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
    --  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
      except per
      share data)                          Three Months Ended

                     June 30, 2017               July 1, 2016
                     -------------               ------------

     Revenue                                           $1,229 $1,254

      income                                             $136   $113

     Net income
      to CSRA
      stockholders                                        $77    $65

      GAAP diluted
      EPS                                               $0.47  $0.39

      EBITDA                                             $204   $195

      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
    --  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


                                                                                     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

    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

    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


    Stockholders' equity:

    Common stock, $0.001 par value, 750,000
     shares authorized,                                                     -                               -
    163,881 and 163,570 shares issued, and 163,367 and
    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


                                                                               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

    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.



    (Dollars in
     millions)                                          Three Months Ended

                                                June 30, 2017            July 1, 2016
                                                -------------            ------------

    Cash flow
     provided by

    Net income                                                     $80                        $68

    Adjustments to
     reconcile net
     income to cash
     provided by

    Depreciation and
     amortization                                          60                             67

     compensation                                           4                              3

    Excess tax
     benefit from
     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

     decrease in
     assets                                              (39)                            14

     increase in
     defined benefit
     plan liability                                      (20)                             7

         increase in
         liabilities                                        2                           (10)

    Other operating
     activities, net                                        3                              6
                                                          ---                            ---

    Cash provided by
     activities                                            87                            156
                                                          ---                            ---

    Cash flows used
     in investing

    Purchases of
     property and
     equipment                                           (29)                          (34)

     purchased and
     developed                                            (2)                           (4)

    Proceeds from
     disposals of
     assets                                                 6                              -

    Other investing
     activities, net                                       19                            (5)
                                                          ---                            ---

    Cash used in
     activities                                           (6)                          (43)
                                                          ---                            ---

    Cash flows
     provided by

    Borrowings under
     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
     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


    (Dollars in millions)                             Three Months Ended

                                                   June 30,          July 1,
                                                     2017               2016
                                                  ---------          --------

    Supplemental cash flow

      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
                                             ---------         --------


                         Defense and
                         Intelligence                              $525     $568

                        Civil                            704            686

      Segment operating

                         Defense and
                         Intelligence                     58             43

                        Civil                             97             92


     (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
    --  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
     except per
     amounts)                          June 30, 2017            July 1, 2016
                                       -------------            ------------

    Income before
     income taxes                                        $126                          $106

     and merger
     costs                                         5                                5

     and other
     costs                                         2                                7

    Net benefit
     of defined
     plans                                      (21)                            (24)

     of backlog
     with SRA
     acquisition(a)                                -                              16

     & spin-off-
     amortization(b)                              17                               15
                                                 ---                              ---

     income taxes                                129                              125

     income tax
     expense                                      47                               43
                                                 ---                              ---

    Adjusted net
     income                                       82                               82

     interest                                      3                                3

    Adjusted net
     to CSRA
     stockholders                                         $79                           $79
                                                          ===                           ===

     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

    (a)                                             Total value
                                                    of $65
                                                    over the
                                                    November 30,
                                                    2015 to
                                                    November 30,
                                                    2016 is
                                                    included in

    (b)                                             The three
                                                    months ended
                                                    June 30,
                                                    $4.9 million
                                                    related to
                                                    acquired in
                                                    the spin-
                                                    off that was
                                                    for further
                                                    use in the

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

     millions)                June 30, 2017            July 1, 2016

     Income                                     $136                       $113

     net                                (1)                           (1)


        costs(a)                         10                             29

        amortization                     55                             49

        intangibles                       -                             2

        compensation                      4                              3

     EBITDA                                     $204                       $195
                                                ====                       ====

     Margin                           16.6%                         15.6%
                                       ====                           ====


    (a)              Costs
                     with the
                     and SRA
                     one time
                     costs; for
                     the three
                     months ended
                     June 30,
                     $4.9 million
                     related to
                     acquired in
                     the spin-
                     off that was
                     for further
                     use in the
                     period; for
                     the three
                     months ended
                     July 1,
                     with SRA's

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
     activities                              $87                      $156

    Net cash
     provided by
     activities                      (6)                        (43)

    Payments on
     leases and
     other long-
     term assets
     financing                      (10)                         (7)

    Separation and
     payments                          5                            7

    Initial sales
     of qualifying
     receivables(a)                    -                        (46)
                                     ---                         ---

    Free cash flow                           $76                       $67
                                             ===                       ===


    (a)              Adjustments
                     for the
                     impact of
                     the net
                     arising from
                     the initial
                     sale of
                     billed and/
                     or unbilled
                     under the
                     Agreement as
                     well as the
                     effect of
                     any new
                     types of
                     arising from
                     changes in
                     the Purchase
                     For the
                     ended July
                     1, 2016, the
                     relates to
                     Inc. ("SRA")
                     under the
                     Agreement to
                     which SRA
                     was added to
                     during the

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