loan agreements, to net income in Attachment V of this announcement. We have provided a reconciliation of non-GAAP earnings per diluted share in Attachments VI and VII 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, | ||
| 2013 | 2012 | |
| Revenue | $ 67,528 | $ 76,767 |
| Cost of revenue | 57,199 | 65,544 |
| Gross profit on revenue | 10,329 | 11,223 |
| Selling, general and administrative expenses | 5,102 | 5,684 |
| Amortization of intangible assets | 931 | 1,031 |
| Impairment of goodwill | -- | 36,600 |
| Operating income (loss) | 4,296 | (32,092) |
| Interest expense, net | (2,090) | (2,579) |
| Other income, net | 116 | 2,414 |
| Income (loss) before provision (benefit) for income taxes | 2,322 | (32,257) |
| Provision (benefit) for income taxes | 962 | (11,663) |
| Net income (loss) | $ 1,360 | $ (20,594) |
| Earnings (loss) per common share | ||
| Basic | $ 0.13 | $ (1.99) |
| Diluted | $ 0.13 | $ (1.99) |
| Weighted average shares outstanding | ||
| Basic | 10,510,218 | 10,360,203 |
| Diluted | 10,528,382 | 10,360,203 |
| ATTACHMENT II | ||
| DYNAMICS RESEARCH CORPORATION | ||
| CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (unaudited) | ||
| (in thousands, except share and per share data) | ||
| Nine Months Ended | ||
| September 30, | ||
| 2013 | 2012 | |
| Revenue | $ 213,201 | $ 243,470 |
| Cost of revenue | 181,846 | 206,124 |
| Gross profit on revenue | 31,355 | 37,346 |
| Selling, general and administrative expenses | 16,189 | 18,985 |
| Amortization of intangible assets | 2,792 | 3,093 |
| Impairment of goodwill | -- | 48,600 |
| Operating income (loss) | 12,374 | (33,332) |
| Interest expense, net | (6,201) | (7,979) |
| Other income, net | 215 | 2,478 |
| Income (loss) before provision (benefit) for income taxes | 6,388 | (38,833) |
| Provision (benefit) for income taxes | 2,618 | (13,951) |
| Net income (loss) | $ 3,770 | $ (24,882) |
| Earnings (loss) per common share | ||
| Basic | $ 0.36 | $ (2.40) |
| Diluted | $ 0.36 | $ (2.40) |
| Weighted average shares outstanding | ||
| Basic | 10,503,919 | 10,356,334 |
| Diluted | 10,522,083 | 10,356,334 |
| ATTACHMENT III | ||
| DYNAMICS RESEARCH CORPORATION | ||
| CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) | ||
| (in thousands) | ||
| September 30, | December 31, | |
| 2013 | 2012 | |
| Assets | ||
| Current assets | ||
| Cash and cash equivalents | $ 924 | $ 2 |
| Contract receivables, net | 46,723 | 48,112 |
| Prepaid expenses and other current assets | 3,173 | 2,538 |
| Total current assets | 50,820 | 50,652 |
| Noncurrent assets | ||
| Property and equipment, net | 12,402 | 12,511 |
| Goodwill | 163,205 | 163,205 |
| Intangible assets, net | 11,825 | 14,617 |
| Deferred tax asset | 10,602 | 14,678 |
| Other noncurrent assets | 4,113 | 4,388 |
| Total noncurrent assets | 202,147 | 209,399 |
| Total assets | $ 252,967 | $ 260,051 |
| Liabilities and stockholders' equity | ||
| Current liabilities | ||
| Current portion of long-term debt | $ 16,500 | $ 15,125 |
| Accounts payable | 21,538 | 24,847 |
| Accrued compensation and employee benefits | 15,931 | 14,933 |
| Deferred tax liability | 2,817 | 3,009 |
| Other accrued expenses | 3,936 | 5,307 |
| Total current liabilities | 60,722 | 63,221 |
| Long-term liabilities | ||
| Long-term debt | 66,633 | 74,018 |
| Other long-term liabilities | 33,094 | 34,941 |
| Total stockholders' equity | 92,518 | 87,871 |
| Total liabilities and stockholders' equity | $ 252,967 | $ 260,051 |
| 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, | |||
| 2013 | 2012 | 2013 | 2012 | |
| Healthcare | $ 15,610 | $ 13,190 | $ 46,847 | $ 42,661 |
| Homeland Security | 8,484 | 11,816 | 27,958 | 36,218 |
| Research and Development | 9,990 | 11,822 | 32,194 | 34,397 |
| Intelligence, Surveillance and Reconnaissance | 9,695 | 10,284 | 30,285 | 29,408 |
| Federal Regulation and Reform | 5,758 | 6,003 | 18,096 | 18,150 |
| Priority Markets | 49,537 | 53,115 | 155,380 | 160,834 |
| Defense Readiness, Logistics, and Command, Control and Communication | 13,414 | 19,659 | 42,630 | 70,688 |
| State Government and Other | 4,577 | 3,993 | 15,191 | 11,948 |
| Total Markets | $ 67,528 | $ 76,767 | $ 213,201 | $ 243,470 |
| Revenues by contract type as a percentage of contract revenue were as follows: | ||||
| Three Months Ended | Nine Months Ended | |||
| September 30, | September 30, | |||
| 2013 | 2012 | 2013 | 2012 | |
| Fixed price, including service-type contracts | 42% | 45% | 42% | 46% |
| Time and materials | 40 | 37 | 40 | 34 |
| Cost reimbursable | 18 | 18 | 18 | 20 |
| 100% | 100% | 100% | 100% | |
| Prime contract | 79% | 83% | 79% | 84% |
| Sub-contract | 21 | 17 | 21 | 16 |
| 100% | 100% | 100% | 100% | |
| Three Months Ended | Nine Months Ended | |||
| September 30, | September 30, | |||
| 2013 | 2012 | 2013 | 2012 | |
| Net cash provided by operating activities | $ 7,082 | $ 12,188 | $ 9,276 | $ 16,306 |
| Capital expenditures | $ 651 | $ 535 | $ 1,272 | $ 750 |
| Depreciation | $ 929 | $ 981 | $ 2,749 | $ 2,999 |
| Bookings | $ 104,823 | $ 107,956 | $ 198,201 | $ 251,637 |
| September 30, | December 31, | |||
| 2013 | 2012 | |||
| Total backlog | $ 498,728 | $ 731,676 | ||
| Funded backlog | $ 137,015 | $ 163,645 | ||
| Employees | 1,130 | 1,255 | ||
| ATTACHMENT V | ||||
| DYNAMICS RESEARCH CORPORATION | ||||
| RECONCILIATION OF NON-GAAP FINANCIAL MEASURES | ||||
| ADJUSTED EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION (ADJUSTED EBITDA) (unaudited) | ||||
| (Dollars in thousands) | ||||
| As presented, adjusted EBITDA is defined as follows: | ||||
| Three Months Ended | Nine Months Ended | |||
| September 30, | September 30, | |||
| 2013 | 2012 | 2013 | 2012 | |
| Net income (loss) | $ 1,360 | $ (20,594) | $ 3,770 | $ (24,882) |
| Add: | ||||
| Interest expense, net | 2,090 | 2,579 | 6,201 | 7,979 |
| Provision (benefit) for income taxes | 962 | (11,663) | 2,618 | (13,951) |
| Depreciation expense | 929 | 981 | 2,749 | 2,999 |
| Amortization expense | 931 | 1,031 | 2,792 | 3,093 |
| Share-based compensation | 133 | 171 | 397 | 522 |
| Impairment of goodwill | -- | 36,600 | -- | 48,600 |
| Less: amortization of deferred gain on sale of building | (169) | (169) | (507) | (507) |
| Adjusted EBITDA(1) | $ 6,236 | $ 8,936 | $ 18,020 | $ 23,853 |
| Adjusted EBITDA, as a percent of revenue | 9.2% | 11.6% | 8.5% | 9.8% |
| (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 adjusted 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 | Nine Months | |
| Ended | Ended | |
| September 30, 2012 | September 30, 2012 | |
| Revenue | $ 76,767 | $ 243,470 |
| Cost of revenue | 65,544 | 206,124 |
| Gross profit | 11,223 | 37,346 |
| Selling, general and administrative expenses | 5,684 | 18,985 |
| Amortization of intangible assets | 1,031 | 3,093 |
| Non-GAAP operating income | 4,508 | 15,268 |
| Interest expense, net | (2,579) | (7,979) |
| Other income, net | 14 | 78 |
| Non-GAAP income before provision for income taxes | 1,943 | 7,367 |
| Non-GAAP provision for income taxes | 557 | 2,769 |
| Non-GAAP net income | $ 1,386 | $ 4,598 |
| Non-GAAP earnings per share: | ||
| Non-GAAP Basic | $ 0.13 | $ 0.44 |
| Non-GAAP Diluted | $ 0.13 | $ 0.44 |
| Weighted average shares outstanding: | ||
| Basic | 10,360,203 | 10,356,334 |
| Diluted | 10,384,518 | 10,394,775 |
| ATTACHMENT VII | ||
| DYNAMICS RESEARCH CORPORATION | ||
| RECONCILIATION OF NON-GAAP MEASURES | ||
| (in thousands, except share and per share data) | ||
| Three Months | Nine Months | |
| Ended | Ended | |
| September 30, 2012 | September 30, 2012 | |
| Operating income (loss) | $ (32,092) | $ (33,332) |
| Impairment of goodwill | 36,600 | 48,600 |
| Non-GAAP operating income | $ 4,508 | $ 15,268 |
| Other income, net | $ 2,414 | $ 2,478 |
| Legal settlement gain | (2,400) | (2,400) |
| Non-GAAP other income, net | $ 14 | $ 78 |
| Income (loss) before provision (benefit) for income taxes | $ (32,257) | $ (38,833) |
| Impairment of goodwill | 36,600 | 48,600 |
| Legal settlement gain | (2,400) | (2,400) |
| Non-GAAP income before provision for income taxes | $ 1,943 | $ 7,367 |
| Provision (benefit) for income taxes | $ (11,663) | $ (13,951) |
| Tax benefit for impairment of goodwill | 13,200 | 17,700 |
| Tax provision for legal settlement gain | (980) | (980) |
| Non-GAAP provision for income taxes | $ 557 | $ 2,769 |
| Net income (loss) | $ (20,594) | $ (24,882) |
| Impairment of goodwill, net of taxes | 23,400 | 30,900 |
| Legal settlement gain, net of taxes | (1,420) | (1,420) |
| Non-GAAP net income | $ 1,386 | $ 4,598 |
| Earnings (loss) per share: | ||
| GAAP Basic | $ (1.99) | $ (2.40) |
| Per share effect of goodwill impairment | 2.26 | 2.98 |
| Per share effect of legal settlement gain | (0.14) | (0.14) |
| Non-GAAP Basic(1) | $ 0.13 | $ 0.44 |
| GAAP Diluted | $ (1.98) | $ (2.39) |
| Per share effect of goodwill impairment | 2.25 | 2.97 |
| Per share effect of legal settlement gain | (0.14) | (0.14) |
| Non-GAAP Diluted(1) | $ 0.13 | $ 0.44 |
| Weighted average shares outstanding: | ||
| Basic | 10,360,203 | 10,356,334 |
| Diluted | 10,384,518 | 10,394,775 |
| (1) May not add due to rounding. | ||