CSRA Announces First Quarter Fiscal Year 2018 Financial Results
FALLS CHURCH, Va., Aug. 9, 2017 /PRNewswire/ --
-- Revenue of $1.23 billion down 2 percent year-over-year
-- Operating income of $136 million up 20 percent and Adjusted EBITDA of
$204 million up 5 percent year-over-year
-- Diluted EPS of $0.47 (GAAP) and $0.48 (Adjusted) reflect strong
profitability
-- Robust book-to-bill ratios of 1.3x for the quarter and 1.5x for the
trailing twelve months build the foundation for future growth
-- Reaffirm FY18 guidance across all metrics
CSRA Inc. (NYSE: CSRA), a leading provider of next-generation IT solutions and professional services to government organizations, today announced financial results for the first quarter of fiscal year 2018, which ended June 30, 2017.
"We are pleased to begin fiscal year 2018 with strong financial performance and vibrant business development results that keep us on track to meet our guidance across all of our financial metrics for the year," said Larry Prior, CSRA president and CEO. "First quarter adjusted EBITDA and adjusted EPS both exceeded consensus estimates, as the result of outstanding program performance. We also booked $1.6 billion in awards for a book-to-bill ratio of 1.3x, anchored by a MilCloud win that underscored our leadership position in cloud development and migration. We began the second quarter by closing the NES Associates acquisition, which is off to a great start and yielding immediate benefits to business development and execution."
Summary Operating Results (Unaudited)
(Dollars in
millions,
except per
share data) Three Months Ended
June 30, 2017 July 1, 2016
------------- ------------
Revenue $1,229 $1,254
Operating
income $136 $113
Net income
attributable
to CSRA
common
stockholders $77 $65
GAAP diluted
EPS $0.47 $0.39
Adjusted
EBITDA $204 $195
Adjusted
diluted EPS $0.48 $0.48
Note: All figures are unaudited; refer to
"Reconciliation of Non-GAAP Financial
Measures" at the end
of this news release for a more detailed
discussion of management's use of non-GAAP
measures and for
reconciliations to GAAP financial measures.
Revenue for the first quarter of fiscal year 2018 was $1.23 billion, down 2 percent compared to the first quarter of fiscal year 2017 (year-over-year), the smallest such decline since the Company was formed in November 2015.
Operating income for the first quarter of fiscal year 2018 of $136 million (11.1% operating margin), includes $10 million of separation, merger, and integration costs and $55 million of depreciation and amortization expense, including $12 million of amortization from acquisition-related intangible assets. Adjusted EBITDA, which excludes these items, was $204 million for the first quarter, up 5 percent year-over-year. The adjusted EBITDA margin of 16.6% was driven by strong contract performance and disciplined cost management.
Net income attributable to CSRA shareholders for the first quarter of fiscal year 2018 was $77 million, or $0.47 per share, compared to $65 million, or $0.39 per share in the first quarter of fiscal year 2017. Adjusted diluted EPS was $0.48 for the quarter, which was unchanged from the comparable period in fiscal year 2017.
Cash Management and Capital Deployment
For the first quarter of fiscal year 2018, operating cash flow was $87 million, and free cash flow was $76 million. Days Sales Outstanding (DSO) for the quarter were 56 days.
During the first quarter of fiscal year 2018, the Company returned $31 million to shareholders, including $17 million as part of its regular quarterly cash dividend program and $14 million in share repurchases. As of June 30, 2017, the Company had $194 million in cash and cash equivalents and $2.6 billion in debt (excluding capital lease obligations).
On June 15, 2017, the Company entered into a Second Amendment to the Credit Agreement for its Term Loan B Facility, which reduced the margin over the index interest rate by 0.5 percentage points and shifted approximately $184 million in debt from its Term Loan A1 Facility to the amended Term Loan B Facility.
After the quarter, the Company took three actions related to capital allocation:
-- The Board of Directors declared that the Company will pay a cash
dividend of $0.10 per share on October 3, 2017, to all common
shareholders of record as of August 29, 2017.
-- The Company paid $1.6 million in July 2017 for 50,000 additional shares
of CSRA common stock that had been repurchased in June 2017 but had not
settled in cash by June 30.
-- The Company completed its acquisition of Alexandria, VA-based network
engineering firm NES Associates, LLC, a leading provider of
telecommunications, infrastructure, and application architecture and
implementation services to Defense and other government customers. The
purchase price of $105 million was funded from cash on hand and $55
million from the Company's revolving credit facility that was drawn at
the end of the first quarter of fiscal year 2018.
Business Development
Bookings totaled $1.6 billion in the first quarter, representing a book-to-bill ratio of 1.3x. The first quarter marked the tenth consecutive quarter with a book-to-bill ratio of 1.0x or higher. Bookings for the trailing twelve months totaled $7.2 billion, representing a book-to-bill ratio of 1.5x.
Included in the quarterly bookings were several particularly important single-award prime contracts:
-- MilCloud 2.0 Phase 1. The U.S. Department of Defense's (DoD) Defense
Information Systems Agency (DISA) awarded CSRA a single-award,
indefinite-delivery/indefinite-quantity contract with a $498 million
ceiling over eight years. CSRA will provide DoD with a robust and
resilient private cloud infrastructure for a variety of highly-protected
workloads and prepare essential business processes for later, broader
use in the DoD IT cloud portfolio.
-- Transportation Security Administration (TSA) Information Technology
Infrastructure Program (ITIP) Bridge. CSRA secured an ITIP bridge
contract, with a series of options totaling $153 million over one year.
ITIP enhances TSA's ability to protect its infrastructure and IT network
from threats and ensures their network is agile and can perform to
changing demands and requests. The program supports over 700 airports
around the country along with the TSA headquarters and various support
centers.
-- National Cybersecurity Protection System (NCPS) Follow-on. The
Department of Homeland Security (DHS) awarded CSRA a 21-month, $152
million follow on contract to design, develop, maintain, and deploy
cyber security technologies to detect and deter sophisticated cyber
adversaries. CSRA will continue to provide a variety of services such as
operations and maintenance, core infrastructure engineering, security,
logistics, cyber analysis, warning, and mitigation capabilities.
-- United States Marine Corps' (USMC) Technology Services Organization
(TSO) IT Support. Under a five-year, $143 million contract, CSRA will
continue providing engineering, maintenance, and operations support to
TSO personnel and payroll systems.
The Company's backlog of signed business orders at the end of first quarter of fiscal year 2018 was $15.6 billion, of which $2.5 billion was funded. Compared to the fourth quarter of fiscal year 2017, total and funded backlog were up 3% and 2%, respectively.
Forward Guidance
The Company is maintaining the guidance ranges from the prior quarter, which anticipate organic growth in revenue and free cash flow and robust performance in adjusted EBITDA and adjusted diluted EPS. The Company elects to provide ranges for certain metrics that are not prepared and presented in accordance with GAAP because it cannot make reliable estimates of key items that would be necessary to provide guidance for its GAAP operating and cash flow measures, including pension and OPEB mark-to-market adjustments and amounts associated with any changes to its receivables purchase agreement.
Metric Fiscal Year 2018
------ ----------------
Revenue (millions) $5,000 - $5,200
----------------- ---------------
Adjusted EBITDA
(millions) $770 - $800
--------------- -----------
Adjusted Diluted Earnings
per Share $1.88 - $2.00
Free Cash Flow (millions) $330 - $380
------------------------- -----------
CSRA chief financial officer Dave Keffer commented, "We continue to execute on the hallmarks of CSRA--excellent profitability and business development success. Cash collection remains strong, and we are excited to be able to use our balance sheet to drive growth and shareholder returns, through accretive acquisitions like NES as well as measured debt paydown, dividends, and share repurchases."
Conference Call
CSRA executive management will hold a conference call on August 9, 2017, at 5 p.m. Eastern to discuss the financial results and outlook and answer questions. Analysts and institutional investors may participate on the conference call by dialing 877-883-0383 (domestic) or 412-902-6506 (international) and entering pass code 3831261. The conference call will be webcast simultaneously to the public through a link on the Investor Relations section of the CSRA website (https://www.csra.com/investor-relations/). A replay of the conference call will be available on the CSRA website approximately two hours after the conclusion of the call.
About CSRA Inc.
CSRA (NYSE: CSRA) solves our nation's hardest mission problems as a bridge from mission and enterprise IT to Next Gen, from government to technology partners, and from agency to agency. CSRA is tomorrow's thinking, today. For our customers, our partners, and ultimately, all the people our mission touches, CSRA is realizing the promise of technology to change the world through next-generation thinking and meaningful results. CSRA is driving towards achieving sustainable, industry-leading organic growth across federal and state/local markets through customer intimacy, rapid innovation and outcome-based experience. CSRA has over 18,000 employees and is headquartered in Falls Church, Virginia. To learn more about CSRA, visit www.csra.com. Think Next. Now.
Forward-looking Statements
All statements in this press release that do not directly and exclusively relate to historical facts constitute "forward-looking statements" within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements represent CSRA's intentions, plans, expectations and beliefs, including statements about earnings, revenue, cash flow, future acquisitions, dividends, debt repayment, share repurchases and other future financial business performance and strategies. Forward-looking statements are typically identified by words such as, but not limited to, "estimates," "expects," "anticipates," "intends," "believes," "plans," and similar expressions, or future or conditional verbs such as "will," "should," "would," and "could." The forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside the control of CSRA. These factors could cause actual results to differ materially from forward-looking statements. For a written description of these factors, see the sections titled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in CSRA's most recent Annual Report on Form 10-K for fiscal year 2017 and any updating information in subsequent SEC filings. CSRA disclaims any intention or obligation to update these forward-looking statements, whether as a result of subsequent event or otherwise.
CSRA INC.
CONSOLIDATED AND CONDENSED BALANCE SHEETS
(Unaudited)
As of
(Dollars in millions, shares in thousands) June 30,
2017 March 31, 2017
------------------------------------------ --------- --------------
Current assets
Cash and cash equivalents $194 $126
Receivables, net of allowance for doubtful
accounts of $26 and $24, 814 748
respectively
Prepaid expenses and other current assets 102 126
--- ---
Total current assets 1,110 1,000
----- -----
Intangible and other assets
Goodwill 2,335 2,335
Customer-related and other intangible
assets, net of accumulated 763 775
amortization of $256 and $244, respectively
Software, net of accumulated amortization of
$101 and $89, 73 81
respectively
Other assets 83 87
--- ---
Total intangible and other assets 3,254 3,278
----- -----
Property and equipment, net of accumulated
depreciation of $690 and 623 610
$694, respectively
---
Total assets $4,987 $4,888
====== ======
Current liabilities
Accounts payable $157 $187
Accrued payroll and related costs 183 181
Accrued expenses and other current
liabilities 525 487
Current capital lease liability 45 44
Current maturities of long-term debt 84 72
Dividends payable 18 21
--- ---
Total current liabilities 1,012 992
----- ---
Long-term debt, net of current maturities 2,549 2,511
Noncurrent capital lease liability 188 172
Deferred income tax liabilities 268 272
Other long-term liabilities 559 582
Commitments and contingent liabilities
Equity
Stockholders' equity:
Common stock, $0.001 par value, 750,000
shares authorized, - -
163,881 and 163,570 shares issued, and 163,367 and
163,216
shares outstanding, respectively
Additional paid-in capital 127 134
Accumulated earnings 225 165
Accumulated other comprehensive income 27 31
--- ---
Total stockholders' equity 379 330
Noncontrolling interests 32 29
--- ---
Total equity 411 359
Total liabilities and equity $4,987 $4,888
====== ======
CSRA INC.
CONSOLIDATED AND CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
(Dollars in millions, except per share amounts) June 30, 2017 July 1, 2016
---------------------------------------------- ------------- ------------
Total revenue $1,229 $1,254
Cost of services 979 1,015
Selling, general and administrative expenses 49 56
Separation and merger costs 5 5
Depreciation and amortization 60 65
--- ---
Operating expense 1,093 1,141
----- -----
Operating income 136 113
Net benefit of defined benefit plans 21 24
Interest expense, net (30) (30)
Other expense, net (1) (1)
--- ---
Income from continuing operations before taxes 126 106
Income tax expense 46 38
--- ---
Net income 80 68
Less: noncontrolling interests 3 3
--- ---
Net income attributable to CSRA common
stockholders $77 $65
=== ===
Earnings per common share:
Basic $0.47 $0.40
Diluted $0.47 $0.39
Common share information (weighted averages, in
thousands):
Common shares outstanding - basic 163,386 163,275
Dilutive effect of stock options and equity
awards 1,594 1,663
-----
Common shares outstanding - diluted 164,980 164,938
======= =======
Cash dividend per common share $0.10 $0.10
CSRA INC.
CONSOLIDATED AND CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in
millions) Three Months Ended
-----------
June 30, 2017 July 1, 2016
------------- ------------
Cash flow
provided by
operating
activities:
Net income $80 $68
Adjustments to
reconcile net
income to cash
provided by
operating
activities:
Depreciation and
amortization 60 67
Stock-based
compensation 4 3
Excess tax
benefit from
stock-based
compensation (1) (1)
Deferred income
taxes (2) -
Net loss on
dispositions on
business and
assets - 2
Changes in assets and
liabilities, net of
acquisitions and
dispositions:
(Increase)
decrease in
assets (39) 14
(Decrease)
increase in
defined benefit
plan liability (20) 7
(Decrease)
increase in
other
liabilities 2 (10)
Other operating
activities, net 3 6
--- ---
Cash provided by
operating
activities 87 156
--- ---
Cash flows used
in investing
activities:
Purchases of
property and
equipment (29) (34)
Software
purchased and
developed (2) (4)
Proceeds from
disposals of
assets 6 -
Other investing
activities, net 19 (5)
--- ---
Cash used in
investing
activities (6) (43)
--- ---
Cash flows
provided by
financing
activities:
Borrowings under
revolving
credit facility 55 -
Repayment under
lines of credit - (48)
Borrowings of
long term debt 184 -
Payments of
long-term debt (191) (50)
Debt issuance
cost (2) -
Proceeds from
stock options
and other stock
activity, net 1 8
Repurchase of
common stock (14) -
Dividends paid (17) (18)
Payments on
lease liability (10) (7)
Other financing
activities (19) 5
--- ---
Cash used in
financing
activities (13) (110)
--- ----
Net increase in
cash and cash
equivalents 68 3
Cash and cash
equivalents at
beginning of
period 126 130
--- ---
Cash and cash
equivalents at
end of period $194 $133
==== ====
CSRA INC.
Supplemental Cash Flow Information
(Unaudited)
(Dollars in millions) Three Months Ended
--------------------
June 30, July 1,
2017 2016
--------- --------
Supplemental cash flow
information:
Cash paid for income taxes $2 $2
Cash paid for interest 26 28
Capital expenditures in
accounts payable and other
liabilities 9 13
Capital expenditures through
capital lease obligations 28 -
Segment Operating Results (Unaudited)
CSRA delivers IT, mission, and operations-related services across the U.S. federal government through two reportable segments-Defense and Intelligence, which supports customers in the Department of Defense (DoD) and Intelligence Community, and Civil, which supports customers in homeland security, law enforcement, healthcare, and other civil agencies as well as certain state and local government agencies. The following table summarizes revenue and segment operating income by reportable segment:
Three Months Ended
(Dollars in June 30, July 1,
millions; 2017 2016
unaudited)
--------- --------
Revenue
Defense and
Intelligence $525 $568
Civil 704 686
Segment operating
income(a)
Defense and
Intelligence 58 43
Civil 97 92
Notes:
(a) Excludes segment operating income
(loss) for the Corporate segment
as well as
Separation and merger costs.
For the three months ended June 30, 2017, Defense and Intelligence segment revenues decreased by $43 million, or 8 percent, compared to revenues from the same period of the prior year. The primary drivers of the decline were the Army Logistics Modernization Program and the U.S. Strategic Command Information Technology Capabilities Contract. First quarter fiscal year 2018 Civil segment revenues increased by $18 million, or 3 percent compared to revenues from the same period of the prior year, driven by the expansion of several recent program wins. For the three months ended June 30, 2017, segment operating income and segment operating margin increased in both segments compared to the first quarter of fiscal year 2017 due primarily to program delivery efficiencies and indirect cost reductions.
Reconciliation of Non-GAAP Financial Measures
The following tables illustrate the items and means to reconcile non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP. CSRA management believes that adjusted diluted EPS, adjusted EBITDA and margin, and free cash flow provide useful additional information to investors regarding the Company's financial condition and results of operations as they provide additional measures of the Company's profitability and ability to service its debt. In addition, these measures are considered important measures by financial analysts covering CSRA, and are used in determining executive compensation.
Using non-GAAP measures may have limited value as they exclude certain items that may have a material impact on reported financial results and cash flows. When analyzing CSRA's performance, investors and securities analysts should evaluate each adjustment in our reconciliation and use adjusted measures in addition to, and not as an alternative to, GAAP measures.
The major adjustments to GAAP to derive adjusted metrics are summarized below:
-- Plan impacts. At the time of the Spin-off on November 27, 2015, CSRA
assumed the assets and obligations of the pension and other
post-retirement plans from CSC. The recurring net non-cash benefits
associated with these plans are excluded from all quarters. There were
no plan remeasurements in the first quarters of fiscal year 2017 and
2018.
-- Spin, Merger, and Integration Costs. Costs directly associated with the
separation and merger transactions are excluded from adjusted EPS,
adjusted EBITDA, and free cash flow.
-- Acquisition-related Intangible Amortization. All amortization associated
with acquisition-related intangible assets is excluded from adjusted
diluted EPS.
Adjusted Diluted Earnings Per Share
CSRA INC.
ADJUSTED DILUTED EARNINGS PER SHARE (unaudited)
Three Months Ended
(Dollars in
millions
except per
share
amounts) June 30, 2017 July 1, 2016
------------- ------------
Income before
income taxes $126 $106
Separation
and merger
costs 5 5
Integration
and other
costs 2 7
Net benefit
of defined
benefit
plans (21) (24)
Amortization
of backlog
associated
with SRA
acquisition(a) - 16
Other
acquisition
& spin-off-
related
intangible
amortization(b) 17 15
--- ---
Adjusted
income
before
income taxes 129 125
Adjusted
income tax
expense 47 43
--- ---
Adjusted net
income 82 82
Less:
Noncontrolling
interest 3 3
Adjusted net
income
attributable
to CSRA
common
stockholders $79 $79
=== ===
Adjusted
diluted
earnings per
common share $0.48 $0.48
Notes: Adjusted net income attributable to
CSRA common stockholders may not equal the
sum of the component figures due to
rounding.
(a) Total value
of $65
million
amortized
over the
period
November 30,
2015 to
November 30,
2016 is
included in
Income
before
income
taxes.
(b) The three
months ended
June 30,
2017
includes
$4.9 million
in
accelerated
amortization
expense
related to
software
acquired in
the spin-
off that was
discontinued
for further
use in the
period.
Adjusted EBITDA and Margin
During the three months ended June 30, 2017, CSRA adopted Accounting Standard Update No. 2017-07--Compensation-Retirement Benefits (Topic 715), which changes the presentation of net periodic pension and postretirement costs. Previously, operating income included net periodic benefits of CSRA's defined benefit pension and postretirement plans. Under the new presentation, operating income excludes this benefit, so it is no longer deducted to compute adjusted EBITDA. The prior period has been revised to conform with current period presentation.
CSRA INC.
ADJUSTED EBITDA (unaudited)
Three Months Ended
(Dollars
in
millions) June 30, 2017 July 1, 2016
------------
Operating
Income $136 $113
Less:
other
expense,
net (1) (1)
Add:
Separation,
merger
and
integration
costs(a) 10 29
Depreciation
and
amortization 55 49
Amortization
of
contract-
related
intangibles - 2
Stock-
based
compensation 4 3
Adjusted
EBITDA $204 $195
==== ====
Adjusted
EBITDA
Margin 16.6% 15.6%
==== ====
Notes:
(a) Costs
directly
associated
with the
separation
and SRA
merger
transactions,
one time
integration
costs; for
the three
months ended
June 30,
2017,
includes
$4.9 million
in
accelerated
amortization
expense
related to
software
acquired in
the spin-
off that was
discontinued
for further
use in the
period; for
the three
months ended
July 1,
2016,
includes
intangibles
amortization
expense
associated
with SRA's
funded
contract
backlog.
Free Cash Flow
CSRA defines free cash flow to be equal to the sum of (1) operating cash flows, (2) investing cash flows, excluding business acquisitions, dispositions, and investments, and (3) payments on capital leases and other long-term asset financings, as further adjusted for certain other cash flow items, such as (i) non-recurring separation-related payments and (ii) the relative fiscal quarter impact of net proceeds arising from the initial sale of billed and/or unbilled receivables under the Master Accounts Receivable Purchase Agreement ("Purchase Agreement").
CSRA INC.
FREE CASH FLOW (unaudited)
Three Months Ended
(Amounts in
millions) June 30, 2017 July 1, 2016
----------- ------------- ------------
Net cash
provided by
operating
activities $87 $156
Net cash
provided by
investing
activities (6) (43)
Payments on
capital
leases and
other long-
term assets
financing (10) (7)
Separation and
merger-
related
payments 5 7
Initial sales
of qualifying
accounts
receivables(a) - (46)
--- ---
Free cash flow $76 $67
=== ===
Notes:
(a) Adjustments
for the
relative
impact of
the net
proceeds
arising from
the initial
sale of
billed and/
or unbilled
receivables
under the
Purchase
Agreement as
well as the
effect of
any new
types of
sales
arising from
changes in
the Purchase
Agreement.
For the
quarter
ended July
1, 2016, the
amount
relates to
SRA
International,
Inc. ("SRA")
unbilled
receivables
under the
Purchase
Agreement to
which SRA
was added to
during the
period.
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SOURCE CSRA Inc.
