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 second quarter of fiscal year (FY) 2011,
which ended December 31, 2010.
Revenue for the quarter was $434.8 million, up 5.3% from $412.8
million in the December 2009 quarter. Organic revenue growth for
the same period was 1.1%. Operating income for the quarter was
$31.7 million, for an operating margin of 7.3%. Income from
continuing operations was $19.8 million, for a net margin of 4.5%.
Diluted earnings per share (DEPS) from continuing operations for
the quarter were $0.34. Operating cash flow was $29.8 million.
During the quarter the company incurred a severance charge of
$1.8 million in connection with a reduction in its indirect labor
force. The actions resulted in a reduction to the annual selling,
general and administrative expenses of approximately $10 million.
The savings will phase in over the March quarter, and the full
effect will be felt in the June quarter. The severance charge is
included in selling, general and administrative expenses on the
income statement.
SRA President and CEO Stan Sloane said, “Our pipeline of
opportunities in the Federal market is robust. We are taking
proactive steps to ensure our continued competitiveness, and are
committed to delivering organic growth.”
Executive Vice President and CFO Rick Nadeau added, “Operating
cash flow was strong in the quarter. We completed the acquisition
of Platinum Solutions in November, and completed the quarter with
approximately $60 million in cash and no debt.”
Contract Awards
SRA won new business in the second quarter with potential value
of $270 million, if all option years are exercised. As of December
31, 2010, the company’s backlog of signed business orders was $4.84
billion, up 9% year-over-year, and the funded portion of backlog
was $1.0 billion, up 20% year-over-year.
Major highlights of competitive contract awards in the quarter
include:
- U.S. Special Operations Command.
SRA was awarded the Special Operations Research, Development and
Acquisition Center Program Executive Office-Fixed Wing task order
under the SOCOM Global Battlestaff and Program Support vehicle. The
task order is valued at $15.3 million with a period of performance
of five years.
SRA was also awarded several multiple-award, IDIQ contracts in
the second quarter, which are not included in the company’s
quarterly bookings figure, but are expected to drive growth over
time. These include:
- Federal Bureau of Investigation.
Platinum Solutions, which was recently acquired by SRA, won a prime
position on the Federal Bureau of Investigation Information
Technology Supplies and Support Services, or IT Triple S contract.
IT Triple S is a multiple-award IDIQ contract with a total ceiling
value of $30 billion over 8 years, if all options are
exercised.
Forward Guidance
The company is updating revenue and earnings guidance for Fiscal
Year 2011 previously provided on November 2, 2010. The table below
represents management’s current expectations about the company’s
future financial performance, based on information available at
this time. SRA completed the acquisition of Platinum Solutions in
November. The forward guidance does include the effect of the
Platinum acquisition, but does not include any effect of any
additional acquisitions or divestitures that SRA might make in the
future. The guidance assumes that the FY 2011 diluted
weighted-average shares outstanding are 58.2 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 1.4% of net income.
Measure Fiscal Year Ending
June 30, 2011
Revenue $1.785 billion to $1.815 billion
Diluted earnings per sharefrom continuing
operations
$1.38 to $1.44
Conference Call
SRA senior management will discuss the results in a conference
call beginning at 11 a.m. EST. Interested parties may listen to the
conference call by dialing 888-790-3103 (U.S./Canada) or
773-756-4790 (Other) with passcode 1256593. The conference call
will be webcast simultaneously through a link on the SRA website
(www.sra.com/investors). A replay of the conference call will be
available approximately two hours after the conclusion of the call
on Feb. 8 through Feb. 22 by dialing 800-219-6350 (U.S./Canada) or
402-220-3904 (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 and
commercial clients 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; learning technologies;
logistics; public health preparedness; public safety; strategic
management consulting; systems engineering; and wireless
integration.
SRA and its subsidiaries employ more than 7,200 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. Factors or risks
that could cause our actual results to differ materially from the
results we anticipate include, but are not limited to: (i) reduced
spending levels and changing budget priorities of our largest
customer, the United States federal government, which accounts for
more than 90% of our revenue; (ii) failure to comply with complex
U.S. government procurement-related laws and other regulations,
including but not limited to, punitive damage liabilities under the
False Claims Act and other laws, and financial incentives under
so-called “whistleblower” statutes, awarding the whistleblower with
a percentage of the recovery if the claims are successfully waged;
(iii) possible delays or overturning of our government contract
awards due to bid protests by competitors or loss of contract
revenue or diminished opportunities based on the existence of
organizational conflicts of interest; (iv) entry into new markets
or foreign legal jurisdictions or operation of our business in
various foreign jurisdictions, including incurring liabilities in
hazardous areas; (v) failure to comply with laws such as the
Foreign Corrupt Practices Act or regulations on government
gratuities; (vi) failure to comply with Federal Acquisition
Regulations (FAR) and Cost Accounting Standards or the Fair Labor
Standards Act; (vii) security threats, attacks or other disruptions
on our information infrastructure, and failure to comply with
complex network security and data privacy legal and contractual
obligations or to protect sensitive information; (viii) any
violation of third party intellectual rights; (ix) risks associated
with commercial product sales not covered by the FAR;
(x) adverse changes in federal government practices such as
insourcing; (xi) delays in the U.S. government adopting
appropriations necessary for program funding and future
appropriation uncertainties adversely impacting customer spending
plans; (xii) intense competition to win U.S. government contracts
or recompetes and commoditization of services we offer; (xiii)
failure to obtain option awards, task orders or funding under
contracts, or inability to successfully execute awarded contracts;
(xiv) any adverse results of audits and investigations conducted by
the Defense Contract Audit Agency or any of the Inspectors General
for various agencies with which we contract, including, without
limitation, any determination that our contractor business systems
or contractor internal control systems are deficient; (xv)
difficulties accurately estimating contract costs and contract
performance requirements; (xvi) challenges in attracting and
retaining key personnel or high-quality employees, particularly
those with security clearances; (xvii) failure to manage
acquisitions or divestures successfully, including identifying and
valuating acquisitions targets, integrating acquired companies,
realizing benefits from such acquisitions, or contingent
liabilities associated with divestures; (xviii) adverse market
conditions and the resulting impact on future cash flows may result
in the impairment of goodwill and intangible assets which account
for a significant portion of our assets; (xix) adverse weather
conditions or unexpected employee leave patterns reducing our
expected billable labor revenue; and (xx) adverse impact on
employee and customer relations from media speculation regarding
the company and its future ownership and operations.
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
February 8, 2011. 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 8,
2011.
Consolidated Statements of Operations (Unaudited) (in
thousands, except share amounts) Three Months
Ended Six Months Ended 31-Dec-10 31-Dec-09
31-Dec-10 31-Dec-09 Revenue $ 434,849 $ 412,770 $
858,782 $ 829,509 Operating costs and expenses: Cost of services
327,720 312,062 644,876 628,612 Selling, general and administrative
68,648 62,592 138,965 124,669 Depreciation and amortization 6,756
7,055 13,209 14,065 Sale of Constella Futures Holding, LLC -
1,889 - 1,889
Total operating costs and expenses 403,124
383,598 797,050 769,235
Operating income 31,725 29,172 61,732 60,274 Interest expense (208
) (345 ) (371 ) (828 ) Interest income 235 565
598 973 Income before income
taxes 31,752 29,392 61,959 60,419 Provision for income taxes
11,990 9,558 23,728
21,854 Income from continuing operations 19,762
19,834 38,231 38,565
Loss from discontinued operations, net of tax (681 )
(646 ) (962 ) (1,327 ) Net Income $ 19,081
$ 19,188 $ 37,269 $ 37,238 Basic
earnings (loss) per share: Continuing operations $ 0.34 $ 0.35 $
0.66 $ 0.67 Discontinued operations (0.01 ) (0.01 )
(0.02 ) (0.02 ) Basic earnings per share (a) $ 0.33
$ 0.33 $ 0.64 $ 0.65 Diluted
earnings (loss) per share: Continuing operations $ 0.34 $ 0.34 $
0.65 $ 0.67 Discontinued operations (0.01 ) (0.01 )
(0.02 ) (0.02 ) Diluted earnings per share (a) $ 0.33
$ 0.33 $ 0.64 $ 0.64
(a) May not sum due to rounding
Reconciliation Between Reported Net Income and Net Income used
in the Calculation of Earnings Per Share (Unaudited)
(in thousands, except share
amounts)
In accordance with generally accepted accounting principles (GAAP),
we are required to allocate a portion of our earnings to any
outstanding unvested restricted share awards that qualify as
participating securities. The Company's unvested restricted stock
awards are excluded from both the basic and diluted
weighted-average shares outstanding.
Three Months Ended
Six Months Ended 31-Dec-10 31-Dec-09
31-Dec-10 31-Dec-09 Income from continuing operations
$ 19,762 $ 19,834 $ 38,231 $ 38,565 Less: allocation of earnings to
unvested restricted shares 295 241 536
454 Income from continuing operations for the computation of
earnings per share $ 19,467 $ 19,593 $ 37,695 $ 38,111 Basic
weighted-average shares outstanding 57,123 56,684
57,052 56,626 Diluted weighted-average shares
outstanding 57,703 57,171 57,644 57,137
Basic earnings per share from continuing operations $ 0.34 $
0.35 $ 0.66 $ 0.67 Diluted earnings per share from continuing
operations $ 0.34 $ 0.34 $ 0.65 $ 0.67
Condensed Consolidated
Balance Sheets (Unaudited) (in thousands) As
of 31-Dec-10 30-Jun-10 Current assets:
Cash and cash equivalents $ 60,602 $ 98,113 Accounts
receivable, net 383,353 354,140 Inventories, net 6,034 6,829
Prepaid expenses and other 48,398 25,712 Deferred income taxes -
15,057 Current assets of discontinued operations -
762 Total current assets 498,387 500,613 Property,
plant and equipment, net 35,834 33,501 Goodwill 511,238 436,683
Identified intangibles, net 58,285 33,005 Deferred compensation
trust 8,684 7,182 Other long-term assets 3,594 18,236 Long-term
assets of discontinued operations -
4,495 Total assets $ 1,116,022 $ 1,033,715
Current liabilities: Accounts payable and accrued expenses $
126,184 $ 101,323 Accrued payroll and employee benefits 113,774
123,334 Billings in excess of revenue recognized 24,293 16,487
Deferred income taxes 9,039 - Liabilities of discontinued
operations - 1,069 Total current
liabilities 273,290 242,213 Deferred compensation liability 8,684
7,182 Deferred income taxes 14,567 7,280 Other long-term
liabilities 4,784 5,477 Total
liabilities 301,325 262,152
Stockholders' equity 814,697 771,563
Total liabilities and stockholders' equity $
1,116,022 $ 1,033,715
Condensed Consolidated
Statements of Cash Flows (Unaudited) (in thousands)
Three Months Ended Six Months Ended
31-Dec-10 31-Dec-09 31-Dec-10 31-Dec-09
Cash flows from operating activities: Net income $ 19,081 $ 19,188
$ 37,269 $ 37,238 Loss from discontinued operations 681 646 962
1,327 Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation of property, plant and equipment
4,492 4,398 8,797 8,751 Amortization of intangible assets 2,705
2,657 5,261 5,314 Stock-based compensation 2,629 2,144 5,157 4,610
Deferred income taxes 28,972 5,045 29,666 6,833 Sale of Constella
Futures Holding, LLC - 1,889 - 1,889 Loss (gain) realized from
forward exchange contracts (1,270 ) (35 ) 1,795 (433 ) Changes in
assets and liabilities, net of the effect of acquisitions
(27,596 ) (57,113 ) (24,428 ) (82,575 ) Net
cash provided by (used in) operating activities of continuing
operations 29,694 (21,181 ) 64,479 (17,046 ) Net cash (used in)
provided by operating activities of discontinued operations
60 (555 ) (692 ) (358 ) Net cash
provided by (used in) operating activities 29,754
(21,736 ) 63,787 (17,404 ) Cash
flows from investing activities: Capital expenditures (5,762 )
(2,549 ) (9,338 ) (7,739 ) Acquisitions, net of cash acquired
(87,119 ) - (112,314 ) - Sale of Airport Operations Solutions 6,000
- 6,000 - Collections on note receivable 15,000 3,330 15,000 5,330
(Payments for) proceeds from forward exchange contracts
1,270 35 (1,795 ) 433 Net
cash used in investing activities (70,611 ) 816
(102,447 ) (1,976 ) Cash flows from
financing activities: Proceeds from the exercise of stock options
610 377 1,266 1,323 Proceeds from employee stock purchase plan 369
348 726 689 Excess tax benefits of stock option exercises 37 9 125
34 Borrowings under credit facility 40,000 20,000 40,000 55,000
Repayments under credit facility (40,000 ) (25,000 ) (40,000 )
(70,000 ) Net borrowings under other short-term credit facilities -
(4,715 ) - - Purchase of treasury stock (72 ) (83 )
(1,186 ) (940 ) Net cash provided by (used in)
financing activities 944 (9,064 ) 931
(13,894 ) Effect of
exchange rate changes on cash and cash equivalents (50 )
836 218 (79 ) Net
decrease in cash and cash equivalents (39,963 ) (29,148 ) (37,511 )
(33,353 ) Cash and cash equivalents, beginning of period
100,565 70,478 98,113
74,683 Cash and cash equivalents, end of period $ 60,602
$ 41,330 $ 60,602 $ 41,330
Non-GAAP
Financial Measures The financial measures shown below,
organic revenue and free cash flow from continuing operations, are
non-GAAP financial measures. These measures are not calculated
through the application of GAAP and are not the required form of
disclosure by the Securities and Exchange Commission. 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 below.
Reconciliation
Between Total Revenue and Organic Revenue (Unaudited) (in
thousands) Organic revenue, as presented, is computed by
comparing our actual reported revenue in the current period,
including revenue attributable to acquired companies, with adjusted
revenue from the prior year period. In arriving at prior year
revenue, we include the revenue of acquired companies for the prior
year periods comparable to the current-year periods for which the
companies are included in our actual reported revenue. Revenue from
discontinued operations is not included in reported revenue, and
therefore, is not considered in our calculation of organic revenue.
The resulting rate is intended to represent our organic, or
non-acquisitive, growth or decline year-over-year. 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.
Three Months Ended 31-Dec-10
31-Dec-09 % Change Revenue from continuing
operations, as reported $ 434,849 $ 412,770 5.3 % Plus: Revenue of
acquired companies for the comparable prior year period -
17,498 Organic revenue $ 434,849 $ 430,268
1.1 %
Six Months Ended 31-Dec-10
31-Dec-09 % Increase Revenue from continuing
operations, as reported $ 858,782 $ 829,509 3.5 % Plus: Revenue of
acquired companies for the comparable prior year period
25,424 Organic revenue $ 858,782 $ 854,933
0.5 %
Reconciliation Between Net Cash Provided by
Operating Activities and Free Cash Flow (Unaudited) (in
thousands) We define free cash flow, as presented, as
net cash provided by operating activities less capital
expenditures. Cash flows from discontinued operations are excluded
from the calculation of free cash flow as these cash flows will not
continue in future periods. We believe that this non-GAAP financial
measure is useful for investors in analyzing our ability to
generate cash flow for purposes such as repaying debt, funding
business acquisitions, and repurchasing our common stock.
Three
Months Ended Six Months Ended 31-Dec-10
31-Dec-09 31-Dec-10 31-Dec-09 Net cash
provided by (used in) operating activities of continuing operations
$ 29,694 $ (21,181 ) $ 64,479 $ (17,046 ) Less: Capital
expenditures (5,762 ) (2,549 ) (9,338 )
(7,739 ) Free cash flow from continuing operations $ 23,932
$ (23,730 ) $ 55,141 $ (24,785 )
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