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8-K - FORM 8-K - NCI, Inc.d493739d8k.htm

Exhibit 99.1

 

LOGO

11730 Plaza America, Suite 700

Reston, VA 20190

News Release

Contacts:

Brian J. Clark, President

(703) 707-6900

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 declines

 

   

Company will devote additional investment to business development-driven growth strategies in 2013

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

 

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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 uncertainty in funding levels 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

 

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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 $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

 

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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.

 

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Share Repurchase

During 2010, NCI’s Board of Directors authorized management to repurchase up to $25.0 million of our Class A common stock pursuant to a stock repurchase program. During the fourth quarter of 2012, NCI repurchased 93,735 shares of our 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 2012  Ending
March 31, 2013
   Fiscal Year
Ending
December 31, 2013

Revenue

   $80 million - $86 million    $280 million - $320 million

Diluted EPS

   $0.08 - $0.10    $0.14 - $0.26

Diluted projected share count

   13.0 million    13.1 million

“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 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.

 

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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

As previously announced, NCI will conduct a conference call today at 5:00 p.m. EST to discuss fiscal fourth quarter and full year 2012 results and issue 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.

 

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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.

 

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Financial tables follow

 

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NCI, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

 

     Three months ended December 31,      Year ended December 31,  
     2012
(Unaudited)
    2011
(Unaudited)
     2012     2011  

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 expenses

     6,771        5,538         26,148        24,150   

Depreciation and amortization

     1,781        1,737         6,926        6,732   

Stock option tender offer

     —          —           2,311        —     

Acquisition and integration related expenses

     —          9         —          1,012   

Restructuring charge

     —          3,139         —          3,139   

Impairment of goodwill and intangible assets

     57,958        —           150,752        —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Total operating expenses

     143,937        114,040         508,418        534,431   
  

 

 

   

 

 

    

 

 

   

 

 

 

Operating (loss) income

     (54,279     789         (140,031     23,830   

Interest expense, net

     249        515         1,325        1,698   
  

 

 

   

 

 

    

 

 

   

 

 

 

(Loss) income before income taxes

     (54,528     274         (141,356     22,132   

(Benefit) provision for income taxes

     (19,835     149         (54,532     8,974   
  

 

 

   

 

 

    

 

 

   

 

 

 

Net (loss) income

   $ (34,693   $ 125       $ (86,824   $ 13,158   
  

 

 

   

 

 

    

 

 

   

 

 

 

(Loss) earnings per common and common equivalent share:

         

Basic:

         

Weighted average shares outstanding

     12,953        13,582         13,335        13,675   

Net (loss) income per share

   $ (2.68   $ 0.01       $ (6.51   $ 0.96   
  

 

 

   

 

 

    

 

 

   

 

 

 

Diluted:

         

Weighted average shares outstanding

     12,953        13,688         13,335        13,830   

Net (loss) income per share

   $ (2.68   $ 0.01       $ (6.51   $ 0.95   
  

 

 

   

 

 

    

 

 

   

 

 

 

 

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NCI, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)

 

     As of
December 31,
2012
    As of
December 31,
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 taxes 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 9,163 shares issued and 8,875 shares outstanding as of December 31, 2011

     174        174   

Class B common stock, $0.019 par value—12,500 shares authorized; 4,700 shares issued and outstanding as of December 30, 2012 and December 31, 2011

     89        89   

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 December 31, 2011, respectfully

     (8,331     (4,455

Retained earnings

     11,232        98,056   
  

 

 

   

 

 

 

Total stockholders’ equity

     72,890        163,801   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 141,776      $ 282,614   
  

 

 

   

 

 

 

 

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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 equipment

     5        84   

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 acquired

     —          (63,327
  

 

 

   

 

 

 

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 obligations

     —          (23

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 activities

     (41,806     29,864   
  

 

 

   

 

 

 

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   
  

 

 

   

 

 

 

 

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NCI, INC.

RECONCILIATION OF NON-GAAP MEASURES

(UNAUDITED)

(in thousands, except per share data)

 

     Three months ended December 31,      Year ended December 31,  
     2012     2011      2012     2011  

GAAP operating (loss) income

   $ (54,279   $ 789       $ (140,031   $ 23,830   

Impairment of goodwill and intangible assets

     57,958        —           150,752        —     

Restructuring charge

     —          3,139         —          3,139   

Stock option tender expense

     —          —           2,311        —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Adjusted operating income

     3,679        3,928         13,032        26,969   
  

 

 

   

 

 

    

 

 

   

 

 

 

Interest expense, net

     249        515         1,325        1,698   
  

 

 

   

 

 

    

 

 

   

 

 

 

Adjusted income before income taxes

     3,430        3,413         11,707        25,271   

Provision for income taxes

     1,439        1,382         4,840        10,235   
  

 

 

   

 

 

    

 

 

   

 

 

 

Adjusted net income

   $ 1,991      $ 2,031       $ 6,867      $ 15,036   
  

 

 

   

 

 

    

 

 

   

 

 

 

Earnings per common and common equivalent share:

         

GAAP Basic net (loss) income per share

   $ (2.68   $ 0.01       $ (6.51   $ 0.96   

Per share effect of impairment of goodwill and intangible assets

     2.83        —           6.92        —     

Per share effect of restructuring charge

     —          0.14         —          0.14   

Per share effect of stock option tender offer

     —          —           0.10        —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Adjusted net income per share

   $ 0.15      $ 0.15       $ 0.51      $ 1.10   
  

 

 

   

 

 

    

 

 

   

 

 

 

GAAP Diluted net (loss) income per share

   $ (2.68   $ 0.01       $ (6.51   $ 0.95   

Per share effect of impairment of goodwill and intangible assets

     2.83        —           6.92        —     

Per share effect of restructuring charge

     —          0.14         —          0.14   

Per share effect of stock option tender offer

     —          —           0.10        —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Adjusted net income per share

   $ 0.15      $ 0.15       $ 0.51      $ 1.09   
  

 

 

   

 

 

    

 

 

   

 

 

 

Weighted average shares outstanding:

         

Basic

     12,953        13,582         13,335        13,675   

Diluted:

     12,953        13,688         13,337        13,830   

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