Highlights for the second quarter 2011 (results include several significant items described below):
• Revenue increased 1% to $267.8 million;
• Operating loss of $26.5 million, or operating income of $5.2 million excluding significant items;
• Net loss of $58.4 million, or net loss of $0.1 million excluding significant items;
• EPS of $(0.81), or EPS of $0.00 per share excluding significant items;
• Cash on hand at quarter end of $62 million.
President and Chief Executive Officer Dave Peterschmidt said,“Our International business continued to perform extremely well with double-digit revenue growth and margin expansion in the second quarter. This success is a function of our focused strategy and I remain confident that we can replicate this in North America as we continue to narrow our focus and increase our discipline.”
Peterschmidt continued,“Our overall performance, however, was adversely affected by issues in our North American business and on the balance sheet. Specifically, as a result of a more disciplined approach to managing CIBER, we identified five fixed-price contracts signed in 2009 or earlier in the United States that no longer carry the same level of profitability and thus diminished earnings in the quarter. The charges related to these contracts and other items reflect the fact that we are implementing the rigorous processes we need to make CIBER a truly world-class, professionally managed services company.”
The Company noted that as a result of the reduction in earnings related to the five fixed-price contracts, a revenue decline in North America and the write-off of historic balance sheet items; it is withdrawing its financial guidance for full-year 2011.
Claude Pumilia, Executive Vice President and Chief Financial Officer, commented,“We have suspended guidance for 2011 because our North America business does not yet have the operational rigor required to drive predictable results. We do believe, however, that we have the downside risk from the five projects understood and contained. We are making progress during this transitional year, namely winning higher-value engagements, increasing the quality of our delivery, and reducing our risk profile by adhering to more stringent processes. I am confident that we will drive improved financial performance across the business.”
Second Quarter Financial Results
Revenue of $267.8 million increased 1%, or declined 5% on a constant currency basis. Consolidated revenue growth and consolidated revenue were negatively impacted by 5% and $13.4 million, respectively, as a result of an adjustment for significant changes in estimates related to costs or scope on the five fixed-price projects. The Segmenta acquisition completed in 2010 added 2% to consolidated revenue growth.
Consolidated gross margin for the second quarter was 20.7% or 24.5% when adjusted for the significant items compared to 25.2% in the same period last year. Sales, general and administrative expenses (SG&A) in the quarter were flat compared with second quarter last year. Last year’s second quarter SG&A included $6.1 million of severance and CEO transition costs while second quarter 2011 SG&A included $2.0 million in executive severance.
Second quarter operating loss was $26.5 million. Excluding the significant items operating income was $5.2 million. Second quarter 2010 had an operating loss of $111.2 million, or operating income of $7.0 million excluding the goodwill impairment and executive change charges.
Second quarter net loss was $58.4 million or $0.81 per share. Excluding the significant items net income was $0.1 million or $0.00 per share. Second quarter 2010 had a net loss of $80.8 million, or $1.16 per share. Excluding significant items second quarter 2010 net income was $4.1 million, or $0.06 per share.
The International division, the Company’s largest operating segment at 46% of consolidated revenue, delivered another quarter of solid results. Revenue growth for the quarter was 39%, or 20% on a constant currency basis. This revenue growth was the result of both new sales in focused verticals and increased sales to existing clients by the Global Account Group. The Segmenta acquisition added 5% to reported and constant currency revenue growth. Gross profit grew more than 50% as a result of a more than 200 basis point improvement in gross margin.
The North American division saw revenue decline 23%, or 13% when adjusted for the five fixed-price projects. Revenue continues to be impacted by the open sales positions that existed coming into this year as well as the time it takes for new sales hires to become fully effective. Gross profit and gross margin were down compared to last year’s second quarter as a result of the significant changes in estimates or scope of the five projects as well as investments made to develop higher-value offerings.
Capital Deployment and Liquidity
CIBER’s total cash balance at June 30, 2011 was $61.8 million, most of which is in the international structure. Cash used by operating activities for the first six months was $21.4 million. Capital expenditures for the first half of this year totaled $5.7 million.
Days sales outstanding as of June 30, 2011 were 67 days compared with 62 days at December 31, 2010. DSO’s at the end of the first quarter 2011 were 66 days.
The total outstanding balance on the senior credit facility at quarter end was $95.7 million.
In the second quarter 2011, the Company incurred five significant charges which totaled $58.1 million after-tax ($31.7 million pre-tax) or $0.81 per share.
The items were:
• $13.4 million (after-tax and pre-tax) reduction of revenue, gross profit, operating income and net income and a $0.19 per share reduction of earnings per share for an adjustment required under the percentage-of-completion accounting rules as a result in changes in estimates or scope on the five fixed-price projects.
• $11.9 million after-tax ($16.3 million pre-tax), or $0.17 per share, non-cash charge for impairment of goodwill. Testing of goodwill as of June 30, 2011, using discounted cash flow analysis supported by comparative market multiples to determine the estimated fair values, indicated that the book value of the ITO division’s goodwill was impaired. This goodwill impairment charge was primarily driven by the financial performance of the ITO division. 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.
• $29.1 million (after-tax and pre-tax), or $0.41 per share, write-off of deferred tax assets relating to a lack of taxable income in the U.S. during the past three years. While the net operating loss carryforwards and other tax assets remain available for the Company’s use in future tax periods, the accounting rules require that they no longer be shown as an asset on the Company’s balance sheet.
• $1.9 million after-tax ($2.0 million pre-tax), or $0.03 per share, severance charge for the departure of certain senior executives.
• $2.0 million after-tax ($2.6 million pre-tax), or $0.03 per share charge for the current estimate of future consideration for the Segmenta acquisition. There will be no additional charges in future periods related to this acquisition.
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:
• $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 equity market conditions that caused a sustained depression in CIBER’s stock price and the financial performance of these divisions. The charge reduced goodwill recorded in connection with acquisitions made in previous years and did not impact the Company’s business operations or cash flow.
• $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.
Investor and Analyst Conference Call
CIBER President and Chief Executive Officer Dave Peterschmidt invites you to participate in a conference call today at 11:00 am. Eastern Time to discuss the Company’s financial results and outlook.
To participate in the conference call, dial 866-356-3377 (U.S.) or +1-617-597-5392 (outside the U.S.) ten minutes prior to the start of the call and provide the operator with the pass code 41083625. This conference call will also be available via webcast at ciber.com/cbr.
A replay of the call and webcast will be available one hour after the call ends through September 3, 2011. 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 77876140.
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: gross margin, operating income (loss), net income (loss) and EPS adjusted for significant items; change in revenue constant currency adjusted; change in North America revenue adjusted for the fixed-price projects; and International revenue change adjusted for currency.
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 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 2011. 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 or they may be unable or unwilling to pay us for our services, which may impact our accounting assumptions; (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) our business is restricted by our current level of indebtedness and we could breach our financial covenants, and/or be unable to amend, extend or replace our current debt facility under favorable terms; (10) legal liability may result from solutions or services we provide; (11) we cannot anticipate the cost and complexity of performing our work or we are not able to control our costs; (12) 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; (13) we cannot balance our resources with client demand or hire sufficient employees with the required skills and background; (14) we may incur liability from our subcontractors' or other third parties' failure to deliver their project contributions on time or at all; (15) we cannot manage the organizational challenges associated with our size or our business strategy; (16) consolidation in the industries that we serve could adversely affect our business; (17) our ability to attract and retain business depends on our reputation in the marketplace; (18) our share price could fluctuate due to numerous factors, including variability in revenues, operating results and profitability; and/or (19) 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 Company’s Form 10-Q and 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 CIBER’s ability to predict or control. Forward-looking statements are not guarantees of performance and speak only as of the date they are made, and CIBER undertakes 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 more than 8,500 employees and subcontractors and operates in 18 countries, serving clients in North America, Europe and Asia/Pacific. Annual revenue in 2010 was $1.1 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.