SRA International, Inc. reported strong financials for the second quarter of fiscal year 2010, with double digit organic growth for the first time in 3 years. Additionally, the company experienced lower attrition levels in the first quarter of FY10 as compared to the year previous, all good signs of the company’s stability and future forecast. Additionally, SRA won their recompete of the company’s biggest contract with the FDIC. The FDIC contract represents approximately 6% of revenue and the recompete will bring $457.8M over five years.
Other strong signs of company performance include a 93% success rate on recompetes year-to-date. However, SRA struggled in the first quarter as well, reporting losses in their contract research organization and aviation portfolios. Losses in the CRO business were approximately $1M, attributed by management to slow industry demand. Management plans to reduce overhead costs in order to address the loss. The losses in the aviation business were more serious at approximately $3M. The most significant driver of the operating loss were delays in converting contracts from the pipeline, as some customers delay award decisions, Management expects these award decision delays to continue through the third quarter of FY10.
SRA has not acquired any companies since the July 2008 acquisition of Era Corporation. Management acknowledges there are a significant number of attractive acquisition targets currently in the market. However, they have not recently found a target that fits in with the company’s strategic priorities. The company would theoretically look for an acquisition target with $100M to $500M in revenue. However, given disappointing performances in some areas of the company’s portfolio, strategic acquisitions seem unlikely in the near-term.
In the first quarter of fiscal year 2010 SRA International reported $417M in revenue, representing 8.4% organic growth YoY. Revenue decreased slightly in 2Q10 to $413.5M; however, this represented a 12% YoY organic growth rate, the first time SRA posted a double digit growth rate in 3 years. Gross margins are largely stable at 23.9% in 1Q10 and 24.9% in 2Q10, which is in line with past performance QoQ and YoY. SRA chose to reclassify SG&A in 1Q10, moving expenses associated with persons who perform services on contracts from the SG&A line to cost of service line. SG&A was 15% of revenue in 1Q10, and management expects it will remain between 15% and 16% for the remainder of FY10. Net margins were 4.3% in 1Q10 and 4.6% in 2Q10. The DSO was 76 days in 1Q10, which is an increase from past DSOs; however, the increase was in fact smaller than expected. Management attributes the increase to the fact the ended a practice of offering discounts to customers who pay early.
Financial Highlights
For the Quarter Ended: Dec-09
Valuation Measures
Market Cap (intraday): 1.08B
Enterprise Value (2/27/10): 1.10B
Trailing P/E (ttm, intraday): 15.94
Forward P/E (fye 30 June 11): 13.71
PEG Ratio (5 yr expected): .99
Price/Book (mrq): .67
Enterprise Value/Revenue (ttm): .68
Enterprise Value/EBITDA (ttm): 7.58
Profitability
Profit Margin (ttm): 4.29%
Operating Margin (ttm): 7.21%
Income Statement
Revenue (ttm): 1.61B
Gross Margin (ttm): 25.9%
EBITDA Margins (ttm): 9.0%
Qtrly Revenue Growth (yoy): 12.0%
Qtrly Earnings Growth (yoy): 77.2%
Balance Sheet
Total Cash (mrq): 41.33M
Total Debt (mrq): 60.00M
Total Debt/EBITDA (mrq): .41X
Current Ratio (mrq): 2.07
Cash Flow Statement
Operating Cash Flow (ttm): 64.93M
Levered Free Cash Flow (ttm): 33.80M