The Penny Stocks to Watch

ANDOVER, Mass., July 25, 2012 (GLOBE NEWSWIRE) — Dynamics Research Corporation (Nasdaq:DRCO), a leading provider of innovative management consulting, engineering, science and information technology services and solutions to federal and state governments, today announced preliminary operating results for the second quarter ended June 30, 2012. The preliminary results are subject to change based upon the conclusion of impairment testing being undertaken by the Company.

Preliminary Financial Results

The Company reported preliminary net income for the second quarter of 2012 of .4 million, or .14 per diluted share, versus .7 million, or .27 per diluted share, for the second quarter of 2011, excluding transaction costs of .2 million. Preliminary earnings before interest, taxes, depreciation, and amortization (EBITDA) for the second quarter of 2012 was .1 million, or 8.7 percent of revenue, up 14 percent from .2 million, or 9.1 percent of revenue, for the second quarter a year ago. Revenue for the second quarter of 2012 of .8 million was .3 million higher than .5 million for the same period in 2011 as a result of the merger with High Performance Technologies, Inc. on June 30, 2011.

For the six month period ended June 30, 2012, preliminary net income was .2 million, or .31 per diluted share, compared with .4 million, or .54 per diluted share, for the same period in 2011, excluding the second quarter 2011 transaction costs of .2 million. Preliminary EBITDA for the first six months of 2012 was .9 million, or 8.9 percent of revenue, up 22 percent from .3 million, or 8.9 percent of revenue, for the same period a year ago. For the six months ended June 30, 2012, revenue of 6.7 million was .7 million higher than 8.0 million for the same period in 2011 as a result of the merger with High Performance Technologies, Inc. on June 30, 2011.

As noted in the Company’s most recent quarterly report filed with the SEC, the Company experienced in the second quarter of 2012 a significant decline in the market price of the Company’s common stock, which has elevated the risk of goodwill impairment. The Company’s step one goodwill impairment test as of June 30, 2012 presently is not complete. As a result, the Company has not reached a conclusion as to whether goodwill, which had a book value of 2 million as of March 31, 2012, is impaired and for this reason the Company’s results are preliminary. Prior to filing its Form 10-Q for the second quarter of 2012, the Company expects to complete the step one impairment test and estimate the range of impairment, if any. The Company’s evaluation could result in a non-cash impairment charge for a substantial portion of the 2 million book value of goodwill for the second quarter of 2012. In the event an impairment charge is recorded, the Company’s net income would be negatively affected, although revenue and cash flow from operations would not be impacted. The Company expects to conclude its evaluation of goodwill impairment during the third quarter of 2012.

Business Highlights

“Federal government cost management actions, which are effecting award decisions, continue to impact our operating results and outlook for the year,” said Jim Regan, DRC’s chairman and chief executive officer. “In response to the challenging conditions facing our industry we have been aggressively pursuing new business, pricing competitively and reducing costs.

“Notwithstanding these industry issues we continued to post strong EBITDA margins this quarter and generated free cash flow of .6 million, or 7 percent of revenue. We are well positioned in the market and are experiencing an uptick in bidding and proposal activity. The estimated total contract value of our qualified pipeline of new business opportunities now stands at 3 million, up 1 million in just three months, and includes 3 million in bids submitted and awaiting award. We also saw an improvement in new business wins in the second quarter, as well as solid funded bookings, which resulted in a book-to-bill ratio of 1.1-to-one. We expect that our differentiated capabilities, combined with strong presence in important growth markets, will enable us to capture our share of opportunities as the pace of award decisions picks up.”

Company Guidance

The Company’s estimate for 2012 full year revenue is in the range of 8 to 6 million. The Company’s estimates for 2012 full year earnings, excluding any potential impairment charge, is in the range of at .68 to .72 per diluted share. For the third quarter of 2012, the Company anticipates revenue in the range of to million and earnings per diluted share of .13 to .15 excluding the impact of any potential impairment charge.

Conference Call

The Company will conduct a second quarter 2012 conference call tomorrow, July 26, 2012 at 10:00 a.m. ET. The call will be available via telephone at 877-303-4382 and accessible via Web cast at www.drc.com. Recorded replays of the conference call will be available on Dynamics Research Corporation’s investor relations home page at www.drc.com and by telephone at 800-585-8367, replay passcode # 93583823, beginning at 1:00 p.m. ET on July 27, 2012.

About Dynamics Research Corporation

Dynamics Research Corporation (DRC) is a leading provider of mission-critical technology management services and solutions for government programs. DRC offers the capabilities of a large company and the responsiveness of a small company, backed by a history of excellence and customer satisfaction. Founded in 1955, DRC is a publicly held corporation (Nasdaq: DRCO) and maintains more than 25 offices nationwide with major offices in Andover, Massachusetts and the Washington, D.C. area. For more information please visit our website at www.drc.com.

Safe Harbor

Safe harbor statements under the Private Securities Litigation Reform Act of 1995: Some statements contained or implied in this news release, may be considered forward-looking statements, which by their nature are uncertain. Consequently, actual results could materially and adversely differ and readers are cautioned not to place undue reliance on forward-looking statements. For more detailed information concerning how risks and uncertainties could affect the Company’s financial results, please refer to DRC’s most recent filings with the SEC. In addition to that information, the possibility of an impairment charge, which could result in a substantial reduction against goodwill and a commensurate charge against earnings, could have a material adverse impact on the preliminary results reported in this press release and on results during a subsequent period. While the Company will reflect the outcome of its impairment testing in its Form 10-Q and final reported results for the second quarter ended June 30, 2012 the Company assumes no obligation to update any forward-looking information.

Non-GAAP Financial Information

DRC discloses earnings before interest, taxes, depreciation and amortization and free cash flow, which are not recognized measures under GAAP. We have provided a reconciliation of EBITDA, adjusted to conform to the definition used in our loan agreements and free cash flow in Attachment V of this announcement. When evaluating DRC’s financial results investors should evaluate each adjustment to reported GAAP financial measures in the reconciliation as additional information and not use this non-GAAP financial measure as alternatives to reported GAAP financial measures. DRC presents these financial measures because the Company believes they provide investors with important supplemental information to assist them in assessing DRC’s financial results.

(1) We have calculated adjusted EBITDA to conform with the definition of EBITDA provided in our loan agreements to help investors understand that component of our debt covenant calculations. We may have calculated EBITDA differently than it is calculated by other companies. 

CONTACT: Investors:
         Chris Witty
         Darrow Associates, Inc.
         646.438.9385
         cwitty@darrowir.com

         Duyen "Jen" Truong
         Sage Communications (for DRC)
         703.584.5645
         duyent@aboutsage.com