CSRA Announces Second Quarter Fiscal Year 2018 Financial Results

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FALLS CHURCH, Va., Nov. 7, 2017 — CSRA Inc. (NYSE: CSRA), a leading provider of next-generation IT solutions and professional services to government organizations, today announced financial results for the second quarter of fiscal year 2018, which ended September 29, 2017.

“The second quarter of fiscal year 2018 represents a major milestone in our history as a public company–our first quarter of year-over-year revenue growth and our strongest sequential revenue growth since going public,” said Larry Prior, CSRA president and CEO. “The foundation for growth is our sustained strong business development performance, and in the quarter we booked $4.2 billion in awards for a book-to-bill ratio of 3.3x, anchored by our success in securing the recompete of our largest program. We continue to drive towards the adoption of next generation technologies through our Emerging Tech Day. In addition, we are deploying our strong cash flow to accelerate our growth with strategic acquisitions that position us to take share in priority national security markets.”

Summary Operating Results (Unaudited)

(Dollars in millions, except per share data)

Three Months Ended

Six Months Ended

September
29, 2017

September
30, 2016

September
29, 2017

September
30, 2016

Revenue

$

1,272

$

1,263

$

2,501

$

2,517

Operating income

$

134

$

130

$

270

$

242

Net income attributable to CSRA common stockholders

$

76

$

76

$

153

$

141

GAAP diluted EPS

$

0.46

$

0.46

$

0.93

$

0.86

Adjusted EBITDA

$

198

$

203

$

403

$

398

Adjusted diluted EPS

$

0.46

$

0.51

$

0.94

$

0.99

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 second quarter of fiscal year 2018 was $1.27 billion, up 1 percent compared to the second quarter of fiscal year 2017, the first year-over-year increase since the Company was formed in November 2015.

Operating income for the second quarter of fiscal year 2018 of $134 million (10.5 percent operating margin), includes $9 million of acquisition, integration, and other costs and $56 million of depreciation and amortization expense, including $14 million of amortization from acquisition-related intangible assets. Adjusted EBITDA, which excludes these items, was $198 million for the second quarter, down 2 percent year-over-year. The adjusted EBITDA margin of 15.6 percent was above the Company's long-term target range 14 to 15 percent as the result of strong contract performance and disciplined cost management.

Net income attributable to CSRA shareholders for the second quarter of fiscal year 2018 was $76 million, or $0.46 per share, compared to $76 million, or $0.46 per share in the second quarter of fiscal year 2017. Adjusted diluted EPS was $0.46 for the quarter, compared to $0.51 in the comparable period in fiscal year 2017.

Cash Management and Capital Deployment

For the second quarter of fiscal year 2018, operating cash flow was $72 million, and free cash flow was $14 million. Days Sales Outstanding (DSO) for the quarter were 54 days.

During the second quarter of fiscal year 2018, the Company used $21 million to pay down debt and returned $18 million to shareholders, including $16 million as part of its regular quarterly cash dividend program and $2 million in share repurchases. In addition, the Company completed its acquisition of NES Associates, LLC, a leading provider of telecommunications, infrastructure, and application architecture and implementation services to Defense and other government customers, for $104 million, including $101 million in cash. The purchase price was funded from cash on hand and $55 million from the Company's revolving credit facility.

As of September 29, 2017, the Company had $91 million in cash and cash equivalents and $2.6 billion in debt (excluding capital lease obligations). The balance sheet does not reflect the following actions completed after the close of the second quarter:

  • In August 2017, the Board of Directors declared that the Company would pay a cash dividend of $0.10 per share. Payment of the dividend was made on October 3, 2017 to CSRA stockholders of record at the close of business on August 29, 2017.
  • In October 2017, CSRA signed a definitive agreement to acquire Praxis Engineering for approximately $235 million in cash. Praxis is a leader is providing mission applications to ensure the success of Intelligence Community customers. The acquisition is subject to customary closing conditions and approvals, including antitrust approval under the Hart-Scott-Rodino Act and is expected to be completed during CSRA's third quarter.
  • In November 2017, CSRA executed a sale-leaseback transaction for the Company's corporate headquarters property in Falls Church, Virginia. Upon closing of the transaction, the Company received approximately $33 million of gross cash proceeds and expects to recognize a loss of approximately $10 million.

Business Development

Bookings totaled $4.2 billion in the second quarter, representing a book-to-bill ratio of 3.3x. The second quarter marked the eleventh consecutive quarter with a book-to-bill ratio of 1.0x or higher. Bookings for the trailing twelve months totaled $9.0 billion, representing a book-to-bill ratio of 1.8x.

Included in the quarterly bookings were several particularly important single-award prime contracts:

  • Department of Defense (DoD) Enterprise IT Support. Eagle Alliance, a partnership in which CSRA Inc. holds a 79% equity interest, signed a contract with an agency of the Department of Defense for enterprise IT Services with a ceiling value of approximately $2.4 billion over a performance period of 10 years (if all options are exercised). The contract is a partial follow-on to a contract for which Eagle Alliance has been the incumbent contractor since 2001.
  • Defense Information Systems Agency (DISA) Endpoint Security Solution (ESS). Under a five-year, $164 million task order, CSRA will manage more than three million cybersecurity endpoints for DISA and DoD. CSRA will work with Microsoft and McAfee to enhance DISA's ESS capabilities and cyber strategy and envision, plan, and deliver hardening and containment solutions for Microsoft technologies across the DoD enterprise.
  • Records Management Center (RMC) Digitization Support. The Department of Veterans Affairs (VA) awarded CSRA a three-year, $158 million task order to digitize the health records of over 7 million veterans at the RMC in St. Louis, MO. This effort will allow the VA to improve the processing of electronically-based claims, saving taxpayer dollars and dramatically increasing the flow of information.
  • Federal Emergency Management Agency (FEMA) Surge Call Center Support. FEMA awarded CSRA a four-month, $95 million task order to aid in the federal government's response to Hurricane Harvey and the affected region's recovery. With the scope of work subsequently expanded to $142 million, CSRA is now providing disaster recovery for survivors of multiple recent disasters, including hurricanes Harvey, Irma, and Maria and the California wildfires.
  • Department of State (DoS) Digitus. The DoS Bureau of International Narcotics and Law Enforcement (INL) awarded a $58 million contract to develop a biometric identification and interoperability system for the Government of Mexico, an initiative that will support U.S. border security efforts.
  • Littoral Combat Ship (LCS) Integrated Tactical Trainer (ITT). Under a 3.5-year, $51 million delivery order, CSRA will develop and deliver an ITT for the LCS 6, Independence variant in support of the Naval Air Warfare Center Training Systems Division (NAWCTSD) in Orlando, FL. This effort leverages CSRA's VirtualShip training platform, an advanced ship and systems simulation software package incorporating high fidelity hydrodynamics, maritime environmental modeling, and a robust interface for integration with external systems and simulations.
  • Navy Research and Development Establishment (NR&DE) Cloud. CSRA will provide cloud computing services for the NR&DE under a three-year, $35 million blanket purchase agreement. CSRA will provide advanced cloud migration, engineering, and maintenance services from Amazon Web Services and Microsoft Azure to accelerate research and foster next-generation technology to power the fleet of tomorrow.

The Company's backlog of signed business orders at the end of second quarter of fiscal year 2018 was $17.7 billion, of which $2.7 billion was funded. Compared to the first quarter of fiscal year 2018, total and funded backlog were up 14% and 11%, 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, “With the successful defense of our largest recompete and another quarter of important new business wins, we continue to build the foundation for organic growth in the second half of the year. We are augmenting our growth with strategically important acquisitions that open up new markets and enhance our competitiveness. We remain committed to a balanced capital allocation model and plan to continue to pay down debt and return cash to shareholders.”

Conference Call

CSRA executive management will hold a conference call on November 7, 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 7876846. 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)

September 29, 2017

March 31, 2017

Current assets

Cash and cash equivalents

$

91

$

126

Receivables, net of allowance for doubtful accounts of $26 and $24, respectively

829

748

Prepaid expenses and other current assets

122

126

Total current assets

1,042

1,000

Intangible and other assets

Goodwill

2,397

2,335

Customer-related and other intangible assets, net of accumulated amortization of $269 and $244, respectively

775

775

Software, net of accumulated amortization of $97 and $89, respectively

73

81

Other assets

81

87

Total intangible and other assets

3,326

3,278

Property and equipment, net of accumulated depreciation of $706 and $694, respectively

637

610

Total assets

$

5,005

$

4,888

Current liabilities

Accounts payable

$

169

$

187

Accrued payroll and related costs

183

181

Accrued expenses and other current liabilities

488

487

Current capital lease liability

47

44

Current maturities of long-term debt

84

72

Dividends payable

18

21

Total current liabilities

989

992

Long-term debt, net of current maturities

2,530

2,511

Noncurrent capital lease liability

203

172

Deferred income tax liabilities

269

272

Other long-term liabilities

533

582

Equity

Stockholders' equity:

Common stock, $0.001 par value, 750,000 shares authorized, 164,240 and 163,570 shares issued, and 163,718 and 163,216 shares outstanding, respectively

Additional paid-in capital

136

134

Accumulated earnings

284

165

Accumulated other comprehensive income

26

31

Total stockholders' equity

446

330

Noncontrolling interests

35

29

Total equity

481

359

Total liabilities and equity

$

5,005

$

4,888

CSRA INC.

CONSOLIDATED AND CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

 Three Months Ended

Six Months Ended

(Dollars in millions, except per share amounts)

September 29,
2017

September 30,
2016

September 29,
2017

September 30,
2016

Total revenue

$

1,272

$

1,263

$

2,501

$

2,517

Cost of services

1,022

1,007

2,001

2,023

Selling, general and administrative expenses

51

55

100

111

Acquisition, integration, and other costs

9

8

14

13

Depreciation and amortization

56

63

116

128

Operating expense

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Brad Bennett

Brad Bennett

Brad grew up in a small town in northern Iowa. He studied chemistry in college, graduated, and married his wife one month later. They were then blessed with two baby boys within the first four years of marriage. Having babies gave their family a desire to return to the old paths – to nourish their family with traditional, homegrown foods; rid their home of toxic chemicals and petroleum products; and give their boys a chance to know a simple, sustainable way of life. They are currently building a homestead from scratch on two little acres in central Texas. There’s a lot to be done to become somewhat self-sufficient, but they are debt-free and get to spend their days living this simple, good life together with their five young children.
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