NCI revenue slides as BRAC, other work declines

NCI Inc.’s first earnings report of 2012 showed a deep slide in revenue from the corresponding first quarter a year ago.

The government contractor reported $99.1 million in revenue compared with first quarter 2011 revenue of $150.2 million, a decrease of 34.0 percent. But that figure exceeded the high end of management's previously issued guidance by approximately $2 million.

Earnings per share exceeded the high end of guidance by $0.01, according to the company’s earnings statement released at the market close on May 2.

Operating income for the first quarter of 2012 was $3.1 million, down from $9.7 million for the first quarter of 2011.

NCI blamed the year-over-year decrease in revenue on the loss of approximately $27 million in Base Realignment and Closure-related and other non-core program revenue; a net decrease of $15 million in core revenue as a result of reductions of scope of work, the expiration of task orders and contracts, and certain lost contract recompetes; and lower revenue from NCI’s PEO Soldier contract of approximately $9 million, among other factors.

“We've spoken at length over the past year about the internal and external factors in order to explain – not excuse – the situation we are in," NCI Chairman and CEO Charles Narang said in the announcement.

"Our mission now is to take the lessons we have learned and essentially rebuild NCI. This effort will take time and resources. But I can say with confidence that we built NCI on values that are timeless: such as quality, integrity and customer service. These values will continue to define NCI. And they will carry over to a stronger, more focused company."

General and administrative expenses for the first quarter of 2012 were $6.7 million, or 6.8 percent of revenue, compared with $5.8 million, or 3.8 percent of revenue for the first quarter of 2011.

The increase was due to general and administrative expenses associated with programs attributable to AdvanceMed Corp., which NCI acquired as of April 1, 2011; the timing of certain accrued expenses; greater allocation of information technology, facility and other corporate infrastructure expenses attributable to the reduced revenue base; higher stock compensation expense; and labor and fringe benefit costs associated with certain senior executive positions that were vacant in the first quarter of 2011.

Operating margin for the quarter was 3.1 percent compared with operating margin of 6.5 percent for the first quarter of 2011.

NCI said the operating margin decline was due to reduced absorption of indirect costs on the lower revenue base, reduced profitability on the PEO Soldier cost-plus fee bridge contract, and lower contract margins on new awards and recompetes as a result of cost-competitive pricing terms.

Net income for the first quarter of 2012 fell to $1.6 million from $5.7 million in the first quarter of 2011.

The decrease in net income year-over-year is attributable to the factors affecting operating income, higher interest expense, and a higher effective income tax rate.
Diluted earnings per share for the first quarter of 2012 were $0.12 compared with $0.41 in the first quarter of 2011.

NCI reported total backlog at March 31, 2012 of $903 million, of which $203 million was funded. This compares with total backlog of $1.0 billion at December 31, 2011, of which $220 million was funded.

Based on the company's current contract backlog and management's estimate as to future tasking and contract awards, NCI also issued guidance for its second quarter of 2012.

Fiscal year 2012 guidance remains unchanged, the company said.

NCI management's current expectations about future financial performance, based on information available at this time, are: $85 million to $90 million in revenue for the second quarter of 2012 ending June 30, and $345 million to $375 million in revenue for year ending Dec. 31, 2012.

NCI Inc., of Reston, Va., ranks No. 50 on Washington Technology’s 2011 Top 100 list of the largest federal government contractors.

About the Author

David Hubler is the former print managing editor for GCN and senior editor for Washington Technology. He is freelance writer living in Annandale, Va.

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