Q4 2019 Earnings Call
Good afternoon, and welcome to the fourth quarter and full year 2018, <unk> earnings Conference. My name is spread that nobody your operator for today at this time, all participants were to listen only mode afterward, she'll be invited to participate in the question answer session.
The question answer session. If you have a question. Please press star one on your telephone keypad.
Please note. This conference is being recorded on Thursday February 27 2020.
Cannot be reproduced or rebroadcast without permission from the company I.
I will now turn the call over to live Morgan of advisory partners like you'd be begun.
Thank you Brenda and good afternoon, everyone and thanks for joining us to reveal.
Wow, what a full year 2019 deployment.
That's today from idea I forget if you're not going to catch up on.
Chairman John Watson President.
James Martin CFO.
Well SBC thingy.
During this conference call, we will make forward looking statements to me.
Sandy I see a managements expectations about future.
These statements are subject.
I could cause actual events and results to differ materially I refer you to our February 27, 2020 press release and FCC filings sessions.
In addition, I statements during this phase.
Anticipate the teachers without missing.
Change [noise]. Please consider the information presented in that line may at some point or less uptick.
Statements made today.
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I will now turn the call over twice the second true.
As for them to discuss with whatever for your 2019.
Thank you lend and thank you all for joining us today to review, our 2019 results and discuss our business outlook for 2020.
2019, with another strong performance, where I see F driven by our differentiated service offerings in growth markets.
Why pairing deep domain expertise or the broad areas of energy environment disaster management than health with brought technology and engagement skills and by growing our marketing services business, we delivered another year of double digit revenue and earnings growth.
[noise] at our Investor day in early December last year I made several points that are relevant as we look ahead do I see us opportunities in 2020 and beyond.
Just.
I see us revenue goes husband resilient across the best stations, so although that actually it will intensify as the election approaches keep in mind that we've had steady girls on the books Democratic and Republican administrations.
Second we have successfully leveraged up and down over the last 13 patheon since we've been public as we've made acquisitions and then paid down debt without strong cash flow and that is a strategy that remains in place to me.
Third and finally, our strategic intent of providing advice to our clients and implementing that advice in our areas of expertise has been the whole talk about success for more than a decade, and we have significant growth runway ahead.
Well, it's making 2020 to be another strong year Frac C F with double digit growth in revenue and EBITDA.
Before I hand, the waterfall job I would like to make a few comments on our recent acquisition of I T. G. A leading provider of cloud based platform services, the U.S. federal government agencies.
We view, our TG has an excellent strategic for US, yes, and emblematic of the types of acquisitions can expect us to plus you.
But I did you read it was on it. So it was provided in a large and growing market, maybe I keep optimization, which together with cloud is estimated at all what $21 billion.
Well I did you use more than three I'm 50 people its excellent track record of providing transformational solutions to federal agency Clive I see about how the qualifications to bid on larger contracts that aligned with our subject matter knowledge.
Second I did he is working many credit agencies, our long standing out you have class.
Notably the department of Health and Human services. The Department of State The Department of Homeland Security The General services administration others.
They should enable us to achieve revenue synergy as quickly as we already are aware of our clients' needs.
So our did you ever going to excellent cultural fit but I see us.
We both have created collaborative obstacle real work in vitamins.
This was a key element in their decision did join with us.
These characteristics, notably good positioning a lot in growing markets readily identifiable revenue synergies and strong cultural alignment I want that you can expect to see into each acquisition.
I don't based on the call or what do I see a CEO John Wasson.
I guess, the docker and good afternoon, everyone.
She up strong 2019 performance reflected positive catalyst in our business. That's a real significant you're on your revenue growth and enabled us to post even higher earnings per share results [noise].
Revenues from each of our client categories increase year on year in 2019, demonstrating I see have strong positioning in growth markets.
For the year, we reported 10.5% revenue growth.
12.9% increase in gap, Es, and an 11.3% increase non-GAAP bps benefiting from a favorable business mix higher utilization and to lower tax rate.
Beginning with our largest supply category revenue growth from federal government clients picked up considerably in the second half of 2019, reaching mid single digit growth in both the third and fourth quarter over here.
The fiscal Twentytwenty Federal budget was passed and signed in mid December with a 4% increase in spending and the longer term budget outlook is favorable.
Congress has already negotiated and finalize the spending caps for fiscal year 2021 for civilian and defense agencies, and we expect spending in fiscal year 2021 to be very similar to fiscal year 2020, providing a level of certainty for our agency clients.
As you know we have identified several areas within our federal business that we believe provides robust growth potential for I see a namely public health I T modernization and engagement.
With respect to public health I see up is currently working with the centers for disease control to develop messaging and communications about the threat of the Corona virus.
Also we currently have multiple contract vehicles with the CDC. So we're well positioned to assist agency as they develop and implement programs to address the krona priors threat.
Also we continue to be bullish on opportunities to combat the opioid epidemic.
The I T. G acquisition has significantly increased our scale and I T. Modernization. We were pleased to see the fiscal 2020 budget includes additional funds from modernization across our civilian client base.
In addition, we have identified existing opportunities in the <unk> pipeline equal to over 650 million for which the combination with I TG increases our probability of winning.
So to sum up on federal you see this is a strong growth market for I see up in 2020 and beyond.
State and local revenue, which was up significantly in 2019 will be lower as a percentage of revenue in 2020, primarily as a result of the in sourcing of certain aspects of our FEMA funded contract in Puerto Rico that we announced in January of this year.
As we noted we are working closely with our clients the cheap the best outcomes for the effective populations and we expect recovery and mitigation programs the Puerto Rico to last another five to 10 years, the complexity scope and scale separate where do you can recovery in the coming years is significant and continues to stretch local couple.
City.
We are meeting, although deliverables and we believe we are well position to continue to win work there.
I am pleased to report initial progress on winning disaster recovery mitigation work.
We recently won a small contract with a mid western U.S. state to help them prepare their CD Beachy mitigation action plan under contract to support the North Carolina Community Development Block Grant funded disaster recovery buyout program.
Also subsequent to the end of the fourth quarter. We were awarded another small contract with Columbia, South Carolina to develop the city's first ever disaster management CD BG mitigation action plan.
As you know the federal government has appropriate over 15 billion across a number of jurisdictions for mitigation and resilience programs to lessen the impact of stream whether disasters. This work is going to continue over the next decade.
She has one of the largest if not the largest climate change in Brazil see consulting fees in the U.S. This provides us with very relevant credentials to bid on mitigation work it should be part of RF piece later in 2020.
Our non U.S. government business did very well in the fourth quarter with revenues up 10%, bringing full full year revenues to flat with last year.
This was a very respectable performance keeping in mind that in 2018 revenues were up 34%.
Looking ahead.
There's a new European Commission in place with clear priorities and the Brexit settlement has eased the market uncertainty both positive indications for IC off.
We have an active pipeline of international government opportunities, which leaves us to expect continued growth in 2020.
Moving to our commercial business as you know the lion's share is comprised of our marketing services business branded as I see up next and energy markets that is comprised of energy efficiency and distributed energy programs transactional energy related advisory work and our environment related project work for commercial clients.
Together marketing and energy account for 93% lifes commercial revenues.
Commercial marketing services revenues increased at a high single digit rate in 2019, reflecting the continued strength of our commercial healthcare vertical where we are driving enrollment redesigning web sites beef rushing brands and developing personalized engagement programs.
Also we have launched several successful campaigns across our consumer client said.
And added a new loyalty program client.
Last year's branding of all of our communication services as I say half next that's been a positive driver in winning new business and we continue to have good success and increasing integrated sales across I see half next.
We also had a great you have recognition and 2019 closing it out in the fourth quarter with our loyalty 360 Best in Class Agency Award.
This year's highlights included maintaining our position as a leader and Forresters loyal technology Wave report.
Named the homes reports digital agency of the year for we're combining marketing and technology and we see me 12 Con Lions.
The personal personalization around marketing plays to our strength and having an industry, leading loyalty platform, which has strong technology capabilities that are highly relevant and which we expect will serve as a long term growth driver for us in this arena.
Commercial energy revenues increased by just under 3% and 29 team.
This is the wind down of certain environmental monitoring projects, we are very well positioned for long term growth in this area and see several key catalyst that play to our strengths.
First in energy efficiency, there was the California opportunity, which is going to create an annual addressable market for us of at least $251 million a year and the state where we currently have a small footprint.
Expected awards will start to be announced in the second half of this year.
Second several states are increasing their energy efficiency targets based on carbon reduction goals.
Include Massachusetts, New York and Illinois.
Governor Cuomo of New York for example, recently announced an additional 2 billion and utility energy efficiency and building electrification initiatives to combat climate change.
Third we have significant growth potential and the further penetration of distributed energy resources, such as solar storage and electric vehicles.
As we detailed during our Investor day in December I see us already advising utilities on distributed energy strategies, and we are implementing about 10 pilot programs with existing utilities.
Although what today is around advisory and pilots. We believe these pilots can scale into programs across entire service territories that are likely to be of similar size and scope to the energy efficiency programs, we have been implementing for a decade.
In summary, we are quite bullish on the organic growth prospects on horizon fried CF and about the revenue synergies that we believe we'll be able to achieve in short order. Thanks to the ITC acquisition.
Also we are pleased with the EBITDA performance then we anticipate for 20 to 20, which will represent 16% year on year growth.
We ended the year with the business development pipeline of 6.5 billion after winning more than 350 million in contracts in the fourth quarter. This pipeline, which includes only qualified opportunities is balanced across our client set and comprised of 65 opportunities larger than 25 million and 94 opportunities.
Between 10 million and 25 million.
Also I see US 2900 turnover rate was 15.7% below the industry average and representative the strong corporate culture that we have developed here over many many years.
Before turning the call over to James for his financial review I wanted to comment on the CFO succession, we announced in separate released this afternoon.
As you read James will be taking on the newly created rule of EVP and chief of business operations effective on February 29.
This is an excellent opportunity for us to leverage James his strong leadership skills. The strength in areas that are critical to our continued growth.
So we're pleased to welcome Bettina wells as our new CFO. She has been working closely with James over the past six months and her strong credentials make or an excellent fit for this position.
As a four to introducing her over the next several months to those of you who did not meet her at our Investor day.
With that I'll, let me turn it over to James for the financial review.
Thank you John good afternoon, everyone.
Let me give you a more detailed overview of Iseatz fourth quarter and full year 2019 financial performance.
Fourth quarter revenue was $396.6 million up 5%.
From a 377.9 million reported in last year's fourth quarter.
You're on your growth was driven by 7.6% increase in revenue from government clients, we saw strong comparisons across our clients.
Service revenue was up 5.1% to $251.9 million compared to 239.6 million in the fourth quarter of 2018.
Pass through revenue increased by 4.7%.
$244.7 million accounted for 36.5% of total revenue.
Essentially in line with 36.6%, we reported last year's fourth quarter.
Gross profit increased 2.9% to 132.6 million from 128.9 million in the fourth quarter 2018.
Gross margin was 33.4% and 29 team fourth quarter compared to 34.1% last year.
Gross margin on service revenue was 52.6% and 29 team as compared to 53.8% in the fourth quarter of 2018.
Keep in mind that last year's fourth quarter was an exceptional was exceptional in terms of gross margin on service revenue due to high utilization rates associated with program ramp ups.
Indirect and selling expenses for the fourth quarter increased 6.2% to 97.7 million compared to $92 million from a year ago quarter.
As percentage of revenue indirect and selling expenses amounted to 24.6% of total revenue slightly up as compared to 24.3% in the fourth quarter 2018.
EBITDA was 34.9 million in the fourth quarter of 29 team.
Compared to last years 36.9 million.
Adjusted EBITDA, which excludes special charges associated with acquisition related expenses office closures severance charges.
Was $37.4 million compared to $39.4 million report in the fourth quarter 28 team.
Adjusted EBITDA on service revenue was 14.9 per sub in the fourth quarter of 29 team.
We reported net income for the fourth quarter of 2019 of $19.4 million compared to 18.7 million in last year's fourth quarter.
Diluted EPS was one dollar and one cent per share inclusive of nine cents of tax effect of special charges, primarily tied to M&A costs.
This compares to 97 cents in the fourth quarter 2018.
Also of inclusive of nine cents of tax effects effective special charges.
This year's fourth quarter benefited from lower tax rate, mainly due to the deductibility of equity based compensation.
And return to provision true ups.
Non-GAAP diluted EPS, which excludes the impact of the previously mentioned special charges amortization intangibles.
As a $1.18 cents in the fourth quarter of 2019.
Slightly ahead of the dollar and 17 cents reported for the fourth quarter 2018.
Now, let me give you more color on our 2019 full year results.
We had record revenue of $1.48 billion up 10.5% year on year.
This performance was led by 13.1% revenue growth from government clients, which accounted for 65% of full year 2019 revenue.
Up from 64% in 2018.
Revenue from federal clients increased 2.7% inline with our expectations of low to mid single digit year on year growth.
State and local client revenue increased 52.5%.
International government revenue held flat, representing 19% and 8% of total revenue respectively.
On a constant currency basis International government revenue was up year over year by just over 5%.
Commercial revenue increased 6% year over year and accounted for approximately 35% of our total revenue.
Compared to 36% in 2018.
Service revenue was up 8.3% to $1 billion compared to 925.8 million in 28 team.
Pass through revenues increased by 15.4% to $475.7 million.
Adjusted EBITDA increased 8.9% to $134.8 million and accounted for 13.4% of service revenue in 2019.
The same as last year.
We slightly missed our target of 10 to 20 basis points for improvement in adjusted EBITDA margin on service revenue compared to 2018 levels due primarily to higher than anticipated fringe expense and less than expected revenue associated with our FEMA funded contract in Puerto Rico.
We expect to resume our 10 to 20 basis points of margin expansion in 2020.
Net income increased 12.3% to $68.9 million in 2019 compared to 61.4 million in 2018.
As we benefited from a lower tax rate of 23.6% compared to 25.9% in 2018, but more than offset higher interest expense.
Reported diluted earnings per share were $3.59 for 29 team inclusive of 24 cents of tax effect of special charges related staff realignments.
So the consolidation M&A expense, primarily related to the ITC acquisition.
This compares to $3.18 per diluted share in 2018, which included 17 cents of tax effected special charges.
Non-GAAP diluted EPS for the full year, which excludes the special charges I've just mentioned as well as amortization of intangibles was $4 a 15 cents per share for the.
For 29 team up 11.3% compared to the $3.73 reported last year.
In 2019, we had 91.4 million of cash provided by operating activities. The head of our updated guidance due to strong collections during the month of December.
This year, we made ongoing investments in our infrastructure and intellectual property, leading to a $3 million year over year increase in capital expenditures.
To $28.5 million for the full year.
We paid down debt lowered borrowings from a credit facility at the end of December by 17.5% to $165.4 million compared to $200.4 million at the end of 2018.
Days sales outstanding for the fourth quarter was 83 days, excluding our large FEMA contract in Puerto Rico, There was 71 days.
For modeling purposes, we what's your expectations for certain 2020 financial metrics.
We anticipate depreciation amortization expense to be in the range of $20 million to $23 million for the full year 2020.
Amortization intangibles should be in the range of 13, 13, and a half million dollars.
Full year interest expense should range from $19 million to $20 million.
Capital expenditures are anticipated to be between 28 million the $30 million.
We expect the full year tax rate to be no greater than 27%.
And we expect fully diluted weighted average shares of approximately 19.2 million for 2020.
Also for modeling purposes keep in mind that while I TG. Her recent acquisition as an EBITDA margin that is in the mid teens above that advice, yes. Its gross margin percentages lower than I see us average and is therefore expected result in a slight year over year decline in gross margin.
So for the consolidated company.
Additionally, we are expecting is significant increased operating cash flow in 2020, which we anticipate to be approximately a $120 million for more than 30% higher than in 2018.
This free cash flow is projected to be over $90 million or about $4.75 per share.
In 2019, we repurchased 248000 shares under our share repurchase program for a total outlay of $18.1 million to offset the dilution of our employee incentive programs.
We plan to maintain a balanced approach to our capital allocation strategy and we'll continue to invest in our business pursue acquisitions de lever.
Buyback shares to offset dilution and pay dividends.
Speaking of which today, we declared a quarterly cash dividend or 14 cents per share payable on April 13, 2020 to shareholders of record on March 27 2020.
With that I will turn the call back to sort of back to John.
Thank you James we are looking forward to a year of strong growth and twentytwenty.
We expect revenue of 1.6 billion to 1.65 billion and EBITDA of 145 million to 155 million representing year on year growth of 10% and 16% respectively at the Midpoints.
Revenue and EBITDA growth is expected to follow a similar pattern to that a recent years with roughly 45% materializing in the first half the year and 55% in the second half.
As you've seen from our earnings release. This strong operating performance go not carry through to our non-GAAP EPS results in 2020.
This is in part due to higher tax rate this year, which we estimate will impact earnings by 15 cents.
The other element is the reduction in projected revenue of approximately 65 million on our FEMA funded recovery contract in Puerto Rico, which is at the high end of our federal margin range that said, we are expecting strong revenue and EBITDA growth for this year in a substantial increase in operating and free cash.
Cash flow.
Additionally, our guidance for 2020 is based on our current backlog and portfolio of business and does not include any additional material contract wins or expansions in the disaster recovery arena, nor any material benefit from new disaster recovery related mitigation contract awards or energy efficiency contract wins in Cali.
Cornea all areas that represent significant long term growth for CF.
We will keep you posted on all this.
In closing I'd like to note that we have a very strong culture here at ice yet and that as a source of competitive advantage for us.
Collegial and passionate about what we do this culture has been a key driver of our growth today. It is what attracts likeminded acquisition candidates and it is what clients see and feel and working with us.
Operator, I'd now like to open the call for questions. Thank you. We'll now begin the question and answer session. If you have a question. Please press star one on your telephone keypad, if you'd like to be removed from the Q. Please press the pound signed with the hash key if you're in the speakerphone. Please pick up your hence it first before delving into numbers. Once again, if you have a question. Please tell star one on your.
Telephone keypad.
And from Canaccord, we have Joseph Vafi. Please go ahead.
Hey, guys good afternoon, and James can grab.
On the new will hopefully we will still gear in sheet use from time to time here on the wall Street side. Thanks.
Thank you.
Yes.
So maybe we just kind of start.
You are kind of what the requisite Puerto Rico question.
Any other color to provide there do you see.
How do you see the working relationship this year and.
What are the prospects outside of the the in sourcing initiative, there that could provide potentially some more volumes on that contract.
As we look through this year and into next year.
Sure Joe Happy to do that so I think as we said in the remarks and.
We.
We expect $65 million of revenue to be in sourced in Puerto Rico.
For 2020, I think thats consistent with.
Our expectations when we last spoke to upon announcing.
The ITD acquisition, we don't believe at this point there'll be any more in sourcing.
In Puerto Rico on our work I mean, it is a fluid situation, but I would say you continue to do good work, we're meeting all our deliverable.
[music].
Although our deliverables, we have strong client relationships and we certainly continue to see significant opportunity I think it is a long term recovery in Puerto Rico over the next five to 10 years I think it will continue as we discussed at our Investor day, a steady pace.
And so we still view it as significant long term offer opportunities in Puerto Rico.
Certainly with the mitigation.
Budgets in Puerto Rico, being a key part of that long term opportunity.
And I would just add that we continue to work with this client partial insourcing off the work is not as if the all the work is going away as being Insource, just so that just to clarify that fits.
About 50% I think that we've assumed we continue to work on 50% on the balance.
Yes.
Sure and then that's helpful. And then secondly, I mean, she's been in house here for a little while I was wondering if you could provide some commentary there on.
Pipeline that perhaps has developed since the last time.
We spoke there.
Especially on.
Cross sell as well as you know maybe Standalone 90 deals that perhaps you weren't really capable of doing before.
Sure. So I mean, I think as I said in my remarks, I mean first I CF, we had a pipeline prior to the ITC GE acquisition was $650 million of it modernization opportunities that we believe their skills and capabilities will certainly raise the profitability of our win rate.
Rates and our pipeline and similarly, I TG had a set of a sizable pipeline and I, certainly think taken leverage our deep domain expertise and our contract vehicles.
To help them on both improved their probability when rates and access new clients.
We're also in the process of identifying new opportunities that neither from would have bid.
We are coming up with some initial abuse of that obviously those will need to go into capture and will be longer term opportunities, but we're quite confident those exist.
I think it was we also talked about.
Hi, TG was.
Subcontracted about 30% of their revenues, we believe we can.
Deployed CF staff on some of that work which will.
Certainly benefit benefit us going forward, so we're quite bullish on the.
The opportunities in the synergies associated with TG I would say the.
Integration is going great I mean, we've had.
Very positive signs on the business development and we're working together quite collaboratively.
I fully expect we'll be announcing.
Material New awards here the next quarter to on it modernization front I think that you'll see some very quick synergies on the it modernization front.
Great.
Thanks, John Thanks, everyone.
For the time.
Okay.
From Suntrust, we have Toby silver. Please go ahead.
Thanks, if I think about the a different revenue opportunities you have some litigation.
The utility work in California.
Opioid epidemic, how would you rank order them in terms of opportunities that are not reflected in your guidance.
Well I think mitigation.
We really as I said, we have assumed any material mitigation awards.
In our guidance and so.
You know Thats Theres no material mitigation.
Opportunities there.
On the.
On the California energy efficiency front.
Again, I would say, we've we've assumed a small amount of revenue late in the second half of the year, but frankly I think the way we see that playing out is that.
We will be bidding quite heavily this year, where in the process of bidding quite heavily.
That will start to see awards later in the second half of the year, but there really isn't significant.
California energy efficiency.
Revenues in our guidance.
Opioid front.
You know I think to total value.
Rod range of opportunities one there to date is $25 million to $50 million of contract wins.
And so you know I think there's there's still potential upside there and that could play out this year, but right now we have $25 million to $50 million of three to five year contracts and so.
Give you a flavor of what's built into our on an annual basis into our guidance I think there is.
Potentially more opportunity certainly more opportunity that's relevant for 2020 there.
Okay.
So was that the ordering Russian say it does that also doesn't include obviously Toby we've seen some very early opportunities around the Corona virus.
For.
Starting on some work with CDC on that I think I'm sure you've seen.
At the present it had a press conference Theres bills in front of Congress with those ranges of potential funding for addressing that in a range of two to $8 billion to $10 billion and so I think that has the potential to create short term opportunity for us too.
Great change.
If you were to measure.
Hi, how big is your climate change business. If you were at a measured.
In dollars or number of people whatever metrics you can provide.
Okay.
I think the total number of people it's about 200.
People and so I think of broadly it's.
$50 million to $60 million business.
With the climate resiliency focus I mean, I think if we were to include our energy efficiency, obviously that number would go up significantly but kind of the core climate business has a couple 100 people.
You know round numbers $50 million revenue.
Okay.
Hello.
Thank you I'll get back into queue.
Yes.
Okay from William Blair, We have Andrew Nicholas Please go ahead.
Hi, Good afternoon. This is actually Trevor Romeo and for Andrew Thanks for taking the call.
John You just mentioned some of the work that you're already doing with CDC on Corona fires prevention efforts.
Just curious if you could kind of described maybe any similar efforts you've worked on in the past and maybe help how large those types of projects tend to be.
Yes, I think though the work we're obviously focused on the krona virus is communication and messaging.
From a public health perspective to get the message out I mean, that's been a.
A key growth driver for us on a core part of our public health business I mean, we've been doing similar work on.
Smoking vaping opioid abuse.
Type AIDS obesity.
And.
So and there's several of those programs have been quite mature to the company over the long run.
I think one of our largest contracts as you know at north of 100 million dollar.
Thanks to seven seven or eight year contract to support anti smoking with teens and Tweens and so these opportunities can be quite.
Quite.
Material 10, 15 $20 million here of.
Potential potential revenue on on these kinds of public health.
Programs overtime.
On on Instagram, depending on the issue yes.
Got it Okay and then.
I know I think Sadaka had mentioned.
You guys have seen revenue growth in both Democrat or Republican administrations, but I'm just curious.
Since we do have the general election coming up later this year or.
Are you seeing any desire.
Any clients in certain agencies to either slow down or accelerate their their decision, making at this point on on contracts prior to the election.
I don't think we've seen any change in client decision making are spending.
Im invested election, I think as you see in our results on study on the federal side.
Our revenues up an accelerated a bit into mid north of 5%. The last two quarters. I think we believe we can maintain that until we haven't seen anything today and.
Frankly I think.
I think.
And so no theres been no no change.
Okay fair enough. Thank you very much.
From Barrington Research, we have Kevin. Thank you. Please go ahead.
Hi, Good afternoon I just wanted to follow up on that last question May make sure clarified something in my mind in terms of.
The growth you expect in the federal government market in 2020 do you think it can grow at a similar rates to what it did in 2019.
Yes, let me clarify bat and when I said, 5% growth I mean, thats, obviously, the legacy CF federal business, which we do expect can grow mid single digit.
For 2020, obviously, when we factor in the ITC acquisition, which is up primarily.
It's a federal oriented business, our overall growth in federal markets for for 2020 will that be well north of 25%.
Got it okay, yeah that makes sense, thank you and.
You mentioned.
Your opportunities in the pipeline of about 650 million that.
TG increases your chances of winning maybe just.
I guess it might be fairly straight forward, but kind of the thinking or the thought process. You went through when looking at your pipeline and figure out.
Which ones.
Were enhanced by by the combination with.
Okay.
Yes, sure I mean, I think obviously, we look at the the.
The pipeline.
The quality of the relationships that we have at.
In those agencies.
You know it also kind of weird kind of what.
And how that matches up with the service providers.
And partners at ITC has that would work in those agencies like service now an app and.
And so as is.
Focused on both the quality of our relationships the capabilities, we bring the specific opportunities that we saw in our pipeline.
On the IP monetization front and so how did those map into the specific contracts. We were bidding and then how could there specific partner relationships, where they do have these will deepen long term partnerships with service now at Apio, where we can demonstrate but their calls that we really know over.
A whole new game.
And depth the capability to cut demonstrate to our clients. We can bring these platforms into them efficiently and effectively and so I think those are the.
The primary things, we thought about and then let me just because thats the $650 million is kind of our total pipeline.
Across all devices.
As we prior to the ITC acquisition and then we're focused on how can we just released of wind probabilities across that pipeline.
Okay. Thanks, that's helpful and then.
You stated in your commentary on the outlook, obviously that.
Your guidance doesn't include.
Any additional material contract wins or expansion and disaster recovery or.
No material, new disaster recovery mitigation contracts, I mean as well so.
I think on your third quarter call you talked about perhaps.
Timing of some of the RFP is for the 2018 Hurricanes.
Happening maybe early first half of 2020, and then also maybe some of the larger store mitigation RFP ish.
Coming out in the second half of 2020, so is it still kind of the timing you're thinking about in terms of when those opportunities might or might start to emerge yeah. I think thats still the case I mean, I would say on the mitigation front, we think that.
We'll certainly see opportunities in Texas.
We will begin to seize opportunities in the second quarter, but certainly see awards in the second half of the year I think as you recall.
I believe Texas this numbers for mitigation were about four to.
$4 billion to $5 billion funding.
So we did so there will be awards there, we havent assumed any material New awards in Texas in the second half if theres a possibility those could occur I think as we've talked about before.
These awards can be sizable that can be lumpy and so we will.
We.
We haven't put anything in our guidance.
That we've given obviously that awarded.
Earlier in the second half.
We'll update you on that.
The North Carolina lot opportunities, we have begun to see some opportunities. There we've won a contract and I'd like you contract that gives us ability to work.
The Carolina on CD BG related work, we expect more opportunities there.
In the second half a year from the 2018 storms and so again, if we were to there was a couple I think was somewhere between two and $3 billion threat.
Procreated for the 2018 storms that hit the Carolinas.
And so there's certainly potential upside there too.
The long winded way of say I don't have kind of what Weve reported last quarter has not changed.
Okay, Great and last question here, just with James New role.
[music].
How much of that is a replacement for.
The COO role to that you use to whole John versus kind of a new role and how might it be different.
And then the COO role.
Yes, sure so I think that.
First as I think as I said one I.
The became CEO.
I wanted to.
I thought was critically important for me to to be externally focused.
Focused on a strategy trends in our market our clients our growth opportunities, obviously as president I did have the client facing organizations and corporate business development reporting to me and they will continue to report to me given my.
Focus on the external markets and on the clients.
As CEO I also had responsibility as CEO for a variety of corporate.
Functions that given the shift at my.
Interest and focused on being certainly focused that I really felt that we needed to create a new position.
And have somebody and it could really focus on those corporate functions that I think are going to be quite critical to our continued growth and things like M&A and acquisition integration and our project management office, which plays a key role in helping to manage our most complex and.
And most strategic and critical programs and a variety of other functions I just think James.
So for me to allow the how that external focus and for have somebody take on those roles James was a terrific candidate.
Obviously understands the company he is.
And I think he this is very well suited to his skills and has capabilities have great deal of trust and confidence in James So.
So it is a new position it has a more of a corporate focus on some of those key functions that are a critical to our growth.
And I'm really pleased that James Bennett and it's also.
We brought a teen onboard she's been here for six months I think she's.
Terrific, a background and skills and capabilities and I really expect it will be a seamless transition as James steps into this new Roland and Bettina takes over CFO.
Okay, Great. That's all I had and congrats to everyone on their new roles.
From Sidoti we have Marc Riddick. Please go ahead.
Hi, good evening.
Wanted to touch a little bit on a if you could share some greater details around with H.C.G. I think you mentioned that there about.
3700, 38% of revenue.
Sort of be being outsourced and that it was there's the opportunity to sort of bring.
Some of that work in house I was wondering if you could sort of delve a little bit deeper into that and talk about what you feel b B b.
Potential upside is there maybe what percentage you could bring it down to where it may be what type of timeframe that you think might be attainable with those efforts.
So just to clarify it yet no happy to do that so.
So of their total revenues that 30% a subcontract out right. So Dave the subcontractor it out to other firms.
I think they have given our his skills and capabilities in the professionals. We have heard I CF I think over time, we could probably in source.
Bring in house, perhaps 10 of that 30%.
And I think as we do the work.
First I think it.
And it will be more profitable. It's also allows us to been built skills.
More profitable then.
To the all relevant to them.
Subcontracted out to another firm and it also allows us to build those skills and capability inside the from which we didn't can leverage on the proposals. So I would say about a third of it.
Overtime.
And is that based on sort of where you are now from a personnel standpoint, or do you anticipate sort of adding in that and Matt and those capacities over the next couple of years, So well I think it'll be both I mean, I think obviously, we're looking for it so short term.
When if we can deploy people who have.
Capacity on existing growth to have and so we'll certainly to do that.
And then over time as we add more folks will will consider.
Well certainly go that route to.
Okay, and then switching back over to the initial work that you're doing we're burning grew learners with the CDC I was wondering if it.
Maybe a little difficult to see this from the outside looking in but do you get the sense that maybe with increased focus on these projects is there any risks that you see with some other projects that might sort of be put on the back burner or.
Hello.
Prior to getting added funding.
You know have to be sources of funding from other projects that you may be working around is there any type of color that you might get from that as of yet.
Yes, I don't I don't think.
We're not concerned that.
Dollars on other key public health issues were working on will.
If we shifted to Corona advice and our efforts on the their public health issues will be diminished or.
Or put on hold.
General experiences.
You know that will not be the case and so I certainly don't have any expectation of that.
Right.
Okay and then finally, it's just wanted to get a general thought around a corporate headcount as we go into 2020 and beyond and sort of maybe what your what you're thinking might be the.
From that planning standpoint thanks.
I think as we've talked about I mean, we're obviously a people business and so if our.
In round numbers of our service revenue increased 10% that's the work that we do.
We always are looking to get to more leverage out of our existing staff and raise utilization, but I mean realistically if as we grow which is a good thing we have to add or staff and so if a growing 10%.
It will will need to add.
Eight to half or 9%.
More staff.
Overtime to to deliver that growth, but we're always looking for ways to get the most out of the staff we have as we as we grow.
I appreciate it thank you very much.
And once again, if you do have a question. Please tell star one new telephone keypad and we do have a follow up from Suntrust. We have Tobey Sommer. Please go ahead.
Thanks.
In the mitigation arena could you compare and contrast your.
Competitive set for that business versus more traditional.
Reconstruction work and then.
So doing could you.
It's kind of characterize your condition mitigation.
Different fashion, either better or worse or at the same as you start to but I'm just kind of projects more often.
I would say that we the competitive set is similar to disaster recovery, we see.
More niche oriented consulting firms.
That don't have the scale of ice half but have.
Expertise similar CF.
On the community development block Grant and.
Front, we see the larger engineering firms and we'll see the larger program management firms I would say that I think our competitive position on mitigation is stronger.
And.
And when you compare it to the more traditional housing disaster recovery and Thats not to say, we think we have a very strong seek recovery position at our market leader, but I think what we can add on that front.
Tobey is we just bring it's the climate and resiliency experience and experiences and expertise which are highly relevant to what.
[music].
What this mitigation of funding is now.
Focused on it and through those efforts and we've been doing effort 20 to 25 years.
The climate and resiliency work.
And we've been doing that as scale for federal agencies.
In state and local agencies and now we're increasingly do it for.
Regulated utilities, who I think we've talked about or.
More and more focused on.
Resiliency in their work and how do they protect their their assets many of these.
Many utilities are adding that business and chief Resiliency officer.
And so we can bring that broad perspective to the mitigates work and project level experience and so.
And so I do think on the mitigation front were.
We're.
Were very strong competitively.
And we have we have at scale, we have terrific people.
And we have terrific past performance and so I think we really.
It is a significant upper 20 for us and I mean anything we bring as we bring significant thought leadership I mean, we can we've we've looked at from from all angles.
So.
Thank you very much.
And we have no further questions at this time, we'll now turn it back to CEO, John Watson for closing comments.
Okay. Thank you for participating in today's call. We look forward to seeing you add upcoming conferences. Thank you.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for joining you may now disconnect.