Q4 2020 Earnings Call
Ladies and gentlemen, thank you for set a bright I wasn't sure the Booz Allen Hamilton fourth quarter 2020 earnings conference call I.
At this time, especially microrna listen only mode I.
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Thank you good morning, and thank you for joining us for Booz Allen's fourth quarter and full fiscal year 2020 earnings announcement.
We hope you've got an opportunity to read the press release that we issued earlier this morning.
We've also provided presentation slides on our website and are now on side too.
I'd make VZ, Vice President of Investor Relations and with me to talk about our business International results are receiver Zinski, our president and Chief Executive Officer.
And Lloyd Howell Executive Vice President Chief Financial Officer, and Treasurer.
As shown on the disclaimer on slide three please keep in mind that sounds the items. We will discuss this morning will include statements that may be considered forward looking and therefore subject to known and unknown risks and uncertainties, which may cause our actual results in future periods to differ materially from forecasted results.
Those risks and uncertainties include among other things general economic conditions, the availability of government funding for our company services and other factors discussed in todays earnings release and set forth under the forward looking statements disclaimer included in our fourth quarter fiscal 2020 earnings release, Anadarko SEC filings.
We caution you not to place undue reliance on any forward looking statements that we may make today and remind you do we assume no obligations to update or revise the information discussed on this call.
During today's call will also discuss some non-GAAP financial measures and other metrics, which we believe provide useful information for investors.
Include an explanation of adjustments and other reconciliations of our non-GAAP measures. The most comparable GAAP measures in our fourth quarter fiscal year 2025.
It is now my pleasure to turn the call over to our CEO receivers Dansky, we're now on slide five.
Thank you Nick and good morning, everyone. Thanks for joining the call.
I hope that you your families on your colleagues have been healthy unsafe since we last spoke.
It's been eight weeks since Booz Allen's fiscal year 2020 ended.
But march feels like a distant memory given all the has transpired since then.
Our world, our communities and our institutions uptake in drastic necessary steps to respond to the corporate 19 pandemic.
Its toll has been unlike anything most of us I've ever experienced in terms of illness lives lost and economic hardship.
Well first responders doctors and nurses and all essential workers have inspire those with their actions.
From ever want to Booz Allen.
Our heartfelt condolences to those who have lost loved ones.
And our deepest gratitude to every single person on the front lines into their families.
Without a doubt.
The war walk mobilization against covert 19 has dramatically changed the way, we live and work.
That's what this morning, I will begin by discussing Booz Allen's response and approach going forward.
The Lloyd will build on these teams while providing the details of our fiscal year 2020 performance and our outlook for fiscal year 2021.
Reflecting back to early February.
We called it 19 began spreading across the globe.
Our firm immediately organized pick crisis response team.
Committed to three overwriting priorities.
First and foremost.
To protect the health and safety of our people their families in our communities.
Second.
We continue supporting the critical missions of our clients.
I'm third.
To ensure that financial and institutional resilience so our firm.
These priorities have guided every decision since then.
Including our move to mandatory teller work on March 17.
There were also at the center of our resilience program announced on April 1st.
We took bold action.
Creating 100 million dollar pandemic resilience fun.
Hi, containing and Reprioritizing non personnel costs.
Using those funds to increase job security and expand benefits we believe.
Good relieved the initial stress and anxiety cost by the endemic and help the most vulnerable in our communities.
This in turn will allow our people to channel their talent in energy.
The meeting the needs of our clients.
An outcome that directly contributes to booz Allen's growth, while preserving our resiliency.
Hi, I'm proud of how well did booz Allen team responded earlier this crisis.
And how quickly and effectively it adopted to a new reality.
Yes, we continue to learn about the virus.
And adjust our operations, we think about covert nineteennine three distinct spaces.
The first phase encompasses the crisis response I just described.
And there's no behind us.
From the end of January through the end of April.
We are now in the early weeks will be second phase.
Which is likely to lasts many months.
It is characterized by continued threat from the virus with no proven treatment over succeed in place.
Decisions for how to balance public health and economic considerations.
Actually will be made locally and that varying levels insight different institutions under conversation.
The third and final phase will begin when the virus is controlled by some combination of treatments vaccines and immunity.
We ultimately expect a new normal to emerge.
Incorporating lasting social changes that result from dependent.
I'll say business.
We view this as a source of new challenges and opportunities, but need to be considered and anticipated starting now.
Because freeze too.
Will encompass module fiscal year 2021.
I want to summarize key decisions, we've made about how we will manage through it.
The health and safety of the total workforce remains our top priority.
This includes not only our old people.
Also those we work with every day.
We have already begun talking with clients about our approach.
Which we're calling safe return.
During this phase we will continue to Maximise telework.
Our experience to date has shown that not only does remote work reduce the spread of infection and incidents of disease.
It is also highly effective.
Across our firm.
Teams are delivering against contracts advancing missions hiring talent, capturing work innovating and collaborating.
Albeit telework.
We also recognize that in some cases.
Particularly we've classified missions.
There are very few options for telework or its effectiveness is limited.
These cases, we have and will continue to work with clients to ensure a safe returned to their facilities.
Guided by federal state and local policies.
As well as advice from our own experts.
We are creating save return plans.
Collaboration with each client.
These plans computer things like social distancing rules.
Travel restrictions.
Leading procedures and protections for those high risk.
Great execution over these save return plans we believe.
Will help keep everyone healthy unsafe.
Well maintaining critical missions.
As part of face do.
We are piloting anti body testing protocols.
Conducting contact racing.
And fine tuning our employee benefit programs.
And much like in phase one.
We are managing costs. So we can execute the mitigation strategies that prove most effective.
This is a complex but critical undertaking.
We are all hands on deck.
Looking further down the road.
After the virus is control and different dynamic.
Society, and therefore, Booz Allen will not completely go back to how things were prior to covert 19.
We're already seeing emerging themes, such as faster adoption of Tele health virtual learning and secure mobility solutions for example.
These changes are beginning to reshape demand.
And then whose alan doesn't ever stand still.
We're already tilting in those directions as we develop our next growth strategy.
Turning now to the financials and to our current operations. It is important to underscore that we were able to quickly respond to the challenges of corporate 19.
Because of our talented team and strong financial footing.
Fiscal year 2020 was another outstanding year for Booz Allen.
Once again, we met all of our financial objectives, while serving clients with passion and dedication.
Because so much of our work is mission critical.
Must continue without interruption.
And the key strategic trend that fuels, our business has not changed.
The demand for integrated technology solutions continues to grow.
Since the health emergency began.
We've been in constant communication with our clients.
Like all of US there are grappling with unprecedented changes and have rallied to maintain missions in a whole new environment.
Many are turning to us for support a new requirements related specifically to the government's Cobiz 19 response.
Today, we are operating at pre pandemic productivity levels.
What a credit to our teams and our clients.
In fact, how about 90% of our billable work is being delivered via Telework.
And the roughly 10% of our people who are still going into critical facilities are supported by specific plans developed in partnership with our clients.
To maximize ever once safety.
Our leader for managing the business with agility.
Hiring against more than 2000 sold unfunded positions.
Aggressively pursuing new work and realigning people and resources to the areas of greatest need an opportunity.
As I've said many times before.
This is the advantage of our business model.
Our single BNL allows us to operate as one team.
Throughout any crisis or disruption we are in it together.
In sum.
The management team is very pleased with how the business has adjusted to the demands of today's environment.
We have entered fiscal year 2021 with confidence and momentum.
We expect to deliver another year of industry, leading organic revenue growth and strong cash generation.
This will allow us to continue investing in people and technologies.
Exploring option value opportunities for the future.
And delivering value to our shareholders.
Given the complexity of the environment, we expect to have a strong first half with more uncertainty in the second half.
The uncertainty stems from several unknowns.
Including the course of their pandemic I mean, it's possible effect on our workforce.
And the outlook for their budget beyond the current government fiscal year.
Despite the uncertainty we're pleased to once again increase our expectations were aided growth in our investment thesis.
You'll recall that the theses for regionally ambition, 50% its growth over a three year period from the end of fiscal year 2018 to the end of fiscal year 2021.
Last year, we increased the goal to 66% either growth over that period.
The F. why 21 eight its guidance range, we're announcing today.
Translates to 70% to 80% humidity eight if growth from the end of fiscal year 2018 to the end of fiscal year 2021.
The people are Booz Allen. These are all the credit for the growth we've achieved and for sustaining are unique position in the market.
Their hard work and the financial results. They produce are the best proof points of our firm's fundamental strength and resilience.
Floyd.
Over to you for the details of the full year on our guidance for fiscal year 2021.
Thanks.
Good morning, everyone.
Echoing your comments about our excellent operational and financial performance in recent years. This track record of physician Booz Allen to not simply react to the challenges of this pandemic, but to proactively address the key opportunities and risks that emerged from it.
We are managing the business to ensure long term strict just as we have done in the past with things like budget sequestration and government shutdowns.
We are investing in our people and allocating our resources efficiently as we strive to continue generating industry, leading organic revenue growth.
Importantly, and it's a Ross you mentioned.
Strength of execution has again supported an increase in the three year eight EPS growth target in our investment thesis.
Discussed this in more detail when I cover fiscal year 2021 guidance, but first I will provide an overview of our fiscal year 2020 results, while highlighting the expected performance impacts of cobot 19.
Our fiscal year 2020 results are shown on slide six.
Line revenue increased 11.3% to $7.5 billion well revenue, excluding billable expenses grew 9.9%.
$5.2 billion.
This double digit organic growth was the result of both the same demand for services and solutions and an increase in head count to meet that demand.
Turning to slide seven.
Our fourth quarter book to Bill was 0.4 times, which is somewhat lower than what it's typical for our Q4.
Noted during the earnings call last quarter, we are building on our strong foundation of diversified small awards by pursuing larger more technically complex fit.
This is naturally increase the volatility of our book to Bill metric.
Nonetheless, we have entered fiscal year 2021 with enough.
And to continue growing in line with our investment thesis targets.
Man for our services and solutions remains healthy, particularly in defense and civil market.
When rates in fiscal year 2020 were up in our qualified pipeline, which includes several large new and recompete opportunities increased 31% compared to year ago levels.
Nice gain has not today well significant delays in award.
Our full fiscal year book to Bill in 2020 was 1.2 times total backlog grew 7%, yielding our largest ever fiscal year and backlog of $20.7 billion.
Funded backlog was down 1% to $3.4 billion unfunded backlog was up 23%.
$4.5 billion and cried options increased 5% to $12.8 billion.
Pivoting to head count as of March 31st we had 27173 employees up by 1104 year over year for 4.2%.
This was below or 5% head count growth targets for the year, but the revenue impact with more than offset by higher in salaries as we continue to hire in retaining talent with in demand skill sets.
<unk> like team has already transformed the labor market.
I'm pleased with how well our recruiting efforts have transitioned to the virtual environment.
And while hiring has slowed due to the pandemic parturition, thus far has dropped by roughly half.
Such early signs point to continued head count growth.
We believe the positive hiring and retention trends, we're seeing in the early weeks of this fiscal year demonstrates the wisdom of the resilience program, we put in place on April 1st.
Moving to the bottom line adjusted EBITDA for fiscal year, 2020 was $754 million.
11.8% from the previous year.
This increase was driven primarily by our topline growth.
Long contract level performance and solid operational management.
As a result, or adjusted EBITDA margin for the full year was 10.1%.
This was in line with our expectations, even with an approximately $10 million end of year negative.
EBITDA associated with a little bit 19.
These costs were related to transitional expenses.
<unk> reductions and Billability in March and charges than the intelligence market. We believe we may not be able to recover.
Well in this last point I am pleased with how well we have worked in partnership with our defense and intelligence client reclassified work is concentrated to retain continuity of service and ensure a ready workforce.
This is a challenging situation.
We appreciate that the cares act recognized the need to keep this critical workforce ready and available while also providing a mechanism for cost recovery given the broad impact.
Invoicing under the terms of that law has begun and current guidance suggests that fee will not be reimbursed on certain contracts involving shift work.
This guidance affects all companies in our industry.
We estimate that walk temporary it will have an impact of approximately $6 million and walk you bits per.
Remote.
Full year 2020 net income.
And.
Also grew significantly.
Net income grew 15% year over year to $483 million.
Adjusted net income was $449 million up 14% from fiscal year 2019.
Diluted earnings per share rose to $3.41 from $2 and 91 thing in the prior year.
And adjusted diluted earnings per share increased to $3, an 18 soon from $2.76 than the prior year.
These increases were primarily driven by revenue growth profitability improvement you lower effective tax rate and a lower share count in fiscal year 2020, due to our share repurchase program.
Regarding our effective tax rate.
During Q4, we adopted in alternative approach to identifying qualified expenditures for our research and development tax credits mentioned last quarter.
As a result, we recognized approximately $38 million in tax credits this quarter net of reserves, which we excluded from adjusted net income and adjusted diluted earnings per share.
We expect this method to provide additional credits in the future and we have included the expected benefits in our guidance for effective tax rate.
Turning to cash we generated $551 million and operating cash during the fiscal year, representing 10% growth over fiscal year, 2019, and putting us at the top of our forecasted range.
Our strong operating cash flow fourth quarter revolver draw and the delayed draw term loan execution at the start of the fiscal year allows us to end the year with $742 million in cash.
Yeah.
So far we have not experienced material delays in cash collections due to covert 19.
The virtual invoicing process has run smoothly due to the ongoing efforts of our team and our government partners.
Capital expenditures in fiscal year, 2020 totaled $128 million inline with our expectations as we continue to invest in infrastructure and technology.
So I'll address forward looking capex spend in the guidance section at this point the long term impact of cobot 19 on facilities spend it's unclear.
However, this is an area, where we see opportunity.
New ways of working.
All in all our operating performance and prudent capital management have resulted in a strong well capitalized balance sheet.
This is particularly useful in these turbulent time.
Provides tremendous strategic and operational flexibility.
Please turn to slide eight.
During the fourth quarter, we continue to execute on a prudent capital allocation strategy designed to deliver both near and long term shareholder value.
In the fourth quarter, we repurchased 156 billion dollars' worth of shares for the year, we repurchased a total of 2.7 million shares at an average price of $69 per share.
Including dividends, we returned a total of $333 billion to shareholders during fiscal year 2020, bringing total capital deployment through the first two years of our investment thesis to nearly $700 million.
Looking forward, we are reiterating our 1.4 billion dollar capital deployment target through fiscal year 2021, a key part of our investment thesis.
Priorities remain.
Investing in our business, securing our quarterly dividend appropriately priced strategic M&A and share repurchases and special dividends.
Today, we are also announcing that the company is authorized a regular dividend of 31 cents per share payable on June thirtyth, two stockholders of record on June 15th.
Dividends remain an important component of our strategy to create value for shareholders and we're extremely proud of the growth in our quarterly dividend, which amounts to a robust 30% growth rate for fiscal year 2020.
This reflects the confidence our management has in the business and its future potential and demonstrates our commitment to the targeted 2% yield in our investment thesis.
Turning to guidance, please move to slide nine.
Last year at this time due to certain federal budget environment.
And I characterize our plan for fiscal year 2020 in two parts and aggressive first half followed by more conservative second half.
Today, we are operating in its unprecedented environment and I'll characterize our guidance in a similar way.
We are actively managing through the early phases of the pandemic.
As a rasco described our team and our government partners have rapidly adapted so that our nation's critical missions continue without disruption.
Early success under extraordinary circumstances, plus our strong underlying fundamental allow us to carry momentum into the first half.
We remain in a growth posture, but acknowledged that there is reduced visibility into the factors that will drive performance for the full year.
As Rob noted.
Second half of our fiscal year could be impacted by unknowns and related factors. These include the course of the pandemic whether use of paid time off returns to more typical patterns around the summer vacations.
The timing and extent of our return to secured work spaces.
That is of appropriations after September thirtyth.
And if possible post election, reordering a budget priorities.
As a result of these uncertainties our guidance ranges to get into year or slightly broader than in recent years.
Our fiscal year 2021 guidance is as follows.
We expect revenue to grow between six and 10% with growth in revenue, excluding billable expenses expected to be in the same range.
We expect adjusted EBITDA margin to be approximately 10% on par with fiscal year 2020.
Margin guidance incorporates uncertain fee recovery on work invoice per the cares that.
At the bottom line, we expect adjusted diluted earnings per share to be between $3.40 and $3.60.
Based on 136 to 140 million weighted average shares outstanding in a tax rate in the range of 20% to 23%.
We expect to generate $550 million to $600 million, an operating cash, which again to this point has been and materially impacted by cobot 19.
And finally, we are forecasting capex of approximately $80 million to $100 million, we continue to invest in infrastructure and technology, including a supportive move toward telework.
To be clear facility spend in the near term will decrease given the current environment, while our long term strategy is still being developed as we contemplate you see return.
In closing, we're extremely proud of our fiscal year 2020 performance Im pleased to be forecasting another year of robust results.
Whose allen remains on a clear and strong path.
Delivering exceptional financial results, while investing for the future.
We have built significant momentum and the business.
And our people are as engaged and focus on our clients missions as ever.
And finally, even amid uncertainty the entire management team is optimistic about the year Im confident that are from can make a difference and unprecedented times.
Ross you back to you.
Thanks Lloyd.
The past three months have been incredibly challenging for our from our clients on our country.
What stands out for me, though.
Individuals have rallied to support each other.
And to carry the Bourbons together.
I'm incredibly proud of how the people, whose allen have responded at work and in our communities.
For making personal donations that supplement our corporate contributions to put backs first responders and military families who need.
To volunteer and local charities and making face mask core colleagues.
And are showing the best Booz Allen.
It shines through endeavor work as well.
Allow me to give you just a few examples.
One of our associates Salvation authority is the heart brains behind the data visualization project, but he's helping get veterans' health administration prepare for a possible surge of the virus in rural areas.
One of our epidemiologists.
Dr. Some economic Cairo.
Worked on her own time with other scientist and researchers to build an openly available global corporate 19 pandemic Matt.
She is now creating molson dashboards that will help we either side the deal D and defense Health agency maintain readiness.
And elsewhere in the department of Defense, we have a team that worked around the clock for six days to move critical pre deployment training of soldiers studies, usually dine in person TWIC completely virtual environment.
Since the beginning of April.
About 3000 soldiers have received thislife virtual instruction.
A mandatory course that helps keep them safe while deployed.
And finally.
Because may is military appreciation on.
You mentioned Monique this era.
Cyber security analyst from our office in Lexington, Massachusetts.
Monique like many others that are from he's a member of the National Guard.
She was recently activated to assist with the Cold 19 response unlimited contact tracing mission for her unit.
We are so proud of her service to our country and are delighted to have her back.
These and many other individual stories demonstrate the values artwork and dedication of this firm.
When a company that Mobileye says to me any challenge or opportunity.
Over the past three months.
Our mantra has been in it together.
He conveys unity for sure.
But more importantly, it underscores our institutional strength and resilience.
They are very things that create value for our investors and all stakeholders.
So I'll close with a big thank you.
The people of Booz Allen.
You Amaze me and inspire me each day.
It is my existing privilege to represent your work on these calls each quarter without Nick.
Let's open the line for questions, Thanks or else you operator, please open the line.
That's a miners to ask the question. Please press Star then one you touched on telephone.
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Yes. Thank you please limit yourself to one question and one follow up.
Please standby we've compiled the kuni roster.
Our first question comes from she localized <unk> with Jefferies. Your line is open.
Hi, Good morning, Horacia late in Mek and thank you for the time.
Ross said this on for you May you were awarded rather large task order under the line to contract vehicle to support but they are these joint artificial intelligence Center I think this is the largest staff Gee I see why could be and there's a second largest <unk> program. Just following E maps and 20 team I guess this is rather unexpected.
For US were you expecting yet how do you think about contracts like best relative to your revenue growth Fame work, maybe if you could talk more about it.
Sure Good morning, Sheila and thanks for the question.
You know, we're obviously very pleased to have been awarded the this contract.
It was part of the competition and.
We're we're just very glad that's I always say on the calls the size of these contracts on task orders.
It is important but for me equally important these the actual content and the strategic value that they create.
And in this particular case this is an opportunity to support the Jake.
They accelerate the deployment of artificial intelligence broadly across the deal D.
And obviously a submission desperately needed there to my heart and to the people it was Alan and we care about a deeply.
A more broadly.
I think it's another proof point of our strategy as the leading provider of technology solutions through our clients.
And it demonstrates that our strategy works artificial intelligence in general it's a great example, because it's both an opportunity to grow a workforce in our traditional business.
Scales around these new technologies and to create option value in this case with our multi.
Program. So all in all are very very pleased and Oh, we look for tomorrow.
I guess I'm asking another follow up related.
Given I know that that's a focus item for because as you start planning. Your next growth strategy. How do we think about the impact of co bid. It seems that focus right now is more on veterans' health and tracing is there a larger covert opportunity when it comes to high.
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I think you know when you look but you've got to put things in context right now it's all about the response our clients are great focus.
On that understandably, they're leveraging both existing technologies and new technologies as rapidly as possible I think I still look forward.
The need that that is clear, especially when you operate at the scale of our clients is the need to have all of this information from these disparate sources.
Used together.
Salable and ready for decision, making almost instantaneously and in my view artificial intelligence is going to be part and parcel of that could be big deal and that's why I'm happy that we're both doing this work.
More importantly, we're also setting up the foundations for creating unified data environments and a lot of the things are going to be required to make this real in the long run.
Great. Thank you very much.
Thank you.
Thank you. Our next question comes from part of Kopelman with Melees Research. Your line is open.
Hey, good morning, gentlemen.
Well I feel I wondered if you might expand on that a little bit in terms of you know the demand environment. You know you talked about that kinda reshaping and the the aftermath Dakota [laughter] leads are darex that you know that reshaping is that customer driven is that [laughter] driven hand in hand.
Partnership with you a im just trying to understand how you think that's going to evolve.
<unk>.
You know I think it's it's personal too soon to tell exactly how it's going to have all right. I mean, we're still in the midst obey response airport as I mentioned before we're going into what we view us a second phase in more for a long phase.
But it's going to require a lot of rethinking how things work.
And then in the third phase ones hopefully these virus is behind us.
There's going to be changes that are left that we're beginning to see I mentioned before things like the increased adoption of tele health.
Are they need for secure mobility.
Virtual reality training all of these things are there were into works already what we're seeing is an acceleration in need any desire to deploy these technologies.
And you know we are positioned to help us. This has been from the beginning of vision 2000, 2020 times 12. This has been arm entrees, we want to be at the center of our clients missions, bringing technology to solve new problems.
And again, we're seeing demand across the enterprise from intelligence to defense.
Certainly our health and civil business.
As it relates to all of this.
Great and just as a follow up for Lloyd you mentioned, the the qualification of research expenses and generating the tax credits.
Impacting that the 2021.
Effective rate how much do you envision the tax law change in 22, reversing that a little bit any any color you can give us there on that the step up thanks.
Sure morning, Carter as you know more and more of our work has been transitioning to be in the area technically advanced areas like software related engineering. So we had an opportunity to look at that.
You know with.
Our analysis that we mentioned last quarter, we <unk>, we reassess their tax credits associated with our R&D expenditures going back to 2016 through 2019 and that yielded a.
38 million.
And.
And recorded in the fourth quarter and excluded from eight apps.
Now going forward.
It's it's early to tell exactly what any changes maybe in the impact on it but we expect.
The tax rate.
Indicating their guidance to be between 20 and 23%.
Slide 21.
And beyond that depending on the IRS ruling.
To be in that range if not.
Slightly below that given the reserve amount, we we made.
Okay. Thank you very much dense.
Thank you.
Thank you. Thank you. Our next question comes from Jon Raviv with Citi. Your line is open.
Thanks, Good morning, everyone and to figure for you all.
Russia, one of those three areas that you mentioned tele health virtual learning secure mobility, you spend a bit on those and sort of quantify how those are playing out in the phase two and how they might play out in phase three and as you do can you just talk about that pivot in the context of potential budget changes your budget party changes it would seem to me that.
Parties will change, but proteins changing can actually be a place where you guys can really accelerate into some new spaces. Thank you.
Good morning, and you know, it's again I I want to qualify these by saying we are in the midst of a rapidly changing situation and everything around us is changing.
I think that seems to be clear to us is this need to accelerate implementation of technology to respond.
To the environmental factors if anything accelerating.
Tele health has become a necessity.
Now just a technology that is in its infancy by the technology that is being broadly adopted how to do that how to do that security Lee they changed the dot poses to the handling and management of the information that is provided and how that happens.
Is.
Going to have lasting effects on on the requirements to continue due to drive that technology.
On secure mobility, you know everybody's working from home that creates into our new attack surfaces and tremendous opportunities for efficiency for effectiveness.
For resiliency and we're right in the middle local for thinking through that her own organization and helping our clients. This is a place where we're hopeful that it technology like district defend which we've been investing in US you know for several years will come to the forefront and be very helpful.
And then in terms of virtual training again. This is a trend that was already playing out.
That is accelerating and one where we have over the years.
Invested significantly to be very relevant to our clients, especially as we were doing idea response and things like that we saw a new generation warfighters coming in that would be more willing to learn from gave you fight technologies to learn from virtual reality, we have a network of labs that.
We've created.
To support that and.
Again, it's all a piece of all where we will see.
Increases in demand.
How that will change within a you know any timeframe based on budget priorities.
US as Lloyd pointed out of high pointed out there's some level of uncertainty around that.
Well, what I would point you to us it relates to office or ability to evolve and move rapidly for one opportunity to another because of the single CNL because of our culture.
We just respond quickly to ideas, we invest on things that make sense for the long term and hopefully that makes is built to last.
Thank you for that and then just Lloyd on the on the margin of a roughly 10%. We appreciate that that's why 21 is encompassed by fees to if you will with several inefficiencies associated.
You know you could you somehow classify or characterize how much of that 10% guidance is being held back a if you will buy the unserved by the inefficiencies such as the monthly impact from the lack of she recovery and in the same same context, how how mix and commercial or or impacting margin.
At this point thank you.
Sure John and I mean, it first recognizing that we had exceptional performance and flight Swanee Q1 group Q3, which really allowed us to allocate the resources in Q4, not only to her at this point to improve upon our competitive positioning but also maintain that business.
Momentum and.
We see that and we're very pleased with that performance.
By the 10 million EBITDAC movement related.
And.
Going forward, we still expect our portfolio.
Reform as it did not quite funny.
Operating very well.
Rack level.
We feel our strategy is working and we do have we believe as a temporary headwinds on the inability to collect the are.
Some of our security and defense businesses, but we've taken that into account and with our up like 21 guidance.
That's why we're.
Affirming the 10% EBITDA margins.
Thank you.
Thank you. Our next question comes from Taiwan with Cowen Your line is open.
Yes. Thank you very much and good results again defensive simple, but you got its all continuing slowly.
And basically a decline in commercial can you give us some color on what's impacting that is a much more coated and once the relative prospects going forward.
21 thanks.
Hi, Good morning, I'll start and I'm sure lawyer will want to add.
First of all the overall results as you know are quite good defenses civil are up to the tune about 15% on the year, which is frankly head of our expectations on we're extremely happy with.
With that we've been talking for the last couple of calls about the fact that are Ito business was not adding people as quickly as it needed to.
And we made some changes to accelerate that.
And you know I think what you're seeing is the continuation of that trend and while at the same time, we're working inside the business.
To a return to a faster talent acquisition model.
And and therefore look to accelerate the growth.
In that business, where the demand we believe is still there and still very robust.
Our commercial business, we called it flat for the year it was flat for the year.
And ER I think in inside of that there are some you know turbulence and variability in our middle East business and more robustness.
Our U.S. commercial.
Business and.
I think the prospects, especially for our cyber centric.
Business in the U.S. and around the World are excellent, we probably we'll still see some spottiness and variability in other parts, but overall I.
I am optimistic for our commercial business acid lots, we look forward.
Thank you very much and then a quick one for you more and so the Sixmillion EBIT per month, that's basically like close to 100 beds on the margin year over year my understanding from other contractors is it the carriers that did not reimburse for costs incurred prior to.
Passage, what was expected to reimburse for no cost after which could you give us some color on what's in the six in the 6 million and.
There are when he brings what actions.
Yes.
Sure I essentially as we spend our prepared marks its really complying with the cares act and or inability to invoice for fee.
That being said.
I think conversations with our clients.
We are optimistic that this is a temporary dynamic, but we thought was appropriate.
Certainly in terms of the acquired 21 guidance to.
You are back to take that into account as Ross you said you know we've got some unknowns and this is one of them.
But.
You know we provided a range that we think.
Knowledge is the possibility that.
Some point in the future the government will.
Begins the depending on those and goes.
So have you assumed it goes for the entire near or not.
You know we we.
He said and we did our best to include it part of the year, but we feel that are looking out 12 months.
There could be the potential for that to the turn in the other direction.
Thank you very much.
Sure.
Okay.
Thank you. Our next question will talk had were Texas with Wells Fargo humans open.
Hi, Good morning, I, just wonder if you could update us on your Optionality efforts.
What did you seed what have you been able to capture so far at and again remind us how you hope to capture them either through sales so were annuity streams. Thanks.
Sure I'll start.
As you know at this point, we are focused on four distinct initiatives inside that portfolio that are the largest and then a number of things. So we're building behind on that for our Moxi [noise].
Which is our artificial intelligence platform and marketplace are directed energy airports.
Creation Dot Gov, and our district defend secure mobility technology.
And in each one of those we have a distinct business plan they are different by nature and so they monetize.
Differently, but what they have in common is that all not directly labor based.
And so they create value a first of all the carry higher margins are they create value outside of having to add headcount.
And we're seeing good progress frankly, you know for Oh, probably more than the time that we have to take you through the details on.
On each one of them, but I am both at least an optimistic there all hitting their milestones are all offline just point the revenues to profits are not material.
So the overall operation we didn't expect them to be at this point, but they're very much on frac.
Yeah on my hope is the future is very bright.
Well my other question there seems to be a a drift higher and cost plus revenue and a drift downwards fixed price revenue.
Presumably that's having some impact on your margins and do you see that trend continuing and acting as a headwind going forward.
No we see the up ticking.
Reimbursable largely due to the growth in our defense business, where.
More times than not that the contracts I.
Thats supply.
That being said.
Within our performance, but cost reimbursable on time materials.
We have been able to execute in a manner that.
Has maintained its not grown margin a little bit.
The downtick in fixed prices really.
From our vantage point.
Timing and clients preference and we don't get too excited if there's a couple of percentage point decrement or increase in that however, we continue to sell our higher margin capabilities as we always have said we're operating.
Even more effectively year over year.
We're not experiencing as many self inflicted missteps that we have in the past and so.
20, it was really the coke and related.
Impact that brought it down a bit.
Thank you feel allow me let me put this into context. So the overall investment theses because I think it's important to who just frame it altogether.
If you remember.
We over that period, the three year period that with ends at the end of this year, if we actually.
Meet our guidance for the year.
We'll have out at roughly $2 billion in a new revenue almost all of it organic.
Our margins will have gone from Lloyd check me here that low nines.
10% or the low tens.
And then we would be looking at an eight EPS growth over a three year period in the 70% to 80%. So we've been able to do all of that while continuing to invest for the future while continuing to drive the business will continue to drive.
Our margins any inside of that like Lloyd pointed out what's happening to the.
Different piece parts of the business and even to the contract structure House.
No way.
Any impediments impact we're actually.
Extraordinarily pleased with the performance of the contracts.
Thank you.
Thank you our next question from Matt takers with Barclays. Your line is open.
Hey, good morning, guys. Thanks for the question.
But I wonder if you could talk a little bit more about kind of the timing of when people can return to some of these secure facilities that they may not be able to access now that started to happen at all in with some of these stay kind of easing locked down there or how should we think it's sort of Apollo that.
So let me try and frame it first of all you know on on some of our critical facilities.
Our people continue.
To go they were on the front lines. The work that we're doing could not be stopping because not be brought into telework and they've done an amazing job of continued to be their support our clients I couldn't be prouder of them and friendly of our clients because our clients have acted with a great deal of responsibility disciplined diligence and.
It was the result of that.
We've been able to have people at these critical facilities, while keeping everybody safe.
As we look for we anticipate and are beginning to see more requirements for people to go in a it's not a huge amount yet and they may not be our goal is to maximize stellar work.
Because we know Telework works for the vast majority or what we do.
And we expected to to continue every time, we send people back to apply facility because the mission requires it we do it in consultation with the clients and White building one of the safe return plans that addresses all of the things we talked about before to make sure that our people and our client.
Safe as possible.
While we do these you know the I think these people centric approach that we've taken that our clients have taken is really the right way to go and he will meet or the they need to bring people back in a way that is responsible for the needs of the Michigan safety.
Over the people and I think you know again, I said before executing against glasses, our top priority.
Got it thanks, and then I guess, just a follow up but you had talked about.
Maybe at some point in the next year issuing like kind of the next.
Stays a long term guidance I'm, obviously, a lot uncertainty with co bid and the election.
Potentially budget pressures as he called out prepared remarks, I mean, it should we still think about that this is coming up in the near term future.
When you take a sort of framing that for us.
Sure I'll start I know a lot has a lot to say on this topic to.
No. This is an area, that's near and Dear to our Hearts I think having.
Clear strategic guidance, both internally and externally is important and we have been working on a strategic review.
That is ongoing.
At the right time.
Probably you know certainly in the next 12 months, we will look forward to trying to give.
Both strategic clarify our internal strategic changes, if any and gave strategic guidance.
Externally and the associated financials that go with that I think you know again, it's done against the backdrop.
Oh by the investment theses that for the last three years. So we still have to deliver on the last year and we're obviously very focused on that.
Has been very successful and we have to say adaptive and we have to be able to incorporate as we always do everything that we learn indeed environment. The as part of our philosophy Sparks our strategy.
And I'm not much more to build upon.
I was looking forward to getting out with our new and our updated investment thesis.
The fall.
Let us into the calendar year.
Independent.
So we had to obviously a bit of a reset there, but it's a roster.
We hope to be in a position shortly after the new year post the election.
Get back to everyone with what.
The update would be.
Okay, great. Thanks, guys.
Thank you. Our next question comes from Robert Spingarn with Credit Suisse. Your line is open.
Well good morning.
Good morning.
Lloyd I was I wanted to start with you on the cash flow. So with the 550 delivered in fiscal 20. Your guide is for flat to plus 50, I thought I'd just ask about the puts and takes around that spread.
Sure well versus what we're very pleased with our consistent ability to collect cash.
And largely.
Listen to these costs this has been a journey.
We put in place a variety of operational changes in front of their relationship.
With the payment offices as well as balance that out on the payable side you know the increase.
In our guidance, we're very pleased and happy to do that.
The puts and takes a really around the unknowns that as you heard in our prepared remarks as do.
What.
Endemic unfolds might be the impact.
On the virtual.
The season are working now.
And you know in the first half best viability, we've got more clarity into second half so.
The cyclicality.
Back to change.
We remain confident that you've got a sustainable changes in place.
But as we've done in the past that we see that we are.
Doing better will advise everyone at that and make adjustments accordingly.
Okay, and then harass here just a couple of quick things first on the Telework you've talked about how effective its been for you.
And we've all seen that what do you think about the customer do you think that.
Theres an opportunity one for the customer Deo de specifically to increase Telework as as this you know post crisis and is there an opportunity for you in there and then the other question I wanted to ask he was on your book to Bill.
Here in the first half do you see a similar trend is the last couple of years something like a let's call. It a 2.0 book to Bill for the for the first fiscal half.
Let me take the first part I think Lloyd will want to take the second part.
You know I, we wouldn't have been able to move to this level of color work if it weren't part the talk at our clients have both encourage it allowed it and work right alongside with US and I think we're all learning Oh, we have for example learn to write these very large proposals.
Entirely virtually this is not something six months ago. We could have told you we could do and I think our clients are learning to a bubble some of the opportunities and the limitations with these new platforms and I think this whole thing is changing people's minds.
I see in that an opportunity to do more remote delivery, which would be both more efficient than more effective.
To our clients you would require people do more or less often you would have.
Don't make different talent.
Accessible for clients and our clients see that too and so I look forward to working with them to try and enable.
As much of that as humanly possible.
On the book to Bill front.
I know well it will want to talk about the number so all I can say is.
Demand for what we do.
Fortunately continues to be very robust and we see a lot of opportunities and we're writing proposals at a an accelerated pace.
And again in the context, so what's going on around us.
We are I'm very optimistic.
I'm pleased with the performance so far.
Yes.
Okay, that's very hard to let me let me.
Pointed to a couple of indications are indicators that give us the optimism one is that.
By pipeline is up 31% year over year.
We're seeing recompetes.
Up 17%.
And the new work opportunities are indicative of the Jay Cohen of also increased about 1.6 billion.
20 was a lighter year in terms of Recompetes.
Back to being an uptick in that.
And at wide 21.
It gets a bit premature to talk about specific numbers, but it's safe to say that we expect a seasonal pattern. The book to bill will be largely err on the same same curve.
Okay.
Thank you both.
Thank you welcome.
Thank you. Our next question comes from Seth season JP Morgan.
Thanks, very much and good morning.
Was wondering about the budget remarks, you mean or early in the call.
When we think about what the risks are in the puts and takes there in the second half of your year is is it really about whether there's a fiscal 21 budget passed on time or or are there. Other specific things that you think would affect your fiscal 21.
Yeah.
You know I think at this point, we mostly one to acknowledge the potential volatility in the budget discussions.
You know were under a two year budget deal.
But the reality is that there's been an unprecedented number of things that are happening as we speak in the response to cope with and we.
Aren't sure how that all is going to.
I was going to go having said that I I go back to the point.
We feel very good about the demand signals that we're getting from our clients for the things that we do.
That we have been asmission centric us we know how to be because we believe that it's a more resilient.
Part of the market and that I think us we demonstrated even with these.
Early approach this crisis, we can respond very quickly.
The changes in market signal and marketing environment and so.
Oh that's.
That's how we see the second half of our year playing out.
I would just add that across all of our metrics, we're expecting to deliver a very strong.
Slide 21.
Coupled with a strong balance sheet that we see as a strategic assets the budget soon.
One of several variables that.
Our influencing our guide.
On the supply side.
The pandemic impact in terms of our people future use or not use of peto.
Shift work arrangement and collaboration with our clients all of that are also variable that influence their guidance.
Okay great.
Thanks, and one quick follow up I know this can be difficult times given.
Hi percentage of classified work, but you've mentioned going after additional large opportunities also mentioned.
More recompetes this year on either side is there anything specific that you can call out in terms of opportunities that we should be watching for.
No not at this time, Oh, just pointed to you know a recompete basis, our win rate increased 7% to 90.
Which is getting back to our historical.
Performance on the new business side, we've got to win rate of 61%, so that coupled with our differentiation our client relationships and our workforce, we feel were poorly.
Another solid year.
Thank you and this includes the question answer session I will I turn the call back over the last year was asking for closing remarks.
Oh, Thank you and thank you all for your questions son, or even a robust discussion this morning.
If you'll allow me I'd like to close today once again, saying thank you.
To the people whose alan.
To our clients and to our investors and analyst.
It's because of all of you that whose Alan can continue to strive for excellence and we can lean forward as an institution that can do the right thing fourth of a short term and especially for the long term.
So thanks, again and have a great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating now disconnect.
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