Q2 2021 Science Applications International Corp Earnings Call
At this time I would like to turn the conference over to Shane can Esther FDIC Vice President of Investor Relations. Please go ahead Sir.
Good afternoon, and thank you for joining FDIC second quarter fiscal year 2021 earnings call. My name machine can extra vice President of Investor Relations and joining me today to discuss our business in financial results are not Keane FDIC as Chief Executive Officer, and Charlie Mathis, Our Chief Financial Officer.
Today, we will discuss our results for the quarter ended July 31 2020.
This afternoon, we issued our earnings release, which can be found that investors that FDIC dotcom, where you'll also find supplemental financial presentation slides to be utilized in conjunction with today's call.
Both of these documents in addition to our form 10-Q, two we filed soon to be utilized in evaluating our results and outlook along with information provided on todays call.
Please note that we may make forward looking statements on todays call that are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from statements made on this call.
I refer you to our SEC filings for a discussion of these risks, including the risk factor section of our annual report on form 10-K in quarterly reports on form 10-Q.
In addition, the statements represent our views as of today and subsequent events may cause our views to change we may elect to update the forward looking statements at some point in the future, but we specifically disclaim any obligation to do so.
In addition, we will discuss non-GAAP financial measures and other metrics, which we believe provide useful information for investors and both our press release and supplemental financial presentation slides include reconciliations to the most comparable GAAP measures.
It is now my pleasure to introduce our CEO now as a keen.
Thank you Shane and good afternoon before discussing FDIC performance and forward outlook. It is my sincere hope that each of you and your loved ones are healthy and managing through the continued challenges related to the pandemic.
So those FDIC employees, who have been directly or indirectly impacted by cobot 19, we continue to support you and provide assistance, where we can for you and your family.
Charlie and I had a lot of details to cover today, but I am pleased to report that FDIC continues to operate in a position of strength, despite a challenging macro economic environment.
We've been operating in this environment now for six months and I'm proud to say our employees and our organization have adapted very well.
While we had experienced isolated pockets of cobot 19 related impact customer demand for our offerings remains strong as evidenced by our positive business development and financial achievements.
Let me briefly discuss our second quarter results.
FDIC continues to demonstrate a resilient and stable portfolio as evidenced by our strong revenue base improved profitability excellent cash flow generation and the highest bookings and book to bill ratio in our seven year history.
Internal revenue growth for the second quarter, excluding the impact of Cobot 19 was inline with our expectations at 3% demonstrating underlying strength of the business.
FDIC exited the second quarter with the highest backlog in our company history, a proof point of our go to market strategy and acceleration of our business momentum.
These are notable achievements considering the many cobot related issues, we are all navigating.
In June I communicated our focused response to the pandemic in three areas employees customers and shareholders. Our efforts continue in these key areas, but as it relates to our shareholders specifically, while we navigate the pandemic related headwinds our attention is on managing the business to meet our commitment and.
Create shareholder value.
We are focused on managing profitability generating substantial cash meeting our de levering commitment and continuing our business development and growth activities to ensure long term success of our company.
FDIC is grateful to operate in a market that has been minimally impacted by the pandemic.
We continue to play a vital role in our customers missions across our broad customer set but in particular, those responsible for ensuring our nation's health and security.
As the exploration that many parts of the cares Act approaches, particularly section 36, 10 that provides for the maintenance of ready state labor, we are hopeful and confident that the provision will be extended allowing us to continue our vital support to our national security customers.
Looking a bit into the future government fiscal year 2021 is almost a short to start under a continuing resolution, which will likely remain in place until after the November elections.
I see the custom to operating in a CR environment, and we know how to navigate potential disruption.
I'd like to take a minute to discuss talent acquisition and retention during the pandemic.
By making talent that priority and a key element of our strategy. We have maintained our ability to recruit and retain best in class technical talent. While also benefiting from an all time low end voluntary turnover.
We have over 500 direct open positions available and we believe that FDIC provides a very attractive career opportunity in a stable market, providing customers with technological solutions of national importance.
Speaking of valuable talent, let me provide a quick update on our acquisition of Unisys Federal.
This is federal contributed for the entire second quarter and has operated very well during the pandemic similar to the rest of FDIC.
As I have mentioned before the integration of Unisys federal is much less complicated sitting integration of agility and I'm proud to say that the work of the integration team has exceeded our expectations.
We are confusing their commercial style delivery model and go to market approach in key markets and with receptive government customers.
While we remain focused on our strategic priorities. We also periodically review the portfolio for non strategic areas to deemphasize or divest.
During the second quarter FDIC sold a few state Department and Department of Justice International Law enforcement support contract.
These contracts were obtained through our acquisition of in Chile, and we're not viewed as strategically important to our strategy or our future.
They were also dilutive to our margin profile and not financially material to the company.
As it relates to our strategy execution, we are seeing the positive impact of past years technology investments and acquisitions in our ability to cross sell capabilities to new and existing customers.
Most notable and exciting is the increased interest by intelligence community and defense customers in our IP monetization capabilities, especially in advanced analytics software and App monetization and cloud migration.
Our digital transformation capabilities strengthened by the Unisys Federal acquisition are also creating growth opportunities through increased customer end market access.
This is an example of the realization of our strategy that continues to guide our investments and priorities and will position FDIC for sustained profitable growth.
Before turning the call over to Charlie I want to take a moment to discuss his recently announced retirement.
Charlie has decided to retire but has graciously agreed to stay until the end of our fiscal year, allowing for a smooth transition to a new CFO and a continued successful year as we navigate the pandemic challenges I.
I am very appreciative of Charlie's financial leadership over the past four years and in particular supporting me through my transition as CEO.
His extensive experience in financial acumen has helped FDIC growth were $4.5 billion business to the over $7 billion company. We are today.
Although we will Miss Charlie's passion and commitment to FDIC, we congratulate him for reaching this milestone and I ask you to join me in wishing him well and celebrating this recent decision to retire.
Thank you noted for the very kind words. This has been one of the most rewarding times my career.
I see has a wonderful purpose statement in mission to advance the power of technology as a form of marine FDIC gaming the opportunity to continue supporting a great country. I am proud has been part of such a talented group of people pursuing a common goal.
But I'm not quite gun yet.
As Gnostic mentioned I will retire at the end of the fiscal year and we will focus my remaining time in two areas first I will look to close out another year and continue to deliver on the financial commitments we have made.
Second I will help ensure the smooth transition to a new CFO.
The company is operating from a position of strength and leadership and I will do all can to enable the future success of the new CFO.
Now moving on to the results for the second quarter and our outlook.
Lastly, I see continues to demonstrate exceptional resiliency in a challenging market. We continue to build momentum across all aspects of our business operations business development functions and financial metrics.
These results for the second quarter fiscal year 2021 reflects solid revenues strong profitability and free cash flow and outstanding contract awards, all while absorbing posted 19 related headwinds.
Let me begin with our strong business development results net bookings for the second quarter, where approximately $4.6 billion translating to a quarterly book to Bill of 2.6, the highest book to Bill in our history.
The most significant contribution to our quarterly bookings was the award of the Amcom software lifecycle development contract with a total contract value of $2.9 billion.
In addition, and not contributing to our second quarter bookings, we received over $1 billion a single award.
Q contracts with one of the awards being a $630 million contract to provide.
Modernization to the US Air Force weather agency that technology application development and Sustainment. Our Tads contract was one as a result of the Unisys Federal acquisition.
Not only were a contract awards strong, but our contract submittals continue to be robust as well.
Even with a strong bookings in the quarter FDIC value of submitted proposals at the end of the second quarter was $20.6 billion up $5 billion from the ended the first quarter.
This is the highest amount of submitted proposals in our history and approximately 80% of the value of submitted proposals is for new business opportunities.
At the end of the second quarter essay fees total contract backlog stood at approximately $19.4 billion up 40% from prior year quarter, which includes funded backlog of $3.1 billion.
Let me now turn to the financial results for the quarter.
Our second quarter revenues of approximately $1.8 billion reflect total revenue growth of 11% with generally flat year over year organic contraction of 1%.
On a year to date basis revenues reflect organic growth of 1%.
Negatively affecting second quarter revenues were approximately $65 million of coated 19 headwinds, resulting from the same factors that impacted the first quarter.
A slowdown in our supply chain business due to lower operational tempo and our military forces.
Reduce FAA training services and the maintenance of ready state labor and our National security portfolio, excluding the coated 19 headwinds organic revenues grew by 3% in the quarter and 4% year to date inline with our expectations for the year prior to the onset of for the pandemic.
[music].
Second quarter, adjusted EBITDA was $167 million and adjusted EBITDA margins were 9.5% as a percentage of revenues.
On a year to date basis, adjusted EBITDA margins or 8.6% up 20 basis point from the prior year six month period.
As with the first quarter Covance 19 negatively impacted adjusted EBITDA margins by about $8 million or 10 basis points.
This was primarily due to uncertainty profit recovery and our intelligence community business.
On ready state and labor cost and reduced volume and our supply chain business.
We are grateful for the provisions from section 36, 10 of the carriers Act and keeping our workforce ready and available.
However, offsetting the negative coated 19 impact in the quarter, where a couple of favorable onetime nonrecurring items, a $17 million related to the resolution of certain legal and program contract matters as evidenced by a strong profitability.
I see continues to operate efficiently during these challenging times, reflecting both the resiliency of both our business model and the government services market.
Finally, and as Gnostic mentioned during the quarter, we sold non strategic international law enforcement contracts obtained from the agility acquisition, which accounts for most of the acquisition and integration costs in the quarter.
Net income for the second quarter was $51 million and diluted earnings per share was 87 cents.
Excluding the $15 million has net acquisition and integration costs as well as amortization of intangibles are adjusted diluted earnings per share was $1.63 cents per share for the second quarter.
The $8 million of unfavorable Copa 19 impact to profitability equated to about 10 cents per share.
The effective tax rate for the quarter was approximately 25%.
Inline with our continued full year rate expectation at 23% to 25%.
Second quarter free cash flow was $90 million, reflecting another quarter of strong cash generation.
The second quarter contained one more payroll cycle as compared to the first quarter, which is consistent with historical years.
The free cash flow generation continues to reinforce our confidence in our rapid de levering profile.
Days sales outstanding at the end this quarter was 63 days, excluding the impact of accounts receivable sell facility. We finished the quarter with cash on hand of $197 million.
During the second quarter, we deployed $163 million of capital consisting of $21 million in dividends and $17 million and $125 million, a mandatory and voluntary debt repayment respectively.
Additionally, in subsequent to the quarter due to the continued strength in cash flow generation and our outlook. We made a 100 million dollar voluntary debt repayment, continuing our rapid delevering plan and commitment.
I should note that as announced in our press release today, Our board of Directors has approved a quarterly cash dividend of 37 cents a share payable on October thirtyth to shareholders of record on October 16th.
Now turning to our forward outlook.
As noted in our press release, we are updating a portion of our previously provided guidance for full fiscal year 2021.
Our updated guidance assumes continued impact from the code that 19 pandemic at a similar pace that we have seen thus far and now through the end of fiscal year 2021.
Our previous guidance assume lessening headwinds and a return to a more normal operational tempo and the third and fourth quarter, but we now believe the impacts the Coca 19 will persist through the end of the fiscal year.
So the increase is due to longer duration, not new where previously on identified impacts.
For fiscal year, 2021, and including 10 and a half months of Unisys Federal our revenue expectations are between $7.1 billion and $7.2 billion, implying organic revenue growth between 1% and 3%.
However, this revenue range now assumes a full fiscal year impact of approximately $250 million from cobot 19.
Up from the previous expectation of $150 million and primarily associated with reduced volume in our supply chain portfolio.
We believe that this updated estimate of Copa 19, full year revenue impact fully addresses the risks to the portfolio as we see it today.
This updated estimate equates to about four points of organic revenue growth for the year.
The revised revenue guidance accounts for the increase in pandemic related headwinds and the foregone revenue associated with the sale of international law enforcement contracts, partially offset by improvements in the strength of the underlying portfolio.
With regard to profitability expectations for the adjusted diluted earnings per share are unchanged at between $5.80 and $6 in 10 cents.
This includes a negative profit impact of approximately $35 million from cope at 19.
Up from our previous expectation of $25 million.
However, due to the year to date profitability, we expect to offset the increase cobot 19 impact estimate.
Turning to free cash flow, we still expect free cash flow to be equal to or greater and 500 million Dollarss also consistent with our previous expectations.
We are committed to the rapid Delevering plan that we initially communicated in February at the announcement as Unisys Federal acquisition.
We are confident in meeting our target net leverage ratio of 3.0 times by the end of fiscal year 2022, and have made significant progress so far.
To that point, including the debt repayments through today, we're now at a net leverage ratio of just under 4.0 times and our head our for debt repayment plan.
Nazak back to you for concluding remarks.
Thank you Charlie.
Before taking your questions I would like to take a moment to reaffirm FDIC his commitment to a very important social issue inclusion and diversity.
We recently issued a sustainability and social responsibility report that detailed our emphasis accomplishments and progress in this area and much more in our environmental social and governance profile.
The report can be found on our Investor Relations page and I encourage you to review the report Seaton. Many good things FDIC is doing in these areas.
Along with this report recent events have been an urgent call to action and have driven the need to have broader and more meaningful discussions about social any quality and how Sci Fi can make a greater impact within our company in our communities and across the country.
We are taking this opportunity to build on what FDIC was already doing but we also now we can and must do more.
It is critically important that all FDIC employees feel welcome and have an equal opportunity to achieve their goals.
Hearing directly from our employees about their personal experiences and challenges have only strengthened our resolve and commitment to build on the progress to date and reminded us there's more work ahead.
I'd say I see we will aggressively work to ensure that we have a workforce that represents the best at our country.
A broad tapestry of age.
Color gender gender identity and ethnic background.
Operator, we're ready to take questions.
In order to ask a question you will need to press star one of your telephone to withdraw your question. Please press the pound key and your first question comes from the line that Jon Raviv from Citi. Your line is open.
Thank you and good afternoon.
On the on the on the growth dynamic.
Shading, the full year impacts that you're showing this year.
To what extent any mentioned the 400 basis points of growth headwind. This year on to what extent should we be able to levels recapture that growth at least in the next fiscal year, maybe not all the dollars dollar your misfit dollars, Don but the growth rate I mean, you feel that we should be above that that that 3% long term number you've always talked about.
Yes, Hi, Jonathan.
Yes, I would agree with with that assumption that the growth rate that we repeat projecting next year.
Would be in line with their pre coated estimates.
And that we would be growing 3% or excess of 3%.
If you look at the the amount of business development momentum.
Backlog the book to Bill contracts Submittals, 80% of which is new business is a great deal of momentum.
Generating and.
So yes, the that growth rate going forward out to next year I think would be.
Meet or exceed what we would have this year excluding coast.
Got it.
And then on margin I appreciate that the 9.5 has had a net benefits from so one timers that you outlined.
But you know combined with the performance year to date, what you're seeing in the backlog getting rid of some dilutive businesses.
You are what you are well underway I think that to the minutes this year.
Is there room for margin to accelerate much above 9%.
On a more sustainable basis going forward as.
You just mentioned some of that growth.
Growth momentum picking up as well.
Yes, well, let me let me just make a couple of comments on the margins and and again normalize the margins from the onetime favorable impact of 17 million, that's about 100 basis points for the quarter. So the 9.5 would really translate to an eight point.
5%, however on the other hand, we had $8 million in negative Copart impact and if you add back the co that revenue and profit impact you get to.
10 basis points improvement there so a normalized margin for the quarters about 8.6%.
We expect the slightly higher margins in the second half of the year.
And that's consistent with our guidance center previous communication.
We're benefiting from the Eunice federal.
Impact and the second half.
Lower costs, and and we would look for that dynamic to continue.
As we move forward been higher margins and next year, we are the eight contracture being bid.
Higher solutions.
More firm fixed price contracts, while translating into higher margins. So.
Wait wait too early to give any guidance for next year or any of that but certainly the way we're going what.
Suggests that we are going into higher margins.
Yes, I think Charlie the right answer that twice, what it should not problem, but that's okay.
A gradual issues on the retirement.
Thanks again guys.
Yes.
Your next question comes in a line of grade Conrad from Jefferies. Your line is open.
Good evening and congratulations Charlie.
Just wanted to follow up on Colgate I mean is it isolated to supply chain at Bay and Intel are you seeing any type the delays on some of the ramps on some of these new contracts that you've won.
This is an issue of duration that depth, we laid out what was impacting us it was supply chain FAA.
The national security, adding that that's what we're saying we're seeing this person persisting to the ended the year, we thought there would be lessening headwinds.
From this dynamic going into the fall that doesn't happen.
And that majority of this is the operational tempo around the supply chain just hasn't gotten back to levels that we were.
Expecting the endemic and Texas is just getting continue into the end of the year and Thats, what the assumption Sir.
This is not like I'll, just add to that so tell you that excellent job capturing those those pockets that are.
Impacted on the positive side the vast majority of our employees are working many working still remotely. So we've worked exceptionally well in concert with our customers to ensure that the vast majority of our work continues and in many cases, new delivery models for that work. So I think in general, although we are impacted and weve.
Certainly outline that.
Just important to remember that most of the company continues to operate.
At operated before.
And also bringing in new technology, the new delivery models that allow us to do so.
And I mean that kind of ties into the next question. I mean, you mentioned submitted proposals are up.
<unk> billion sequentially with 80% New business I know you typically don't mention contracts that you're getting on but any color in terms of areas, maybe where you're seeing the most opportunity.
Well I think.
One way to think about it is we've been sharing our focus areas in our strategy. So if.
The areas that we see opportunity to drive growth in digital transformation IP monetization cloud migration.
Space domain.
Yes in the armed forces southern.
Very consistent with the strategy that we've laid out and and we are seeing the opportunity to drive long term revenue growth in those areas.
Thank you.
Well.
Our next question comes from a line of Cai von Rumohr from Cowen Your line is open.
Thank you very much so.
If we exclude I assume we exclude the 630 million pads award from Euro Awards, given it Tonight to and therefore, it looks like you've got about a billion dollars of on identifies of sort of miscellaneous stuff of most of you laid out.
Looks like a pretty big numbers or anything in particular, the tallest citing there.
No. It's I think we've laid out and that press release most of the notable awards that.
Were contained.
And there.
And there was 150 170 million dollar few of those but.
No nothing one big time other than the.
For lifecycle.
And then.
Let's see you mentioned, the 17 million legal game, how much were contract adjustments or EA series in the quarter.
Yes.
Hi, there was there or there was.
No significant EA fee adjustments in the quarter.
This 17 million and included legal settlement sand and contract.
Resolve meant.
That were not related to edcs, but were related to us.
Negotiating on certain contract terms I would say that proved to be favorable.
[music].
So.
So it wasn't it wasnt EA CAC is for the quarter were zero year to date 30 million.
Got it Okay and then the last one it looks like you revenues to covert estimate for sales 100 million.
The PML impact by 10 million and Natus domain.
Area of of exposure is the supply chain their margins are way below average so how comets 10 million on a 100.
Yes, so the 10 million relate to the.
No fee on idle time.
That.
You know thats been EMS that thats been an impact for us for the first two quarters so that extended.
Till the end to the year, we thought that that would.
Lesson and the fall, but thats, where most of the profit comes from is the extension of that no fee on idle time National security great.
Thank you very much.
Our next question comes from the line of Joseph Denardi from Stifel. Your line is open.
Hey, good evening.
It's early.
Book to Bill fillings, among very strong in that and tends to correlate to on a north of 5% organic growth.
The industry. The past couple of years is there anything from a recompete standpoint, we.
And as an offset to that in terms of why organic growth shouldn't be quite strong.
Next year, and then to what extent or are you all being bridges and extensions.
May differ some of that Recompete.
Yes into subsequent years. Thank you.
Hi, guys. This is not sick. So a couple of things we really have on for the most part retired the recompete risk as it relates to the rest of this year has certainly small things are still out there as we think about for the remainder of this year. Most of that Recompete was retired with certainly with the and calm.
Resolution in our favor so.
So the way that the weighted I would think about it is that is the wins that we will continue to gain the solid backlog. This as we go into next year will drive to growth as we go into next year. We are seeing in some cases extensions and so that is.
Thats a normal course of business in some cases were hearing extensions as a result of common in some cases, it's just.
The normal way of.
Dealing with with Recompete procurement. So we are seeing some of that nothing significant at this juncture, but but again I think if we look forward to the rest of this here most of the Recompete risk has been retire.
Yes.
Okay, and then as it relates to use this federal can you just talked about.
Employee retention there what you will you felt we being over the past summer. Thank.
Yes, absolutely so give us the integration of you give us federal continues to go very well in general.
I think it's relatively consistent with the rest of our industry. The turnover rates have been relatively low in light of the impact of Covance. So we were seeing very very high stability in the U.S federal portfolio very consistent with.
With the same rates of turnover, we would see in our overall portfolio that continues to go well I'll give you a little color on the integration as I mentioned.
We closed that acquisition and day, one was in the beginning of the Covance the co the challenges and so that is something that we paid close attention to.
And and making sure that we communicate and and we've integrated as successfully as we can it has a much less complicated integration than.
In Chile was.
Think about the fact that we bought a portion of the business not an entire company and so the next steps for US as we continue to look at harmonization of benefits and Thats thats well on track as well as that financial system full integration and again thats well on on path. So I'm very pleased with how that integration has gone very pleased with the.
The integration employees and the solution and the customer access and.
I wanted to give you that general update as well.
Thank you very much.
Okay.
Our next question comes from a line of Seth Seifman from Jpmorgan. Your line is open.
I will call glop local multiples hold on.
Paul Paul.
I will upon closing.
Ill.
On.
On the wall with you and over the last quarter.
We want Walt will hold on for what that you visibility on Volte, Chris portfolio for the elderly people on normal level, while global.
Hi, good activity.
Business or or is it.
You know kind of continue hopeful on total level Youre all.
Possible, who oppose court of appeal to come along what the buyer pool by that goes along.
All.
This will go a little point.
Hi, good data is not necessarily closing insight.
Yes, I would say that that's where we're looking at this to persist to the ended the year.
We're looking at the impact on covert the revenue to be.
Consistent in the next two quarters.
Year to date at 110 million, so the 140 million.
More to go.
Consistent.
And.
And the opportunity if this thing went away faster and the operational tempo turned around.
By the fourth quarter than we could see we could see improvements but.
Right now we have.
We don't see any further risk on on the downside related to this week factored in everything we we believe to be okay.
Okay, great. Thanks, and then.
Maybe if you could talk about the.
The future.
And column.
Obviously, an important win.
To start off the recompetes, there, but that the future amcomp.
Award opportunities and then when you expect.
Yes. This is not the capital. So again, we're very pleased that add if we were able to secure the first the first of these there are several more that we are pursuing.
Let's cut size and scale. We believe the next one could be awarded as early as late September into mid October and so we look for that one and then a few more than would come as we close out this fiscal year, possibly in the into early next fiscal year and so again, we believe are very well positioned it does create an opportunity not only.
To secure our are repeat in our current revenue stream provide for some growth opportunities as well in that portfolio.
Great. Thank you very much.
You're welcome.
Our next question comes from the line of Gavin Parsons from Goldman Sachs. Your line is open.
Hey, good afternoon.
Okay.
Is given the 1% to 3% total organic growth rate guidance with a 4% headwind did you raise the 3% to 6% underlying x. covert organic guidance.
No we havent.
Raise that and that the 1% to 3%.
The 4%.
Round at approximate numbers there.
So.
I would say that.
The underlying strength of our portfolio.
Lisa to the top end of that pre Covance estimate on the revenue growth.
So I would say were more there than than raising any pre cobot estimates.
Got it so reiterating the three to six next call that but towards the high end.
Yes.
So that implies something like six or seven 7% growth rate organic echoed in the back half of their.
I think we were.
At roughly 5%.
Is where we're thinking.
Excluding coated.
The impact there again five 6%.
The higher end if that range that we gave.
Okay. Thanks, and then.
And as it just given the repositioning of the digital transformation space until focus.
What's the target business mix of those categories are those segments relative to where you are today. Thanks.
Are you asking just make sure I get questions. So as it relates to our overall portfolio what portion of our businesses in that category IP monetization digital transformation, that's quite yet articulate exactly what it is today versus where you aspire to be.
Well.
Yes, I don't have the exact number I would say, it's one of the half to 2 billion somewhere in that.
Range, but I will have an exact number.
Okay significant portion of our portfolio today and its a.
Significant portion of our pipeline going forward as well.
Got it and then just quickly the 17 million gain on EBITDA was that expected.
And considered and EBITDA margin guidance for the year.
No that was I was onetime nonrecurring.
That.
It's not and in the guidance.
So that helps offset the additional negative co fit impact we have any a back half of the year.
The favorable contract.
Program contract matters and legal settlements.
Got it so what's the new percentage guidance for full year. Please.
Yes, so we.
We've given guidance as far as revenue.
And EPS and cash.
And we've given I think.
Pretty much all the factors you need to calculate that and.
And also I mentioned earlier that that was a normal margin of.
8.6% EBITDA.
In the quarter and we expected the backend to be.
Slightly higher in the and the second half and I would just leave it at that.
Got it thanks very much.
Your next question comes from line of Tobey Sommer from Truest. Your line is open.
Thank you.
If so.
We look at the the pipeline compared to the income statement and profit profile that you're reporting currently how much of a difference in the is there in other words.
Maybe how how much give a front for how much more profitable the pipeline is that your current book. Thanks.
Yeah I would.
I'd say.
Slightly.
Comparable.
Because we're always looking too.
Increase the value added portion of our work and I think the.
You know you business that we're going after now that puts a lot of screening and making sure that these margins are are higher and accretive we're always looking for accretive margins.
And.
But I don't have the exact number what what it would be.
Okay.
In.
Looking at Unisys federal in that marketplace.
I'm not about look up the pipeline looks like for that.
The numbers you can.
We need.
We will look for sort of.
Okay.
Okay.
Okay.
Thanks.
And I say that assuming that the tads was fairly well formed.
Prior to the acquisition.
Yes, Thank you broke up a little bit towards the end.
I'll try to address the question, but if I didn't capture at I. I think if the last couple setting, but I think what you're asking is even as the federal acquisition starting to influence pipeline and if so how and where fall I'll address that thats not it likely now, but the app we entered accurately yes. So.
In particular as I called out we're seeing increased pipeline activity as it relates to IP monetization cloud migration digital transformation in those areas in our intelligence community, adding our deo the pipeline.
It doesn't mean, it's not in the rest of the portfolio identical to the areas that happened most significant opportunity.
Building on what civilians. So so absolutely seeing the occasion to that that a solution into our pipeline development and and so we believe that to me.
True benefit an advantage of that acquisition did I answer your question or did I Miss something.
We have lost his line.
Oh, okay.
Your next question comes from the line of Matthew anchors from Barclays. Your line is open.
Hey, good afternoon, guys. Thanks for the question.
On the guidance.
This is a little bit nitpicky, but I guess the legal gain I think was 17 low.
Thank you increase your Kobe profit impact by payable by another negative offset that.
Sort of major keep the guidance thanks for the full year.
No I can't.
I can I can't think of.
Anything there like I said, there was underlying strength in the and the portfolio in the revenue side.
And again I want to emphasize the 17 million Wasnt just legal settlement.
There was also.
Some favorable contract matters that were that were also in there as well.
But no theres other than the underlying strength of portfolio.
Nothing in there like I think.
Okay.
And then I guess is just one other one.
So there was some trees squad vehicle or this quarter, though.
Okay I guess.
Can you just comment on it.
Yes, thats sort of course data available how that could fit into your portfolio will feature.
Nickel ore so the from product related.
Business, Okay, you participants involved in future.
Hi, This is not that got you probably don't want to put too much color on any particular deal, but I can tell you is that the nature of that business for us since we made the pivot.
Team months for two years ago is really around the engineering and so that continues to be a strengthening I see that is absolutely as part of our go to market strategy, bringing digital engineering and complex engineering.
To serve that the okay. So that aspect of our business continues obviously, we were disappointed but probably don't want to say much more on that particular deal.
Got it.
Yes.
Well.
Our next question comes on line, Josh Sullivan from the Benchmark Company. Your line is open.
Hi, good evening.
Jeff.
I think at your Investor Day, you put out some longer term as such assumptions our defense outlays any updated thoughts that outlook, maybe game theory, just as the November election approaches there.
Yes. This is not that so.
As we sit here today with some of the headwinds.
Certainly the covenant created and many industry and certainly in our at our.
Potential impact today, the budgets going forward as well as the election Thats all something that we're all watching well paying close attention to we don't see any others no no immediate impact to the budget.
No in fact that we see across the board, but we also recognize that that's a potential that we navigate that we've watched very closely I will tell you that that the nature of the work that we do the areas that we we've elected to emphasize the focus on portfolio standpoint.
Give us some diversification if it's a headwind it does create create them.
Negative challenge and so we feel very good about our posture going into.
This next cycle, we feel that the work that we do we know the work we do mission critical and again the areas as.
I came on innovation that focus on space those are areas that are enduring.
Regardless of.
Different pressures that could happen. So so we continue to navigate if we feel positive about it but we recognize that that is this potential there and we'll work our way through that.
Correct.
And then just on the the 500 open positions you mentioned is there way to frame those what the revenue opportunity might be what number of those are in the digital transformation areas you're focused on anonymity with timeline, we could think about some of those positions being open for being closed.
This is topics that we all as you would expect with over 26000 employees, we always have open positions and so.
So the way that I think about it as we've we've been very very good over the course these last few months at at.
Leveraging technology to onboard new talent to recruit onboard new talent and that continues to be a strength of our so.
I think it.
Good point that we're still hiring at the proof point that we still have we still have need I don't have the categorization in front of me, but routinely is a cross section of the company that was the cross section of engineers.
Technology technology workers cloud engineer.
Our lives.
Certain it's across the gamut of the type Unfortunately, due and for the most part across the country. So we think about it in that regard.
Got it given the time.
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And we have a follow up question from a line Jon Raviv from Citi. Your line is open.
Thank you very much for that.
Like I was wondering if you could comment.
Not even DD on the teeth that three more months, Keith just sort of talk a little bit about.
Maybe what you're seeing together.
The changes or what kind of.
Further pivots, you might make and if there is a timeframe around any of those changes that you're making.
Oh, Great question, John So we're thrilled to have around the team shape.
I think any time you can bring.
Somebody on in a senior position with the diverse background on the first set of ideas.
It makes us collectively better so we're very pleased to have or on our team.
Where where she is helping US focus is continued refinement of our strategy to ensure that.
As I referenced here that we're focusing on the right phase.
That we are we're investing in the right areas and and in many cases, it's been it's been a confirmation that we are in some cases, there might be some slight to pivot.
And I really mean Adam.
In the exact term flight pivots, where you might want to emphasize something within our portfolio, a little more or de emphasize and so she's led that charge for us as we've shared with that with you all before we really do look at strategy at a very agile and dynamic way associate should continuing that for US and then she also will.
We will play a key role as we look to technology investments solution investments as we go forward. So thats. So thats, how I would really from kind of put some some color around where she is spending her early days, but again very pleased that she's on RK.
Okay. Thank you for that and then just one last one for Charlie just on the on the free cash flow trajectory I understand reiterating 500 million this year, excluding there for the our facility.
Just any thoughts on the on the multiyear path here I know I know you have the payroll tax ups and downs so to speak.
We used to think about 550, a sort of a centering number over the loyalty year period is that still fair to think about.
Again, if we clean we sort of clean out all the payroll tax stuff.
Absolutely I would just say that not only Mike reaffirming our expectation that meeting or exceeding 500 million of free cash flow. This year, but also reaffirming what we said last time or outlook for next year, a meeting or exceeding the five and 500 million or free cash flow.
Thats consistent with a $1 billion, we talked about now if you normalize next year and think that we're paying back the.
Have a repayment on the payroll tax deferral 40 million, that's a normalize 550 million of free cash flow next year, which I think is consistent what we had talked about.
Yes, very much so thank you very much.
Your next question comes from the line Tobey Sommer from Truest. Your line is open.
Thank you.
Now that can you speak to the companys ability to ramp contract wins from a staffing perspective in whether a link to that to the extent that this environment has slowed it kind of how much.
Good good question Tobey this environment has not slowed our ability to staff at all.
We've actually remained consistent in our ability to hire to bring on talent.
If it rebalancing is the result of.
Contract win whatever that as we've seen no no challenges and being able to staff and actually in some cases quite the opposite we're seeing great talent come from some other industries. Our technical talent that are more impacted as a result to cope it and so.
For us it's been probably more of a positive than a negative on that particular aspect of our business, but we haven't seen ended up issues.
Okay.
If I could one more and I'll be done.
I would you describe the pace of contract awards.
Federal fiscal month.
Yes, I think I guess I would describe it is not relative pricing it's.
I would certainly it was hard to predict coming later in the current environment, how contracts were going to get last how are you going to happen how oral for going to happen, but the government has done an excellent job for the most part going adapting.
Two technologies to help make that happen. So so certainly there are some cases were something a slip there some cases, where.
They might do at bridge, but that happens even in a normal environment. So.
So I don't believe there's been any significant impact on contract RFP for contract Award.
Yeah, there's pockets, but at the macro level at not fair.
Thank you.
Welcome.
And there are no further questions at this time, Mr. Shane can extra I turn the call back over to you for some final closing remarks.
Thank you very much for your participation in FDIC second quarter fiscal year 2021 earnings call. This includes the call and we thank you for your continued interest in FDIC.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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