10/24/2003 - The Titan Corporation (NYSE: TTN - News) reported results for the third quarter and nine months ending September 30, 2003. Results reflect record organic growth in revenue, and improved operating margins and earnings per share. The Company also announced an increase in guidance for FY 2003 and FY 2004. The financial results and guidance are attached to this release.
Titan reported record quarterly revenues for the third quarter of 2003 of $472 million, an increase of 34% over $353 million in the third quarter of 2002. The organic growth for the quarter was 33% over the prior year, driven by growth in Titan's core National Security Solutions business.
Net income for the third quarter of 2003 was $15.2 million, or $0.18 per share, compared with a net loss of $225 million or $2.89 per share for the third quarter of 2002. Included in net income for the third quarter of 2003 was a charge of $0.8 million for expenses related to the planned merger with Lockheed Martin Corporation, and a gain from discontinued operations of $0.2 million. Included in the net loss for the third quarter of 2002 is a loss from discontinued operations of $192 million, deferred compensation of $22 million, and exit and restructuring costs of $47 million.
Pro forma net income for the third quarter of 2003 was $16.7 million, or $0.20 per share, compared with $10.5 million, or $0.13 per share, for the third quarter of 2002. Benefiting from economies of scale from higher revenues and specific cost containment measures, pro forma operating margins improved to 7.7% in the third quarter of 2003. This compares favorably to the 6.6% and 7.5% pro forma margins in the first and second quarter of 2003, respectively.
"The record revenues and continued operating margin improvements this quarter demonstrate our ability to execute our strategy of generating new business, winning recompetes, and implementing operational efficiencies," said Gene W. Ray, Titan's chairman, president and CEO. "As planned, we have grown our business organically as a provider of choice for mission critical communications and intelligence solutions for the Department of Defense, Department of Homeland Security, and other federal agencies."
Bookings in the third quarter of 2003 totaled $829 million, building backlog to a record $5.1 billion. The book-to-bill ratio for the third quarter was 1.75 to 1. "Titan's continuing success at winning new business and the continuation of existing contracts are the direct result of our ability to meet our customers' rigorous and expanding requirements. These recent contract wins provide Titan with the foundation for generating predictable long-term growth," added Ray.
Days Sales Outstanding (DSO) improved to 67 days, down from 69 days in the second quarter of 2003. As a result of strong positive cash flow in the third quarter, the Company's debt and interest expense reduction effort progressed ahead of plan this quarter, with a reduction of net debt of approximately $48 million.
On September 15, 2003, Titan announced it had entered into a definitive merger agreement with Lockheed Martin Corporation. The company continues to expect the merger to close in the first quarter of 2004, as previously announced.
Third Quarter 2003 Operational Highlights
Strong revenue growth for the quarter was largely the result of continued ramp-up of existing large contracts with the military and intelligence communities, including the linguists contract with the Army Intelligence and Security Command, the Enterprise Architecture and Decision Support contract with the National Security Agency, and the Enterprise IT contract with the Special Forces Operational Command, as well as the commencement of several new contracts won in the first half of 2003.
Also contributing to increased revenue were the Company's Affordable Weapon and X-Craft development contracts with the Office of Naval Research, and continued growth in our Department of Homeland Security programs. These contracts, along with awards won in the third quarter from the Army, Air Force, Navy and the Federal Aviation Administration, helped drive organic revenue growth to 33% year-over-year and 8% sequentially quarter-to-quarter.
Citing continued gains in revenue, improvements in operating margin, and exceptionally strong cash flow generation, the Company is increasing guidance for the balance of the current year and for FY 2004. Revised FY 2003 revenue guidance is $1.775 billion to $1.8 billion; GAAP earnings per share are anticipated to be $0.54 to $0.56; and guidance for pro forma earnings per share has increased to $0.72 to $0.74 per share. Revised FY 2004 revenue guidance is $2.1 billion to $2.2 billion, and GAAP earnings per share are anticipated to be $0.87 to $0.93.
"The outlook for the remainder of 2003 and for 2004 is robust, reflecting our record backlog, our expertise at executing large program awards, our strong bid and proposal pipeline, and our proven ability to execute our business development initiatives. Titan is on track to achieve a 28% organic revenue growth rate for FY 2003," Ray said. "The most significant driver of that growth is the expanding need for more, and increasingly sophisticated, C4ISR [command, control, communications, computers, intelligence, surveillance and reconnaissance] systems, products and services, which is Titan's core competency."
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