NCI Reports First Quarter 2013 Financial and Operating Results

  NCI Reports First Quarter 2013 Financial and Operating Results

 First quarter revenue of $91.5 million, diluted EPS of $0.15–both exceed top
                               end of guidance

Business Wire

RESTON, Va. -- May 01, 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 its financial and operating
results for the first quarter ended March 31, 2013.

First quarter 2013 revenue exceeded the high end of management’s guidance
range issued last quarter by $5.5 million; diluted earnings per share (EPS)
exceeded the high end of guidance by $0.05.

First Quarter 2013 Results

For the three months ended March 31, 2013, revenue decreased by 7.6%, or $7.5
million, over the same period a year ago. The decrease was primarily due to
approximately $5.8 million of lower revenue attributable to services provided
on its PEO Soldier contract. NCI’s PEO Soldier contract accounted for 13.7%,
or $12.5 million, of total revenue for the first quarter of 2013 compared with
18.6%, or $18.4 million, of total revenue for the first quarter of 2012.

General and administrative expenses decreased by 13.1%, or $0.9 million, for
the three months ended March 31, 2013, compared with the same period a year
ago. The decrease was due to lower stock compensation costs, lower fees for
outside consultants, and reduced facilities costs, among other factors.

Operating income for the first quarter of 2013 was $3.6 million, up from $3.1
million for the first quarter of 2012. Operating margin for the first quarter
of 2013 was 3.9% compared with operating margin of 3.1% for the first quarter
of 2012. Operating margin for the first quarter of 2013 increased due to
improved margins on certain time-and-materials contracts, the receipt of award
fees on certain cost-plus-fee contracts, lower general and administrative
expenses, and lower depreciation and amortization expenses.

Net income for the first quarter of 2013 increased to $2.0 million from $1.6
million in the first quarter of 2012. The increase in net income year over
year is attributable to the factors affecting operating income and lower
interest expense, offset by an increase in income taxes and a higher effective
income tax rate. Diluted EPS for the first quarter of 2013 was $0.15 compared
with $0.12 in the first quarter of 2012.

Days sales outstanding (DSO) increased to 78 days as of March 31, 2013, up 14
days from the 64 days reported as of December 31, 2012. The increase in DSO is
primarily associated with delays in the receipt of payments on several large
contracts. As a result, net cash used in operating activities for the first
quarter of 2013 was $8.3 million.

NCI reported total backlog at March 31, 2013, of $623 million, of which $162
million was funded. This compares with total backlog at December 31, 2012, of
$706 million, of which $212 million was funded.

Management’s Outlook

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

                                                  
                           Second Quarter            Fiscal Year
                           Fiscal Year 2013 Ending   Ending
                         June 30, 2013            December 31, 2013
Revenue                   $76 million–$84 million  $290 million–$320 million
Diluted EPS               $0.10–$0.12              $0.27–$0.37
Diluted projected share   12.8 million             12.8 million
count
                                                     

“We’re pleased with NCI’s performance in the first quarter. We exceeded
previously issued guidance for revenue and earnings and have raised our
forecast for 2013,” said Charles K. Narang, NCI’s Chairman and CEO. “Thus far,
the impact of sequestration on NCI has been minimal, although this could
change in the second half of 2013. However, the impact of new wins during the
remainder of 2013 could be felt in the latter part of the year and would
certainly create positive momentum going into 2014.”

“During the first quarter, we continued our cost-reduction efforts to both
improve profitability and provide for continued investment in new business
growth opportunities,” said NCI’s President, Brian J. Clark. “Thus far in
2013, we have submitted two significant bids that embody NCI’s revitalized
business development disciplines. We expect to submit several more significant
bids throughout the course of the year. An award of one or more of these
programs would help redefine NCI and position us for growth in 2014 and
beyond.”

Conference Call Information

As previously announced, NCI will conduct a conference call today at 4:30 p.m.
EDT to discuss fiscal first quarter results and guidance for 2013.

Analysts and institutional investors may listen to the conference call by
dialing (888) 428-9473 (United States/Canada) or (719) 325-2458
(international) with pass code 1833524. 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 May 15, 2013, by dialing (877)
870-5176 (United States/Canada) or (858) 384-5517 (international) and entering
pass code 1833524.

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 2,000 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 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.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands, except per share data)
                                                
                                                  Three months ended March 31,
                                                  2013             2012
                                                                       
Revenue                                           $   91,541        $  99,076
                                                                       
Operating expenses:
Cost of revenue                                       80,477           87,445
General and administrative expenses                   5,861            6,744
Depreciation and amortization                        1,618           1,773
Total operating expenses                             87,956          95,962
                                                                       
Operating income                                      3,585            3,114
Interest expense, net                                251             450
                                                                       
Income before income taxes                            3,334            2,664
Provision for income taxes                           1,359           1,079
Net income                                        $   1,975         $  1,585
                                                                       
Earnings per common and common equivalent
share:
Basic:
Weighted average shares outstanding                   12,812           13,577
                                                                       
Net income per share                              $   0.15          $  0.12
                                                                       
Diluted:
Weighted average shares outstanding                   12,812           13,630
                                                                       
Net income per share                              $   0.15          $  0.12


NCI, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)

                                                   As of        As of
                                                    March 31,     December 31,
                                                    2013          2012
                                                    (unaudited)
Assets:
Current assets:
Cash and cash equivalents                           $ 861         $  763
Accounts receivable, net                              79,697         62,293
Deferred tax assets, net                              3,275          3,269
Income tax receivable                                 2,668          5,543
Prepaid expenses and other current assets            4,907        5,215   
Total current assets                                  91,408         77,083
                                                                     
Property and equipment, net                           11,570         12,564
Other assets                                          1,561          1,593
Deferred tax assets, net                              43,463         43,463
Intangible assets, net                               6,589        7,073   
Total assets                                        $ 154,591    $  141,776 
                                                                     
Liabilities and stockholders’ equity:
Current liabilities:
Accounts payable                                    $ 25,715      $  24,148
Accrued salaries and benefits                         15,203         15,858
Deferred revenue                                      2,130          1,032
Other accrued expenses                               7,747        7,625   
Total current liabilities                            50,795       48,663  
                                                                     
Long-term debt                                        26,000         17,500
Other long-term liabilities                          2,632        2,723   
Total liabilities                                    79,427       68,886  
Commitments and contingencies
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 March 31, 2013, and          174            174
9,149 shares issued and 8,232 shares outstanding
as of December 31, 2012
Class B common stock, $0.019 par value—12,500
shares authorized; 4,700 shares issued and            89             89
outstanding as of March 31, 2013 and December 31,
2012
Additional paid-in capital                            70,025         69,726
Treasury stock at cost— 917 shares of Class A
common stock as of March 31, 2013 and December        (8,331  )      (8,331  )
31, 2012
Retained earnings                                    13,207       11,232  
Total stockholders’ equity                           75,164       72,890  
                                                                     
Total liabilities and stockholders’ equity          $ 154,591      141,776 
                                                                     


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

                                                 Three months ended March 31,
                                                  2013            2012
Cash flows from operating activities:
Net income                                        $  1,975         $ 1,585
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization                        1,618           1,773
Loss on sale and disposal of property and            —               5
equipment
Share-based payments                                 298             640
Deferred income taxes                                (6       )      171
Changes in operating assets and liabilities:
Accounts receivable, net                             (17,404  )      9,273
Prepaid expenses and other assets                    3,215           (2,280  )
Accounts payable                                     1,567           (6,619  )
Accrued expenses                                    475            (3,047  )
Net cash (used in) provided by operating            (8,262   )     1,501
activities
                                                                             
Cash flows from investing activities:
Purchases of property and equipment                 (140     )     (752    )
Net cash used in investing activities               (140     )     (752    )
                                                                             
Cash flows from financing activities:
Borrowings under credit facility                     28,558          44,369
Repayments on credit facility                       (20,058  )     (47,869 )
Net cash provided by (used in) financing            8,500          (3,500  )
activities
                                                                             
Net change in cash and cash equivalents              98              (2,751  )
Cash and cash equivalents, beginning of period      763            2,819
Cash and cash equivalents, end of period          $  861           $ 68
                                                                             
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest                                          $  195           $ 448
Income taxes                                      $  131           $ 2,087

Contact:

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