SRA International, Inc. (NYSE: SRX), a leading provider of
technology and strategic consulting services and solutions to
government organizations and commercial clients, today announced
operating results for the third quarter of fiscal year (FY) 2010,
which ended March 31, 2010.
Revenue for the quarter was $411.0 million, up 9.0% from $376.9
million in the March 2009 quarter. Organic revenue growth was
8.4%.
The Company reported an operating loss in the quarter of $30.9
million, net losses of $39.7 million, and a loss per share of
$0.70. Included in the current quarter are non-cash asset
impairment charges of $61.3 million related to the Era business.
This includes a $60.0 million goodwill impairment charge that is
not tax deductible. Adjusted for the impact of these impairment
charges, operating income was $30.4 million, net income was $21.1
million, and diluted earnings per share were $0.36.
SRA President and CEO Stan Sloane said, “We’re happy to report
another quarter of solid organic growth. We won the largest
contract in the company’s history during the quarter, and are
confident that our bid pipeline provides continued opportunity for
growth.”
Executive Vice President and CFO Rick Nadeau added, “Cash flow
from operations was strong in the quarter, driven by improvement in
days sales outstanding. We repaid all borrowings on our line of
credit and finished the quarter with no debt.”
Reported figures include two other unusual items. Resolution of
a dispute with the sellers of Era Systems Corporation resulted in a
gain of $3.4 million which is shown on a separate line on the
income statement, and is not taxable. The company also recognized
additional federal and state tax benefits attributable to prior
periods that reduced income tax expense in the quarter by $1.1
million. Adjusted for the impact of these two items and the
impairment charges, operating income was $27.1 million, net income
was $16.6 million, and diluted earnings per share were $0.29.
A reconciliation between the adjusted results and the reported
results is provided below.
Contract Awards
SRA won new business in the second quarter with potential value
of $751 million, if all option years are exercised, representing a
book to bill ratio of 1.8. Year to date, SRA has won new business
with a total potential value of $2.1 billion, for a book to bill
ratio of 1.7. As of March 31, 2010, the company’s backlog of signed
business orders was $4.8 billion, up 13% year-over-year, and the
funded portion of backlog was $922 million.
Major highlights of competitive contract awards in the quarter
include:
- U.S. Department of
Agriculture (USDA). The company was awarded the Application
Transformation and Modernization System Integrator, or ATM SI,
contract. Under this single-award blanket purchase agreement, SRA
will help implement SAP enterprise resource planning tools for the
USDA. The contract value against which future task orders are
expected to be issued is $500 million over seven years.
- The Administrative Office of
the U.S. Courts, Office of Probation and Pretrial Services
(OPPS). The company won a contract to implement
service-oriented architecture for the OPPS. The task order, under
the multiple-award JMAS III contract, represents an expansion of
current work.
- U.S. Air Force. The
company was awarded the Information Technology Training Product
Support task order to provide integration management support
services to the Air Force Distributed Common Ground System Formal
Training Unit. This was a recompete of current work, and has an
estimated value of $19.5 million over five years, if all options
are exercised.
Forward Guidance
The company is updating revenue and
earnings guidance for Fiscal Year 2010 previously provided on
February 8, 2010. 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 or
divestitures that SRA might make in the future. The guidance
assumes that the FY 2010 diluted weighted-average shares
outstanding is 57.4 million, excluding unvested restricted stock
awards, and that the allocation of earnings to unvested restricted
shares used in the calculation of diluted earnings per share is
approximately 1.2% of net income.
Measure
Fiscal Year (FY) EndingJune 30,
2010
Change fromFY 2009 to 2010
Revenue $1.65 billion to $1.665 billion
7% to 8% Reported diluted earnings per share $0.26 to
$0.31 -74% to -69% Adjusted diluted earnings per
share $1.32 to $1.36 31% to 35%
Adjusted diluted earnings per share exclude the impact of the
$61.3 million impairment charge. The guidance implies revenue of
$408 million to $423 million and diluted earnings per share of
$0.31 to $0.35 in the fourth quarter of fiscal year 2010.
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 800-779-8164 (U.S./Canada) or 312-470-7006 (Other) with
passcode 9186448. The conference call will be Webcast
simultaneously through a link on the SRA Web site (www.sra.com). A
replay of the conference call will be available approximately two
hours after the conclusion of the call on May 6 through May 20 by
dialing 800-224-1285 (U.S./Canada) or 402-220-3691 (Other) and
entering passcode 1978.
About SRA International, Inc.
SRA and its subsidiaries are dedicated to solving complex
problems of global significance for government organizations
serving the national security, civil government and global health
markets. Founded in 1978, the company and its subsidiaries have
expertise in such areas as air surveillance and air traffic
management; contract research organization (CRO) services; cyber
security; disaster response planning; enterprise resource planning;
environmental strategies; IT systems, infrastructure and managed
services; logistics; public health preparedness; public safety;
strategic management consulting; systems engineering; and wireless
integration.
SRA and its subsidiaries employ more than 7,000 employees
serving clients from its headquarters in Fairfax, Va., and offices
around the world. For additional information on SRA, please visit
www.sra.com.
Any statements in this press release about future expectations,
plans, and prospects for SRA, including statements about the
estimated value of the contract 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. In addition, the forward-looking statements included in
this press release represent our views as of May 6, 2010. 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 May 6,
2010.
Condensed Consolidated Statements of Operations
(Unaudited) (in thousands, except per share amounts)
Three Months Ended
Nine Months Ended 31-Mar-10 31-Mar-09
31-Mar-10 31-Mar-09 Revenue $ 411,027 $
376,928 $ 1,242,022 $ 1,138,606 Operating costs and expenses: Cost
of services (a) 312,690 281,675 942,930 852,230 Selling, general
and administrative (a) 64,232 63,923 190,509 195,008 Depreciation
and amortization 7,026 7,244 21,512 21,537 Impairment of goodwill
and other long-lived assets 61,315 - 61,315 - Settlement of claims
against Era sellers (3,361 ) - (3,361 ) - Sale of Constella Futures
Holding, LLC - - 1,889 (1,939 ) Acquired in-process research and
development - - -
900 Total operating costs and expenses
441,902 352,842 1,214,794
1,067,736 Operating (loss) income (30,875 )
24,086 27,228 70,870 Interest expense (309 ) (897 ) (1,137 ) (4,832
) Interest income 418 449
1,391 1,852 (Loss) income before income
taxes (30,766 ) 23,638 27,482 67,890 Provision for income taxes
8,945 9,365 29,955
27,373 Net (loss) income $ (39,711 ) $
14,273 $ (2,473 ) $ 40,517 (Loss)
earnings per share: Basic $ (0.70 ) $ 0.25 $ (0.04 )
$ 0.71 Diluted $ (0.70 ) $ 0.25 $ (0.04
) $ 0.70 (a) Beginning in fiscal 2010, the
Company reclassified the portion of rent and facility costs, as
well as stock-based compensation expense related to employees who
perform work directly for the Company’s clients from the caption
“selling, general and administrative" expenses to the caption “cost
of services.” All prior period balances have been reclassified to
conform to the current period presentation. The impact of this
reclassification on the five most recent completed fiscal years is
disclosed in our Form 10-Q filed with the SEC.
Reconciliation Between Reported Net (Loss) Income and Net (Loss)
Income used in the Calculation of Earnings Per Share
(Unaudited) (in thousands, except share and per share
amounts) In accordance with Accounting Standards
Codification (ASC) section 260 Earnings Per Share, we are required
to allocate a portion of our earnings to any outstanding unvested
restricted share awards that qualify as participating securities as
defined in that standard. The Company's unvested restricted stock
awards are excluded from both the basic and diluted weighted
average shares outstanding.
Three Months Ended Nine Months Ended
31-Mar-10 31-Mar-09 31-Mar-10
31-Mar-09 Net (loss) income, as reported $ (39,711 ) $
14,273 $ (2,473 ) $ 40,517 Less: allocation of earnings to unvested
restricted shares 175 470
Net (loss) income for the computation of earnings per share $
(39,711 ) $ 14,098 $ (2,473 ) $ 40,047 Basic
weighted-average shares outstanding 56,766,297
56,202,281 56,672,489 56,310,389
Diluted weighted-average shares outstanding 56,766,297
56,581,858 56,672,489
56,851,846 Basic (loss) earnings per share $ (0.70 )
$ 0.25 $ (0.04 ) $ 0.71 Diluted (loss) earnings per
share $ (0.70 ) $ 0.25 $ (0.04 ) $ 0.70
Condensed Consolidated Balance Sheets (Unaudited) (in
thousands) As of
31-Mar-10 30-Jun-09 Current assets:
Cash and cash equivalents $ 40,488 $ 74,683 Accounts receivable,
net 380,881 356,261 Inventories, net 8,377 6,786 Prepaid expenses
and other 28,768 37,707 Deferred income taxes 13,655
13,924 Total current assets 472,169
489,361 Property, plant and equipment, net
35,049 38,130 Long-term assets:
Goodwill 438,995 490,481 Identified intangibles, net 37,533 43,235
Deferred income taxes - 1,272 Deferred compensation trust 7,566
6,494 Other long-term assets 16,519
25,320 Total long-term assets 500,613
566,802 Total assets $ 1,007,831 $ 1,094,293
Current liabilities: Accounts payable and accrued expenses $
109,049 $ 137,443 Accrued payroll and employee benefits 110,948
111,296 Billings in excess of revenue recognized 20,669
16,598 Total current liabilities
240,666 265,337 Long-term liabilities:
Long-term debt - 75,000 Deferred compensation liability 7,566 6,494
Deferred income taxes 5,477 - Other long-term liabilities
5,726 5,842 Total long-term liabilities
18,769 87,336 Total liabilities
259,435 352,673 Stockholders'
equity 748,396 741,620 Total
liabilities and stockholders' equity $ 1,007,831 $
1,094,293
Condensed Consolidated Statements of
Cash Flows (Unaudited) (in thousands)
Three Months Ended Nine
Months Ended 31-Mar-10 31-Mar-09
31-Mar-10 31-Mar-09 Cash flows from operating
activities: Net (loss) income $ (39,711 ) $ 14,273 $ (2,473 ) $
40,517 Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization 7,026 7,244
21,512 21,537 Stock-based compensation 2,150 3,092 6,760 8,454
Deferred income taxes 185 3,041 7,018 729 Impairment of goodwill
and other long-lived assets 61,315 - 61,315 - Settlement of claims
against Era sellers (3,361 ) - (3,361 ) - Sale of Constella Futures
Holding, LLC - - 1,889 (1,939 ) Acquired in-process research and
development - - - 900 Gain realized from forward exchange contracts
(799 ) - (1,232 ) - Changes in assets and liabilities, net of the
effect of acquisitions and divestitures 28,497
(5,672 ) (53,530 ) (39,917 ) Net cash
provided by operating activities 55,302
21,978 37,898 30,281
Cash flows from investing activities: Capital expenditures
(2,407 ) (1,982 ) (10,146 ) (10,851 ) Payments to Spectrum
Solutions Group, Inc. shareholders - (5 ) - (7,021 ) Acquisitions,
net of cash acquired (8,611 ) (29 ) (8,611 ) (132,275 ) Proceeds
from sale of Constella Futures Holding, LLC - - - 14,320 Settlement
of Era purchase price 12,500 - 12,500 - Collections on note
receivable - - 5,330 - Proceeds from forward exchange contracts
799 - 1,232
- Net cash provided by (used in) investing activities
2,281 (2,016 ) 305
(135,827 ) Cash flows from financing activities:
Issuance of common stock 1,300 588 3,312 2,853 Excess tax benefit
of stock option exercises 80 285 114 393 Borrowings under credit
facility 60,000 - 115,000 75,000 Repayments under credit facility
(120,000 ) (25,000 ) (190,000 ) (75,000 ) Net repayments under
other short-term credit facilities - (358 ) - (1,927 ) Reissuance
of treasury stock 462 399 462 398 Purchase of treasury stock
(50 ) (16 ) (990 ) (21,840 ) Net
cash used in financing activities (58,208 )
(24,102 ) (72,102 ) (20,123 )
Effect of exchange rate changes on cash
and cash equivalents (217 ) (639 ) (296
) (1,406 ) Net decrease in cash and cash
equivalents (842 ) (4,779 ) (34,195 ) (127,075 ) Cash and cash
equivalents, beginning of period 41,330
106,964 74,683 229,260
Cash and cash equivalents, end of period $ 40,488 $
102,185 $ 40,488 $ 102,185
Supplemental disclosures of cash flow information: Cash paid during
the period: Interest $ 281 $ 1,969 $ 1,014
$ 5,062 Income taxes $ 106 $
5,297 $ 24,480 $ 31,964 Cash received
during the period: Interest $ 419 $ 468 $
1,374 $ 2,208 Income taxes $ 16
$ 37 $ 312 $ 379
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 growth rate is
intended to represent our organic, or non-acquisitive, growth
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-Mar-10 31-Mar-09 %
Increase Revenue, as reported $ 411,027 $
376,928 9.0 % Plus: Revenue of acquired companies for the
comparable prior year period 2,261
Organic Revenue $ 411,027
$ 379,189 8.4 %
Reconciliation of Non-GAAP
Financial Measures (Unaudited)
(in thousands, except share and per share amounts)
The financial measures shown
below, including operating income, as adjusted, net income, as
adjusted and diluted earnings per share, as adjusted, are non-GAAP
financial measures. We believe these non-GAAP measures provide
investors with useful supplemental information regarding underlying
business trends and performance of our ongoing operations and are
useful for period-over-period comparisons of such
operations. These measures are not calculated through the
application of GAAP and are not the required form of disclosure by
the Securities and Exchange Commission (SEC). As such, they
should not be considered as substitutes for the most directly
comparable GAAP measures and should not be used in isolation, but
in conjunction with these GAAP measures. The use of any non-GAAP
measure may produce results that vary from the GAAP measure and may
not be comparable to a similarly defined non-GAAP measure used by
other companies. Reconciliations to the most directly comparable
GAAP financial measures are included in the table
below.
Three Months Ended 31-Mar-10
Adjusted
forImpairment
Adjusted for Impairment
& Unusual Items
Operating loss, as reported $ (30,875 ) $ (30,875 )
Add: Impairment of goodwill and other long-lived assets 61,315
61,315 Less: Settlement of claims against Era sellers -
(3,361 ) Non-GAAP operating income, as
adjusted $ 30,440 $ 27,079
Net loss, as reported $ (39,711 ) $ (39,711 ) Add:
Impairment of goodwill and other long-lived assets 61,315 61,315
Less: Income tax effect of the other long-lived assets impairment
(523 ) (523 ) Less: Settlement of claims against Era sellers -
(3,361 ) Less: Prior-period income tax benefits -
(1,109 ) Non-GAAP net income, as adjusted $
21,081 $ 16,611 Less: allocation of earnings to unvested restricted
shares (250 ) (197 ) Non-GAAP net
income for the computation of earnings per share $ 20,831
$ 16,414 Diluted
weighted-average shares outstanding, as reported 56,766,297
56,766,297 Add: Dilutive effect of stock equivalents 480,625
480,625 Non-GAAP diluted
weighted-average shares outstanding 57,246,922
57,246,922
Diluted loss per share, as reported $ (0.70 ) $ (0.70
) Non-GAAP diluted earnings per share, as adjusted $ 0.36
$ 0.29
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