SM&A Reports Record Quarterly Revenue, Up 30%; Net Income Per Share of $0.07 vs. $0.04 from Continuing Operations in the Same Period a Year Ago; SG&A Expenses Continue to Decline as a Percentage of Revenue

Business Wire, August 6, 2002

Business Editors & Aerospace Writers

NEWPORT BEACH, Calif.--(BUSINESS WIRE)--Aug. 6, 2002

SM&A (Nasdaq:WINS), the world's leading provider of proposal management and consulting services and a leading provider of high-value program support services, today announced strong second quarter 2002 results.

Revenue for the second quarter 2002 was a record $13.7 million, compared with $10.5 million for the same period a year ago, an increase of 30%. Income (both net income and income from continuing operations) for the second quarter 2002 was $1.3 million, or $0.07 per share, compared with $752,000 or $0.04 per share from continuing operations in the same period a year ago, an increase of 79%.

For the first six months of the year, income from continuing operations was $2.6 million or $0.13 per share, up 75%, from $1.5 million or $0.08 per share on revenue of $26.2 million, up 16%, from $22.5 million in the same period a year ago.

SM&A continued to diversify its client and service offering, supporting six new clients through the end of July. In addition to its proposal management experts, SM&A had more than 90 people engaged in systems engineering and program integration support for aerospace clients, including support of the Joint Strike Fighter team, in the second quarter (as compared with about 55 people in July 2001).

Further, SM&A broadened its customer base by concluding a master services agreement with a major American computer manufacturer and has begun to execute work under the agreement. SM&A is also performing work for one of the "Big Four" accounting firms, in addition to renewing a major contract with a multi-billion dollar international consulting firm.

Steven Myers, SM&A chairman, president and CEO said: "These results validate the strategy we initiated almost a year ago. By returning to our roots, SM&A has delivered increased revenue, profits and cash flow, while reducing operating costs as a percentage of revenue. We have continued to develop new clients, new services and new contracts, all of which were boosted by an intense week of client development at the Farnborough International Air Show in the U.K. in late July.

"Our clients are pleased with the support we provide and we are proud that our win rate continues to improve. After the Deepwater win for the Lockheed Martin-Northrop Grumman team and the Future Combat Systems win for Boeing, we are pleased to report our win rate stands at 86% on awards in support of 601 proposals totaling more than $222 billion of contract value."

Bennett Beaudry, SM&A chief operating officer said: "We continue to improve the quality of our service offering with a very proactive recruiting, training and quality assurance process. Most importantly, we continue to provide our clients with the outstanding support they have come to expect from us in the competitive and execution phases of their key programs.

"Our investment in recruiting is vital to supporting the increased operational tempo we expect to see -- our backlog going into this quarter is the strongest we've ever seen for a third quarter and the fourth quarter could well be another record quarter."

Cathy Wood, SM&A chief financial officer stated: "SM&A's balance sheet is very strong and our operating performance continues to strengthen. In the first six months of the year, net cash provided by operating activities was $5.2 million.

"We are all pleased with the outcome of our efforts to contain operating expenses, even while we are adding resources in the areas of business development, recruiting and training -- from the first quarter to the second quarter of 2002 our SG&A (selling, general and administrative) grew by only $79,000 while our revenue increased by $1.1 million. The reduction in our gross margin this quarter is a result of a higher level of revenue generated from program services. We do not expect further declines in the margin the remainder of the year."

Financial Notes

Gross margin as a percentage of revenue declined to 39.9% in the second quarter 2002 from 41.5% in the same period a year ago due to the increasing percentage of revenue from program support services. SG&A expenses as a percentage of revenue for the second quarter 2002 declined to 21.9% from 26.8% in the same period a year ago due to general cost control initiatives begun last year.

Earnings before income taxes, depreciation and amortization (EBITDA) was $2.5 million in the second quarter 2002, up 51% from $1.7 million in the same period a year ago. The balance sheet reflected $4.6 million cash on hand at the end of the second quarter 2002. SM&A's trailing 12-month earnings on continuing operations is now $0.20 per share, compared with $0.16 per share in the period July 1, 2000 to June 30, 2001.

About SM&A

SM&A is the world's leading provider of proposal management and consulting services, and a leading provider of high-value program support services. SM&A's more than 260 program managers, systems engineers and other technical experts support major industrial customers in the aerospace, defense and information technology sectors.