Q1 2020 Earnings Call
[music].
My name is but also and I will be your operator for today's call.
At this time all participants are in a listen only mode. Afterwards, you will be invited to participate and the question and answer session at that time. If you have a question. Please press star one on your Touchtone phone to register for question.
Please note that this conference is being recorded on Tuesday May 15, 2020, and cannot be reproduced or rebroadcast without permission from the company.
I'll now turn the call over to land Morgan of Advisory partners.
Thank you Vanessa good afternoon, everyone and thanks for joining us to review first quarter 2020 performance.
Today's call is hosted by John Watson, President and CEO.
Also joining our Sadaka Kesavan executive Chairman, James Morgan Chief of business operation to with CFO through the end of February and Bettina Wells, who took over as CFO on March 1st.
During this conference call, we will make forward looking statements to assist you in understanding I see us managements expectations about our future.
These statements are subject to a number of risks that could cause actual events or results to differ materially and I refer you to on May five 2020 press release, and our SEC filings for discussions of those risks. In addition, our statements. During this call I based on our teams as of today.
We anticipate that future developments will cause our views to change. Please consider the information presented in that.
We may at some point them back to update the forward looking statements made today, but specifically disclaims any obligation to just so.
I will now turn the call over to IC CEO, John Watson to discuss first for the 2020 performance Don.
Thank you Lynn and thank you all for participating in today's call to review, our first quarter results discuss the cold in 19 impacts and opportunities for IPO and share our thinking with respect to twentytwenty.
Before reviewing results I would like to commend I see of staff members for their ability to move seamlessly to tell the working environment and their dedication to producing top notch room for clients. During this crisis period.
With over 98% of our workforce operating under work from home protocols, we had been able to execute effectively on contracts and programs for government and commercial clients, which minimized the impact of coven 19 on our first quarter financials.
In fact first quarter revenues increased 5%, reflecting very positive performance in a government and commercial energy businesses in line with I'd say as positioning in key growth areas within those markets.
Together government and commercial energy revenues increased 6.4% compared to last year's first quarter and represented 83% of our total first quarter revenues.
These results more than offset modest reductions in commercial marketing services.
Several factors pressured year on year comparisons.
Revenues from government clients, which accounted for 67% of total first quarter revenues.
Increased 6.5% in the first quarter, driven by 17.6% growth in our federal business.
This strong performance in our federal business represented 4.4% organic growth.
And a two month contribution from our IP G acquisition, which closed at the end of January.
I TG is an excellent fit with CF and we've been working closely together to engage with each other's clients on top priority areas for civilian agencies.
Year to date, we have one IP monetization contracts valued at approximately 140 million over an average of three of the half years, and we see substantial opportunities on the horizon.
In fact, we're currently working together more than 1.2 billion of opportunities, where we believe that our combined qualifications markedly improve our chances of winning.
Our year to date wins in IP monetization and the strength of the combined ice CF and ITD pipelines in this market gives us confidence that IP monetization will be a strong growth driver for us going forward.
Our state and local government business performed in line with our expectations, reflecting the previously discussed insourcing impact of a portion of our FEMA funded disaster recovery contract.
In Puerto Rico, together with our ongoing execution of our Hudson did contract there and a broad range of infrastructure related work across the country.
The disaster management portion of our state and local business has had minimal impact from Coven 19 continues to operate at scale expected revenues of approximately 100 million in twentytwenty.
It has significant opportunities for mid to long term growth associated with disaster recovery mitigation funding.
With respect to mitigation, we have won several small but strategically important contracts that support our confidence that this area has the potential to be a long term growth driver for CF.
As we noted last quarter, we have one disaster recovery mitigation contracts with the state of Missouri, and the city of Columbia South Carolina.
We are currently working with state and local clients in the U.S and Canada as well as several of the largest energy utilities across North America to increase resilience to climate change.
Examples of these projects include analyzing and quantifying the benefits of storm water resilience investments in Miami Beach, and working with large utilities on plans to protect their infrastructures from photo future natural disasters.
Additionally, we have submitted proposals on larger federally funded disaster recovery mitigation contracts in Texas, and Florida, which should be awarded later this year.
International Gover meant revenue declined year on year in the first quarter as there were delays and events such as Lord conferences and citizen engagement meetings for the European Commission caused by the Cobot 19, pandemic, which affected Europe before it impacted us.
Our commercial energy markets business accounted for 16% of total first quarter revenues and grew 5.7% in the first quarter with only minor cobot 19 related disruptions.
All key areas in this group showed year on year growth.
With respect to energy efficiency the portion of field work that relates to entering People's homes to conduct energy audits has been put on hold due to colder 19, but the vast majority of life's work on energy efficiency programs his desk work.
This decks work involves engineering reviews application reviews call center responses marketing and communications rebate processing I see tracking and reporting.
During the cobot 19 prices, we've been working closely with our utility clients to virtualize portions of our field work such as virtual audits using photo and video inspections and transitioning to virtual account management.
These responses have been well received by our utility clients, who see effective continuation of the customer facing programs at the high priority.
Our commercial marketing service business accounts for less than 15% of our total revenue.
And we expected to continue to experience lower revenue comparisons the cost several key verticals, including hospitality travel and retail due to coven 19.
We have recently taken actions to considerably reduced expenses in areas that are most sensitive to these impacts.
A key component of our business is our industry, leading loyalty flow platform. We have long term retainer contracts and expect that our clients will continue to prioritize engagement with our most loyal customers throughout this period.
Additionally, healthcare is the single largest vertical in our commercial marketing business and we continue to see growth in this area as clients increased budgets.
In total we estimate that the Covance 19 impact on our first quarter revenues was approximately $4 million, primarily represented representing program cancellations and our commercial marketing service business and postponed events for international government clients.
Importantly, we believe the short term revenue impact on our business from Kogan 19 can be more than offset in the medium to long term opportunities related to increased government spending on public health.
Infrastructure disaster recovery and resilience all areas in which I CF has deep domain expertise.
I see I have I see of has experienced multi year double digit growth during past periods, a significant federal government stimulus spending and we believe that our subject matter knowledge and contract vehicles and key civilian agencies positions us to benefit from programs to stimulate the us economy and strengthen.
The public health infrastructure posed covert 19.
Now I'd like to provide additional insight into the multiple coated 19 related opportunities. We see ahead for ice CF.
Still are in the early innings of the global Covet, 19 response and recovery and the pandemic highlights I see us unique position at the Nexus of public health analytics and disaster management.
And the public Health Arena I CF has contract vehicles and all the key agencies involved in handling this crisis.
Recently, we received additional funding for our Syndromic surveillance activities in support of the centers for disease control and prevention Biosense program.
As for both program involves tracking the spread of cobot 19, allowing CDC to better identify virus hotspots and coordinate responses.
We also working on two small projects to provide public health messaging related to coated 19.
Additionally, we are continuing to support the department of health and human services with his preparedness and response activities to coated 19 through project for its technical resources assistance Center and information exchange known as Tracy and we expect additional funding for this program as well.
For the National Institutes of health by Sea of design stood up and will obtain a website that provides kobin 19 treatment guidelines for use by physicians and healthcare providers.
We believe that will be further opportunities to support CDC and other parts of HHS on these types of activities in the coming months.
Emergency Declaration on the Stafford Act and the National Emergency at made up to 50 billion in quarter Linus virus related funding available to support state and local governments.
Which includes FEMA support under as public assistance program.
Several states have activated I see us on call contracts as they seek to identify and apply for projects that would be eligible for FEMA reimbursement.
Longer term, we expect to see a considerable increase in preparedness and response activities at the federal state and local levels through both the HHS assistant Secretary for preparedness and response and through theme as public assistance program.
Also we believe it does disease surveillance monetization, including it systems and advanced analytics will be a priority and that I see as exceptionally well qualified and experienced in one way or in this area.
Both domestically within HHS and internationally supporting USA I'd programs to reduce the incidence of infectious disease in developing countries.
In the meantime, we continue to have a robust business development pipeline that Beast 6.8 billion at the end of the first quarter, representing a 4% increase over year end 2019 levels.
First quarter contract awards were 357 million up 23% from last year's first quarter.
Also I see us first quarter turnover rate was 12.5%.
I'll now turn call over to our CFO Bettina wells to provide a further for first quarter financial review patina.
Thank you Jay.
Good afternoon, everyone I'm. Please join you on my first earnings call and price, Yes, Chief Financial Officer.
I will share more details on the Companys financial performance for the first quarter of 28.
Total revenue was 358.2 million.
Representing 5% year over year increase.
As John mentioned.
We estimate the covet 19 revenue impact at approximately 4 million or just over 1% of total revenue.
Service revenue increased 5.8% to 255.4 million.
Pass through revenue amounted to 102.8 million or 28.7% total revenue compared to 29.3% and last year's first quarter.
Gross profit increased 1.8%.
To 127.6 million in the first quarter of 2020 from the year ago quarter.
Gross margin on total revenue, however declined 110 basis points year on year can 35.6%.
This was in line with the expectation we shared on our yearend results call in February.
Indirect and selling expenses for the first quarter increased 7%.
So 103.3 million and represented 28.8% total revenue.
50 basis points above last year.
The increase was primarily driven by special charges of 3.6 million related to M&A expense severance costs.
The special charges I, just mentioned and a 1.1 million increase depreciation and amortization of intangibles due to the ITC acquisition with a major drivers lower operating income at 16.3 million.
Compared to 21.9 million in the year ago quarter.
EBITDA for the first quarter was 24.4 million.
15.4% below last years 20.8 million.
Adjusted EBITDA, which excludes a special charges was 28 million in this first in this year's first quarter compared to 28.5 million in the first quarter of 20.
2019.
Adjusted EBITDA margin on service revenue was 10.9%.
Our tax rate was 18.3%.
Compared to 19.5 in the year ago quarter as a result of increased tax benefit relative to 29 team from the vesting of equity compensation, which largely occurs in the first quarter of each year.
Net income for the quarter was 10.6 million.
Or 55 cents per diluted share.
Inclusive 16 cents in special charges noted above.
Then compared to 15.3 million or 80 cents per diluted share in the first quarter of 2019.
Non-GAAP diluted EPS.
Which excludes the and kept the impact of the previously mentioned special charges and amortization intangibles.
Was 83 cents compared to 87 cents reported in the first quarter of 2019.
At the end of March we had 184.3 million of available liquidity, providing us with substantial financial flexibility.
Our net bank leverage ratio at the end of March was 3.0 stacks.
And we expect to end the year with the bank leverage ratios approximately 2.6.
In the first quarter, we used 15.2 million of cash for operations similar to last year, and reflecting seasonal cash flow trends.
Based on the expected piece of our collections, we estimate full year 2020 operating cash flow to be approximately $110 million, 20% ahead of 2019.
Day sales outstanding for the fourth quarter first quarter, where 88 days compared to 89 in the first quarter of 2019.
By year end, we had to take dsos to be in the range of 78 to three days.
Versus 83 days at the end of 2019.
Our capital expenditures in the first quarter of 2020, or 4.7 million compared to $7.5 million in the first quarter 2019.
Mainly related to investments in our infrastructure facilities and intellectual property.
For the full year, we're lowering our capital expenditures for cast to a range of 25 to 27 million and we will continue to evaluate our capital expenditures priority through the remainder of the year.
For modeling purposes.
We anticipate depreciation and amortization expense.
To be in that range of 20.5 million to 21.5 million for the full year 2020.
Amortization of intangibles should be approximately 13.3 million.
Full year interest expense should range from 17 million to 17.5 million.
And we expect the full year tax rate to be approximately 27.5%.
Fully diluted weighted average shares of approximately 19.2 million for 2020.
With that I'll turn the call back to Tom for his closing remarks.
Thank you Christina.
Given that the great majority of our revenue is derived from government and utility clients under long term contracts, we continue to view our business conditions as stable.
As noted earlier on circuit uncertain economic conditions caused by the cold in 19 pandemic, we'll continue to impact our events and survey work for European government clients in parts of a commercial marketing services business now, let me to be delays in decision, making across our client set.
As a result, we have revised full year 2020 guidance reflect results similar to those of last year.
The assumptions underlying our guidance aligned with our backlog and anticipate a progressive return to more normalized business conditions in the second half of the year.
The reduction from our initial 2020 revenue expectations of approximately 9% relate primarily to projections of lower year on year revenue performance in our commercial marketing and international government businesses due to covert 19.
We expect our U.S federal state and local and electric utility related businesses will continue at a cadence slow similar to year to date 2020, which included minimal impacts from cobot 19.
This guidance does not assume any material new revenues in the second half of the year associated with cold in 19 pandemic opportunities we're stimulus funding.
Or from US Federal funded state disaster management mitigation opportunities in our pipeline in Texas in Puerto Rico or energy efficiency implementation opportunities in our pipeline in California.
Specifically revenue is now expected to range from 1.450 to 1.510 billion and EBITDA to range from 126 million to 136 million.
GAAP earnings per diluted share is expected to be in the range of to 85 to through Threefifteen exclusive of special charges and non-GAAP diluted EPS.
In the range of 352 Threeeighty.
Operating cash flow is projected to be approximately 110 million.
Significantly ahead of the 91.4 million generated last year.
To sum up I see up is navigating these unprecedented times with a substantial backlog the recession resistant revenue mix, a strong balance sheet and a record business development pipeline.
More importantly, we have a strong culture comprise the people who are passionate about their work and dedicated to client service.
This quarter has been a key driver of our growth thus far and gives me confidence that I'd say it will not only weather the storm, but will emerge as an even stronger company, an environment, where our civilian domain expertise becomes ever more relevant.
With that we certainly wish you and your family stay safe and with that operator, I'll open it up for questions.
Thank you we will now begin our question and answer session. If you have a question. Please press Star then one on your Touchtone phone if you wish to be removed from the Q. Please press the pound sign or the hash key if you're using a speaker phone you may need to pick up the handset first before pressing the numbers.
Once again, if you have a question. Please press Star then one on your Touchtone phone and we have our first question from Tobey Sommer Suntrust.
Thank you.
I was wondering if you could.
Elaborate a little bit omni.
Marketing services business.
What do you assume the impact is inside your guidance.
You are probably the area most likely to be impacted by the kobin.
The company assumption.
Sure Tobey Thanks for the question, so certainly the commercial marketing.
Businesses.
During the most significant impacts on the coated 19.
A crisis and so.
Now, let's say to you that that business, we're now planning for it to be down about 4% to 20%.
Our guidance for this year.
And so thats the underlying assumption there.
In.
If I could ask you to in terms of the.
Contract opportunities that could drive growth that are included in the guidance.
Could you tell us, which which buckets you may be kind of the most potential for materiality in 20.
And.
Largest than in most largest potential impact longer term. Thanks.
Sure. So I think as I said in.
My opening remarks, I think there are a number of areas of potential growth that we have not factored into our guidance for 2020, and we'll make areas for growth in 2021 and beyond obviously, whereas in the midst of the significant public health crisis as I laid out of my Ross, we are looking for a variety of different federal clients.
Key rules and responding to that prices from CDC, but to NIH to broader parts of HHS.
To FEMA to USA, I'd I will say that.
Through existing contracts that we have in place.
We are seeing.
Work related to covert 19, and I think I laid that out again in my remarks, and I think overtime, we expect that there could be plus an additional funding or for that work as we get into the second half.
Twentytwenty and so I think.
Those are areas that clients can easily access and as the.
Emergency funding that's been put in place under the public health emergency or the declare national emergency from the pandemic and the additional stimulus funding that can certainly reach has this year I think there's potential for plus ups there and so I think those are areas, where the second half of the year could could provide additional potential growth.
Then as you look beyond that I think that the stimulus funding in the focus in the public health Arena provides very significant growth opportunities.
Given the magnitude of the effort.
The the budget dollars has been committed.
And so then if you.
Turn to disaster recovery, we've been talking for some taught about them mitigation related work.
We have been submitting proposals on that front, both in Texas, and Florida, We could see awards on those in the second half of the year that have potential upside and again as you know those are very large opportunities.
That could certainly a drive growth in 2021 and beyond I think the California energy efficiency opportunities, which is the third bucket.
We could see awards by the end the year I don't think there will be that material everything that area is a significant growth driver for 2021 and beyond.
Nick a broad comments last question for me about the pace of contract award.
And in timelines, particularly for the larger program.
Include a litigation you talked about Florida and Texas.
Puerto Rico et cetera.
Sure I mean, I think that we expect to see awards on the mitigation front, certainly in Texas and Florida in the second half of the year and.
And those opportunities we will continue into early next year in terms of.
Proposal and award decisions.
As you know, Puerto Rico as significant funding for mitigation route related work.
There are still waiting HUD approval on some of their programs and so I think those award those RFP.
We're still expecting to see later in the second half of the year I think those will be more material for for 2021.
And beyond so I think thats, how we see.
The mitigation opportunities as we look forward.
Sure. Thank you I'll get back into queue.
Thank you we have our next question from Joseph Vafi with Canaccord.
Hey, guys. Good afternoon, and welcome congratulations tune on the new role was wondering just dump if you could kind of just going a little more detail on guidance assumptions kind of.
The through trajectory of the economy that you have them.
Built into the guidance.
If you're right I think you said, you're looking for a modest recovery during the year, but a little bit more color on that and then on couple follow ups.
Sure I think you know our guidance, obviously weve taken a hard look at each of our core markets going on as I think I.
Described in my opening remarks, I think we've assumed that we're going to see the primary impacts some coated 19 of in the commercial marketing services and portions of our international government work focused on events and.
And surveys and.
And Thats, what I can see the most significant impacts and we've assumed that the remainder of our markets, which have continue to pace.
We'll continue to see minor impacts as we go forward and.
So at a high level Thats, how weve seen the guidance I would say how it plays out throughout the year I think that we're assuming the Q2 will be generally similar to Q1.
And then we'll see sequential improvements as we move through Q3 and Q4 I would just remind you as you think about Q1 in Q2 that we closed the ITC acquisition at the end of January So were two months of ITC revenues in Q1 will obviously get full three months in Q2, and so that extra month will offset some of the impact.
We will expect in Q2 from commercial marketing services International government and that's why we do expect Q2 to be similar down a bit but similar to Q1 in the sequential improvement in Q3.
In Q4.
Okay. That's helpful and just kind of following up on Toby question on.
Contract Awards.
Have you seen any change on on the contract fundings at this point.
Just kind of due to the orbitz situation or is it relatively business as usual on the funding.
Plus our federal government in our utilities business, it's business as usual both on awards and proposal activity. We obviously.
For liquidity with.
Much of it was before the profit impact so obviously in the commercial marketing services Arena, we've seen clients.
You know is stretch out or cancel work on particularly in the the verticals that you would have better.
With that we support that are most impacted by this crisis, including retail and hospitality.
Travel and tourism.
But in general across the rest of business. The awards in the RFP activity with continues apace.
Okay. That's helpful. And then just you know just maybe a higher level one on on TG. It's been in house here for a little while sounds like there was some contract activity.
There are the that obviously was probably already in the pipe when when they came onboard any kind of incremental thoughts on on that business.
Looking forward versus kind of what conveyed to us when a deal with signed up.
A few months back now thanks very much.
Sure.
I would say, Joe obviously, when we acquired ITD.
And we thought that that market was a significant growth market in that.
ITC was a very high quality companies abroad terrific.
People terrific capabilities strong partnerships and had a track record of pleasing their clients continuously.
I think since they've come into the firm we continue to believe that it's a first rate accompany that it's a good cultural fit a good strategic fit when you put it together with our deep domain expertise our relationships across a broad suite of civilian clients.
And our broader contract mix that.
This will be a robust growth market going forward for us.
Got it into a double digit revenue growth as an independent company and I think that we're certainly going to be able to.
Take advantage of synergistic revenue opportunities here by bringing our pipelines together.
And improving our win rates, giving our collective capability identifying new opportunities for them and our broader suite of civilian clients and so.
I would say it's fully met our expectations. We believe this is going to be a key growth driver and that we we have already begun to capture some of the synergistic opportunities and so we.
We remain quite confident this is going to be terrific acquisition on a real home run for us and really set us up or long term growth in the IP monetization.
Realm, and federal Rina, which again as I think I've discussed when we announced acquisition we're still in the very early innings of IP monetization in the federal arenas. So.
So we think there's there's terrific opportunity there.
Great. Thanks, John.
Thank you we have our next question from Andrew Nicholas with William Blair.
Hi, good afternoon.
I was hoping you could add a bit more color to the size and type of cost actions you've taken at this point.
Also what's what's embedded for those actions in terms of your revised guidance and then any other other comments you can make about optionality in your cost structure should marketing services in international take a bit longer to bounce back then you currently expect.
Sure. So you know in terms the actions we've taken.
Obviously first we're in a.
People business as well as revenues come down we're looking to manage the cost carefully.
Obviously is a stop become available we look to redeploy them in our portfolio business across the firm selling and marketing and.
Communications, taking commercial folks and looking for opportunities in our.
Government markets and will also redeploy technology.
Staff.
And broader aspects of our business, we've actually made progress and then.
In transferring and using some of our commercial technology marketing technology folks in our.
Government I T modernization business.
And then it's about managing the cost and so we have takes takes in actions.
As work is slow down to.
Put our staff on they'll use their paid time off we've also implemented furlough programs, both in North America and in Europe, Europe, the European governments and put in place for low programs, where you can furlough staff for up to three months and governments will pay 80% of their their salary while they're on furlough up to some limit.
Which admittedly is 40 or $50000 a year, but we've taken use of those in Europe. So.
And so we've we've we've taken those types of actions.
Obviously, our travel and entertainment costs are down significantly from indirect perspective.
In terms of.
It's not traveling to present time.
We've also taken steps to limit hiring of new indirect staff were carefully monitoring recruiting in general.
So we've pulled a number of levers to manage the cost to date and.
We certainly have additional levers that we can pull if if we see.
Additional.
Impacting the business at the end of the day, we have to manage.
Our costs, which largely our.
Around our staff and how we deploy them and so we're monitoring that carefully it very carefully in the key markets that are impacted and.
And our leave leaning forward on that front.
I don't know between if there's anything else you would add from a cost management standpoint that I haven't touched on.
No I think the only other aspect that would lean on was just evaluating the use of space are our Capex, you said by teaming or leveraging as you mentioned, it's a people business. So as the revenues go down or in our number needs are slowing down in that area, where we're taking full advantage of flowing knows and redirecting.
Needed.
But as John mentioned, we've taken many many actions that we still have a few more in our back pocket as we monitor the business going forward.
Great. Thank you that that's helpful and then.
Another another one I think he answered a bit of this in your response to an earlier question, but what I'm thinking about the updated guidance and how you're thinking about international and commercial marketing to ramp back up in the second half. The year is there any other other detail you can provide in terms of kind of the cadence.
Of growth there just trying to again.
I understand what what may be some potential downside is if if the economic recovery or or maybe some of the travel restrictions and locked down measures take a little bit longer to to bounce back then and maybe what we currently expect thank you.
Yes, I would say the commercial marketing arena as I say, I think we're expecting that business to be down north of 20%.
For the year I mean, I think we're assuming.
We'll see we'll see those impacts.
As we go into Q2 and it will be a new we're we're assuming very modest improvement there.
Overtime I would say that there are.
Verticals in that business that are growing that have not been impacted by.
This crisis, particularly about our healthcare vertical.
So to the extent that we're showing modest growth in that area, it's driven by.
Those verticals that are least impacted and when I say modest the funding modest growth off of bottom of the.
Of the trough in terms of impacts.
He will be in in the verticals that are least impacted.
On the from the European business I think our assumption is again will.
We will will reach the trough in Q2 and see modest impacts I don't think we're modeling impacts on the events related business until we get later into Q4, I think assist unlikely, we'll see an improving those businesses.
In the third quarter this year.
So I think thats kind of how we're thinking about it for this year.
Perfect. Thanks for taking my questions.
Thank you our next question from Kevin Spiky with Barrington Research.
Hello, Good afternoon.
When you're talking about the.
Mid to long term opportunities for your business emerging from.
The federal governments or response the co good 19 crisis.
Three it sounds like it's almost segmented into.
Three different buckets that at least in my mind I want to make sure I have their correct you have the.
Stimulus.
Funding, which you talked about potentially driving growth opportunities and then.
Opportunities in public Hill to continue supporting CDC and HHS and then third.
Staffer DAC.
Preparedness and response spending.
FEMA spending also a potential driver so am I thinking about that right way the right way in baby could you talk about each of those in the potential size of the opportunities there.
Well sure I think.
General I think you've you've hit the key buckets as we think about.
The opportunities going forward as you think about.
Emergency funding on public health issues as you said the national versus you know the.
Stafford Act and into the significant stimulus package I think those opportunities I would agree they fall in the comes the public health Arena in response to pandemic.
Potential pandemics going forward.
There is disaster recovery Theres resilience, both from Pandemics and more broadly than I would also say, there's potential infrastructure and thats been a topic of conversation certainly potential future.
The stimulus.
Opportunities.
Yeah, I think these I think operators can be quite significant Kevin as you know theres very significant resources have been committed here I mean, it was $8.3 billion from initial legislation around public health $50 billion around the national emergency under the Stafford Act two trillion dollars and stimulus funding admittedly.
Until the amount of that goes to the direct supportive.
Two.
Individual Americans and into companies, but there is also going to be there is also significant funding in there for public health and pandemic.
And disaster recovery issues and so its little hard for me to I think that opportunities could be quite significant here Im it's hard for me to put.
To put bounce on the the dollars involved I think it's still very early in.
The game here I, just would I would again reiterate that.
In prior periods, where there's been crises financial crises.
Other economic events that up with the government has made immaterial impact to stimulate the economy.
I see of has done.
Benefited and supportive programs in response to that obviously nobody administration.
As a significant stimulus.
On the financial crisis, and as I've discussed before you know for the two three years.
With that stimulus funding CF grew.
Double digit for for three years in the Federal Arena I think that was a 900 billion dollar stimulus plan and Obama administration, we have two trillion dollars here with more to come in so I guess, what I would say is I do think there is very significant opportunity here I think it could drive significant growth for us across public health.
Cross resilience cost disaster recovery.
In the medium to long term and I think many of these areas play to our sweet spot.
In terms of our domain expertise our experience I.
Im in civilian markets I also just think it's there's already been bills introduced in Congress. We saw after 911, there was a fundamental reevaluation of how to combat terrorism in response to the intelligence community and significant resources put in place to rethink and reinvent that and I think theres or.
Good chance that there will be a similar response here around public health and Pandemics to make sure that we're prepared to address these types of issues going forward in the future as if that becomes part of the stimulus package.
I think that would be.
An opportunity, where we could bring a lot of expertise and we can bring our passion of our people to help.
It will make a difference for our clients on that front.
Okay. That's helpful and just as a follow up to that so it sounds like.
You think there can be opportunities for you related just not to.
Pandemic response, but just also.
General spending on stimulating the economy.
Infrastructure et cetera, that's not necessarily tied to the pandemic response, but just more.
Stimulating the economy is that correct, well I think it.
Correct and I think it's obviously disaster recovery as part of.
Part of Endemics too, obviously, I think the stimulus funding will a portion of the will go for public health and has gone for public health related activities as I say I think there is some discussion around infrastructure opportunities in Congress now.
And so I think but based on what's been committed and what could come in the future I think those could align.
Nicely with us I didn't know soccer, if you want to add anymore. I mean, you've you might have some additional perspective on this.
Yeah, I think that you've said it all John I think that there is certainly in the past when.
We have a call the our funding the American recovery of Reinvestment Act and I think we were we did a lot of work.
In the.
In the in the energy sector are going to.
Doing all the resilience work associated with that act, so I think that.
If there is significant movement on that front by the become to penetration I think we will hopefully see fit with our upside there, but I think the there has been significant conversation about that and I think that there is a back and forth.
I mean, the administration and Congress on that so we just have to wait and see but I do think that there is going to be a significant amount committed.
Advocated for program infrastructure will be included.
Yes, I mean, maybe I could just add I mean, I I guess I just want to reiterate that again I also I've talked in the opening remarks about specific projects, we have underway at CDC at NIH and.
More broadly at HHS.
In some of those efforts are in the range of.
Our COO CDC work for biosensors in the range of five to 10 million over.
Several years our work on.
For NIH on building, helping build web sites.
In response to cover the 19 I think is a 15 million dollar contract over two or three years and so you know there's so those are material opportunities for us that weve.
You know that we're working on and have begun work that I do think or can be plus up and again I would say that theres potentially additional opportunities in those markets also on.
A public health messaging.
And some of the other as I talk about USA I'd will certainly be involved in.
International.
Monitoring and.
Calculating disease rates.
In developing countries in Africa around close to 19 and so.
There are so that should give you some perspective of the kinds of opportunities I think are out there and could be out there in the second half of the Irrs we.
You know as our clients think about additional if they want to do I think there are there certainly is upside for us here in the second half the year just leveraging.
Vehicles, we have a place with these clients and the work we've done.
And reputation we have at this club.
Yes, I would just add just what John said, you know you've seen some other discussions about the systems unemployment systems use by states and by the federal government et cetera, which are written and COBOL. So the whole idea or Whitey modernization I think is going to become a very significant issue going forward because I do think that's part of the satellite t.
Infrastructure off off federal state local governments, which potentially also is in place. So that is why we think that the DG acquisition process and were placed on that infrastructure front too.
Okay, great. Thank you for taking my questions.
Thank you as a reminder, if you have a question. Please press Star then one we have our next question from Marc Riddick with Sidoti and company.
Hi, good afternoon, everyone.
Hi, Mark.
So patina first of all welcome.
I guess, a great time or most of the time when the CFO Jones a company, it's not doing a pandemic. So you have a high degree of difficulty.
So congratulations welcome.
Thank you want to touch a little bit I'll, let me follow up on which has said because I was sort of curious to initiate the anecdotal I suppose but I was wondering if you talk a little bit about I guess, maybe your thoughts on 18 modernization federal state and local government now versus maybe you know.
Prior to the acquisition and I'm sort of trying to figure out if there's if there are learnings are things that you've experienced a that had been stress tested over the last several weeks that maybe either change where you already were or or just confirm what you already thought I was wondering to spend some time.
Im not that a little bit thank you.
Maybe I'll start off an instructor if you want to add a few words I mean, I just would say to with the Doctor said I mean.
I think.
Recently, obviously the federal government is.
Ben.
Through the stimulus program.
Working to provide either grants to small businesses or.
Funding David individual Americans.
And I think those systems have been stressed significantly by the size and scope and speed with which this money is.
Trying to get out there and I think to sit August when many of these systems are perfectly at the state and local level, but also at the federal level given its still in the early innings.
Still in you know the ancient languages global.
14, other languages that the systems really need to be a modernize and so I do think.
You know the.
Some of the challenges that have been seen in kind of getting money out quickly, whether it's through unemployment insurance or.
Funds to Infills Americans to the IRS or.
Two other small business programs. It this points to many of these systems or outdated and need of modernization and.
No when and so I think it can only be good for the potential opportunities and focus certainly in federal IP monetization and state and local I T modernization and so.
I think so thats, how I would say it I don't have soccer, if you'd want to add anything on that or.
No I think that I think I've said, whatever I do think that they're going to be significant.
But emphasis put on that only because the fact that I've been trying to modernize the bill for running legacy system is very high everyone knows that the end state subsequently monetization would mean that cost of running the modernize systems would be.
Third to half of what it is currently so I think getting from state aid to state. The has been the issue and I think this coal.
Situation gives a phillip to making sure that happened quicker than it would have if it hadn't taken place.
I'd also note that.
TG Archie group.
I'm has won something small we're just in the last week or two.
At HHS working on covert 19 issues, which.
They have history working across HHS and other programs, but.
We were pleased so.
I have them work when their first.
A piece of work on on IP monetization, so I think those opportunities out there and.
We can also take obviously take those capabilities into.
More deeply into CDC and NIH in other places.
Okay, great. So I've only got you more satisfied easy the first one age I wanted to just touch on you touched on the on California, or what's taking place there and his wife give a little bit more detail around energy efficiency update and kind of what you're seeing there and that process and whether or not maybe relative to.
Two.
The pace of what you thought you were going to see versus what you're seeing now has changed or maybe you could just touch a little bit on that and that I have one last follow up.
Sure I would say the California is playing out as we expected I think we are seeing increasingly.
More bids come forthcoming.
Overtime, they're becoming larger and.
More statewide oriented, which we expect that as we get later into this year.
We've been very busy on the RFP front as you know its is to state selection process.
We're quite pleased with our.
Our ability to get to the the second stage.
We're working hard on proposals I.
I think we do expect to start to see awards in the second half the year and so let me know again I would say that remains of.
Strong growth potential driver for us.
We're very busy and generally feeling good about.
How that's transpiring and we really Havent as I said, we haven't seen any delay or slowdown.
In those activities in California in the last four to six weeks.
Okay.
Okay, Great and then the last thing for me I, just want to switched back to cheat, what you're seeing with commercial for a moment and I understand the you know the delay in the near term as far as the bus 20 could you give a little bit more detail as to maybe just a general thought process, what you're seeing from those commercial customers that may be delaying maybe.
The programs are there things are they already had in place of they they the third by executing on or what have you had just wondering if you get maybe an additional I guess the anecdotal, but just wanted to get a sense of maybe what their thought process is going is cheap how to re engage with with customers and.
At how it may differ from what they already planned on doing again that may be very anecdotal buczynski share anything there.
Yeah, I guess I would I would.
Come back to what I've talked with you about in prior calls I mean again.
Our commercial marketing services business is about 15% of or total revenues.
I would say that about half of that amount is in.
In verticals that have been I'm talking in round numbers, but about half of that businesses and verticals.
Has been highly impacted by coven 19, so we're talking hospitality.
Tell change.
Travel and tourism.
Retail organizations.
You know in there there's there's been significant impacts.
Those clients are looking to stretch out assignments or putting.
Assignments on hold I would say so that part of the business is certainly seeing the impact and that's primarily with a 20% overall reduction that businesses.
Is coming from I.
I would just remind you we do have an industry, leading loyalty platform, which is part of that a lot of that work is done from world for hospitality.
Clients.
They have certainly asked to stretch out and reduce level of effort.
But at the end of the day, we've also had discussions with them they recognize that loyalty platform. So they're most loyal customers are absolutely essential to their long term viability and so I think they're working with us and partnership to.
To make sure that we keep the core set of people and we stay engaged with them.
So that when we get on the other side of this bill Bill.
They'll have those programs and be able to leverage them and frankly, there are leveraging the now even in these very difficult times.
So we're.
And in a similar way across travel and tourism.
Retail.
Again, those clients are still working with us they've cut budgets, but we do a backlog we have core teams engaged we've had to reduce our workload there we've had to.
Move.
Loose staff, which has been very difficult to pay time often for low them.
No I think our clients there are trying to work to make sure. We keep a core part of your clients with them of the for long term. So we can come out on the back side.
And maintain a core and continue to work with them.
And it really is about for us managing leaning forward and managing the business with where we can protect that or so we have a capability in the company, but also recognize on that.
We have to manage the business effectively.
The other portion of work and services I said, our is verticals that have not been impacted we are seeing growth in the commercial health.
Some of the technology clients, we serve and so.
And so we're managing the business carefully we're trying to align it with the opportunity we see work with our clients to maintain a core.
And we will come out of this business with of course set of capabilities.
Then I think will.
In the long run have value and will return to growth someday, we're managing it very carefully.
I think is a similar story in our European business around or events.
Related activities you know.
The impact sales were down.
15% in Europe overall with associated with these.
Events related businesses again were mentioned as best we can we're using the furlough programs I would tell you that the European Commission clients have World tour, primarily client for this eventual and work on the government side some of our commercial clients in the UK again heavily tied to work with us and working partnership as they make these cuts are asked for these.
Yes.
So we're managing and as best we can we we do think in a long run we want to try to protect the core.
While also managing the business as best we can.
Okay. So I lied I got one more I was just wondering if you'd give a bit about update on head count recruiting things like that as far as potential new consultants about slack.
Sure I mean, I think we so we are recruiting I mean, there are parts of our business more broadly growing I think as we demonstrate the first quarter I mean, our federal business has been growing our energy business grew quite nicely in the first quarter.
So weve.
We have we continue to recruit and hire folks for it modernization.
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Health Arena in engagement for government clients.
We certainly continue to recruit in.
I'm energy markets and I think we have.
I think we have transitioned effectively to.
Doing that virtually so.
Identifying staff interviewing Onboarding staff virtually in this period I think thats.
One other things we've had to figure out and I think we'll be a core competency will want to maintain as we go forward.
And so you know to your point I think the staffing does follow the head count I mean I think.
As I said I think our guidance for this year now is essentially flat on revenue so.
Our recruiting is more focused on areas, where we need to add staff are growing. We're obviously have markets that are are not growing and we are managing that.
Some of it approaches side I laid out, but I think we've we've actually come quite a long way interoperability recruit and onboard.
In the five or six weeks, we've been working.
Virtually on the recruiting front.
Okay, great. Thank you very much.
Thank you we have no further questions I will now turn the call over to management for closing remarks.
Thank you for participating in today's call, we look forward to engaging with you at upcoming meetings and conferences.
Stay safe and be well thank you.
Thank you ladies and gentlemen. This concludes today's conference. We thank you for your participation and you may now disconnect.
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