- First-quarter revenue of $79 million,
near the high end of guidance;
- Adjusted EPS of $0.25 exceeds high end
of guidance; and
- NCI raises guidance for full fiscal
year 2017 and issues guidance for second quarter.
NCI, Inc. (NASDAQ: NCIT), a leading provider of information
technology (IT) and professional services and solutions to U.S.
Federal Government agencies, today announced its financial and
operating results for the first quarter ended March 31, 2017.
First-quarter 2017 revenue exceeded the midpoint of management’s
guidance range issued last quarter by approximately $2 million.
Adjusted diluted earnings per share (EPS) exceeded the high end of
guidance by $0.02.
“NCI turned in a solid performance in the first quarter. We’re
seeing the topline impact of awards in the second half of 2016 as
well as additional task order revenue on several of our IDIQ
vehicles,” said NCI’s president and CEO, Paul A. Dillahay. “I’m
especially pleased with margin improvements as a result of the
higher contribution of fixed-price contracts to our revenue mix,
which we anticipate will lift profitability throughout the
remainder of 2017. Therefore, we’re increasing the midpoint of our
revenue guidance range by $10 million and raising the midpoint of
our adjusted EPS guidance range by $0.09 to reflect greater
expected profitability, primarily from our agile software
development revenue, over the remainder of the year.”
First-Quarter 2017 Results
For the three months ended March 31, 2017, revenue decreased by
5.9%, or $4.9 million, over the same period a year ago. This
decrease is principally due to contracts that ended in 2016 and
reductions in staffing and scope of work on certain other
contracts. The decrease was partially offset by increased scope and
funding on additional contracts and higher revenues from task
orders on the expanded CNOSS program as well as revenue derived
from contract awards in the second half of 2016.
NCI’s PEO Soldier program accounted for 15.9% of revenue, in the
first quarter of 2017, up slightly from 15.8% of revenue, in the
first quarter of 2016. NCI’s CNOSS program accounted for 11.9% of
revenue, in the first quarter of 2017, up from 10.1% of revenue in
the first quarter of 2016.
Adjusted earnings before interest, taxes, depreciation and
amortization (EBITDA) for the first quarter of 2017 (see Table One
below) was $7.4 million, or 9.4% of revenue, compared with $7.9
million, or 9.4% of revenue, for the first quarter of 2016.
Adjusted EBITDA for the first quarter of 2017 excludes $0.4 million
of misappropriation loss and $6.2 million of costs related to the
investigation of the previously disclosed embezzlement of funds by
the company’s former controller. Adjusted EBITDA for the first
quarter of 2016 excludes $1.5 million of misappropriation loss
related to the embezzlement. Adjusted EBITDA for the first quarter
of 2017 decreased compared to the first quarter of 2016 due to
higher general and administrative costs on a lower revenue
base.
GAAP operating loss for the first quarter of 2017 was $1.0
million, compared with operating income of $4.5 million for the
first quarter of 2016. GAAP operating margin for the first quarter
of 2017 was -1.3%, compared with 5.4% for the first quarter of
2016. Excluding the impact of the $0.4 million of misappropriation
loss and $6.2 million of the investigation-related costs, operating
income was $5.6 million, or 7.1% of revenue, for the first quarter
of 2017. Excluding the $1.5 million of misappropriation loss,
operating income was $6.1 million, or 7.2% of revenue, for the
first quarter of 2016. Operating income, as adjusted, decreased
primarily as the result of the same factors that affected adjusted
EBITDA.
GAAP net loss for the first quarter of 2017 was $0.8 million, or
$0.06 per diluted share, compared with GAAP net income for the
first quarter of 2016 of $2.6 million, or $0.19 per diluted share.
After adjustments, (see Table Two below) adjusted net income for
the first quarter of 2017 was $3.5 million, or $0.25 per adjusted
diluted share, compared with adjusted net income for the first
quarter of 2016 of $3.5 million, or $0.25 per diluted share.
Days sales outstanding (DSO) increased one day to 62 days at
March 31, 2017, as compared to 61 days at December 31, 2016.
Net cash provided by operating activities was $1.1 million
during the three months ended March 31, 2017.
NCI reported total backlog at March 31, 2017, of $590 million,
of which $139 million was funded, compared with total backlog at
December 31, 2016, of $625 million, of which $139 million was
funded. Net bookings for the first quarter were $44 million,
equating to 0.6 times revenue. Trailing 12-month bookings were $407
million, equating to 1.3 times revenue.
Management’s Outlook
Based on the company’s current contract backlog and management’s
estimate of future tasking and contract awards, NCI is issuing
guidance for its second quarter and updating guidance for full
fiscal year 2017. The table below represents management’s current
expectations about future financial performance based on
information available at this time:
Second
Quarter Fiscal Year Fiscal Year 2017
Ending Ending
June 30,
2017
December 31,
2017
Revenue $81 million–$87 million $324
million–$342 million Adjusted diluted EPS $0.24–$0.26
$0.95–$1.05 Diluted projected share count 13.8
million 13.8 million
“We’re continuing to implement our strategic turnaround plan.
Our efforts are focused on three key areas: people, performance and
growth. As for people, we are well into the process of
recalibrating our corporate culture to reward our
highest-performing team members and giving them the tools they need
to perform even better. Regarding performance, we are implementing
plans to drive operational excellence into our support functions.
This should further enhance contract performance; reduce
administrative cost; help improve future margins; and provide
business development with a more disciplined methodology for
capturing larger and more impactful opportunities,” said
Dillahay.
“Our growth strategy centers on protecting our core business;
investing significant resources to expand our footprint with
existing strategic customers, including the Department of Homeland
Security; selectively extending into new, well-funded customers
like the Defense Health Agency; and developing differentiating
capabilities in key technologies such as agile software
development, advanced data analytics and applied artificial
intelligence. We believe that delivering sustained organic growth
will yield greater value for all of our key stakeholders, including
customers, employees and shareholders.”
Conference Call Information
As previously announced, NCI will conduct a conference call
today at 5 p.m. EDT to discuss first quarter 2017 results, issue
guidance for the second quarter of 2017 and update the outlook for
fiscal year 2017.
Analysts and institutional investors may listen to the
conference call by dialing (888) 490-2763 (United States/Canada) or
(719) 325-2432 (international) with pass code 1510196. The
conference call will be provided simultaneously 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 May 16, 2017, by
dialing (844) 512-2921 (United States/Canada) or (412) 317-6671
(international) and entering pass code 1510196.
About NCI, Inc.:
NCI is a leading provider of enterprise solutions and services
to U.S. defense, intelligence, health and civilian government
agencies. The company has the expertise and proven track record to
solve its customers’ most important and complex mission challenges
through technology and innovation. NCI’s team of highly skilled
professionals focuses on delivering cost-effective solutions and
services in the areas of agile development and integration;
cybersecurity and information assurance; engineering and logistics;
big data and data analytics; IT infrastructure optimization and
service management; and health and program integrity. Headquartered
in Reston, Virginia, NCI has approximately 2,000 employees
operating at more than 100 locations worldwide. For more
information, visit www.nciinc.com or email investor@nciinc.com.
Forward-Looking Statement: Statements and assumptions made in
this press 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,” or “opportunity,”
or the negative of these terms or words of similar import are
intended to identify forward-looking statements.
Such statements are subject to factors that could cause actual
results to differ materially from anticipated results. The factors
that could cause actual results to differ materially from those
anticipated include, but are not limited to, the following: our
dependence on our contracts with federal government agencies,
particularly within the U.S. Department of Defense, for
substantially all of our revenue; a reduction in the overall U.S.
Defense budget, volatility in spending authorizations for defense
and Intelligence-related programs by the U.S. Federal Government or
a shift in spending to programs in areas where we do not currently
provide services; federal government shutdowns (such as that which
occurred during the federal government’s 1996 and 2014 fiscal
years), other delays in the federal government appropriations
process, or budgetary cuts resulting from congressional committee
recommendations or automatic sequestration under the Budget Control
Act of 2011 (as amended by the American Taxpayer Relief Act of 2012
and the Consolidated Appropriations Act of 2014), 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 or
other investigations 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
“Risk 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, or share repurchases,
and 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, or changes in expectations or
otherwise.
Non-GAAP Financial Measures
This press release contains non-GAAP financial measures,
including adjusted EBITDA and adjusted EPS. NCI defines adjusted
EBITDA to exclude costs associated with embezzled funds by its
former controller, and costs related to the misappropriation loss.
NCI defines adjusted net income as GAAP net income excluding the
impact of embezzled funds by its former controller, costs related
to the misappropriation loss, and the interest expense related to
the resulting tax position, including the tax effect thereon. NCI
defines adjusted diluted earnings per share (EPS) as adjusted net
income divided by the diluted share count for the applicable
period, excluding the tax impact of the items above. The company
believes this information is useful in allowing management and
investors to better assess NCI’s comparable financial results.
Non-GAAP financial measures should not be considered in isolation
from, or as a substitute for, financial information presented in
compliance with GAAP, and investors should carefully evaluate the
company’s financial results calculated in accordance with GAAP and
reconciliations to those financial statements. In addition,
non-GAAP financial measures as reported by the company may not be
comparable to similarly titled amounts reported by other companies.
As appropriate, the most directly comparable GAAP financial
measures and information reconciling these non-GAAP financial
measures to the company’s financial results prepared in accordance
with GAAP are included in this news release.
NCI, INC. CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
Three months ended March 31,
2017 2016 Revenue $ 78,751 $ 83,655
Operating expenses: Cost of revenue 64,696 69,693 General and
administrative expenses 6,690 6,107 Depreciation and amortization
1,788 1,792 Misappropriation loss and related expenses 6,617
1,541 Total operating expenses 79,791
79,133 Operating (loss) income (1,040 )
4,522 Interest expense, net 208 190
(Loss) income before income taxes (1,248 ) 4,332 (Benefit)
provision for income taxes (441 ) 1,743 Net
(loss) income $ (807 ) $ 2,589 (Loss) earnings per
common and common equivalent share: Basic: Weighted average shares
outstanding 13,277 13,153 Net (loss) income per share $
(0.06 ) $ 0.20 Diluted: Weighted average shares
outstanding 13,277 13,867 Net (loss) income per share $
(0.06 ) $ 0.19 Cash dividend declared and paid per share $ —
$ 0.15
NCI, INC. CONDENSED
CONSOLIDATED BALANCE SHEETS
(in thousands, except par values)
As of As of March 31,
December 31, 2017 2016
(unaudited)
(audited)
Assets: Current assets: Cash and cash equivalents $ 1,851 $
1,014 Accounts receivable, net 53,857 51,112 Prepaid expenses and
other current assets 5,915 4,062
Total current assets 61,623 56,188 Property and equipment,
net 5,591 6,332 Other assets 1,520 1,526 Deferred tax assets, net
41,833 41,912 Intangible assets, net 14,678 15,586 Goodwill
33,878 33,878 Total assets $ 159,123
$ 155,422
Liabilities and
stockholders’ equity: Current liabilities: Current portion of
long-term debt $ 2,000 $ — Accounts payable 10,934 9,995 Accrued
salaries and benefits 17,748 17,665 Deferred revenue 4,689 4,571
Other accrued expenses 9,468 6,306
Total current liabilities 44,839 38,537
Other long-term liabilities 2,555
2,545 Total liabilities 47,394
41,082 Stockholders’ equity:
Class A common stock, $0.019 par value—37,500 shares authorized;
9,944 shares issued and 9,027 shares outstanding as of March 31,
2017, and 10,002 shares issued and 9,085 shares outstanding as of
December 31, 2016 189 189 Class B common stock, $0.019 par
value—12,500 shares authorized; 4,500 shares issued and outstanding
as of March 31, 2017 and December 31, 2016 86 86 Additional paid-in
capital 75,082 76,886 Treasury stock at cost—917 shares of Class A
common stock as of March 31, 2017 and December 31, 2016
(8,331
)
(8,331
)
Retained earnings 44,703 45,510
Total stockholders’ equity 111,729 114,340
Total liabilities and stockholders’ equity $
159,123 $ 155,422
NCI, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
Three months ended March 31, 2017
2016 Cash flows from operating activities: Net (loss)
income $ (807 ) $ 2,589 Adjustments to reconcile net income to net
cash provided by operating activities: Depreciation and
amortization 1,788 1,792 Share-based compensation 361 329 Deferred
income taxes 80 67 Changes in operating assets and liabilities:
Accounts receivable, net (2,745 ) (8,892 ) Prepaid expenses and
other assets (1,847 ) (1,233 ) Accounts payable 939 (1,738 )
Accrued expenses and other liabilities 3,372
(1,072 ) Net cash provided by (used in) operating activities
1,141 (8,158 )
Cash flows
from investing activities: Purchases of property and equipment
(140 ) (339 ) Net cash used in investing
activities (140 ) (339 )
Cash flows
from financing activities: Borrowings under credit facility
23,194 47,233 Repayments on credit facility (21,194 ) (36,733 )
Proceeds from exercise of stock options 127 172 Purchase of equity
awards (2,291 ) — Dividends paid — (2,020 )
Net cash (used in) provided by financing activities
(164 ) 8,652 Net change in cash and
cash equivalents 837 155 Cash and cash equivalents, beginning of
period 1,014 233 Cash and cash
equivalents, end of period $ 1,851 $ 388
Supplemental disclosure of cash flow information:
Cash paid during the period for: Interest $ 190 $ 104
Income taxes $ — $ 327
TABLE
ONE NCI, INC. RECONCILIATION OF NON-GAAP
OPERATING MEASURES
(UNAUDITED)
(in thousands, except per share data)
Three months ended March 31, 2017
2016 GAAP operating (loss) income $ (1,040 ) $ 4,522
Depreciation and amortization 1,788 1,792 EBITDA 748
6,314 Misappropriation loss and related expenses 6,617 1,541
Adjusted EBITDA 7,365 7,855 Adjusted EBITDA margin
9.4 % 9.4 %
TABLE TWO NCI, INC.
RECONCILIATION OF NON-GAAP OPERATING MEASURES
(UNAUDITED)
(in thousands, except per share data)
Three months ended March 31, 2017
2016 GAAP net (loss) income $ (807 ) $ 2,589
Uncertain tax position interest 69 — Misappropriation loss and
related expenses 6,617 1,541 Tax impact of adjustments (2,363 )
(620 ) Adjusted net income 3,516 3,510 GAAP diluted (loss)
earnings per share (EPS) (0.06 ) 0.19 Diluted adjustments per
common share 0.31 0.06 Adjusted diluted EPS 0.25 0.25 Basic
shares outstanding 13,277 13,153 Dilutive effect of stock options
and unvested restricted stock 544 614 Diluted shares outstanding
13,821 13,867
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version on businesswire.com: http://www.businesswire.com/news/home/20170509006689/en/
NCI, Inc.Investor ContactLawrence Delaney, Jr.Investor
Relations714-734-5142orMedia ContactJoelle ShrevesVice
President, Marketing & Corporate Communications703-707-6904
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