Financial highlights for the fourth quarter 2010 included:
Revenue increased 6% to $277.4 million, the largest year-over-year increase in 8 quarters;
Constant currency adjusted revenue increased 8%
Operating loss of $6.3 million, including $9.9 million (pre-tax) of bad debt expense and project write-off charges;
Excluding the charges, operating income of $3.6 million;
Net loss of $3.3 million, or $0.05 per share;
Excluding the charges, net income of $2.6 million, or $0.04 per share.
Financial highlights for the Full Year 2010:
Revenue increased 3% to $1.1 billion;
Constant currency adjusted revenue increased 4%
Operating loss of $103.2 million, including $9.9 million (pre-tax) of bad debt and project write-off charges, and the $118.1 million (pre-tax) second quarter goodwill impairment and executive transition charges;
Excluding the charges, operating income of $24.8 million;
Net loss of $77.2 million, or $1.11 per share;
Excluding the charges, net income of $13.6 million, or $0.20 per share;
Cash flow from operations of $35 million.
Strategic and operational highlights from 2010:
Developed comprehensive strategic plan;
Unified sales and delivery organizations across North America;
Strengthened and added significant operating regimens;
Added complementary strength to management and board;
Invested in offshore delivery.
President and Chief Executive Officer Dave Peterschmidt said,"We are undergoing an important transformation at CIBER. This past year we set into motion a detailed and focused strategic plan and put in place the operational regimens necessary to achieve sustained and predictable performance and to increase shareholder value. We have entered 2011with a tighter focus, increased discipline, a more efficient model and we continue to see general economic improvements in many markets."
Fourth quarter revenue of $277.4 million increased 6%, or 8% on a constant currency basis, compared to last year's fourth quarter. Driving the revenue growth in the quarter was the performance of CIBER's two largest divisions. The International division, which totaled 41% of consolidated revenue, achieved revenue growth of 17%, or 24% adjusted for currency, while the Custom Solutions division, which comprised 33% of consolidated revenue, delivered 6% revenue growth. The Segmenta acquisition completed in 2010 added 2% to consolidated and 6% to International revenue growth in the quarter.
Full year revenue exceeded expectations totaling $1.1 billion, an increase of 3% or 4% on a constant currency basis. Full-year revenue growth was driven by the International division's revenue growth of 10%, or 13% adjusted for currency. The International division represented 36% of full-year consolidated revenue. The Segmenta acquisition added 1% to consolidated and 3% to International revenue growth for the year. The U.S. ERP division totaled 12% of full-year revenue and posted growth of 6% compared to 2009.
Gross margin for the quarter was 23.4% compared to 24.2% in last year's fourth quarter. International and Custom Solutions, CIBER's two largest divisions, each improved gross margin from last year's fourth quarter. On a consolidated basis, the majority of the year-over-year decrease in gross margin was a result of the project charges taken in the fourth quarter 2010. Additionally, gross margin was impacted in the fourth quarter of 2010 by project overruns on a small number of fixed-price contracts as well as CIBER ceasing to recognize revenue for services being delivered to a single financially distressed client. Gross margin also included investments for future revenue growth, higher than normal use of subcontractors utilized to fill demand, and problematic legacy engagements which will come to closure in future periods. Full-year 2010 gross margin of 24.5% was down 50 basis points from last year.
Fourth quarter operating loss was $6.3 million. Excluding the bad debt expense and project write-off charges operating income was $3.6 million, and operating income margin was 1.3%. In the same period last year, operating income was $6.2 million and operating income margin was 2.4%. Full-year 2010 operating loss was $103.2 million including the bad debt and project write-off charges, and the $118.1 million second quarter goodwill impairment and executive transition charges. Excluding these items, 2010 operating income was $24.8 million and operating margin was 2.3%. Fourth quarter and full-year 2010 operating income included additional expenses from the organizational transition items resulting from the newly adopted strategy including combining of the North American branch offices, consolidation of the sales and delivery organizations, investments in sales training and infrastructure; expansion of India delivery capabilities; as well as senior leadership changes.
Fourth quarter net loss was $3.3 million or a $0.05 per share. Excluding the bad debt expense and project write-off charges net income was $2.6 million or $0.04 per share. Full-year 2010 net loss was $77.2 million, or $1.11 per share including the bad debt and project write-off charges, and the second quarter goodwill impairment and executive transition charges. Excluding these items, 2010 net income was $13.7 million or $0.20 per share.
The fourth quarter tax rate included a $1.0 million benefit resulting from the utilization of net operating loss carry forwards within Europe. For the full-year 2010 the Company had a net tax benefit driven primarily by the tax deductable portion of the goodwill impairment charge which significantly reduced U.S. taxable income.
Capital Deployment and Liquidity
CIBER's total cash balance at year end was $69.3 million. Cash provided by operating activities for the year was $35 million. Capital expenditures for the year totaled $14 million.
Management has been focused on improving its days sales outstanding, or DSO's. At year end, DSO's were reduced to 62 days compared with 71 days one quarter ago. DSO's were 61 days at December 31, 2009.
The total outstanding balance on the senior credit facility at year end was $87 million, a reduction of $10 million from December 31, 2009.
Management reaffirmed its long-term outlook and its expectations for 2011.
Long term outlook:
Double-digit revenue growth;
Gross profit margin exceeding 30%
Operating margin exceeding 8%
Double-digit EPS growth;
Cash flow from operations to approximate net income.
Revenue growth exceeding 4%
Gross profit margin exceeding 25.5%
Operating margin exceeding 3.5%
EPS exceeding $0.30
Tax rate in the mid thirties
Cash flow from operations of approximately $30 million
Capital expenditures of approximately $20 million, mostly to fund IT infrastructure improvements and the India build-out.
2011 Key Success Factors
Higher quality deal wins in key verticals;
Improved DSO and cash collection;
Gross and operating margin improvement;
Expanded India delivery;
Enhanced operational execution.
Peterschmidt noted, "Our goal is to improve financial performance utilizing a refined strategic approach, improved operational regimens, and increased as well as narrowed focus on higher margin, well developed offerings."
In the fourth quarter 2010, the Company incurred higher than usual bad debt expense and project write-off charges totaling $5.9 million after tax ($9.9 million pre-tax) or $0.09 per share. The charges stemmed primarily from a small number of projects.
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:
An $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 adverse equity market conditions that caused a sustained depression in CIBER's stock price and the financial performance of these divisions. 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.
A $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 866-804-6928 (U.S.) or +1-857-350-1674 (outside the U.S.) ten minutes prior to the start of the call and provide the operator with the pass code 21202807. 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 March 22, 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 59391008.
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 revenue change constant currency adjusted; International revenue change adjusted for currency; fourth quarter operating income, operating income margin, net income and earnings per share excluding the fourth quarter bad debt expense and project write-offs; and full year operating income, operating income margin, net income and earnings per share excluding the fourth quarter bad debt expense and project write-offs and the second quarter goodwill impairment and executive transition charges.
Reconciliations of non-GAAP to comparable GAAP measures are available in the accompanying schedules and 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) legal liability may result from solutions or services we provide; (10) we cannot anticipate the cost and complexity of performing our work or we are not able to control our costs; (11) 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; (12) we cannot balance our resources with client demand or hire sufficient employees with the required skills and background; (13) we may incur liability from our subcontractors' or other third parties' failure to deliver their project contributions on time or at all; (14) we cannot manage the organizational challenges associated with our size or our business strategy; (15) consolidation in the industries that we serve could adversely affect our business; (16) our ability to attract and retain business depends on our reputation in the marketplace; (17) our share price could fluctuate due to numerous factors, including variability in revenues, operating results and profitability; and/or (18) 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 our Form 10-K and other documents filed with or furnished to the Securities and Exchange Commission. Most of these factors are beyond our ability to predict or control. Forward looking statements are not guarantees of performance and speak only as of the date they are made, and 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, 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.