--- Adjusted EBITDA of 7.9 Percent on Revenue of $72 Million ---
--- New Business Pipeline Up 25 Percent Sequentially; $200 Million Awaiting Award ---
--- 11 Percent Growth in Healthcare Revenue ---
ANDOVER, Mass., July 31, 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 second quarter ended June 30, 2013.
Financial Results
Net income for the quarter ended June 30, 2013 was $1.2 million, or $0.11 per diluted share, as compared with $1.4 million, or $0.14 per diluted share, for the second quarter of 2012, excluding a goodwill impairment charge of $12 million (pre-tax), or $0.73 per share, reported in the second quarter a year ago. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for the second quarter of 2013 was $5.7 million, or 7.9 percent of revenue, as compared with $7.1 million, or 8.7 percent of revenue, for the same period a year ago. Revenue for the second quarter of 2013 was $72.1 million compared with $80.8 million for the same period in 2012.
For the six month period ended June 30, 2013 net income was $2.4 million, or $0.23 per diluted share, compared with $3.2 million, or $0.31 per diluted share, for the same period in 2012, excluding the second quarter 2012 goodwill impairment charge of $12 million. Adjusted EBITDA for the first six months of 2013 was $11.8 million, or 8.1 percent of revenue, as compared to $14.9 million, or 8.9 percent of revenue, for the same period a year ago. For the six months ended June 30, 2013 revenue was $145.7 million compared with $166.7 million for the same period in 2012.
During the second quarter, the Company generated $9.0 million of cash from operations as compared with $5.7 million in the same period a year ago.
Business Highlights
"Second quarter results were again consistent with our expectations, reflecting more stability in our end markets than existed a year ago," said Jim Regan, DRC's chairman and chief executive officer. "While industry conditions certainly remain challenging there are indications of greater visibility going forward, and our qualified pipeline now stands at $775 million – up 25 percent over the past three months. This includes over $200 million in near-term bids submitted and awaiting award.
"Revenue in our priority markets was $52.6 million, flat with the second quarter a year ago and down only slightly from $53.2 million for the first quarter of this year. Healthcare revenue was up 11 percent year-over-year, offset by weakness in homeland security revenue, while defense readiness, logistics and C3 revenue was off sharply from the year-ago period, continuing to reflect current spending trends. However, we won 92 percent of $42 million in re-compete award decisions made over the last three months and booked $17 million of new business. Funded bookings continued to be soft, as we await the beginning of government fiscal year option exercises; in addition, we are seeing an increase in the use of incremental funding, rather than full funding, upon option exercise. Our book-to-bill ratio was 0.7-to-one for the quarter, while the trailing twelve month book-to-bill was 0.9-to-one.
"Longer term, we are encouraged by early indicators of market stabilization, strong re-compete performance and customer satisfaction, as well as by the high level of bidding activity we are currently experiencing approaching the government's fiscal year end."
Company Guidance
For the third quarter 2013 the Company anticipates revenue in the range of $68 to $71 million and earnings of $0.12 to $0.14 per diluted share. Considering current uncertainties regarding federal government expenditure decisions, the Company continues to refrain from providing financial guidance for the balance of the calendar year 2013.
Conference Call
The Company will conduct a second quarter 2013 conference call tomorrow, August 1, 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 # 14753510, beginning at 1:00 p.m. ET on August 1, 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, which is not 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. 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 | ||
| June 30, | ||
| 2013 | 2012 | |
| Revenue | $ 72,111 | $ 80,834 |
| Cost of revenue | 61,963 | 68,307 |
| Gross profit on revenue | 10,148 | 12,527 |
| Selling, general and administrative expenses | 5,350 | 6,410 |
| Amortization of intangible assets | 930 | 1,031 |
| Impairment of goodwill | -- | 12,000 |
| Operating income (loss) | 3,868 | (6,914) |
| Interest expense, net | (1,936) | (2,621) |
| Other income, net | 32 | (71) |
| Income (loss) before provision (benefit) for income taxes | 1,964 | (9,606) |
| Provision (benefit) for income taxes | 792 | (3,527) |
| Net income (loss) | $ 1,172 | $ (6,079) |
| Earnings (loss) per common share | ||
| Basic | $ 0.11 | $ (0.59) |
| Diluted | $ 0.11 | $ (0.59) |
| Weighted average shares outstanding | ||
| Basic | 10,499,217 | 10,319,901 |
| Diluted | 10,517,381 | 10,319,901 |
| ATTACHMENT II | ||
| DYNAMICS RESEARCH CORPORATION | ||
| CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (unaudited) | ||
| (in thousands, except share and per share data) | ||
| Six Months Ended | ||
| June 30, | ||
| 2013 | 2012 | |
| Revenue | $ 145,673 | $ 166,703 |
| Cost of revenue | 124,647 | 140,580 |
| Gross profit on revenue | 21,026 | 26,123 |
| Selling, general and administrative expenses | 11,087 | 13,301 |
| Amortization of intangible assets | 1,861 | 2,062 |
| Impairment of goodwill | -- | 12,000 |
| Operating income (loss) | 8,078 | (1,240) |
| Interest expense, net | (4,111) | (5,400) |
| Other income, net | 99 | 64 |
| Income (loss) before provision (benefit) for income taxes | 4,066 | (6,576) |
| Provision (benefit) for income taxes | 1,656 | (2,288) |
| Net income (loss) | $ 2,410 | $ (4,288) |
| Earnings (loss) per common share | ||
| Basic | $ 0.23 | $ (0.42) |
| Diluted | $ 0.23 | $ (0.42) |
| Weighted average shares outstanding | ||
| Basic | 10,503,740 | 10,330,851 |
| Diluted | 10,521,904 | 10,330,851 |
| ATTACHMENT III | ||
| DYNAMICS RESEARCH CORPORATION | ||
| CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) | ||
| (in thousands) | ||
| June 30, | December 31, | |
| 2013 | 2012 | |
| Assets | ||
| Current assets | ||
| Cash and cash equivalents | $ 718 | $ 2 |
| Contract receivables, net | 51,000 | 48,112 |
| Prepaid expenses and other current assets | 3,742 | 2,538 |
| Total current assets | 55,460 | 50,652 |
| Noncurrent assets | ||
| Property and equipment, net | 12,940 | 12,511 |
| Goodwill | 163,205 | 163,205 |
| Intangible assets, net | 12,756 | 14,617 |
| Deferred tax asset | 11,871 | 14,678 |
| Other noncurrent assets | 3,996 | 4,388 |
| Total noncurrent assets | 204,768 | 209,399 |
| Total assets | $ 260,228 | $ 260,051 |
| Liabilities and stockholders' equity | ||
| Current liabilities | ||
| Current portion of long-term debt | $ 16,500 | $ 15,125 |
| Accounts payable | 23,762 | 24,847 |
| Accrued compensation and employee benefits | 15,235 | 14,933 |
| Deferred tax liability | 3,480 | 3,009 |
| Other accrued expenses | 3,435 | 5,307 |
| Total current liabilities | 62,412 | 63,221 |
| Long-term liabilities | ||
| Long-term debt | 72,441 | 74,018 |
| Other long-term liabilities | 34,422 | 34,941 |
| Total stockholders' equity | 90,953 | 87,871 |
| Total liabilities and stockholders' equity | $ 260,228 | $ 260,051 |
| 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, | |||
| 2013 | 2012 | 2013 | 2012 | |
| Healthcare | $ 15,940 | $ 14,341 | $ 31,237 | $ 29,471 |
| Homeland Security | 9,437 | 12,089 | 19,474 | 24,402 |
| Research and Development | 10,832 | 10,660 | 22,204 | 22,575 |
| Intelligence, Surveillance and Reconnaissance | 10,217 | 9,613 | 20,590 | 19,124 |
| Federal Regulation and Reform | 6,202 | 5,911 | 12,338 | 12,147 |
| Priority Markets | 52,628 | 52,614 | 105,843 | 107,719 |
| Defense Readiness, Logistics, and Command, Control and Communication | 13,914 | 24,402 | 29,216 | 51,029 |
| State Government and Other | 5,569 | 3,818 | 10,614 | 7,955 |
| Total Markets | $ 72,111 | $ 80,834 | $ 145,673 | $ 166,703 |
| Revenues by contract type as a percentage of contract revenue were as follows: | ||||
| Three Months Ended | Six Months Ended | |||
| June 30, | June 30, | |||
| 2013 | 2012 | 2013 | 2012 | |
| Fixed price, including service-type contracts | 42% | 47% | 42% | 46% |
| Time and materials | 40 | 33 | 40 | 34 |
| Cost reimbursable | 18 | 20 | 18 | 20 |
| 100% | 100% | 100% | 100% | |
| Prime contract | 79% | 85% | 80% | 85% |
| Sub-contract | 21 | 15 | 20 | 15 |
| 100% | 100% | 100% | 100% | |
| Three Months Ended | Six Months Ended | |||
| June 30, | June 30, | |||
| 2013 | 2012 | 2013 | 2012 | |
| Net cash provided by operating activities | $ 8,952 | $ 5,738 | $ 2,194 | $ 4,118 |
| Capital expenditures | $ 337 | $ 123 | $ 621 | $ 215 |
| Depreciation | $ 920 | $ 1,004 | $ 1,820 | $ 2,018 |
| Bookings | $ 48,675 | $ 85,346 | $ 93,378 | $ 143,681 |
| June 30, | December 31, | |||
| 2013 | 2012 | |||
| Total backlog | $ 514,665 | $ 731,676 | ||
| Funded backlog | $ 102,741 | $ 163,645 | ||
| Employees | 1,159 | 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 | Six Months Ended | |||
| June 30, | June 30, | |||
| 2013 | 2012 | 2013 | 2012 | |
| Net income (loss) | $ 1,172 | $ (6,079) | $ 2,410 | $ (4,288) |
| Add: | ||||
| Interest expense, net | 1,936 | 2,621 | 4,111 | 5,400 |
| Provision (benefit) for income taxes | 792 | (3,527) | 1,656 | (2,288) |
| Depreciation expense | 920 | 1,004 | 1,820 | 2,018 |
| Amortization expense | 930 | 1,031 | 1,861 | 2,062 |
| Share-based compensation | 131 | 175 | 264 | 351 |
| Impairment of goodwill | -- | 12,000 | -- | 12,000 |
| Less: amortization of deferred gain on sale of building | (169) | (169) | (338) | (338) |
| Adjusted EBITDA(1) | $ 5,712 | $ 7,056 | $ 11,784 | $ 14,917 |
| Adjusted EBITDA, as a percent of revenue | 7.9% | 8.7% | 8.1% | 8.9% |
| (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 | Six Months | |
| Ended | Ended | |
| June 30, 2012 | June 30, 2012 | |
| Revenue | $ 80,834 | $ 166,703 |
| Cost of revenue | 68,307 | 140,580 |
| Gross profit | 12,527 | 26,123 |
| Selling, general and administrative expenses | 6,410 | 13,301 |
| Amortization of intangible assets | 1,031 | 2,062 |
| Non-GAAP operating income | 5,086 | 10,760 |
| Interest expense, net | (2,621) | (5,400) |
| Other income (loss), net | (71) | 64 |
| Non-GAAP income before provision for income taxes | 2,394 | 5,424 |
| Non-GAAP provision for income taxes | 973 | 2,212 |
| Non-GAAP net income | $ 1,421 | $ 3,212 |
| Non-GAAP earnings per share: | ||
| Non-GAAP Basic | $ 0.14 | $ 0.31 |
| Non-GAAP Diluted | $ 0.14 | $ 0.31 |
| Weighted average shares outstanding: | ||
| Basic | 10,319,901 | 10,330,851 |
| Diluted | 10,352,869 | 10,372,116 |
| ATTACHMENT VII | ||
| DYNAMICS RESEARCH CORPORATION | ||
| RECONCILIATION OF NON-GAAP MEASURES | ||
| (in thousands, except share and per share data) | ||
| Three Months | Six Months | |
| Ended | Ended | |
| June 30, 2012 | June 30, 2012 | |
| Operating income (loss) | $ (6,914) | $ (1,240) |
| Impairment of goodwill | 12,000 | 12,000 |
| Non-GAAP operating income | $ 5,086 | $ 10,760 |
| Income (loss) before provision (benefit) for income taxes | $ (9,606) | $ (6,576) |
| Impairment of goodwill | 12,000 | 12,000 |
| Non-GAAP income before provision for income taxes | $ 2,394 | $ 5,424 |
| Provision (benefit) for income taxes | $ (3,527) | $ (2,288) |
| Tax benefit for impairment of goodwill | 4,500 | 4,500 |
| Non-GAAP provision for income taxes | $ 973 | $ 2,212 |
| Net income (loss) | $ (6,079) | $ (4,288) |
| Impairment of goodwill, net of taxes | 7,500 | 7,500 |
| Non-GAAP net income | $ 1,421 | $ 3,212 |
| Earnings (loss) per share: | ||
| GAAP Basic | $ (0.59) | $ (0.42) |
| Per share effect of goodwill impairment | 0.73 | 0.73 |
| Non-GAAP Basic | $ 0.14 | $ 0.31 |
| GAAP Diluted | $ (0.59) | $ (0.41) |
| Per share effect of goodwill impairment | 0.72 | 0.72 |
| Non-GAAP Diluted(1) | $ 0.14 | $ 0.31 |
| Weighted average shares outstanding: | ||
| Basic | 10,319,901 | 10,330,851 |
| Diluted | 10,352,869 | 10,372,116 |
| (1) May not add due to rounding. | ||