Highlights From Continuing Operations for the Fourth Quarter 2012 Include:
Revenue of $225.3 million, a 2% increase, up 3% in constant currency, compared with last year’s fourth quarter
Operating income of $5.2 million, before previously announced restructuring charges of $8.0 million
Net income (loss) from continuing operations of $(5.4) million, or $(0.08) per share, after restructuring charges of $8.0 million, or $0.09 per share
Non-GAAP net income from continuing operations of $1.3 million, or $0.02 per share, before restructuring charges
Operating cash flow from continuing operations of $35 million.
Highlights From Continuing Operations for the Full Year 2012 Include:
Revenue of $884.4 million, a 2% decrease, up 1% in constant currency
Operating income of $22.4 million, before previously announced restructuring charges of $8.0 million
Net income (loss) from continuing operations of $(2.5) million, or $(0.04) per share, after restructuring charges of $8.0 million, or $0.09 per share
Non-GAAP net income from continuing operations of $4.2 million, or $0.05 per share, before restructuring charges
Operating cash flow from continuing operations of $1.3 million
President and Chief Executive Officer Dave Peterschmidt said,“Ciber delivered much improved financial results in the fourth quarter and for the full year 2012. At the end of the third quarter, I said my objective was to end 2012 with improved financials and a stronger operating margin exit rate. We did just that. Management’s strategy resulted in higher operating margins, sequential revenue growth and positive operating and free cash flow in the fourth quarter.”
Peterschmidt continued,“2012 overall, was a year of transformation for Ciber, and we made significant progress on many fronts. We strengthened our management team with industry-leading talent; divested non-core assets; streamlined our operations, including a previously announced restructuring; de-levered our balance sheet, significantly reducing our interest costs; and furthered our strategy to move into higher value markets, and drive revenue growth. Our North American business is healthier than it was a year ago, an important demonstration of successful execution of our strategy, and our international business is delivering improved results that we can build on.”
Claude Pumilia, Chief Financial Officer, commented,“We are committed to streamlining Ciber, while aligning our resources with the most promising opportunities. As planned, we have lowered SG&A in absolute dollars and as a percentage of revenue, thus gaining the leverage that is essential to margin growth. Our objective remains to lower our overall cost structure, improve operating procedures, and gain efficiencies in delivery, while improving the quality of our client-facing services. The restructuring plan we announced in the third quarter is well underway. We continue to expect savings of $7 million in 2013 and $11 million annually thereafter. We incurred $8 million, or $0.09 per share in restructuring charges in the fourth quarter of 2012. Our previously announced restructuring charge of $14 million has been reduced to $13 million. The remaining $5 million, or $0.06 per share will be reflected in 2013.”
Market Highlights in the Fourth Quarter Include:
The largest community college system in the U.S. selected Ciber to implement its ERP system based on Ciber’s qualifications in higher education, as well as our position as an Oracle Certified Partner.
In the UK, Ciber expanded its footprint in the financial services market with Dynamics CRM, securing multiple new contracts and extensions at six major banks and insurance companies.
Ciber was selected by one of the fastest growing wireless handset manufacturers to assist with migration from a previous parent company, as well as for a three-year managed services contract where Ciber will manage significant IT functions for this innovative company.
A worldwide resorts and entertainment company expanded Ciber’s long-term partnership to include management of the business analysis function. This global leader cited our metrics reporting to validate operational efficiencies derived from our managed services approach.
Fourth Quarter Financial Results from Continuing Operations
Revenue of $225.3 million increased 2%, or 3% in constant currency, compared with last year’s fourth quarter. Sequentially from the third quarter of 2012, revenue increased 4%, or 3% in constant currency.
Gross margin for the fourth quarter was 26.1%, compared with 26.8% in last year’s fourth quarter and 25.3% in the third quarter of 2012. The year-over-year gross margin decline reflected lower international utilization associated with training employees as the company transitions from subcontractors, and reduced pricing on additional work within a large North America account, while the sequential improvement reflected more efficient delivery of a streamlined set of offerings and improved product mix.
Selling, general and administrative expenses (SG&A) in the fourth quarter were $53.5 million, a $1.2 million or 2% reduction from the fourth quarter of last year. SG&A as a percentage of revenue in the fourth quarter of 2012 improved 110 basis points year-over-year, as Ciber has implemented cost containment and efficiency initiatives that have significantly improved the SG&A cost base. This improved cost structure, together with the additional targeted savings from the restructuring activities, is expected to contribute meaningfully to operating margin expansion in 2013 and beyond.
Fourth quarter 2012 operating income from continuing operations before restructuring charges of $5.2 million, yielded an operating margin of 2.3%, up from 2.0% in the prior-year fourth quarter and 2.1% in the third quarter of 2012.
Non-GAAP net income from continuing operations before restructuring charges for the fourth quarter of 2012 was $1.3 million, or $0.02 per share. Last year’s fourth quarter net income from continuing operations was $1.6 million, or $0.02 per share.
Revenue in the International division was $118.2 million for the fourth quarter of 2012, representing a year-over-year increase of 1%, 3% in constant currency. Compared to the third quarter of 2012, revenue increased 11%, or 7% in constant currency. Fourth quarter sequential and year-over-year revenue performance was led by Germany and Norway. Operating margin of 6.0% was up sequentially, and from the fourth quarter of 2011. SG&A expenses were lower than the fourth quarter of 2011, but increased as compared to the third quarter of 2012, due to typical seasonality. Gross margin was slightly lower than last year’s fourth quarter, but improved sequentially from the third quarter of 2012, benefiting from improved utilization and better product mix.
The North America division posted revenue of $107.5 million, up 2% from the year-ago fourth quarter and down 2% sequentially due to typical seasonal trends. Importantly, operating margin was strong at 7.2%, up from the fourth quarter of 2011 and unchanged sequentially. The solid operating margin was driven by SG&A leverage that offset a gross margin that was lower than last year’s fourth quarter.
Full Year Financial Results from Continuing Operations
Note: Comparative results for 2011 include a number of accounting and goodwill adjustments incurred in the second quarter 2011.
Revenue of $884.4 million decreased 2%, a 1% increase in constant currency, compared to 2011.
Gross margin for the full year increased to 25.8%, compared with 25.4% in 2011, driven by improved bench and overall project management.
Selling, general and administrative expenses (SG&A) for the full year declined $14.1 million to $205.6 million, a 6.5% decline from 2011, and were 120 basis points lower as a percent of revenue. Ciber has implemented cost containment and efficiency initiatives that have driven the significantly improved SG&A cost base. This improved cost structure, together with the additional targeted savings from the restructuring activities, is expected to contribute meaningfully to operating margin expansion in 2013 and beyond.
2012 operating income from continuing operations before restructuring charges of $22.4 million yielded an operating margin of 2.5%, up 350 basis points from (1.0%) in 2011.
Net income (loss) from continuing operations in 2012 was $(2.5) million, or $(0.04) per share, including restructuring charges of $8.0 million, or $0.09 per share. Non-GAAP net income from continuing operations in 2012 totaled $4.2 million, or $0.05 per share, before the restructuring charges. This compares to net income (loss) from continuing operations of $(50.7) million, or $(0.71) per share in 2011.
Revenue in the International division was $453.0 million in 2012, representing a year-over-year decrease of 4%, an increase of 2% in constant currency. Revenue performance was led by Germany, Norway, and the UK which combined comprised approximately 50% of the International division’s revenue. Operating margin totaled to 5.5% in 2012, roughly comparable to 2011. SG&A expenses improved to 18.4% in 2012, compared to 19.6% in 2011 offsetting lower gross margin in 2012, compared to 2011, resulting from lower utilization and higher labor costs in some of the larger geographies.
The North America division posted revenue of $432.8 million for the full year 2012, up 1% from 2011. Importantly, operating margin was 7.0%, up significantly from 2011, driven by improvement in both gross margin and SG&A and reflecting better utilization, project management and delivery costs, and implementation of plans to streamline operations.
Capital Deployment and Liquidity
Ciber’s cash balance at the end of the fourth quarter of 2012 was $58.8 million. The outstanding balance on the credit facility was $26.0 million.
Cash flow provided by operating activities (continuing operations) year-to-date through December 31 was $1.3 million, driven mostly by improved net income. Seasonality exists in cash flows with stronger cash flow occurring during the last quarter of the year. Days Sales Outstanding (DSO) were 61 days. Capital expenditures totaled $3.3 million for the full year 2012.
Continuing Operations and Segment Realignment
Ciber made the strategic decision to sell its Federal division, and certain assets of its Global IT Outsourcing business, in order to focus on its core offerings. The Company completed the Federal division sale on March 9, 2012, and completed the Global ITO asset sale on October 15, 2012. As a result of these sales, the Federal division and the portion of the Global ITO business that was sold are presented as discontinued operations. Additionally, for 2012, Ciber combined the portion of the operations of its IT Outsourcing division that it retained, with the remaining two divisions: International and North America. The discussion of the Company’s results includes comparison to 2011, as if the new reporting segments were in place that year. Quarterly results for 2011and 2012, under the new reporting segments, and with the Federal division and the Global ITO business as discontinued operations, are provided in the tables of this earnings release, and are available at ciber.com.
Ciber recorded $8 million ($0.09 per share) of restructuring charges in the fourth quarter of 2012, and expects to record $5 million, $(0.06 per share) of restructuring charges in 2013. The restructuring charges primarily relate to the consolidation of our real estate footprint, as well as organizational changes designed to simplify business processes, move decision-making closer to the marketplace, and create operating efficiencies. The Company expects to realize pre-tax savings from the initiatives of approximately $7 million in 2013, and expects $11 million in annualized savings beginning in 2014. Restructuring expenses are not reflected in segment operating results, and will be shown separately on the income statement. Restructuring expenses include expenses related to personnel, including severance and related benefits, and facility closures including fixed asset write-offs.
Investor and Analyst Conference Call
Ciber President and Chief Executive Officer Dave Peterschmidt invites you to participate in a conference call or audiocast today at 11:00 am. Eastern Time to discuss the Company’s financial results.
The conference call and audiocast of the conference call will be available to the public. The audiocast will be available at ciber.com/us/index.cfm/company/investor-relations . To participate in the conference call, dial 866-713-8567 (U.S.) or +1-617-597-5326 (outside the U.S.) ten minutes prior to the start of the call and provide the operator with the pass code 82232861.
A replay of the call and audiocast will be available one hour after the call ends through March 21, 2013. 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 46779339. The audiocast replay will be available at ciber.com/us/index.cfm/company/investor-relations.
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: consolidated revenue change, quarter-over-quarter, year-over-year and sequentially, adjusted for currency; International revenue change, quarter-over-quarter, year-over-year and sequentially, adjusted for currency; fourth quarter 2012 and full year 2012 operating income and operating margin adjusted for restructuring charges; and fourth quarter 2012 and full year 2012 net loss and net loss per share adjusted for restructuring charges. 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 at ciber.com/cbr.
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 these forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Forward-looking statements are based on assumptions as to future events that may not prove to be accurate. Risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by our forward-looking statements include, but are not limited to, risks that: our results of operations may be adversely affected if we are unable to execute on the key elements of our strategic plan; we may experience declines in revenue and profitability if we do not accurately estimate the cost of engagements conducted on a fixed-price basis; a data security or privacy breach could adversely affect our business; our business could be adversely affected if our clients are not satisfied with our services, and we could face damage to our professional reputation and/or legal liability; our future success depends on our ability to continue to retain and attract qualified sales, delivery and technical employees; our results of operations can be adversely affected by economic conditions and the impacts of economic conditions on our clients' operations and technology spending; if we are unable to collect our receivables, our results of operations and cash flows could be adversely affected; our Credit Agreement, an asset-based and term loan facility, limits our operational and financial flexibility and we also face the need to comply with financial covenants in our Credit Agreement; our revenues, operating results and profitability will vary from quarter to quarter, which may impact our ability to comply with our debt covenants, and may also result in increased volatility in the price of our stock; termination of a contract by a significant client and/or cancellation with short notice could adversely affect our results of operations; our international operations are susceptible to different financial and operational risks than our domestic operations; the IT services industry, in the U.S. and internationally, is highly competitive, with increased focus on offshore capability and we may not be able to compete effectively; our presence in India may expose us to operational risks due to regulatory, economic, political, and other uncertainties; if we are not able to anticipate and keep pace with rapid changes in technology, our business will be negatively affected; we could incur additional losses due to further impairment in the carrying value of our goodwill; we depend on contracts with various public sector agencies for a significant portion of our revenue and, if the spending policies or budget priorities of these agencies change, we could lose revenue; unfavorable government audits could require us to adjust previously reported operating results, to forego anticipated revenue and subject us to penalties and sanctions; our services or solutions could infringe upon the intellectual property rights of others, or we might lose our ability to utilize rights we claim in intellectual property or the intellectual property of others; possible future consideration on the sale of certain contracts and assets associated with our information technology outsourcing practice may not be realized; we have adopted anti-takeover defenses that could make it difficult for another company to acquire control of Ciber or limit the price investors might be willing to pay for our stock, thus affecting the market price of our securities.
For a more detailed discussion of these factors, see the information under the “Risk Factors” heading in our Annual Report on Form 10-K for the year ended December 31, 2012, and other documents filed with or furnished to the Securities and Exchange Commission. 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 (Ciber.com) is a leading global IT consulting company with nearly 6,000 consultants and contractors in North America, Europe and Asia/Pacific, and approximately $1 billion in annual revenue. Client focused and results driven, Ciber partners with organizations to develop technology strategies and solutions that deliver tangible business value. Founded in 1974, the company trades on the New York Stock Exchange (NYSE: CBR).
Christian Mezger, Corporate Finance
P: 303-267-3857 - E: cmezger[.]ciber.com.