CSRA Announces Second Quarter Fiscal Year 2017 Financial Results

FALLS CHURCH, Va., Nov. 9, 2016

"Our strong second quarter results demonstrate the promise of CSRA, as we pivot towards growth and continue to deliver industry leading profitability," said Larry Prior, CSRA president and CEO. "Our investments in business development and our focus on next-generation solutions are paying off, and we are realizing the benefits of rapid integration. Recent new business wins position us well to return to organic growth in fiscal year 2018, and we continue to see significant opportunities to take market share as we deliver innovative and efficient technology solutions to meet our customers' most pressing needs."

	(Dollars in millions, except per share data)		Three Months Ended							Six Months Ended ARIVA.DE Börsen-Geflüster Kurse CSRA -   0,00%
			September 30, 2016			October 2, 2015				September 30, 2016			October 2, 2015
	GAAP revenue	$	1,263		$	969			$	2,517		$	1,928
	GAAP net income	$	80		$	53			$	148		$	120
	GAAP diluted EPS	$	0.46		$	0.35			$	0.86		$	0.80
	Pro forma revenue	$	1,263		$	1,320			$	2,517		$	2,637
	Pro forma adjusted EBITDA	$	229		$	236			$	446		$	446
	Pro forma adjusted diluted EPS	$	0.56		$	0.53			$	1.06		$	1.04
	Note: All figures are unaudited; computation methods are shown at the end of the release.

GAAP revenue for the second quarter of fiscal year 2017 was $1.26 billion, up 30 percent compared to the second quarter of fiscal year 2016, as a result of the merger with SRA International, Inc. Revenue for the quarter was down 4 percent compared to pro forma revenue in the second quarter of fiscal year 2016, which assumes the SRA merger occurred at the beginning of that period. Revenue for the quarter increased 1 percent compared to the first quarter of fiscal year 2017 as recent new business awards began to ramp and several expansions of existing work occurred earlier than expected.

GAAP net income of $80 million, or $0.46 per share, includes $16 million of amortization of SRA contract backlog and $8 million of other pre-tax merger and integration costs. Adjusted EBITDA for the quarter was $229 million, up 5 percent from the first quarter of 2017 and down 3 percent from pro forma adjusted EBITDA in the second quarter of fiscal year 2016. Adjusted EBITDA margin for the quarter was a record 18.1 percent, driven by cost synergies realized from the SRA merger and strong program performance across the business. Adjusted diluted earnings per share for the quarter were $0.56, up 10 percent from the first quarter of 2017 and up 6 percent from pro forma adjusted diluted earnings per share in the second quarter of fiscal year 2016.

Cash Management and Capital Deployment

Operating cash flow for the quarter was $55 million, which was affected by several one-time payments and timing items. In addition, the company's capital expenditures were higher than usual in the second quarter due to the timing of customer requirements. As a result, free cash flow during the quarter was $8 million.

The company executed on its balanced capital deployment program and deployed $50 million to pay down debt and $24 million to return to shareholders. As of September 30, 2016, the company had $68 million in cash and cash equivalents and $2.6 billion in debt.

The company paid a cash dividend of $0.10 per share on October 4, 2016, for a total payment of $16 million as part of its regular quarterly cash dividend program. The Board of Directors expects to declare the next quarterly dividend at its meeting in December.

During the quarter CSRA repurchased 300,097 shares of common stock through open market purchases at an average price of $26.45 per share for an aggregate consideration of $8 million. The company expended an additional $2 million to settle repurchases made at the end of the second quarter and $3 million to repurchase shares at the beginning of the third quarter, leaving $337 million remaining on its share repurchase authorization with an expiration date of March 31, 2019.

Business Development

Bookings totaled $2.4 billion in the second quarter, representing a book-to-bill ratio of 1.9x. The second quarter marked the seventh consecutive quarter with a pro forma book-to-bill ratio of 1.0x or higher. Pro forma bookings for the trailing twelve-month period totaled $6.7 billion, representing a pro forma book-to-bill ratio of 1.3x.

Included in the quarterly bookings were several particularly important single-award prime contracts:

• Office of Personnel Management (OPM) Background Check Investigations. OPM awarded CSRA a contract to support the new National Background Investigations Bureau (NBIB) in conducting Federal background investigations. The Blanket Purchase Agreement has a performance period of five years and an estimated value of $503 million.
• U.S. Department of State Consular Affairs' Global Support Strategy (GSS) Program. CSRA received two task orders totaling in excess of $200 million to continue capturing biometric data for U.S. visitors from Mexico, Tel Aviv and Jerusalem. The $2.8 billion indefinite-delivery, indefinite-quantity GSS contract spans a period of 10 years with 19 additional task orders expected to be awarded during that timeframe.
• Defense Intelligence Agency (DIA) Enterprise Service Operations Center (ESOC).  DIA awarded CSRA a task order valued at $167 million over five and a half years to manage the ESOC, which consists of self-help knowledge portals, remote service desk resolution support and in-field customer engagement support for the Department of Defense Intelligence Information Systems global customers. The work will be performed at various CSRA and government locations worldwide, including the company's new Integrated Technology Center (ITC) in Bossier City, Louisiana.
• Littoral Combat Ship (LCS) and Professional Engineering Services Support. CSRA will provide a variety of mission critical services in support of the acquisition process for the LCS program. CSRA's support on the five-year, $131 million task order initially focuses on procuring 22 ships for the LCS Block Buy contract and will evolve to stabilizing serial, full-rate production of the LCS ships and an increasing role in assisting with the lifecycle management of the delivered ships, including post-delivery transition to the fleet and lifecycle engineering.
• Office of Justice Programs (OJP) Enterprise Application Development Support Services (EADSS) contract. Under a five-year, $116 million contract, CSRA will streamline, maintain and upgrade the IT systems of seven offices and bureaus operating under the Department of Justice's OJP. Key tasks include cloud migration, agile application development, and mobile application development to enable OJP to leverage shared services, e-Gov initiatives and data consolidation activities.
• Department of Defense Joint Service Provider (JSP) Program. CSRA was awarded a $114 million task order over four and a half years to develop and deploy an in-depth network security strategy that will deter and neutralize malicious activities for various offices within the Pentagon. CSRA will also work with U.S. Cyber Command and other government agencies to provide situational awareness about incidents and potential network threats.
• U.S. Department of Veterans Affairs (VA) Enterprise Cloud Services (ECS). Under a four-year, $73 million contract, CSRA will manage a portfolio of cloud computing services across the VA enterprise, which will significantly improve the agency's delivery of enhancements to veteran health benefits and service delivery programs while driving down IT sustainment costs. The company will also provide network supportability, design and an application hosting configuration to ensure alignment with modernized service delivery.

The company's backlog of signed business orders at the end of second quarter of fiscal year 2017 was $15.5 billion, of which $3.0 billion was funded. Total backlog increased 2 percent compared to the pro forma backlog at the end of the second quarter of fiscal year 2016.

In addition, the company won a new five-year $744 million task order to deliver mission-essential logistics for the U.S. Army. The award is currently under protest, which should be resolved before the end of the calendar year. As such, the contract is not included in the company's second quarter bookings or backlog figures. Including programs awarded in the quarter but subsequently protested would result in a book-to-bill ratio of 2.5x.

Forward Guidance

The company is maintaining its previously announced guidance ranges for revenue, adjusted EBITDA, adjusted diluted earnings per share, and free cash flow for fiscal year 2017 as specified in the table below. The company elects to provide ranges for certain metrics not in accordance with GAAP because it cannot make reliable estimates of key elements, including pension mark-to-market adjustments and integration expenses.

The fiscal year 2017 adjusted EBITDA and diluted EPS guidance assumes pension income of $96 million, consistent with the amounts recorded in the first half of fiscal year 2017.

CSRA chief financial officer Dave Keffer commented, "I am happy to report excellent overall performance in the quarter. Our strong business development results have greatly improved our visibility into the second half of fiscal year 2017 and the first half of fiscal year 2018. This quarter marked the first true results of CSRA's integrated bid and proposal organization, and our high volume of new wins and strong win rates on new work gives us confidence in our ability to drive growth. We expect free cash flow to be strong in the second half of FY17, which will enable us to continue paying down debt and returning capital to shareholders."

Conference Call

CSRA executive management will hold a conference call on November 9, 2016, at 5 p.m. Eastern to discuss the financial results and outlook and answer questions. Analysts and institutional investors may participate on the conference call by dialing 877-883-0383 (domestic) or 412-902-6506 (international) and entering pass code 8256434. The conference call will be webcast simultaneously to the public through a link on the Investor Relations section of the CSRA website (http://investorrelations.csra.com). A replay of the conference call will be available on the CSRA approximately two hours after the conclusion of the call.

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