NCI, Inc. (NASDAQ:NCIT), a leading provider of information technology
(IT), professional services, and solutions to U.S. Federal Government
agencies, today announced financial and operating results for the third
quarter ended September 30, 2012.
NCI's third quarter revenue exceeded the high end of management's
guidance range issued last quarter. EPS-excluding the goodwill
impairment charge and the costs associated with the previously announced
stock option tender offer-exceeded the high end of guidance by $0.05.
Third Quarter 2012 Results
For the third quarter of 2012, NCI reported revenue of $88.5 million
compared with third quarter 2011 revenue of $132.0 million, a decrease
of $43.5 million, or 33.0%. The year-over-year decrease in revenue
consisted of a net decrease of approximately $22.5 million as a result
of scope of work reductions, the expiration of task orders and
contracts, and certain lost contract recompetes; a net decrease of $16.3
million resulting from the ending of Base Realignment and Closure
(BRAC)-related and other non-core programs; and a decrease of $4.7
million of revenue from NCI's Program Executive Office (PEO) Soldier
During the quarter ended September 30, 2012, NCI recorded an after-tax
goodwill impairment charge of $55.6 million.
"The determination as to whether a write-down of goodwill was necessary
involved significant judgments and estimates based principally on the
projections of the company's future performance and differences in NCI's
market value versus its book value," said NCI's President, Brian J.
Clark. "A number of factors led to the ultimate conclusion that an
impairment existed and was appropriate to be measured-and recorded-in
the third quarter of this year: namely, the continued turmoil in the
Federal market and the fact that NCI's market value has declined
further-remaining well below the net asset value of the company for the
past couple of quarters. The goodwill impairment assessment took into
account these factors in addition to Federal budget issues, delayed
award activity, and the resulting expectations for NCI's future
As previously disclosed, NCI completed a cash tender offer during the
third quarter for certain out-of-the-money stock options held by current
and former NCI employees, officers, and directors that were granted
prior to January 1, 2012. For the three months ended September 30, 2012,
costs associated with the stock option tender offer were approximately
Operating loss for the third quarter of 2012 was $91.7 million due to
costs associated with the impairment charge and the stock option tender
offer. Excluding the effects of these items, NCI reported operating
income of $3.4 million for the third quarter of 2012 compared with
operating income of $6.5 million for the three months ended September
30, 2011. The decrease was primarily as a result of the lower
Excluding the effects of the impairment charge and stock option tender
offer, operating margin for the third quarter of 2012 was 3.8%.
Operating margin for the third quarter of 2011 was 4.9%. Adjusted
operating margin for the third quarter of 2012 declined primarily due
reduced absorption of indirect costs on the lower revenue base.
Net loss for the third quarter of 2012 was $55.2 million. Excluding the
impact of the impairment charge and stock option tender offer, net
income for the third quarter of 2012 was $1.8 million. Net income for
the third quarter of 2011 was $3.5 million. The decrease in adjusted net
income year over year is attributable to the factors affecting operating
income. Excluding the impairment charge and costs associated with the
stock option tender offer, diluted EPS for the third quarter of 2012 was
$0.14 compared with $0.25 in the third quarter of 2011.
Days sales outstanding (DSO) of accounts receivable decreased to 54 days
as of September 30, 2012, down 12 days from 66 days reported as of June
30, 2012. The decrease in DSO is associated with the collection of
receivables that had been delayed by the adjudication and payment of
award fees on several contracts, the timing of certain milestone
payments for certain fixed-price contracts, and the accelerated payment
of certain receivables at the end of the third quarter of 2012.
NCI reported total backlog at September 30, 2012, of $910 million, of
which $249 million was funded. This compares with total backlog of $825
million at June 30, 2012, of which $196 million was funded.
Third quarter net bookings totaled $174 million, equating to a
book-to-bill ratio of 2.0:1. The year-to-date book-to-bill ratio was
Nine-Month Fiscal Year 2012 Results
For the nine months ended September 30, 2012, NCI reported revenue of
$278.7 million compared with nine-month 2011 revenue of $443.4 million,
a decrease of $164.7 million, or 37.1%. The decrease in revenue was
primarily due to the ending of BRAC-related and other non-core programs,
which collectively accounted for $79.9 million of the decrease in
revenue year over year; a net decrease of approximately $65.4 million of
revenue as a result of scope of work reductions, the expiration of task
orders and contracts, and certain lost contract recompetes; and a
decrease of $19.4 million from NCI's PEO Soldier program. These
decreases were partially offset by revenue from the acquisition of
AdvanceMed in April 2011.
For the nine months ended September 30, 2012, operating loss was $85.8
million due to costs associated with the impairment charge and the stock
option tender offer. Excluding the effects of these items, NCI reported
operating income of $9.4 million, or 3.4% of revenue, compared with
$23.0 million, or 5.2% of revenue, for the nine months ended September
30, 2011. Year-over-year nine-month 2012 operating income declined
primarily as a result of lower revenue; adjusted operating margin for
the same period declined year over year primarily as a result of reduced
absorption of indirect costs on the lower revenue base.
Net loss for the nine months of 2012 was $52.1 million. The decrease in
net income year over year is attributable to the factors affecting
operating income. Excluding the impact of the impairment charge and
stock option tender offer, net income for the nine months of 2012 was
$4.9 million, or $0.36 per share. Net income for the nine months ended
September 30, 2011, was $13.0 million, or $0.94 per share.
Cash flow provided by operating activities for the first nine months of
2012 was $42.5 million, including $20.5 million provided in the third
quarter of 2012. During the third quarter, NCI used $9.2 million to make
payments on its senior credit facility, resulting in an outstanding
balance of $21.0 million at September 30, 2012.
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 third quarter of 2012, NCI
repurchased a total of 535,047 shares of Class A common stock totaling
$3.4 million. At September 30, 2012, $17.2 million was remaining under
the Board of Directors' authorization for shares repurchases.
Based on the company's current contract backlog and management's
estimate as to future tasking and contract awards, NCI is issuing
guidance for the fourth quarter of 2012 and is updating the fiscal year
2012 guidance issued previously.
The table below represents management's current expectations about
future financial performance based on information available at this time:
December 31, 2012
Diluted EPS (Adjusted)1
1 Adjusted fiscal year 2012 EPS is before the goodwill
impairment charge and costs related to the stock option tender offer.
See the "Reconciliation of Non-GAAP Financial Measures" table
accompanying this release.
"Obviously, a wide-angle view of our industry presents a difficult and
challenging outlook," said Charles K. Narang, NCI's Chairman and CEO.
"We're continuing to focus on the things we can control. I believe that
what happens over the next few months will be critical to defining the
future of our industry. NCI is prepared for the range of possible
scenarios, and we will take the necessary internal steps to maximize
shareholder value regardless of the course macro events take."
Conference Call Information
As previously announced, NCI will conduct a conference call today at
5:00 p.m. ET to discuss fiscal third quarter 2012 results. Interested
parties may access the call by dialing (877) 477-1422 (United
States/Canada) or (973) 582-2740 (international) with pass code
42649266. 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 November 21, 2012, by
dialing (855) 859-2056 (United States/Canada) or (404) 537-3406
(international) and entering pass code 42649266. Investors are advised
to log on to the website at least 15 minutes prior to the call to
register, download and install any necessary audio software. A replay
webcast will also be available on NCI's website shortly after the
conclusion of the call.
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. The company is a member of the
S&P Small Cap 600 index. Headquartered in Reston, VA, NCI has
approximately 2,300 employees at nearly 100 locations worldwide. For
more information, visit our website at www.nciinc.com
or email email@example.com.
Forward-Looking Statement: Statements and assumptions made in this
news release that 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," "opportunity," or the negative of these terms
or words of similar import are intended to identify forward-looking
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
Federal Government or a shift in spending to programs in areas in which
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 risks (such as bid protests, 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 price basis in order to
reduce expenditures; failure to successfully identify and integrate
future acquired companies or businesses into our operations, to realize
any accretive or synergistic effects from such acquisitions, or to
effectively integrate acquisitions appropriate to the achievement of our
strategic plans; general economic conditions in the United States,
including conditions that result from terrorist activities or war; and
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 Annual Report on 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 Current Reports on Form 8-K and Quarterly
Reports on Form 10-Q.
Any projections of revenue, margins, expenses, earnings, tax
provisions, cash flows, benefit obligations, and share repurchases; any
statements of the plans, strategies, and objectives of management for
future operations; and the execution of cost-reduction programs,
restructuring, and integration plans are also subject to factors that
could cause actual results to differ materially from anticipated results.
The forward-looking statements included in this news release are only
made as of the date of this news release, and NCI undertakes no
obligation to publicly update any of the forward-looking statements made
herein, whether as a result of new information, subsequent events or
circumstances, changes in expectations, or otherwise.
Financial tables follow
(in thousands, except per share data)
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
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