Q1 2020 Earnings Call
Good morning, everyone. At this time I would like to welcome everyone should its way he 21st quarter Parsons Corporate Corporation earnings Conference call. All lines have been please a need to prevent any background noise. There will be a question and answer session. If you would like to ask question. During this time.
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Thank you good morning, and thank you for joining us today to discuss our first quarter 2020 financial result, please note that we provide a presentation slides on the Investor Relations section of website on the call with me today are Chuck Carrington, Chairman and CEO, George Ball, CFO, and Kerry Smith, President and chief of.
Operating officer.
Today, Chuck will discuss execution against our corporate strategy George will provide an overview of our first quarter financial results and then Kerry will review our operational highlights. We then we'll close with a question and answer session.
Management May also make forward looking statements during the call regarding future events anticipated future trends and the anticipated future performance of the company. We caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict.
Actual results may differ materially from those projected in the forward looking statements due to a variety of factors.
These risk factors are described in our form 10-K for fiscal year ended December 31, 2009 gene and other SEC filings. Please refer to our earnings press release for Parsons complete forward looking statement disclosure, we do not undertake any obligation to update forward looking statements.
Management will also make reference to non-GAAP financial measures. During this call. We remind you that these non-GAAP financial measures are not a substitute for their comparable GAAP measures and now we'll turn the call over to Chuck.
Thank you Dave.
Welcome to Parsons first quarter 2020 earnings call first I want it spreads our deepest sympathies for everyone. It's been impacted by the covert 19 pandemic.
This outbreak has been a tragic event is taking the lives of many individuals and further disrupted the health of many more.
Cobot 19 has had varying impacts the families and businesses around the world.
It reminds us that the Tru measure of humankind is not our responses in times of normalcy.
And how we rise to the challenges of adversity.
Yeah Parsons, we've been very fortunate to have had minimal impact to both our financials and staffing as a result of cobot 19.
Those impacts it did a rise were compensated by offsetting increases in other areas is billable hours had been down by less than 2%.
And cold pit Kobin impacted revenues were down approximately one person.
Where impacts did occur our customers had been in communications with us on the plans and processes to returning to work in a safe manner consistent with CDC guidelines.
We recognize we're working in a fluid planning environment, we assume the environment will continue to evolve as we progressed through this pandemic.
And were scenario planning accordingly, as I stated earlier, we're fortunate that we've not experienced any material contract delays or cancellations, nor major displacement of our employees. Our customers have been supported during its public health emergency and new connected policies to maintain your mission critical programs.
From the federal government perspective, the carriers Act legislation is an effective tool against lost productivity. It enables agencies to reimburse contractors that have employees, who cannot work on a full time basis due to work site closures or remote work policies are personnel quarantined.
And Additionally, the department of defense identified or industries mission critical and that is felt as well.
These efforts enacted by our customers are beneficial to our nation first they allow the federal government defense industrial base of highly specialized technical and management personnel to remain employed.
Also allow the defense industrial base employers to remain financially stable, perhaps most importantly, it's allowed our national security you'd be maintained in the ongoing competition for cyber space and missile defense supremacy.
Regarding critical infrastructure, given the large and complex nature of our projects the overwhelming predominance of our programs have been deemed mission essential to date.
These projects approved the safety security mobility and healthy lifestyles for residents.
All contributing to each regions future economic growth.
Internally, we proactively refer actively addressing the realized and potential impacts to our programs from coated 19.
In partnership with our customers, we promoted telework insured contractual coverage and redeployed resources.
As I stated previously today. This has resulted in immaterial impacts to our billable hours and it's not impacted ongoing integration of our most recent acquisition, we continue to identify opportunities to further align our overhead investments with our strategy.
While growing our business development and bid and proposal budgets.
We flextor policies and programs to maximize benefits to our employees.
The President's 2021 defense budget request released in February continues to align with our strategy.
Parsons primary core carat competencies in artificial intelligence and machine learning cyber Hypersonics space and missile defense. We're all prioritizing appear to have bipartisan support for funding.
Authorization in appropriations still need to occur, but we're encouraged by current congressional support and our position in these key markets and technologies.
Now I'll move to our first quarter financial results, we reported record first quarter revenue.
Chief profitability above our internal Q1 plan one high end work in our federal solutions market and invested in our people processes and technologies.
In addition, we continue to maintain one of the strongest balance sheets in the industry.
In terms of our first quarter financial results, we delivered total revenue growth of 7%, which includes organic growth of 11% in federal solutions in 2.5% and critical infrastructure, which were all ahead of our internal plan.
We also achieved an adjusted EBITDA margin of 6.2%, which although below Q4 2019 exceeded our internal plan as the first quarter of each year is historically been our lowest margin quarter and a book to Bill ratio of 1.0 times, which was driven by 1.3 times in federal solutions.
Parsons first quarter is historically, our lightest revenue and adjusted EBITDA quarter.
This is generally due to lower award fees seasonality ramping up of new contracts.
Combined with the overhead expenditures, we we invest in to make sure that our teams are aligned both strategically and operationally for the upcoming year.
The revenue impact from co bid were approximately 1% of revenue and were offset by strong execution of our contracts and recently won new business.
We reported our second consecutive quarter, a double digit organic revenue growth in our federal solutions business and we're maintaining our guidance issued earlier this year.
Our balanced and diversified portfolio has been and we'll continue to be a strength.
Our revenue is now almost evenly split between our two businesses and we have financially stable government customers in both segments.
Our federal solutions team continued to execute well by winning key pursuits in posting strong when rates.
We won three single award contracts of approximately $100 million, each and other classified cyber contracts.
Additionally, we had important contract wins in our critical infrastructure business in both mobility solutions and connected communities markets.
As we indicated our conference call last quarter.
We're increasing our investments in our people processes and technologies in 2020.
This will ensure we maintain our competitive edge in higher growth and higher margin markets that collectively drive our future growth.
We're investing in critical areas to drive growth, including business development research and development and recruiting retention and training of our talented employees.
Additionally, we have recently added key federal solutions executives to support and accelerate our growth in strategic markets.
We strategically maintained our strong balance sheet by being selective in our M&A targets in prudent in our strategic investments.
As a result, we've maintained low leverage in over $400 million of Undrawn revolver capacity.
Our strong financial position combined with our deep backlog positions us well to whether it's cold at 19 uncertainties.
A key aspect of Parsons culture is our commitment to core values.
In recognition of our commitment to integrity and innovation Parsons is once again recognized for its ethics and I T leadership for the 11th consecutive year Ethisphere, a global leader in defending and band and defining and advancing the standards that ethical business practices named Parsons is one of the 2020 world's most ethical companies.
We were also named to the CIO listed the world's 100, most innovative companies.
Building on these core values I'm truly inspired by the support our employees that provided to our communities and customers. During these challenging times, our president and Chief operating Officer Kerry Smith will discuss our focus on the safety well being of our employees and the development and deployment of new market solutions that have resulted.
Cobot 19.
These capabilities.
Will help in what we and many others are referring to as the new abnormal operating environment as well as in any future pandemic crises.
You pit amazing our core values in safety innovation I'm, so proud of the parts and his team of employees across the us that initiated an effort to print threed face masks for both our employees and health care professionals.
These mask, our employee safe, while enabling them to perform our customers critical missions.
I am also grateful for our team working with the municipal client is sanitize public areas to help prevent the spread of covert 19.
At Parsons.
Poise have always been the foundation of our 75 year history of excellence and we look forward to up holding that legacy during covert 19, and fulfilling our corporate purpose of delivering a better world.
Finally, I want to highlight the corporate social responsibility report, we published on Earth Day April 22nd.
Our CSR an integral part of our corporate culture is closely tied to our core value sustainability into our corporate mission to delivering a better world.
This report illustrates our committed to successfully get delivering on our customers missions, while reducing our carbon impact improving society through our charitable support our inclusion and diversity initiatives and by adhering to the highest level of ethical standards.
In summary, we had a solid first quarter.
We reported strong organic revenue growth achieved profitability results ahead of our internal plan one significant large in high end technical contracts invested in our people processes and technologies and maintained our strong balance sheet.
I'm also very proud of our employees is in times of turbulence when true leaders emerge and I'm thankful for the way the Parsons team has risen to the challenge and protected our communities, while delivering on our customers missions with that I'll turn the call over to our Chief Financial Officer, George Ball to discuss our first quarter for.
The annual highlights George.
Thank you Chuck and good morning, everyone.
Today organize my remarks into five key areas.
I'm statement cash flow results or balance sheet contract awards in 2020 goods.
Also discuss certain financial metrics on an adjusted non-GAAP basis, we're doing so provides a meaningful comparisons for financial results.
The circuit indicated we had a solid first quarter.
Reported revenue profitability results that exceeded our internal expectations.
Total revenues for the first quarter grew 7%.
With strong organic revenue growth of 7% as compared to the first quarter of 29 sand.
Driven largely by federal solutions, which achieved organic growth of 11%.
Jeff based indirect this DNA expenses increased $6 million from the first quarter 29 cents.
This increase was due primarily to additional costs associated with strategic growth initiatives.
Pact of acquisitions, including increased intangible asset amortization expenses.
The company costs as well as various positive overhead adjustments, which occurred in the first quarter of 2019.
But did not recur in this year's first quarter.
These increases were offset by a reversal of approximately $8 million.
Accrued compensation costs related to legacy equity based programs linked to changes in the company sure Chris.
GAAP earnings per share from quarter increased to 13 cents per share.
And adjusted EPS decreased to 33 cents.
Adjusted EBITDA of 60 million represents the 12 million dollar.
Represents a decrease of $12 million from last year, and adjusted EBITDA margin decreased 6.2%.
I'll turn now to operating segments, starting first with federal solutions.
First quarter revenue grew 13% year over year.
This increase was due to organic growth of 11%.
As well as contributions from recent acquisitions.
Total solutions adjusted EBITDA decreased $9 million from the prior year quarter.
And our adjusted EBITDA margin decreased 9.6%, 6.6%.
These decreases were driven primarily by an increase in volume on contracts with higher.
Subcontractor and material costs.
And an increase in this June expenses.
Due in large part various favorable overhead adjustments, which occurred in the first quarter of 2019.
But did not recur in the current your quarter.
Now a few words regarding our critical infrastructure segment.
First quarter organic revenue grew to 2.5% year over year.
Driven by on contract growth.
Critical infrastructure, adjusted EBITDA decreased by $3 million and adjusted EBITDA margins decreased from 6.5% to 5.8%.
These decreases were driven primarily by lower equity in earnings from unconsolidated joint ventures, and the current year quarter.
Next I'll discuss cash flow and balance sheet metrics.
Do you or do you have so at March 31st 2020 stands at 64 days.
Compared to 61 days have begun to first quarter 2019.
55 days as of December 31, 2019.
During the first quarter of 2020, we used $119 million in operating cash flow.
Compared to reduce of $60 million in the prior year period.
The increase in outflows driven primarily by payment of previously disclosed.
Legacy long term incentive compensation plans.
Linked to the company share for us.
Operating cash flow was also impacted to a lesser degree.
By slower than anticipated collections in our federal solutions segment.
And that in the middle east than our critical infrastructure segment.
Capital expenditures totaled $13 million in the first quarter of 2020 inline with expectations.
As noted by Chuck in his opening remarks or balance sheet remains very strong.
At the end of the first quarter gross and net debt were 314 million and $195 million respectively.
As we ended the quarter with a net leverage ratio of zero when a six times.
We closed the quarter with over $400 million of Undrawn capacity on our revolver.
That are in the San position as of today.
Regarding awards, we reported contract awards of $966 million in the first quarter.
Presenting a book to Bill virtue of 1.0 times.
On a trailing 12 month basis or book to Bill ratio was also 1.0.
Our backlog at the ended first quarter totaled $7.8 billion.
Representing approximately two years revenue at our current run rate.
Now, let's turn to our guidance.
We are reiterating all of our 2020 guidance ranges provided a march to as outlined in our earnings press release issued this morning.
We expect to achieve these results on the strength of continued organic growth and our federal solutions segment.
Recognition of higher performance award fees across the entire portfolio.
And targeted cost reductions centered in our critical infrastructure segment.
With that I'll turn the call over to carry.
Some of our first quarter operational highlights.
Sure.
Thank you George as Chuck in charge indicated we had a solid first quarter.
Pressed by the actions our employees have taken the stay safe to help our communities and to deliver on our customers mission.
We've been proactively monitoring and managing the cobot 19 situation and holding daily corporate response management team meeting since January we mobilized quickly to ensure the safety and health of our employees establish contractual coverage and still accomplished our customers critical mission requirements.
Well cover two areas related to cobot 19.
First how we're handling operations and second new business opportunities. Both in response to their current pandemic infer preparation or response to future appear that mix or bio threats.
From an employee perspective, we've been protecting the health and wellbeing of our employees and enabling them to work productively from remote locations.
Across persons, we produced and delivered over 1003 D printing face masks to protect our employees and donate to local health care providers.
In addition, we increased the frequency for sanitizing facilities redeployed stuff that were impacted by a lack of customer work and enhance fleece policies.
We deploy and information technology equipment, and now nearly 90% of our stuff is working remotely.
And finally, we Virtualized, our security operations Center enhanced our cyber security protection uninsured continuity of operations across the portfolio.
From a business process perspective, our programs have been largely classified as mission essential and we've obtained permission for remote work.
Working with our customers weve venture contractual coverage and closely monitor potential program impacts inline with the federal state and local guidelines.
And importantly, we continue to look to deliver on our customers critical missions, including our second successful small satellite launch manifested what's an advanced extremely high frequency satellite.
Many of our customers have recognized our employees performance for going above and beyond and response challenges presented by cobot, 19th and I'm very proud of our entire team.
From an opportunity perspective, we were awarded several cobot night team related projects.
We are particularly proud of our work to provide personal protective equipment US a service friend 95 mask decontamination and our deployment or virtual transportation management shutters.
We're also focused on providing solutions to meet our customers' needs in a post cobot 19 crisis world to ensure people can return to a safe living I'm work environment as soon as possible.
Our offerings organized into four areas.
Touchless screening solutions and virus testing.
Bios surveillance.
Our protection and digital transformation.
Persons mission is to deliver a better world and our detect twice suite of offerings, what reinvent the entire personal screening experience through system integration of best of breed emerging technologies data analytics and artificial intelligence.
Our solution will help the public feel safe to travel through airports attend a bed and interpublic building.
The Tech why sweeter products includes touchless health screening kiosk.
Mobile virus testing laboratory ended decontamination so today.
With partners for developing a scalable nationwide I T architecture for monitoring individuals tester for cobot, 19th and essentially solution to monitor it detect bio house search.
Our cyber protection solutions that have been developed for intelligence and defense customers have synergistic application to a variety of critical infrastructure sector.
Such as energy transportation and healthcare.
This infrastructure must be even more secure in the future given the evolving an increasing cyber threats.
Finally, our virtual centers, including traffic management and security and emergency operations are increasingly deployed in our digitally transform society and will benefit Acos Cobot world.
As Chuck indicated we want to single award contracts worth over 100 million in the first quarter.
The first was with the classified customer for physical security work and is valued at approximately 180 million.
The second what's the General services Administration special programs Division contract for 109 million to provide program design and construction management services for a wide variety of federal customers.
I would also note that we have six additional single word pursuits worth 100 million or Mark that are awaiting contract award.
Other notable first quarter contract wins include a contract valued at 91 million with Air Force Research laboratory to perform onsite testing training enhancement modifications and technology deployment.
Classify contracts valued collectively at 60 million to provide cyber operational software default network security assessment and protection of sophisticated systems and critical infrastructure.
And numerous advanced traffic management system contracts throughout North America.
Our strong organic growth is being driven by our alignment to the national defense strategy and growing enduring markets, including cyber space missile defense and Sci Fi bias. Our these are supported by the approximates 2021 budget.
In addition, our demonstrated ability to win large new contracts deliver strong when rates and perform at our programs is also driving organic growth.
And finally as announced last quarter, we've recently realigned our organization into six markets to drive business growth and execution in 2020 and beyond.
This structure is driving increased collaboration across our two business segments as evidenced by the recent introduction up our flow for Cobot 19, one Parsons campaigns that I just discussed.
We're fortunate to have a balanced and diversified portfolio as we pursue cobot night teamwork and large critical infrastructure contracts within the federal government.
Such as the Boutros Army airfield program, the Antarctica infrastructure modernization program. The department of Energy Hanford Mission essential services joint venture contract and the ground based strategic to truck program.
We've also been able to apply our federal solution cyber video and data analytics, and geospatial technology and the critical infrastructure market.
This strong cross pollinization between our two business segments has enabled us to win larger contracts and increase when rates.
In summary, our team continues to execute well and I'm proud of our many accomplishments we achieved our revenue and profitability objectives, one large strategic contracts kept our employee safe and employed during cobot 19.
Developed new Cobot, 19 solutions that will help our communities and our customers and optimized our organizational structure to drive additional growth.
With that I'll turn it back over to Chuck.
Thank you Gary.
To summarize we had a successful first quarter with record revenue and significant high in contract wins.
In addition, we have a strong balance sheet, we will continue to use to further invest in our business and whether these cobot 19 uncertainties.
As I indicated my opening remarks, I'm extremely proud of the way our team members, who stepped up to help our communities and customers. During these challenging times and delivered on their financial targets now we'll open up the line for questions.
At this time I would like to remind everyone in order to ask the question Chris toward into number one on your telephone keypad.
Yes, Thats star one on your telephone keypad will possibly just some movements Alex you any roster.
Yes.
Alright first question.
Comps from Ms. Sheila Kahyaoglu.
Your line is kind of thing hi, good morning, everyone and thank you for the time.
Tucker carry maybe this one's for you I'm in terms of Fs, you know just consistent double digit organic growth for the second quarter in a row I think book to Bill was 1.3.
How do you view sustainable organic growth and maybe can you just talk about the recent awards and ramp on newer programs.
Yes, Thank you Sheila.
Yeah, we are continuing to see strong proposal activity.
On our win rates have been.
Very very blessed with very good win rates. So we continue to see strong growth in that market I think that's.
At least partially due to the fact that were aligned with.
National defense priorities of cyber and.
Obviously space with what's going on air and missile defense combined with the technologies were involved when are the technologies that our customers. We're all looking for AI and machine learning on in the systems cloud computing and Aiotv. So we expect that growth continue in in terms of the pipeline a winds I'll let carrie.
Address that Gary.
Thanks, Chuck Sheila I would reiterate what Chuck said the star second consecutive quarter of double digit federal organic growth. We obviously have a strong book to bill of 1.2, X. I think that shows our strong competitive market advantage. So I'll highlight a couple of our recent wins, we were awarded the coupon program with Merrill Lynch.
Procurement office and it is currently under protest, but we were awarded the contract and we are performing and executing on that contract. That's a critical went for us because we're doing physical security engineering design documentation software and hardware development across the MTO site. We also were awarded last year the combatant command Ms.
I couldn't support contract for 590 million for cyber operations, our largest fiber contract ever we saw that contract ramp up as we started the first quarter as this year likewise in our pivot to the Pacific strategy. We were awarded the Quach live Boutros, our mayor feel contracts over 200 million and that's enabled us to.
Ramp up growth there some other seifert wins that we had this quarter, our dark Patriot, which is a multiple award contract. We were successful in winning the first task order released for cyber and operational software development. We were awarded to classify contract for infested water switches security assessment and protection of systems.
And our contract that is classified calc lochinvar, all of which is cyber security capability development. So I think we continue to see our differentiation in these key emerging and growing markets.
Thank you that's very helpful. And then on margins you talked about Q1 being in line with your internal plan and it's always a seasonally weaker quarter can you. It does imply some ramp in the second or the remaining three quarters can you talk about some of the margin drivers, whether it's in direct or mix that improves the profitability profile.
Sure Yeah, it's really a combination of the couple of things the first quarter of the year is when we do a lot of intensive.
Planning and getting our teams in line and Alon aligned with our strategy and also with our operating plants. So our SDMA or I DNA are generally higher in the first quarter than they are in other quarters.
We've seen a.
A lot of growth a lot of new contracts ramping so and those contracts that are coming onboard are all higher margins.
This particular quarter, we also had.
A little bump in pass through revenues, which tended to push down our margins a bit from that perspective.
And generally the first quarter of every year is kind of a repeat incurrence just like the overhead. We don't generally have higher performance related revenues are fees, so that tends to come more in Q3 Q4.
And so the combination of those.
Factors is what has driven our margin down in Q1 traditionally.
As Carey mentioned, we have quite a few programs that are ramping right now and those programs again are all very strong margin and we do expect higher award performance fees as we look into downstream quarters.
In addition to that as we mentioned we continue to integrate our acquisitions and also to align our overhead structure with our strategic focus. So we also made some reductions which were planned reductions in this quarter and and those really start to kick in in Q2 and will be.
Fully deployed in Q3 in Q4 carries or any additional color that you'd like to add to that.
Yeah. Thanks, Chuck as truck indicate we have some major programs, they're ramping up that have a higher labor component in particular to classified higher labor margin contracts to bus and one other that are with the intelligence community.
We were also recently awarded the Hanford joint venture for the mission services contract as we are a minority partner that is a pure profit equity for the our company and on that combatant command and the first quarter as part of the ramp up we had additional heavy material, which we will not see that's converting to a higher labor.
Component as we go into the next quarter. We also expect to see an increase in our equity in earnings the profits from our unconsolidated joint ventures as we move forward.
Thank you.
Thank you Sheila.
Your next question comes from Mr. Joseph Denardi.
Sir Your line is now open.
Thanks, Good morning.
So I appreciate you guys, maintaining the guy I'm wondering as how you're thinking about 10 to 2021 or 2022 has changed all just at least internally because it was what's happening not necessarily the lead.
Spending priorities, but.
Does work that you're expecting.
To be awarded not get done and so the impact is maybe less than you would expect now and it starts to show up more next year.
Or your thoughts there.
Yeah, I think doors.
Seeing things go both ways, we've seen a couple of contracts that have moved out some of those contracts that moved out have move come back into this year.
In fact got accelerated so in terms of trying to see a long term trend that would indicate negativity no I don't don't see that.
On a critical infrastructure side again, because the contracts. We do are generally bond funded long term, we George and I were.
Leaving the company through the global financial crisis, we Didnt see cancellations, there either or with oil price up and down I think you probably could expect to see some delays of newer contracts in those areas, but given our pivot to more digital solutions.
At this point, we're not predicting material changes to 2021 or 2022.
George any color that you'd like to add to that.
Yes.
That being said the we saw a lot of the same factors in the group's financial crisis. Good I would add is really soon a significant pickup and emergency response work.
And from the standpoint it works.
So I think as we move through.
No the reopening of the economy.
A lot of the things, we do relative to that part of the business or technology base.
I think we'll probably see an upturn and work associated with safe passage of people through airports.
Just through their communities. So frankly, that's one of the reasons, we're pretty bullish and have maintained goods Joe.
Yes, I would like Scott.
Carry expand on that a bit we were obviously doing a lot of work with product innovation and we were able to pivot very very quickly with some of the things we had underway.
Produce our detect wise product, which was announced on Monday, and we now have the site or.
You were executing for our first deployment of that and so we're pretty excited we really haven't even put the impacts of the four.
Buckets of technologies, the carry discussed into the forecast yet so carry can you kind of talk about.
That farmers perspective at 2021 2022.
Certainly Chuck as I mentioned on the remarks, one thing we're very excited about as reinventing the personal screening process, which needs to become touchless and it can be deployed in any factor up our lives. So there can be scaled up or down. So you might have a simple kiosks solution for example at a sports venue, whereas when you go to.
On airport you want to fill a very secure and go through a kiosk, but also have people that have symptoms as they go through the kiosk be thoroughly tested for cobot before being permitted to get onto an airplane. This has immediate application pretty much globally across the world and we're really anxious to roll this out in the.
Next few weeks.
Oh, Okay can you just talked about that a little more how the kiosks works and whether there are I mean, how advance the the plan to deploy it is.
Hi, Kerry you ought to go and take that.
Sure. So we're in discussions with various sporting venue companies as well as for numerous airports across the globe and basically the way the kiosk what work you go up and you answer a questionnaire that says that you're willing to answer a certain information about your symptoms.
Have you are a temperature, taking and then on a longer term solution will be adding a sensor for respiratory as well and then if you do not up past the questions at the kiosk. It for example, if you're at the more complicated airport scenario you would be sent to our mobile testing lab, where you would be tested for cope it and then depending on the Russell.
30 would either be permitted aboard the plane or depart you'd have to depart the airport and this really will keep all of our life safe as we travel.
Okay.
Next question comes from Miss a suit from Cai von Rumohr. Your line is now open.
Yes. Thank you very much. So you touched on code is little bit said it was a 1% revenue his first quarter could you talk about how much of a process.
And what sort of impact on the negative side in terms of revenues and profits do you see for the year.
Maybe what have you baked in for just talked wise and other initiatives.
No.
Thank you Chi.
Three questions so from a.
Profits perspective, as we said is fairly immaterial, we other parts of their portfolio.
On.
Over drove.
Part of that as we reassigned people. So it's kind of hard to get down to an exact number because the numbers came in higher than plan, but I would tell you. It's in the order that 2% of.
That I quoted earlier.
In terms of the co bid.
Revenues, obviously things like that the decontamination as a service that we're providing along with the tell on decontamination of masks.
Thats something we put into our forecast the work from the airports not yet into our forecast we will be so we'll be starting our first.
Live launch.
Right around the first the June so that will be revenue producing at that point and than the others. We're still gathering in industry data and looking at.
Incorporating that into the numbers.
On.
So all in all.
We've been eggs again, very blessed between being able to between carriers that coverage redeploying people to other assignment. We've had very few people that were actually.
On work from home.
Status and not gainfully employed.
Terrific. Thank you very much and just turning to GBSD.
One other members of the Northrop team and they should be getting a contract here in the next several months.
How do how big is your contract I mean there.
Very good R&D contract do you get proportionately the same amount.
Number and how do the revenues and profits ramp for you. Thanks.
Thank you guys well, that's obviously still all being worked out with Northrop and and we don't want to get in front of north for its now its miss there obviously working all that with the Air Force, we're in discussions with them as well as you would you would expect.
But our work will tend to be more front end oriented given our historic capabilities.
And.
So we're very hopeful and optimistic that that contract will be signed on on time, which would be.
Around August of this year and carry you have anything else to add to that.
No. They say I would add is that we're working with both Northrop Grumman and Bechtel Battle is going to be a member the team as well and so we're all in the process of finalizing our work scope the person's effort what tend to be on the design effort in a difficult engineering areas like a blast and nuclear protection thinks that weve uniquely done on other inner core.
No ballistic missile programs in the past and went right uniquely qualified.
Terrific. Thank you very much.
Next question comes from.
Kevin Parsons your line Snow thing.
Hey, Thanks, good morning.
Good morning Gavin.
Hey, Joe could just like a quick clarification on the covert 19 impact it sounded like you said there was maybe a one to as much as 2% impacting the quarter you do anticipate some impact for the remainder of the year, but that'll be offset by benefits on programs like masks annotation and maybe.
The screening devices.
Yeah, and add just and just some movement and other programs that got accelerated or additional wins that came earlier than we had anticipated.
On the 2% was roughly the impact on our.
Our billable hours and that again before prior to redeployment and then also on the.
Roughly to the earnings on revenue is nominally 1%.
So.
In General. These were these were things that we were able to take in stride just like other things that come up on another year.
You have cancellations or protests or is this kind of all got put into that same mix just like everything else that comes up as a normal course of business, obviously, it's not normal business, but the impact quite normal course of business.
Okay I appreciate that clarification, and then on cash flow maybe.
Yes, George if you could just talking about some of the moving pieces of working capital your confidence in collecting on those obviously there is a little bit of slippage out of four to 19 as well and the collection timing on that was 12 plus months. So maybe just maybe just a little bit of color on what happened with collections in the quarter and your confidence in being able to get those back.
This year.
Sure sure again as I indicated in the opening remarks, we had a significant outflow, which was about $40 million delta year over year.
Associated with the legacy sure based.
Sure sure value plan.
That was the big Delta as compared to year over year.
Lose about that about a $20 million difference year over year.
This is truly operating normal operating cash flow.
In the federal Arena, we actually had some starts.
Typically slow.
I'm getting billings approved in the like that was probably frustrated by our government clients because it.
Working from home.
We've seen a decided a significant improvement in cash flow and federal as we've moved into the second quarter April in particular was very good.
We also suffered in the first quarter some slowness in the middle East that too is picked up.
In the second quarter. So at this point.
Frankly, I would say probably more bullish on our ability to meet guidance than it was three months ago. In spite of covert 19 part of the as I'm sure you have this with your other companies you follow as the do the deferral of fuel Tech's deposits.
And in the year will have been.
The low 30 millions on that.
So lot of moving parts as you say, but.
The outlook is actually improved considerably in Q2.
And we feel pretty good about our cash flow goods.
Got it and then just kind of considering also the will to 19 slippage is it possible sort of size the amount of collections are outstanding above what would be minimal.
Yes relative to cope with 19 difficulties took suggested it kind of separate the strands.
It probably would be some number around the 20 million.
In shortfall as compared to year over year and also referencing our internal plans. We also fell short by about 20 million, but again very difficult to determine what would have been with or without cobot refer to put a number on it that would probably be it.
Our next question comes from Tobey Summer.
Thanks.
What a internal or external from a customer perspective.
Changes at this stage do you think may results.
From coated 19 in this experience.
Thank you Cobi.
Well I think one like most companies that you probably talk too.
We had moved to a lot of virtual.
Offices.
But nowhere near the amount of virtual office seeing a work from home we're doing now.
On and.
It's been amazingly.
And.
Easy to do and lot of that brought on by just the incredible technology. That's out there today in terms of conferencing technologies video conferencing technologies.
Our learning how to conduct as more effectively and efficiently and so productivity hasn't gone down in fact in some ways productivity may have gone up and.
So I think we'll see a a more of a pivot to virtual office thing on a go forward basis and leveraging the infrastructure that we have in place to continue to do so.
And on the longer term I think we expect to see.
Reductions in.
Real estate costs facilities costs.
Probably a reduction in travel cost I think we're all going to be more comfortable in conducting audio and video Teleconferences and is we're seeing now a lot more of that trade shows and conferences. There's some great technology out to conduct knows and that also if that sticks and I think it's still too early to say if.
Ill stick or not.
That also could have a resultant reduction in overhead costs associated with those.
I think we're also seeing with some of our and customers.
Really striving hard the amount of work that is classified and unclassified and where that line is drawn.
Allowing.
More work to be done and unclassified environment and potentially even in a work from home environment.
And then the last 15 20, 25% to really critical stuff being done in skiffs, which then puts reduced load on skips and in greater flexibility in how we conducted work. So I think you're seeing that we're seeing a lot of flexibility across the platform and a lot of these changes are.
Our if not permanent going to be semi permanent for the foreseeable future Kerry you into team have done a tremendous amount of work looking at facilities and I T and and worked with our customers regard.
Perhaps you can add a little additional color to toby's question as well.
I would say both internally and externally there's going to be a lot more focus on teleworking.
We've seen our customer starting to make a move to that the classified customer is looking at how much can be done remotely versus has to be purely on site. There'll also be additional focus on cyber security as we saw it during the crisis the amount of attacks increased across the board and it's not just going to affect the defense and.
Teligent sector, who have always been focused on it that's going to have increasing pressure on other sectors, including energy and transportation to make sure that they're on top of that.
And maybe.
Could I get your perspective on.
Hello, This crisis, and resulting recession impact two other things.
The company's ability to to source higher and onboard talent.
And the appetite.
You have as well as ability to consummate additional acquisitions.
Yes, so we're very proud of our people team and what they've done we've we went back in.
Mid March to completely virtual Onboarding and kitting out of our employees I T asset needs, how we conduct interviews and now has done incredibly well.
March was in many ways stellar month for us in terms of hiring.
And a lot of credit goes to our operations teams and our people team in that regard.
As it relates to acquisitions I.
I think that we still have an appetite there's still some great companies out there that we're in discussions with.
During this period I think you'll see a bit of a pause.
We probably have already seen in industries one.
Can't really do proper due diligence when we can't do get into the offices and meet with people want to one I think that is an essential thing that has to take place at least from our perspective.
And we need market multiples to settle out a little bit I think both us and sellers.
Wanted to make sure that they know that there's some stability around market multiples.
I do I imagine there will be companies who aren't as in.
In the same place we are from a balance sheet perspective.
It may accelerate their thoughts around selling or divesting parts of their business and I think that will probably result in increased opportunity.
So on and also I will say that in some markets, what we've seen where some of our competitors have struggled.
Hiring has gotten a heck of a lot easier and that's not just in the us thats internationally as well so in the really highly skilled highly technical markets I would think from an employee perspective, you'll see a flight to quality flight to the companies that you know are going to be around it can make payments and earn asking for pay cuts and things like that.
And.
But there's still going to be.
Yes, a lot of demand for those employees as well carry anything that you'd like to add to that.
Just two additional items first is our retention is the best that's ever been so I think.
That's traffic as well as recruiting like Chuck said end March it was our highest month.
And we moved to virtual recruiting and we found that to be quite affect us.
Okay.
Thank you very much.
Your next question comes from sort of Ron I'm sorry.
Your line is now open run.
Ron or you perhaps on mute.
Good stuff I wasn't I'm, sorry about that yep. Thanks, good morning, guys.
Moving a lot of discussion a lot of discussion around gobank team and the opportunities that might bring along.
But as we modeled the company I'm, just thinking about what that could potentially be as you walk out over the next several years.
How should we think about it I mean, how big an opportunity is in and who is competing with you in network.
Well, obviously, it's a it's a rapidly developing market and it's really kind of hard to tell who the competitors are going to be in the various lines that were doing what we've seen at least in these early stages. It's the firms that can be incredibly agile and move quickly and across.
Market lines in industry lines with the talent, it's needed had been does it have been.
Very successful. Unfortunately, we're one of those companies our teams have been working.
Seven days, a week getting RF fees on Friday nights, and having interviews on Saturdays and awards on Sundays I mean, it's been incredibly inspiring and very motivated.
As we model out I think is probably a little premature to look at how we modeled that in obviously these are just kicking off and I could make all kinds of.
Optimistic or down the middle the fairway or other projections I personally feel more comfortable have a little more data.
Alright, and then and then maybe just a follow on that just kind of to take us back to the beginning or call.
Following up on Shoeless liner questions.
Did you mentioned in the remarks part of the strategy is looking for high growth high margin areas.
And we're seeing the growth come through but I'm still scratching my head on on the margins and the thing are worried about it maybe you can make me feel more comfortable belt more comfortable about this.
Did you guys play in an intensely.
Competitive market.
There's concessions being bid on price that you might not be able to make up in terms of profitability over time.
Why is that Rob.
Well I can tell you, we're not making concessions on price, we're not seeing that much cut price competition in the areas were operating I'm not saying that.
There is there is excessive margins, but the margins were bidding or are greater than our target margins.
That we laid out there so.
Maybe in parts of the market you're seeing intense competition.
In the areas were working generally it's all based on the amount of technology, we can bit net technologies lowering the cost of the total solution to the customer. So the customers cost may be going down, but the profit margins that were seeing a remaining sound.
And as again Q1 is always low because of lower performance fees and revenues as well as higher overhead costs that we incur carry anything that you'd like to comment on the on the contracts we have going forward.
I would agree with what you said we had a shift also if you look at federal versus critical infrastructure or allocation is shifting because the bigger mix that federal has a suppress all about company.
We had the new start contracts combatant command, our mission support as well as Quach. One then had higher than normal pass through costs on CMS in particular as we go into Q2 were shifting from a material to a labor and then again relative to last year. There were some one time overhead adjustments.
That occurred last year.
Okay. Thank you very much.
And I think the one other thing I'd say Ron is you.
In the last 12 years Q1 has been our lowest margin quarter for 11 and 12 and.
It's just part of that's just the way we manage the business by increasing cost mixture everyone's on the same sheet music.
Part of its just also kind of the nature of the contracts and when these performance.
Season revenues kick in.
Got it right. Thank you.
Okay.
Our next question comes from Mr., Josh Sullivan Your line so sorry.
Good morning.
Good morning.
Kind of a related pricing question the thrust into the machine learning you see likewise, yes. It does appear to be more commercial like products and services can you talk about how the customers responding.
Evolving our they receptive to commercial pricing such as more service based models I think in the prepared remarks, you might have mentioned that you had a service model on the the coded masks you were doing.
Yes, part of our longer term strategy, we just see that in so many of the commercial world that we see as a service type models dominating puts the control of the resources in the hands of the contractor to best.
Apply resources to the opportunities. It also generally are faster deployment and brings a total solution.
The customer accommodation hardware software and services.
And.
In the federal World I, obviously, they've gone to the cloud, which is in essence, a data center as a service and we're seeing increased interest I wouldn't say, it's it's a.
A flood gates have opened yet, but there's definitely increased interest and we think that will be a growing trend and that's why we've been investing in prototype using our services and combining them with our hardware and software and that's been one of the key focus areas that carry and her team have been working on Kerry probably have some additional.
Color you'd like to add on that.
Sure just a couple of specific examples where already selling our I net product as a service. They can be provide a software service or a platform as a service I mentioned that decontamination Assa service that we're currently looking at already we're also looking in areas of cyber security such as high as assert best where you go out basically into a comp.
Brands have threat assessment and you take a look at the supply chain and we can sell that assists service and we have our product offering that's called notify where we sell knowledge us a service. So that's a critical business model for our company.
Got it.
And then in the prepared remarks, you you mentioned key executives you've brought onboard to accelerate growth can you can you give us any update there any contribution so far eclipsing.
These have all been senior executives, we brought on board over the last quarter.
In key federal markets, cyber Intel's space, Geospatial and defend Sci Fi bias, our and there they have had.
Big impacts already obviously, helping his position us for bid and proposal, but also in longer term strategy of how we further develop and product innovation carry you probably can.
Have a few things like say about that as well.
Certainly and we've done several press releases on the team that we brought end we front end people on the business development side on the operation side and on the recruiting side. There are folks that are state with military or intelligence domain expertise as well as deep industry expertise and the federal space.
Got it.
Okay.
Thank you Josh.
Next question next question comes from lead Diploma.
Chuck George Carolyn David Good morning.
Good morning.
Can you talk about the resiliency of your critical infrastructure Division. During this period that you referred to as the new abnormal and.
Stay in city budgets become under pressure how would your business be impacted.
Okay. Yeah, Great question, So very few of our contracts come directly from states. Most of them are from special taxing districts and.
Agencies at the County.
City, and and Cross County.
Levels like like airports and transit districts, which tend to cross city lines and county line to et cetera.
And most of the programs that were on or bond funded which.
You know you don't really stop they have dedicated lines of financing. So what we saw in the global financial crisis, which is fairly similar this it tends to be a lagging economic indicator.
In 2008 for US was a record year.
Only exceeded by 2009 and only further exceeded by 2010.
On what we're seeing an infrastructure business over the last a couple of years is a.
Pullback by a lot of companies did in a lot of mergers and acquisitions. This resulted in.
Generally fewer competitors.
I'm going after the work.
And.
And so I think that will continue.
The budgets clearly are going to be impacted at the state and local level due to reduced traffic volume a lot of that is going to depend on how quickly things come back. So we think the focus of those communities will be on how quickly can I build ridership backup in my transit system at my Airport.
At the parking decks and ill and a lot of that is going to go into how confident the public is if they can do that safely.
And hence that's our pivot which plays into the the transformation we were already doing in that marketplace to be able to give not only the physical solutions to help.
Provide physical separation for passengers and people waiting and cues that also the technology solutions that help identify people are showing the symptoms of coated having the rapid testing capability to prove that they have it or not.
And we think that will be a growth area because it will be important to get the public confidence back using the infrastructure and going to work and.
Going to restaurants et cetera.
Carry anything you'd like to add to that.
Yes, our critical infrastructure proposal volume has gone up if you look quarter over quarter, we submitted a 237 and last quarter and this quarter. We submitted to 45. So what we're saying is continued demand for our various that were involved and the other thing is nearly all of our programs and critical infrastructure redeem mission critical NRC.
Well performing despite covance and finally, the cobot offerings that I described particularly that integrated personal screening system. Those are going to be offered through our critical infrastructure sector with a significant focus some both rail and transit and aviation market areas.
I think the other trend we've seen which is good news bad news story kind of bad news for US as a society is that the cyber attacks on infrastructure and citizens and businesses and governments have reduced in fact is in many measures they've increased so I think thats going to be another area of increase.
Focus that.
Just going to have to protect these assets both on the ITC side, the and information technology as well as any operational technology OTI side. So those for companies like us that provide does services and products and software I think that could be another growth area.
Thanks.
Next question comes from Justine do not.
Your lines.
Hi, Thanks for taking my question.
You talked about your ability to redirect employees can you just talked a little bit more about if thats in one segment.
More than another.
Yes, so Doug obviously, it gets down to each opened slot, we had and each individually each employees specific skills and how they matched up.
Skill wise in some cases, geography wise or time zone wise and so when you have folks like with software programming skill sets that are that are.
Have a lot of capabilities and cloud migration or AI algorithm programming on or even in areas of design on critical infrastructure or construction management some of those skills.
Some of the a lot of those folks were transferable and we were able to make.
Movements from once unit, one sector to another or within the sector from one program to another program and that's the private Mary reason and because we can we have such great linkage in synergies between our critical infrastructure and our federal solutions and within the six market areas.
These were cross unit calls that we're taking place.
Nearly daily and.
At the beginning of this and we asked why the team was able to agile lead place people. So quickly carry you might you might expand on that a bit.
Yeah, I agree tuck, we have a very robust redeployment system and a couple of times a week, we sit down and we go through program by program person by person and try and align the skill sets we've been very successful and redeploying people I'm. So we have extremely few that we have had to furlough and those few.
That we did furlough, we'll come back they share and that was primarily on our vehicle inspection contract just because the inspections are getting deferred to the latter part of the year that our redeployment program is very successful.
Great and then just as a quick follow up.
What percentage of your federal.
Segment has cleared personnel.
You know where they might not be able to be.
Redirected.
So the specific question is.
What percent of our personnel are clear that could not be redirected.
Yes, I guess just as.
Trying to understand.
You know if.
Those workers.
I would not be able to be re purpose.
It they're doing shift work or anything like that.
Yes, okay.
In some insight in some cases, the customer Didnt don't want employees to be redirect because they want to make darn sure. When you go back to full shift if everybody still available on.
But some of them have been able to redirect or work one week every other week on another contract carry you can probably give a little more color on that but those are the kinds of things that we've been doing.
Sure we have about three sell some folks over 3000 that are clarity most of our classified customers have gone to one week on one week off but the recovery will be built through the cures Act, we're very fortunate only 1.4% of our revenue falls in that category and that's all going to be recovered through carousel.
From a revenue perspective.
Okay. Thank you.
Next question comes from.
Joseph Denardi.
Sir your line is on anything.
Yes. Thank you Chuck just a quick follow you mentioned a couple of times. The the amount of business that is funded through a bond issuance can can you actually quantify that I mean, how much is a critical infrastructure segment revenues come comes from something like that.
Got it Andy. Thank you yeah, I don't have that on that on the tip My tongue, Joe and I'll ask.
I was curious she does but I would tell you where you get over about one.
$100 million in contract size, and basically 100% of those programs through the bond funded or P. three funded those aren't coming out of operating funds of an airport, so any or or transit agency or Roden Highway district on so capital projects in the infrastructure side our general.
Early in the us almost exclusively bond funded.
Overseas you can have a combination of different sources and thats why its very important to beyond and nations most critical asset list.
Gary you have any additional I don't have that number handy Chuck yes, we can we looked at a pretty good.
Yes, thank you very much.
That is all the time for questions.
We all for joining fees for sensors side. Thanks.
Thank you.
Thank you everyone.
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