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 profitability
• 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)

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 centers.
• 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.

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.

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:

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 2018.
• 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

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.

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").

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SOURCE CSRA Inc.