SOURCE: SM & A

August 02, 2006 16:00 ET

SM&A Reports Second Quarter Revenues of $18.3 Million and EPS of $0.07

NEWPORT BEACH, CA -- (MARKET WIRE) -- August 2, 2006 -- SM&A, Inc. (NASDAQ: WINS), the world's leading provider of business strategy and proposal development services that enhance clients' ability to win competitive procurements, and a leading provider of program services, today reported continued sequential growth during the second quarter that ended June 30, 2006.

Revenue for the quarter was $18.3 million and net income for the quarter was $1.3 million, or $0.07 per fully diluted share. For the quarter ended June 30, 2005, SM&A reported revenue of $20.3 million and restated earnings per fully diluted share of $0.06, which included restated stock-based compensation expense of $2.1 million. Results for the second quarter of 2006 included $705,000 in contract win incentive payments as compared to $228,000 during the second quarter of 2005.

For the six months ended June 30, 2006, revenues were $36.0 million as compared with $40.5 million for the six months ended June 30, 2005. Net income for the first six months of 2006 was $2.5 million, or $0.12 per fully diluted share versus restated net income of $3.7 million, or $0.18 per fully diluted share.

"We achieved our second quarter targets in both our Competition Management and Program Services businesses despite reduced service levels to one client due to their internal budget pressures. We expect to increase our service levels with this client towards the end of the third quarter as the customer enters their new fiscal year," said Cathy McCarthy, President and Chief Operating Officer. "Second quarter Competition Management revenues were the third highest quarterly revenues in the Company's history, and our Program Services revenue grew by $350,000, or six percent, over the first quarter. We continue to deliver very high win rates for our customers as evidenced by the more than $700,000 in win incentive fees recorded during the quarter. In addition, one of our key strategies during 2006 was to rebuild relationships with our top Aerospace and Defense clients and revenue from this client base increased 44% over the first quarter.

"The launch of three new solutions in the Program Services business is producing revenue growth," Ms. McCarthy continued. "In fact, our initial Milestone Success sales call at the beginning of the third quarter resulted in a sale that will generate revenue during the current period. We feel confident that our Program Services business will continue to show sequential gains over the remainder of the year as our new services gain recognition with our current and potential clients," Ms. McCarthy added.

"Revenues from Aerospace & Defense clients grew 23% from the first quarter, although they were down by $62,000 as compared to the second quarter of 2005," added Steve Handy, Chief Financial Officer. "Revenues from Non-Aerospace & Defense (Non-A&D) customers decreased 36% from the first quarter and 34% from the second quarter of 2005 due to the reduced service levels to the one previously mentioned client. It is important to note that on a sequential basis, non-A&D client revenue, excluding this one client, rose 54% and year-over-year it rose 30% which reflects the continuing success of our efforts to diversify both the client base and the markets we serve. Competition Management revenues were up 2% as compared to the first quarter of 2006, and up 15% as compared to the second quarter of 2005, while Program Services revenues were up 6% from the first quarter and down 35% as compared to the year ago period," he said.

During the second quarter, the top five Competition Management customers represented 64% of this service line's revenues as compared with 68% during the first quarter of 2006, and 71% during the second quarter of 2005. The top five Program Services customers represented 95% of this service line's revenues during the second quarter as compared with 92% during the first quarter of 2006 and 94% during the second quarter of 2005. In addition, sales per account executive with tenure greater than nine months were consistent with the first quarter at $1.7 million. Six new customers were added during the quarter and they generated 5% of total revenue for the period. Two of the new customers were participants in the Aerospace & Defense industry while four participated in Non-A&D industries.

Gross margin during the quarter was 44% as compared to 43% for the second quarter of 2005 and 40% for the first quarter of 2006 due to the increase in win incentive awards. SG&A expenses prior to stock compensation expense rose $1.1 million as compared to the same period of 2005 and included non-routine expenses including $225,000 in expenses related to the 2005 restatement and $200,000 related to the post implement costs of the Company's new ERP system. The majority of the remaining planned increase in expenses related to the development of the Company's practices which were established during the later half of 2005.

During the second quarter the Company repurchased 948,100 shares at a cost of $5.9 million. The Company currently has approximately $8.1 million remaining in share repurchase authorization. In addition, as of June 30, 2006, the Company had a cash and investments position of approximately $15.8 million.

Conference Call and Webcast

SM&A will host a conference call at 1:30 p.m. Pacific Time on Wednesday, August 2, 2006 to discuss the Company's results for the second quarter of 2006. To participate, callers should dial (800) 240-6709 or (303) 275-2170 approximately 10 minutes before the scheduled start of the call. The call will also be accessible via live webcast at the homepage of www.smawins.com by clicking on the webcast link.

Replay

A replay of the conference call will be available at www.smawins.com or by dialing (800) 405-2236 or (303) 590-3000, reference access code 11066171#. The call replay will be available for seven days.

Safe Harbor Statement

The statements in this news release that refer to expectations for fiscal year 2006 are forward-looking statements that involve a number of risks and uncertainties. Any one or number of factors could cause actual results to differ materially from expectations, and could include: shift in demand for SM&A's Competition Management and Performance Assurance services; fluctuations in the size, timing, and duration of client engagements; delays, cancellations, or shifts in emphasis for competitive procurement activities; declines in future defense, information technology, homeland security, new systems, and research and development expenditures, and other risk factors listed in SM&A's SEC reports, including the report on Form 10-K for the year ended December 31, 2005. Actual results may differ materially from those expressed or implied. The company expressly does not undertake a duty to update forward-looking statements.

About SM&A

SM&A is the world's foremost management consulting firm providing leadership and mentoring solutions to PLAN for business capture, WIN competitive procurements and profitably PERFORM on the projects and programs won. Our proven processes, people and tools have delivered significant top-line and bottom-line growth across markets, products and services. From the largest aerospace and defense contractors, through the major software providers, to healthcare and financial/audit service providers, SM&A is the partner many companies turn to WHEN THEY MUST WIN.




                             SM&A
            CONDENSED CONSOLIDATED BALANCE SHEETS
                        (in thousands)



                                                             As Restated
                                               June 30,      December 31,
                                                 2006            2005
                                            --------------  --------------
                   ASSETS                     (unaudited)
                   ------
Current assets:
  Cash and cash equivalents                 $       10,828  $       19,103
  Investments                                        4,950           4,950
  Accounts receivable, net                          14,940          10,435
  Prepaid expenses and other current assets            698             380
  Prepaid income taxes                                  --             924
  Deferred income taxes                                411             319
                                            --------------  --------------
    Total current assets                            31,827          36,111
Fixed assets, net                                    3,309           2,571
Other assets                                            53              60
                                            --------------  --------------

                                            $       35,189  $       38,742
                                            ==============  ==============

    LIABILITIES AND SHAREHOLDERS' EQUITY
    ------------------------------------
Current liabilities:
  Accounts payable                          $          702  $          762
  Accrued compensation and related benefits          2,413           2,129
  Income taxes payable                                 368              --
  Net liabilities of discontinued
   operations                                          201             396
                                            --------------  --------------
    Total current liabilities                        3,684           3,287
Deferred income taxes                                   --              56
Other liabilities                                      552             539
                                            --------------  --------------
Total liabilities                                    4,236           3,882

Commitments and contingencies

Shareholders' equity:
  Preferred stock                                       --              --
  Common stock, no par value                        39,760          46,126
  Accumulated deficit                               (8,807)        (11,266)
                                            --------------  --------------
    Total shareholders' equity                      30,953          34,860
                                                            --------------
                                            $       35,189  $       38,742
                                            ==============  ==============






                               SM&A
        CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
                (in thousands, except per share data)

                                  Three Months Ended     Six Months Ended
                                        June 30,              June 30,
                                          As Restated           As Restated
                                   2006       2005       2006       2005
                                ---------- ---------- ---------- ----------

Revenue                         $   18,277 $   20,261 $   35,992 $   40,506
Cost of revenue                     10,268     11,583     20,842     23,106
                                ---------- ---------- ---------- ----------
    Gross margin                     8,009      8,678     15,150     17,400

Selling, general and
 administrative expenses             6,086      6,783     11,414     11,803
                                ---------- ---------- ---------- ----------
    Operating income                 1,923      1,895      3,736      5,597

Interest income, net                   252        118        444        203
                                ---------- ---------- ---------- ----------
Income before income taxes           2,175      2,013      4,180      5,800

Income tax expense                     895        823      1,721      2,073
                                ---------- ---------- ---------- ----------

Net income                      $    1,280 $    1,190 $    2,459 $    3,727
                                ========== ========== ========== ==========

Net income per share:
  Basic                         $     0.07 $     0.06 $     0.13 $     0.18
  Diluted                       $     0.07 $     0.06 $     0.12 $     0.18

Shares used in calculating net
 income per share:
  Basic                             19,170     20,370     19,492     20,317
  Diluted                           19,372     20,879     19,706     20,980

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