SM&A (Nasdaq:WINS), the world's foremost management consulting
firm providing solutions to PURSUE, WIN and profitably PERFORM on
competitive procurements projects, today announced financial
results for the first quarter ended March 31, 2008. Revenue for the
first quarter of 2008 increased 7.6% to $25.4 million, a record for
first quarter revenues, compared to $23.6 million in the first
quarter of the previous year. Net income for the quarter was $0.5
million, or $0.03 per fully diluted share versus net income of $1.5
million, or $0.08 per fully diluted share in the comparable quarter
of 2007. Financial results for the quarter were impacted by charges
associated with a company-wide off-site training conference held
every other year and the current on-going proxy contest totaling
$1.2 million. Results for the quarter were also impacted by an
$876,000 earn-out payment earned by the principal of an acquired
business which the Company recognized as expense, under generally
accepted accounting principals (GAAP). The contingent payment
earned under the acquisition agreement. Excluding the
aforementioned charges, net income on a tax-effected basis for the
first quarter would have been $1.7 million, or $0.09 per fully
diluted share compared with non-GAAP fully diluted EPS of $0.09 in
the immediately preceding quarter and non-GAAP fully diluted EPS of
$0.10 in the first quarter of 2007. During the quarter the Company
made an initial investment of approximately $500,000 to establish
its Strategic Advisors subsidiary. (See Exhibit A for additional
information.) Competition Management: Competition Management
revenue for the quarter was $13.3 million compared to $14.4 million
in the first quarter of 2007. While the level of activity within
Competition Management was solid in the first quarter, there were
fewer large Federal procurement opportunities in the first quarter
of 2008 as compared to the first quarter of 2007. Large Federal
procurement opportunities have the tendency to drive higher revenue
levels due to the larger and more complex proposals that are
required. Large Federal procurement opportunities trends have been
variable and have traditionally contributed to inconsistent
Competition Management revenue within SM&A. Competition
Management represented 52% of total quarterly revenue compared with
61% of total quarterly revenue last year. WIN incentives earned
were $226,000 for the three months ended March 31, 2008; there were
no WIN incentives earned in the same period of the prior year. �We
are pleased with the results of the Competition Management segment
during the quarter,� said Cathy McCarthy, president and chief
executive officer of SM&A. �Competition Management revenues
traditionally fluctuate on a quarterly basis based on the timing of
project starts and completions and the number and size of projects
within the quarter. The company continues to achieve its
traditional 85% cumulative WIN rate. We believe that the
Competition Management revenue achieved in the first quarter is in
line with our expectation to meet our annual revenue growth
objective.� Program Services: Program Services revenue for the
quarter increased 31.5% to $12.1 million, the highest in the
Company�s history, compared with $9.2 million for the same period
of the prior year and $11.6 million in the immediately preceding
quarter. This was the fifth (5th) consecutive quarter of revenue
growth for the segment. Program Services accounted for 48% of total
quarterly revenues, compared to 39% of total quarterly revenue in
the first quarter of 2007. Program Services revenue has been
positively impacted by the acquisitions of Project Planning, Inc.
(PPI) and Performance Management Associates, Inc. (PMA) in 2007.
Ms. McCarthy commented, �The Company�s strategic plan calls for the
accelerated growth of the Program Services business while
maintaining measured growth and the quality of the Company�s
flagship Competition Management business. The 31.5% increase in
Program Services revenue during the quarter is a strong testament
to the benefit of diversification that will offset some of the
uneven quarterly revenue results inherent in the Competition
Management business. We believe that strong growth in Program
Services will continue in the coming quarters and provide greater
visibility and predictability of our revenues.� Strategic Advisors:
The addition of Peter Pace, General USMC (ret.), to our company as
president and CEO of our Strategic Advisors subsidiary, has
provided the predictive results and opportunities we anticipated
when he joined SM&A. General Pace has been well received by
both our employees and our clients. He has already raised the
Company�s profile in our customer community beyond what has been
achievable in many years. He has provided numerous opportunities
for introduction to potential customers in new markets at the CEO
level that were previously unattainable to us. Although Pete has
only been with SM&A for four months, his presence is already
providing us with opportunities to develop strategic relationships
with our key clients around strategy development and advisory
services. SM&A Strategic Advisors has also provided a
supportive organization for the development of our Strategic
Business Intelligence initiative, which is part of our strategic
plan. �We are particularly pleased,� continued Ms. McCarthy, �with
the progress that General Pace has made in expanding the scope of
future opportunities and in setting the stage for SM&A to be a
vital component to the success of our clients in the winning of,
and in the efficient execution of major contract procurements in
the years ahead.� Revenue by Market Vertical: Revenue from
aerospace and defense ("A&D") clients totaled $19.5 million for
the first quarter of 2008, the third highest quarter in the
Company�s history, compared to $19.9 million in the first quarter
last year. Revenue from non-A&D clients was $5.9 million,
compared to $3.7 million in the first quarter last year.
Non-A&D business represented 23% of total first quarter
revenue, compared with 16% a year ago. More importantly, the
Company is building momentum in the Program Services business in
the non-A&D market, as well as in its Competition Management
business. The further diversification of revenues is attributable
to the Company�s ongoing efforts to more fully implement its
strategic business plan. SG&A Expenses: SG&A expenses were
$9.0 million in the quarter. Included in the SG&A expense was
$1.1 million related to a company-wide off-site training conference
held every other year, $876,000 related to an earn-out payment by
the principal of an acquired business and $60,000 associated with
the current on-going proxy contest. Stock-based compensation
expense totaled $421,000. Excluding the aforementioned expenses,
operating SG&A expenses were $6.5 million, or 25.6% of first
quarter 2008 revenue comparing favorably with 25.8% on an operating
basis in the immediately preceding quarter and compared to 24.5% on
an operating basis in the first quarter of 2007. During the quarter
the Company made an initial investment of approximately $500,000 to
establish its Strategic Advisors subsidiary. (See Exhibit B for
additional information.) Ms. McCarthy, continued, �During the
quarter we improved productivity on an Account Executive basis.
Revenue per Account Executive (in the field for at least 9 months)
increased significantly by 31.5%. We believe this enhanced level of
productivity bodes well for the rest of the year. As we have
previously disclosed, our expectation is that the second half of
fiscal year 2008 should be stronger than the first half.� Jim
Eckstaedt, executive vice president and chief financial officer of
SM&A, said, �We are pleased that our focus on managing
operational costs during the quarter we were able to hold our
expense in check while making an investment in Strategic Advisors.
With the events of recent quarters - specifically the management
transition, the proxy contest, and their attendant costs -
approaching resolution, going forward we believe we are better
positioned to achieve more efficiencies as we continue the
implementation of our strategic plan.� Stock Buyback: The Board of
Directors is committed to effectively deploying cash and has
reaffirmed its approval to repurchase shares of SM&A. During
the quarter the Company purchased 241,200 shares of its stock in
the open market at a total cost of $1.0 million, or an average
price of $4.29 per share. The Company purchased close to the daily
maximum volume limit under SEC rules during the quarter. The
Company currently has approximately $4.8 million remaining in the
share repurchase authorization. Cash and investments totaled $10.7
million at March 31, 2008. Acquisitions: �We are very pleased with
the seamless integration into SM&A of our 2007 acquisitions,
PPI and PMA; as well as the financial results that the integrated
operations are currently exhibiting,� continued Mr. Eckstaedt. �PPI
and PMA, contributed $3.8 million of total revenues in the first
quarter, of which $2.0 million is considered non-organic, compared
with $1.1 million during the comparable quarter a year ago from PPI
alone from partial quarter operations. Amortization of intangibles
associated with the two acquisitions was $111,000 in the quarter.
Commencing with the next quarterly financial report, PPI will be
considered fully integrated and will be categorized as part of
organic operations. PMA will be considered organic with the
announcement of the operational results for the upcoming fourth
quarter. We are excited with the possibilities going forward.�
Evolution of SM&A: We are in the process of transforming
SM&A from a small proposal consulting firm into a winning
�Project Lifecycle Consulting Company�.�Within this transformation
we have three overriding goals: First, to provide our clients
products and services to enable their success in the pursuit,
proposal, and performance phases. Second, we strive to create
shareholder value by increasing revenue, earnings per share and
free cash flow at a greater rate than revenue growth. Third, to
establish a company environment that values and establishes
SM&A as an employer of choice. As SM&A�s historical
performance indicates, relying solely on traditional Competition
Management and opportunistic/unstructured Program Services leads to
a business with limited revenue predictability and growth. We seek
to become, through Project Lifecycle Consulting, the company of
choice to provide successful �Winning� projects. Our mission is to
support our clients every step along the way as a value added
partner.�This would include the early identification of
opportunities and the strategy to position our clients to take full
advantage of those opportunities, the development and delivery of
the proposal strategy and specific proposal documents, and to
provide discreet capabilities designed to assist clients start-up
and performance to contractual technical, cost, and schedule
objectives. PURSUE � WIN � PERFORM. Within this transformation, the
Competition Management element remains as the flagship offering of
SM&A.�Competition Management business continues to be a very
strategic area within SM&A.�Continued excellence within
Competition Management will create the client relationships
necessary for the anticipated growth within Program Services. We
believe that Program Services represents a significantly larger
addressable market than Competition Management. Our plan includes
the development and acquisition of a comprehensive set of Program
Services offerings that allows penetration into this considerably
larger market and significantly improves our Competition Management
offering due to the improved domain expertise. This is a
transformation process that requires infrastructure and cultural
changes.�Without this transformation sustainable shareholder value
cannot, and will not, be achieved.�We are dedicated to becoming an
industry leader by providing leading-edge services which are only
offered in this comprehensive life cycle approach. �We have
enormous confidence in the abilities of the employees of SM&A
to implement the programs and initiatives we are putting in place�,
Ms McCarthy said. �We are extremely optimistic about the future of
our company.�We believe its best years are yet ahead.� 2008
Guidance: The Company reiterates its expectation of revenue growth
of approximately 10% in 2008 over the $98.3 million reported in
2007. The Company anticipates earnings per share for full year 2008
to be approximately $0.36 per share, including proxy costs. The
increase in earnings guidance is attributable to an anticipated
decrease in SG&A spending. Gross margin is expected to be
between 39% and 40%. SG&A expenses including stock-based
compensation and excluding the full effect for the additional
earn-out expense related to the PPI acquisition is now estimated to
be approximately 27% of revenue. The full year impact of the
earn-out expense related to the PPI acquisition is estimated to be
approximately $2.0 million or $0.06 per share. Cost associated with
the proxy contest, which is included in the SG&A percentage
above is estimated to be in the range of $450,000 to $500,000.
Excluding the full effect for the additional earn-out expense,
stock-based compensation and proxy contest costs, operating
SG&A is estimated to be approximately 25% of revenue. The full
year tax rate is estimated at 42%. Disclosure of Certain Financial
Information In an effort to be transparent and to provide more
meaningful comparative SG&A and diluted EPS, including the
recurring stock-based compensation expense disclosure to our
shareholders, we�ve provided a reconciliation of GAAP and non-GAAP
information. Conference Call and Webcast: The Company will host a
conference call at 1:30 p.m. Pacific Time on Thursday, May 8, to
discuss the Company's first quarter 2008 financial results. The
dial-in number for the conference call is 800-257-6566 for domestic
participants and 303-262-2193, for international participants. The
call will also be accessible via live webcast at the homepage of
www.smawins.com by clicking on the Investor Relations tab and
webcast link. A replay of the conference call will be available at
www.smawins.com or by dialing 800-405-2236 or 303-590-3000,
reference access code 11113199#. The call replay will be available
for seven days. Note: A slide presentation providing selected
financial data discussed during the conference call can be accessed
at www.smawins.com by clicking on the Investor Relations tab. About
SM&A: SM&A is the world's foremost management consulting
firm providing leadership and mentoring solutions to PURSUE for
business capture, WIN competitive procurements and profitably
PERFORM on the projects and programs won. Our proven processes,
people and tools have delivered significant top-line and
bottom-line growth across markets, products and services. From the
largest aerospace and defense contractors, through the major
software providers, to healthcare and financial/audit service
providers, SM&A is the partner many companies turn to WHEN THEY
MUST WIN. ALL STOCKHOLDERS OF SM&A ARE ADVISED TO READ THE
DEFINITIVE PROXY STATEMENT AND OTHER DOCUMENTS RELATED TO THE
SOLICITATION OF PROXIES BY SM&A FOR USE AT THE 2008 ANNUAL
MEETING OF STOCKHOLDERS OF SM&A. THEY CONTAIN IMPORTANT
INFORMATION REGARDING THE ELECTION OF DIRECTORS AND OTHER MATTERS.
THE DEFINITIVE PROXY STATEMENT AND FORM OF PROXY HAVE BEEN MAILED
TO STOCKHOLDERS OF RECORD OF SM&A ALONG WITH OTHER RELEVANT
DOCUMENTS. THEY ARE AVAILABLE AT NO CHARGE ON THE SEC�S WEBSITE AT
HTTP://WWW.SEC.GOV IN ADDITION, SM&A WILL PROVIDE COPIES OF THE
DEFINITIVE PROXY STATEMENT WITHOUT CHARGE UPON REQUEST. Some
statements made in this news release refer to future actions,
strategies, or results that involve a number of risks and
uncertainties. Any number of factors could cause actual results to
differ materially from expectations, including a shift in demand
for SM&A's Competition Management and Program Services;
fluctuations in the size, timing, and duration of client
engagements; delays, cancellations, or shifts in emphasis for
competitive procurement activities; declines in future defense,
information technology, homeland security, new systems, and
research and development expenditures aerospace and defense
industries along with System Integration and Information Technology
industries, and other risk factors listed in SM&A's SEC
reports, including the report on Form 10-K for the year ended
December 31, 2007. Actual results may differ materially from those
expressed or implied. The company does not undertake any duty to
update forward-looking statement. SM&A CONDENSED CONSOLIDATED
BALANCE SHEETS (in thousands) � � March 31,2008 � December 31,2007
ASSETS (unaudited) Current assets: Cash and cash equivalents $
3,251 $ 5,422 Investments 7,455 10,610 Accounts receivable, net
22,373 18,171 Prepaid expenses and other current assets � 2,772 � �
2,011 � Total current assets 35,851 36,214 Fixed assets, net 3,306
3,399 Goodwill 8,374 8,278 Intangibles, net 1,781 1,892 Other
assets � 1,369 � � 895 � $ 50,681 � $ 50,678 � LIABILITIES AND
STOCKHOLDERS� EQUITY Current liabilities: Accounts payable $ 2,156
$ 1,925 Accrued compensation and related benefits 4,992 3,508
Accrued contingent consideration � 1,750 Other current liabilities
� 138 � � 127 � Total current liabilities 7,286 7,310 Other
liabilities � 748 � � 785 � Total liabilities 8,034 8,095 �
Commitments and contingencies � Stockholders� equity: Preferred
stock � � Common stock 2 2 Additional paid-in capital 46,048 45,450
Treasury stock (2,540 ) (1,506 ) Accumulated deficit � (863 ) �
(1,363 ) Total stockholders� equity � 42,647 � � 42,583 � $ 50,681
� $ 50,678 � SM&A CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts) (UNAUDITED) � � Three
Months Ended March 31, 2008 � 2007 � Revenue $ 25,423 $ 23,624 Cost
of revenue � 15,685 � 14,417 Gross margin 9,738 9,207 � Selling,
general and administrative expenses � 8,957 � 6,894 Operating
income 781 2,313 � Interest income, net � 95 � 143 Income before
income taxes 876 2,456 � Income tax expense � 376 � 1,005 � Net
income $ 500 $ 1,451 � Net income per share: Basic $ 0.03 $ 0.08
Diluted $ 0.03 $ 0.08 � Shares used in calculating net income per
share: Basic 18,990 18,609 Diluted 19,100 18,800 Exhibit A �
SM&A DILUTED EPS NON-GAAP RECONCILIATION (in millions, except
per share amounts) (UNAUDITED) � � Three Months Ended March 31,2008
� March 31,2007 � December 31,2007 � $ � PerShare � $ � PerShare �
$ � PerShare Diluted EPS (as reported) � $ 0.03 � $ 0.08 � $ 0.05 �
PPI earn-out $ 0.9 0.03 $ - - $ 1.0 0.03 Proxy contest cost 0.1
0.00 - - - - Company-wide offsite 1.1 0.03 - - - - Myers retirement
- - 0.5 0.02 - - Myers legal fees - - 0.2 0.01 - - Management
transition � - � � - � � - � � - � � 0.4 � � 0.01 � Subtotal $ 2.1
� � 0.06 � $ 0.7 � � 0.02 � $ 1.4 � � 0.04 � � Non-GAAP EPS (as
adjusted) $ 0.09 � $ 0.10 � $ 0.09 � � Tax rate 42.9 % 40.9 % 45.5
% Shares used in calculating net income per diluted Share 19,100
18,800 19,113 � Note: Sum of columns may not equal totals due to
rounding.�Per share data is shown net of tax. Exhibit B � SM&A
SG&A NON-GAAP RECONCILIATION (in millions) (UNAUDITED) � �
Three Months Ended March 31,2008 � March 31,2007 � December 31,2007
� $ � % � � $ � % � � $ � % � Revenue $ 25.4 � 100 % $ 23.6 � 100 %
$ 24.1 � 100 % � � � � � � � � � SG&A (as reported) � 9.0 �
35.2 % � 6.9 � 29.2 % � 8.0 � 33.2 % � Less: PPI Earn-Out � 0.9 �
3.4 % � - � 0.0 % � 1.0 � 4.0 % SG&A less PPI earn-out � 8.1 �
31.8 % � 6.9 � 29.2 % � 7.0 � 29.2 % � Less: Stock-based
compensation 0.4 1.7 % 0.4 1.7 % 0.4 1.8 % Proxy contest cost 0.1
0.2 % - 0.0 % - 0.0 % Company-wide offsite 1.1 4.3 % - 0.0 % - 0.0
% Myers retirement - 0.0 % 0.5 2.1 % - 0.0 % Myers legal fees - 0.0
% 0.2 0.8 % - 0.0 % Management transition � - � 0.0 % � - � 0.0 % �
0.4 � 1.6 % Subtotal $ 1.6 6.2 % $ 1.1 4.7 % $ 0.8 3.4 % � � � � �
� � � � Non-GAAP SG&A (as adjusted) $ 6.5 � 25.6 % $ 5.8 � 24.5
% $ 6.2 � 25.8 %
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