RESTON, Va.--(BUSINESS WIRE)--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 second quarter ended June 30, 2016.
Second-quarter 2016 revenue was within management’s guidance range issued last quarter. Diluted earnings per share (EPS) was at the midpoint of guidance.
Second-Quarter 2016 Results
For the three months ended June 30, 2016, revenue decreased by 4.5%, or $3.9 million, from the same period a year ago. This decrease was principally due to completed contracts and reductions in staffing and scope of work on certain contracts. The decrease was partially offset by higher revenues derived under the expanded PEO Soldier program, the Cyber Network Operations and Security Support (CNOSS) program, and new contract awards in the past year.
NCI’s PEO Soldier program accounted for $13.6 million, or 16.6% of revenue, in the second quarter of 2016, up $5.4 million from $8.2 million, or 9.6% of revenue, in the second quarter of 2015. NCI’s CNOSS program accounted for $9.3 million, or 11.4% of revenue, in the second quarter of 2016, up $3.6 million from $5.7 million, or 6.6% of revenue, in the second quarter of 2015.
Earnings before interest, taxes, depreciation and amortization (EBITDA)1 for the second quarter was $7.2 million, or 8.8% of revenue, compared with $7.2 million, or 8.4% of revenue, for the same period in 2015. EBITDA margin for the second quarter of 2016 improved primarily as a result of higher direct labor contribution and more efficient absorption of indirect costs.
Operating income for the second quarter of 2016 was $5.5 million compared with $5.3 million for the second quarter of 2015. Operating margin for the second quarter of 2016 was 6.7% compared with 6.2% for the second quarter of 2015. Operating income and margin increased as a result of the factors affecting EBITDA and EBITDA margin, respectively, and lower depreciation and amortization and acquisition-related expenses compared with the same period last year.
Net income for the second quarter of 2016 was $3.2 million compared with $3.0 million for the second quarter of 2015. Net income increased due to the factors affecting operating income and lower interest expense in the quarter. Diluted EPS for the second quarter of 2016 was $0.23 compared with $0.22 for the second quarter of 2015.
Days sales outstanding (DSO) were 60 days at June 30, 2016, compared with 75 days at March 31, 2016. The decrease in DSO was mostly attributable to the resolution of certain invoice issues that affected first-quarter results.
Cash flow provided by operating activities for the three and six months ended June 30, 2016, was $13.7 million and $5.5 million. Capital expenditures were $0.5 million and $0.8 million for the three and six months ended June 30, 2016, resulting in free cash flow of $13.2 million and $4.7 million, respectively.
NCI reported total backlog at June 30, 2016, of $507 million, of which $120 million was funded, compared with total backlog at March 31, 2016, of $501 million, of which $147 million was funded. Net bookings for the second quarter were $88 million, equating to 1.1 times revenue. Trailing 12-month bookings were $509 million, equating to 1.5 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 third quarter and updating guidance for full fiscal year 2016. The table below represents management’s current expectations about future financial performance based on information available at this time:
|
Third Quarter Fiscal Year 2016 Ending September 30, 2016 |
Fiscal Year Ending December 31, 2016 |
|||||
| Revenue | $76 million–$82 million | $320 million–$332 million | ||||
| Diluted EPS | $0.22–$0.24 | $0.91–$0.97 | ||||
| Diluted projected share count | 13.9 million | 13.9 million | ||||
“NCI posted solid bookings and increased profitability in the second quarter of 2016. Our PEO Soldier and CNOSS contracts both continued to grow and contribute to bottom-line results. In addition, NCI’s previously announced win of a position on the $2.5 billion IDIQ for the Centers for Medicare and Medicaid Services (CMS) and the first task order award under this vehicle are positive developments for our health and program integrity business,” said NCI’s president and CEO, Brian J. Clark. “We continue, however, to be challenged with the timing of procurements and the anticipated revenue and earnings contribution of new business awards as well as lower-than-expected materials revenue.
“We still expect to submit approximately $1.5 billion of bids in 2016,” added Clark. “A number of prospective awards in the second half could add to 2016 bookings while contributing more meaningfully to revenue in 2017. We also are actively pursuing potential strategic transactions that include both smaller, opportunistic acquisitions and transformative deals that would give NCI a significant near-term increase in scale.”
Conference Call Information
As previously announced, NCI will conduct a conference call today at 4:30 p.m. EDT to discuss second-quarter 2016 results, issue guidance for the third quarter of 2016 and update the outlook for fiscal year 2016.
Analysts and institutional investors may listen to the conference call by dialing (888) 505-4375 (United States/Canada) or (719) 457-2627 (international) with pass code 4621644. 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 August 3, 2016, by dialing (877) 870-5176 (United States/Canada) or (858) 384-5517 (international) and entering pass code 4621644.
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. NCI: Trust. Integrity. Performance. For more information, visit www.nciinc.com or email investor@nciinc.com. Like us on Facebook and follow us on Twitter (@nciinc_) and LinkedIn.
1 NCI believes that information concerning EBITDA enhances overall understanding of its current financial performance, allowing management and investors to better assess NCI’s comparable financial results. This non-GAAP financial measure should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. NCI computes EBITDA as reflected in the reconciliation table at the end of this release.
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 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.
| NCI, INC. | ||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF INCOME | ||||||||||||
|
(UNAUDITED) |
||||||||||||
|
(in thousands, except per share data) |
||||||||||||
| Three months ended June 30, | Six months ended June 30, | |||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||
| Revenue | $ | 81,900 | $ | 85,799 | $ | 165,555 | $ | 166,767 | ||||
| Operating expenses: | ||||||||||||
| Cost of revenue | 67,921 | 71,553 |
137,908 |
139,155 | ||||||||
| General and administrative expenses | 6,812 | 6,866 |
12,941 |
13,495 | ||||||||
| Depreciation and amortization | 1,684 | 1,892 | 3,476 | 3,981 | ||||||||
| Acquisition and integration related expenses | — | 192 | — | 422 | ||||||||
| Total operating expenses | 76,417 | 80,503 | 154,325 | 157,053 | ||||||||
| Operating income | 5,483 | 5,296 | 11,230 | 9,714 | ||||||||
| Interest expense, net | 153 | 221 | 343 | 459 | ||||||||
| Income before income taxes | 5,330 | 5,075 | 10,887 | 9,255 | ||||||||
| Provision for income taxes | 2,100 | 2,029 | 4,324 | 3,804 | ||||||||
| Net income | $ | 3,230 | $ | 3,046 | $ | 6,563 | $ | 5,451 | ||||
| Earnings per common and common equivalent share: | ||||||||||||
| Basic: | ||||||||||||
| Weighted average shares outstanding | 13,184 | 13,013 | 13,169 | 12,991 | ||||||||
| Net income per share | $ | 0.25 | $ | 0.23 | $ | 0.50 | $ | 0.42 | ||||
| Diluted: | ||||||||||||
| Weighted average shares outstanding | 13,858 | 13,603 | 13,847 | 13,604 | ||||||||
| Net income per share | $ | 0.23 | $ | 0.22 | $ | 0.47 | $ | 0.40 | ||||
| Cash dividend declared and paid per share | — | — | $ | 0.15 | $ | 0.12 | ||||||
| NCI, INC. | ||||||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||
|
(UNAUDITED) |
||||||||
|
(in thousands, except par values) |
||||||||
| As of | As of | |||||||
| June 30, | December 31, | |||||||
| 2016 | 2015 | |||||||
| Assets: | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 138 | $ | 233 | ||||
| Accounts receivable, net | 54,398 | 60,044 | ||||||
| Prepaid expenses and other current assets | 4,932 | 3,447 | ||||||
| Total current assets | 59,468 | 63,724 | ||||||
| Property and equipment, net | 5,870 | 6,698 | ||||||
| Other assets | 1,523 | 1,548 | ||||||
| Deferred tax assets, net | 38,722 | 38,789 | ||||||
| Intangible assets, net | 17,410 | 19,231 | ||||||
| Goodwill | 33,878 | 33,878 | ||||||
| Total assets | $ | 156,871 | $ | 163,868 | ||||
| Liabilities and stockholders’ equity: | ||||||||
| Current liabilities: | ||||||||
| Current portion of long-term debt | $ | 7,107 | $ | — | ||||
| Accounts payable | 12,112 | 19,693 | ||||||
| Accrued salaries and benefits | 15,928 | 18,977 | ||||||
| Deferred revenue | 2,285 | 2,217 | ||||||
| Other accrued expenses | 4,985 | 3,843 | ||||||
| Total current liabilities | 42,417 | 44,730 | ||||||
| Long-term debt | — | 10,000 | ||||||
| Other long-term liabilities | 2,636 | 2,578 | ||||||
| Total liabilities | 45,053 | 57,308 | ||||||
| Stockholders’ equity: | ||||||||
| Class A common stock, $0.019 par value—37,500 shares authorized; 9,921 shares issued and 9,004 shares outstanding as of June 30, 2016, and 9,843 shares issued and 8,961 shares outstanding as of December 31, 2015 | 188 | 187 | ||||||
| Class B common stock, $0.019 par value—12,500 shares authorized; 4,500 shares issued and outstanding as of June 30, 2016 and December 31, 2015 | 86 | 86 | ||||||
| Additional paid-in capital | 77,283 | 76,569 | ||||||
| Treasury stock at cost—917 shares of Class A common stock as of June 30, 2016 and December 31, 2015 | (8,331 | ) | (8,331 | ) | ||||
| Retained earnings | 42,592 | 38,049 | ||||||
| Total stockholders’ equity | 111,818 | 106,560 | ||||||
| Total liabilities and stockholders’ equity | $ | 156,871 | $ | 163,868 | ||||
| NCI, INC. | ||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
|
(UNAUDITED) |
||||||||
|
(in thousands) |
||||||||
| Six months ended June 30, | ||||||||
| 2016 | 2015 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | 6,563 | $ | 5,451 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 3,476 | 3,981 | ||||||
| Share-based compensation | 543 | 696 | ||||||
| Deferred income taxes | 67 | 73 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net | 5,646 | 1,254 | ||||||
| Prepaid expenses and other assets | (1,462 | ) | 2,682 | |||||
| Accounts payable | (7,581 | ) | 2,386 | |||||
| Accrued expenses and other liabilities | (1,779 | ) | (2,546 | ) | ||||
| Net cash provided by operating activities | 5,473 | 13,977 | ||||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment | (827 | ) | (849 | ) | ||||
| Cash paid for acquisition, net of cash acquired | — | (56,657 | ) | |||||
| Net cash used in investing activities | (827 | ) | (57,506 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Borrowings under credit facility | 91,636 | 106,975 | ||||||
| Repayments on credit facility | (94,529 | ) | (87,475 | ) | ||||
| Proceeds from exercise of stock options | 172 | 217 | ||||||
| Repurchase of stock awards | — | (39 | ) | |||||
| Dividends paid | (2,020 | ) | (1,561 | ) | ||||
| Net cash (used in) provided by financing activities | (4,741 | ) | 18,117 | |||||
| Net change in cash and cash equivalents | (95 | ) | (25,412 | ) | ||||
| Cash and cash equivalents, beginning of period | 233 | 25,819 | ||||||
| Cash and cash equivalents, end of period | $ | 138 | $ | 407 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | 263 | $ | 414 | ||||
| Income taxes | $ | 3,010 | $ | 2,333 | ||||
| NCI, INC. | ||||||||||||||||||
| EBITDA Reconciliation Table | ||||||||||||||||||
|
(UNAUDITED) |
||||||||||||||||||
|
(in thousands) |
||||||||||||||||||
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||||
| GAAP operating income | $ | 5,483 | $ | 5,296 | $ | 11,230 | $ | 9,714 | ||||||||||
| Depreciation and amortization | 1,684 | 1,892 | 3,476 | 3,981 | ||||||||||||||
| EBITDA | 7,167 | 7,188 | 14,706 | 13,695 | ||||||||||||||
| EBITDA margin | 8.8 | % |
8.4 |
% |
8.9 | % | 8.2 | % | ||||||||||
