Financial Results
The company reported revenue for the third quarter of 2006 of $63.2 million, compared with $79.1 million for the same period a year ago. Net income was $0.9 million, or $0.10 per diluted share, for the quarter ended September 30, 2006, compared with $3.1 million, or $0.34 per diluted share, for the third quarter of 2005. Diluted earnings per share includes a $0.02 effect of FAS 123R for the third quarter of 2006. For the nine months ended September 30, 2006 revenue was $198.7 million, compared with $228.8 million for the same period in 2005. Net income was $2.6 million, or $0.27 per diluted share, for the nine months ended September 30, 2006, compared with $8.5 million, or $0.92 per diluted share, for the first nine months of 2005. Lower than expected subcontracted revenues under the Aeronautical Systems Center and Electronics Systems Center contracts resulted in third quarter revenues lower than previously provided guidance.
Business Highlights
"I am pleased to report that leading indicators of revenue growth have continued to trend very positively in the most recently ended period. Our new business wins for the quarter, measured in revenue value for the first contract year, were $24 million, up 53 percent over the third quarter of 2005, bringing the year-to-date total to $55 million. Key wins since we last reported our financial results include new or expanded contracts with the Air Force Tanker Program, Air Force Depots, Lockheed Martin and the Air Force's Air Operations Center, the NAVAIR AIRSpeed program and the FDIC. Adding to our confidence in these positive developments for the quarter just ended our new business win rate was very strong at 45 percent.
"From a profits viewpoint, we expected and saw a significant improvement in results for the third quarter, compared with the second quarter of this year. Earnings results were at the high end of our guidance for the quarter and investments in business development activities continued at a high level," reported James P. Regan, DRC chairman and chief executive officer.
Company Guidance
For the year 2006, the company estimates revenues in the range of $258 to $261 million and earnings per diluted share in the range of $0.40 to $0.43. For the fourth quarter of the year the company expects to book revenues in the range of $59 to $62 million and report earnings per diluted share of $0.13 to $0.16.
Conference Call
About Dynamics Research Corporation
Safe harbor statements under the Private Securities Litigation Reform Act of 1995: Some statements contained or implied in this news release, may be considered forward-looking statements, which by their nature are uncertain. Consequently, actual results could materially differ. For more detailed information concerning how risks and uncertainties could affect the company's financial results, please refer to DRC's most recent filings with the SEC. The company assumes no obligation to update any forward-looking information.
CONTACT: David Keleher, Senior Vice President and Chief Financial Officer (978) 289-1615 DYNAMICS RESEARCH CORPORATION RESULTS OF OPERATIONS (unaudited) (in thousands, except share and per share data) Three months ended September 30, 2006 2005 Contract revenue $61,547 $77,334 Product sales 1,614 1,779 Total revenue 63,161 79,113 Cost of contract revenue 53,756 64,174 Cost of product sales 1,217 1,242 Selling, general and administrative expenses 5,559 6,722 Amortization of intangible assets 702 760 Total operating costs and expenses 61,234 72,898 Operating income 1,927 6,215 Interest expense, net (558) (1,061) Other income 78 119 Income before provision for income taxes 1,447 5,273 Provision for income taxes 526 2,136 Net income $921 $3,137 Earnings per common share Basic $0.10 $0.35 Diluted $0.10 $0.34 Weighted average shares outstanding Basic 9,133,552 8,846,245 Diluted 9,395,360 9,264,137 DYNAMICS RESEARCH CORPORATION RESULTS OF OPERATIONS (unaudited) (in thousands, except share and per share data) Nine months ended September 30, 2006 2005 Contract revenue $194,026 $223,712 Product sales 4,626 5,131 Total revenue 198,652 228,843 Cost of contract revenue 168,985 187,927 Cost of product sales 3,771 3,948 Selling, general and administrative expenses 18,151 19,429 Amortization of intangible assets 2,107 2,279 Total operating costs and expenses 193,014 213,583 Operating income 5,638 15,260 Interest expense, net (1,693) (3,193) Other income 429 2,221 Income before provision for income taxes 4,374 14,288 Provision for income taxes 1,803 5,787 Net income (1) $2,571 $8,501 Earnings per common share Basic (1) $0.28 $0.97 Diluted (1) $0.27 $0.92 Weighted average shares outstanding Basic 9,079,601 8,761,800 Diluted 9,424,170 9,208,054 (1) Includes $84, or $0.01 per common share, attributable to the cumulative effect of the change in accounting principle for the adoption of SFAS 123R in 2006. DYNAMICS RESEARCH CORPORATION CONDENSED BALANCE SHEETS (in thousands) September 30, December 31, 2006 2005 (unaudited) (audited) Assets Cash and cash equivalents $584 $1,020 Accounts receivable, net 35,372 32,894 Unbilled expenditures and fees on contracts in process 41,070 60,210 Prepaid expenses and other current assets 2,308 1,483 Total current assets 79,334 95,607 Property, plant and equipment, net 11,869 12,252 Goodwill 63,055 63,055 Intangible assets, net 6,373 8,480 Other noncurrent assets 7,046 8,359 Total assets $167,677 $187,753 Liabilities and stockholders' equity Current portion of long-term debt $- $10,170 Accounts payable 20,268 25,668 Deferred income taxes 12,420 19,825 Accrued payroll and employee benefits 15,094 18,761 Other accrued expenses 3,741 6,392 Total current liabilities 51,523 80,816 Long-term debt 21,692 15,242 Other long-term liabilities 14,524 17,508 Stockholders' equity 79,938 74,187 Total liabilities and stockholders' equity $167,677 $187,753 DYNAMICS RESEARCH CORPORATION SUPPLEMENTAL INFORMATION (unaudited) (dollars in thousands) Contract revenues were earned from the following sectors: Three Months Ended Nine Months Ended September 30, September 30, 2006 2005 2006 2005 National defense and intelligence agencies $50,579 $63,970 $158,995 $179,961 Federal civilian agencies 6,634 6,785 22,983 24,560 State and local government agencies 3,966 5,946 11,236 16,996 Other 368 633 812 2,195 $61,547 $77,334 $194,026 $223,712 Revenues by contract type as a percentage of contract revenue were as follows: Three Months Ended Nine Months Ended September 30, September 30, 2006 2005 2006 2005 Time and materials 64% 55% 62% 56% Cost reimbursable 17% 21% 19% 20% Fixed price, including service-type contracts 19% 24% 19% 24% 100% 100% 100% 100% Prime contact 67% 68% 68% 68% Sub-contract 33% 32% 32% 32% 100% 100% 100% 100% Three Months Ended Nine Months Ended September 30, September 30, 2006 2005 2006 2005 Net cash provided by (used in) operating activities $2,026 $(2,585) $3,372 $7,835 Capital expenditures $492 $947 $2,063 $3,373 Depreciation $805 $915 $2,425 $2,823 Bookings $60,205 $72,305 $191,992 $210,938 September 30, 2006 2005 Funded backlog $97,911 $147,470 Employees 1,541 1,829
Dynamics Research Corporation
