Strategic Initiatives and Reorganization Plans
detailed for its Operating Groups
NEWPORT BEACH, Calif., Oct. 14 /PRNewswire/ -- SM&A Corporation
(Nasdaq: WINS), the nation's premier provider of integrated proposal
management, systems engineering and information technology solutions, today
announced that the third quarter ended September 30, 1999 financial results
will be lower than expected.
Results of Operations
Revenues for the three months ended September 30, 1999 are expected to be
approximately $27.2 million compared to $20.6 million for the third quarter of
1998, an increase of 32%. The shortfall in revenue, when compared to
analyst's expectations, will be primarily attributable to lower than expected
revenue from the company's Proposal Management Group ("PMG"), reflecting the
seasonality of this business segment, and software product sales which have
been temporarily delayed to future quarters due to software testing and
quality issues. For the nine month period ended September 30, 1999 revenues
will increase to $79.4 million versus $43.9 million for the same period a year
ago, an 81% increase.
SM&A will also experience narrower than expected gross margins due to a
higher mix in revenues of lower margin services such as subcontract revenue
and other billable costs, and its inability to pass-through annual merit costs
increases for its labor force to certain time and materials contracts. Gross
margins for the three months ended September 30, 1999 will be approximately
37.4% versus 41.2% for the third quarter of 1998, a decrease of 380 basis
points. For the nine month period ended September 30, 1999, gross margins
will be 40.3% versus 43.0% for the same period a year ago, a decrease of
270 basis points.
Selling, general and administrative costs (not including the amortization
of goodwill) will also be slightly higher than anticipated, primarily due to
the costs associated with the relocation of two of the Company's three anchor
locations to state-of-the-art modern facilities during the past six months and
the overall increase in employee fringe benefits. For the three months ended
September 30, 1999 selling, general and administrative expenses (not including
the amortization of goodwill) are expected to be approximately $6.2 million,
or 23% of revenue compared to $5.3 million, or 26% of revenue for the same
period a year ago, a 17% increase. For the nine month period ended
September 30, 1999, selling, general and administrative expenses (not
including amortization of goodwill) will increase to $17.0 million versus
$9.8 million for the same period a year ago, representing a 73% increase.
Net income for the three months ended September 30, 1999 will be
approximately $2.1 million, or $.13 per basic and diluted share, when compared
to $1.6 million, or $.10 per basic and diluted share, a 31% increase over the
comparable period last year. Net income per diluted share for the
three months ended September 30, 1999 increased 30% over the comparable period
last year. For the nine month period ended September 30, 1999, net income
will increase to $8.1 million, or $.49 per basic and diluted share, when
compared to $5.8 million, or $.37 per basic and diluted share for the same
period a year ago, representing a 40% increase. Net income per basic and
diluted share for the nine months ended September 30, 1999 increased 32% over
the comparable period last year.
Commenting on the anticipated results, Michael Piraino, SM&A's President
and Chief Operating Officer, stated, "Although we are pleased to report
operating results which are substantially above the same period a year ago
they were not in line with analysts' expectations and we are very disappointed
with this expected outcome. The reorganization plans and strategic
initiatives discussed below are geared toward making the changes necessary to
align our corporate resources with the economics and dynamics of our
addressable markets and improve operating results."
Strategic Initiatives and Reorganization Plans for Operating Groups
SM&A continues to be a disciplined acquirer making acquisitions that
complement its existing businesses and that are quickly accretive to earnings.
In the third quarter of 1999 SM&A completed the acquisition of Kapos
Associates, Inc. ("Kapos") in keeping with their previously announced
acquisition strategy.
Mr. Piraino commented, "We have realized an incredible amount of value
with our acquisitions this year and will continue to pursue attractive
acquisition opportunities that fit our growth strategy."
SM&A today has also announced strategic initiatives and reorganization
plans containing six action points which it is convinced address issues
involving revenue growth, recent gross margin erosion, customer retention and
satisfaction, employee benefits and corporate infrastructure. The specific
action points are as follows:
-- ITSG Reorganization - The headquarters for ITSG will be relocated to
Colorado Springs, Co., under the direction of Gary Markle who will be
named President and General Manager of that business segment. Its
business focus will be the pursuit of high margin commercial contracts
and the successful development of software products directed at the
telecommunications, network operating environment, healthcare and
transportation markets via e-commerce enablement. Some 40 employees,
currently working on direct government projects and contracts will be
immediately transferred to the Systems Solutions Group ("SSG"), based
in Vienna, VA.
-- SSG Reporting Structure - With the acquisition of Kapos, SM&A gained
tremendous leadership in the war gaming, modeling and analysis area.
We are placing several existing activities within a new division to be
named Strategic Studies and Analysis, to be led by Ervin Kapos. We are
also breaking out our Modeling and Simulations business as a new
division within SSG.
-- Re-emphasizing Product Quality - Our software development activities
are being accelerated and focussed on the products most likely to lead
to successful early market penetration. The emphasis, however, must
stay on product quality and the development of long-term satisfied
customers. Accordingly, we are finalizing the construction of a
Customer Care Center, located in Colorado Springs, Co., to connect our
customers directly with SM&A support services.
-- Expansion of PMG Services - We are improving our PMG processes by
placing additional focus on initial and recurrent training all of our
associates, increasing recruiting activities, emphasizing "win"
strategies for our clients and planning for the "next wave" of all
electronic, and perhaps Internet-based proposals.
-- Completion of Finance & Accounting / Systems Enhancements - We are
finalizing the MIS architecture and financial accounting systems that
will better enable us to report, analyze and forecast program, group
and Company activities. The complete installation of the Jamis
accounting system and the accompanying e-timecard functionality is
planned for the fourth quarter of 1999.
-- Employee Incentives and Benefits - Health care costs for workers are
increasing at an alarming rate. We have had to absorb double-digit
increases in our fringe benefits structure this year, but we cannot
sustain another increase of that magnitude for 2000 without examining
possible alternate structures and funding mechanisms for reducing costs
and at the same time increasing employee satisfaction with our benefits
package. The Company's goal is to create a culture in which superior
performance results in superior financial rewards. Programs are being
created and will be announced throughout the fourth quarter of 1999,
which are designed to do exactly that.
Commenting on the reorganization plans Steve Myers, Chairman and Chief
Executive Officer said, "Our challenge is 'change', and change is never easy.
Our Company, the customers we serve and the business environment we operate in
are going through remarkable transformation. We must adapt or be left behind.
We view the reorganization plan outlined above as SM&A's way of shifting gears
to better address the changes affecting us. We are confident that we will
move SM&A forward by applying our strategies and core values to the tactical
plans necessary to ensure growth."
About SM&A
With over 760 highly talented employees, representing growth of over 21%
so far this year, SM&A provides integrated proposal management and strategy
support, high-end systems engineering, program integration and information
technology products and services to aerospace, defense, communications, and
engineering companies. Statements herein concerning the company's growth and
strategies may include forward-looking statements. The company's actual
results may differ materially from those suggested as a result of various
factors, including, without limitation, the company's ability to recruit and
retain qualified technical personnel; identify, acquire, and integrate
suitable acquisition candidates; obtain sufficient working capital to support
such growth; and compete successfully with existing and future competitors.
Interested parties should refer to the disclosure set forth under the caption
"Risk Factors" and elsewhere in the company's Form 10-K for the year ended
December 31, 1998 and Form 10-Q for the quarter ended June 30, 1999, for
additional information regarding risks affecting the company's financial
condition and results of operations. Additional information on SM&A is now
available via the Internet's World Wide Web at http://www.smawins.com. For
more investor information via facsimile, please call 1-800-PRO-INFO and enter
client code SM&A.
SOURCE SM&A Corporation
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Related links:
http://www.smawins.com
CONTACT:
Michael A. Piraino, President and COO of SM&A
Corporation, 949-975-1550
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