Highlights From Continuing Operations for the First Quarter 2013 Include:
• Revenue of $225.0 million, a 1% increase, also up 1% in constant currency.
• Operating income of $5.5 million, before $0.3 million charge associated with previously announced restructuring program, representing an operating income margin of 2.5%.
• Net income from continuing operations of $1.7 million, or $2.1 million before restructuring charges, or $0.03 per share.
• Term loan repaid in the quarter, significantly lowering remaining cost of debt.
President and Chief Executive Officer Dave Peterschmidt said,“Ciber delivered steady performance in the first quarter of 2013, continuing to build on the momentum of 2012. We won significant new clients, continued to drive profitable growth in North America, and delivered improvement in the bottom line, evidence that our strategy is working. It is notable that many of the internal challenges we faced in 2012 are successfully behind us, and while there is still work to be done, especially in our International business, we can increasingly focus on continued operating improvement in 2013.”
Claude Pumilia, Chief Financial Officer, commented,“We continue to streamline Ciber, while aligning our resources with the most promising opportunities. Our objective remains to lower our overall cost structure, improve operating procedures, and gain efficiencies in delivery, while improving the quality of our client-facing services. The restructuring plan we announced in the third quarter of 2012 is well underway and on plan. We continue to expect savings of $7 million in 2013 and $11 million annually thereafter. We incurred a modest $0.3 million in restructuring charges in the first quarter of 2013, and expect the remaining restructuring charges of $5 million, or $0.06 per share, to be incurred in the remainder of the year as we continue to consolidate our real estate footprint.”
Market Highlights in the First Quarter Include:
• The Washington State Board for Community and Technical Colleges, a system of 34 colleges that serves nearly 470,000 students annually, selected Ciber to unite all the colleges in a common ERP system that will provide improved services in student administration, human resources and payroll and financial management. Ciber will provide application implementation, hosting and managed services for the five-year project.
• One of the leading “do-it-yourself” retailers in Germany selected Ciber to implement SAP merchandising and mobility solutions, Merchandising for Retail, and SAP Offline Mobile Store solutions to optimize the merchandising process.
• Xerox Corporation, a leading global technology & services company and a long-term Ciber client, extended an agreement to provide application support services for roughly 100 databases and eight applications supporting back office operations. In addition, Xerox selected Ciber to provide project management, business systems analysis and application architecture services for Marketing and Sales strategic IT investment projects, a new area of work for Ciber in this leading global manufacturer.
• One of the UK’s largest social housing providers selected Ciber to implement the first phase of its ERP program that will assist with real estate management, CRM, mobility and asset management.
First-Quarter Financial Results from Continuing Operations
Revenue of $225.0 million increased 1%, or 1% in constant currency, compared with last year’s first quarter. Sequentially from the fourth quarter of 2012, revenue was flat in U.S. dollars, and down 1% in constant currency, as growth in the North America revenues offset declines in International revenues.
Gross margin for the first quarter was 25.1%, compared with 25.3% in last year’s first quarter and 26.1% in the fourth quarter of 2012. The slight year-over-year and sequential gross margin declines primarily reflected lower international utilization, particularly in The Netherlands.
Selling, general and administrative expenses (SG&A) in the first quarter were $51.1 million, a $2.2 million or 4% increase from the first quarter of last year, but a 5% decrease sequentially. This sequentially improved cost structure, together with the additional targeted savings from the restructuring activities, is expected to contribute to operating margin expansion in 2013 and beyond.
First quarter 2013 operating income from continuing operations of $5.5 million, before restructuring charges of $0.3 million, yielded an operating margin of 2.5%, compared to 3.4% in the prior-year first quarter, but flat sequentially, compared to the fourth quarter of 2012. Improved margins in North America were more than offset by margin pressure in International.
Net income from continuing operations, before restructuring charges, for the first quarter of 2013 was $2.1 million, or $0.03 per share. Including restructuring, net income from continuing operations was $1.7 million in the quarter. Last year’s first quarter net income was $1.5 million, or $0.02 per share.
Revenue in the International division was $118.1 million for the first quarter of 2013, flat compared to the year-ago first quarter, and a decline of 1% in constant currency. Compared to the fourth quarter of 2012, International revenue was flat, and represented a decline of 1% in constant currency. Against a backdrop of a soft European economic environment, revenue performance year-over-year was led by Ciber’s businesses in the UK and Germany, where growth was offset by challenges in The Netherlands. Operating margin of 4.5% was lower in comparison to the first quarter of 2012, due to lower gross margin and higher SG&A. Gross margins primarily reflected lower utilization in our International operation. While gross margin was also lower sequentially for the same reasons, SG&A improved sequentially, reflecting streamlining efforts and the initial benefits of restructuring.
The North American division posted revenue of $107.2 million, up 2% from the year-ago first quarter and flat compared to the fourth quarter of 2012, reflecting normal fourth quarter-to-first quarter seasonality. Importantly, operating margin improved to 7.6%, up 90 basis points from the year-ago first quarter and 40 basis points from the fourth quarter of 2012.
Capital Deployment and Liquidity
Ciber’s cash balance at the end of the first quarter of 2013 was $35.3 million. The outstanding balance on the credit facility was $31.6 million. During the quarter Ciber repaid the remaining $5.4 million balance on its term loan.
Cash flow used in operating activities (continuing operations) year-to-date through March 31 was $28.1 million, driven mostly by changes in accrued compensation and liabilities including the timing of our domestic payroll, payout of variable compensation and restructuring payments. Days Sales Outstanding (DSO) were 63 days. Capital expenditures totaled $0.2 million for the first quarter of 2013.
Continuing Operations and Segment Realignment
Ciber made the strategic decision to sell its Federal division and certain assets of its Global IT Outsourcing business in order to focus on its core offerings. The Company completed the Federal division sale on March 9, 2012, and completed the Global ITO asset sale on October 15, 2012. As a result of these sales, the Federal division and the portion of the Global ITO business that was sold are presented as discontinued operations. Additionally, for 2012, Ciber combined the portion of the operations of its IT Outsourcing division that it retained with the remaining two divisions: International and North America. The discussion of the Company’s results includes comparison to 2011 as if the new reporting segments were in place that year. Quarterly results for 2011and 2012 under the new reporting segments and with the Federal division and the Global ITO business as discontinued operations are provided in the tables of this earnings release and are available at ciber.com.
Investor and Analyst Conference Call
Ciber President and Chief Executive Officer Dave Peterschmidt invites you to participate in a conference call or audiocast today at 8:30 am. Eastern Time to discuss the Company’s financial results.
The live audiocast of the conference call will be available to the public at ciber.com/cbr. To participate in the conference call, dial 800-798-2864 (U.S.) or +1-617-614-6206 (outside the U.S.) ten minutes prior to the start of the call and provide the operator with the pass code 54721771.
A replay of the call and audiocast will be available one hour after the call ends through May 30, 2013. To access the telephone replay, dial 888-286-8010 (U.S.) or +1- 617-801-6888 (outside the U.S.) and use the pass code 31670060. The webcast replay will be available at ciber.com/cbr.
Non-GAAP Financial Information
Ciber presents a number of non-GAAP measurements because management believes that these metrics provide meaningful supplemental information in addition to the GAAP metrics and provide comparability and consistency to prior periods. These non-GAAP measurements include: revenue change year-over-year and sequentially adjusted for currency, and international revenue change year-over-year and sequentially adjusted for currency; first quarter 2013 operating income and operating margin adjusted for restructuring charges; first quarter 2013 net income from continuing operations and net income per share from continuing operations adjusted for restructuring charges; and first quarter 2013 free cash flow from continuing operations. Reconciliations of non-GAAP to comparable GAAP measures are available in the body of this release as well as the accompanying schedules. These reconciliations may also be found in the Investor Relations section of the Company's website.
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 relating to our operations, results of operations and other matters that are based on our current expectations, estimates, forecasts and projections. Words, such as “anticipate,” “believe,” “could,” “expect,” “estimate,” “intend,” “may,” “opportunity,” “plan,” “potential,” “project,” “should,” and “will” and similar expressions, are intended to identify these forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Forward-looking statements are based on assumptions as to future events that may not prove to be accurate. Risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by our forward-looking statements include, but are not limited to, risks that: our results of operations may be adversely affected if we are unable to execute on the key elements of our strategic plan; our results of operations can be adversely affected by economic conditions and the impacts of economic conditions on our clients' operations and technology spending; termination of a contract by a significant client and/or cancellation with short notice could adversely affect our results of operations; the IT services industry, in the U.S. and internationally, is highly competitive, with increased focus on offshore capability and we may not be able to compete effectively; our new credit agreement, an asset-based and term loan facility, limits our operational and financial flexibility and we also face the need to comply with financial covenants in our credit agreement; possible future consideration on the sale of certain contracts and assets associated with our information technology outsourcing practice may not be realized; possible post-closing adjustments to the purchase price on the sale of our former Federal division could reduce the purchase price and cause us to recognize an additional loss on that sale; we may experience declines in revenue and profitability if we do not accurately estimate the cost of engagements conducted on a fixed-price basis; our business could be adversely affected if our clients are not satisfied with our services, and we could face damage to our professional reputation and/or legal liability; if we are not able to anticipate and keep pace with rapid changes in technology, our business will be negatively affected; our international operations are susceptible to different financial and operational risks than our domestic operations; we intend to increase our presence in India, which may expose us to operational risks; our revenues, operating results and profitability will vary from quarter to quarter, which may impact our ability to comply with our debt covenants, and may also result in increased volatility in the price of our stock; a data security or privacy breach could adversely affect our business; if we are unable to collect our receivables, our results of operations and cash flows could be adversely affected; our future success depends on our ability to continue to retain and attract qualified sales, delivery and technical employees; we could incur additional losses due to further impairment in the carrying value of our goodwill; we depend on contracts with various public sector agencies for a significant portion of our revenue and, if the spending policies or budget priorities of these agencies change, we could lose revenue; unfavorable government audits could require us to adjust previously reported operating results, to forego anticipated revenue and subject us to penalties and sanctions; our services or solutions could infringe upon the intellectual property rights of others, or we might lose our ability to utilize rights we claim in intellectual property or the intellectual property of others; we have adopted anti-takeover defenses that could make it difficult for another company to acquire control of Ciber or limit the price investors might be willing to pay for our stock, thus affecting the market price of our securities. For a more detailed discussion of these factors, see the information under the “Risk Factors” heading in our Annual Report on Form 10-K for the year ended December 31, 2012, and other documents filed with or furnished to the Securities and Exchange Commission. We undertake no obligation to publicly update any forward-looking statements in light of new information or future events. Readers are cautioned not to put undue reliance on forward-looking statements.
About Ciber, Inc.
Ciber (ciber.com) is a leading global IT consulting company with about 6,700 consultants and contractors in North America, Europe and Asia/Pacific, and approximately $1 billion in annual revenue. Client focused and results driven, Ciber partners with organizations to develop technology strategies and solutions that deliver tangible business value. Founded in 1974, the company trades on the New York Stock Exchange (NYSE: CBR).