DRC Reports Fourth Quarter and Year-End 2012 Results

DRC Reports Fourth Quarter and Year-End 2012 Results

    --- 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           $41,217    $50,969    $183,197 $205,730
intelligence agencies
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     69,166      84,749      300,593   307,821
agencies
State and local government     4,338       3,473       16,381    14,776
agencies and other
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         44%          48%          45%        48%
service-type contracts
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 $7,734     $11,694    $24,040  $25,972
activities
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  439       2,761      (13,512)    8,106
taxes
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         --        --         --          1,703
interest expense
Less:amortization of deferred  (169)     (169)      (676)       (676)
gain on sale of building
Adjusted EBITDA^(1)             $7,663   $12,212   $31,516    $35,819
Adjusted EBITDA, as a percent   10.4%      13.8%       9.9%         11.1%
of revenue
                                                                
                               Three Months Ended     Twelve Months Ended
                               December 31,         December 31,
                               2012       2011        2012         2011
Net cash provided by operating  $7,734   $11,694   $24,040    $25,972
activities
Less:Additions to property and (291)     (189)      (1,041)     (1,714)
equipment
Free cash flow                  $7,443   $11,505   $22,999    $24,258
Free cash flow, as a percent of 10.1%      13.0%       7.3%         7.5%
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 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     5,869             24,854      24,766
administrative expenses
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       3,126             12,893      21,799
income taxes
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 $5,869           $24,854   $26,469
expenses
Operating transaction costs         --                --         (1,703)
Non-GAAP selling, general and       $5,869           $24,854   $24,766
administrative expenses
                                                                
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 2,040             2,040      --
repayment
Non operating transaction costs     --                --         533
Non-GAAP interest expense, net      $(2,636)         $(10,615) $(6,395)
                                                                
Income (loss) before provision      $1,086           $(37,747) $19,563
(benefit) for income taxes
Impairment of goodwill              --                48,600     --
Charges related to accelerated debt 2,040             2,040      --
repayment
Total transaction costs             --                --         2,236
Non-GAAP income before provision    $3,126           $12,893   $21,799
for income taxes
                                                                
Provision (benefit) for income      $439             $(13,512) $8,106
taxes
Tax benefit for impairment of       --                17,700     --
goodwill
Tax benefit for charges related to  816               816        --
accelerated debt repayment
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      --                30,900     --
income taxes
Charges related to accelerated debt 1,224             1,224      --
repayment, net of income taxes
Total transaction costs, net of     --                --         1,296
taxes
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        --               2.98       --
impairment
Per share effect of charges related 0.12              0.12       --
to accelerated debt repayment
Per share effect of transaction     --               --        0.13
costs
Non-GAAP Basic                      $0.18            $0.76     $1.26
                                                                
Diluted                             $0.06            $(2.33)   $1.12
Per share effect of goodwill        --               2.97       --
impairment
Per share effect of charges related 0.12              0.12       --
to accelerated debt repayment
Per share effect of transaction     --               --        0.13
costs
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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