--- 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 ---
ANDOVER, Mass., Feb. 20, 2013 (GLOBE NEWSWIRE) -- 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 |