CIBER, Inc. (NYSE: CBR), a global information technology consulting, services and outsourcing company, today reported results for the second quarter of 2010.
Highlights for the second quarter 2010:
• Revenue increased 2% to $265.4 million, the largest increase in 6 quarters
• Constant currency adjusted revenue increased 3%
• Operating loss of $111.2 million, including $118.1 million of one-time charges
• Excluding significant charges, operating income of $7.0 million
• Net loss of $80.8 million, or $1.16 per share
• Excluding significant charges, net income of $4.1 million, or $0.06 per share
• Cash on hand at quarter end of $42 million
In the second quarter of 2010, the Company incurred two significant, primarily non-cash, charges. The significant charges totaled $84.9 million after-tax ($118.1 million pre-tax), or $1.22 per share, of which $112.5 million were non-cash. The items were:
• A $81.2 million after-tax ($112.0 million pre-tax), or $1.17 per share, non-cash charge for impairment of goodwill. Testing of goodwill as of June 30, 2010, using discounted cash flow analysis supported by comparative market multiples to determine the estimated fair values, indicated that the book values of Federal and Custom Solutions divisions’ goodwill were impaired. The goodwill impairment charge for these divisions was primarily driven by adverse equity market conditions that caused a sustained depression in CIBER’s stock price and the financial performance of these divisions. The charge reduces goodwill recorded in connection with acquisitions made in previous years and does not impact the Company’s business operations or cash flow.
• A $3.7 million after-tax ($6.1 million pre-tax), or $0.05 per share, charge for the departure of the former chief executive officer in April 2010 and the transition expenses related to the recruitment and hiring of the new chief executive officer, as well as expenses resulting from the former chairman of the board stepping down from that position. This “executive change” charge includes separation payments, legal fees, search firm fees and other costs related to the transition and recruitment of the Company’s new chief executive officer.
“Excluding the significant items, CIBER delivered solid financial performance in the second quarter,” said Peter Cheesbrough, CIBER’s chief financial officer. “We are benefitting from an improving macro environment and our revenue growth was the strongest in the past 6 quarters.” Cheesbrough noted that while EPS and operating margin were in line with expectations for the quarter, they remain an area for improvement. “We continue to focus on gaining operating efficiencies by removing redundant costs in our current model. We have begun moving CIBER towards a more efficient shared-service model and to make improvements, particularly in the U.S, to our sales, delivery and overhead infrastructures.”
President and Chief Executive Officer Dave Peterschmidt, who joined CIBER on July 1 said, “I am very pleased to be here at CIBER. This is a global company rich in intellectual capital and experienced in providing world-class IT consulting services and outsourcing.” Peterschmidt added, “My initial focus, after meeting with clients, employees, and stakeholders, will be the development of a comprehensive strategic plan that sharpens CIBER’s focus on critical markets and services. Additionally, we will institute operational regimens to significantly improve profitability and cash flow.”
Second Quarter Consolidated Results
Revenue of $265.4 million, increased 2% compared to the second quarter of 2009, and was up 1% sequentially from the first quarter of 2010. On a constant currency basis, excluding the impact of a stronger U.S. dollar between the comparable periods which negatively impacted revenue by $3.4 million, revenue increased 3% over the same period last year, and increased 3% sequentially from the first quarter of 2010. The International, Federal and U.S. ERP businesses drove the majority of the revenue growth, demonstrating the benefit of a diverse revenue base during an uneven economic recovery.
Gross margin for the quarter was 25.1%, essentially flat compared to 25.3% in last year’s second quarter and 24.9% in the first quarter of this year.
The Company has been able to maintain a relatively flat gross margin while it continues to incur costs to invest for future revenue growth particularly in the International business. The Company achieved improved utilization rates in the second quarter of this year as compared to last year’s second quarter, which partially offset the growth investments.
Second quarter operating loss was $111.2 million. Excluding the goodwill impairment and executive change charges, operating income was $7.0 million, down 7% and operating income margin was 2.6% compared to 2.9% in last year’s second quarter and 2.7% in the first quarter of 2010.
Operating income and margin in the second quarter also included nearly $0.5 million of severance paid to employees impacted by the actions taken to reduce redundant costs and streamline operations.
Second quarter net loss was $80.8 million. Net income excluding the impairment and executive change charges was $4.1 million compared with $4.7 million for the same period of 2009.
Second quarter 2010 net loss included a tax benefit driven by the tax impact of the goodwill impairment charge and the executive change expenses.
Management expects the tax rates for the third and fourth quarters to return to the 35% to 37% range, with a full-year tax rate, including the second quarter benefit, in the range of 25% to 29%. The tax rate in last year’s second quarter was 32%.
Capital Deployment and Liquidity
CIBER’s total cash balance at quarter end was $42 million. Cash used in operating activities for the first six months of the year was $11 million. The use was primarily driven by an increase in accounts receivable. Capital expenditures for the quarter and six months were $3.5 million and $6.6 million, respectively.
Days sales outstanding, or DSOs, for services were 67 days at June 30, 2010, compared with 61 days at December 31, 2009 and 66 days at June 30, 2009.
Total debt at June 30, 2010 was $102 million, compared to $98 million December 31, 2009.
Outlook for Third Quarter 2010 and Full Year 2010
Management expects full-year 2010 revenue of at least $1.060 billion, above its original range of $1.025 billion to $1.045 billion with third quarter revenue between $264 million and $268 million.
The Company has maintained its full-year 2010 EPS range, excluding the impairment and the executive change charges, of $0.22 to $0.26. GAAP EPS is expected to be a loss in the range $0.96 to $1.00. This range has been modified from the previous guidance of $0.22 to $0.26 to account for the second quarter 2010 impairment and executive change charges of $1.22 per share. Third quarter 2010 GAAP EPS is expected to be between $0.05 and $0.07.
Investor and Analyst Conference Call
CIBER President and Chief Executive Officer Dave Peterschmidt will host a conference call and webcast at 11:00 a.m. Eastern Time today. Joining Dave on the call will be Peter Cheesbrough, Executive Vice President and Chief Financial Officer. To listen to the conference call live via telephone, dial 866-831-6272 (U.S.) or +1-617-213-8859 (outside the U.S.) ten minutes prior to the start of the call. The pass code is 24096207.
The conference call will be available via webcast on the Investor Relations section at ciber.com/cbr. Registration for the event is required, so please register at least five minutes prior to the scheduled start time.
A replay of the call will be available one hour after the call ends through September 5, 2010, at 888-286-8010 (U.S.) or +1-617-801-6888 (outside the U.S.). The pass code is 15638747. A webcast replay will be available in the Investor Relations section at ciber.com/cbr for the same time period.
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 constant currency adjusted; operating income and operating income margin excluding impairment and executive change charges; net income attributable to CIBER excluding impairment and executive change charges; earnings per share excluding impairment and executive change charges; and 2010 earnings per share guidance excluding impairment and executive charges.
Reconciliations of non-GAAP to comparable GAAP measures are available in the accompanying schedules and 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 forward-looking statements. For example, we make certain forward-looking statements regarding our current estimates for revenue and profitability for certain of our business units for 2010. These statements reflect a number of risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by our forward-looking statements. These risks include, without limitation, risks that: (1) economic and political conditions, including regulatory or legislative action, adversely affect us or our clients’ businesses and levels of business activity; (2) we cannot expand and develop our services and solutions in response to changes in technology and client demand; (3) we cannot compete effectively in the highly competitive consulting, systems integration and technology and outsourcing markets; (4) our work in the government contracting environment exposes us to additional risks; (5) our clients may terminate their contracts with us; (6) our outsourcing services subject us to operational and financial risk; (7) the type and level of technology spending by our clients may change; (8) we cannot maintain favorable pricing and utilization rates; (9) legal liability may result from solutions or services we provide; (10) we cannot anticipate the cost and complexity of performing our work or we are not able to control our costs; (11) our global operations are subject to complex risks, some of which might be beyond our control, including, but not limited to, fluctuations in foreign exchange rates; (12) we cannot balance our resources with client demand or hire sufficient employees with the required skills and background; (13) we may incur liability from our subcontractors’ or other third parties’ failure to deliver their project contributions on time or at all; (14) we cannot manage the organizational challenges associated with our size; (15) consolidation in the industries that we serve could adversely affect our business; (16) our ability to attract and retain business depends on our reputation in the marketplace; (17) our share price could fluctuate due to numerous factors, including variability in revenues, operating results and profitability; and/or (18) other factors discussed from time to time in the Company’s news releases and public statements, as well as the risks, uncertainties and other factors discussed under the “Risk Factors” heading in the Form 10-Q and our most recent annual report on Form 10-K and other documents filed with or furnished to the Securities and Exchange Commission. Most of these factors are beyond our ability to predict or control.
Forward-looking statements are not guarantees of performance and speak only as of the date they are made, and 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, Inc. (ciber.com) is a global information technology consulting, services and outsourcing company applying practical innovation through services and solutions that deliver tangible results for both commercial and government clients. Services include application development and management, ERP implementation, change management, project management, systems integration, infrastructure management and end-user computing, as well as strategic business and technology consulting. Founded in 1974 and headquartered in Greenwood Village, Colorado, CIBER has 8,000 employees. We operate in 18 countries, serving clients from 14 Global Solution Centers and 70 local offices in North America, Europe and Asia/Pacific. Annual revenue in 2009 exceeded $1.0 billion. CIBER trades on the New York Stock exchange (NYSE: CBR), and is included in the Russell 2000 Index and the S&P Small Cap 600 Index.