NCI Reports Fourth Quarter and Fiscal Year 2012 Financial and Operating Results

  NCI Reports Fourth Quarter and Fiscal Year 2012 Financial and Operating
  Results

  *Diluted fourth quarter earnings per share (EPS) $0.15, excluding charge;
    full-year EPS $0.51, excluding charges
  *Records after-tax impairment charge of $36.7 million in fourth quarter of
    2012
  *Issues 2013 revenue and earnings guidance to include consideration for
    impact of Federal budget cuts
  *Company will devote additional investment to business development-driven
    growth strategies in 2013

Business Wire

RESTON, Va. -- February 28, 2013

NCI, Inc. (NASDAQ:NCIT), a leading provider of information technology (IT),
engineering, logistics, and professional services and solutions to U.S.
Federal Government agencies, today announced financial and operating results
for the fourth quarter and fiscal year ended December 31, 2012.

Fourth quarter and fiscal year 2012 revenue was in the upper half of
management’s guidance range issued last quarter; diluted EPS—excluding the
non-cash, after-tax impairment charges—exceeded the high end of guidance by
$0.03.

Fourth Quarter 2012 Results

For the fourth quarter of 2012, NCI reported revenue of $89.7 million compared
with fourth quarter 2011 revenue of $114.8 million, a decrease of 21.9%. The
year-over-year decrease in revenue was the result of reductions of scope, the
expiration of task orders and contracts, and certain lost contract
re-competes, which totaled approximately $14 million; the ending of base
realignment and closure (BRAC)-related and other non-core projects, which
collectively totaled approximately $7 million; and a decrease in revenue from
NCI’s PEO Soldier program, which accounted for approximately $4 million of the
year-over-year decline in revenue for the fourth quarter of 2012. During the
fourth quarter of 2012, PEO Soldier accounted for 15.9% of total revenue, down
from 16.3% sequentially and 16.2% in the fourth quarter of 2011.

As previously disclosed, during the fourth quarter of 2012, in accordance with
the NCI’s annual testing and due to its further depressed market value, the
continued budgetary constraints of various Federal Government agencies, and
the ongoing delays of expected contract procurement opportunities, the company
performed a goodwill impairment analysis as well as a review of intangible
assets. The results of this analysis indicated that the remaining balance of
the company’s goodwill and a portion of its intangible assets were impaired;
accordingly, the company recorded an impairment charge totaling $58.0 million
($36.7 million after tax) in the fourth quarter of 2012.

GAAP operating loss for the fourth quarter of 2012 was $54.3 million due to
costs associated with the impairment charge. Excluding the effects of this
item, NCI reported operating income of $3.7 million for the fourth quarter of
2012. GAAP operating income for the three months ended December 31, 2011, was
$0.8 million. Operating income for the fourth quarter of 2011 includes the
effect of the $3.1 million restructuring charge taken during the period.
Excluding the effects of the restructuring charge, operating income for the
fourth quarter of 2011 was $3.9 million.

Excluding the effects of the impairment charge, operating margin for the
fourth quarter of 2012 was 4.1%. Excluding the effect of the restructuring
charge, operating margin for the fourth quarter of 2011 was 3.4%. Adjusted
operating margin increased primarily as a result of overall improved
operational performance as well as the timing of certain award fees and other
one-time gains.

GAAP net loss for the fourth quarter of 2012 was $34.7 million. Excluding the
impact of the impairment charge, net income for the fourth quarter of 2012 was
$2.0 million. GAAP net income for the fourth quarter of 2011 was $0.1 million.
Excluding the impact of the restructuring charge, fourth quarter 2011 net
income was $2.0 million. Excluding the impairment charge, diluted EPS for the
fourth quarter of 2012 was $0.15; excluding the impact of the restructuring
charge, diluted EPS for the fourth quarter of 2011 was $0.15.

Days sales outstanding (DSO) for the fourth quarter ended December 31, 2012,
were 64 days compared with 54 days at September 30, 2012, an increase of 10
days. The sequential increase in DSO reflects a more normalized collection of
receivables.

Fiscal Year 2012 Results

For the year ended December 31, 2012, NCI reported revenue of $368.4 million
compared with $558.3 million for the year ended December 31, 2011,
representing a decrease of $189.9 million, or 34.0%. This decrease in revenue
was principally due to the ending of BRAC-related and other non-core projects,
which collectively totaled approximately $87 million; a net decrease in
revenue as a result of reductions of scope, the expiration of task orders and
contracts, and certain lost contract re-competes, which totaled approximately
$79 million; and a decrease in revenue from our PEO Soldier program, which
accounted for approximately $24 million of the year-over-year decline in
revenue.

Our PEO Soldier contract accounted for $62.4 million and $86.0 million of our
revenue in 2012 and 2011, respectively. This represented 16.9% and 15.4% of
total revenue in 2012 and 2011, respectively.

GAAP operating loss for 2012 was $140.0 million compared with GAAP operating
income of $23.8 million in 2011. Excluding the effect of the impairment
charges noted above, operating income for 2012 was $13.0 million, or 3.5% of
revenue. Excluding the effect of the restructuring charge taken in the fourth
quarter of 2011, operating income for 2011 was $27.0 million, or 4.8% of
revenue. The year-over-year decline in GAAP operating income was primarily
attributable to the effects of the impairment charges taken in the third and
fourth quarters of 2012. Excluding the effects of the charges taken in 2011
and 2012, the decline in operating income in 2012 was attributable to lower
revenue, higher general and administrative costs, and higher depreciation and
amortization costs.

GAAP net loss for 2012 was $86.8 million compared with GAAP net income for
2011 of $13.2 million. The decrease in net income year over year is primarily
attributable to non-cash, after-tax impairment charges taken in the third and
fourth quarters of 2012 totaling $92.3 million. GAAP loss per share for 2012
was $6.51 compared with GAAP diluted earnings per share of $0.95 for 2011.
Excluding the effect of the impairment charges, net income for 2012 was $6.9
million, or $0.51 per diluted share. Excluding the effect of the restructuring
charge taken in the fourth quarter of 2011, net income for 2011 was $15.0
million, or $1.09 per diluted share.

Cash flow provided by operating activities for fiscal year 2012 was $41.5
million. Capital expenditures were $1.8 million, resulting in 2012 free cash
flow of $39.7 million.

NCI reported total backlog at December 31, 2012, of $706 million, of which
$212 million was funded. This compares with total backlog at September 30,
2012, of $910 million, of which $249 million was funded, and $1.0 billion, of
which $220 million was funded, at December 31, 2011.

After a detailed examination of the company’s backlog in light of the
anticipated impact of secular declines in Federal spending, NCI de-booked
approximately $130 million from backlog in the fourth quarter of 2012. The
backlog reduction affects anticipated revenue from contracts across the
company’s base of business. This was offset by bookings of approximately $15
million in the fourth quarter.

Share Repurchase

During 2010, NCI’s Board of Directors authorized management to repurchase up
to $25.0 million of its Class A common stock pursuant to a stock repurchase
program. During the fourth quarter of 2012, NCI repurchased 93,735 shares of
its Class A common stock at an average price of $5.54 per share for a total
purchase price of $0.5 million. At December 31, 2012, $16.7 million was
remaining under the Board of Directors’ authorization for shares repurchases.

Management’s Outlook

Based on the company’s current contract backlog and management’s estimate as
to future tasking and contract awards, NCI is issuing guidance for its first
quarter and fiscal year 2013. The table below represents management’s current
expectations about future financial performance based on information available
at this time:

                                                
                          First Quarter           Fiscal Year
                             Fiscal Year 2013           Ending
                             Ending
                         March 31, 2013          December 31, 2013
Revenue                   $80 million–$86         $280 million–$320
                             million                    million
Diluted EPS               $0.08–$0.10             $0.14–$0.26
Diluted projected         13.0 million            13.1 million
share count
                                                        

“We believe it is prudent at this point to issue guidance with a range of
revenue and earnings that reflects the turmoil and uncertainty we’re seeing in
the current budgetary climate as a result of expected secular declines in
Federal budgets beginning in 2013,” said Charles K. Narang, NCI’s Chairman and
CEO. “The challenge will be to accurately forecast the size and schedule of
upcoming proposals and awards; however, we believe NCI has never been better
positioned to successfully pursue opportunities in our pipeline as they
emerge.”

“Although we made great strides in growth initiatives in 2012, the delays in
the timing of bids on planned key procurements does not allow for a meaningful
contribution from new revenue in 2013’s outlook,” said NCI’s President, Brian
J. Clark. “While we will continue our focus on cost containment and
incremental revenue pick-ups throughout the year to protect and enhance
earnings per share, we will define success in 2013 primarily in terms of our
bookings momentum toward the end of 2013 and into 2014.

We made substantial investments throughout 2012 aimed at revamping our new
business acquisition processes and increasing win probabilities. We’re
encouraged by the progress we’ve made in these areas thus far, and we are
continuing to invest in NCI’s business development and capture efforts in 2013
with the belief that this added investment will be vital to winning new
business this year and beyond.”

Conference Call Information

NCI will conduct a conference call today at 5:00 p.m. EST to discuss fiscal
fourth quarter and full year 2012 results and guidance for 2013.

Analysts and institutional investors may listen to the conference call by
dialing (855) 327-6837 (United States/Canada) or (631) 982-4565
(international) with pass code 90227. The conference call will be
simultaneously provided as a webcast through a link on the NCI website
(www.nciinc.com).

A replay of the conference call will be available approximately two hours
after the conclusion of the call through March 14, 2013, by dialing (877)
870-5176 (United States/Canada) or (858) 384-5517 (international) and entering
pass code 90227.

About NCI, Inc.

NCI is a leading provider of information technology (IT) and professional
services and solutions to U.S. Federal Government agencies. Our award-winning
expertise encompasses areas critical to our customers’ mission objectives,
including enterprise systems management; network engineering; cybersecurity
and information assurance; software development and systems engineering;
program management, acquisition, and lifecycle support; engineering and
logistics; health IT and informatics; and training and simulation.
Headquartered in Reston, VA, NCI has approximately 2,200 employees at nearly
100 locations worldwide. For more information, visit our website at
www.nciinc.com or email investor@nciinc.com.

Forward-Looking Statement: Statements and assumptions made in this press
release, which do not address historical facts, constitute “forward-looking”
statements that NCI believes to be within the definition in the Private
Securities Litigation Reform Act of 1995 and involve risks and uncertainties,
many of which are outside of our control. Words such as “may,” “will,”
“intends,” “should,” “expects,” “plans,” “projects,” “anticipates,”
“believes,” “estimates,” “predicts,” “potential,” “continue,” or
“opportunity,” or the negative of these terms or words of similar import are
intended to identify forward-looking statements.

Such statements are subject to factors that could cause actual results to
differ materially from anticipated results. The factors that could cause
actual results to differ materially from those anticipated include, but are
not limited to, the following: our dependence on our contracts with Federal
Government agencies, particularly within the U.S. Department of Defense, for
substantially all of our revenue; a reduction in the overall U.S. Defense
budget, volatility in spending authorizations for Defense and
Intelligence-related programs by the U.S. Federal Government or a shift in
spending to programs in areas where we do not currently provide services;
Federal Government shutdowns (such as that which occurred during the Federal
Government’s 1996 fiscal year), other potential delays in the Federal
Government appropriations process, or budgetary cuts resulting from
Congressional committee recommendations or automatic sequestration under the
Budget Control Act of 2011, risk of contract performance or termination;
failure to achieve contract awards in connection with recompetes for present
business and/or competition for new business; adverse results of Federal
Government audits of our government contracts; Government contract procurement
(such as bid protest, small business set asides, etc.) and termination risks;
competitive factors such as pricing pressures and competition to hire and
retain employees (particularly those with security clearances); Federal
Government agencies awarding contracts on a technically acceptable/lowest cost
basis in order to reduce expenditures failure to successfully identify and
integrate future acquired companies or businesses into our operations or to
realize any accretive or synergistic effects from such acquisitions or to
effectively integrate acquisitions appropriate to the achievement of our
strategic plans; economic conditions in the United States, including
conditions that result from terrorist activities or war; material changes in
laws or regulations applicable to our businesses, particularly legislation
affecting (i) government contracts for services, (ii) outsourcing of
activities that have been performed by the government, (iii) government
contracts containing organizational conflict of interest (OCI) clauses, (iv)
delays related to agency specific funding freezes, (v) competition for task
orders under Government Wide Acquisition Contracts (GWACs), agency-specific
Indefinite Delivery/Indefinite Quantity (IDIQ) contracts and/or schedule
contracts with the General Services Administration; and (vi) our own ability
to achieve the objectives of near-term or long-range business plans, including
internal systems failures. These and other risk factors are more fully
discussed in the section titled “Risks Factors” in NCI's Form 10-K filed with
the Securities and Exchange Commission (SEC), and from time to time, in other
filings with the SEC, such as our Forms 8-K and Forms 10-Q.

Any projections of revenue, margins, expenses, earnings, tax provisions, cash
flows, benefit obligations, share repurchases, any statements of the plans,
strategies and objectives of management for future operations, the execution
of cost reduction programs and restructuring and integration plans are also
subject to factors that could cause actual results to differ materially from
anticipated results.

The forward-looking statements included in this news release are only made as
of the date of this news release and NCI undertakes no obligation to publicly
update any of the forward-looking statements made herein, whether as a result
of new information, subsequent events or circumstances, changes in
expectations or otherwise.

                           Financial tables follow

                                                 
NCI, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
                                                                             
                   Three months ended December      Year ended December 31,
                   31,
                   2012             2011           2012          2011
                   (Unaudited)       (Unaudited)                  
                                                                             
Revenue            $  89,658         $  114,829     $ 368,387      $ 558,261
                                                                             
Operating
expenses:
Cost of revenue       77,427            103,617       322,281        499,398
General and
administrative        6,771             5,538         26,148         24,150
expenses
Depreciation and      1,781             1,737         6,926          6,732
amortization
Stock option          -                 -             2,311          -
tender offer
Acquisition and
integration           -                 9             -              1,012
related expenses
Restructuring         -                 3,139         -              3,139
charge
Impairment of
goodwill and         57,958          -           150,752      -       
intangible
assets
Total operating      143,937         114,040     508,418      534,431 
expenses
                                                                             
Operating (loss)      (54,279  )        789           (140,031 )     23,830
income
Interest             249             515         1,325        1,698   
expense, net
                                                                             
(Loss) income
before income         (54,528  )        274           (141,356 )     22,132
taxes
(Benefit)
provision for        (19,835  )       149         (54,532  )    8,974   
income taxes
Net (loss)         $  (34,693  )     $  125        $ (86,824  )   $ 13,158  
income
                                                                             
(Loss) earnings
per common and
common
equivalent
share:
Basic:
Weighted average
shares                12,953            13,582        13,335         13,675
outstanding
                                                                             
Net (loss)         $  (2.68    )     $  0.01       $ (6.51    )   $ 0.96    
income per share
                                                                             
Diluted:
                                                                             
Weighted average
shares                12,953            13,688        13,335         13,830
outstanding
                                                                             
Net (loss)         $  (2.68    )     $  0.01       $ (6.51    )   $ 0.95    
income per share

                                                               
NCI, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
                                                                  
                                                   As of          As of
                                                   December 31,   December 31,
                                                   2012           2011
Assets:
Current assets:
Cash and cash equivalents                          $  763         $  2,819
Accounts receivable, net                              62,293         95,075
Deferred tax assets, net                              3,269          4,152
Income tax receivable                                 5,543          243
Prepaid expenses and other current assets            5,215        2,916   
Total current assets                                  77,083         105,205
                                                                     
Property and equipment, net                           12,564         15,495
Other assets                                          1,593          1,875
Deferred tax assets, net                              43,463         -
Intangible assets, net                                7,073          9,717
Goodwill                                             -            150,322 
Total assets                                       $  141,776    $  282,614 
                                                                     
Liabilities and stockholders’ equity:
Current liabilities:
Accounts payable                                   $  24,148      $  30,018
Accrued salaries and benefits                         15,858         18,717
Deferred revenue                                      1,032          1,987
Other accrued expenses                               7,625        5,697   
Total current liabilities                             48,663         56,419
                                                                     
Long-term debt                                        17,500         54,000
Deferred tax liabilities, net                         -              6,165
Other long-term liabilities                          2,723        2,229   
Total liabilities                                     68,886         118,813
                                                                     
Stockholders’ equity:
Class A common stock, $0.019 par value—37,500
shares authorized; 9,149 shares issued and 8,232
shares outstanding as of December 31, 2012, and       174            174
9,163 shares issued and 8,875 shares outstanding
as of December 31, 2011
Class B common stock, $0.019 par value—12,500
shares authorized; 4,700 shares issued and            89             89
outstanding as of December 30, 2012 and December
31, 2011
Additional paid-in capital                            69,726         69,937
Treasury stock at cost— 917 and 288 shares of
Class A common stock as of December 31, 2012 and      (8,331  )      (4,455  )
2011, respectively
Retained earnings                                    11,232       98,056  
Total stockholders’ equity                           72,890       163,801 
                                                                     
Total liabilities and stockholders’ equity         $  141,776    $  282,614 


NCI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)


                                               Year ended December 31,
                                                 2012           2011
Cash flows from operating activities:
Net (loss) income                                $ (86,824)       $ 13,158
Adjustments to reconcile net (loss) income
to net cash provided by operating
activities:
Impairment of goodwill and intangible assets       150,752          -
Depreciation and amortization                      6,926            6,732
Loss on sale and disposal of property and          5                84
equipment
Stock compensation expense                         4,204            1,800
Deferred income taxes                              (51,851)         (982)
Changes in operating assets and liabilities:
Accounts receivable, net                           32,782           50,353
Prepaid expenses and other assets                  (7,197)          324
Accounts payable                                   (5,870)          (32,314  )
Accrued expenses                                  (1,392)        (2,908   )
Net cash provided by operating activities         41,535         36,247   
                                                                             
Cash flows from investing activities:
Purchases of property and equipment                (1,785)          (2,775   )
Proceeds from sale of property and equipment       -                19
Cash paid for acquisition, net of cash            -              (63,327  )
acquired
Net cash used in investing activities             (1,785)        (66,083  )
                                                                             
Cash flows from financing activities:
Borrowings under credit facility                   130,304          201,152
Repayments of credit facility                      (166,804 )       (167,152 )
Financing costs paid                               (120     )       -
Principal payments under capital lease             -                (23      )
obligations
Proceeds from exercise of stock options            10               261
Excess tax benefit from share-based payment        -                81
Repurchase of stock options                        (1,320)          -
Purchases of Class A common stock                 (3,876)        (4,455   )
Net cash (used in) provided by financing          (41,806)       29,864   
activities
                                                                             
Net change in cash and cash equivalents            (2,056)          28
Cash and cash equivalents, beginning of year      2,819          2,791    
Cash and cash equivalents, end of year           $ 763           $ 2,819    
                                                                             
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest                                         $ 1,216         $ 1,798    
Income taxes                                     $ 2,657         $ 11,589   
                                                                             


NCI, INC.
RECONCILIATION OF NON-GAAP MEASURES
(UNAUDITED)
(in thousands, except per share data)


                         Three months ended          Year ended
                                                
                         December 31,                December 31,
                         2012          2011        2012           2011
                                                                        
GAAP operating           $ (54,279 )     $ 789       $ (140,031 )     $ 23,830
(loss) income
                                                                        
Impairment of
goodwill and               57,958          -           150,752          -
intangible assets
Restructuring charge       -               3,139       -                3,139
Stock option tender       -             -          2,311          -
offer expense
Adjusted operating        3,679         3,928      13,032         26,969
income
                                                                        
Interest expense,         249           515        1,325          1,698
net
Adjusted income            3,430           3,413       11,707           25,271
before income taxes
                                                                        
Provision for income      1,439         1,382      4,840          10,235
taxes
Adjusted net income      $ 1,991        $ 2,031     $ 6,867         $ 15,036
                                                                        
Earnings per common
and common
equivalent share:
                                                                        
GAAP Basic net
(loss) income per        $ (2.68   )     $ 0.01      $ (6.51    )     $ 0.96
share
Per share effect of
impairment of              2.83            -           6.92             -
goodwill and
intangible assets
Per share effect of        -               0.14        -                0.14
restructuring charge
Per share effect of
stock option tender       -             -          0.10           -
offer
Adjusted net income      $ 0.15         $ 0.15      $ 0.51          $ 1.10
per share
                                                                        
                                                                        
GAAP Diluted net
(loss) income per        $ (2.68   )     $ 0.01      $ (6.51    )     $ 0.95
share
Per share effect of
impairment of              2.83            -           6.92             -
goodwill and
intangible assets
Per share effect of        -               0.14        -                0.14
restructuring charge
Per share effect of
stock option tender       -             -          0.10           -
offer
Adjusted net income      $ 0.15         $ 0.15      $ 0.51          $ 1.09
per share
                                                                        
                                                                        
Weighted average
shares outstanding:
Basic                    12,953          13,582      13,335           13,675
Diluted                  12,953          13,688      13,337           13,830
                                                                        

Contact:

NCI, Inc.
Brian J. Clark, President
703-707-6900
 
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