Q2 2020 PAE Inc Earnings Call
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Ladies and gentlemen, this is the operator today's conference is scheduled to begin momentarily until that time Airlines will again be placed on music cold. Thank you for your patience.
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The P.A. East second quarter Twentytwenty earnings Conference call. My name is Sandy and I will be your operator today. This call is being recorded.
Wed like to turn the presentation over now to your host for today's call Mark since Youre right. The Vice President of Investor Relations for P.A.. Please go ahead Mr. Sandler.
Good morning, and thank you for participating in P.A. second quarter 2020 earnings announcement, we hope you've got an opportunity to read the press release that we issued earlier. This morning. We have also provide presentation slides on the Investor Relations section of our website joining.
Joining me today to discuss our business and financial results are John Heller, who is president and Chief Executive Officer, and Charlie Piper Our Chief Financial Officer.
Following our prepared remarks will close with a question answer session.
Management may make forward looking statements during the call regarding future events anticipated future trends and the anticipated future performance for the company.
We caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict.
Actual results may differ materially from those projected in the forward looking statements due to a variety of factors. These factors are described in our SEC filings. Please refer to our earnings press release for P. H complete forward looking statement disclosure, we did not undertake any obligation to update forward looking statements.
Management will also discuss non-GAAP financial measures during this call and we remind you that these non-GAAP financial measures are not a substitute for their comparable GAAP measures reconciliations of these non-GAAP financial measures to the comparable GAAP measures are contained in the press release and Investor presentation issued earlier today and now.
I'll turn the call over to John Heller.
Thank you all for joining us this morning for our second quarter 2020 earnings Conference call first I hope you're families and loved ones are healthy and are adjusting as best as possible to the current environment.
Today, I will cover several topics of importance, including a summary of the impact of Kobin 19, and our business are qualified bid pipeline in specific areas of strength, our perspectives on future federal spending and an overview of second quarter results. Charlie will further elaborate on second quarter financial.
One operating performance and provide commentary on our financial outlook for the remainder of the year.
Before I dive into these topics I'd like to start with a broader overview on the strength in core fundamentals of the business I'm very excited about how the business is performing we're successfully executing our strategy to win and deliver our higher margin programs. The pipeline is strong with potential to further expand margins.
And our cost contract award when rates are exceeding our plan.
Furthermore, we're driving higher margins on our existing programs in generating strong free cash flow.
Although we are experiencing temporary disruptions from Kobin 19 that have created headwinds primarily to lower margin non labor revenue. We are successfully building. The foundation for continued organic growth once we put co bid 19 behind us.
Moving onto the agenda topics I'll start with cobot 19 impacts while operating our business had missed this pandemic remains a challenging endeavor. We have adapted it made the most of these difficult conditions. The primary disruptions to our business have been a slowdown in our logistics operations and labor driven training programs.
And certain business process outsourcing programs have been postponed but all in all our business has been resilient to this environment.
Over 95% of our direct workforce continues to work in charge their time.
We have seen a moderate slowdown at award activity, but our pipeline remains robust and we have over 8 billion in bids awaiting award.
Charlie will discuss in greater detail, but the net effect has been a decrease in our revenue forecast, but a sizeable increase in margins due to driving increased volume on higher margin programs and the majority of the cobot impact is affecting lower margin non labor revenue.
Next I'd like to discuss our qualified pipeline in specific areas of future growth.
The qualified pipeline remained steady at about 35 billion at quarter end.
And our global mission services or Gms segment, we are seeing attractive opportunities across the department of defense and most notably with the Us Navy.
Furthermore, we're excited about opportunities with USA, I'd NASA and Noah.
These new business opportunities of leverage areas of significant strength for PV, including test and engineering services aircraft integration and global health capabilities.
And our National Security solutions or NSS segment. The qualified pipeline has seen modest growth in is heavily weighted towards new business opportunities within a variety of customers supporting the national security mission, leveraging our training and counter threat capabilities as well as our proven business process solutions.
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We are seeing a high volume of attractive RFP that we're excited about.
Representing opportunities for potential growth in higher margin and higher growth areas of the government services market.
These opportunities are natural extensions of phds existing business, allowing us to utilize our past performance and capabilities in pursuit of new business higher up the value chain.
I'm, particularly excited about several Q vehicles, including GE tax to SC and say talk we are anticipating bidding on numerous task orders that provide new revenue with margin expansion potential.
Furthermore, we're seeing attractive opportunities in construction security in both the federal and commercial space as well as medical service programs that will drive profitable growth.
At the ended the quarter, we had about $8.3 billion in awards under evaluation and an incremental 1.3 billion in the proposal writing process.
In Gms, we're awaiting over 7 billion in awards, which includes Phds recently awarded 1.3 billion us customs and border protection contract, which was protested.
A little over $4 billion are Recompete awards, and approximately 3 billion or new business opportunities.
And our National Security Solutions segment, we are awaiting about 1 billion in awards, the majority of which is new business and business process solutions and training related programs.
We remain on track to bid at least $12 billion. This year, we bid about 3.5 billion in the first half the year and based on our customers respective schedules for Rps, We believe bid activity will ramp up in the second half the year and we'll hit our target our quarter ending September thirtyth represents the fourth quarter.
The government fiscal year, and typically represent significant spending for the government given the annual budget process.
We anticipate bidding at least 8 billion in Gms in 4 billion NSS for the full year.
In total new business represents nearly 10 billion of the 12 billion inspected and full year submissions.
Next moving to the strategic landscape and with this being our last quarterly update call prior to the election on November Threerd I'd like to take a minute to discuss our perspectives in terms of how we're thinking about various outcomes.
During the time that I've led PD one of our most significant accomplishments is how diversified we have built the business from a capabilities customer and contract perspective.
We go to market across 13 distinct improving capabilities that drive significant market potential.
In addition, no individual customer accounts for more than 22% of revenue and the department of defense in total across Army Navy and Air force represents less than 35% revenue.
On the contract side of the equation, our largest contract represents only 8% of revenue and the top two contracts are only 14% of revenue.
Yes, if the federal government ship spending priorities away from defense and towards federal civilian agencies. We have built established businesses with the department of State Department of Homeland Security Department of Justice NASA and the entailed community that can reap the benefits of any such reality.
Occasion of spending.
With regards to DMV spending we are well positioned less than 1% of our revenues derived from more time or emergency OCO funding.
Our core competence in training solutions is a great example, a multitude of training programs are essential across D. O D Department of state Homeland security and Intel regardless of the environment Morever geopolitical risk is not gone away and is likely increased during this fiscal spend.
Period.
Furthermore, we generally don't rely on spending programs that secure their funding from investment accounts that are traditionally much more volatile than O&M budgetary accounts.
As you'll note in our earnings presentation. When we look back at the period 2013 to 2019, which includes sequestration and the reduction of operations in Iraq and Afghanistan <unk>.
We grew organic revenue at approximately 5% over this time period.
Lastly, with regards to the longer term federal spending outlook, we're confident will benefit from continued demand for contractors and outsource spending.
So in summary, regardless of the outcome of the elections PAA as well positioned in diversified across abroad base of customers and capabilities.
Next I will turn to our second quarter results.
Contract Awards were generally in line with our expectations, we generated $521 million in net bookings for the quarter and two 6 billion on a trailing 12 month basis.
Second quarter awards were spread fairly evenly amongst contract extension Recompete, a new business.
Novo awards, including included the Egland Air Force base, Recompete contract managing aircraft and equipment maintenance and several new business opportunities, including the Marine Corps Air station awarded Iwakuni, Japan supporting the U S Navy with systems maintenance testing and installation service.
And our NSS segment, we were awarded new business on the Detroit Citric three contract vehicle, providing counter threat solutions to a national security customer.
In addition, we have one several covid 19 respond towards that will generate over $50 million in revenue this year.
Partially offsetting a portion of the Cove at 19 revenue impacts.
Subsequent to the end of the quarter PAA also want to see on the 14 billion multi award <unk> contract for aircraft aircraft maintenance enterprise solution.
A strategic sourcing vehicle for Air force wide contracted aircraft maintenance.
We are one of eight awardees on the contract vehicle and anticipate task orders being awarded as early as the fourth quarter of this year.
Next I'll provide a brief update on the one 3 billion customs and border Protection Award.
As discussed in our press release dated May 19, <unk> was awarded 10 year, One 3 billion dollar contract with the U S customs and border protection to provide aircraft maintenance support services.
<unk> has been the Accumbent on this contracts since December 2009.
Received very strong accolades and ratings from our customer.
Following the issuance of the award one of our competitors opted to file a protest which is common in our sector.
As a result of the protest the agency is conducting further evaluation of the award.
All our policy is to not take this award into backlog or bookings until the matters resolved in our favorite.
The next topic I'd like to cover as a brief overview of our financial performance.
All in all we have been successful mitigating the one time revenue headwinds caused by the Covid 19 unprofitability.
Approximately 70% of the Covid revenue impact has been on lower margin materials. In addition, based on the increased profitability on existing in new programs and both segments and expense management, we're delivering much higher margins in our plan.
So we did not anticipate delivering comparable margins for the full year first half performance has a great indication of what this business can deliver over the long term.
In summary, PAA is operated as an essential business continuing to operate in support our customers and are resilient market.
One again, thank our global workforce of 20000 people, who are dedicated to themselves to the mission success of our customers throughout the pandemic.
Before I turned the call over to Charlie.
I'd like to recognize that as our country faces several unprecedented challenges. This year, we <unk> have not overlook the fight for racial justice a national movement brought to the forefront in the past few months by passionate appeals for change.
We are proud that our focus on diversity has been part of Pie's identity from the start and remains a strong core value inherent in our global workforce today.
Our progressive policies and practices supporting diversity have long reflected this deeply rooted sense of duty.
The landscape has changed in 2020, we must take an active role and rejecting racism and social injustice and all its forums.
Dedicated to the positive change we hope to see now.
In the future.
Our commitment both here in the U S and around the world has been to support the hoping development of freedom, an individual rights of people of all colors and races.
With that.
I'll hand, the call over to Charlie for an overview of our second quarter of 2020 financial results more detailed key business development metrics and 2020 financial guidance.
Thanks, John and good morning, everyone.
I'll start with a high level overview of our performance and then move on to a discussion on the second quarter financial impact ZIP code with 19.
And a summary of second quarter results.
Despite a temporary temporary reduction revenue caused by Cove at 19.
<unk> been successful increasing margins and maintaining our adjusted EBIT forecast through driving growth.
And higher margin business areas and managing costs.
The business model and strategy has not changed despite the temporary interruption on revenue caused by Cove at 19.
<unk> is delivering on its commitment to expand margins and generate strong free cash flow.
Turning to cope with 19, the impact has been felt most notably across three areas of our business.
First non labor revenue.
Or the logistics operations of delivering materials items, such as to fuel water maintenance parts of et cetera.
Has slowed considerably due to the reduction in air traffic and airport closures overseas second.
Scene moderate reductions in billable labor, primarily due to certain training programs being rescheduled and to a lesser extent closures of government facilities.
The ratio of impacted non labor to labor has been approximately 70% non labor and 30% labor.
About 95% of our direct workforce are working in billable due to the mission essential mission critical nature of our business.
And the second quarter, Covid impact totaled $59 million, a which about $41 million was non labor and approximately $18 million was labor related.
Lastly, and the third area code what impact as our business plan.
Included certain assumptions for new business awards, while when rates have remained in the high thirties, Alright, Hi, 30 range for new business.
Adjudicated awards have slowed <unk>.
We have not experienced systemic problems only a temporary slowdown but these delays that resulted in a portion of our anticipated new business revenue shifting into fiscal year 2021.
Moving on to second quarter results revenue ups 643 million came in $52 million below the same period last year due to the previously discussed 59 million Colby 19 impact.
And partially offset by 7 million and on contract grows in new business programs.
We delivered over $48 million a adjusted EBITDA.
At a seven 5% margin 100, and 180 base basis play improvement over the same period last year.
The key drivers for this improvement, whereas the following.
First we experienced increased profitability on many programs in both operating segments.
Second majority of the revenue decline is attributable to non labor revenue, which drives a lower profit margin typically less than 3%.
And third we are managing cost effectively through reductions in selling in general and administrative costs are SG&A expenses.
Our adjusted EBITDA for the second quarter backs out roughly four $2 million of operating expenses.
Approximately three $5 million is related to equity based compensation expense, which will be a recurring adjustment and the remaining 700000 relates to a combination of nonrecurring public company readiness setup costs as well as M&A expenses.
Operating income for the quarter was approximately $34 million compared with operating income of $26 million in the prior year quarter.
The increase was driven by lower SG&A expense, partially offset by lower revenue volume and a reduction in operating income.
Net income for the quarter was $16 million.
Or 17 cents per diluted sure compared to net income of about three.
$3 million or 13th per diluted sure and the prior quarter.
The increase in that income resolve the primarily from the factors driving the increase in operating income and lower interest expense from reduce debt levels.
Next I will turn this segment results JMS revenues for the quarter of $508 million decreased $19 million or three 6% compared to the prior year quarter.
The decrease was due to $41 million and cope with 19 impacts the majority of which.
Salary increase in all contract grows in new business programs.
JMS suggested operating income and margins increased year over year due to increased volume on higher margin programs and revenue mix and partially offset by lower revenue volume.
And our NSS segment revenues for the quarter of approximate where approximately 136 million.
Decrease about $33 million compared to the prior year quarter.
The decrease was attributable to $18 million impacting Coca 19 of which $11 million was non labor and 7 million with labor by $16 million decrease from.
2019, small business set aside recompete losses, net a new business ways.
Just to the operating income improved to $11 million or eight 1% of revenue in the in the quarter driven by.
Improved performance on existing contracts and lower SG&A expenses.
Turning to cash flow statement.
Net net cash provided by operating activities was about 45 million for the second quarter.
DSO was 62 days for the quarter and continues to outperform a historical average the continued improvement in DSO reflects the focus on process improvements. We have implemented these improvements will be critical as we grow the business organically.
Capex was approximately one $2 million, resulting it free cash flow of over $43 million per quarter.
We ended the quarter and a strong liquidity position was about a $139 million in cash and had not drawn on the credit resolver.
Furthermore, we lowered net debt so estimated adjusted EBITDA 228 times based on revised 2020 guidance.
Now I'll briefly recap, our bookings and backlog metrics for the quarter and the year.
For the quarter regenerated $522 million in that bookings or.
Eight times revenue for the trailing 12 months, we generated two 6 billion, a net bookings or one times revenue.
The awards were spread evenly among.
Contract extension Recompete.
New business.
The total backlog at the end of the quarter was six $3 million of which one 2 billion was funded.
Backlog and bookings exclude the one 3 billion contract award on the customs and border protection.
Which is currently undervaluation.
And as of the end of the second quarter. The total and bid submitted and awaiting award is over 8 billion. In addition to date, we have submitted about three 5 billion bid.
And plan to submit.
More than eight 5 billion throughout the remainder of the year.
Moving on to 2020 financial guidance.
Based on our financial results from the first half of the year.
Excuse me.
Our updated outlook for the remainder of the year, we're revising our fiscal 2020 guidance as follows.
For fiscal year 2020, we're reducing the revenue range.
2262, 7 billion based on the revised guidance and first half contract awards slightly over 96% of our revised revenue guidance.
At the midpoint as in backlog less than 2% from Recompete contracts and approximately 2% from new business Awards.
We are now ring, the adjusted EBIT EBIT guidance to be in the range of $172 million to $178 million.
And we are now reiterating are free cash flow guidance of 100 billion.
Relative to our guidance, we really reiterated and May we are now assuming $110 million in full year cope at 19 impacts net.
Coke with 19 response awards.
We are also assuming a $40 million reduction in revenue attributable to cope with 19 related delays new business that a long time net a long contract growth.
For the remainder of the year, we're forecasting revenue to increase sequentially and the third and fourth quarters.
Excluding these covid 19 impacts we would be generating revenue within our original guidance range and adjusted EBITDA would have exceeded the high end of the original range.
As the forecast relates to the cares act, we expect that little incremental risk exposure to date, we have large relied upon customer authorization to charge for mobile ready personnel.
Cove at 19 labor exposure will encourage this year was mostly driven by logistics challenges.
And facility closures and these are costs not covered by the cares Act.
Thus with the agreements in place with many customers and limited current reliance on section 36 10 of the cares Act. We are confident that we are properly forecast it.
R Cove at 19 exposure for the year.
We have narrowed are adjusted EBITDA guidance based on the assumptions that we have experienced a negative vigil impact to adjusted EBIT from cope with 19.
And we are seeing gross and iron margin areas of our business just as we've had experienced in accordance with our strategy.
We do expect margins to decline in the second half of the year is we ramp up the remaining new business and our plan and generate a moderate increase in non labor revenue.
All of which is expected to deliver at least a 60 basis point margin increase for the full year.
Compared to last year's.
And 40 basis point greater than our original guidance.
With regards to cash generation, we are reiterating free cash flow guide at at least $100 million.
We are continuing to evaluate refinancing opportunities and continuing to dialogue with numerous investment banks will keep the market informed of any significant new developments.
Other key assumptions for 2020 guidance are available in our second quarter earnings presentation on the investors section of our website with that operator, let's open the call for questions.
Thank you.
To ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
Your first question comes from Brian Jaswant from Raymond James.
Yeah, Good morning, guys.
Thanks for taking my questions just just a couple of for me.
Wondering if you could maybe address what the refi market looks like for some of your debt.
And then maybe just talk about how perhaps the M&A markets have opened up.
And remind us what your preferred uses of cash art.
Okay.
I'll cover the cash in refi.
Question and certainly John.
Yes, the M&A markets, so from a refi standpoint.
As I say that we've had discussions with numerous banks.
And we do see.
We hopefully we see a password we're excited that.
The dynamics of changed and will be pushing aggressively to move out.
The question will be what what makes the most sense for the company, but we are very excited because we have seen a change in the market.
From a positive perspective, and we have been actively engaged in discussions with some whereas banks to assess what our options look like.
And how do we best proceed to refinance.
As far as cash is concerned.
Given where we are with refinancing Brian the focus is going to be to get that.
Let's see whether or not we can get that behind us and then move out.
I can get that completed.
Silver cash standpoint, our focus has always been number one investing organic growth.
Number two as to lower R.
Leverage ratio by lowering our net debt.
So we're excited that if we can move forward with the refi. We also see an opportunity to lower our cash interests as we move forward.
John you want to comment on the M&A.
Sure in the morning, Bryan, but exactly is Charlie outline I think we are very very.
Focused strategy.
Maximising cash flow generation.
Investing your inorganic growth and then our priority.
Ever since the first day, we became a public company has been too.
Look at the possibility to refinance or that to lower lower interest expense and put us in a much.
Better position to take advantage of M&A opportunities, so that remains our priority and that order.
And we'll see where the refinancing market is so we're working on that we have seen.
During the Covid period say mid March two.
Into July a severe reduction or pulled back and M&A activity I think.
Sellers were.
They saw the.
The risk of going out when the financing Marcus we're not strong and they had to focus on their business just like everyone else to make sure. They got through that difficult period, but I think since July but there's been a dramatic shift and we've seen.
A large number of opportunities come to market several of which look.
Very attractive to the <unk> strategy.
Definitely involved in examining those.
But we are.
We're going to remain focused on our priority.
Alright.
Looking at a refinancing as the next step in our business evolution as a public company.
Great. Thanks, very much and maybe if I could just sneak one more in before jumping back into the Q.
You guys are really built a substantial bid pipeline <unk>.
<unk> got a lot of contracts under award can you, maybe just give us a sense and I know things have been a little bit murky with coded.
Work at home, but can you maybe give us a sense on how you think the timing lays out for some of those.
Rfps that are under adjudication, and then maybe just remind us.
What the CBP decision time light is thanks.
Sure.
I think both Charlie and I mentioned.
We have over $8 billion.
Bids in evaluation of waiting award.
We have over 5 billion.
Purple active proposals, meaning rfps are out and we're actually writing the proposals to be submitted.
So that starts to get us close to about $10 billion number.
We fully expect a substantial portion of that to be awarded in 2020, we don't have an exact number because frankly I can't.
I can't.
Tell when the government will.
Specifically make an award but based on information that they have provided to us of reward date, we would expect.
At least three quarters of that to be awarded this year, including the customers and border protection.
That was awarded.
It is in they are reevaluating.
To determine.
Awardee, and we would expect that that would be awarded this year exactly when this year, we're not sure, but we still have a good bit of time left in the year and we think that that is more than substantial time for them to.
Reach a decision.
Great. Thanks, so much.
Your next question comes from Ashish shop, Andre from Deutsche Bank.
Thanks for taking my question. So maybe a question on NSS card out some of the Penguins business.
How do you think about Wednesday, cycled through those headwinds and get back to growth in that particular business just given the strong pipeline off.
The big pipeline that you have.
Yes.
And we are very excited about.
The opportunities in NSS and round growth, but also in margin expansion. So we're not going to.
Prioritize say growth for the sake of growth over the fact that I think.
There might be slower growth, but much higher margin potential in the business, but I think the thing that's giving us. The most excitement is just the idea iqs in that business.
Mentioned several of them G tax.
And the global Tactical Communications services contract that was awarded to be in Q1, we are now seeing.
So it's actually a brand New award for Phd, It's a very large IQ about 5 billion ceiling, we are seeing.
Just now the.
Identification of task orders that will come out under that contract for 2020 and into 2021.
A substantial backlog of opportunities that have significant value that we think.
<unk> well positioned to win and kind of our fair share of that <unk>.
And.
We're expecting to see not just rfp's under G tax in 2020, but some awards on G tax in 2020, and we have identified specific opportunities the scope of those those opportunities and the.
The requirements that are going to take two two words under those.
So I think that.
<unk> Q capability of NSS is really starting to get us excited about the growth potential ets's sees the enterprise training services contract was another one if you recall.
That was <unk> that just started up in 2019, we wanted a substantial number of task orders that gave us a great run right coming into 2020.
Again, there'll be a task order season under Ets's see that we have identified a volume of task orders that are setup to come out over the next few months and we expect some of those to be awarded in 2020 with additional.
[noise] task orders that will be put out this year awarded of 2021.
So.
Covered those two very large <unk>, our construction security business.
And then I mentioned that we have both government and commercial customers underneath.
[noise] capability, and we really starting to see that take off from a growth standpoint and the pipeline.
In that area is growing substantially and we're very excited about the potential for that to drive both top and significant bottom line growth and in the foot our focus on Nss's margin expansion and we really believe that with the volume in those areas I just covered along with many other areas.
Is that we have great potential would continue to see.
NSS lead P. A.
Higher margin standpoint.
That's very helpful. Thanks, and maybe just from the guidance I understand a lot of the guidance, but most of the <unk> predominantly due to Corbett.
My question that is just.
V C. A resurgence of the wireless in some places.
Have you taken into account like any potential risk of further shutdowns unlocked balanced going into the back half of the year.
Thanks.
Yes.
We pulled together.
Date, reflecting the impact of Kobe 19.
We have taken into consideration.
Impact your the remainder of the year and believe we have.
Shown little recovery.
So that we think we're prudent and the guidance that will provided.
Providing as far as.
Revenue range and EBITDA impact.
So we're comfortable with the guidance that we have.
Issue So we're <unk>.
See the Kobe 19 impact continuing and they're not necessarily forecasting any significant change.
And then it consequence.
That's very helpful. Thanks.
Your next question comes from Josh Sullivan with the benchmark company.
Okay. Good morning, John Charlie Mark.
Good morning, good morning.
Just as a follow up to the bit activity questions is there any reason, we shouldn't see September budget flush driving bookings in Q3 or do you think the election or Cove. It is this going to push a lotta those Q4.
No our expectation and just the budget is solid in terms of funding for 2020 were much of the funds will come from as it relates to Q4.
Government fiscal year spending and we have a good early look.
On our idea iqs.
In terms of identification.
Government specified task orders that would be coming out and we see it as b.
Pretty stable.
And.
What we're seeing overall you can hear it in terms of the volume that we have is that rfps have been robust.
And have been consistent with our plan and expectations Awards is Charlie mentioned it bit slower.
But the volume of opportunities have been substantial we're really busy we could we are as busy as we expected to be in terms of responding to rfps with fully expect to see that same type of activity in Q for that we would see it a normal operating year and governments.
<unk> is normally.
In terms of being responsive to delivering mission and two putting out rfps, we'd like to see a little bit faster on awards I'm sure everybody would.
But we're very thankful for.
The activity that we're seeing and we we expect that to drive momentum and the second half of the year. It certainly into 2021, given the volume that we're seeing.
Got it.
And then you mentioned in the prepare comments the diverse part for a portfolio who's going to benefit and any election I'll come here, but can you talk about how P is going to retain the gains you guys have made relatives peers.
Maybe a flattered downwards defense budget.
If you see other players retrench, how do you plan to FTE retain some of these games that you guys have made.
Well I think a couple of fall versus just if you look at.
The areas that were focused in which is more than the operation and maintenance and just supporting the day to day mission of government.
We're not really dependent on new areas of development in government spending where we we would expect that there could be a pulled back in.
Innovation and new platform development, which is very costly compared to just kind of maintaining the the what the government has today training the capabilities of the existing government whether it be in D. O D R and homeland security the Intel space.
And just keeping keeping the.
Support to the U S citizen across the country.
If it's internally more internally focus which is what are diversification is really created that platform for us, but I think it's also story about our strategy to expand.
Not just.
Terms of contraction, our core areas, but what we've done and expanding into new areas around engineering and training.
Forensics labs support business process outsourcing, where the government is going to be focused on finding ways to operate more efficiently and contractors play a huge role in helping government do that our business process outsourcing focus we think is.
Is very valuable to the government, whereas they turn to business to help them operate and save money to to extend the value of their dollar they will look to business to help them.
Find ways to operate more efficiently and I think <unk> well positioned to support that as the government runs into.
The need to.
Make every dollar go farther over the near future.
Got it.
And then just one last one you guys called out the Navy as a focus can you just expand on what you're seeing there. How you will be successful maybe what opportunities are coming up.
Yeah, I mean Navy, it's been a very strong historic customer for US we are.
A prime deliver of support to naval test and training ranges.
Across the country, we support the Navy and foreign locations as well such as the Guam Naval base. So we just have.
A very substantial footprint with the Navy.
This also extends to aviation support.
So we just see the opportunity to expand.
What we're doing their as the navy being a very strong customer for P E and Navy.
Has an aviation <unk> aviation services Ivy Aq the day of warded that we are.
<unk> D under that we do see substantial pipeline opportunities coming out.
20, 22021 that can drive expanded growth in that area as well as our continued support and the test and training raised area.
Thank you.
Your next question comes from Chris more from C. J S Securities.
Good morning, guys. Most of mine been answered, but maybe just go back to corporate for a second app.
See you guys are doing better than most with respect to cold, but you talked about 110 million kind of net impact.
Within that that $40 million of new business development, because my question was that new.
<unk> should I.
Should we view that in isolation.
Just getting pushed into into 21 or is it reasonable to assume that.
That has some perhaps modest impact on on on what 21 can do.
Sure I think the.
Are obviously, we're we're going to take a conservative look as we.
Forecast.
The business and make sure that we're achieving the goals that we set out for ourselves and.
Project to the public and there's no doubt they're cove it had an impact.
And it's slowed things down within government just like it did within any business across the U S.
People were.
Isolated.
We're trying to stay safe and not going to work and it's just as you can imagine it's one thing to put an RFP out.
Work that's required to do that it's another thing to make an award.
There's a significant amount a collaborative work that has to take place by the government.
To accomplish that and there are a lot of.
Compliance requirements to make awards, and we certainly understand that and respect that process.
And.
We definitely seen a slow down.
It is.
It is significant enough to impact this but it's not we definitely seen awards being made we do think that the worst of the the.
The impact what is behind US the government is operating we will see.
Come back in the second half of 2020 in terms of awards, but yeah. Some of that is going to fall into 2021 that we expected to see at 2020, which should help.
As we look.
In the future, but we just we can't predict the timing and.
Government has been.
Consistent in getting Rfps out I think they will get back to normal in terms of putting out awards on a more consistent basis as time goes on in 2020.
Understood.
Jump back in line.
I am showing no further questions at this time I would now I'd like to turn the conference back to Mark Sandler P. E E Vice President of Investor Relations.
Well thanks, everyone. Thanks for joining us this morning, and your continued interest in PAA. If you have any questions. Please don't hesitate to give me a call and I hope you have a great day.
Thank you.
Ladies and gentlemen, this does conclude today's conference. Thank you for participating you may know disconnect.
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Good morning, ladies and gentlemen, and welcome to the P. H E. <unk> second quarter Twentytwenty earnings Conference call. My name is Cindy and I'll be your operator today.
This call is being recorded.
I'd like to turn the presentation over now to your hosts for today's call Mark Central Park, right Vice President Investor Relations for P.A.. Please go ahead Mr. Sandler.
Good morning, and thank you participating in P.A. second quarter 2020 earnings announcement, we hope you've had an opportunity to read the press release that we issued earlier this morning.
We've also provided presentation slides on the Investor Relations section of our website.
Joining me today to discuss our business and financial results are John Hele, or <unk>, as President and Chief Executive Officer, and Charlie Piper or Chief Financial Officer.
Following our prepared remarks will close what the question answer session.
Management may make forward looking statements during the call regarding future events anticipated future trends and the anticipated future performance of the company.
We caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict.
Actual results may differ materially from those projected in the forward looking statements due to a variety of factors. These factors are described in our FCC filings.
Please refer to our earnings press release for P. A's could complete forward looking statement disclosure, we do not undertake any obligation to update forward looking statements.
Management will also discuss non-GAAP financial measures during this call and we remind you that these non-GAAP financial measures are not a substitute for their comparable GAAP measures.
Reconciliations of these non-GAAP financial measures to the comparable GAAP measures are contained in the press release and Investor presentation issued earlier today and now I'll turn the call over to John Hele or.
[music]. Thank you all for joining us this morning for our second quarter 2020 earnings Conference call first I hope you're families and loved ones are healthy in are adjusting as best as possible to the current environment.
Today, I will cover several topics of importance, including a summary of the impact of Kobin 19, our business are qualified bid pipeline in specific areas of strength.
Perspectives on future federal spending and an overview of second quarter results. Charlie will further elaborate on second quarter financial and operating performance and provide commentary on our financial outlook for the remainder of the year.
Before I dive into these topics I'd like to start with a broader overview on the strength and core fundamentals of the business I'm very excited about how the business is performing we're successfully executing our strategy to win and deliver our higher margin programs. The pipeline is strong with potential to further expand margins.
In our core contract award when rates are exceeding our plan.
Furthermore, we're driving higher margins on our existing programs in generating strong free cash flow.
Although we're experiencing temporary disruptions from cobot 19 that have created headwinds primarily to lower margin non labor revenue. We're successfully building. The foundation for continued organic growth once we put cobot 19 behind us.
Moving onto the agenda topics I'll start with Kobin 19 impacts well operating our business. It missed this pandemic remains a challenging endeavor. We have adapted it made the most of these difficult conditions. The primary disruptions to our business have been a slowdown in our logistics operations and labor driven training programs.
And certain business process outsourcing programs have been postponed but all in all our business has been resilient to this environment.
Over 95% of our direct workforce continues to work in charge their time, we've seen a moderate slow down an award activity, but our pipeline remains robust and we have over 8 billion in bids awaiting award.
Charlie will discuss in greater detail, but the net effect has been a decrease in our revenue forecast, but a sizable increase in margins due to driving increased volume on higher margin programs and the majority of the cobot impact is affecting lower margin non labor revenue.
Next I'd like to discuss our qualified pipeline in specific areas of future growth.
The qualified pipeline remained steady at about 35 billion at quarter end.
And our global mission services or Gms segment, we are seeing attractive opportunities across the department of defense and most notably with the Us Navy.
Furthermore, we're excited about opportunities with USA I'd NASA and Noah These new business opportunities of leverage areas of significant strength for Phd, including test and engineering services aircraft integration and global health capabilities.
And our National Security solutions or NSS segment. The qualified pipeline has seen modest growth in is heavily weighted towards new business opportunities within a variety of customers supporting the national security mission, leveraging our training and counter threat capabilities as well as our proven business process solutions.
We're seeing a high volume of attractive RFP. So we're excited about.
Presenting opportunities for potential growth in higher margin and higher growth areas of the government services market.
These opportunities are natural extensions of phds existing business, allowing us to utilize our past performance and capabilities in pursuit of new business higher up the value chain I.
Im, particularly excited about several IDI Q vehicles, including GE tax to FC and say talk we are anticipating bidding on numerous task orders that provide new revenue with margin expansion potential.
Furthermore, we're seeing attractive opportunities in construction security in both the federal and commercial space as well as medical service programs that will drive profitable growth.
At the ended the quarter, we had about 8.3 billion in awards under evaluation and an incremental 1.3 billion in the proposal writing process.
In Gms, we're awaiting over 7 billion in awards, which includes Phds recently awarded 1.3 billion us customs and border protection contract, which was protested.
A little over 4 billion, our Recompete awards, and approximately 3 billion, our new business opportunities.
And our National Security solution segment, we're awaiting about 1 billion in awards. The majority of which is new business in business process solutions and training related programs.
We remain on track to bid at least 12 billion. This year, we bid about 3.5 billion in the first half the year and based on our customers respective schedules for art fees. We believe bid activity will ramp up in the second half the year and we'll hit our target our quarter ending September thirtyth represents the fourth quarter.
The government fiscal year, and typically represents significant spending for the government given the annual budget process.
We anticipate bidding at least 8 billion in Gms and 4 billion NSS for the full year.
In total new business represents nearly 10 billion of the 12 billion inspected and full year submissions.
Next moving to the strategic landscape and with this being our last quarterly update call prior to the election on November Threerd I'd like to take a minute to discuss our perspectives in terms of how we're thinking about various outcomes.
During the time that I have led PD one of our most significant accomplishments as how diversified we have built the business from a capabilities customer and contract perspective.
We go to market across 13 distinct improving capabilities that drive significant market potential.
In addition, no individual customer accounts for more than 22% of revenue and the department of defense in total across Army Navy and Air force represents less than 35% revenue.
On the contract side of the equation, our largest contract represents only 8% of revenue and the top two contracts are only 14% of revenue.
Yes, if the federal government ship spending priorities away from defense and towards federal civilian agencies. We have built established businesses with the department of State Department of Homeland Security Department of Justice NASA and the entailed community that can reap the benefits of any such reality.
Occasion of spending.
With regards to Deo. These spending we are well positioned less than 1% of our revenue is derived from more time or emergency OCO funding.
The takeaway here is that PE is a company that ensures mission readiness for our customers where the team to keep satellites on and safeguards the basis for two facilities embassies you name it operate smoothly.
Some of the work is not high profile, but it's critical to the readiness of our customers, it's resilient and not typically subject to budgetary fluctuations.
Our core competence and training solutions is a great example, a multitude of training programs are essential across Diodati Department of state Homeland security and Intel regardless of the environment Morever geopolitical risk has not gone away and is likely increase during this fiscal spending period.
Furthermore, we generally don't rely on spending programs that secure their funding from an investment accounts that are traditionally much more volatile than owning them budgetary accounts.
As you'll note in our earnings presentation. When we look back at the period 2013 to 2019, which includes sequestration and the reduction of operations in Iraq and Afghanistan.
We grew organic revenue at approximately 5% over this time period.
Lastly, with regards to the longer term federal spending outlook, we're confident we'll benefit from continued demand for contractors and outsource spending.
So in summary, regardless of the outcome of the elections PPA is well positioned in diversified across a broad base of customers and capabilities.
Next I will turn to our second quarter results.
Contract Awards were generally in line with our expectations, we generated 521 million a net bookings for the quarter and 2.6 billion on a trailing 12 month basis.
Second quarter awards were spread fairly evenly amongst contract extensions recompetes and new business.
Notable awards, including included the Eglin Air Force base, Recompete contract managing aircraft and equipment maintenance and several new business opportunities, including the Marine Corps Air station awarded he will Coty, Japan supporting the US Navy with systems maintenance testing and installation service.
Yes.
In our NSS segment, we were awarded new business on the distressed Citrix three contract vehicle, providing counter thread solutions to a national security customer.
In addition, we have won several cobot 19 response awards that will generate over 50 million in revenue. This year, partially offsetting a portion of the cobot 19 revenue impacts.
Subsequent to the ended the quarter PPA. We also want to see on the 14 billion multi award Q contract for aircraft aircraft maintenance enterprise solution.
A strategic sourcing vehicle for Air Force wide contracted air aircraft maintenance.
We are one of eight awardees on the contract vehicle and anticipate task orders being awarded as early as the fourth quarter of this year.
Next I'll provide a brief update on the 1.3 billion customs and border Protection Award.
As discussed in our press release dated May 19th.
He was awarded a 10 year 1.3 billion dollar contract with the us customs and border protection to provide aircraft maintenance support services.
He has been the incumbent on this contract since December 2009, and we have received very strong accolades and ratings from our customer.
Following the issuance of the award one of our competitors opted to file a protest which is common ours in our sector.
As a result of the protest the agency is conducting further evaluation of the award.
Our our policy is to not take this award into backlog or bookings until the matters resolved in our favor.
The next topic I'd like to cover is a brief overview of our financial performance. All in all we have been successful mitigating the onetime revenue headwinds caused by the cobot 19 on profitability approximately 70% of the co. Good revenue impact has been on lower margin materials. In addition.
Based on the increase profitability on existing and new programs in both segments and expense management, we're delivering much higher margins in our plan.
Although we did not anticipate delivering comparable margins for the full year first half performance is a great indication of what this business can deliver over the long term.
In summary, PPA is operated as an essential business continuing to operate and support our customers and a resilient market.
And once again, thank our global workforce of 20000 people, who have dedicated to themselves to the mission success of our customers throughout the past that pandemic.
Before I turn the call over to Charlie.
I'd like to recognize that is our country faces several unprecedented challenges this year.
We had PE if not overlook the fight for racial justice a national movement brought to the forefront in the past few months by passionate appeals for change.
We are proud that our focus on diversity has been part of Phds identity from the start and remains a strong core value inherent in our global workforce today.
Our progressive policies and practices supporting diversity have long reflected this deeply rooted sense of duty.
The landscape has changed in 2020, we must take an active role in rejecting racism and social injustice in all its forms.
Dedicated to the positive change, we hope to see now in near future and in the future.
Our commitment both here in the us in around the World has been this to support to help and development of freedom in individual rights of people have all colors and races.
With that.
Ill hand, the call over to Charlie for an overview of our second quarter 2020 financial results more detailed key business development metrics and 2020 financial guidance.
Thanks, John Good morning, everyone.
Ill start with a high level overview of our performance and then move onto a discussion of the second quarter financial impacts of Colgate 19.
And a summary of second quarter results.
Despite a temporary temporary reduction in revenue caused by coded 19, we've been successful increasing margins and maintaining our adjusted EBITDA forecast through driving growth.
And higher margin business areas and managing costs.
The business model strategy have not changed despite the temporary interruption on revenue caused by cobot 19.
He is delivering on its commitment to expand margins and generate strong free cash flow.
Turning to covert 19, the impact has been felt most notably across three areas of our business.
First non labor revenue.
Or the logistics operations of delivering materials items, such as food fuel water maintenance parts et cetera.
Has slowed considerably due to the reduction in air traffic and airport closures overseas second we've seen moderate reductions in billable labor, primarily due to certain training program being rescheduled and to a lesser extent closures of government facilities.
The ratio of impacted non labor to labor has been approximately 70% non labor and 30% labor.
About 95% of our direct workforce are working and billable due to the mission essential mission critical nature of our business.
And the second quarter, the cobot impact totaled $59 million of which about 41 million was non labor and approximately $18 million was labor related.
Lastly in the third area of Cobot impact is our business plan.
Included certain assumptions for new business awards, while win rates have remained in the high Thirtys right High 30 range for new business.
Adjudicated awards have slowed.
Not experienced systemic problems only temporary slowdown, but these delays that resulted in a portion of our anticipated new business revenue shifting into fiscal year 2021.
Moving on to second quarter results revenue of 643 million came in 52 million below the same period last year.
To the previously discussed 59 million Cobot 19 impact.
And partially offset by 7 million in on contract growth in new business programs.
We delivered over $48 million of adjusted EBITDA.
At a 7.5% margin 100, a 180 base basis point improvement over the same period last year.
The key drivers for this improvement where the falling.
First we experienced increased profitability on many programs in both operating segments.
Second majority of the revenue decline is attributable to non labor revenue, which drives a lower profit margin typically less than 3%.
And third we are managing cost effectively through reductions in selling and general and administrative costs are has being expenses.
Our adjusted EBITDA for the second quarter backs out roughly 4.2 million of operating expenses.
Approximately 3.5 million is related to equity based compensation expense, which will be a recurring adjustment and the remaining several hundred thousand relates to a combination of nonrecurring public company readiness setup costs as well as M&A expenses.
Operating income for the quarter was approximately 34 million compared with operating income of 26 million in the prior year quarter.
The increase was driven by lower SGN expense, partially offset by lower revenue volume and a reduction in operating income.
Net income for the quarter was 16 million.
Or 17 cents per diluted share compared to net income of about three.
30 million or 13 cents per diluted share in the prior quarter.
The increase in net income resulted primarily from the factors driving the increase in operating income and lower interest expense from reduced debt levels.
Next I will turn to segment results Gms revenues for the quarter of 508 million decreased $19 million or 3.6% compared to the prior year quarter.
The decrease was due to 41 million in cobot 19 impacts the majority of which.
Dollar increase in on contract growth in new business programs.
Gms adjusted operating income in margins increased year over year due to increased volume on higher margin programs and revenue mix and partially offset by lower revenue volume.
In our NSS segment revenues for the quarter of approximate were approximately 136 million.
Decreased about 33 million compared to the prior year quarter.
The decrease was attributable to 18 million dollar impact will cover 19, which 11 million was non labor and $7 million labor and by $16 million decrease relevant.
2019, small business set aside recompete losses net of new business wins.
Adjusted operating income improved to $11 million or 8.1% of revenue in the quarter driven by improved performance on existing contracts a lower SGN expenses.
Turning to cash flow statement.
Net income net cash provided by operating activities was about 45 million for the second quarter.
DSL was 62 days for the quarter and continues to outperform our historical average the continued improvement in DSL reflects that focus on process improvements. We have implemented these improvements will be critical as we grow the business organically.
Capex is approximately $1.2 million, resulting in free cash flow of over $43 million quarter.
We ended the quarter and a strong liquidity position with about 139 million in cash and had not drawn on the credit revolver.
Furthermore, we lowered net that so estimated adjusted EBITDA to 2.8 times based on revised 2020 guidance.
Now I'll briefly recap, our bookings and backlog metrics for the quarter and the year.
For the quarter, we generated 522 million in net bookings or 0.8 times revenue for the trailing 12 months, we generated $2.6 billion net bookings are onetime revenue.
Your interest spread evenly among contract extensions recompetes and new business.
The total backlog at the end of quarter was 6.3 million of which 1.2 billion was funded.
Backlog in bookings exclude the 1.3 billion contract award on the customs and border protection.
Which is currently under evaluation.
And as of the ended the second quarter, the total and bid submitted and awaiting award is over 8 billion. In addition year to date, we have submitted about 3.5 billion bid and bids and plan to submit.
More than 8.5 billion throughout the remainder of the year.
Moving onto 2020 financial guidance.
Based on our financial results for the first after the year excuse me.
Our updated outlook for the remainder of the year, we're revising our fiscal 2020 guidance as follows.
Fiscal year 2020, we are reducing the revenue range.
To 2.6 to 2.7 billion based on the revised guidance in first half contract awards slightly over 96% of our revised revenue guidance.
At the midpoint is in backlog less than 2% from Recompete contracts and approximately 2% from new business Awards.
We are narrowing the adjusted EBITA EBITDA guidance to be in the range of 172 to 178 million.
And we are now reiterating our free cash flow guidance of $100 million.
Relative to our guidance, we really reiterated in May we are now assuming 110 million in full year Cobot 19 impacts net of Coke 19 response awards.
We're also assuming a $40 million reduction in revenue attributable to cope with 19 related delays new businesses that have on time net along contract growth.
For the remainder of the year, we're forecasting revenue to increase sequentially in the third and fourth quarters.
Excluding these co with 19 impacts would be generating revenue within our original guidance range and adjusted EBITDA would have exceeded the high end of the original range.
As the forecast relates to the carriers that we expect to have little incremental risk exposure to date, we have large relied upon customer authorizations to charge for mobile ready personnel. The coded 19 labor exposure will incur this year was mostly driven by logistics challenges and facility closures.
And these are costs not covered by the care Zack.
Thus with the agreements in place with many customers and limited current.
Reliance on section 36, 10 of the cares Act, we're confident that we are properly forecasted.
Our cobot 19 exposure for the year.
We have now or in our adjusted EBITDA guidance based on the assumptions that we have experienced a negligible impact to adjusted EBITDA from Cobot 19.
And we are seeing growth in higher margin areas of our business just as we've had experienced in accordance with our strategy.
We do expect margins to decline in the second half of the year as we ramp up the remaining new business and our plan and generate a moderate increase and non labor revenue.
All of which is expected to deliver at least in 60 basis point margin increase for the full year.
Compared to last years.
And 40 basis point greater than our original guidance.
With regards to cash generation, we are reiterating free cash flow guidance at at least 100 million.
We're continuing to evaluate refinancing opportunities and continuing to dialogue with numerous investment banks will keep the market informed of any significant new developments.
Other key assumptions for 2020 guidance are available in our second quarter earnings presentation on the Investor section of our website.
With that operator, let's open the call for questions.
Thank you.
To ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
Your first question comes from Brian Jess Weld from Raymond James.
Yes, good morning, guys.
Thanks for taking my questions just it's just a couple from me.
Wondering if you could maybe address what the refi market looks like for some of your debt.
And then maybe just talk about how perhaps the M&A markets have opened up.
Remind us what your preferred uses of cash or.
Okay, I'll I'll cover the cash and Rifai.
Question, and certainly John can address the M&A markets, so from a refi standpoint.
As I stated we've had discussions with numerous banks.
And we do see.
Hopefully, we see a passport we're excited that.
And the dynamics have changed and we will be pushing aggressively to move out.
The question will be what what makes most sense for the company.
But we are very excited because we have seen a change in the market.
From a positive perspective.
We have been actively engaged in discussions with numerous banks to assess what our options look like.
And how do we best proceed to refinance.
As far as cash is concerned.
Given where we are with refinancing Brian the focus is going to be to get that.
I didn't see whether or not we can get that behind us and then move outs.
Get that completed.
So cash standpoint, our focus has always been number one investing organic growth.
Number two is due to lower our.
Our leverage ratio by lowering our net debt.
So we're excited that if we can move forward with the Rifai. We also see an opportunity to lower our cash interest as we move forward.
John you want to comment on the M&A.
Sure Good morning, Brian, but exactly as Charlie outline I think we have a very.
Focused strategy.
On.
Maximizing cash flow generation.
Investing or inorganic growth and then our priority.
Ever since the first day, we became a public company has been too.
Look at the possibility to refinance our debt to lower lower interest expense and put us in a much.
Better positioned to take advantage of M&A opportunities so that remains our priority in that order.
And we'll see where the refinancing market is so we're working on that we have seen.
During the coded period say mid March to the.
Into July a severe reduction or pull back and M&A activity I think.
Sellers were.
They saw the.
Of the risk of going out when the financing markets were not strong and they had to focus on their business just like everyone else to make sure. They got through that difficult period, but I think since July but theres been a dramatic shift and we've seen a large number of opportunities come to market several of which book.
Very attractive to the P. strategy.
Definitely involve them examining those.
But we are we're going to remain focused on our priority.
Looking at a refinancing as the next step in that in our business evolution as a public company.
Great. Thanks, very much and maybe if I could just sneak one more in before jumping back into the queue.
You guys have really built a substantial bid pipeline.
Got a lot of contracts under award can you, maybe just give us a sense and I know things have been a little bit murky with co bid.
And work at home, but can you maybe give us a sense on how you think the timing lays out for some of those.
RFP that are under adjudication, and then maybe just remind us.
What the CBP decision timeline is thanks.
Sure as I think both Charlie and I mentioned.
We have over $8 billion.
Bids in evaluation awaiting award.
We have over one and a half billion in.
No active proposals, meaning RFP is are out and we're actually writing the proposals to be submitted.
So that starts to get us close to about 10 billion dollar number.
We fully expect a substantial portion of that to be awarded in 2020.
Don't have an exact number because frankly I can't.
Yes, I can't.
Tell when the government will.
Specifically, making award but based on information that they have provided to US of award dates we would expect.
About at least three quarters of that to be awarded this year, including the customs and border protection.
Bid that was awarded it is in they are reevaluating.
To determine.
The awardee and we would expect that that would be awarded this year exactly when this year, we're not sure, but we still have a good bit of time left in the year and we think that that is more than substantial time for them to.
Reach a decision.
Great. Thanks, so much.
Your next question comes from Ashish ship Entre from Deutsche Bank.
Hi, Thanks for taking my question. So maybe a question on NSS carved out some of the.
Business.
How do we think about when do we cycled with those headwinds and get back to growth in that particular business just given the strong pipeline off.
The big pipeline that you have thanks.
Yes the.
And we are very excited about.
The opportunities in NSS and around growth, but also in margin expansion. So we're not going to.
Prioritize say growth for the sake of growth over the fact that I think.
There might be slower growth, but much higher margin potential in the business, but I think the thing that's giving us. The most excitement is just the queues in that business.
Mentioned several of them GE tax.
The global Tactical Communications services contract that was awarded to be in Q1, we're now seeing.
Thats a brand New award for PE very large Q.
$5 billion ceiling, we are seeing.
Just now the.
Identification of task orders that will come out under that contract for 2028 and into 2021, there's a substantial backlog of opportunities that have significant value that we think.
PE is well positioned to win I kind of our fair share of that Q and.
We're expecting to see not just our piece one hundredg tax in 2020, but some awards on GE tax in 2020, and we have identified specific opportunities the scope of us those opportunities and the.
The requirements that are going to take two to award under those so I think that.
Q capability of NSS is really starting to get us excited about the growth potential FCS the enterprise training services contract was another one if you recall.
That was I'd acute just started up in 2019, we want a substantial number of task orders that gave us great run rate coming into 2020 again there'll be a task order season under SC that we've identified a volume of task orders that are set up to come out over the next few months and we expect some of them.
Those to be awarded in 2020 with additional task orders that will be put out this year awarded in 2021.
Hey, I've covered those two very large cardiac use our construction security business.
That I mentioned that we have both government and commercial customers underneath that capability and we really starting to see that take off from a growth standpoint and the pipeline.
And in that area is growing substantially and we're very excited about the potential for that to drive both top and significant bottom line growth and the foot are focused on NSS is margin expansion and we really believe that with the volume in those areas I just covered along with many other area.
Is that we have great potential we continue to see.
NSS lead PE.
Higher margin standpoint.
That's very helpful color. Thanks, maybe just on the guidance I understand a lot of the guidance or most of the downtick was predominantly due to go ahead.
My question that is just as we see resurgence of the Leidos in some places.
Have you taken into account like any potential for this call further shutdowns at lock down going into the back half of the.
Thanks.
Yes, when we when we pulled together.
Update reflecting the impact of covert 19.
We have taken into consideration.
Impact through the remainder of the year and believe we have.
Shown little recovery.
So that we think we're prudent in the guidance that will provide it.
Well that we're providing as far as.
Revenue range in EBITDA impact.
So we're comfortable with the guidance that we have.
Issued so were.
We see the covert 19 impact continuing and are not necessarily forecasting any significant change.
I will then it consequence.
That's very helpful packs.
Your next question comes from Josh Sullivan with the benchmark company.
Hi, Good morning, John Charlie Mark.
Good morning, good morning.
Just as a follow up to the to the bid activity question is there any reason, we shouldn't see a september budget flush driving bookings in Q3 or do you think the election Ur cobot.
It's going to push out of the Q4.
No our expectation and just a budget is solid in terms of funding for 2020, where much of the funds will come from as it relates to Q4.
Government fiscal year spending and we have a good early look.
On our ideas accuse.
In terms of identification.
Permanent specified task orders that will be coming out and we see it as being.
Pretty stable.
And what we're seeing overall budget you can hear it in terms of the volume that we have is that RFP had been robot robust and have been consistent with our plan and expectations Awards as Charlie mentioned have been slower.
But the volume of opportunities have been substantial we're really busy we could and we're as busy as we expected to be terms of responding to RFP.
We fully expect to see that same type of activity in Q4 that we would see it a normal operating year and the government is functioning is normally.
In terms of being responsive to delivering mission and to putting out our peace, we'd like to see a little bit faster on awards I'm sure everybody would.
But we're very thankful for.
The activity that we're seeing and we we expect that to drive momentum in the second half of the year. It certainly into 2021, given the volume that we're seeing.
Got it thanks.
And then you mentioned in his prepared comments the diverse portfolio portfolio is going to benefit in any election outcome here.
Can you talk about how key is going to retain the gains you guys made relative to peers.
Yes.
Maybe a flatter downwards defense budget, if you see other players retrench, how do you plan to FP retain some of these gains that you guys have made.
Well I think it's a couple of full first is just if you look at.
The areas that we're focused in which is more in the operations and maintenance and just supporting the day to day mission of government, where we're not really dependent on new areas of development in government spending where we we would expect that there could be a pullback in.
Innovation and new platform development, which is very costly compared to just kind of maintaining that the what the government has today training the capabilities of the existing government, whether it be Indio D oar and homeland security the Intel space.
And just keeping keeping the.
To support to the U.S. citizen across the country.
If it's internally more internally focus which is what our diversification as really created that platform for us, but I think it's also story about our strategy to expand.
Not just in terms of contracts in our core areas, but what we've done an expanding into new areas around engineering and training.
Forensics lab support business process outsourcing, where the government is going to be focused on finding ways to operate more efficiently and contractors played a huge role in helping government do that our business process outsourcing focus we think is.
It is very valuable to the government, whereas they turn to business to help them operate and save money to to extend the value of their dollar.
We will look to business to help them.
Find ways to operate more efficiently and I think he is well positioned to support that as the government runs into.
The need to.
To make every dollar go farther over the near future.
Got it.
And then just one last one you guys called out the Navy as a focus can you just expand on what you're seeing there how you'll be successful maybe what opportunities are coming up.
Yes. The Navy spent a very strong historic customer for US we are.
A prime deliver of support to naval test and training ranges.
Across the country, we support the Navy and foreign locations as well such as the Guam Naval base. So we just have a very substantial footprint with the navy. They this also extends to aviation support.
So we just see the opportunity to expand.
What we're doing there as the navy being very strong customer for PE and the Navy.
As an aviation I'd like aviation services idea Q that they have awarded that we are an awardee under that we do see substantial pipeline opportunities coming out.
In 2020, 2021 that can drive expanded growth in that area as well as our continued support in the test and training rigs area.
Thank you.
Your next question comes from Chris Moore from CJS Securities.
Hey, good morning, guys. Most of mine been asked but maybe just go back to co but for a second.
We see you guys are doing better than most with respect to cobot you you talked about 110 million kind of net impact.
Within that that $40 million of new business development because my question was.
That new to this development should I.
Should we view that in isolation.
Just getting pushed into into 21 or is it reasonable to assume that.
That has some perhaps modest impact on on on what 21 can do.
Sure I think the.
Our obviously, we're we're going to take a conservative look as we look.
Forecast.
The business and make sure that we're achieving the goals that we set out for ourselves and.
Project to the public and Theres no doubt the co bid had an impact.
And.
It slowed things down within government just like it did within any business across the us.
People were.
Isolated.
They were trying to stay safe and not going to work and it's just as you can imagine it's one thing to put an RFP out and the work that's required to do that it's another thing to make an award.
There's a significant amount of collaborative work that has to take place by the government.
To accomplish that and there are lot of.
Compliance requirements to make awards and we certainly understand that and respect that process and now that we've definitely seen have slowed down it it is.
It is significant enough to impact this but it's not we've definitely seen awards being made we do think that the worst of the.
The impact what is behind US. The government is operating we will see come back in the second half of 2020 in terms of awards, but yes. Some of that is going to fall into 2021 that we expected to see a 2020, which should help.
As we look.
In the future, but we just we can't predict the timing and.
Government has been.
Consistent in getting our piece out.
I think they will get back to normal in terms of putting out awards on a more consistent basis as time goes on in 2020.
Understood. Thanks, I'll jump back in line.
I'm showing no further questions at this time I would now like to turn the conference back to Mark Sadler P. H E Vice President of Investor Relations.
Thanks, everyone. Thanks for joining us this morning, and your continued interest in PA. If you have any questions. Please don't hesitate to give me a call and I hope you have a great day.
Thank you.
Ladies and gentlemen, this does conclude today's conference. Thank you for participating you may now disconnect.