SRX Sra International

- Revenue of $369 million and Diluted EPS of $0.19 - $329 million of contract awards - Challenges in commercial and international businesses - Strong January contract award activity in federal services business FAIRFAX, Va., Feb. 5 /PRNewswire-FirstCall/ -- SRA International, Inc. (NYSE:SRX), a leading provider of technology and strategic consulting services and solutions to government organizations, today announced operating results for the second quarter of fiscal year (FY) 2009, which ended December 31, 2008. Revenue for the quarter was $369.3 million, down 3% from $382.0 million in the December 2007 quarter. Operating income for the quarter was $19.5 million, for an operating margin of 5.3%. Net income was $10.8 million, for a net margin of 2.9%. Diluted earnings per share for the quarter were $0.19, down $0.11 year over year. Second quarter results were affected by a downturn in the company's Global Clinical Development (GCD) business, which provides clinical trial management and regulatory consulting services to pharmaceutical and biotechnology firms around the world. Contract execution challenges and a decline in industry demand reduced second quarter earnings in that business by about $0.04 per share from our internal forecast. The revenue and earnings performance of SRA's government information technology (IT) and professional services business was slightly below its forecast for the quarter due to bid protests and order delays, but January contract awards have shown improvement. In light of the comparative strength and stability of the U.S. federal market, the company intends to focus its primary efforts on the growth and development of that part of our business going forward. SRA President and CEO Stan Sloane said, "We're disappointed in these second quarter results, and we have taken steps to improve our performance going forward. The large new business wins we've had early in the third quarter will support our organic growth efforts." Executive Vice President and COO Tim Atkin added, "Strong hiring and retention results in the second quarter are indications of the stability of our government business, and we continue to be optimistic about our positioning in areas such as cybersecurity, health and environmental services. We intend to leverage the company's solid reputation and diversified customer base across government to accelerate revenue growth and improve margins." The company also announced that SRA Corporate Controller Melissa Burgum has been named acting CFO while retiring CFO Steve Hughes transitions from his role and the company continues its search for a permanent replacement. Burgum, a Certified Public Accountant who has served as Corporate Controller for over three years, held previous roles in finance and accounting, audit and consulting for ITT Industries, Inc. and Arthur Andersen LLP. New Business Awards SRA won new business in the second quarter with potential value of $329 million, if all options are exercised. As of December 31, 2008, the company's backlog of signed business orders was $3.9 billion, unchanged year-over-year. Funded backlog increased 5% year-over-year to $802 million. The company was awarded several significant contracts during the December quarter. The largest was a five-year, $56 million contract to provide network and systems management services to the Pentagon Force Protection Agency. The Environmental Protection Agency also awarded SRA a five-year, $42 million blanket purchase agreement to continue development and support services for its Energy Star website. In January, SRA received more than $300 million of contract awards, the largest of which was an IT support services contract for the U.S. European Command and U.S. Africa Command. This single-award task order is worth more than $200 million over five years and represents new work for SRA. Other Highlights FORTUNE(R) magazine selected SRA as one of the "100 Best Companies to Work For" for the tenth consecutive year. The list is based on the most extensive employee survey in corporate America, with responses from nearly 80,000 employees from more than 350 companies. Only thirteen companies have earned a position on the list for each of the last ten years. Forward Guidance The company is updating its revenue and earnings guidance for Fiscal Year 2009. The previous revenue range of $1.54 billion to $1.60 billion has been reduced to account for Q2 performance, weakness in the GCD business, and recent protest and order delays that have affected the government services business. The previous range of diluted earnings per share was $1.12 to $1.22. The new guidance reflects Q2 performance and lower expectations for the GCD business in Q3 and Q4. The high end of the earnings range has also been reduced to account for continuing delays of Era's military orders this fiscal year. Q3 and Q4 earnings estimates for the U.S. government business are lower than previous estimates given the revenue reduction. The table below represents management's current expectations about the company's future financial performance, based on information available at this time. The forward guidance in this table does not include any effect for acquisitions that SRA might make in the future. Measure Fiscal Year Ending Change from June 30, 2009 FY 2008 to 2009 Revenue $1.51 billion to $1.54 billion 0% to 2% Diluted earnings per share $0.94 to $1.00 -19% to -24% Conference Call SRA senior management will hold a conference call to discuss these operating results and forward guidance today at 5:00 PM Eastern. Interested parties may listen to the conference call by dialing 888-287-9905 (U.S./Canada) or 706-643-7540 (Other) with passcode 81157205. The conference call will be Webcast simultaneously through a link on the SRA Web site (http://www.sra.com/). A replay of the conference call will be available approximately two hours after the conclusion of the call on February 5, 2009 through February 19, 2009 by dialing 800-642-1687 (U.S./Canada) or 706-645-9291 (Other) and entering passcode 81157205. Any statements in this press release about future expectations, plans, and prospects for SRA, including guidance about future financial results and statements about the estimated value of contracts and work to be performed, and other statements containing the words "estimates," "believes," "anticipates," "plans," "expects," "will," and similar expressions, constitute forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including: our dependence on our contracts with federal government agencies, particularly within the U.S. Department of Defense, for a substantial majority of our revenue; our dependence on our GSA schedule contracts and our position as a prime contractor on government-wide acquisition contracts to grow our business; our exposure to commercial and international technology market conditions; our ability to attract and retain skilled employees; any reductions in or reallocations of the U.S. defense budget or the budgets for civil government agencies; the market price of the company's stock prevailing from time to time; the nature of other investment opportunities presented to the company from time to time; the company's cash flows from operations; and other factors discussed in our latest annual report on Form 10-K filed with the Securities and Exchange Commission on August 28, 2008 and updated in quarterly Form 10-Q filings. In addition, the forward-looking statements included in this press release represent our views as of February 5, 2009. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so. These forward-looking statements should not be relied upon as representing our views as of any date subsequent to February 5, 2009. Condensed Consolidated Statements of Operations (Unaudited) (in thousands, except share and per share amounts) Three Months Ended Six Months Ended 31-Dec-08 31-Dec-07 31-Dec-08 31-Dec-07 Revenue $369,323 $382,015 $761,678 $746,142 Operating costs and expenses: Cost of services 268,050 286,029 555,872 560,998 Selling, general and administrative 74,560 59,872 145,768 112,990 Depreciation and amortization 7,415 6,424 14,293 12,591 Acquired in-process research and development (200) - 900 - Total operating costs and expenses 349,825 352,325 716,833 686,579 Operating income 19,498 29,690 44,845 59,563 Interest expense (2,155) (752) (3,935) (1,605) Interest income 631 889 1,403 2,488 Gain on sale of Constella Futures Holding, LLC - - 1,939 - Income before taxes 17,974 29,827 44,252 60,446 Provision for income taxes 7,144 11,836 18,008 23,996 Net income $10,830 $17,991 $26,244 $36,450 Earnings per share: Basic $0.19 $0.31 $0.47 $0.63 Diluted $0.19 $0.30 $0.46 $0.61 Weighted-average shares: Basic 56,122,367 57,663,214 56,364,444 57,475,124 Diluted 57,285,022 59,599,737 57,629,785 59,376,343 Condensed Consolidated Balance Sheets (Unaudited) (in thousands) As of 31-Dec-08 30-Jun-08 Current assets: Cash and cash equivalents $106,964 $229,260 Restricted cash 800 1,194 Accounts receivable, net 358,971 344,974 Inventories 2,762 - Prepaid expenses and other 42,616 64,159 Deferred income taxes, current 11,062 11,544 Total current assets 523,175 651,131 Property, plant and equipment, net 40,776 37,949 Other assets: Goodwill 487,310 395,766 Identified intangibles, net 49,056 36,813 Deferred income taxes, noncurrent 5,321 3,217 Deferred compensation trust 6,097 7,747 Notes receivable and other assets 25,288 3,892 Total other assets 573,072 447,435 Total assets $1,137,023 $1,136,515 Current liabilities: Accounts payable and accrued expenses $118,365 $163,927 Accrued payroll and employee benefits 98,757 99,742 Billings in excess of revenue recognized 23,893 15,111 Short-term borrowings 8,857 - Total current liabilities 249,872 278,780 Long-term liabilities: Long-term debt 175,000 150,000 Other long-term liabilities 12,889 14,799 Total long-term liabilities 187,889 164,799 Total liabilities 437,761 443,579 Stockholders' equity 699,262 692,936 Total liabilities and stockholders' equity $1,137,023 $1,136,515 Condensed Consolidated Statements of Cash Flows (Unaudited) (in thousands) Six Months Ended 31-Dec-08 31-Dec-07 Cash flows from operating activities: Net income $26,244 $36,450 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 14,293 12,591 Stock-based compensation 5,362 4,886 Deferred income taxes (2,312) (4,542) Gain on sale of Constella Futures Holding, LLC (1,939) - Loss on disposal of property and equipment - 744 Acquired in-process research and development 900 - Working capital changes, net of the effect of acquisitions and divestitures (34,246) (28,632) Net cash provided by operating activities 8,302 21,497 Cash flows from investing activities: Capital expenditures (8,869) (6,650) Payments to Spectrum Solutions Group, Inc. shareholders (7,016) - Acquisitions, net of cash acquired (132,246) (185,955) Issuance of notes receivable (17,526) - Proceeds from sale of Constella Futures Holding, LLC 31,846 - Net cash used in investing activities (133,811) (192,605) Cash flows from financing activities: Issuance of common stock 2,265 10,063 Tax benefits of stock option exercises 108 4,184 Net borrowings under credit facility 23,431 50,000 Payment of financing costs - (324) Purchase of treasury stock (21,824) (272) Net cash provided by financing activities 3,980 63,651 Effect of exchange rate changes on cash and cash equivalents (767) - Net decrease in cash and cash equivalents (122,296) (107,457) Cash and cash equivalents, beginning of period 229,260 212,034 Cash and cash equivalents, end of period $106,964 $104,577 Supplemental disclosures of cash flow information: Cash paid during the period: Interest $3,093 $1,185 Income taxes $26,667 $34,466 Cash received during the period: Interest $1,740 $2,761 Income taxes $342 $729 Reconciliation Between Total Revenue and Organic Revenue (Unaudited) (in thousands) Organic revenue, as presented, is computed by comparing our reported revenue for the current period to revenue for the same period in the prior year adjusted to include revenue of acquired businesses for the pre-acquisition period of the prior year. In arriving at prior-year revenue, we include the revenue of acquired companies and remove the revenue of divested companies for the prior-year periods comparable to the current-year periods for which the companies are included in our reported revenue. The resulting rate is intended to represent our organic, or non-acquisitive, growth or decline year-over-year, including comparable period growth or decline attributable to acquired companies. We believe that this non-GAAP financial measure provides useful information because it allows investors to better assess the underlying growth rate of our business, including the post-acquisition activity of acquired companies. This non-GAAP financial measure is not used for any other purpose and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. Three Months Ended 31-Dec-08 31-Dec-07 % Increase Total Revenue, as reported $369,323 $382,015 (3.3)% Plus: Revenue from acquired companies for the comparable prior year period - 16,650 Less: Revenue from divested companies for the comparable prior year period - (18,244) Organic Revenue $369,323 $380,421 (2.9)% DATASOURCE: SRA International, Inc. CONTACT: Dave Keffer, Vice President, Investor Relations of SRA International, Inc., +1-703-502-7731, Web Site: http://www.sra.com/

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