Attached files
file | filename |
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EX-31.2 - EX-31.2 - NCI, Inc. | d588964dex312.htm |
EX-32.1 - EX-32.1 - NCI, Inc. | d588964dex321.htm |
EX-31.1 - EX-31.1 - NCI, Inc. | d588964dex311.htm |
EXCEL - IDEA: XBRL DOCUMENT - NCI, Inc. | Financial_Report.xls |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTER ENDED SEPTEMBER 30, 2013
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number
000-51579
NCI, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 20-3211574 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
11730 Plaza America Drive Reston, Virginia |
20190-4764 | |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code: (703) 707-6900
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller Reporting Company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No
As of October 28, 2013, there were 8,225,601 shares outstanding of the registrants Class A common stock. In addition, there are 4,700,000 shares outstanding of the registrants Class B common stock, which are convertible on a one-for-one basis into Class A common stock.
Table of Contents
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Item 1. |
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Item 2. |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
10 | ||||
Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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Table of Contents
FINANCIAL INFORMATION
Item 1. | Financial Statements |
NCI, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Revenue |
$ | 77,918 | $ | 88,467 | $ | 252,430 | $ | 278,729 | ||||||||
Operating expenses: |
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Cost of revenue |
67,832 | 77,147 | 220,300 | 244,855 | ||||||||||||
General and administrative expenses |
5,819 | 6,251 | 17,809 | 19,377 | ||||||||||||
Depreciation and amortization |
1,679 | 1,681 | 4,824 | 5,145 | ||||||||||||
Stock option tender offer |
| 2,311 | | 2,311 | ||||||||||||
Goodwill impairment |
| 92,793 | | 92,793 | ||||||||||||
Purchase contingency gain |
(864 | ) | | (864 | ) | | ||||||||||
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Total operating expenses |
74,466 | 180,184 | 242,069 | 364,481 | ||||||||||||
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Operating income (loss) |
3,452 | (91,717 | ) | 10,361 | (85,752 | ) | ||||||||||
Interest expense, net |
157 | 266 | 656 | 1,077 | ||||||||||||
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Income (loss) before income taxes |
3,295 | (91,983 | ) | 9,705 | (86,829 | ) | ||||||||||
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Provision (benefit) for income taxes |
1,344 | (36,788 | ) | 3,967 | (34,698 | ) | ||||||||||
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Net income (loss) |
$ | 1,951 | $ | (55,195 | ) | $ | 5,738 | $ | (52,131 | ) | ||||||
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Earnings (loss) per common and common equivalent share: |
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Basic: |
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Weighted average shares outstanding |
12,837 | 13,249 | 12,825 | 13,463 | ||||||||||||
Net income (loss) per share |
$ | 0.15 | $ | (4.17 | ) | $ | 0.45 | $ | (3.87 | ) | ||||||
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Diluted: |
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Weighted average shares outstanding |
12,837 | 13,249 | 12,832 | 13,463 | ||||||||||||
Net income (loss) per share |
$ | 0.15 | $ | (4.17 | ) | $ | 0.45 | $ | (3.87 | ) | ||||||
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The accompanying notes are an integral
part of these condensed consolidated financial statements
1
Table of Contents
NCI, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except par value)
As of September 30, 2013 |
As of December 31, 2012 |
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Assets: |
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Current assets: |
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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 | ||||||
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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 | ||||||
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Total assets |
$ | 122,825 | $ | 141,776 | ||||
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Liabilities and stockholders equity: |
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Current liabilities: |
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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 | ||||||
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Total current liabilities |
39,342 | 48,663 | ||||||
Long-term debt |
1,500 | 17,500 | ||||||
Other long-term liabilities |
2,321 | 2,723 | ||||||
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Total liabilities |
43,163 | 68,886 | ||||||
Stockholders equity: |
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Class A common stock, $0.019 par value37,500 shares authorized; 9,142 shares issued and 8,226 shares outstanding as of September 30, 2013, and 9,149 shares issued and 8,232 shares outstanding as of December 31, 2012 |
174 | 174 | ||||||
Class B common stock, $0.019 par value12,500 shares authorized; 4,700 shares issued and outstanding as of September 30, 2013 and December 31, 2012 |
89 | 89 | ||||||
Additional paid-in capital |
70,761 | 69,726 | ||||||
Treasury stock at cost917 shares of Class A common stock as of September 30, 2013 and December 31, 2012 |
(8,331 | ) | (8,331 | ) | ||||
Retained earnings |
16,969 | 11,232 | ||||||
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Total stockholders equity |
79,662 | 72,890 | ||||||
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Total liabilities and stockholders equity |
$ | 122,825 | $ | 141,776 | ||||
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The accompanying notes are an integral
part of these condensed consolidated financial statements
2
Table of Contents
NCI, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
Nine months ended September 30, | ||||||||
2013 | 2012 | |||||||
Cash flows from operating activities: |
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Net income (loss) |
$ | 5,738 | $ | (52,131 | ) | |||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Goodwill impairment |
| 92,793 | ||||||
Stock-based compensation expense related to stock option tender offer |
| 2,242 | ||||||
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: |
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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 | ||||||
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Net cash provided by operating activities |
16,046 | 42,510 | ||||||
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Cash flows from investing activities: |
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Purchases of property and equipment |
(734 | ) | (1,343 | ) | ||||
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Net cash used in investing activities |
(734 | ) | (1,343 | ) | ||||
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Cash flows from financing activities: |
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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 | ) | |||||
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Net cash used in financing activities |
(16,033 | ) | (40,901 | ) | ||||
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Net change in cash and cash equivalents |
(721 | ) | 266 | |||||
Cash and cash equivalents, beginning of period |
763 | 2,818 | ||||||
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Cash and cash equivalents, end of period |
$ | 42 | $ | 3,084 | ||||
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Supplemental disclosure of cash flow information: |
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Cash paid during the period for: |
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Interest |
$ | 512 | $ | 1,048 | ||||
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Income taxes |
$ | 251 | $ | 2,927 | ||||
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The accompanying notes are an integral
part of these condensed consolidated financial statements
3
Table of Contents
NCI, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements of NCI, Inc. and its subsidiaries (NCI or the Company) have been prepared in accordance with generally accepted accounting principles in the United States (GAAP) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). As a result, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements reflect all adjustments necessary to fairly present the Companys financial position as of September 30, 2013 and its results of operations and cash flows for the three and nine months ended September 30, 2013 and 2012, which consists of normal and recurring adjustments. The information disclosed in the notes to the financial statements for these periods is unaudited. The current periods results of operations are not necessarily indicative of results that may be achieved for any future period. For further information, refer to the financial statements and footnotes included in NCIs Annual Report on Form 10-K for the year ended December 31, 2012, as filed with the SEC. All numbers presented in tables are in thousands.
2. Business Overview
NCI provides IT and professional services and solutions by leveraging its eight core service offerings: cloud computing and data center consolidation; cybersecurity and information assurance; engineering and logistics support; enterprise information management and advanced analytics; health IT and medical support; IT service management; software and systems development/integration; and modeling, simulation, and training. The Company provides these services to U.S. Defense, Intelligence, and Federal Civilian agencies. The majority of the Companys revenue was derived from contracts with the U.S. Federal Government, directly as a prime contractor or as a subcontractor. For the quarter ended September 30, 2013, the Company generated approximately 74% of revenue from the Department of Defense, including agencies within the intelligence community, and approximately 26% of revenue from federal civilian agencies. For the nine months ended September 30, 2013, the Company generated 75% of revenue from Department of Defense, including agencies within the intelligence community, and approximately 25% of revenue from federal civilian agencies. For the quarter ended September 30, 2012, the Company generated approximately 75% of revenue from the Department of Defense, including agencies within the intelligence community, and approximately 25% of revenue from federal civilian agencies. For the nine months ended September 30, 2012, the Company generated 76% of revenue from Department of Defense, including agencies within the intelligence community, and approximately 24% of revenue from federal civilian agencies. The Companys PEO Soldier contract is the Companys largest revenue-generating contract and accounted for approximately 14% and 16% of our revenues for the quarters ended September 30, 2013 and 2012, respectively. The Companys PEO Soldier contract is a cost-plus contract with a term of three years commencing in September 2012. The Company primarily conducts business throughout the United States. We report operating results and financial data as one reportable segment.
3. Earnings Per Share
Basic earnings per share exclude dilution and are computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Diluted earnings per share include the incremental effect of stock options calculated using the treasury stock method. Shares that are anti-dilutive are not included in the computation of diluted earnings per share. For the three months ended September 30, 2013 and 2012, approximately 1.8 million and 1.4 million shares, respectively, were not included in the computation of diluted earnings per share, because to do so would have been anti-dilutive. For the nine months ended September 30, 2013 and 2012, approximately 1.2 million and 1.4 million shares, respectively, were not included in the computation of diluted earnings per share, because to do so would have been anti-dilutive. The following details the computation of basic and diluted earnings per common share (Class A and Class B) for the three and nine months ended September 30, 2013 and 2012.
4
Table of Contents
NCI, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. Earnings Per Share - continued
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
(in thousands, except per share data) | ||||||||||||||||
Net Income (loss) |
$ | 1,951 | $ | (55,195 | ) | $ | 5,738 | $ | (52,131 | ) | ||||||
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Weighted average number of basic shares outstanding |
12,837 | 13,249 | 12,825 | 13,463 | ||||||||||||
Dilutive effect of stock options after application of treasury stock method |
| | 7 | | ||||||||||||
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Weighted average number of diluted shares outstanding |
12,837 | 13,249 | 12,832 | 13,463 | ||||||||||||
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Basic earnings (loss) per share |
$ | 0.15 | $ | (4.17 | ) | $ | 0.45 | $ | (3.87 | ) | ||||||
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Diluted earnings (loss) per share |
$ | 0.15 | $ | (4.17 | ) | $ | 0.45 | $ | (3.87 | ) | ||||||
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4. Accounts Receivable
Accounts receivable consist of billed and unbilled amounts at the end of each period:
As of | ||||||||
September 30, 2013 |
December 31, 2012 |
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Billed receivables |
$ | 26,972 | $ | 13,637 | ||||
Unbilled receivables: |
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Amounts billable at end of period |
22,698 | 35,938 | ||||||
Other |
7,084 | 13,520 | ||||||
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Total unbilled receivables |
29,872 | 49,458 | ||||||
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Total accounts receivable |
56,754 | 63,095 | ||||||
Less: allowance for doubtful accounts |
865 | 802 | ||||||
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Total accounts receivable, net |
$ | 55,889 | $ | 62,293 | ||||
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Other unbilled receivables primarily consist of amounts that will be billed upon milestone completions and other accrued amounts that cannot be billed as of the end of the period. All unbilled receivables are expected to be billed and collected within the next twelve months.
5. Property and Equipment
The following table details property and equipment at the end of each period:
As of | ||||||||
September 30, 2013 |
December 31, 2012 |
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Property and equipment |
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Furniture and equipment |
$ | 22,776 | $ | 22,092 | ||||
Leasehold improvements |
7,748 | 7,697 | ||||||
Real property |
549 | 549 | ||||||
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31,073 | 30,338 | |||||||
Less: Accumulated depreciation and amortization |
21,278 | 17,774 | ||||||
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Property and equipment, net |
$ | 9,795 | $ | 12,564 | ||||
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5
Table of Contents
NCI, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Depreciation expense for the three months ended September 30, 2013 and 2012 was $1.3 million and $1.2 million, respectively. Depreciation expense for the nine months ended September 30, 2013 and 2012 was $3.5 million and $3.4 million, respectively.
6. Intangible Assets
The following table details intangible assets at the end of each period:
As of | ||||||||
September 30, 2013 |
December 31, 2012 |
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Contract and customer relationships |
$ | 20,558 | $ | 20,558 | ||||
Less: Accumulated amortization |
14,806 | 13,510 | ||||||
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5,752 | 7,048 | |||||||
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Non-compete agreements |
2,038 | 2,038 | ||||||
Less: Accumulated amortization |
2,038 | 2,013 | ||||||
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| 25 | |||||||
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Intangible assets, net |
$ | 5,752 | $ | 7,073 | ||||
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Amortization expense of intangible assets for the three months ended September 30, 2013 and 2012 was $0.4 million and $0.5 million, respectively. Amortization expense of intangible assets for the nine months ended September 30, 2013 and 2012 was $1.3 million and $1.7 million, respectively.
7. Stock Option Tender Offer
In September 2012, the Company completed a cash tender offer for certain vested and unvested out-of-the-money stock options held by current and former employees, officers, and directors of NCI that were granted prior to January 1, 2012, provided that such stock options had not expired or terminated prior to the expiration of the offering period. The offer expired on September 19, 2012. Altogether the Company repurchased a total of 963,579 options for an aggregate cash purchase price of $1.3 million, which was paid in exchange for the cancellation of the eligible options. As a result of these repurchases, the Company incurred a charge of $2.3 million consisting of a non-cash charge of $2.2 million that consisted of the remaining unamortized stock based compensation expense associated with the unvested portion of the repurchased options and a small amount paid in excess of the estimated fair value of the options on the date of purchase, plus $0.1 million related to associated payroll taxes, professional fees and other costs.
The aggregate amount of the payments made in exchange for eligible options was charged to stockholders equity for stock options purchased at or below the estimated fair value of the options on the date of repurchase, which was the $1.3 million cash purchase price.
6
Table of Contents
NCI, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8. Share-Based Payments
During the three and nine months ended September 30, 2013, the Company granted zero stock options and 1,180,000 stock options respectively, and had zero options exercised. As of September 30, 2013, there were approximately 1.8 million options outstanding.
During the three months ended September 30, 2013, 12,500 shares of restricted stock vested, with 2,014 shares cancelled to cover individual tax liabilities. During the nine months ended September 30, 2013, 32,500 shares of restricted stock vested, with 7,014 shares cancelled to cover individual tax liabilities. As of September 30, 2013, there were 83,750 shares of restricted stock outstanding.
The following table summarizes stock compensation for the three and nine months ended September 30, 2013 and 2012:
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Cost of revenue |
$ | 94 | $ | 190 | $ | 212 | $ | 577 | ||||||||
General and administrative |
315 | 344 | 855 | 1,126 | ||||||||||||
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$ | 409 | $ | 534 | $ | 1,067 | $ | 1,703 | |||||||||
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As of September 30, 2013, there was approximately $4.0 million of total unrecognized compensation cost related to unvested stock compensation arrangements. This cost is expected to be fully amortized over the next five years, with approximately $0.3 million, $1.5 million, $1.1 million, $0.5 million, $0.4 million, and $0.2 million amortized during the remainder of 2013, 2014, 2015, 2016, 2017 and 2018, respectively. The cost of stock compensation is included in the Companys Consolidated Statements of Income and expensed over the service period of the options.
9. Debt
The Companys senior credit facility, as amended in December 2010 and subsequently amended in December 2012, consists of a revolving line of credit with a borrowing capacity of up to an $80.0 million principal amount, and a $45.0 million accordion feature allowing us to increase our borrowing capacity to up to a $125.0 million principal amount, subject to obtaining commitments for the incremental capacity from existing or new lenders. The outstanding borrowings are collateralized by a security interest in substantially all the Companys assets. The lenders also require a direct assignment of all contracts at the lenders discretion. The outstanding balance under the credit facility accrues interest based on one-month LIBOR plus an applicable margin, ranging from 225 to 325 basis points, based on the ratio of our outstanding senior funded debt to Earnings before Interest, Taxes, Depreciation, and Amortization (EBITDA) as defined in the credit facility agreement. The credit facility expires on December 13, 2014.
The credit facility contains various restrictive covenants that, among other things, restrict the Companys ability to: incur or guarantee additional debt; make certain distributions, investments and other restricted payments, including limits on cash dividends on the Companys outstanding common stock; enter into transactions with certain affiliates; create or permit certain liens; and consolidate, merge, or sell assets. In addition, the credit facility contains certain financial covenants that require the Company to: maintain a minimum tangible net worth; maintain a minimum fixed charge coverage ratio and a minimum funded debt to earnings ratio; and limit capital expenditures below certain thresholds. As of September 30, 2013 and December 31, 2012, the Company was in compliance with all of its loan covenants.
7
Table of Contents
NCI, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9. Debt - continued
The credit facility allows the Company to use borrowings thereunder of up to $17.5 million to repurchase shares of Class A common stock. No stock repurchases took place in the nine months ended September 30, 2013. At September 30, 2013, $16.7 million was remaining under the Board of Directors authorization for shares repurchases.
During the third quarter of 2013, NCI had a weighted average outstanding loan balance of $7.2 million which accrued interest at a weighted average borrowing rate of 2.5%. During the third quarter of 2012, NCI had a weighted average outstanding loan balance of $24.5 million which accrued interest at a weighted average borrowing rate of 2.5%.
As of September 30, 2013, the outstanding balance under the credit facility was $1.5 million and interest accrued at a rate of LIBOR plus 225 basis points, or 2.5%. As of December 31, 2012, the outstanding balance under the credit facility was $17.5 million and interest accrued at a rate of LIBOR plus 250 basis points, or 2.7%.
10. Restructuring Charge
During December 2011, management committed to, implemented, and completed a restructuring plan. The restructuring was done to reduce costs through downsizing our existing work force and physical locations.
The activity and balance of the restructuring liability accounts for the year ended December 31, 2012, and for the nine months ended September 30, 2013 are as follows:
Severance and Related Costs |
Lease and Facilities Exit Costs |
Total | ||||||||||
Balance as of January 1, 2012 |
$ | 364 | $ | 2,577 | $ | 2,941 | ||||||
Adjustments |
| (4 | ) | (4 | ) | |||||||
Cash payments |
(364 | ) | (1,000 | ) | (1,364 | ) | ||||||
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Balance as of December 31, 2012 |
| 1,573 | 1,573 | |||||||||
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Adjustments |
| | | |||||||||
Cash payments |
| (492 | ) | (492 | ) | |||||||
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Balance as of September 30, 2013 |
$ | | $ | 1,081 | $ | 1,081 | ||||||
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Amounts contained in balance sheet as of September 30, 2013 |
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Other accrued expenses |
| 408 | 408 | |||||||||
Other long-term liabilities |
| 673 | 673 | |||||||||
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|||||||
Total |
$ | | $ | 1,081 | $ | 1,081 | ||||||
|
|
|
|
|
|
The accrued amounts related to the lease and facilities exit costs will be reduced over the respective lease terms, the longest of which extends through 2017.
11. Goodwill
Goodwill represents the excess of cost over fair value of net tangible and identifiable intangible assets of acquired companies. Goodwill is reviewed for impairment annually or when events or changes in circumstances indicate the carrying value exceeds the implied fair value. NCI performs its annual goodwill impairment analysis on October 1 of each year. A two-step impairment test is used to identify potential goodwill impairment and measure the amount of a goodwill impairment loss to be recognized. The first step is used to identify any potential impairment by comparing the fair value of the Company with its carrying amount. The second step is used to measure the amount of impairment loss, if any, by comparing the implied fair value of goodwill with the carrying amount of goodwill. If goodwill becomes impaired, the Company would record a charge to earnings in the financial statements during the period in which any impairment of goodwill is determined.
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NCI, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
11. Goodwill - continued
During the third quarter of 2012, due to a continued decline in the market price of the Companys stock, the market capitalization of the Company remained below the carrying value. In addition, federal budget issues, delayed award activity and the resulting expectations for the Companys future performance all factored into the determination that a potential triggering event had occurred during the third quarter ended September 30, 2012. As a result, the Company performed an interim goodwill impairment analysis. Management, with the assistance of a third party valuation specialist, completed the analysis for the first step and determined that the Companys implied fair value was below its carrying value as of September 30, 2012. As a result, the Company commenced the second step to determine the implied fair value of goodwill. The estimated fair value of the Company was calculated using a combination of discounted cash flow projections, market values for comparable businesses, and terms, prices and conditions found in sales of comparable businesses.
Based on the analysis, management has concluded that a loss as of September 30, 2012 was probable and could be reasonably estimated. Accordingly, the Company recorded an impairment charge of $92.8 million during the three months ended September 30, 2012. A tax benefit totaling $37.1 million was recorded related to the goodwill impairment charge for the period ending September 30, 2012.
During the fourth quarter of 2012, in accordance with the Companys 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 with the assistance of a third party valuation specialist. The results of this analysis indicated that the remaining balance of the Companys goodwill was impaired, and therefore the Company recorded an impairment charge totaling $57.5 million and a tax benefit totaling $22.2 million in the period ending December 31, 2012.
12. Related Party Transactions
The Company purchased services under a subcontract from Net Commerce Corporation, which is a Government contractor wholly-owned by Mr. Rajiv Narang, the son of Mr. Charles K. Narang, the Chairman and Chief Executive Officer of the Company. For the three months ended September 30, 2013 and 2012, the expense incurred under this agreement was approximately $219,900 and $231,000, respectively. For the nine months ended September 30, 2013 and 2012, the expense incurred under this agreement was approximately $628,500 and $642,000, respectively. As of September 30, 2013 and December 31, 2012, approximate outstanding amounts due to Net Commerce Corporation were $149,700 and $72,000, respectively.
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report on Form 10-Q, including the section titled Managements Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements regarding our business, financial condition, results of operations, and prospects. There are statements made herein, which may not address historical facts and, therefore, could be interpreted to be forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. 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 U.S. Federal Government agencies, particularly within the U.S. Department of Defense, for the majority our revenue; a change in funding of our contracts due to bid protests; changes in U.S. Federal Government spending priorities; changes in contract type, particularly changes from cost-plus fee or time-and-material type contracts to firm fixed-price type contracts |
| 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 |
| Delays in the U.S. Federal Government appropriations process, or budgetary cuts resulting from Congressional committee recommendations or automatic sequestration under the Budget Control Act of 2011; U.S. Federal Governmental shutdowns (such as the shutdown that occurred during the U.S. Federal Governments 1996 and 2014 fiscal years); and inability of the U.S. Congress to pass a federal budget or agree on the national debt ceiling. |
| Changes in U.S. Federal Government programs or requirements, including the increased use of small business providers |
| Failure to achieve contract awards in connection with recompetes for present business and/or competition for new business |
| U.S. Federal Government agencies more frequently awarding contracts on a technically acceptable/lowest cost basis in order to reduce expenditures |
| Adverse results of U.S. Federal Government audits of our government contracts |
| Competitive factors, such as pricing pressures and competition to hire and retain employees (particularly those with security clearances) |
| Failure to identify and successfully integrate future acquired companies or businesses into our operations or to realize any accretive or synergistic effects from such acquisitions, or 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 policies, laws, or regulations applicable to our businesses, particularly legislation affecting (i) U.S. Federal Government contracts for services, (ii) outsourcing of activities that have been performed by the U.S. Federal Government, (iii) U.S. Federal Government contracts containing organizational conflict of interest clauses, (iv) delays related to agency specific funding freezes, and (v) competition for task orders under Government Wide Acquisition Contracts, agency-specific Indefinite Delivery/Indefinite Quantity contracts and/or schedule contracts with the General Services Administration |
| U.S. Federal Governments insourcing of previously contracted support services and the realignment of funds to non-defense related programs |
| Our ability to achieve the objectives of near-term or long-range business plans, particularly revenue growth, and the ability to realize future deferred tax assets benefits |
| Risk of contract non-performance or termination |
Some of these important factors are outlined under Item 1A. Risk Factors and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2012 filed with the SEC, and from time to time, in other filings with the SEC, such as our Forms 8-K and 10-Q. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee our future results, level of activity, or performance. We undertake no obligation to update publicly or revise any forward-looking statements. You should not place undue reliance on any forward-looking statements.
In this document, unless the context indicates otherwise, the terms Company, NCI, we, us, and our refer to NCI, Inc., a Delaware corporation, and, where appropriate, its subsidiaries.
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Overview
NCI is a worldwide provider of enterprise services and solutions to Defense, Intelligence, Healthcare, and Civilian Government agencies. Inspired by our customers missions and driven by their challenges, we focus on helping our customers achieve higher levels of performance by utilizing cutting-edge technologies and methodologies in the following capability areas:
| Cloud Computing and Data Center Consolidation |
| Cybersecurity and Information Assurance |
| Engineering and Logistics Support |
| Enterprise Information Management and Advanced Analytics |
| Health IT and Medical Support |
| IT Service Management |
| Software and Systems Development/Integration |
| Modeling, Simulation, and Training |
Our team of highly skilled professionals is committed to service excellence and delivers innovative, cost-effective enterprise services and solutions on time and within budget. We are focused on reshaping the way services and solutions are delivered to our customers in order to proactively understand and meet their mission needs and enable them to rapidly adapt to dynamic environments. Headquartered in Reston, Virginia, NCI currently operates in more than 100 locations around the globe. We report operating results and financial data as one reportable segment.
Key Financial Metrics
Prime Contractor Revenue
The following table shows our revenue derived from contracts on which we serve as a prime contractor.
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Revenue derived from prime contracts |
90 | % | 87 | % | 90 | % | 87 | % |
Customer Group Revenue
The following table shows our revenue from the client groups listed as a percentage of total revenue for the period shown.
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Department of Defense and intelligence agencies |
74 | % | 75 | % | 75 | % | 76 | % | ||||||||
U.S. Federal civilian agencies |
26 | % | 25 | % | 25 | % | 24 | % |
Contract Type Revenue
Our services and solutions are provided under three types of contracts: time-and-materials; cost-plus fee; and firm fixed-price. Our contract mix varies from year to year due to numerous factors including our business strategies and U.S. Federal Government procurement objectives.
The following table shows our revenue from each of these types of contracts as a percentage of our total revenue for the periods shown.
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Time-and-materials |
16 | % | 24 | % | 20 | % | 25 | % | ||||||||
Cost-plus fee |
54 | % | 49 | % | 51 | % | 51 | % | ||||||||
Firm fixed-price |
30 | % | 27 | % | 29 | % | 24 | % |
We expect our percent of total revenue from cost-plus fee type contracts to increase and our percent of total revenue from time-and-materials contracts to decrease for the remainder of the year.
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The amount of risk and potential reward varies under each type of contract. Under time-and-materials contracts, we are paid a fixed hourly rate by labor category. To the extent that our actual labor costs vary significantly from the negotiated hourly rates, we may generate more or less than the targeted amount of profit. We are typically reimbursed for other contract direct costs and expenses at our cost, and typically receive no fee on those costs. For cost-plus fee contracts, there is limited financial risk, because we are reimbursed all our allowable costs, although the profit margins tend to be lower on cost-plus fee contracts. Under firm fixed-price contracts, we perform specific tasks or provide specified goods for a predetermined price. Compared to time-and-materials and cost-plus fee contracts, firm fixed-price service contracts generally offer higher profit margin opportunities but involve greater financial risk because we would bear the impact of potential cost overruns in return for the full benefit of any cost savings.
Contract Backlog
As of |
Funded backlog | Total backlog | ||||||
(in millions) | ||||||||
September 30, 2013 |
$ | 163 | $ | 555 | ||||
December 31, 2012 |
$ | 212 | $ | 706 |
We define backlog as our estimate of the remaining future revenue from existing signed contracts over the remaining base contract performance period and from the option periods of those contracts that we believe have a more likely than not probability of being exercised. Our backlog does not include any estimate of future potential delivery orders that might be awarded under our GWAC, agency-specific IDIQ, or other multiple-award contract vehicles. We define funded backlog as the portion of backlog for which funding currently is appropriated and obligated to us under a contract or other authorization for payment signed by an authorized purchasing agency, less the amount of revenue we have previously recognized. Our funded backlog does not represent the full potential value of our contracts, as Congress often appropriates funds for a particular program or agency on a quarterly or yearly basis, even though the contract may provide for the provision of services over a number of years. We define unfunded backlog, not included above, as the total backlog less the funded backlog. Unfunded backlog includes values for contract options that have been priced but not yet funded. Additional information on how we determine backlog is included in our Annual Report on Form 10-K for the year ended December 31, 2012, filed with the SEC.
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Results of Operations
Three Months Ended September 30, 2013 Compared to Three Months Ended September 30, 2012
The following table sets forth certain items from our consolidated statements of income and expresses each item in dollars and as a percentage of revenue for the periods indicated:
Three months ended September 30, | ||||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
(in thousands) | (as a percentage of revenue) | |||||||||||||||
Revenue |
$ | 77,918 | $ | 88,467 | 100.0 | % | 100.0 | % | ||||||||
Operating expenses: |
||||||||||||||||
Cost of revenue |
67,832 | 77,147 | 87.1 | 87.2 | ||||||||||||
General and administrative expenses |
5,819 | 6,251 | 7.5 | 7.1 | ||||||||||||
Depreciation and amortization |
1,679 | 1,681 | 2.1 | 1.9 | ||||||||||||
Stock option purchase |
| 2,311 | 0.0 | 2.6 | ||||||||||||
Goodwill impairment |
| 92,793 | 0.0 | 104.9 | ||||||||||||
Purchase contingency gain |
(864 | ) | | (1.1 | ) | 0.0 | ||||||||||
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|
|
|
|
|
|
|||||||||
Total operating expenses |
74,466 | 180,184 | 95.6 | 203.7 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating income (loss) |
3,452 | (91,717 | ) | 4.4 | (103.7 | ) | ||||||||||
Interest expense, net |
157 | 266 | 0.2 | 0.3 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) before income taxes |
3,295 | (91,983 | ) | 4.2 | (104.0 | ) | ||||||||||
Provision (benefit) for income taxes |
1,344 | (36,788 | ) | 1.7 | (41.6 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) |
$ | 1,951 | $ | (55,195 | ) | 2.5 | % | (62.4 | )% | |||||||
|
|
|
|
|
|
|
|
Revenue
For the three months ended September 30, 2013, total revenue decreased by 11.9%, or $10.5 million from $88.5 million to $77.9 million, over the same period a year ago. The decrease was due to $3.1 million of lower revenue attributable to services provided under NCIs 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, our PEO Soldier program accounted for 14% of our revenue as compared with 16% of our revenue for the same period during 2012.
Cost of revenue
Cost of revenue decreased 12.1%, or $9.3 million, for the three months ended September 30, 2013, as compared to the same period a year ago. This decrease in cost of revenue was attributable to less direct labor, subcontract and other direct costs. Cost of revenue as a percentage of revenue was essentially the same for the quarters ended September 30, 2013 and 2012, respectively.
General and administrative expenses
General and administrative expenses decreased 6.9%, or $0.4 million, for the three months ended September 30, 2013 as compared to the same period a year ago. The decrease was primarily due to lower compensation expense from reduced headcount, partially offset by continued investment in business development initiatives.
Depreciation and amortization
Depreciation and amortization expense was essentially unchanged totaling approximately $1.7 million for each quarter ended September 30, 2013 and September 30, 2012, respectively.
Stock option purchase
In September 2012, we completed a cash tender offer for certain out-of-the-money stock options held by current and former employees, officers, and directors of NCI that were granted prior to January 1, 2012, provided that such stock options had not expired or terminated prior to the expiration of the offering period on September 19, 2012. For the three months ended September 30, 2012, costs associated with the stock option purchase were approximately $2.3 principally consisting of $2.2 million related to the remaining unamortized stock based compensation expense associated with the unvested portion of the options tendered in the offer, plus $0.1 million related to associated payroll taxes, professional fees and other costs.
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Goodwill impairment
In the quarter ending September 30, 2012, we completed a test for goodwill impairment due to certain triggering events and determined that goodwill was impaired. For the three months ended September 30, 2012, we recorded a $92.8 million goodwill impairment charge.
Purchase contingency gain
The gain on a purchase contingency for the quarter ended September 30, 2013, consisted of $0.9 million in fees the company received for the collection of past due receivables as part of the AdvanceMed acquisition in April 2011.
Interest Expense, net
Net interest expense was approximately $0.2 million for the quarter ended September 30, 2013 as compared to net interest expense of $0.3 million for the corresponding quarter during 2012. The decrease was primarily attributed to a lower overall loan balance.
Income taxes
For the three months ended September 30, 2013, the increase in income taxes of $38.1 million was primarily the result of the increase in pretax income. The effective income tax rate was approximately 40.8% and 40.0% for the quarters ended September 30, 2013 and 2012, respectively. The lower effective income tax rate for the three months ended September 30, 2012 was primarily the result of the goodwill impairment in the third quarter of 2012.
Nine Months Ended September 30, 2013 Compared to Nine Months Ended September 30, 2012
The following table sets forth certain items from our consolidated statements of income and expresses each item in dollars and as a percentage of revenue for the periods indicated:
Nine months ended September 30, | ||||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
(in thousands) | (as a percentage of revenue) | |||||||||||||||
Revenue |
$ | 252,430 | $ | 278,729 | 100.0 | % | 100.0 | % | ||||||||
Operating expenses: |
||||||||||||||||
Cost of revenue |
220,300 | 244,855 | 87.3 | 87.9 | ||||||||||||
General and administrative expenses |
17,809 | 19,377 | 7.1 | 7.0 | ||||||||||||
Depreciation and amortization |
4,824 | 5,145 | 1.9 | 1.8 | ||||||||||||
Stock option purchase |
| 2,311 | | 0.8 | ||||||||||||
Goodwill impairment |
| 92,793 | | 33.3 | ||||||||||||
Purchase contingency gain |
(864 | ) | | (0.3 | ) | 0.0 | ||||||||||
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|
|
|
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Total operating expenses |
242,069 | 364,481 | 95.9 | 130.8 | ||||||||||||
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|
|
|
|
|
|||||||||
Operating income (loss) |
10,361 | (85,752 | ) | 4.1 | (30.8 | ) | ||||||||||
Interest expense, net |
656 | 1,077 | 0.2 | 0.4 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) before income taxes |
9,705 | (86,829 | ) | 3.8 | (31.2 | ) | ||||||||||
Provision (benefit) for income taxes |
3,967 | (34,698 | ) | 1.6 | (12.5 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) |
$ | 5,738 | $ | (52,131 | ) | 2.3 | % | (18.7 | )% | |||||||
|
|
|
|
|
|
|
|
Revenue
For the nine months ended September 30, 2013, revenue decreased 9.4%, or $26.3 million from $278.7 million to $252.4 million, over the same period a year ago. The decrease was primarily due to $12.8 million of lower revenue attributable to services provided under NCIs 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.
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Cost of revenue
Cost of revenue decreased 10.0%, or $24.6 million from $244.9 million to $220.3 million, for the nine months ended September 30, 2013, as compared to the same period a year ago. This decrease was the result of reduced direct labor, subcontractor and other direct costs. Cost of revenue represented 87.3% of revenue for the nine months ended September 30, 2013, as compared to 87.9% for the nine months ended September 30, 2012. This decrease was primarily the result of improved contract performance on certain task orders and contracts, and the receipt of award fees on certain cost-plus fee contracts.
General and administrative expenses
General and administrative expenses decreased 8.1%, or $1.6 million, for the nine months ended September 30, 2013, as compared to 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.
Depreciation and amortization
Depreciation and amortization expense was approximately $4.8 and $5.1 million for the nine months ended September 30, 2013 and 2012, respectively. The decrease was primarily due to the reduction in the amortization expense of intangible assets, due to some assets having reached the end of their useful lives.
Stock option tender offer
In September 2012, we completed a cash tender offer for certain out-of-the-money stock options held by current and former employees, officers, and directors of NCI that were granted prior to January 1, 2012, provided that such stock options had not expired or terminated prior to the expiration of the offering period on September 19, 2012. For the nine months ended September 30, 2012, costs associated with the stock option purchase were approximately $2.3 million principally consisting of $2.2 million related to the remaining unamortized stock based compensation expense associated with the unvested portion of the options tendered in the offer, plus $0.1 million related to associated payroll taxes, professional fees and other costs.
Goodwill impairment
In the period ending September 30, 2012, we completed a test for goodwill impairment due to certain triggering events and determined that goodwill was impaired. For the nine months ended September 30, 2012, we recorded a $92.8 million goodwill impairment charge.
Purchase contingency gain
The gain on a purchase contingency for the quarter ended September 30, 2013, consisted of $0.9 million in fees the company received for the collection of past due receivables as part of the AdvanceMed acquisition in April 2011.
Interest expense, net
Net interest expense was approximately $0.7 million for the nine months ended September 30, 2013 and approximately $1.1 million for the nine months ended September 30, 2012. The decrease was primarily attributed to a lower loan balance.
Income taxes
For the nine months ended September 30, 2013, income taxes increased due to an increase in pretax income. The effective income tax rate for the nine months ended September 30, 2013 was approximately 40.9% as compared to an effective income tax rate of 40.0% for the nine months ended September 30, 2012. The lower effective income tax rate for the nine months ended September 30, 2012 was primarily the result of the goodwill impairment in the third quarter of 2012.
Liquidity and Capital Resources
Our primary liquidity needs are for financing working capital, capital expenditures, and making selective strategic acquisitions. Historically, we have relied primarily on our cash flow from operations and borrowings under our credit facility to provide the capital for our liquidity needs. As part of our growth strategy, we may pursue acquisitions that could require us to incur additional debt or issue new equity. We expect the combination of our current cash, cash flow from operations, and the available borrowing capacity under our credit facility to continue to meet our normal working capital and capital expenditure requirements.
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During the third quarter of 2013, the balance of accounts receivable decreased by $6.4 million to $55.9 million at the end of the quarter, as compared to December 31, 2012. Days sales outstanding of accounts receivable (DSO) was 66 days as of September 30, 2013, up 2 days from the 64 days reported as of December 31, 2012. The increase in DSO is primarily associated with the normal fluctuations in the timing of receipts on our contracts. Net cash provided by operating activities was $16.0 million for the nine months ended September 30, 2013. The Federal Government shutdown from October 1, 2013 through October 16, 2013 could have a potential negative effect on our future near-term cash flows due to the unfavorable timing of payments on our invoices. This possible reduction in cash provided by operations could result in higher interest expense in the fourth quarter of 2013 as we may need to use our line of credit to finance operations more than forecast, as well as cause an increase in DSO in the fourth quarter of 2013.
Our Board of Directors authorized management to repurchase up to $25.0 million of our Class A common stock pursuant to a stock repurchase program in 2010. The December 2012 amendment to the credit facility authorized repurchases of up to $17.5 million of our Class A common stock. If shares are repurchased, the shares will be repurchased pursuant to open market purchases, privately negotiated transactions, or block transactions. We have no obligation to repurchase shares under the authorization, and the timing, actual number and value of the shares which are repurchased (and the manner of any such repurchase) will be at the discretion of management and will depend on a number of factors, including the price of our common stock, an increase in the Companys cash needs, a decrease in the Companys available cash, borrowing capacity under our credit facility, interest rates, and the Companys financial performance and position. We may suspend or discontinue repurchases at any time. No stock repurchases took place in the nine months ended September 30, 2013. At September 30, 2013, $16.7 million was remaining under the Board of Directors authorization for shares repurchases.
Credit Facility: Our senior credit facility is a revolving line of credit with a borrowing capacity of up to an $80.0 million principal amount. The credit facility also has a $45.0 million accordion feature allowing us to increase our borrowing capacity to up to $125.0 million principal amount, subject to obtaining commitments for the incremental capacity from existing or new lenders. The outstanding balance under the credit facility accrues interest based on one-month LIBOR plus an applicable margin (spread), ranging from 225 to 325 basis points, based on the amount of our outstanding senior debt to Earnings before Interest, Taxes, Depreciation, and Amortization (EBITDA) as defined in the credit facility agreement. The accrued interest is due and payable monthly. The outstanding borrowings are collateralized by a security interest in substantially all the Companys assets. The lenders also require a direct assignment of all contracts at the lenders discretion. The credit facility expires on December 13, 2014. We do not currently hedge our interest rate risk. The credit facility allows us to use borrowings thereunder of up to $17.5 million to repurchase shares of our common stock.
Funds borrowed under the credit facility will be used to finance possible future acquisitions, and for working capital requirements, stock repurchases, and general corporate uses. As of September 30, 2013, there was $1.5 million due under the credit facility, reflecting net repayments of $16.0 million during 2013.
The loan interest accrual rate is set monthly at one-month LIBOR plus a set amount (spread) per the credit facility, amended in December 2012.
The credit facility contains various restrictive covenants that, among other things, restrict the Companys ability to: incur or guarantee additional debt; make certain distributions, investments and other restricted payments, including cash dividends on the Companys outstanding common stock; enter into transactions with certain affiliates; create or permit certain liens; and consolidate, merge, or sell assets. In addition, the credit facility contains certain financial covenants that require the Company to: maintain a minimum tangible net worth; maintain a minimum fixed charge coverage ratio and a minimum funded debt to earnings ratio; and limit capital expenditures below certain thresholds. As of September 30, 2013, we were in compliance with all our loan covenants.
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Off-Balance Sheet Arrangements
We do not have any material off-balance sheet arrangements.
Critical Accounting Policies
There have been no significant changes to our Critical Accounting Policies during the first nine months of 2013. Refer to our Critical Accounting Policies section in our Annual Report on Form 10-K for the year ended December 31, 2012 filed with the SEC.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our exposure to market risk relates to changes in interest rates for borrowings under our credit facility. A change of 1% in interest rates would have changed our interest expense and cash flow by approximately $0.1 million for the three months ended September 30, 2013, and approximately $0.2 million for the nine months ended September 30, 2013.
Additionally, we are subject to credit risks associated with our cash, cash equivalents, and accounts receivable. We believe that the concentration of credit risk with respect to cash equivalents is limited due to the high credit quality of these investments. Our investment policy requires that we invest excess cash in high-quality investments which preserve principal, provide liquidity, and minimize investment risk. We believe that our credit risk associated with accounts receivable is limited as they are primarily with the U.S. Federal Government or prime contractors working for the U.S. Federal Government.
Item 4. Controls and Procedures
Evaluation of the Effectiveness of Disclosure Controls and Procedures
As of September 30, 2013, under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, we have evaluated the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended. Based on this evaluation, our chief executive officer and our chief financial officer have concluded that our disclosure controls and procedures were effective, as of September 30, 2013, such that the information that is required to be disclosed in our reports filed with the SEC (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) is accumulated and communicated to management, including our chief executive officer and our chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
The Company made no change to its internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) identified in connection with the evaluation required by Rule 13a-15(d) under the Exchange Act during the three months ended September 30, 2013 that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.
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OTHER INFORMATION
The Company is party to various legal actions, claims, government inquiries, and audits resulting from the normal course of business. The Company believes that the probability is remote that any resulting liability will have a material effect on the Companys financial position, results of operations, or cash flows.
There have been no significant changes from those discussed in Item 1A. Risk Factors included in the Companys Annual Report on Form 10-K for the year ended December 31, 2012, filed with the SEC.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
None.
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Number |
Description | |
2.1 | Stock Purchase Agreement among NCI Information Systems, Inc. (NCIIS), a wholly owned subsidiary of NCI, and stockholders of AdvanceMed Corporation dated as of February 24, 2012 (incorporated herein by reference from Exhibit 2.1 to registrants Current Report on Form 8-K, as filed with the Commission on April 4, 2012) | |
3.1 | Amended and Restated Certificate of Incorporation of the Registrant (incorporated herein by reference from Exhibit 3.1 to registrants Registration Statement on Form S-1 (File No. 333-127006), as filed with the Commission on October 4, 2005, as amended). | |
3.2 | Bylaws of the Registrant (incorporated herein by reference from Exhibit 3.2 to registrants Registration Statement on Form S-1 (File No. 333-127006), as filed with the Commission on July 29, 2005). | |
4.1 | Specimen Class A Common Stock Certificate (incorporated herein by reference from Exhibit 4.1 to registrants Registration Statement on Form S-1 (File No. 333-127006), as filed with the Commission on October 20, 2005, as amended). | |
4.2* | NCI, Inc. Amended and Restated 2005 Performance Incentive Plan (incorporated herein by reference from Appendix A to registrants Definitive Proxy Statement on Schedule 14A, as filed with the Commission on April 30, 2009). | |
4.3* | Form of Amended and Restated 2005 Performance Incentive Plan Notice of Stock Option Grant and Stock Option Agreement (incorporated herein by reference from Exhibit 4.2 to registrants Current Report on Form 8-K, as filed with the Commission on September 12, 2009). | |
4.4* | NCI, Inc. Amended and Restated 2005 Performance Incentive Plan (incorporated herein by reference from Appendix A to registrants Proxy Statement on Form DEF 14A, as filed with the Commission on April 30, 2009). | |
4.5* | Form of Amended and Restated 2005 Performance Incentive Plan Notice of Stock Option Grant and Stock Option Agreement (incorporated herein by reference from Exhibit 4.2 to registrants Current Report on Form 8-K, as filed with the Commission on September 12, 2009). | |
10.1 | Amended and Restated Loan and Security Agreement, dated as of December 13, 2010, by and among NCI, Inc., NCI Information Systems Incorporated, Operational Technologies Services, Inc., as Borrowers, the several banks and financial institutions from time to time parties thereto, as Lenders, SunTrust Bank as the Administrative Agent to the Lenders and SunTrust Robinson Humphrey, Inc., as Lead Arranger and Book Manager (incorporated by reference from Exhibit 10.1 to registrants Current Report on Form 8-K dated December 13, 2010, and filed with the Commission on December 15, 2010). | |
10.2* | Executive Change in Control and Severance Agreement, dated March 9, 2013, by and among, NCI, Inc. and Brian J. Clark. (incorporated herein by reference from Exhibit 10.2 to registrants Annual Report on Form 10-K (File No. 000-51579), as filed with the Commission on March 12, 2013). | |
10.3* | Executive Change in Control and Severance Agreement, dated March 9, 2013, by and among, NCI, Inc. and Marco de Vito (incorporated herein by reference from Exhibit 10.3 to registrants Annual Report on Form 10-K (File No. 000-51579), as filed with the Commission on March 12, 2013). | |
10.4* | Executive Change in Control and Severance Agreement, dated March 9, 2013, by and among, NCI, Inc. and Michele R. Cappello (incorporated herein by reference from Exhibit 10.4 to registrants Annual Report on Form 10-K (File No. 000-51579), as filed with the Commission on March 12, 2013). | |
10.5* | Executive Change in Control and Severance Agreement, dated March 9, 2013, by and among, NCI, Inc. and Lucas J. Narel (incorporated herein by reference from Exhibit 10.5 to registrants Annual Report on Form 10-K (File No. 000-51579), as filed with the Commission on March 12, 2013). | |
10.6* | Amended and Restated Loan and Security Agreement, dated as of December 31, 2012, by and among NCI, Inc., and NCI Information Systems Incorporated, as Borrowers, the several banks and financial institutions from time to time parties thereto, as Lenders, SunTrust Bank as the Administrative Agent to the Lenders and SunTrust Robinson Humphrey, Inc., as Lead Arranger and Book Manager (incorporated by reference from Exhibit 10.1 to registrants Current Report on Form 8-K dated January 7, 2013, and filed with the Commission on January 8, 2013). | |
31.1 | Certification of the Chief Executive Officer pursuant to rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. | |
31.2 | Certification of the Chief Financial Officer pursuant to rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. | |
32.1 | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Extension Schema | |
101.CAL | XBRL Extension Calculation Linkbase | |
101.DEF | XBRL Extension Definition Linkbase | |
101.LAB | XBRL Extension Label Linkbase | |
101.PRE | XBRL Extension Presentation Linkbase |
| Included with this filing. |
* | Management Contract or Compensatory Plan or Arrangement. |
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Table of Contents
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
NCI, Inc. | ||||||
Registrant | ||||||
Date: October 30, 2013 | By: | /s/ LUCAS J. NAREL | ||||
Lucas J. Narel | ||||||
Executive Vice President, Chief Financial Officer Treasurer (Principal Financial Officer) (Principal Accounting Officer) |
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