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DRC Reports Third Quarter 2012 Results



DRC Reports Third Quarter 2012 Results

      --- 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 ---

ANDOVER, Mass., Oct. 31, 2012 (GLOBE NEWSWIRE) -- 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     (32,257)    5,660
taxes
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         $ 45,468        $ 59,479     $ 142,540  $ 154,761
intelligence agencies
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   72,668          92,590       231,439    223,072
agencies
State and local government   3,995           3,774        11,910     11,274
agencies
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      45%             46%          46%        48%
service-type contracts
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         $ 12,188        $ 14,277     $ 16,306   $ 14,278
operating activities
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       (11,663)      2,382       (13,951)      5,345
income taxes
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       --            --          --            1,703
interest expense
Less: amortization of
deferred gain on sale of      (169)         (169)       (507)         (507)
building
Adjusted EBITDA^(1)           $ 8,936       $ 11,330    $ 23,853      $ 23,607
Adjusted EBITDA, as a        11.6%         11.8%       9.8%          10.1%
percent of revenue
                                                                      
                             Three Months Ended         Nine Months Ended 
                              September 30,             September 30, 
                             2012          2011        2012          2011
Net cash provided by          $ 12,188      $ 14,277    $ 16,306      $ 14,278
operating activities
Less: Additions to property   (535)         (663)       (750)         (1,525)
and equipment
Free cash flow                $ 11,653      $ 13,614    $ 15,556      $ 12,753
Free cash flow, as a percent 15.2%         14.1%       6.4%          5.4%
of revenue
                                                                      
                                                                      
(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   5,684       7,041       18,985      17,816
administrative expenses
Amortization of intangible      1,031       1,553       3,093       2,301
assets
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          4,343       5,660       9,767       15,004
provision for income taxes
Non-GAAP provision for income   1,537       2,382       3,749       6,285
taxes
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            $ 5,684     $ 7,041     $ 18,985    $ 19,519
administrative expenses
Operating transaction costs     --          --          --          (1,703)
Non-GAAP selling, general and   $ 5,684     $ 7,041     $ 18,985    $ 17,816
administrative
                                                                    
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       --          --          --          533
costs
Non-GAAP interest expense, net  $ (2,579)   $ (3,027)   $ (7,979)   $ (3,514)
                                                                    
Income (loss) before provision  $ (32,257)  $ 5,660     $ (38,833)  $ 12,768
(benefit) for income taxes
Impairment of goodwill          36,600      --          48,600      --
Total transaction costs         --          --          --          2,236
Non-GAAP income before          $ 4,343     $ 5,660     $ 9,767     $ 15,004
provision for income taxes
                                                                    
Provision (benefit) for income  $ (11,663)  $ 2,382     $ (13,951)  $ 5,345
taxes
Tax benefit for impairment of   13,200      --          17,700      --
goodwill
Tax benefit for transaction     --          --          --          940
costs
Non-GAAP provision for income   $ 1,537     $ 2,382     $ 3,749     $ 6,285
taxes
                                                                    
Net income (loss)               $ (20,594)  $ 3,278     $ (24,882)  $ 7,423
Impairment of goodwill, net of  23,400      --          30,900      --
taxes
Total transaction costs, net    --          --          --          1,296
of taxes
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    2.26        --          2.98        -- 
impairment
Per share effect of             --          --          --          0.13
transaction costs
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    2.25        --          2.97        -- 
impairment
Per share effect of             --          --          --          0.13
transaction costs
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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