NCI Reports Third Quarter 2013 Financial and Operating Results

  NCI Reports Third Quarter 2013 Financial and Operating Results

  *Revenue at high end of guidance; diluted earnings per share (EPS) exceeds
    guidance
  *Raises full-year revenue and EPS outlook
  *Records third quarter gross bookings of $86 million, 1.1 times revenue

Business Wire

RESTON, Va. -- October 29, 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 third quarter ended September 30, 2013.

Third quarter 2013 revenue was at the high end of management’s guidance range
issued last quarter. Diluted EPS exceeded the high end of guidance by $0.04.

Third Quarter 2013 Results

For the three months ended September 30, 2013, total revenue decreased by
11.9%, or $10.5 million, to $77.9 million, compared with the same period a
year ago. The decrease was due to $3.1 million of lower revenue attributable
to services provided under NCI’s PEO Soldier contract as well as $7.4 million
of reductions in scope of work, including the impact of sequestration, and the
expiration of certain task orders and contracts, partially offset by revenue
from new awards and growth on existing programs. During the third quarter of
2013, NCI’s PEO Soldier program accounted for 14% of revenue compared with 16%
of revenue for the same period in 2012.

General and administrative expenses decreased 6.9%, or $0.4 million, for the
three months ended September 30, 2013, compared with the same period a year
ago. The decrease was primarily due to lower compensation expense as a result
of reduced headcount, partially offset by continued investment in business
development initiatives.

GAAP operating income for the third quarter of 2013 was $3.5 million compared
with a GAAP operating loss for the third quarter of 2012 of $91.7 million.
GAAP operating income for the third quarter of 2013 included a $0.9 million
gain from the resolution of a purchase contingency related to the AdvanceMed
acquisition in April 2011. GAAP operating loss for the third quarter of 2012
included costs resulting from a goodwill impairment charge of $92.8 million
and a cash tender offer of approximately $2.3 million for certain
out-of-the-money stock options held by current and former NCI employees.
Excluding the effects of these items, NCI reported adjusted operating income
of $2.6 million for the third quarter of 2013 and $3.4 million for the third
quarter of 2012^1. Adjusted operating margin was 3.3% for the third quarter of
2013 and 3.8% for the third quarter of 2012. Adjusted operating income and
margin for the third quarter of 2013 decreased due to lower revenue and the
reduced absorption of indirect costs on the lower revenue base, respectively.

GAAP net income for the third quarter of 2013 was $2.0 million compared with a
GAAP net loss for the third quarter of 2012 of $55.2 million. Excluding the
impact of the purchase contingency gain, adjusted net income for the third
quarter of 2013 was $1.4 million. Excluding the impact of the impairment
charge and stock option tender offer, adjusted net income for the third
quarter of 2012 was $1.8 million. The decrease in adjusted net income year
over year is attributable to the factors affecting operating income, partially
offset by lower interest expense.

GAAP diluted EPS for the third quarter of 2013 was $0.15. Excluding the effect
of the purchase contingency gain, adjusted diluted EPS for the third quarter
of 2013 was $0.11. Excluding the impairment charge and costs associated with
the stock option tender offer, adjusted diluted EPS for the third quarter of
2012 was $0.14.

Day sales outstanding (DSO) was 66 days as of September 30, 2013, down from 69
days as of June 30, 2013.

NCI reported total backlog at September 30, 2013, of $555 million, of which
$163 million was funded. This compared with total backlog at June 30, 2013, of
$570 million, of which $142 million was funded. Net bookings for the third
quarter of 2013 were $63 million, equating to 0.8 times revenue.

Nine-Month Fiscal Year 2013 Results

For the nine months ended September 30, 2013, total revenue decreased by 9.4%,
or $26.3 million, to $252.4 million over the same period a year ago. The
decrease was due to $12.8 million of lower revenue attributable to services
provided under NCI’s PEO Soldier contract as well as $13.5 million of
reductions in scope of work, including the impact of sequestration, and the
expiration of certain task orders and contracts, partially offset by revenue
from new awards and growth on existing programs.

General and administrative expenses decreased by 8.1%, or $1.6 million, for
the nine months ended September 30, 2013, compared with the same period a year
ago. The decrease was primarily due to lower compensation expense from reduced
headcount and lower stock compensation costs, among other factors.

GAAP operating income for the nine months ended September 30, 2013, was $10.4
million compared with a GAAP operating loss for the nine months ended
September 30, 2012, of $85.8 million. GAAP operating income for the nine
months ended September 30, 2013, included a $0.9 million gain from the
resolution of a purchase contingency related to the AdvanceMed acquisition in
April 2011. Excluding the effect of this item, NCI reported adjusted operating
income of $9.5 million, or 3.8% of revenue, for the nine months ended
September 30, 2013. GAAP operating loss for the nine months ended September
30, 2012, included costs resulting from a goodwill impairment charge of $92.8
million and a cash tender offer of approximately $2.3 million for certain
out-of-the-money stock options held by current and former NCI employees.
Excluding the effects of these items, NCI reported adjusted operating income
of $9.4 million, or 3.4% of revenue, for the nine months ended September 30,
2012. Adjusted operating income for the nine months ended September 30, 2013,
increased due to improved contract performance as well as reduced general and
administrative expenses and lower depreciation and amortization expenses.
Adjusted operating margin for the nine months ended September 30, 2013,
increased due to improved contract performance, partially offset by reduced
absorption of indirect costs on a lower revenue base.

GAAP net income for the nine months ended September 30, 2013 was $5.7 million,
or $0.45 per diluted share. Excluding the purchase contingency gain, adjusted
net income for the nine months ended September 30, 2013, was $5.2 million, or
$0.41 per diluted share. Excluding the impairment charge and costs associated
with the stock option tender offer, adjusted net income for the nine months
ended September 30, 2012, was $4.9 million, or $0.36 per diluted share. The
increase in adjusted net income year over year is attributable to the factors
affecting operating income and lower interest expense.

Net cash provided by operating activities was $7.8 million for the third
quarter and $16.0 million for the nine months ended September 30, 2013.

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 fourth
quarter of 2013 and updating previously issued guidance for fiscal year 2013.
The table below represents management’s current expectations about future
financial performance based on information available at this time:

                                                  
                           Fourth Quarter           Fiscal Year
                            Fiscal Year 2013 Ending   Ending
                          December 31, 2013        December 31, 2013
Revenue                    $67 million–$73 million  $319 million–$325
                                                      million
Diluted EPS                $0.09–$0.11              $0.54–$0.56
Diluted shares             12.8 million             12.8 million
outstanding
                                                      

“We continue to see pockets of real opportunity in the chaos that currently
defines Federal procurement,” said Charles K. Narang, NCI’s Chairman and CEO.
“We are executing on our operational plans and aligning our business
development efforts to meaningful near-term programs with actual revenue
streams.”

“We’re pleased with the new awards and plus-ups to contract values in the
third quarter. The strategic reorganization of our business development
capabilities is beginning to yield results,” said NCI’s President, Brian J.
Clark. “We continue to focus on the areas we can control, such as cost
containment and resource allocation, while setting our sights on bidding and
winning the new business awards that will show that NCI has truly turned the
corner.”

Conference Call Information

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

Analysts and institutional investors may listen to the conference call by
dialing (888) 395-3227 (United States/Canada) or (719) 325-2354
(international) with pass code 5523693. The conference call will be
simultaneously provided as a webcast through a link on the NCI website.

A replay of the conference call will be available approximately two hours
after the conclusion of the call through November 12, 2013, by dialing (877)
870-5176 (United States/Canada) or (858) 384-5517 (international) and entering
pass code 5523693.

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. Like us on Facebook and follow us
on Twitter (@nciinc_) and LinkedIn.

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 and 2014 fiscal years), 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 OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
                                                   
                      Three months ended           Nine months ended September
                      September 30,                30,
                      2013         2012           2013          2012
                                                                  
Revenue               $  77,918     $  88,467      $  252,430     $  278,729
                                                                  
Operating expenses:
Cost of revenue          67,832        77,147         220,300        244,855
General and
administrative           5,819         6,251          17,809         19,377
expenses
Depreciation and         1,679         1,681          4,824          5,145
amortization
Stock option tender      –             2,311          –              2,311
offer
Goodwill impairment      –             92,793         –              92,793
Purchase                (864)        –             (864)         –
contingency gain
Total operating         74,466       180,184       242,069       364,481
expenses
                                                                  
                                                                  
Operating income         3,452         (91,717)       10,361         (85,752)
(loss)
Interest expense,       157          266           656           1,077
net
                                                                  
Income (loss)            3,295         (91,983)       9,705          (86,829)
before income taxes
Provision (benefit)     1,344        (36,788)      3,967         (34,698)
for income taxes
Net income (loss)     $  1,951      $  (55,195)    $  5,738       $  (52,131)
                                                                  
Earnings (loss) per
common and common
equivalent share:
Basic:
Weighted average         12,837        13,249         12,825         13,463
shares outstanding
                                                                  
Net income (loss)     $  0.15       $  (4.17)      $  0.45        $  (3.87)
per share
                                                                  
Diluted:
                                                                  
Weighted average         12,837        13,249         12,832         13,463
shares outstanding
                                                                  
Net income (loss)     $  0.15       $  (4.17)      $  0.45        $  (3.87)
per share
                                                                     

                                                               
NCI, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)
                                                                  
                                                  As of           As of
                                                  September 30,   December 31,
                                                  2013            2012
Assets:                                           (Unaudited)
Current assets:
Cash and cash equivalents                         $   42          $   763
Accounts receivable, net                              55,889          62,293
Deferred tax assets, net                              2,970           3,269
Income tax receivable                                 453             5,543
Prepaid expenses and other current assets            3,269          5,215
Total current assets                                  62,623          77,083
                                                                  
Property and equipment, net                           9,795           12,564
Other assets                                          1,192           1,593
Deferred tax assets, net                              43,463          43,463
Intangible assets, net                               5,752          7,073
Total assets                                      $   122,825     $   141,776
                                                                  
Liabilities and stockholders’ equity:
Current liabilities:
Accounts payable                                  $   14,418      $   24,148
Accrued salaries and benefits                         16,884          15,858
Deferred revenue                                      2,324           1,032
Other accrued expenses                               5,716          7,625
Total current liabilities                             39,342          48,663
                                                                  
Long-term debt                                        1,500           17,500
Other long-term liabilities                          2,321          2,723
Total liabilities                                     43,163          68,886
                                                                  
Stockholders’ equity:
Class A common stock, $0.019 par value—37,500
shares authorized; 9,142 shares issued and
8,226 shares outstanding as of September 30,          174             174
2013, and 9,142 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 September 30, 2013 and
December 31, 2012
Additional paid-in capital                            70,761          69,726
Treasury stock at cost— 917 shares of Class A
common stock as of September 30, 2013 and             (8,331)         (8,331)
December 31, 2012
Retained earnings                                    16,969         11,232
Total stockholders’ equity                           79,662         72,890
                                                                  
Total liabilities and stockholders’ equity        $   122,825     $   141,776
                                                                      

                                             
NCI, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
                                               
                                               Nine months ended September 30,
                                               2013             2012
Cash flows from operating activities:
Net income (loss)                              $  5,738          $  (52,131  )
Adjustments to reconcile net income to net
cash provided by operating activities:
Goodwill impairment                               –                 92,793
Stock-based compensation expense related to       –                 2,242
stock option tender offer
Depreciation and amortization                     4,824             5,149
Share-based payments                              1,067             1,703
Deferred income taxes                             299               (29,820  )
Changes in operating assets and liabilities:
Accounts receivable, net                          6,404             43,444
Prepaid expenses and other assets                 7,436             (4,490   )
Accounts payable                                  (9,730   )        (17,034  )
Accrued expenses                                 8               654      
Net cash provided by operating activities        16,046          42,510   
                                                                 
Cash flows from investing activities:
Purchases of property and equipment              (734     )       (1,343   )
Net cash used in investing activities            (734     )       (1,343   )
                                                                 
Cash flows from financing activities:
Repurchase of stock awards                        (33      )        (1,320   )
APIC from cancellation of stock options           –                 (3,236   )
Borrowings under credit facility                  62,300            103,138
Repayments of credit facility                     (78,300  )        (136,138 )
Proceeds from exercise of stock options           –                 10
Purchases of Class A common stock                –               (3,355   )
Net cash used in financing activities            (16,033  )       (40,901  )
                                                                 
Net change in cash and cash equivalents           (721     )        266
Cash and cash equivalents, beginning of          763             2,818    
period
Cash and cash equivalents, end of period       $  42            $  3,084    
                                                                 
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest                                       $  512           $  1,048    
Income taxes                                   $  251           $  2,927    
                                                                 

                                                 
NCI, INC.
RECONCILIATION OF NON-GAAP MEASURES
(UNAUDITED)
(in thousands, except per share data)
                                                    
                     Three months ended September   Nine months ended
                     30,                            September 30,
                     2013           2012           2013         2012
                                                                  
GAAP operating       $   3,452       $  (91,717)    $  10,361     $  (85,751)
income (loss)
                                                                  
Stock option             –              2,311          –             2,311
tender offer
Goodwill                 –              92,793         –             92,793
impairment
Purchase                (864)         –             (864)        –
contingency gain
Adjusted operating      2,588         3,388         9,497        9,353
income
                                                                  
Adjusted operating       2,588          3,388          9,497         9,353
income
Interest expense,       157           266           656          1,077
net
Adjusted income
before income            2,431          3,122          8,841         8,276
taxes
                                                                  
                                                                  
Provision for           991           1,310         3,614        3,401
income taxes
Adjusted net         $   1,439       $  1,812       $  5,227      $  4,875
income
                                                                  
Earnings (loss)
per common and
common equivalent
share:
GAAP basic net
income (loss) per    $   0.15        $  (4.17)      $  0.45       $  (3.87)
share
Per share effect
of goodwill              –              4.20           –             4.13
impairment
Per share effect
of stock option          –              0.11           –             0.10
tender offer
Per share effect
of purchase             (0.04)        –             (0.04)       –
contingency gain
Adjusted basic net   $   0.11        $  0.14        $  0.41       $  0.36
income per share
                                                                  
                                                                  
GAAP diluted net
income (loss) per    $   0.15        $  (4.17)      $  0.45       $  (3.87)
share
Per share effect
of goodwill              –              4.20           –             4.13
impairment
Per share effect
of stock option          –              0.11           –             0.10
tender offer
Per share effect
of purchase             (0.04)        –             (0.04)       –
contingency gain
Adjusted diluted
net income per       $   0.11        $  0.14        $  0.41       $  0.36
share
                                                                     

^1 NCI believes that removing the non-recurring one-time charges for goodwill
impairment and the stock option tender offer in the third quarter of 2012 and
the purchase contingency gain in the third quarter of 2013 from operating
income, net income, and earnings per share (as presented) shows NCI’s
financial results in a more consistent manner. NCI believes that these
non-GAAP financial measures provide useful information because they allow
management and investors to better assess the comparable financial results of
the company absent the one-time charges and gain. This non-GAAP financial
measure should not be considered in isolation or as a substitute for measures
of performance prepared in accordance with GAAP. Please see the reconciliation
table at the end of this release that reconciles non-GAAP net income,
operating income, and earnings per share to GAAP net income, operating income,
and earnings per share.


Contact:

NCI, Inc.
Lawrence Delaney, Jr.
Investor Relations Counsel
714-734-5142