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 firstname.lastname@example.org. 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
NCI Reports Fourth Quarter and Fiscal Year 2012 Financial and Operating Results
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