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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTER ENDED SEPTEMBER 30, 2015

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 000-51579

 

 

 

LOGO

NCI, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   20-3211574

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

11730 Plaza America Drive

Reston, Virginia

  20190-4764
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (703) 707-6900

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x  (Do not check if a smaller reporting company)    Smaller Reporting Company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No

As of October 26, 2015, there were 8,656,065 shares outstanding of the registrant’s Class A common stock. In addition, there are 4,700,000 shares outstanding of the registrant’s Class B common stock, which are convertible on a one-for-one basis into shares of Class A common stock.

 

 

 


Table of Contents

NCI, INC.

 

         PAGE  
PART I:  

FINANCIAL INFORMATION

     1   
Item 1.  

Condensed Consolidated Financial Statements

     1   
Item 2.  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     10   
Item 3.  

Quantitative and Qualitative Disclosures About Market Risk

     16   
Item 4.  

Controls and Procedures

     16   
PART II:  

OTHER INFORMATION

     17   
Item 1.  

Legal Proceedings

     17   
Item 1A.  

Risk Factors

     17   
Item 2.  

Unregistered Sales of Equity Securities and Use of Proceeds

     17   
Item 3.  

Defaults Upon Senior Securities

     17   
Item 4.  

Mine Safety Disclosures

     17   
Item 5.  

Other Information

     17   
Item 6.  

Exhibits

     18   
 

Signatures

     20   


Table of Contents

PART 1

FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

NCI, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(in thousands, except per share data)

 

     Three months ended September 30,      Nine months ended September 30,  
     2015      2014      2015      2014  

Revenue

   $ 82,310       $ 75,660       $ 249,077       $ 242,588   

Operating expenses:

           

Cost of revenue

     68,677         64,102         207,832         208,033   

General and administrative expenses

     6,445         6,205         19,941         19,967   

Depreciation and amortization

     1,794         1,401         5,774         4,302   

Acquisition and integration related expenses

     6         —           428         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total operating expenses

     76,922         71,708         233,975         232,302   
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating income

     5,388         3,952         15,102         10,286   

Interest expense, net

     204         95         662         302   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income before income taxes

     5,184         3,857         14,440         9,984   

Provision for income taxes

     2,013         1,495         5,818         3,956   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 3,171       $ 2,362       $ 8,622       $ 6,028   
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings per common and common equivalent share:

           

Basic:

           

Weighted average shares outstanding

     13,029         12,903         13,004         12,879   

Net income per share

   $ 0.24       $ 0.18       $ 0.66       $ 0.47   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted:

           

Weighted average shares outstanding

     13,697         13,486         13,659         13,475   

Net income per share

   $ 0.23       $ 0.18       $ 0.63       $ 0.45   
  

 

 

    

 

 

    

 

 

    

 

 

 

Cash dividend declared and paid per share

   $ —         $ —         $ 0.12       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

The accompanying notes are an integral

part of these condensed consolidated financial statements

 

1


Table of Contents

NCI, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands, except par value)

 

     As of
September 30,
2015
    As of
December 31,
2014
 

Assets:

    

Current assets:

    

Cash and cash equivalents

   $ 24      $ 25,819   

Accounts receivable, net

     52,820        52,856   

Deferred tax assets, net

     3,942        3,950   

Prepaid expenses and other current assets

     2,589        3,382   
  

 

 

   

 

 

 

Total current assets

     59,375        86,007   

Property and equipment, net

     6,440        7,371   

Other assets

     1,562        1,748   

Deferred tax assets, net

     37,619        37,839   

Intangible assets, net

     20,239        3,719   

Goodwill

     33,878        —     
  

 

 

   

 

 

 

Total assets

   $ 159,113      $ 136,684   
  

 

 

   

 

 

 

Liabilities and stockholders’ equity:

    

Current liabilities:

    

Accounts payable

   $ 15,167      $ 15,646   

Accrued salaries and benefits

     17,999        16,481   

Deferred revenue

     2,868        3,226   

Other accrued expenses

     7,090        4,653   
  

 

 

   

 

 

 

Total current liabilities

     43,124        40,006   
  

 

 

   

 

 

 

Long-term debt

     11,297        —     

Other long-term liabilities

     2,636        2,901   
  

 

 

   

 

 

 

Total liabilities

     57,057        42,907   
  

 

 

   

 

 

 

Stockholders’ equity:

    

Class A common stock, $0.019 par value—37,500 shares authorized; 9,258 shares issued and 8,341 shares outstanding as of September 30, 2015, and 9,223 shares issued and 8,306 shares outstanding as of December 31, 2014

     176        175   

Class B common stock, $0.019 par value—12,500 shares authorized; 4,700 shares issued and outstanding as of September 30, 2015 and December 31, 2014

     89        89   

Additional paid-in capital

     75,623        74,406   

Treasury stock at cost—917 shares of Class A common stock as of September 30, 2015 and December 31, 2014

     (8,331     (8,331

Retained earnings

     34,499        27,438   
  

 

 

   

 

 

 

Total stockholders’ equity

     102,056        93,777   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 159,113      $ 136,684   
  

 

 

   

 

 

 

The accompanying notes are an integral

part of these condensed consolidated financial statements

 

2


Table of Contents

NCI, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

 

     Nine months ended September 30,  
     2015     2014  

Cash flows from operating activities:

    

Net income

   $ 8,622      $ 6,028   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     5,774        4,302   

Share-based compensation

     1,036        2,774   

Deferred income taxes

     228        (72

Changes in operating assets and liabilities: (net of businesses acquired)

    

Accounts receivable, net

     5,421        9,209   

Prepaid expenses and other assets

     3,893        474   

Accounts payable

     (1,387     (3,344

Accrued expenses and other liabilities

     (1,105     1,670   
  

 

 

   

 

 

 

Net cash provided by operating activities

     22,482        21,041   
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchases of property and equipment

     (1,537     (586

Cash paid for acquisition, net of cash acquired

     (56,657     —     
  

 

 

   

 

 

 

Net cash used in investing activities

     (58,194     (586
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Borrowings under credit facility

     146,395        42,496   

Repayments on credit facility

     (135,099     (43,496

Proceeds from exercise of stock options

     235        253   

Repurchase of stock awards

     (53     (86

Dividends paid

     (1,561     —     
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     9,917        (833
  

 

 

   

 

 

 

Net change in cash and cash equivalents

     (25,795     19,622   

Cash and cash equivalents, beginning of period

     25,819        50   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 24      $ 19,672   
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information:

    

Cash paid during the period for:

    

Interest

   $ 588      $ 247   
  

 

 

   

 

 

 

Income taxes

   $ 2,871      $ 3,460   
  

 

 

   

 

 

 

Non-cash investing and finance activities during the period for:

    

Leasehold improvements acquired under tenant improvement funds

   $ —        $ 706   
  

 

 

   

 

 

 

The accompanying notes are an integral

part of these condensed consolidated financial statements

 

3


Table of Contents

NCI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of NCI, Inc. and its subsidiaries (“NCI” or “the Company”) have been prepared in accordance with generally accepted accounting principles in the U.S. (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). As a result, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. In the opinion of management, the accompanying unaudited interim consolidated financial statements reflect all adjustments necessary to fairly present the Company’s financial position as of September 30, 2015 and its results of operations and cash flows for the three and nine months ended September 30, 2015 and 2014, which consists of normal and recurring adjustments. The information disclosed in the notes to the financial statements for these periods is unaudited. The current period’s results of operations are not necessarily indicative of results that may be achieved for any future period. All numbers in tables are presented in thousands except share and per share numbers. For further information, refer to the financial statements and footnotes included in NCI’s Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the SEC.

2. Business Overview

NCI is a leading provider of enterprise solutions and services to U.S. defense, intelligence, health care and civilian government agencies. We have the expertise and proven track record to solve our customers’ most important and complex mission challenges through technology and innovation. Our team of highly skilled professionals focuses on delivering cost-effective solutions and services in the areas of agile software application and systems development/integration; cybersecurity and information assurance; engineering and logistics support; enterprise information management and advanced analytics; cloud computing and IT infrastructure optimization; health IT and medical support; IT service management; and modeling, simulation and training. Headquartered in Reston, Virginia, we have more than 1,800 employees operating at more than 100 locations worldwide. The majority of the Company’s revenue was derived from contracts with the U.S. Federal Government, directly as a prime contractor or as a subcontractor. NCI primarily conducts business throughout the U.S. The Company reports operating results and financial data as one reportable segment.

For the three months ended September 30, 2015, the Company generated approximately 59% of revenue from the Department of Defense, including agencies within the intelligence community, and approximately 41% of revenue from federal civilian agencies. For the nine months ended September 30, 2015, the Company generated approximately 60% of revenue from the Department of Defense, including agencies within the intelligence community, and approximately 40% of revenue from federal civilian agencies. For the three months ended September 30, 2014, the Company generated approximately 73% of revenue from the Department of Defense, including agencies within the intelligence community, and approximately 27% of revenue from federal civilian agencies. For the nine months ended September 30, 2014, the Company generated approximately 75% of revenue from the Department of Defense, including agencies within the intelligence community, and approximately 25% of revenue from federal civilian agencies.

NCI’s Program Executive Office Soldier (“PEO Soldier”) contract is the Company’s largest revenue-generating contract and accounted for approximately 9% and 11% of revenue for the three months ended September 30, 2015 and 2014, respectively. PEO Soldier accounted for approximately 10% and 12% of revenue for the nine months ended September 30, 2015 and 2014, respectively. The Company’s PEO Soldier contract is a cost-plus fee contract consisting of a base period and two option periods for a total term of three years which commenced in September 2012. During the third quarter of 2015, NCI was awarded the follow-on contract for PEO Soldier and prevailed after a competitor’s protest was dismissed. The new contract is valued at $211.0 million and is a cost-plus fee vehicle consisting of a transition period, a base period and four option periods for a total term of five years commencing on October 1, 2015.

3. Earnings Per Share

Basic earnings per share exclude dilution and are computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Diluted earnings per share include the incremental effect of stock options calculated using the treasury stock method. Shares that are anti-dilutive are not included in the computation of diluted earnings per share. For the three months ended September 30, 2015 and 2014, approximately 30,000 and 22,000 shares, respectively, were not included in the computation of diluted earnings per share, because to do so would have been anti-dilutive. For the nine months ended September 30, 2015 and 2014, approximately 63,000 and 16,000 shares, respectively, were not included in the computation of diluted earnings per share, because to do so would have been anti-dilutive. The following details the computation of basic and diluted earnings per common share (Class A and Class B) for the three and nine months ended September 30, 2015 and 2014.

 

4


Table of Contents
     Three months ended September 30,      Nine months ended September 30,  
     2015      2014      2015      2014  

Net Income

   $ 3,171       $ 2,362       $ 8,622       $ 6,028   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average number of basic shares outstanding during the period

     13,029         12,903         13,004         12,879   

Effect of dilutive potential common shares

     668         583         655         596   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average number of diluted shares outstanding during the period

     13,697         13,486         13,659         13,475   
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic earnings per share

   $ 0.24       $ 0.18       $ 0.66       $ 0.47   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted earnings per share

   $ 0.23       $ 0.18       $ 0.63       $ 0.45   
  

 

 

    

 

 

    

 

 

    

 

 

 

4. Accounts Receivable

Accounts receivable consists of billed and unbilled amounts. The following table details accounts receivable at the end of each period:

 

     As of  
     September 30,
2015
     December 31,
2014
 

Billed receivables

   $ 20,919       $ 25,231   

Unbilled receivables:

     

Amounts billable at end of period

     24,186         21,677   

Other

     8,457         6,690   
  

 

 

    

 

 

 

Total unbilled receivables

     32,643         28,367   
  

 

 

    

 

 

 

Total accounts receivable

     53,562         53,598   

Less: Allowance for doubtful accounts

     742         742   
  

 

 

    

 

 

 

Total accounts receivable, net

   $ 52,820       $ 52,856   
  

 

 

    

 

 

 

Other unbilled receivables primarily consist of amounts that will be billed upon milestone completions and other accrued amounts that cannot be billed as of the end of the period. Substantially all unbilled receivables are expected to be billed and collected within the next 12 months.

5. Property and Equipment

The following table details property and equipment at the end of each period:

 

     As of  
     September 30,
2015
     December 31,
2014
 

Property and equipment

     

Furniture and equipment

   $ 25,492       $ 23,896   

Leasehold improvements

     9,270         9,221   

Real property

     549         549   
  

 

 

    

 

 

 
     35,311         33,666   

Less: Accumulated depreciation and amortization

     28,871         26,295   
  

 

 

    

 

 

 

Property and equipment, net

   $ 6,440       $ 7,371   
  

 

 

    

 

 

 

 

5


Table of Contents

Depreciation and amortization expense for the three months ended September 30, 2015 and 2014 was $0.8 million and $1.0 million, respectively. Depreciation and amortization expense for the nine months ended September 30, 2015 and 2014 was $2.6 million and $3.1 million, respectively.

6. Intangible Assets

The following table details intangible assets at the end of each period:

 

     As of  
     September 30,
2015
     December 31,
2014
 

Contract and customer relationships

   $ 28,979       $ 20,987   

Developed software

     1,113         —    

Less: Accumulated amortization

     (9,853      (17,268
  

 

 

    

 

 

 

Intangible assets, net

   $ 20,239       $ 3,719   
  

 

 

    

 

 

 

Amortization expense of intangible assets for the three months ended September 30, 2015 and 2014 was $1.0 million and $0.4 million, respectively. Amortization expense of intangible assets for the nine months ended September 30, 2015 and 2014 was $3.2 million and $1.2 million, respectively. Intangible assets are primarily amortized on a straight line basis over periods ranging from three to eleven years. Expected amortization expense for the remainder of the fiscal year ending December 31, 2015, and for each of the fiscal years thereafter, is as follows:

 

For the year ending December 31,

      

2015 (remaining three months)

   $ 1,008   

2016

     3,645   

2017

     3,632   

2018

     3,150   

2019

     3,049   

Thereafter

     5,755   
  

 

 

 
   $ 20,239   
  

 

 

 

7. Share-Based Payments

During the three months ended September 30, 2015, the Company did not grant any stock options to purchase shares of Class A common stock. During the nine months ended September 30, 2015, the Company granted 85,000 stock options to purchase shares of Class A common stock with a weighted-average exercise price of $10.41, which represents the fair market value at the date of grant. During the three and nine months ended September 30, 2015, 2,500 stock options and 40,000 stock options were exercised at a weighted-average price of $7.28 and $5.90, respectively. As of September 30, 2015, there were approximately 1,678,359 stock options outstanding.

During the three months ended September 30, 2015, 11,250 restricted shares vested, with 1,231 shares cancelled to cover individual tax liabilities. During the nine months ended September 30, 2015, 37,500 restricted shares vested, with 4,791 shares cancelled to cover individual tax liabilities. As of September 30, 2015, there were 6,250 shares of restricted stock outstanding

 

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During the nine months ended September 30, 2014, approximately 737,000 of the options granted in June of 2013 vested on an accelerated vesting schedule after the Company’s stock price reached two discrete acceleration milestones of a continuous 30-day average stock price of $8.00 and $10.00 per share, respectively. This accelerated vesting added approximately $1.1 million and $0.4 million in additional stock compensation costs to general and administrative expenses and cost of revenue, respectively, for the nine months ended September 30, 2014. During the nine months ended September 30, 2015, approximately 335,000 of the options granted in June of 2013 vested on an accelerated vesting schedule after the Company’s stock price reached the final acceleration milestone of a continuous 30-day average stock price of $12.00 per share. This accelerated vesting added a nominal amount in additional stock compensation costs to general and administrative expenses and cost of revenue, respectively, for the nine months ended September 30, 2015. The following table summarizes stock compensation expense allocated to cost of revenue and general and administrative costs for the three and nine months ended September 30, 2015 and 2014:

 

     Three months ended September 30,      Nine months ended September 30,  
     2015      2014      2015      2014  

Cost of revenue

   $ 76       $ 79       $ 199       $ 633   

General and administrative

     264         282         837         2,141   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 340       $ 361       $ 1,036       $ 2,774   
  

 

 

    

 

 

    

 

 

    

 

 

 

As of September 30, 2015, there was approximately $0.6 million of total unrecognized compensation cost related to unvested stock compensation arrangements. This cost is expected to be fully amortized over the next four years, with approximately $0.1 million, $0.2 million, $0.2 million, and $0.1 million amortized during the remainder of 2015, and the full years of 2016, 2017 and 2018, respectively. The cost of stock compensation is included in the Company’s Consolidated Statements of Income and expensed over the service period of the options.

8. Debt

The Company’s senior credit facility, amended in December 2014, referred to herein as the “credit facility,” consists of a revolving line of credit with a borrowing capacity of up to an $80.0 million principal amount and a $45.0 million accordion feature allowing us to increase our borrowing capacity to up to a $125.0 million principal amount, subject to obtaining commitments for the incremental capacity from existing or new lenders. The outstanding borrowings are collateralized by a security interest in substantially all of the Company’s assets. The lenders also require a direct assignment of all contracts at the lenders’ discretion. The outstanding balance under the credit facility accrues interest based on one-month LIBOR plus an applicable margin, ranging from 210 to 310 basis points, based on the ratio of the Company’s outstanding senior funded debt to Earnings before Interest, Taxes, Depreciation, and Amortization (EBITDA) as defined in the credit facility agreement. The credit facility expires on January 31, 2017.

The credit facility contains various covenants that limit, among other things, the Company’s ability to incur or guarantee additional debt; make certain distributions, investments and other restricted payments, including limits on cash dividends on the Company’s outstanding common stock or equivalent equity interests; enter into transactions with certain affiliates; create or permit certain liens; and consolidate, merge, or sell assets. In addition, the credit facility contains certain financial covenants that require the Company to maintain a minimum fixed charge coverage ratio, maintain a minimum funded debt to earnings ratio; and limit capital expenditures below certain thresholds. As of September 30, 2015, the Company was in compliance with all of its loan covenants.

The credit facility allows the Company to use borrowings thereunder of up to $17.5 million to repurchase outstanding shares of Class A common stock. No stock repurchases took place in the three or nine months ended September 30, 2015. At September 30, 2015, $16.7 million was remaining under the board of directors’ authorization for share repurchases.

During the third quarter of 2015, NCI had a weighted average outstanding loan balance of $18.8 million which accrued interest at a weighted average borrowing rate of 2.3%. During the third quarter of 2014, NCI had a weighted average outstanding loan balance of zero which would have accrued interest at a weighted average borrowing rate of 2.3% had there been a balance.

As of September 30, 2015, the outstanding balance under the credit facility was $11.3 million and interest accrued at a rate of one-month LIBOR plus 210 basis points, or 2.3%.

9. Computech Acquisition

On January 1, 2015, the Company completed its purchase of 100% of the outstanding stock of Computech, Inc. (“Computech”), a leader in agile and lean application software development and IT operations and maintenance, for approximately $56.7 million, net of cash acquired.

 

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The acquisition has been accounted for under the acquisition method of accounting which requires the total purchase consideration to be allocated to the assets acquired and liabilities assumed based on estimates of fair value. The excess of the purchase consideration over the amounts assigned to tangible or intangible assets acquired and liabilities assumed is recognized as goodwill. Total acquisition and integration related costs through September 30, 2015 were approximately $0.4 million.

The following pro forma results are prepared for comparative purposes only and do not necessarily reflect the results that would have occurred had the acquisition occurred at the beginning of the year presented or the results which may occur in the future. The following unaudited pro forma results of operations assume the Computech acquisition had occurred on January 1, 2014. Amortization of purchased intangibles and acquisition and integration related costs for the acquisition of Computech are included in all periods presented.

 

     Pro Forma Financial Information  
     Three months ended September 30,      Nine months ended September 30,  
     2015      2014      2015      2014  

Revenue

   $ 82,310       $ 88,031       $ 249,077       $ 274,776   

Net income

   $ 3,171       $ 3,828       $ 8,622       $ 8,755   

Basic earnings per share

   $ 0.24       $ 0.30       $ 0.66       $ 0.68   

Diluted earnings per share

   $ 0.23       $ 0.28       $ 0.63       $ 0.65   

Preliminary Allocation of Purchase Price

NCI is evaluating the valuation of the assets acquired and liabilities assumed of Computech and will complete the purchase accounting entries relating to the acquisition prior to the end of NCI’s quarter ending March 31, 2016. The fair values assigned to the intangible assets acquired were based on preliminary estimates, assumptions, and other information compiled by management, including independent valuations that utilized established valuation techniques. Based on the Company’s preliminary valuation, the total consideration of approximately $56.7 million, net of $3.3 million of cash acquired, has been allocated to assets acquired (including identifiable intangible assets and goodwill) and liabilities assumed, as follows:

 

Accounts receivable

     5,385   

Property and equipment

     108   

Other assets

     2,914   

Goodwill

     33,878   

Definite-life intangible assets

     19,720   

Accounts Payable

     (909

Accrued salary and benefits

     (4,112

Other accrued expenses

     (68

Deferred revenue

     (227

Deferred rent

     (32
  

 

 

 
   $ 56,657   
  

 

 

 

The definite life intangibles recognized in the allocation of the Computech purchase price consists of $18.6 million in contracts and customer relationships and $1.1 million in developed software. The fair value of the definite-lived intangible asset for contracts and customer relationships is based on existing customer contracts and anticipated follow-on contracts with existing customers and will be amortized on a straight-line basis over its expected life of seven years. The fair value of the definite-lived intangible asset for developed software will be amortized on a straight-line basis over its expected useful life of three years.

All goodwill and intangible asset amortization related to the acquisition of Computech is expected to be deductible for income tax purposes.

 

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10. Dividends

Our board of directors declared and the Company paid the following dividends during the periods presented:

 

Declaration Date

   Dividend
Per Share
     Record Date    Total Amount      Payment Date

February 11, 2015

   $ 0.12       February 20, 2015    $ 1,561       March 13, 2015

11. Related Party Transactions

The Company purchased services under a subcontract from Renegade Technology Systems, Inc. (formerly Net Commerce Corporation), which is a government contractor wholly-owned by Rajiv Narang, the son of Charles K. Narang, Chairman of the Board. For the three months ended September 30, 2015 and 2014, the expense incurred under this agreement was approximately $177,000 and $270,000, respectively. For the nine months ended September 30, 2015 and 2014, the expense incurred under this agreement was approximately $525,000 and $687,000, respectively. As of September 30, 2015 and 2014, outstanding amounts due to Renegade Technology Systems, Inc. under this agreement were $51,137 and zero, respectively.

12. Contingencies

Government Audits

Payments to the Company on U.S. Federal Government contracts are subject to adjustment upon audit by various agencies of the U.S. Federal Government. Audits of costs and the related payments have been performed through 2007 for NCI Information Systems, Inc., the Company’s primary corporate vehicle for government contracting. In the opinion of management, the final determination of costs and related payments for unaudited years will not have a material effect on the Company’s financial position, results of operations, or liquidity.

Litigation

The Company is party to various legal actions, claims, government inquiries, and audits resulting from the normal course of business. The Company believes that the probability is remote that any resulting liability will have a material effect on the Company’s financial position, results of operations, or liquidity.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Quarterly Report on Form 10-Q, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements regarding our business, financial condition, results of operations, and prospects. There are statements made herein, which may not address historical facts and, therefore, could be interpreted to be forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Such statements are subject to factors that could cause actual results to differ materially from anticipated results. The factors that could cause actual results to differ materially from those anticipated include, but are not limited to, the following:

 

    our dependence on our contracts with U.S. Federal Government agencies, particularly within the U.S. Department of Defense, for the majority our revenue; delays performing work under our contracts due to bid protests; changes in U.S. Federal Government spending priorities; changes in contract type, particularly changes from cost-plus fee or time-and-material type contracts to firm fixed-price type contracts

 

    a reduction in the overall U.S. defense budget, volatility in spending authorizations for defense and intelligence-related programs by the U.S. Federal Government or a shift in spending to programs in areas where we do not currently provide services

 

    delays in the U.S. Federal Government appropriations process, or budgetary cuts resulting from Congressional committee recommendations or automatic sequestration under the Budget Control Act of 2011; U.S. Federal Governmental shutdowns (such as the shutdown that occurred during the U.S. Federal Government’s 1996 and 2013 fiscal years); and other potential delays in the U.S. Federal Government appropriations process

 

    changes in U.S. Federal Government programs or requirements, including the increased use of small business providers

 

    failure to achieve contract awards in connection with recompetes for present business and/or competition for new business

 

    U.S. Federal Government agencies more frequently awarding contracts on a technically acceptable/lowest cost basis in order to reduce expenditures

 

    adverse results of U.S. Federal Government audits of our government contracts

 

    competitive factors, such as pricing pressures and competition to hire and retain employees (particularly those with security clearances)

 

    failure to identify and successfully integrate acquired companies or businesses into our operations or to realize any accretive or synergistic effects from such acquisitions, or effectively integrate acquisitions appropriate to the achievement of our strategic plans

 

    economic conditions in the United States, including conditions that result from terrorist activities or war

 

    material changes in policies, laws, or regulations applicable to our businesses, particularly legislation affecting (i) U.S. Federal Government contracts for services, (ii) outsourcing of activities that have been performed by the U.S. Federal Government, (iii) U.S. Federal Government contracts containing organizational conflict of interest clauses, (iv) delays related to agency specific funding freezes, and (v) competition for task orders under Government Wide Acquisition Contracts (“GWAC”), agency-specific Indefinite Delivery/Indefinite Quantity (“IDIQ”) contracts and/or schedule contracts with the General Services Administration

 

    the U.S. Federal Government’s “insourcing” of previously contracted support services and the realignment of funds to non-defense related programs

 

    our ability to achieve the objectives of near-term or long-range business plans, particularly revenue growth, and the ability to realize benefits from future deferred tax assets; and

 

    risk of contract non-performance or termination

Some of these important factors are outlined under Item 1A. Risk Factors and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the Securities and Exchange Commission (“SEC”), and from time to time in other filings with the SEC, such as our Current Reports on Forms 8-K and Quarterly Reports on Form 10-Q. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee our future results, level of activity, or performance. We undertake no obligation to update publicly or revise any forward-looking statements. You should not place undue reliance on any forward-looking statements.

 

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In this document, unless the context indicates otherwise, the terms “Company,” “NCI,” “we,” “us,” and “our” refer to NCI, Inc., a Delaware corporation, and, where appropriate, its subsidiaries.

OVERVIEW

We are a provider of information technology (“IT”) and professional services and solutions primarily to U.S. Federal Government agencies. Our technology and industry expertise enables us to provide a wide spectrum of services and solutions that assist our customers in achieving their program goals. We deliver these complex services and solutions by leveraging our skills across eight core capabilities:

 

    Cloud Computing and IT Infrastructure Optimization

 

    Cybersecurity and Information Assurance

 

    Engineering and Logistics Support

 

    Enterprise Information Management and Advanced Analytics

 

    Health IT and Medical Support

 

    IT Service Management

 

    Modeling, Training and Simulation

 

    Agile Development and Integration

Our team of highly skilled professionals is committed to service excellence and delivers innovative, cost-effective enterprise services and solutions on time and within budget. We are focused on reshaping the way services and solutions are delivered to our customers in order to proactively understand and meet their mission needs and enable them to rapidly adapt to dynamic environments. Headquartered in Reston, Virginia, the Company currently operates in more than 100 locations around the globe. We report operating results and financial data as one reportable segment.

Key Financial Metrics

Prime Contractor Revenue

The following table shows our revenue derived from contracts on which we serve as a prime contractor.

 

     Three months ended September 30,     Nine months ended September 30,  
     2015     2014     2015     2014  

Revenue derived from prime contracts

     92     92     92     92

Customer Group Revenue

The following table shows our revenue from the customer groups listed as a percentage of total revenue for the periods shown.

 

     Three months ended September 30,     Nine months ended September 30,  
     2015     2014     2015     2014  

Department of Defense and intelligence agencies

     59     73     60     75

U.S. Federal civilian agencies

     41     27     40     25

The increase in revenue from U.S. federal civilian agencies for the period ending September 30, 2015 is mainly due to the acquisition of Computech in January 2015.

Contract Type Revenue

Our services and solutions are provided under three types of contracts: time-and-materials; cost-plus fee; and firm fixed-price. Our contract mix varies from year to year due to numerous factors including our business strategies and U.S. Federal Government procurement objectives.

 

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The following table shows our revenue from each of these types of contracts as a percentage of our total revenue for the periods shown.

 

     Three months ended September 30,     Nine months ended September 30,  
     2015     2014     2015     2014  

Time-and-materials

     23     16     23     16

Cost-plus fee

     49     51     48     52

Firm fixed-price

     28     33     29     32

The increase in revenue from time-and-materials contracts for the period ending September 30, 2015 is mainly due to the acquisition of Computech in January 2015.

The amount of risk and potential reward varies under each type of contract. Under time-and-materials contracts, we are paid a fixed hourly rate by labor category. To the extent that our actual labor costs vary significantly from the negotiated hourly rates, we may generate more or less than the targeted amount of profit. We are typically reimbursed for other contract direct costs and expenses at our cost, and typically receive no fee on those costs. For cost-plus fee contracts, there is limited financial risk, because we are reimbursed all our allowable costs, therefore the profit margins tend to be lower on cost-plus fee contracts. Under firm fixed-price contracts, we perform specific tasks or provide specified goods for a predetermined price. Compared to time-and-materials and cost-plus fee contracts, firm fixed-price service contracts generally offer higher profit margin opportunities but involve greater financial risk because we would bear the impact of potential cost overruns in return for the full benefit of any cost savings.

Contract Backlog

 

As of

   Funded Backlog      Total Backlog  
     (in millions)  

September 30, 2015

   $ 136       $ 506   

December 31, 2014

     184         410   

We define backlog as our estimate of the remaining future revenue from existing signed contracts over the remaining base contract performance period and from the option periods of those contracts that we believe are more likely than not to be exercised. Our backlog does not include any estimate of future potential delivery orders that might be awarded under our GWAC, agency-specific IDIQ, or other multiple-award contract vehicles. We define funded backlog as the portion of backlog for which funding currently is appropriated and obligated to us under a contract or other authorization for payment signed by an authorized purchasing agency, less the amount of revenue we have previously recognized. Our funded backlog does not represent the full potential value of our contracts, as Congress often appropriates funds for a particular program or agency on a quarterly or yearly basis, even though the contract may provide for the provision of services over a number of years. We define unfunded backlog, not included above, as the total backlog less the funded backlog. Unfunded backlog includes values for contract options that have been priced but not yet funded. Additional information on how we determine backlog is included in our Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the SEC.

Computech Acquisition

On January 1, 2015, we completed our purchase of 100% of the outstanding stock of Computech, a leader in agile and lean application software development and IT operations and maintenance, for approximately $56.7 million, net of cash acquired. The acquisition was financed through a combination of cash on hand and borrowings of $34.0 million under our senior credit facility (described below).

The acquisition of Computech is in line with our growth strategy, which calls for the development of new customers and service offerings both organically and through mergers and acquisitions. We expect to allocate the purchase price among goodwill, customer relationships, and property and equipment. All goodwill and intangible asset amortization related to the acquisition of Computech is expected to be deductible for income tax purposes. We have included the results of Computech in our financial statements from the closing date forward.

In accordance with Accounting Standards Codification 805, Business Combinations, management is completing its valuation of acquired assets and assumed liabilities, and expects that a majority of the purchase price will be allocated to intangible assets, including goodwill, backlog and customer relationships, and developed software. In estimating the fair value of the acquired assets and assumed liabilities, the fair value estimates are based on, but not limited to, expected future revenue and cash flows, expected future growth rates, and estimated discount rates. The initial purchase price allocation is based upon all information available to us at the present time and is subject to change, and such changes could be material.

 

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Results of Operations

Three Months Ended September 30, 2015 Compared to Three Months Ended September 30, 2014

The following table sets forth certain items from our consolidated statements of income and expresses each item in dollars and as a percentage of revenue for the periods indicated:

 

     Three months ended September 30,  
     2015      2014      2015     2014  
     (in thousands)      (as a percentage of revenue)  

Revenue

   $ 82,310       $ 75,660         100.0     100.0

Operating expenses:

          

Cost of revenue

     68,677         64,102         83.4        84.7   

General and administrative expenses

     6,445         6,205         7.8        8.2   

Depreciation and amortization

     1,794         1,401         2.2        1.9   

Acquisition and integration related expenses

     6         —           0.0        —     
  

 

 

    

 

 

    

 

 

   

 

 

 

Total operating expenses

     76,922         71,708         93.5        94.8   
  

 

 

    

 

 

    

 

 

   

 

 

 

Operating income

     5,388         3,952         6.5        5.2   

Interest expense, net

     204         95         0.2        0.1   
  

 

 

    

 

 

    

 

 

   

 

 

 

Income before income taxes

     5,184         3,857         6.3        5.1   

Provision for income taxes

     2,013         1,495         2.4        2.0   
  

 

 

    

 

 

    

 

 

   

 

 

 

Net income

   $ 3,171       $ 2,362         3.9     3.1
  

 

 

    

 

 

    

 

 

   

 

 

 

Revenue

For the three months ended September 30, 2015, revenue increased by 8.8%, or $6.7 million, over the same period a year ago. This increase is principally due to revenues derived under contracts from NCI’s Computech acquisition as well as new awards during the last year. The increase was partially offset by completed contracts and reductions in staffing and scope of work on certain contracts.

NCI’s Program Executive Office Soldier (“PEO Soldier”) contract accounted for $7.3 million, or 8.8% of revenue, in the third quarter of 2015, down $1.2 million from $8.5 million, or 11.3% of revenue, in the third quarter of 2014.

Cost of revenue

Cost of revenue for the three months ended September 30, 2015 was $68.7 million, or 83.4% of revenue, compared to $64.1 million, or 84.7% of revenue, for the three months ended September 30, 2014. The increase in cost of revenue was primarily the result of the acquisition of Computech in January 2015. Cost of revenue as a percentage of revenue decreased primarily as a result of higher-margin revenue from Computech contracts.

General and administrative expenses

General and administrative expense increased 3.9%, or $0.2 million, for the three months ended September 30, 2015, as compared to the same period a year ago. The increase was primarily the result of additional costs to support our increased bid and proposal activity.

 

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Depreciation and amortization

Depreciation and amortization expense was approximately $1.8 million and $1.4 million for the quarters ended September 30, 2015 and 2014, respectively. The increase was primarily due to the amortization of intangible assets associated with the acquisition of Computech.

Interest expense, net

Interest expense, net, was $0.2 million and $0.1 million for the quarters ended September 30, 2015 and 2014, respectively. This increase was primarily due to a higher average loan balance in the quarter ended September 30, 2015 due to the acquisition of Computech in January 2015. During the third quarter of 2015, we had a weighted average outstanding loan balance of $18.8 million which accrued interest at a weighted average borrowing rate of 2.3%. During the third quarter of 2014, we had a weighted average outstanding loan balance of $0.0 million which would have accrued interest at a weighted average borrowing rate of 2.3% had there been a balance.

Provision for income taxes

Provision for income taxes increased by $0.5 million in the three months ended September 30, 2015, as compared to the three months ended September 30, 2014. This increase was due to higher operating income for the period ended September 30, 2015. The effective income tax rate for the quarter ended September 30, 2015 and 2014 was approximately 38.8%.

Nine Months Ended September 30, 2015 Compared to Nine Months Ended September 30, 2014

The following table sets forth certain items from our consolidated statements of income and expresses each item in dollars and as a percentage of revenue for the periods indicated:

 

     Nine months ended September 30,  
     2015      2014      2015     2014  
     (in thousands)      (as a percentage of revenue)  

Revenue

   $ 249,077       $ 242,588         100.0     100.0

Operating expenses:

          

Cost of revenue

     207,832         208,033         83.4        85.8   

General and administrative expenses

     19,941         19,967         8.0        8.2   

Depreciation and amortization

     5,774         4,302         2.3        1.8   

Acquisition and integration related expenses

     428         —           0.2        —     
  

 

 

    

 

 

    

 

 

   

 

 

 

Total operating expenses

     233,975         232,302         93.9        95.8   
  

 

 

    

 

 

    

 

 

   

 

 

 

Operating income

     15,102         10,286         6.1        4.2   

Interest expense, net

     662         302         0.3        0.1   
  

 

 

    

 

 

    

 

 

   

 

 

 

Income before income taxes

     14,440         9,984         5.8        4.1   

Provision for income taxes

     5,818         3,956         2.3        1.6   
  

 

 

    

 

 

    

 

 

   

 

 

 

Net income

   $ 8,622       $ 6,028         3.5     2.5
  

 

 

    

 

 

    

 

 

   

 

 

 

Revenue

For the nine months ended September 30, 2015, total revenue increased 2.7%, or $6.5 million from $242.6 million to $249.1 million, over the same period a year ago. The increase was primarily due to revenues derived under contracts from our Computech acquisition and new awards, offset by lower revenue attributable to services provided on our PEO Soldier contract, lower pass-through revenue, reductions in scope of work, and the expiration of task orders and contracts. Our PEO Soldier contract accounted for $23.9 million, or 9.6% of revenue, for the nine months ended September 30, 2015, down $4.9 million from $28.8 million, or 11.9% of revenue, for the nine months ended September 30, 2014.

Cost of revenue

Cost of revenue decreased 0.1% or $0.2 million from $208.0 million to $207.8 million, for the nine months ended September 30, 2015, as compared to the same period a year ago. This decrease was primarily the result of reduced hardware, software and subcontractor costs, offset slightly by an increase in direct labor. Cost of revenue represented 83.4% of revenue for the nine months ended September 30, 2015, as compared to 85.8% for the nine months ended September 30, 2014. This decrease was primarily the result of the factors affecting revenue and the associated indirect costs, and improved margins on certain contracts.

 

 

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General and administrative expenses

General and administrative expenses decreased 0.1%, for the nine months ended September 30, 2015, as compared to the same period a year ago. The decrease was primarily due to lower stock compensation expense.

Depreciation and amortization

Depreciation and amortization expense was approximately $5.8 and $4.3 million for the nine months ended September 30, 2015 and 2014, respectively. The increase was primarily due to the amortization of intangible assets associated with the acquisition of Computech.

Interest expense, net

Interest expense, net was approximately $0.7 million and $0.3 million for the nine months ended September 30, 2015 and 2014, respectively. During the nine months ended September 30, 2015, we had a weighted average outstanding loan balance of $23.2 million which accrued interest at a weighted average borrowing rate of 2.3%. During the nine months ended September 30, 2014, we had a weighted average outstanding loan balance of $1.7 million which accrued interest at a weighted average borrowing rate of 2.3%.

The increase was primarily attributable to a higher weighted average loan balance due to the acquisition of Computech in January 2015.

Provision for income taxes

For the nine months ended September 30, 2015, provision for income taxes increased to $5.8 million from $4.0 million in the same period a year ago, due to increased pretax income and a higher effective tax rate. The effective income tax rate for the nine months ended September 30, 2015 and 2014 was approximately 40.3%, and 39.6%, respectively. The increase in the effective rate was due to changes in the state blended rate.

Liquidity and Capital Resources

Our primary liquidity needs are for financing working capital, capital expenditures, stock repurchases, and making selective strategic acquisitions. Historically, we have relied primarily on our cash flow from operations and borrowings under our credit facility to provide the capital for our liquidity needs. As part of our growth strategy, we may pursue acquisitions that could require us to incur additional debt or issue new equity. We expect the combination of our current cash, cash flow from operations, and the available borrowing capacity under our credit facility to continue to meet our normal working capital, capital expenditures and other cash requirements.

During the nine months ended September 30, 2015, the balance of accounts receivable decreased by $0.1 million to $52.8 million at the end of the quarter. Days sales outstanding of accounts receivable (DSO) decreased 6 days to 59 days at September 30, 2015 as compared to 65 days at December 31, 2014. As of September 30, 2015, $11.3 million was due under the credit facility, as compared to $0.0 million outstanding as of December 31, 2014, reflecting $11.3 million of net borrowing during the first nine months of 2015 due to the acquisition of Computech on January 1, 2015. Net cash provided by operating activities was $22.5 million at September 30, 2015 and was used to pay down borrowings under the credit facility and pay a special one-time dividend of $0.12 per share. On January 1, 2015, the Company completed its acquisition of Computech for approximately $56.7 million, net of cash acquired.

Our board of directors authorized management to repurchase up to $25.0 million of our Class A common stock pursuant to a stock repurchase program. If shares are repurchased, the shares will be repurchased pursuant to open market purchases, privately negotiated transactions, or block transactions. We have no obligation to repurchase shares under the authorization, and the timing, actual number and value of the shares which are repurchased (and the manner of any such repurchase) will be at the discretion of management and will depend on a number of factors, including the price of our common stock, our Company’s cash needs, borrowing capacity under our credit facility, interest rates, and our financial performance and position. We may suspend or discontinue repurchases at any time.

During 2014 and the nine months ended September 30, 2015, we did not repurchase any shares. At September 30, 2015, we had $16.7 million remaining under the board of directors’ authorization for share repurchases.

Credit Facility: Our senior credit facility, amended in December 2014 and referred to herein as the “credit facility,” consists of a revolving line of credit with a borrowing capacity of up to an $80.0 million principal amount, and a $45.0 million accordion feature allowing us to increase our borrowing capacity to up to a $125.0 million principal amount, subject to obtaining commitments for the incremental capacity from existing or new lenders. The outstanding borrowings are collateralized by a security interest in substantially all the Company’s assets. The lenders also require a direct assignment of all contracts at the lenders’ discretion. The outstanding balance under the credit facility accrues interest based on one-month LIBOR plus an applicable margin, ranging from 210 to 310 basis points, based on the ratio of our outstanding senior funded debt to Earnings before Interest, Taxes, Depreciation, and Amortization (EBITDA) as defined in the credit facility agreement.

 

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The credit facility allows us to use borrowings thereunder of up to $17.5 million to repurchase shares of our common stock. Funds borrowed under the credit facility may be used to finance possible future acquisitions, for working capital requirements, for stock repurchases, for cash dividends or for general corporate uses.

The loan interest accrual rate is set monthly at one-month LIBOR plus a set amount per the credit facility.

The credit facility contains various restrictive covenants that restrict, among other things, our ability to incur or guarantee additional debt; make certain distributions, investments and other restricted payments such as dividends; enter into transactions with certain affiliates; create or permit certain liens; and consolidate, merge, or sell assets. In addition, the credit facility contains certain financial covenants that require us to maintain a minimum tangible net worth; maintain a minimum fixed charge coverage ratio; maintain a minimum funded debt to earnings ratio; and limit capital expenditures below certain thresholds. There are no restrictions on our retained earnings in the credit facility.

As of September 30, 2015, we were in compliance with all our loan covenants.

Off-Balance Sheet Arrangements

We do not have any material off-balance sheet arrangements.

Critical Accounting Policies

There have been no significant changes to our Critical Accounting Policies during the third quarter of 2015. Refer to the Critical Accounting Policies section in our Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the SEC.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company’s exposure to market risk relates to changes in interest rates for borrowings under its credit facility. For the quarter ended September 30, 2015, a change of one percentage point in interest rates would have changed NCI’s interest expense or cash flows by less than $0.1 million. This estimate is based on our average balances for the period.

Additionally, the Company is subject to credit risks associated with our cash, cash equivalents, and accounts receivable. NCI believes that the concentration of credit risk with respect to cash equivalents is limited due to the high credit quality of these investments. NCI’s investment policy requires that the Company invest excess cash in high-quality investments, which preserve principal, provide liquidity, and minimize investment risk. NCI also believes that its credit risk associated with accounts receivable is limited as they are primarily with the U.S. Federal Government or prime contractors working for the U.S. Federal Government.

Item 4. Controls and Procedures

Evaluation of the Effectiveness of Disclosure Controls and Procedures

As of September 30, 2015, under the supervision and with the participation of NCI’s management, including our Chief Executive Officer and our Chief Financial Officer, the Company had evaluated the effectiveness of its disclosure controls and procedures, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, NCI’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective, as of September 30, 2015, such that the information that is required to be disclosed in NCI’s reports filed with the SEC (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) is accumulated and communicated to management, including NCI’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

The Company made no change to its internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) identified in connection with the evaluation required by Rule 13a-15(d) under the Exchange Act during the three months ended September 30, 2015 that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

 

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PART II

OTHER INFORMATION

Item 1. Legal Proceedings

The Company is party to various legal actions, claims, government inquiries, and audits resulting from the normal course of business. The Company currently believes that the probability is remote that any resulting liability will have a material effect on the Company’s financial position, results of operations, or cash flows.

Item 1A. Risk Factors

There have been no significant changes in our risk factors from those discussed in Item 1A. “Risk Factors” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the SEC.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

None

 

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Item 6. Exhibits

 

Number

  

Description

2.1    Stock Purchase Agreement among NCI Information Systems, Inc. a wholly owned subsidiary of NCI, and stockholders of Computech, Inc. dated as of December 24, 2014 (incorporated herein by reference from Exhibit 2.1 to registrant’s Current Report on Form 8-K dated December 22, 2014, and filed with the Commission on December 29, 2014)
3.1    Amended and Restated Certificate of Incorporation of the Registrant (incorporated herein by reference from Exhibit 3.1 to registrant’s Registration Statement on Form S-1 (File No. 333-127006), as filed with the Commission on October 4, 2005, as amended).
3.2    Bylaws of the Registrant (incorporated herein by reference from Exhibit 3.2 to registrant’s Registration Statement on Form S-1 (File No. 333-127006), as filed with the Commission on July 29, 2005).
4.1    Specimen Class A Common Stock Certificate (incorporated herein by reference from Exhibit 4.1 to registrant’s Registration Statement on Form S-1 (File No. 333-127006), as filed with the Commission on October 20, 2005, as amended).
4.2*    NCI, Inc. Amended and Restated 2005 Performance Incentive Plan (incorporated herein by reference from Appendix A to registrant’s Definitive Proxy Statement on Schedule 14A, as filed with the Commission on April 30, 2009).
4.3*    Form of Amended and Restated 2005 Performance Incentive Plan Notice of Stock Option Grant and Stock Option Agreement (incorporated herein by reference from Exhibit 4.2 to registrant’s Current Report on Form 8-K dated June 10, 2009 and filed with the Commission on June 12, 2009).

 

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Table of Contents

Number

  

Description

31.1‡    Certification of the Chief Executive Officer pursuant to rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
31.2‡    Certification of the Chief Financial Officer pursuant to rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
32.1‡    Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS    XBRL Instance Document
101.SCH    XBRL Extension Schema
101.CAL    XBRL Extension Calculation Linkbase
101.DEF    XBRL Extension Definition Linkbase
101.LAB    XBRL Extension Label Linkbase
101.PRE    XBRL Extension Presentation Linkbase

 

Included with this filing.
* Management Contract or Compensatory Plan or Arrangement.

 

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Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

     

NCI, Inc.

      Registrant
Date: October 30, 2015     By:   /s/ LUCAS J. NAREL
      Lucas J. Narel
      Executive Vice President, Chief Financial Officer and Treasurer
      (Principal Financial Officer)
      (Principal Accounting Officer)

 

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