Q4 2020 Earnings Call
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Good afternoon, and welcome to S.A., I see fourth quarter and full fiscal year 2020 earnings call.
At this time I would like to turn the conference call over the Shanken extra let's say I see Vice President of Investor Relations. Please go ahead Sir.
Good afternoon, My name machine can extra CRC, Vice President of Investor Relations and thank you for joining our fourth quarter and full fiscal year 2020 earnings call.
Joining me today to discuss our business in financial results are not as a team FDIC as Chief Executive Officer, and Charlie Mathis, Our Chief Financial Officer.
This afternoon, we issued our earnings release, which can be found that investors see I see dot com.
Where are you also find supplemental financial presentation slides do we utilized in conjunction with today's call.
So these documents in addition to our form 10-K, Tim you filed soon should be utilized in evaluating our results and outlook along with information provided on todays call.
Please note that we may make forward looking statements on todays call that are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from statements made on this call I refer you to our SEC filings for a discussion of these risks, including the risk factor section of our annual report on form 10-K and quarterly reports on.
Form 10-Q.
In addition, the statements represent our views as of today and subsequent events may cause our views to change.
We may elect to update to forward looking statements at some point in the future, but we specifically disclaim any obligation to do so.
In addition, we will discuss non-GAAP financial measures and other metrics, which we believe provide useful information for investors and both our press release and supplemental financial presentation slides include reconciliations to the most comparable GAAP measures. It is now my pleasure to introduce our CEO nozzle keen.
Good afternoon, and thank you for joining us to discuss FDIC fourth quarter and full fiscal year 2020 results our outlook for fiscal year 2021, and the execution of our strategy to continue providing value to all of our stakeholders.
Actually I sees full year results reflect strong operational and financial performance as we successfully implemented many strategic initiatives to position the company for sustained profitable growth and long term value creation.
Charlie will provide details on the business development and financial results, but I would like to highlight a few areas of our strong performance in fiscal year 2020.
Actually I see delivered strong profitability and cash generations that met or exceeded the expectations that were set at the beginning of the year.
Compared to fiscal year 2019, FDIC improved adjusted EBITDA margins by 80 basis points and increased our free cash flow by $281 million to $437 million, representing 180% increase in the fiscal year.
Additionally, we are on track to generate over half a billion dollars in free cash flow in fiscal year 22.
We also had a very successful business development year with a book to Bill of 1.2 times with strong third and fourth quarters of 1.4 and 1.5, respectively.
Our work in the space and intelligence community has seen impressive recompete and new business contract wins accelerated by the ingenuity acquisition and integration.
It's a great example of our team's ability to embrace the exciting expanding opportunities that are available to FDIC as well as our steadfast focus to bring mission critical technologies and specialized expertise to our customers.
Last year's business development results positioned the company well for growth in fiscal year 2021, while increasing our pipeline of opportunities in our strategic markets.
This performance was accomplished while also integrating the agility acquisition and now further accelerating our strategy through the acquisition with Unisys Federal he was a busy year on many fronts and I'm very proud of FDIC has continued strong performance.
Turning to the market environment. The past few weeks have been challenging for our global community.
The spread of the Cobot 19 virus has altered many aspects of our collective and individual lives.
Im confident that as a nation, we will remain resilient and we'll overcome this challenge.
Our thoughts in sympathy is with all of those affected either directly or indirectly.
Now specific to FDIC due to the nature of our business, we have seen minimal impact to our operations to date and have proactively developed readiness plan should disruptions increase.
We already maintain and infrastructure that accommodates remote work for a significant number of employees when needed frequently allowing employees to support customer programs remotely.
Specific to our business the government services market is very resilient to challenges our federal government customer is largely less economically sensitive with a significant portion of the work we perform considered mission critical.
This frequently minimizes the impact of these types of disruptions.
We have honed our operational muscles from events like government shutdowns and weather related disruptions.
As the effects of Cobot 19 continue to unfold, we are likely to see some impact to our business, but we expect the impact to be very manageable the.
The government services market has long term contracts, a flexible operating model and cost structure and customers with stable funding levels.
As our team consistently meets and exceeds our customers' expectations. Another key element of our continued success is our ability to execute on our strategy.
We continue to focus on three strategic items that we have previously mentioned.
First with the successful integration of agility largely completed we have now pivoted to the successful integration of Unisys federal.
Second we look to accelerate sustained profitable growth by focusing investments in key strategic areas as well as leveraging new market access and capabilities from the agility and Unisys federal acquisitions.
And third every level of the organization is working diligently to when the war for talent, we have made improvements and investments in areas that directly enhance our employees work lives and provide attractive benefits to attract and retain high demand technology talent.
While the government works on fiscal year, 2021 budgets actually icees balanced and diversified portfolio provides great stability in the event there are shifts in individual agency funding.
The acquisition of Unisys Federal further balances and strengthens our customer base with increased federal civilian customer access.
All indications point to the us federal government continuing to allocate budget increases to areas, where FDIC is the leader and is strongly positioned for future growth such as space mission engineering and integration and it modernization as we've mentioned before these are the focus areas of our long term strategy.
We're excited to have closed the acquisition of Unisys Federal on March 13th we welcome the talented and mission driven Unisys federal employees to FDIC.
We are very excited to having joined the company and work with you to leverage a commercial style delivery model across our broad portfolio.
See I see is now a leading government services technology integrator in digital transformation with increased value creation through for dimensions.
First enhanced capabilities and government priority areas, including I.T. modernization cloud migration managed services and depth Tech ops.
Second and expanded portfolio of intellectual property and technology, driven offerings, enabling government tailored commercial based solutions.
Third increased access to current and new customers with a strong pipeline of new business opportunities.
And finally, an acquisition that is highly accretive across key financial metrics.
We're very proud of our success in the agility integration and have tremendous confidence in the successful integration of Unisys federal.
Just like the agility acquisition, we've spent considerable effort planning for the integration of Unisys federal leveraging our experience and processes to ensure a smooth transition for employees and customers.
Compared with the agility integration there are not as many milestones to communicate as it is a less complicated integration than agility, but we will communicate notable activities as they are accomplished we're off to a very strong start and we're very excited about the opportunities that are before us.
I'd like to ask Charlie to share our business development and financial results before taking your questions.
Thank you now sick and good afternoon, everyone FDIC fourth quarter and full fiscal year 2020 results reflect strong profitability and cash flow generation, while business development activity and the acquisition of Unisys Federal point to organic revenue and profit growth in fiscal 2021.
Let me start with their business development results contract award activity in the fourth quarter led to net bookings of $2.4 billion translating to a book to Bill of 1.5 for the quarter and 1.2 for the full year.
At our December call, we communicated our confidence in our strong fourth quarter book to Bill and how this quarter would be the strongest quarter of the year and we have delivered on that expectation.
Fourth quarter net bookings was comprised of a wide variety of contract awards and modifications, including $1.1 billion of space in National Security Awards, including the new business when of US Air Force common computing environment, our cloud one contract valued at seven.
$127 million.
We were also successful at retaining a classified space contract valued at approximately $265 million demonstrating our leadership in the space domain and our emphasis in this market.
US Army awarded FDIC, a new business contract award valued at $98 million for T support and see for ice services in the Pacific region.
FDIC was also successful and retaining a multiple award.
Contract with the pension benefit guarantee corporation to provide key operation support surfaces and have been awarded the first two task orders worth approximately $115 billion.
The remaining award activity in the fourth quarter was across many smaller contracts and contract modifications, but did include about $193 million of increased value and FDIC fees existing amcom portfolio.
Constraining, our continued performance and customer satisfaction.
Subsequent to the end of the quarter FDIC re secured two notable new business contracts that have been in protest resolution.
Protests were resolved in our favor on the US Air Force's 655 million dollar Eas contract and the 950 million dollar Fs Ci 80 contract to support the defense Logistics agency.
I'm also very pleased to announce that we were successful in the Recompete of our department of Justice asset forfeiture contract.
As a reminder, this is a significant recompete of a contract performed through a joint venture structure, where FDIC consolidates the financials.
The contract award is still in a potential protest period.
After a pro long award cycle, we're very excited to begin support to these customers.
At the end of the fourth quarter FDIC total contract backlog stood at approximately $15 billion.
With funded contract backlog of $3 billion.
The estimated value of FDIC submitted proposals awaiting award at the end of the fourth quarter was approximately $14.5 billion down from the third quarter and representative of a strong fourth quarter of awards.
Our pipeline is strong and robust and as we continue to focus on sustained profitable growth as Nancy mentioned.
With about half of the value of the submitted proposals relating to new business opportunities.
Our refresh strategy is better than ever aligned to service offerings focused on an organic growth strategy.
Let me turn to our financial results and I will primarily focus on FDIC fourth quarter performance.
With references to full year results in specific areas.
Our fourth quarter revenues of approximately $1.5 billion reflect growth of 29% as compared to the fourth quarter of last fiscal year due to revenues associated with the agility acquisition.
Excluding the impact of the agility acquisition fourth quarter revenues contracted year over year by 1% driven by the revenue dissynergies that affected us all year and will not reoccur in fiscal year 2021.
Full fiscal year 2020 revenue excluding acquisition revenues contracted approximately 1%.
But included an approximate 2% headwind from the revenue dis synergy, which again is a headwind we do not have in fiscal year 2021.
Fourth quarter, adjusted EBITDA was $134 million, a $39 million increase from the prior year.
Adjusted EBITDA margin equated to 8.7% after adjusting for $18 million of acquisition and integration costs, mostly related to the agility integration.
Fourth quarter margin performance was strong as we continued to see exceptional program performance and the continued benefit of the net cost synergies.
For the full fiscal year adjusted EBITDA margin was 8.4% 80 basis points above our prior fiscal year and at the top of our guided range for the year.
Again this was due to the same drivers I mentioned strong program performance and the benefit of cost synergies.
Acquisition, and integration costs were $18 million and $48 million for the quarter and fiscal year, respectively.
Vast majority of the fourth quarter amount was related to the agility integration activities with approximately $2 million related to the Unisys federal acquisition cost.
Net income for the fourth quarter was $60 million and diluted earnings per share was one dollar one for the quarter inclusive of the fourth quarter acquisition and integration cost of $18 million, excluding acquisition and integration cost as well as amortization of intangibles are.
Adjusted diluted earnings per share was $1.58.
Onetime favorable tax treatment as a result of research and development tax credit contributed about 16 cents to diluted EPS.
Our full year effective tax rate was approximately 20% lower than our previous expectation of 20% to 24% due to the had mentioned research and development tax credit.
Turning to free cash flow generation I'm pleased to report that FDIC generated $437 million to free cash flow exceeding our previously communicated expectation of $425 million and $281 million above our fiscal year 19 free cash flow.
Number.
We finished the year with cash on hand of $188 million and we continue to have tremendous confidence and our ability to generate cash.
To this point included in our release is the announcement that our board of directors has approved a quarterly dividend of 37 cents a share payable on April 24th to the shareholders of record on April nine.
We operate a very capital light business model that contains mostly variable cost and we receive almost all of our payments from the federal government.
Once pass the uncertainty of Cove at 19, our top priority with excess cash generation will be to make voluntary debt repayments. However for now we will maintain excess cash on the balance sheet for ongoing operations.
Now turning to our forward outlook for fiscal year 2021.
Prior to the Cobot 19 virus emerging we intended to provide formal fiscal year 2021 guidance.
Although we have seen minimal impact to date, we feel it is prudent to postpone issuing fiscal 21 guidance due to the uncertainty surrounding covert 19.
That being said, we would like to provide the investment community with the framework for how we viewed fiscal 21 before the cope at 19 issue emerged and some context on the resilience of Sci sees business model in this environment.
As you know this is a rapidly evolving issue. So these are our thoughts as of today for the consolidated business to include Unisys Federal for the 10 and a half months, we will own them in fiscal 21.
Prior to the emergence of covert 19, we believe we would grow revenues organically by 3% to 6%.
Adjusted EBITDA margins in the high 8% to 9% range a significant improvement over prior year adjusted EBITDA margins.
This excludes approximately $60 million of acquisition and integration costs, primarily as a result of unisys federal and trailing agility integration cost.
Free cash flow to be at least $450 million, which includes the tax adjusted impact of transaction related cash outflows.
Looking out farther and having cleared the co bed 19 crisis, we expect to achieve $550 million of free cash flow in fiscal year 22, as I communicated on the call to announced the acquisition of Unisys Federal.
Nothing has changed in the basic fundamentals of our company of the demand from our customers to alter that view, we continue to have confidence in that outlook and reaffirming today.
With this in mind, we expect to meet our targeted net leverage ratio of 3.0 times by the end of fiscal year 2022.
Again, I'm, providing this framework to demonstrate the fundamentals of our business remains strong.
We have a very flexible cost structure and have levers to mitigate empower silver profitability and cash flow.
While the vast majority of our employees continuing to work as normal or remotely a small number of employees insensitive work environments are working modified work schedules and we fully expect to recover cost of disruption.
With customers increasingly being flexible to remote work and the mission critical nature of our services. It is helpful to lessen the Cofins 19 impact.
I would like to reiterate a few of the financial benefits of acquiring unisys federal and the strength of our capital structure.
The acquisition is immediately accretive to organic growth.
Immediately accretive to adjusted EBITDA margins.
Immediately accretive to adjusted earnings per share.
Immediately accretive to cash generation, excluding transaction costs Unisys federal similar to FDIC as a very capital light business model, a flexible cost structure and the ability for approximately 80% of their employees to work remotely and their primary customer.
Is the U.S. government.
Currently we are able to manage the impacts of the co bed 19 crisis.
As of yesterday, our consolidated weekly billings and cash collections have been normal and our cash on hand remains well above our targeted level of $150 million. In addition, we have full access to our 400 billion dollar committed revolving credit facility and finally, we amended our accounts for.
Steve will purchase facility to allow us to raise another $100 million through the sale of receivables in the event we need to.
As noted in our press release today FDIC is a well capitalized company that primarily serves to us federal government, providing business stability through long term contracts.
Flexible cost structure, and a customer who's obligations to pay invoices are backed by the full fate and credit of us government.
See I see has ample liquidity and a strong capital structure to more than adequate service our debt obligations in the context of potential business impacts from the cobot 19 virus.
Now I'll turn it back to you for concluding remarks.
Thanks, Charlie.
As we concluded fiscal year 20, we spent some time, reflecting on how FDIC has transformed over the past few years.
Through the acquisitions of site tour in Chile, and Unisys federal as well as significant organic transformational activities. The company has markedly different than it was.
Our business portfolio has been strengthened and diversified our capabilities have advanced and broaden and we've made significant progress in all key financial metrics.
But as we all know it's about what will be doing moving forward.
Yes, we have taken these past few years have laid a solid foundation for a successful future and we're very excited for what lies ahead for FDIC.
In closing I want to express my sincere welcome to all of our new colleagues joining us as part of the Unisys federal acquisitions.
We are thrilled to have you as part of team FDIC.
And to all my FDIC colleagues I look forward to the time and we can all walk the halls together again and enjoyed in person conversation, but until then I wish you and your family's good health I. Appreciate all you do each and everyday for your company your colleagues and Youre nation.
Operator, we're now ready to take your questions.
At this time, if you would like to ask a question. Please press Star then the number one on your telephone keypad. If you would like to withdraw your question. Please press the pound cake and your first question comes from Edward Caso with Wells Fargo. Please go ahead.
Hi, Congrats here.
Can you talk a little bit more about.
How the contracting officers are being flexible or not flexible and current environment as far as.
Setting up or mode activity.
Willingness suggested willingness to.
Yes, we funded.
Back to the Blue gold issues, and so forth that give us some color on that front. Thanks.
Absolutely. Thanks.
So we have seen great.
Operationally collaboration from our customers.
And as well as the contracting officer.
Great conversations.
And to date, they've been very collaborative very supportive.
There's everything from flooding folks Paul were promote.
Looking for opportunities to do social distancing inside the facility.
Yeah.
Fourth them today.
Very pleased by all the interaction.
Okay, you mentioned the blue gold in the.
Parts of intelligence community the efforts to go to shift work to give some.
The thing and to be able to serve the mission is something we're navigating real time.
So certainly more conversations to be had there. It is the nature that contracted the cost plus.
Part the nature of those contracts or cost plus.
That provides the protection as well so.
So at this point as Charlie mentioned, we've had minimal impact.
But again, we know we're early in the cycle, we would expect over time to potentially.
More but the nature of the work that we do and flexibility that we have seen with our customers.
It can you talk a little bit about.
The military here, obviously, they are stopped travel there's sort of holding people on base is is that impacting your business.
As well.
So we are not really we've actually had very little impact from our deep portfolio.
So again, just working hand in hand, with the customer looking for the opportunity to do work either at home remote location.
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Well working with them on opportunities to provide more distant thing has all gone exceptionally well. So we've seen very very small impact from the customer today.
Okay.
Thank you.
Your next question comes from Sheila Kahyaoglu from Jefferies. Please go ahead.
Hi, Good afternoon, everyone. Thank you for the pictures on the slide deck I got the number with other people look like now that will appreciate Ed.
I guess for you.
Bill has been about one or the last quarter and what gives you confidence in the organic.
Revenue growth return and how do you think about the Recompete pipeline from here.
Great question. Thanks, Sheila So certainly the book to Bill as you mentioned being about one in the last two quarters.
I've been very strong and then so that gives us some confidence and then we've been talking about a handful of wins that are new business wins. So we've referenced cloud one we've referenced.
Just to give me some.
Some near term significant wins over the last quarter, so and so those are new business wins that will go into this year. So as Charlie mentioned as we did.
Our cycle for for putting together, our annual plan and in doing so.
We do have confidence in our ability to drive organic growth as we go into this year again, ignoring whatever potential impact.
19 could happen as we look at the business a core perspective going into the year, we had that confidence.
As we think about the Recompete pipeline, we've been talking about a couple of significant one going into this year. One was the FX, a recompete and and again as we noted that is one that has been awarded recognizing we're still on the protest period. So we'll continue to navigate that but that de risks.
Certainly some top line as we go into this year. The other significant one that we have been highlighting in talking to is.
Various re compete in the broader amcomp portfolio and and so those.
The re competed over course of several contracts.
Over the next several months.
Plus and so Thats certainly something we're paying close attention to again, we feel confident for our ability to retain our work there based on our history based on the excellent job that we do with that customer.
Based on past performance, but again, we we take every repeat very seriously and so we'll continue to navigate that and report out on that and those those two.
The broad amcomp portfolio, not one particular contract as well as yesterday, where the biggest one that would that we've been tracking going into this year.
Okay static.
If I could add just a couple points on the revenue topic as well.
As a reminder, do not have the revenue.
We had last year that was about 2% head.
And with the Unisys federal acquisition and with our expectation.
Yes.
More than 10%.
It will be accretive to our organic growth.
Well.
Yes.
Charlie.
Understood. Thank you and then surely maybe a static.
Thank you sorry about that go guys you talked about.
Margin expansion, Charlie should we still think about the unit this business as an 11% margin business then.
21 for you guys in.
The pro forma profitability are there any nuances, we should be aware of.
Yes. So the framework we gave on the margins was in the high 8% to 9%.
Great.
Thanks.
Prices, that's from the 8.4% than we just reported.
Units is federal will contribute 20 to 30 basis points you remember.
We going on on them and half months.
And then the FDIC portfolio given the additional cost synergies from agility should contribute another 20 to 30 basis points. So that's really the walk as far as you get to the higher margins in a quick 21.
Great. Thank you very much.
Yeah.
Are you able to here at okay.
Yes.
Your next question comes the line of Matt Sharpe with Morgan Stanley. Please go ahead.
Thanks, and good afternoon.
I just wanted to get a sense of how you guys are thinking about the cadence of business throughout the year just given the recent cloud won that SG 88.
Yes, when I know, you're not providing formal guidance, but you can just give us some sense because those raising wins, obviously imply a a very heavily weighted backend, but what does the ramp maybe look like.
Yeah, Matt this is not that can you hear us okay.
Yes again.
Okay, great. Thank you.
Yes, that's as you would expect having one significant contracts late in the year or early in this year.
For the most part they do frequently take time to ramp up and so so we would see in general as you outlined the ability to drive growth higher in the back half of the year than in the front half of the year just by the nature of the size of contract ramp up period and notes and the way those will come on to the overall portfolio. So I think.
That's a fair representation of how to look at it.
And then what is the Q1 book to Bill look likes thus far are you seeing any slowing up awards from the government. Obviously, you've had a flurry of big wins post quarter end, but maybe you could just started about box in the level of activity as well as what you expect in terms of the debate.
Great question. So it is early in the quarter obviously.
We.
As we have in years past Q1 can be a bit softer book to bill.
Just from our business cycle and so it wouldn't be extraordinary if we had a bit more softness at our first quarter, we haven't seen any significant delays as of yet regarding the cobot situation, but one one might expect as we get further in our quarter, we might see some slow down there. So it's something we're paying great attend.
And to.
We are tracking it on a regular basis, but I think a as a result of one historical performance in Q1 as well as this particular nuance.
I wouldn't be shocked to see some softness, but but it's not something were overly concerned about as we sit here today, because I believe that even if we do which again, it's too early to tell but even if we do I have confidence it'll pick up over the course of the year, assuming again that this this crisis gets behind us.
Got it thanks, and then Charlie just real quick on cash.
With that do you see moving from 80%, 90% progress payments, how should we think about the impact here in Q1 or are we going to see a surge level or.
What's the implication there.
There's not a lot of implication on our business.
Couple of contracts, but it's really not a material impact for us.
Got it thanks.
Your next question comes from Cai von Rumohr with Cowen and company. Please go ahead.
Yes, thank you very much.
I've run somewhere.
Units as a member of Leidos, you're seeing on and Jim could you give us some color in terms of how big that is and what sort of your ramp do you expect.
Yes, Thanks Kai.
Yes, that's true that it was a.
They were part of the team kind of pre pre FDIC.
Engagement and and obviously that's got to go through now is protest cycle, but they were part of the team are part of the team. It is a relatively small position, we wouldn't view it as a material impact and certainly as.
We will get halted slowed due to the.
Due to the slowdown.
Perfect to the protest cycle.
Okay.
Got it and then.
It's kind of intrigued by the the comments you made the debt was 2.9 billion cash was 155 million because I assume you pay a billion to float for unisys in those numbers time does imply.
Free cash flow in the first quarter.
160 million, a very strong first quarter free cash flow am I misreading that.
Yes, you are misreading that.
Okay.
It I'll go through a little bit.
1.2 billion was the purchase price.
We raised 600 million from terminal these.
And in 400 million senior unsecured notes. We also sold 200 million of of our accounts receivable. That's how we felt like dance the transaction.
Our free cash flow.
Really expected to be around $30 million to $40 million per month on average.
As well.
We'd expect.
The receivables.
That's great.
And so do you does your year dinos cash flow through the year.
I assume.
Matt.
We continue to use 200 million total receivables.
Yes, yes, we anticipate continued use $200 million of our accounts receivable.
We also amended our agreement so we can sell and then an additional 100 million.
If we needed to we don't anticipate that we will need to.
But it's there with the amended agreement and Thats part of the 8-K filing that you'll see today as well.
Terrific. Thank you very much.
Okay.
Your next question Seth Sigman with JP Morgan. Please go ahead.
Okay. Thanks, very much on get a good afternoon.
Just apologize if you guys brought this up but on the Unisys federal contribution for our fiscal 21.
It is thinking for the 10, a half months something in over in the range.
600 million.
So let me let me help you with that.
As you know they reported 725 million.
Ending December calendar here. Thanks.
All right, we expect them to grow 10%.
And we are going to report 10 in the half months of that number.
So that's how you should calculate the contribution.
Right Okay. Okay.
And then I guess.
When you think about maybe bridging a little bit from the cash by that you're looking for in fiscal 2001 to fiscal 2002, if we start at 450, and then we think about that.
The onetime costs associated with Unisys Federal after tax probably takes you out to 480 or something like that and then we think about bridging from that for 80 odd to 550.
Hello can you can you take us through some of the big.
Big chunks, there in terms of yes, hi, how you how you got there.
Yes so.
Be happy to to bridge. It. So again, we'll start at the fourth 50 the FDIC.
For those tenant half bunch unisys federal net of the interest expense.
Cash tax benefits adds about 50 million to that number so that sure that's your baseline.
For the onetime tax adjusted impacts of the transaction costs and some other onetime working capital adjustment that gets you back to the for 15.
So the baseline to get to the Fyfifteen F 22 really start.
At 500.
And then due to the higher growth higher margin portfolio Unisys Federal effect, we have them for a full year not cut in half months and then the additional tax benefits that they bring that's how you get to the 550.
Yes.
Great. Thank you very much thanks.
Your next question comes from Matt acreage with Barclays. Please go ahead.
Hi, Good afternoon, guys. Thanks for the question.
I was wondering if you could talk about the hiring environment right now given that a lot of people.
Sort of can't come out or you are you still hiring or is that any kind of or risk.
Look at returning to growth share.
Oh, Yeah. Good question, so we haven't seen any.
Any big swings and hiring at this juncture, we still have contracts, where we need to add people and we've talked about some of the ramp ups. So at this particular moment.
Certainly our hiring remains on track.
It is a competitive labor market and so we find that we've done several things inside the company to set ourselves apart and we'll continue to work on that.
So so at this moment again, where we're only a month month or sell into this crisis, we haven't seen any big change in our ability to higher.
Okay, Great and then I guess.
Just an update on the NGL city synergies route.
No. The targets you guys laid out are those all behind us and how much would you say you're able to achieve relative to the initial target.
Yes, well communicated Charlie can add some color, but as we communicated last quarter. We have the vast majority of those behind US. We do have some trailing synergies that will come into this year in the form of.
Real estate consolidations that we have plans that just took time to navigate and do some of the negotiations.
And a few small I T consolidations will take place this year, but the vast majority of those cost synergies are behind us.
Okay. Thanks, and then I guess, one mark just on interest expense I think he your talked about 135 million I think pretty you're now that you're.
Well they have some cash will there longer.
What's sort of the updated number we should expect for this year.
Yes, so we're looking at a run $125 million of interest expense for the year.
There's also 75 million.
Mandatory debt payments in the year.
As well.
So.
Yes, we are looking to not make additional voluntary payments that number I gave it was based on the mandatory payments.
So if we start making voluntary payments that number would come down, but we just think it's prudent to in this environment additional cash balance sheet for now.
Yeah. Thanks, that's helpful.
Your next question comes from Jon Raviv with Citi. Please go ahead. Your line is open.
Yes, Thank you and good afternoon, everyone, Hey, so now as it can just maybe a question for this whole issue leadership team.
Paradigm shifts don't come along too often in the federal government environment and I don't want to overstate anything it's still early quote unquote, but there are a lot of changes going on.
You've also identified public health is something you're interested in historically.
I'm not sure you have too much of it sitting here today. So what is your long term strategy to address what could be a restacking priorities for the federal government given the huge disruptions being caused by pandemic today.
Hi, John it's not so great question I think a couple of things that.
But I would just emphasize.
One is that we.
We have a great ability to to be agile and pivot when we need to be and the diversified portfolio allows for that flexibility now with that being said, we still fundamentally believe the areas that you know that we.
I have been focused on that we believe will drive growth will in fact continue to drive growth. So certainly space is one example of that the IP monetization and the digital transformation.
Strategy that actually I see has been on and now even further accelerated with the recent acquisition I think it's one that absolutely can create marketable difference for our federal customer our federal customers are also looking for the opportunity to work remotely two to find different mechanisms to do the work they need to do.
He is a true tremendous enabler of that capability. So that's just one example, where it might be a little different than we were thinking 30 days ago were 60 days ago, but it creates great opportunities. So.
So I do believe that were on the right track, but we will pivot if we need to our diversified portfolio access to a broad range of customers and the combination of our ita skills in our engineering skills as well as our DNA portfolio give us a strong position as you referenced the health space, you're absolutely right. We do not have a significant presence.
In a in the health.
Federal health market, but again, the levers of IP monetization that's required in the broad healthcare I T. Ralph It's a it's certainly top of mind and the solutions, we bring to American absolutely work in that domain as well. So we still believe we're very well positioned.
Will pivot and will be agile, we want to do everything in our power to help our nation and help the federal government through this crisis and in our relationship with our customers and the solutions, we bring to bear I am confident will be a an accelerant and provide that opportunity.
It's typically a sudden in this environment. So I'm not this environment in this industry that their relationships are key and that sometimes you require relationships and past performance, especially with certain clients rather than build it organically. If there is a bigger push into public health Federal health.
Just simply you Unisys enable you to kind of go there organically and say Hey, we have this commercial model you should utilize this or do you see yourselves, perhaps looking to a more they have a buy versus a make or more and more of a inorganic opportunity in the public health space going forward.
Well, so I think it certainly the.
The recent acquisition of Unisys federal coupled with the work that I see I see what's already doing and this brought IP monetization the migration to the cloud the digital transformation being able to do work.
Different.
Different venues is something that's absolutely critical for the brought health care market as well and so I do believe that solutions, we bring to bear there Ken can and will make a difference in the brought health care market now with that being said.
We have said before that you know access to the customers.
Having more domain and mission.
Experience in health care would be advantageous to FDIC, but we don't believe we need to do that at this minute, we're well positioned with the recent acquisition.
And and so our priority is to drive organic growth through the assets. We have today for the foreseeable future and I think we're positioned to do that.
Thanks, and then just a quick question on the current book of business, you mentioned that Amcom.
Seemed like Upsized and calm in the quarter by a little bit he's got a little more perspective on what that was in and I know, it's a big focus for the rest of the year kind of how you're seeing out of the customer make the decisions there.
Well, we had a bridge contract on one of our.
Contracts I think it's $130 million roughly 180 million.
Roughly in that range.
Just demonstrating the customer.
Relations that we have with that.
Customer we will.
No on the income Recompete sometime likely early summer.
Summertime I would think.
But I, we highlighted that would just began to to it you know there's activity going on we're continuing to get to get awards stolen.
Great relationships, there and we still are very positive about that region.
Correct.
Your next question comes from Tobey Sommer with Suntrust. Please go ahead.
Thank you I was wondering if you could compare and contrast.
Your experience in various government shutdown.
To the current environment with respect to maybe a few factors.
Contract Award.
Collection, they kind of what's you're experiencing India. So as it's not just your own.
Ability to work remotely, but also in many cases your customers.
How is that played out for you.
Yes, So I tell me this nontax so in general when we go work through a shutdown.
Dynamics are are very different actually that shutdown is because you know particular part of the government doesn't have funding and so we have to navigate it in that manner and so that means some cases.
Government can't work they can't let contracts they can't they can't pay a and so it does it really halt business in a different way that's what we're saying with this particular dynamic. This is not an economic issue. This is not an issue where the customers don't have the money and so there is a there is differences to the way it's.
Managed navigated on our side as well as our customer side and so today as Charlie mentioned, we've not seen a slowdown and being able to get paid we've not seen a slowdown in being able to do the work that we need to do a again, it's early days, but but we've not seen those dynamics.
As we would compare it to a shutdown.
And I wouldn't characterize.
[noise] different since any or kind of broad customer set.
Deo de versus intelligent versus the old customers are there.
Differences worth, noting when you look at the business across those dimensions.
Yes, so I think one of the easiest way to look at it and is in the intelligence community. As an example frequently not always but frequently the work has to be done and secure areas and so to the extent that those secure areas provide.
Challenge, whether they've been infected as an example that could happen or you're looking for social distancing that has a different nuance than being able to do work from home.
On a.
Type of work that doesn't have that same security requirement. So that's just one example, there is nuances there is differences.
But again, we've been very fortunate to date to be able to navigate those in partnership with our customer. So that we can continue to support the mission, but also ensure that we do everything in our power to protect our employees as well as swells customer employees.
Thanks last question for me or are you currently able to.
Foley higher and onboard and new employee remotely.
And if not is that something you're looking to be able to do in the near future.
No we can certainly do that today.
We.
It is something that we have done even before this we frequently we'll hire people in areas, where we don't have.
Don't have an office or we've got a very small office. So so it is something that we have done in the past and will continue to do as a normal course of business. Obviously it takes on a different flavor today, but it's something we're very comfortable doing.
Thank you.
Huh.
Your next question comes from Joseph Denardi with Stifel. Please go ahead.
Yeah. Thanks, good evening.
Charlie you're looking at about I guess a billion dollars in free cash flow over the next two years in the context in the $4 billion market cap for you all it pretty unusual for a business with the.
The year type durability and visibility. So can you talk about maybe a little bit how you think that is best deployed.
How much needs to go to debt pay down and what does that leave in terms of a dividend.
And then what's your preference for M&A and the buyback. Thank you.
Hi, Thanks, Thanks, Joe.
So our top priority is to pay down our debt.
We have de leverage target of three times by F. White 22.
So that is a top priority obviously preserving the dividend is something that we will.
We'll go to first and foremost.
There's no risk in the dividend.
And the additional cash we will have to evaluate this next year and we're in that position.
Of excess capacity and get within their leverage optimal capital structure.
We always look too.
Maximize so thanks for the shareholders.
Look strategically to add to.
Certain assets.
This type of thing.
So I think we'll evaluate it but again top priority is to de lever de lever rapidly and F. White 21.
Excess capacity that play 22.
And there's really.
Two.
Pay down or how much what what are your mandatory debt repayments I think you said at 75. This year do you have that number for for next year.
70 to 100 300 million next year.
About 100.
$10 million of interest expense, but the mandatory debt 100 million, we would look to pay down voluntary debt payments. This year I think it's about 250 million.
Ah, yes, whether we do that you know three months six months at the ended the year.
Oh it depends on when we get through this.
You know crisis.
But that's that's what we're looking to do to get to that leverage ratio.
Got it that's okay.
And then not as they just on the decision to not provide guidance and then a lot of companies aren't providing it. So it's not really unique in that sense, but you're also saying that your business isn't being impacted.
Currently so how much of this is just got out of an abundance of caution versus you know real concern or uncertainty they based on what you're hearing from customers that eventually there could be some.
From a disruption maybe just try and put that into context, a little bit. Thank you.
Yeah, No fair question. So I think a couple of thoughts so as Charlie outlined we did intend to provide some general guidance that was our that was our goal going into this particular, calling me, but communicating that over the course last few months. So so that was that that was our starting position and and certainly as we look at.
The impact of this Ah this crisis.
We have been we are fortunate we have not seen signet significant impact to date.
We're very you know we remain optimistic that we can navigate this certainly the indications are that we can but there is so much uncertainty and and so the way that you know as Charlie night thought about it. We just think it's the responsible position to be you know just be very transparent and that's to give you guys.
That's for what we what it looks like going into the year, but also to recognize that we are you now we are just a few weeks into something that can be a few more weeks or a few more money and and so we just believe this was the right balance of how to communicate what we know today as well as well we don't know today.
Thank you.
Your next question comes from God, and Parsons with Goldman Sachs. Please go ahead.
Hey, good afternoon.
Hi, Kevin.
Yes.
The bigger awards the new one.
Although that are about at the backlog.
Obviously is a a bit of a shorter oil duration than some appears to the right you've got a four to five year average duration you're going to have.
On the 25% Recompete a year so im in some of these under contract with longer durations are you continuing to mix that way over the next few years no. What do you think your duration looks like a few years from now.
Yeah, we in general Gavin we see it relatively unchanged you know if we think about the average duration for us is give or take five years.
Some are three summer seven we're seeing some at 10, so it but I was just assume that the general.
General average of five five years as we look at a contracts that we would be bidding on winning.
Got it and are you seeing industry.
Solodyn contracts say many benefits of scale on your ability to bid on bigger work.
So yes, so certainly in some areas of the business, we are saying that opportunity and and so being able to compete with the you know the exceptional past performance that we have a and to be able to pursue those sizable contracts is something that I'd say I see has historically done. So you know, we certainly had to scale in past performance.
Adding on the a unisys federal portfolio, certainly gives us greater strength.
And and capacity and the IP monetization digital transformation. So we feel very good about our position as it relates to the broad market.
Appreciate that and then maybe just.
Good good momentum throughout the sooner rather than a sequential improvement every quarter since acquiring agility. I know you said you put a lot of work and ahead of acquiring agility to make sure didnt disruptive bookings process, but maybe if you could do a look back and talk about.
The success, you've had accelerating book to bill and whether or not agility was initially more disruptive and you saw us. If you think this momentum can get them. Thanks.
[noise] there was a couple places where I couldn't quite get the question and I apologize for that but can you restate for me. Please I'd like to be able to address it.
Yeah. Thanks, Jeff just to look back on things and how that's improved an accelerated throughout the year.
Okay.
So I guess I'd say, we did see onto your point, we did see incremental each quarter.
General got better on the booking side.
I think a couple of things contributed that one is you know we we did a lot of work with the agility acquisition to strengthen our go to market position as the key markets. We've talked about in particular the until market in the space market. So as you would expect that takes time to get through.
Through the pulling together and they go to market team. The building of the pipeline and then being able to solidify that so so I think the early work was very positive and <unk> applying that same approach to the at the recent acquisition and again, we're only a little less than two weeks it but we've already gone through will work.
Through the.
The pipeline and ER and ensuring that we've got the right focus we've worked through the organizational dynamics of ensuring we have the right go to market team. So we try to do as much as humanly possible right out of the gate really focused on business development and go to market and pipeline development adjudication. So that is that is something that.
We learned.
We did it well within Jody I will do it.
Even better with Unisys federal as we continue to learn as an organization, but that is a priority of hours right out of the shoot when we do acquisition.
Thanks.
Your next question comes from Josh Sullivan with Benchmark Company. Please go ahead.
Good afternoon.
I'm just in the prepared remarks, you know you talked a little bit about potential shifts and funding.
Can you just expand on that you know where that might happen first are you seeing those shifts accelerate in any way in any particular vertical at this point.
No there so there's nothing in particular aside from what may or may not happen with regard to the.
19 situation, yeah that the remarks were really around the fact that we have a very diversified portfolio. You know certainly we are you know we have the potential of having an administration change later this year and sometimes you know that does yeah. It does create an opportunity to drive more money wonder.
Section or the other but again, we believe that that really is a strength, especially I see because the diversification and so it was really just a statement to say that to either navigating through this particular.
Crisis, which obviously is going to have some short term budget flows with regard to some of the stimulus bill or long term as the priorities. The nation may change and we believe were exceptionally well positioned to because of diversification not in our not just in the customer base and what we do and what we deliver in support of our customers mission.
Got it people appreciate that [laughter] and then just as far as exposure to the Afghanistan theater at this point as the drawdown accelerates. There is there's still material exposure there or you just highlight though no.
No we do not have any material exposure there.
Okay. Thank you.
Okay.
Hi, there no further questions at this time I'll turn the call that Duchaine canasta for closing remarks.
Thank you as we conclude I'd like to announce that our annual shareholder meeting will take place on June 3rd similar to last year, we will be conducting a virtual shareholder meeting whereby shareholders will participate online.
Instructions on how to participate virtually will be included with the proxy voting ballot as well as our investor website.
Thank you very much of your participation in FDIC is fourth quarter full fiscal year 2020 earnings call. This includes the call me. Thank you for your continued interest in FDIC.
This concludes today's conference call you may now disconnect.
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