Q3 2019 Earnings Call
Welcome to the I see up International third quarter 2019 earnings Conference call My.
My name is and I sat and I will be your operator for today's call.
During the presentation, all participants will be in listen only mode. Afterwards, you'll be invited to participate in a question and answer session.
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Please note that this conference is being recorded on Wednesday November six 2019 and cannot be reproduced or rebroadcast without permission from the company.
And now I would like trying to program over two men Morgan of advisory partner.
Thanks, Good that's a good afternoon, everyone and thank you for joining us to review I see our third quarter 2019 performing.
With us today from I see as I said I catch them Executive Chairman, John Watson, President and CEO James can work in CFO .
During this conference call, we will make forward looking statements to assist you in understanding I see managements expectations about future performance.
These statements are subject to a number of risks that could cause actual events and results to differ materially.
And I refer you to I know November six 2019 press release, and our FCC filings for a discussion of those way.
In addition, our statements during this call I based on how I view as of today.
We anticipate that future developments were caused our views to change. Please consider the information presented in that light. We may at some point elect to update the forward looking statements made today.
Typically disclaim any obligation to do so.
I will now turn the call over to I see US executive Chairman said I could catch them to discuss third quarter 2019 performing.
Uh huh.
And good afternoon, everyone.
He was running up to review, our third quarter results and discuss off the hook outlook.
This was another excellent quarter pricier with strong yesterday it was up.
Revenue increase so deep offense, adjusted EBITDA increased 15% any P.S. increased 16%.
We're particularly pleased that EBITDA and earnings growth outpaced revenue growth.
Oh, you up their growth have been broad based into effect several of my staff differentiator, mainly our unique publishing government back unless the markets are deep domain expertise and growing market, but his energy health resilience in cyber security at the services that we have built over the last 10 years from around IP program management data analytics.
And cost went up that doesn't engagement that have enabled us to when and if I can be execute a large multi a implementation contract.
These then competitive advantages provides significant runway, but I see asked the continued long term growth over the next several years.
We also see opportunities to compliment that growth with additional organic initiatives by hiring people with deep subject matter expertise and the by making acquisitions, which increases the breadth and depth about expertise.
Similar to what do you have done in the past.
But we're definitely not federal markets were looking toward getting further scale in the area like demobilization.
The agencies are facing tremendous pressure to streamline and replace older legacy systems.
He has yet to see didn't leveraging I kept competitive differentiator, which I just described but an important contract with existing federal agency crime.
We believe we have the potential expand these type of contract the factory.
Currently we have been scaling correctly Wilcox fashion and he hired but they're also pursuing acquisitions dogs that could accelerate our growth in this arena.
Another example of exact spending organically and where acquisitions could be accretive to our positioning isn't energy markets.
We see multiple opportunities here to build out our distributed and he gave amenities.
I am pilot program that we are running have the potential to evolve into full scale implementation, but overtime.
Additionally, we think about the California bring home the fragility of the grid and the need for utilities to invest in Brazilian and mitigation programs.
I feel currently has one of the largest conservancy's in the world, providing advisory and implementation services associated with energy climate change other than you.
This gives us considerable scale and the qualifications to catch opportunities in this area.
These are just two examples which we believe that I feel that position for future growth and that'd be a movie I had been stuck in the babies and brand recognition.
As you know we will be hosting an investor day in New York on December the third and look forward to providing further insight into what we consider to be drivers like do you have long term growth.
We feel free to contact lens Morgan for further information on differently.
At this point I'd now like turn the call or like the of newly appointed CEO , John Watson, who of course that you know I cannot give precedent for nearly a decade and a key to our success for review of our business turned out outlook I didn't even for anybody John .
Thank you said author for your kind words and welcome everyone.
So docker shoes, and I tip, our big wants to fill and that's how I am pleased to have excellent third quarter results to discuss on my first call. It CEO .
To begin with the double digit revenue growth that we achieved in the third quarter reflected broad based growth across each of our markets.
This demonstrates how well I see up its position in key growth areas.
Government and commercial markets, the ongoing strength of the growth catalyst driving opportunities in our markets and our excellent execution on these opportunities throughout the company.
In fact in the third quarter revenues from both government and commercial clients increased a double digit rate the government up 11% and commercial up 14%.
We were pleased to see a 6% increase in revenues from federal government clients.
Brought your today growth inline with our expectations of low to mid single digit you're on your growth.
This positive momentum represented the startup and ramp up of several contracts the rewarded dicey out in the second half a 2018 that had been delayed in part as a result at the government shutdown that took place early this year.
Yes, we would expect to see our federal business increased at a similar pace and this year's fourth quarter.
At the ended the third quarter the business development pipeline for federal markets was at record levels setting the stage for continued growth in 2020.
We continue to be very busy this bid and proposal work and are actively pursuing larger opportunities in the I.T. modernization engagement and cyber security arenas.
Additionally, in the third quarter I step was awarded two new opioid related contracts from the centers for disease control and prevention.
We were awarded a three year 6 million dollar contract to develop and implement a comprehensive training and technical assistance program for Cdcs overdose to action grantees.
Also we were awarded an 11 million dollar contract to expand Cdcs prescription awareness campaign.
Currently I see other supporting the state of Georges effort to write a blueprint for L. all states should allocate all this received multiple pending losses across the pharmaceutical industry connected to their roles and fueling the opioid crisis.
We would expect to see more state and local opportunities of this nature in the coming quarters.
Between 9% growth and our state and local business was a major contributor to the strong year on increase and I see us government revenues.
This growth continues to be driven by a disaster recovery work in Puerto Rico, Texas following the 2017 Hurricanes.
We were awarded the majority of these contracts in mid 2018 with the most recent being the 25 million three year contract that we were awarded in June of this year.
This contract with the government of Puerto Rico is to assist with community development Blackrock housing recovery programs funded by the U.S. housing and urban development agency.
I am pleased to report that we are executing well on all these contracts have met or exceeded the required milestones and that we are making a difference the affected populations.
The pace of the housing recovery, however will be based on the construction capacity on the island.
We expect that are activity on this contract.
Let along steady five plus year recovery, rather than being as front loaded as other housing recovery efforts have been historically.
As we've discussed previously we believe there are additional opportunities and the potential for contract expansion related to housing recovery in both Puerto Rico and Texas.
Additionally, we are actively in capture on opportunities related to federal funding for housing recovery falling Hurricanes, Florence, and Michael which occurred in 2018.
Over $2 billion of federal CBG funds have been appropriated for this housing recovery work and we would expect to see our piece by early next year.
Continuing with disaster recovery opportunities the whole area of mitigation, which involves taking preventative measures that reduced the potential damage done by future gains and other natural disasters has for the first time attractive considerable federal dollars.
Federal government has appropriate 16 billion to its CDB GE funding for post storm mitigation work, a significant percentage of which is earmarked for Texas and Puerto Rico.
As Sudhakar mentioned in discussing energy markets opportunities I step has one of the largest if not the largest climate change and resiliency consultancies in the U.S., which provides us with very relevant credentials to bid on mitigation work that should be part of Rvps later in 2020.
I will speak more about this at our Investor day.
Looking ahead to the international government business, we saw mid single digit growth in the third quarter and a high level of bid and proposal activity for the UK government and European Commission.
This business development activity is built around Isvs qualifications and policy design analysis and program management as well as in core verticals, including strategic communications energy environmental and aviation.
Revenues from commercial clients increased 14%, which represent very strong performance for both our marketing and our energy businesses.
Double digit year on year revenue growth in commercial marketing services benefited from a significant capabilities and loyalty programs marketing platform technologies and branded media strategy and the scale, we have attained by banding all of our communication services as I see half next.
The healthcare vertical continues to be a key area of growth for our commercial marketing services as we have brought together technology marketing organizational change management and corporate affairs capabilities for clients.
This was also another quarter and which we had good success in driving growth in integrated sales across I CF next.
I see us commercial energy business continued to perform well in the third quarter. This performance reflected a continuation of work on existing energy efficiency programs and significant growth in our energy Advisory services.
I see if advice on a considerable number of transactions in the third quarter, largely driven by renewables and gas asset development, where we have proprietary analytics and deep domain expertise.
We've also been assisting several utilities with resiliency planning activity.
And this every seems poised for growth as federal and state regulators focus additional attention to the resiliency of our key energy infrastructures.
As many of you know, California rules call for 60% of utility energy efficiency program funding to be outsourced by 2022.
California utilities are using a two step process to procure for energy efficiency program implementation I.
I see FX had significant success and down selection from our assai to RFP and we expect award decisions to occur by the end of the first half of 2020.
There is a growth potential and food advisory and implementation work and distributed energy resources, such as solar storage and electric vehicles.
Panel discussion at our December Investor Day, we'll explore these opportunities in greater detail.
To sum up we are pleased with our third quarter and year to date performance, which demonstrates a disposition the in key growth markets and the excellent work that we're doing on behalf of our government and commercial clients.
Yes annually annualized year to date turnover rate was 16% low the industry average and representative of the strong corporate culture that we have developed over many many years.
Now, let's turn the call over to our CFO James Morgan for more detailed financial review James.
Thank you John good afternoon, everyone.
Please to report last year's third quarter performance, which has positioned us to meet our full year 2019 guidance in the set the stage for further growth in 2020.
Total revenue for the third quarter of 29 team was 373.9 million.
Representing a 12.3% increase from the 333 million in last year's third quarter.
It was driven by 11.4 increase in revenues from government clients that a 14.1% growth in revenues from commercial clients.
During the third quarter, we had year over year revenue growth in all of our key client categories.
Hi year to date growth at state local revenues has resulted in a shifting of our percentage of revenues between client categories.
The breakdown of our year to date percentages revenues by client categories shows federal government clients, representing 39% of total revenue.
Down from 43% and the similar period last year.
State and local government clients accounted for 19% this year up significantly from last years, 30% due to the increase of our disaster recovery work.
International government was 8% as compared to Microsoft represent of last year.
The commercial clients accounted for 34% for the first nine months revenue compared to 35% last year.
Third quarter service revenue was $257.2 million.
11.2% from a 231.3 million reported a year ago quarter.
Pass through revenue represented 31.2% of total revenue up from 30.5% last year.
With much of the increase due to the higher end of local subcontractors to support us at our disaster recovery work.
This percentage of pass through revenue is representative of what we expect for the full year.
Gross profit was $135.8 million in the third quarter 40 my team.
Representing a 13.2% increase from 119.9 billion a year ago quarter, our gross margin increased 30 basis points year on year to 36.3%.
And our gross margin on service revenue.
This is more indicative of our business trends expanded 90 basis points to 52.8%.
Indirect and selling expenses increased 12.6% to $100.1 million compared to the previous years quarter.
As a percentage of revenue, though indirect and selling expenses were essentially flat at 26.8%.
EBITDA was up 15.1% to 35.6 million, an operating income increased 18.3% to 28.7 million.
Both increasing at a higher rate than revenue growth, primarily as a result of favorable revenue mix.
Adjusted EBITDA margin on service revenue expanded by 20 basis points to 40% from last year's third quarter.
Net income for the third quarter was $19.6 million up 17.7%.
Diluted EPS was one dollar two cents per diluted share of 18.6% over the year over year from 86 cents per diluted share reported for the third quarter 2018.
Diluted earnings per share benefited from a slightly lower than expected tax rate of 23.6%.
Our tax rate for the fourth quarter, it's expected to be no more than 27%, bringing the full year tax rate to their more than 24 to half percent.
Group of charges related to amortization intangibles, along with 360500 of special charges non-GAAP diluted EPS increased 10.9% to $1.12 cents per diluted share in the third quarter of 20 my team.
From one dollar and one per diluted share in last year's third quarter.
Turning to cash flow, we generated 6.4 million of cash from operations of the first nine months of the year compared to 10.4 million last year.
Collecting with slow pace receivables collection from our disaster management work in Puerto Rico related to a large federally funded contract we won in 2018.
I'm pleased to report that in addition to the 8.4 million we collected during the third quarter. We received additional payments related to this contract subsequent to the end of the third quarter of $26 million, where total of 34.4 million over the last month or so.
Based on the recent payments and expectations for additional payments prior to year end.
We now are expecting operating cash flow to be around $80 million for the full year.
While this was below our initial expectations. It still represents lifted cash flow generation for the year and position us well for pickup in 2020.
Day sales outstanding for the third quarter was 94 days compared to 84 days of last year's third quarter.
Excluding with slower pay in Puerto Rico contract day sales outstanding would have been 76 for the quarter.
We now anticipate days sales outstanding to range from 83 to 88 days for the full year, including the impact of a slower pay in Puerto Rico contract.
Debt outstanding our credit facility at the end of the third quarter of 29 team increased by $44.6 million from 2018 year end.
Mainly due to the slower bits collection activity on the receivables that I just mentioned.
Our outstanding debt at the end of the third quarter was 245 million, which represents a trailing 12 month or rep, which represents on a trailing 12 month basis and 1.87.
Debt to EBITDA leverage ratio.
Capital expenditures amounted to 22.3 million, mainly related to IP investments in facility consolidation activities.
Based on year to date numbers, we expect our full year capital expenditures to be in the range of 20 $628 million.
Capital allocation priorities remain the same.
Grow our business organically fund acquisitions and pay down debt.
And as necessary, we will continue to repurchase shares under our current authorization to minimize dilution for four years in sort of programs.
Lastly, we are pleased to declare our eighth quarterly dividend of 14 cents per share payable on January 14, 2020 to shareholders on record as of December 13th 2019.
For modeling purposes, we expect our depreciation amortization expense to be in the range of 20 121 to half million for 29 team.
Amortization of intangibles is anticipated to be approximately $8 million.
Our full year interest expense is expected to range from $10 million to $11 million.
As previously mentioned, we expect our effective tax rate for the full year to be though more than 24.5%.
And lastly, we expect our fully diluted share count to be around 19.2 million for 20 my team.
With that I'd like to turn the call back job for his closing remarks.
Thank you James as you have heard year to date results of set the stage for 2019 to be year substantial growth for CF and respect many of the positive trends. We saw this year to continue in 2020.
We ended the third quarter with a record business development pipeline of 6.5 billion bounced across our client set and comprised of 63 opportunities larger than 25 million and 79 opportunities between 10 million and 25 million.
Size and diversity of our pipeline together with our 2.5 billion backlog support our confidence that 2020 will be another year solid growth for IC app.
In the meantime, we are pleased to reaffirm our full year 2019 guidance for revenues in the range of 1.475 billion to 1.5 billion GAAP EPS of between 380, and 395 exclusive of special charges and non-GAAP EPS for 10 to 20 or 25.
Operator, now I'd like to open the call to questions.
And thank you we will now begin the question and answer session.
If you have a question. Please press Star then one on your Touchtone phone.
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Once again, if you have a question. Please press Star then one on your Touchtone phone and we have our first question from Andrew Nicholas with William Blair.
Hi, good afternoon.
Just want to start with state and local.
That surprised you see it down a bit sequentially given my understanding that there's still some ramping up to do in Texas. So I guess I was just wondering if there's anything to call out there in the quarter or if we should kind of think about this number is a good near term run rate absent any new mandates.
Yes, I don't think I would read too much into the sequential change I think it is a good number for kind of how to think about.
The current business. We've won obviously as I discussed in my remarks that remains.
Very significant.
Opportunity there.
We continue to see potential.
Plus ups on our contracts both the FEMA contract in Puerto Rico, certainly on the housing recovery program and Puerto Rico, we've discussed on that they're significant potential upside on that opportunity that will play out.
In the coming months and years.
We have a quite robust pipeline of additional opportunities and also opportunities to expand our work in Texas and so.
And so it's an area of do we see a runway for continued a significant growth and and significant opportunity as we look to the future. Andrew. This is James I guess, the other thing I'd mention too is that keep in mind that Q2 had one more day working day than Q3, so that has that pretty much makes up.
What the differences for most part.
Got it thanks that's helpful.
And then in your prepared remarks, you talked a decent bit about adding scale in IP modernization.
I'm just curious is that primarily headcount or is that somewhere.
Something where you'd want to add some capabilities Im just trying to get a little bit more color on the kind of what the outlook is there what what you might be looking to add and then maybe any color on the competitive environment you'd be going up against and then how you differentiate yourselves in that area.
Sure. So I think were.
As I said in my remarks, I mean, we're continuing to win business organically on IP monetization front.
And so we're certainly adding talent there those kinds of opportunities get it agile development I'm cloud and infrastructure data analytics digital artificial intelligence.
And there's a lot of opportunity and a lot of focus in federal markets around those issues, including with our civilian clients and so it's certainly an area of our organic growth for us and we're certainly I'm interested in continuing to add additional scale in this area. So as that offers remarks said its area. We're certainly I'm looking at the possibility.
As acquisitions on the IP monetization front, yes, I would just add to give a long tradition of.
You know analytics.
Since then with founded and so we're quite comfortable in this arena and I think that the while there's obviously competition in the government.
Services space I think that we are particularly by situated especially with the civilian part of the federal government and reducing that we will.
Perfect from this progression to.
From there we have legacy system. So.
We are bullish on that and I think that.
Well the competition and every federal contract, but we think we will do well there.
Awesome and then if you wouldn't mind me squeeze some memorial day.
Thank you for close to a year anniversary on though we are at this time acquisition. So I'm just wondering how you characterize the success of that deal year later, and maybe how the marketing services business is shaping up in Europe more broadly. Thank you.
Sure.
We are this acquisition, it's been a terrific acquisitions, it's it's certainly performed and outperformed our expectations in the commercial European markets and we've also been able to leverage their capabilities and some of the key clients sets to Selwyn.
Some of the broader capabilities in ITEF next so we've been able to sell.
Capabilities in IC up into the market that and clients that I see happen that we're vista servers, and vice versa, we've been able to leverage their their capabilities into other parts of the CF.
Next business and so that's been a very positive acquisition I think it's certainly been growing quite nicely I think we're very.
Bullish on on we harvest and our opportunities in Europe on the marketing services side.
Great. Thank you.
Thank you. Our next question comes from Tobey Sommer Suntrust.
Thanks wanted ask question about the.
Your your positioning an opioid abuse.
In the crisis, there how do we think of the.
Settlements that are being discussed in those dollars and in a whether or not they can drive business for the firm.
Yes, Tobey I think that.
We will be of working with the state of Georgia as well as mentioned by John in writing from.
Proposals up.
Which all funded with all these settlements.
It's too early to tell but over the years.
And I Cfive found that.
Ill.
It is lumpy settlements on happening and gets institutionalized and beef. The settlement is going to be very large one does a lot of look using this comes out because the focus of the second once they specific activity and I think in the opiate gates glove this to be the whole bunch of several associated with.
The prevention than mitigation and communication. So we are waiting and watching and we think that as these settlements take place up there would be opportunity for us given our experience and given what we're doing currently with some of the Stateline.
So is your federal experience in activities in this arena sort of directly applicable to Q2 states in local jurisdictions.
Yes, yes, absolutely and I think even.
Yes, absolutely yes.
Yes, I would say both our subject matter advisory expertise and then obviously the marketing and communications expertise I mean.
As you know it's on the tobacco settlements went to fund anti smoking campaigns marketing and communications and so and there is a press president here and I think that.
Based on that president our capabilities played well and I would effectively well.
This opportunity lays out I believe soccer, it's we're really pleased to be working with Georgia early in this in this kind of opportunity, but I think it's too early to really put.
Boundary around to Toby.
Fair enough that makes sense.
With respect to disaster recovery could you update us on your expectations for the timing.
Of.
Mitigation contract awards in to the extent you can kind of compare and contrast that with what we in the investment community are little bit more familiar with on the reconstruction side.
Sure I mean, I think the as I said in my my remarks, I mean that the mitigation dollars that have been appropriated by Congress, which are.
Around $16 billion are are relatively new funding to to focus on.
Preventing damage from future storms and so it is quite a sizeable potential opportunity and as we talked about it I clicked on my remarks, and Sadaka discussed we think both some of the early work we've done for head on mitigation and a lot of our climate expertise.
Plays into what the needs that will be.
The opportunity in the demand for services here.
And so those opportunities as you know HUD has published.
Guidelines for the mitigation dollars up for North American geographies.
And so state and local governments will be submitting their plans to have their action plans to how the about spending this money per 100 rules.
And get approval early to the middle of next year, and so we would see opportunities playing out.
In the in the middle to late.
2020 on mitigation.
Generally.
You know kind of the dollars committed to administering and managing those programs is about 5% of the total spend and so.
5% of $16 billion, you can do the math these will be quite sizable opportunities and so the first tranche will go focused on North America. There's also that 16 about half of its for Puerto Rico, How does not published the guidelines for Puerto Rico in terms of what they need to do to submit their plants I would expect that to play out a bit later next year as those opportunities will probably be later.
In the year, but this will be material up opportunities for us as we get into the second half of your Toby and they will be quite sizeable.
Essentially thank you.
I would just I'll just add Toby that one other element of it is that if you recall, our Dms acquisition last year. They have a lot of expands doing with deviancy book with utility with large utilities and and that's going to be one of the 80 as I'm sure where some of that mitigation dollars are going to be spend. So we do have experience in that arena. We're currently working with.
One large utility and we certainly hope that we'd be booking with more as this funding gets realized and a lot of the work we're doing on a state and local for say local governments in support of climate.
Mitigation related activities. It is the resiliency work and so we've built up a set of capabilities and and clients.
During this kind of work that will play very well with with this mitigation funding.
Great.
If I could ask a question about the cash collections is that something that you expect from your.
From a customer thats been slower in terms of its process to.
To improve over time.
As they are in a position to have an infrastructure that gets gets built out or should you expect that to remain stable for the foreseeable future.
Tobey This is James I mean, certainly.
We are expecting the cash flow collections to improve for what they've been in the past certainly the recent.
Track record is starting to show some evidence of that during to put in perspective.
We have.
So I mentioned, we've collected almost $35 billion. So this one clients in the last.
Six weeks or so.
That's.
For the full year, we've collected somewhere like 75, or so so you get it's been a pretty big pickup in our collections the rate of collections in the recent months.
And the team is the client team has certainly becoming a much more.
Lets say organize and better staff to be able to handle the activity more so than what they were before so we are anticipating a pickup which then should as we start catching up on.
Older receivables should give us a boost to cash flow for next year.
Thanks last question for me in terms of having run rate from from my perspective, I mean this.
We are having timing issues with this client, but our confidence and getting paid is.
We will get paid here.
Yes. Thank you.
Last question for me with respect to acquisitions stock you mentioned like could you frame I'd like to kind of the filter relenza you're looking at are these.
In terms of size valuations margins of the accretive however, wherever you're thinking about it would be helpful. If you could share that with.
Yes, I think all these acquisitions that I'm going to be.
The logging the 50 to 100 million dollar range and maybe slightly larger than that we don't know them there will be much larger than that I think that the profile is pretty similar to the ones. We have done in the past I mean, there's nothing.
Dramatically different about them from a valuation perspective.
We always looking for value.
We hope we can get it and.
We certainly having pretty disciplined over the last many years, while doing these acquisition that we took me.
To be exercising some in a disciplined going forward so I think.
The two as I mentioned both.
IP monetization as well as energy soak utility sector.
Our go to area for US, we basically have very strong presence in each of those two areas and and I think we have the process of frankly, just deepened broaden the expertise there so.
We will certainly.
Plus you.
Let's see them similar to what we've done in the process I don't have that compares anything more than that.
Thank you very much.
Thank you we have our next question from Sam, England with foreign Burke.
Hi, guys May add fast form is another strong quarter on the contract win site admin strong year April I saw can you just give us an idea of how that feeding into visibility on 2020 revenues are these contracts are a bit.
Our longer dated.
I think Tom you said the quarter, we actually had to what booked about ratio 1.3. So what it is a reasonably strong one I think what are you referring to the trailing 12 month aspect of it or what are you finding too that the quarter.
Well I'd say, it's probably just given how strong we spent in the fast so nine months this year.
What's that doing 40 visibility heading into Q4 in 2020 .
Yes, I think it's as I said I mean, I think we're certainly pleased with a 1.3 book to Bill ratio in Q3, I think the trend year to date as we discussed in our first quarter call at the government shutdown. The sales were a bit slower than expected I think our book to Bill is 0.85 thing in Q1. It. It went to 1.1 in Q2, it's 1.28 and.
Q3, so I think the trend is good lots remind you also that in Q2 in Q3 last year, we had extraordinary book to Bill ratios, while 22 land and 1.94, respectively, and frankly, we've been a little surprised that the flow of revenues hasn't been as is high on the government side as we thought they'd be given those awards.
But that has picked up in the last quarter too. So I think we are seeing opportunities. We've won last year in Q2 in Q3 ramping up here.
And so that's that's helping to drive growth you saw the north of 5% growth in our in our federal markets.
And so I think given those effects, we feel quite good if you look back over the last six quarters, our book to Bill ratios 1.27.
And so I think were.
I think we feel good about the sales we feel good about the awards, we feel good about the trend in the federal business and so.
I think were it gives us confidence, we'll continue to see growth going forward.
Okay, great. Thanks, and then next one around margins, you've obviously done a bit better in the first nine months. The and then 20 to 30 basis point improvement you've told by historically should we expect.
That continues into Q4, we said that back that we should expect Q4.
Yes, I think what the.
Historically, what we've said is that we would typically have margin improvement margin improvement being defined as adjusted EBITDA as a percent of service revenue of 10 to 20 basis points per year. This year, we said thats going to be with a 20 to 30.
For seven basis points.
For the year and you were expecting that continued improvement in margins for the full full year of still about 20 to 30.
Basis point of margin improvement year over year, so that that hasn't changed and and certainly we will have to continue to have improvement Q4 year over year over last year's Q4 to drive that full year improvement.
Okay, Great and then it off on the shifts around the commercial sales, obviously pretty broad range of contract wins are there any that allow as being particularly large all significant or was it pretty equal based and on a range of smaller deals the sound.
I would tell us anything unusual or unusually large event to get a typical quarter for us in terms of our.
Commercial mix of business, we typically sign.
A set of smaller advisory opportunities and our advisory portion of the business. The implementations have we'll see some larger.
Longer term opportunities on the on the technology.
Energy efficiency, probably goes anything unusual I think it was a typical quarter for our sales in terms of them.
The size and mix of advisory and implementation.
Okay, great. Thanks very much.
Thank you. Our next question is from Kevin Steinke with Barrington Research.
Good afternoon, everyone.
You talked about in your prepared comments.
I wanted to make sure I got this right.
You know one of your disaster recovery contracts, maybe be more of like study five plus your opportunity to to a lack of construction capacity were you referring to the recent three year 25 million award in Puerto Rico on the housing recovery that that was what I was speaking.
To that the the housing recovery contract, we won in Puerto Rico.
I will.
We will be a longer five plus here opportunity.
With a more steady.
Recovery of won't be as.
As frontloaded in some of the prior recoveries that we've played a role I think the size and scope of that opportunity remains unchanged. It's just the pace of which that recovery will occur it will be a longer term recovery.
Over a five plus year period, I think theres, just a tremendous amount of recovery that needs to be done there across both the housing side in the public infrastructure signs of that.
That's going to be the regular.
Pasadena to undertake that recovery.
Overtime.
Yes, and I would just say that obviously the pickup of continue on beyond the 25 million that and I don't think that to some extent.
I've been through two or three of these big disaster recovery contract and I think that the important thing. We've traditionally the speed thinks about is that the stuff goes up like a median incomes down over three or four year period, and then people think that that revenue therefore is not.
Quite a valuable as traditional ongoing revenue I've seen some comments like that from some analyst reports and I would just say that if the covering continue for longer periods of time that's like.
Our traditional revenue and I think that.
Based on audits PFS over the last few years devices are going to happen every few years and therefore, it really is sort of permanent revenue when should we consider the such and not sort of anecdotal rvs are up and down so I think that.
For the I think the revenue but to be much more stable than a bunch with David in terms of the.
Trajectory than it has been in Pos disasters.
Okay got it thanks Thats helpful and.
Secondly for me.
You talked about some of those.
Delayed federal government contracts from the second half of 18, beginning to move now and ramp up.
Do you think are those delays pretty much behind you are there others that.
Maybe are still on the pipeline that havent ramped up yet.
Well I think there they are pretty much behind this and I think we've seen the ramp up I mean, I think deezer.
Yes.
A set of contracts at HHS USA I'd that have been ramping up and I think were.
We're seeing a nice.
Trajectory on them. So I don't think this is an ongoing issue I think it's.
And I think you see it our growth I mean are.
Growth in total Marxists is now up in the mid single digit.
Right.
And I think as I said, we sort of expected to remain there.
The rest of the shares with before.
Okay great.
Just maybe any comment on the.
Climate in Washington in terms of.
Debate debates overfunding currently and I was reading about potential stopgap funding bills to avoid government shutdown domain.
What kind of what's your view of the budget situation, there and how it may affect your business going forward.
Well I would first say that we're quite pleased that mean for the first for the first for years. The Trump administration actually civilian budgets are up kind of mid single digit which.
We're pleased with added.
And I think thats been a positive development for us when there is no question there's.
We need to continue resolution, we need a budget put in place here in the short run.
That's been an ongoing issue for the last several years some that across administrations.
I don't have a crystal ball, Kevin to predict what will happen here I guess the thing I'd say is.
Generally these things get worked out if they don't we've been through it before we've been through government shutdowns before we know how to manage it.
I would expect it to be a short term impact and so.
Wheeler.
So, we'll we'll manage it will we'll deal with it.
As I said on abacus of auto soccer view.
I would just say that we've been through it. So many times about that we have a pretty finally honed way of doing it plus you cannot predict how the clients have also started managing this in a very effective way where basic basically they.
Appropriate the monies to us than we basically continue even though they may not be there. So that happened a few times of the past. So I think that it just depends exactly on what happens that we just have to go contract by contract.
To make sure that we manage it and the last time and it happened in the beginning of.
This year.
That was on impact, but I think it was interesting to see the clients also have become much more sophisticated managing the flow look to us. So we just manage it and I think we know the we know the bill and it's actually some of you find Vhone Val.
Yeah got it no agreed I mean, you've always managed to those situations as well and news seems is just.
A short term impact and it seems like you can actually make up any revenue that's been delayed any way. So so but yes, but just curious as to your take on that so thanks I guess.
Lastly for me you know.
You talked about double digit growth in the marketing services business and.
That seems like one of the stronger quarters of growth you've had in that business in the last few years here. So maybe just.
Talk about.
A momentum you're seeing there in the sustainability of.
The momentum in that business.
Yes, I think.
Obviously, we were pleased with the quarterly results and as you say those are robust.
Results for Us I mean, we've generally.
Got it had made at least mid single digit growth across our commercial markets for this year in both energy and.
And marketing services and have delivered data I think Q3 was a particularly strong quarter.
Related to specific client opportunities.
And specific projects I think we continue to view them as growth markets will continue to grow I will obviously, we haven't given guidance for next year.
I'm sure we'll continue to grow.
Nicely, but but this was a particularly robust quarter for those two businesses.
Okay, great. Thanks for taking the questions.
So.
And thank you as a reminder, if you have a question. Please press Star then one on your Touchtone phone.
And we have our next question from Marc Riddick with Sidoti and company.
Hi, good evening everyone.
If you have to mark.
Wanted to see if you could spend a little time, but talking about the announcement of the global headquarters and what we might be looking out there as far as timing and potential.
Benefits that you see there as well as.
Potential capex needs and that type of thing and then I've a couple of follow ups.
Okay. So why don't I start off and I'll, let James.
About the financial side.
And so we're quite pleased to with the new corporate headquarters I mean, we've been in our Fairfax location for over 30 years. It served us well that and I do think that in our move to rest and we'll have the facility that's.
Designed to the CF today, we we are highly collaborative place obviously, we we encourage creativity, we want to recruit the best talent, which means we need to places that.
Provide amenities and and good experiences for our employees and so I think we think this new home as well attune to the except for today for our culture will really help us on the collaboration and creativity front will help us really to recruit top talent.
Who want to work in a location that provide amenities provides public transportation and is also surrounded by.
Other employers that are doing interesting things, which will certainly.
Im have in the new Reston headquarters and so I think from a from a culture and from a strategy and from a recruiting standpoint, it's a real positive it will be much better.
Periods for for our people.
Going forward.
One I'll, let you James and I talked about though.
Sure. It I mean, I guess simplistically the way to think about either from a financial perspective, I mean, obviously this new spaces, it's much more.
Efficient the building that we're in.
And and because of that the way to think of this is from an economic perspective.
The company will certainly save.
Money year over year, I will give you exact number but I will tell you. It's it's in the seven figures in north for $1 million a year that we will save.
Total cost after you consider the.
The impact of.
Amortization of tenant improvements and the lease and everything else. We will we will still be saving north of $1 million per year and have a much better space as John outlined.
So.
So the way that I would think about it.
Okay, and then shifting gears over to I wondered if you can sort of get some thoughts as to what you're seeing internationally.
And if you could sort of given I guess, maybe it's kind of the client feedback that you are getting there could that certainly seems as though there's there's still activity going on but was wondering if you if you're getting anything from all.
Some of them general concern standpoint, or or anything that's different than maybe you see more glossed all few months beforehand.
Sure I mean, obviously, our largest client in Europe is the European Commission I mean, I think generally the budgets are there have been generally stable to up.
I am low single digit and so it's business as usual in the European Commission, we're working across a variety of the key direct Ics there on the on the types of work, we do and so.
Yes, I think we've generally seen positive trends I think you saw it reflected in our third quarter results I talked about the strong pipeline.
And we continue to see opportunity in the UK government.
Obviously Brexit is a topic there.
But that's a much smaller portion of our world.
And and so.
Thats generally as has been positive to until I think we've generally talked about that business being.
And flat to low single digit growth and I think we generally comfortable with that.
And certainly the third quarter was.
But the consoles.
Okay, great. Thank you very much.
Thank you we have no further questions at this time I will now turn the call over to management for closing remarks.
Okay. Thank you thanks for participating in today's call. We look forward to seeing you at our Investor Day on December Threerd and speaking again, when we report on our full year 2020 results in late February .
Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.