Q4 2020 Leidos Holdings Inc Earnings Call
Greetings and welcome to the <unk> fourth quarter, 'twenty and 'twenty earnings call.
At this time all participants are in a listen only mode.
A brief question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero from your telephone keypad. Please.
Please note this conference is being recorded.
At this time I'll turn the conference over to Peter Berl, Senior Vice President Investor Relations. Mr. Burton you may begin.
Thank you, Rob and good morning, everyone I'd like to welcome you to our fourth quarter 'twenty and 'twenty earnings conference call joining.
Joining me today of Roger Krone, our chairman and CEO, Jim Reagan, our Chief Financial Officer, and other members of the lightest management team today, we will discuss our results for the quarter ending January one 2021.
Roger will lead off the call with notable highlights from the quarter as well as comments on the market environment Our company strategy.
Jim will follow with the discussion of our financial performance and our guidance expectations.
After these remarks from Roger and Jim We'll open the call for your questions. Today's discussion contains forward looking statements based on the environment as we currently see it and as such does include risks and uncertainties. Please refer to our press release for more information on specific risk factors that could cause actual results to differ materially fine.
And during the call, we will discuss GAAP and non-GAAP financial measures a reconciliation between the two is included in the press release that we issued this morning and there's.
Also available and the presentation slides the press release and presentation as well the supplementary financial information file are provided on the Investor Relations section of our website at IR Dot lightest dot com.
With that I'll turn the call over to Roger Krone.
Thank you Peter and thank you all for joining US this morning for our fourth quarter and full year 2020 earnings conference call.
Before we close the door on last year I'd like to take a moment to thank the approximately 39000 and white house employees, and our business partners and our customers for their unwavering commitment and collaboration and light of the Covid challenges I'm inspired by what we accomplished and the past year together and the chat.
<unk> debt, we will solve and this new year for the betterment of our communities and our customers mission.
Fourth quarter results reflect the resilience of our growing portfolio with new record levels of revenue and backlog, coupled with margin expansion and further balance sheet optimization.
This performance positions us for above market growth in 'twenty and 'twenty, one fueled by our talented and diverse workforce, who continue to engineer and deliver.
Technologically innovative and secure solutions for our customers' evolving needs.
Revenues for the quarter were three and a quarter billion up 10.1% from the prior year, reflecting two strategic acquisitions that closed in 2020.
Q fours adjusted EBITDA of 11.3% up 30 basis points compared to the prior year period reflect strong program performance and indirect cost management that delivered 8% growth on non-GAAP EPS.
Totaling of dollar and 63 cents for the quarter.
Net bookings of $3.3 billion of in the quarter.
Resulted in a book to Bill slightly above one and 1.4 times on a trailing 12 month basis.
These solid results do not reflect any material contributions from the Navy Nextgen program, which was resolved and light doses favor late in the year. The $1 7 billion dollar F. A a NIST for Recompete Award that is currently under protest or the 1 billion.
Dollar military and family life counseling of award that was announced in January the.
These three wins, coupled with a backlog that is more than two and a half times our historical annual revenue.
And a healthy new business pipeline provide us with high confidence and our growth outlook and the new year and beyond.
For the full year, we generated record revenue of $12 $3 billion, an increase and annual increase of 10.8 per cent.
Full year revenue delivered 10.8% adjusted EBITDA margins that yielded non-GAAP earnings per share of $5.83.
This represents 13% growth over the prior year and.
Additionally, the business generated over $1.3 billion of cash from operations for the year far exceeding our initial 'twenty and 'twenty guidance.
Full year net bookings of $17.8 billion contributed to a record year and backlog position of $31.9 billion, a year over year increase of over 32% or a healthy 20.
3% after adjusting for acquired backlog.
Turning now to several significant contract actions and the quarter that positioned the business for significant organic growth.
And the defense solutions segment. The U S Court of Federal claims ruled in favor of our Navy customers Award of the N. Gen program, where light OS will unify operate.
And maintain the shore based networks and data management and the department of the Navy's program Executive office digital to improve capability and service under one enterprise network construct.
The single award idea IQ has a five year base period of performance followed by three one year option periods with an approximate value of 7.7 billion. If all options are exercised.
Due to the timing of the court's decision no significant task orders were booked in the fourth quarter.
Also on the defense solutions segment. The G E O denied the protest clearing the path of the U S. So calm the tactical Airborne multi center sensor platform support task order also known as stamp to delight us.
Under the contract <unk> will provide pilot services airborne sensor operations hub and spoke operations and excursions support as well as under other engineering support services and support of the programs to have one dash H and King Air 300 aircraft.
The award has a total value of $649 million and includes a one year of base period of performance followed by four one year option periods.
Additionally, within the intelligence community. The company was awarded contracts collectively valued at $304 million, if all options are exercised.
So the.
Pacific Nature of these contracts are classified.
The encompass mission critical services that help to counter global threats and strengthen national security.
This morning, we announced the second of two strategic acquisitions that occurred over the last several months.
Similar to the transactions, we closed in 'twenty and 'twenty. These recent deals and support our strategic framework of adding capabilities and deepening customer relationships.
We expect Gibbs and Cox and 19 O one group to be immediately accretive to non-GAAP EPS.
The acquisition of Gibbs and Cox will extend our existing maritime business and add specific capabilities and services such as naval architecture, and Marine Engineering, three D modeling and design and specially engineering to the solutions set that we offered to our customers.
Gibbs and Cox has a rich history dating back to 19, and 29 and their workforce is highly regarded and the industry and across the globe and.
In addition to being positioned on the front end of next generation vessels. The business combination provides significant tailwind for participation in the maritime unmanned market and accelerates Gibbs and Cox expansion and the undersea domain.
We anticipate that the transaction will close and the second quarter. After the completion of regulatory reviews.
Second.
In early December we announced the strategic acquisition of 19 O. One group, a leading cloud and digital modernization as a service provider.
The transaction is now closed and this quarter, we welcomed the nearly 400 I T cloud and cyber specialists to the lightest family.
In addition to its deep bench of technical talent. The company has developed a robust as a service delivery model that is scalable and repeatable and affordable.
As our customers continue to seek on and off premise Magic managed service solutions 19 of one group will expand our team's ability to address this accelerating market.
Organizationally 19 of one group is aligned with our defense group and through collaboration with our CIO and CTO leadership, we are in the process of leveraging these new capabilities across the enterprise to the benefit of our customers.
Looking to the macro environment.
With the current year 740 billion dollar of N V. A a passed into law of change.
Change and now turns to the president's pending physical year, 'twenty and 'twenty two budget recommendation.
Which is unlikely to put pressure on defense industry outlays before physical year 'twenty 'twenty three.
Given the great power competition, and leading national security issues, we do not anticipate major cuts, but rather flattish to slightly declining budget numbers with focus on modernization and report re prioritization of.
And also with projected increased focus on health care demands and civil infrastructure, particularly transportation.
We believe that our diverse portfolio of differentiated solutions is well aligned with the administration's and our customers' highest priorities.
Next I want to take a moment to highlight lightest continued commitment to mental health and wellbeing of both our employees and our communities on a topic that has been increasingly more front and center for families over the past 12 months of.
Approximately three and a half years ago, we launched an initiative to do our part to tackle the opioid epidemic and challenged other companies to do the same.
These efforts organically grew to also address the underlying contributors to the substance misuse of associated with mental health and wellbeing, including anxiety depression, and suicidal tendencies, all exacerbated by the COVID-19 pandemic.
Last year, we added internal benefits and resources for example, the offering of the headspace app to our employees free of charge. We also elevated the conversation and our communities through continued engagement with the community any drug coalition of America with the day.
The a in support of their national and take back days and by working with the American Foundation for suicide prevention.
And the most recent quarter, we formed a strong relationship with the Milligan Institutes centre for public health, including participating and multiple virtual global panels focused on addressing both the mental health and substance misuse.
Additionally, <unk> participated in and out of darkness suicide prevention virtual experiences and Washington, D C and North Alabama.
At both events, we raised awareness as well as critical funds needed to address the stigma surrounding suicide.
We look forward to continuing to lead and support these critical health initiatives for our nation's citizens and this new year.
Finally, I would like to mention that light us for the fourth consecutive year.
Has been recognized as one of the 2021 world's most ethical companies by Ethisphere Institute, a global leader in defining and advancing the standards of ethical business practices.
This recognition is a testament to our employees worldwide, who embody this core value.
With that I.
I'll turn the call over to Jim Reagan, our Chief Financial Officer for a more detail on our results and our 2021 outlook.
Thanks, Roger and thanks to everyone for joining us today.
I'll start by providing an overview of our 'twenty and 'twenty results for both of the fourth quarter and full year, followed by a review of <unk> 2021 guidance.
Starting with revenue.
Fourth quarter revenue grew 10, 1% over the prior year period, driven by the acquisitions of Dianetics and the security detection and automation businesses.
The offset by 20 1953 week year, which included a couple of additional business days and its final months.
On an organic basis, we experienced contraction of approximately 3% due to the continuation of some COVID-19 impacts as.
And as well as the timing of customer procurements, and delayed new starts which more than offset new program wins and on contract growth in parts of the portfolio.
Our organic growth calculation excludes the performance of acquired businesses until the full year has passed.
More details can be found on slide 16 of the earnings presentation, which is available on our Investor Relations website.
Full year revenue of $12 $3 billion was at the lower end of our guidance range due to one better than expected indirect cost savings that translated into lower revenue on cost reimbursable programs.
To the favorable decision on the Navy Nextgen Award, which occurred later in the quarter than previously estimated and three timing on new contract awards and on contract on contract growth decisions attributable to the ongoing effects of Covid.
We expect the number of these events to become tailwind for 'twenty and 'twenty one.
Fourth quarter adjusted EBITDA margins were 11, 3% 30 basis points higher than the prior year period on.
Our robust margins this quarter were driven by higher margins on new programs and favorable write ups on existing programs due to strong program performance and reduced indirect rates.
We delivered full year adjusted EBITDA margins of 10, 8% matching the top end of guidance.
This represents our fourth consecutive year exceeding our 10% or higher long term target.
After adjusting for the $81 million net gain from the Virnetx legal matter and our estimated COVID-19 impacts adjusted EBITDA margins would've been 10, 4%, which is comparable to our 2019 performance.
Fourth quarter non-GAAP diluted EPS of $1 63 grew 12 cents over the prior year period.
Contributions from strong program performance and increased volume on existing and new programs were the primary drivers of the 8% growth year over year.
We exited the year with non-GAAP diluted EPS of $5 83 of <unk>.
13% increase over 2019 and at the upper end of our guidance range.
Cash used in operating activities was $52 million.
As projected and the third quarter earnings call. The net cash outflows were driven by the full repayment of the accounts receivable monetization facility, resulting in zero utilization of the facility at year end.
It is also worth noting that we completed $67 million of share repurchases and the fourth quarter delivering on our commitment to return value to our shareholders.
Our remaining share repurchase authorization under the program is approximately 7 million shares.
Full year operating cash flows of $1 $3 billion benefited primarily from two nonrecurring items, the $81 million net receipt from the Virnetx legal matter and the $123 million of cares act deferred and payroll taxes. These items coupled with strong balance.
Sheet management.
Higher labor utilization and the accelerated collection of receivables previously planned for 2021.
Drove a 34% increase over 2019 exceeding our previous guidance for.
For operating cash flows and you may recall that the original 'twenty and 'twenty guide for operating cash flow was $1 billion and to recap the stronger cash from 2021 resulted from first the $123 million of cares Act payroll tax deferral to net.
Advanced payments of $74 million.
For the excuse me three higher staff utilization of about $70 million and three and four the virnetx cash flow issue of $81 million that was a tailwind for cash flow in the year.
Bookings of $3 $3 billion for the quarter resulted in a 1.0 times book to Bill with record ending backlog of $31 $9 billion for the year you booked over $17 7 billion of net awards, reflecting a 23% and increase over 2019 and driving a one.
Four times book to Bill for the year.
And now for an overview of our segment results.
Defense solutions revenue increased 16, 5% over the prior year quarter and contracted one 6% organically.
Driving the strong growth was the dynamics acquisition and the ramping of new programs.
This growth was partially offset by delays to new awards, such as the Navy engine and stay on two contracts material timing and reduced volume on legacy contracts and for the full year Defense solutions grew 16, 5% over 2019, including 1.7% Org.
<unk>.
Non-GAAP operating margins and the defense solutions segment of eight 9% contracted 90 basis points from the prior year quarter the.
The primary drivers of this change were a reduction in program volumes and the successful settlement of an outstanding legal matter and the fourth quarter of 2019, which drove higher margins a year ago.
Defense solutions booked over $2 $3 billion of net awards, resulting in a book to Bill of one two times for the quarter.
For the full year Defense solutions book, nearly $9 billion and net awards of 5% increase over the prior year and driving a one two times book to Bill for the full year.
With regard to our defense solutions segment M&A, we are very pleased with dianetics contribution to the segment the.
The business delivered on the annualized revenue commitment and we're particularly pleased with dianetics pro form of full year of growth rate of 50% as well as the businesses positioning and the new year.
And our civil segment revenue grew 5% over the prior year quarter and contracted six 6% organically the.
Topline growth was driven by the acquisition of the security detection and automation businesses and new program wins.
This increase was offset by reduced volumes on existing contracts and COVID-19 impacts of COVID-19 impacts the programs with our FAA and National Science Foundation customers.
Civil non-GAAP operating margins of 12, 3% increased 30 basis points over the prior year quarter.
The primary drivers of the strong margins this quarter were product timing and mix phase.
Favorable net write ups due to increased cost efficiencies on certain programs and reduced indirect rates.
The civil segment delivered full year non-GAAP operating margins of 11, 7% and 80 basis point increase over the prior year.
Civil recorded over $700 million and net bookings for the quarter, resulting in a 0.9 times book to Bill and a 2.2 times book to Bill for the full year.
Turning to the segments M&A. The S. DNA business was impacted by a longer than previously expected decline and air travel, resulting in lower revenue for the year.
Despite the extended effects of the global pandemic, we are pleased with our technology and competitive positioning as the market begins its path to recovery during the latter half of 2021.
And finally, turning to our health segment.
Health segment revenues contracted two 5% over the prior year quarter.
The reduction was driven by lower material purchases on certain and CNS programs and the new business delays, partially offset by COVID-19 impact recoveries, particularly and our medical exam business.
And on a full year basis, and after adjusting for acquisition and divestiture activity. The health segment grew approximately 1% organically.
Our health segment continues to be our hardest our highest margin segment.
Generating non-GAAP operating margins of 18, 5% and in the quarter.
Our record high.
This 250 basis point increase over the prior year quarter was driven by favorable net write ups due to risk avoidance on certain programs.
Strong program performance on existing contracts and lower volume of business investments on the commercial venture.
For the full year Health segment non-GAAP operating margins were in line with 2019, increasing 10 basis points to $14 four per cent.
The health segment saw approximately $230 million of net bookings in the quarter driving of book to Bill of 0.5 X.
With the full year book to Bill of one one times.
And before I transition to next year's guidance I wanted to give you an update on where we stand versus the the three year financial targets that we shared with you and our 2019 Investor day event.
With two years now on the books, our organic revenue growth is running at five 5% CAGR versus the 5% target, we laid out and Investor day.
Free cash flow conversion of 127% is well ahead of our 100% or better target.
And adjusted EBITDA margin of 10, 6% exceeds the 10% established floor.
As you May recall, we also had a $2 7 billion dollar balanced cash deployment plan and with one year ago, we've already deployed a total of $2 2 billion.
As we head into 2021, and our disciplined capital allocation philosophy remains the same.
We remain committed to being appropriately levered and maintaining our investment grade rating.
Returning of quarterly dividend to our shareholders.
Reinvesting for growth, both organically and Inorganically and returning excess cash to shareholders and a tax efficient manner.
Now onto our 'twenty 'twenty, one guidance, which does not include the Gibbs and the Cox deal that we announced this morning and.
And as we've done in the past we will provide an update at our next quarterly earnings conference call. After the receipt of regulatory approvals and the deal closing.
For 2021, we expect revenue and the range of $13 seven to $14 $1 billion, reflecting growth and the range of 11% to 15% over 'twenty and 'twenty.
As we mentioned last quarter, we expect to grow more than 10% organically.
This organic growth is driven by three factors.
The contributions from contracts that successfully cleared protests, such as Navy and Jen and stamp to the.
And the accelerated recovery and our medical exam business and growth from acquisitions, and additional new business, including our most recent misled when and the health segment.
We expect adjusted EBITDA margins of 10, 3% to 10 five per cent for the year.
After adjusting for the $81 million net gain realized in 'twenty and 'twenty from the Virnetx legal matter.
And the estimated COVID-19 impacts 2021, adjusted EBITDA margins are consistent with 2020.
We expect non-GAAP diluted EPS between $6 15 and.
645 on the basis of 144 million shares outstanding.
We expect operating cash flow in 2021 of at least 80 $850 million.
This guidance reflects increased net income in 2021, and also incorporates the partial repayment of $65 million and.
2020 cares act payroll tax deferrals.
$50 million and burn down of the prior year's customer advances and.
And of $170 million of increased working capital to support 2021 top line growth.
For additional context, the business has delivered 120% free cash flow conversion of net income across the three year timeframe of 2018 to 2020.
We expect to deliver above 100% conversion across comparable time intervals going forward.
And one other item to note.
While we may utilize our accounts receivable monetization facility from time to time for short term or strategic actions and our 2021 operating cash flow guidance does not include any contribution from the facility that was established in early 2020.
Now a couple of other comments to help you with modeling 2021.
We expect net interest expense of approximately $179 million excluding transaction related expenses.
We also expect of slightly higher non-GAAP tax rate in 2021 of 22%.
Capital expenditures are targeted at approximately $170 million of 7% decrease from 2020.
As you May recall of 2020 capital expenditures were elevated due to the real estate investment costs associated with the build out of our new headquarters and other real estate optimization activities.
Our normalized go forward run rate per pack per excuse me for Capex.
The targeted at below one 5% of revenue.
And with that I'll turn the call over to Rob. So we can take some questions.
Thank you all of that.
And conducting a question and answer session.
And if you'd like to ask a question. Please press star one from your telephone keypad and the confirmation tone will indicate your line is and the question queue.
You May press star, two and if you'd like to remove your question from the queue.
For participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.
The <unk> Mellon please file the poll for questions.
Thank you and our first question comes from the line of Joseph de Nardi with Stifel. Please proceed with your questions.
Thanks, and good morning.
Hey, good morning, Jim.
Good morning, just so we can have an idea in terms of the SBA business and kind of out of Levered that is to recovery and commercial.
Air passenger volumes I mean, how much of the 500 million of Youre expecting from that business was kind of service related versus more hardware and maybe what's your assumption for that.
Contribution from the business to 2021 well.
Well that that business.
And we don't guide by day.
Division, Joe, but what I would say is that.
On the bulk of what Youre seeing and what we talked about is.
Roughly.
Half of it is driven by a reduction in product sales were customers of the deferred making orders or receipt of orders and then roughly half of it is driven and lower services and the reason for lower services is that.
With a lot of lanes closed there's less machines that require surface obviously.
And customers are looking for ways to reduce their outlays on that as a lot of this is funded by cash.
The customer passenger fees and.
And that kind of thing.
Okay. That's helpful and then Roger I wanted to ask the question on it in a way that maybe you can answer it but there was a proxy filed on Friday that suggested the company of your size and all stock offer, albeit at a lower price and where perspective ended up.
I'm wondering if you could just talk about your willingness to use a meaningful amount of equity for M&A, just kind of the overall philosophy at this point on the larger.
M&A. Thank you.
Yeah, Hey, Thanks, Joe of course, we don't comment on deals that don't close and deals that may be M process or or may not be.
And what we have always said is we want to be smart and the market and we want to have dialogue with.
All of our competitors.
Competitors and potential partners and so we have a great relationship with the leaders and all of the companies and our market space and we often have discussions.
But on any particular deal or any particular time, but I have absolutely no comment.
We like our size and scale.
We've said that in the past.
We are really excited about the scope of acquisitions that we have made and the last now two years and.
<unk> significantly added to our capability.
But we have told.
Told you all and the street is that we believe we have a responsibility to look at everything.
And provide some and some.
Inside into whats going on and the marketplace too with our management team and our board and so we will we will take a look at everything.
But you should look at the deals that close.
Okay, great. Thank you.
Our next question is from the line of Seth <unk> with Jpmorgan. Please proceed with your questions.
Hello, and thanks, very much and good.
And.
And I was wondering I guess in terms of.
And where sales came in this quarter.
You've raised the sales guidance by $100 million.
At the last earnings and kind of just kind of bumped up against the bottom of the range and the quarter, you talked a little bit about timing of procurement and delayed and he starts.
During the prepared remarks, I guess, maybe can you elaborate on that a little bit more where that stuff came up the most and how you see it kind of breaking loose over the next few quarters.
Yes, Seth let me start and talk about the programs and then Jim and touch on numbers of he would like when we when we raised our guidance.
We had navy Nextgen was in the court of federal claims.
And we court of federal claims is a little bit unpredictable. Unlike the G E O process, which has a rigorous calendar and is.
Of the kind of a 99 day thing and it was our best estimate at the court of Federal claims would rule you know frankly before the Thanksgiving holiday and the one time, we thought it would actually happen and the second week of of November.
And that did not happen, we didn't get a ruling out of the quarter Federal claims until day.
December so that delayed the startup of the next Gen program by at least of months, maybe more of and then the other thing that happened with this third wave of Covid.
Which I think COVID-19 is very difficult to predict.
Our indirect costs went down even further as we went back to mandatory telework and.
And we saw our overhead and G&A costs.
Go down even further than we had anticipated and because of about half of our portfolio is of cost type contracts. When we see a reduction and cost it pulls revenue down with it and the those were the two major drivers maybe I'll turn it over to Jim if he wants to add some more color sure yet and if you will.
And of the thing about the delta between kind of the midpoint of our prior guide and where we ended up it's it's roughly four things there.
Equally.
<unk> think of a quarter of it being lower volumes than we had previously.
Previously forecast and the medical exam business, we thought the recovery would be a little bit bigger there is the indirect rate issue of the indirect cost issue that Roger just alluded to.
And then there was about a quarter of it was COVID-19 impacts and the Civil group and then the rest of it about a quarter of it was just the delays and the program startups for for and Jan and some other contract wins.
Right Okay. Okay.
Thanks Pat.
That's helpful.
Okay, and then and then so like when we see and the in the press release and you guys talk about the Covid impact and is there is what's called out and.
And the item and the press release of that was that more than $12 million on the.
On the top line.
Okay.
And I'm not sure I understand your question Seth could you could you restate and maybe.
Oh, yes, just like I think and the and there are Lisa talked about.
For the quarter and fiscal year 2020 Covid.
Covid of adversely impacted revenues by by 12 million and so that is that kind of what you're referring to in terms of the COVID-19 impact on.
Versus the first is what you expected.
Or is there any of that.
And.
And thats sort of a you.
No.
Just and actual.
Year on year decline due to Covid and then there are other things that were supposed to happen the data.
Yeah, well you know what she is talking about during when we when we discussed on our results a few minutes ago, it's the year over year declines relative to Covid.
Okay.
You know when we talk about the number of versus what.
What we had previously forecast obviously, that's going to be different so you've got two components one of the year over year Delta, but theres also the the amount of business growth that we expected that got impacted by COVID-19 as well.
Okay, Great I'll pass it along thank you alright, Thank you Seth.
The next question is coming from the line of David Strauss with Barclays. Please proceed with your questions.
Thanks, Good morning.
Good morning, David.
Alright.
And then can you can you.
The other side, yet and you've talked about the program ramping up to $600 million plus on an annual basis can you talk about.
And what you have baked into that.
And to your I think 10% of revenue organic revenue growth guide for this year in terms of that program ramping up.
You mean for the the guide that we had for 2020 of 2021.
For 'twenty one so in other words health how fully ramped do you expect and then to be in and that 2021 guide and how much how much do we have the benefit as you as you fully ramp and 22.
The.
The ramp and N. Gen revenue for 2021, we expect it to be ramping up it will it'll be about two to two five points of organic growth for the year. So you can think of that as being somewhere in the $2 50 of $300 million range.
Yeah, and just to give you the programmatic.
Think about 3000 people about half a lot of its employees and we have a transition period as you do on these programs were and the transition period. So we really haven't started the employee ramp up that will begin in earnest really on the second half of the year and.
And.
And we'll be close to fully ramped by the end of the year, but there will still be significant growth and 22. So you might expect another two to three points of growth from Amgen and 'twenty two as well.
Okay. That's helpful. Thanks, and and Roger you talked about your.
Your view on what happens with the defense budget from here.
And given some of the acquisitions on the on the defense side of things how would you characterize your exposure at this point just looking at your defense business too you know the.
The operations and maintenance portion of the budget and as opposed to modernization.
What obviously, we have been doing even within our defense group is trying to adjust our portfolio. So we're strong and the areas that we see growing and.
And you know the 19 O. One group is really moving to as the service platform and we've seen even and the one nine trillion the bite and administration and set aside some dollars for <unk>. So we continue to see it modernization as a great place to be we see modernization of.
And of.
And what we would call of newer technology platforms of hypersonic <unk>.
Unmanned vehicles, I mean and that's.
Really what has got us excited about the one the the deal that we announced today, but we always have a mix and we've got some programs that are where we support operations. We still have people deployed although it's less than 1% of of the business.
And our philosophy has always been to try to balance and again, we stay away from the large marquee platforms and the three services you know think of that as you know tanks and trucks and the airplanes and big Big.
The surface ships and undersea ships, we tend to be and what we think are the smaller more agile more responsive capabilities that our customers have.
Okay. Thank you very much.
Our next question comes from the line of Greg Konrad with Jefferies. Please proceed with your question.
Good morning.
Greg Yes.
And the transferring from defense to NASA under the New administration, maybe theres, some changes or at least the APA.
Pause, where they kind of.
Figure out the path forward can you maybe talk a little bit about the NASA opportunity, particularly at dianetics, and and maybe any expectations around that business.
Well I mean, I think we're like everyone else, we're waiting for our NASA administrator to be announced where.
Enthusiastic about comments that the administration has made about the space program and about technology and the decision to keep the space Council, which we think is a leading indicator.
The space programs, both of the military and NASA have always been a source of innovation and needless to say I think all of US were glued to the television over the last couple of days and watched the perseverance Rover land on Mars and the excitement that had brought the country. So we're still very enthusiastic about our.
Position with NASA, which is and dynamics, but I would remind everyone on the call is that we have a significant nash of presence that existed before dynamics.
A lot of people don't know we've always.
Made the food that goes into the space out of the NASA food lab at.
At Johnson Space Center.
Specifically about the Lander program, which is I think where you would like me to focus.
Where we are at the end of what we call the base face contract.
Where we have done on a preliminary design on our land or configuration.
We have received a two month extension from the customer as they go about their competitive evaluation of the three bidders and then we expect that they will make on award relatively on time, either in March or April and that they will move forward with a land or development pro.
Graham consistent with the budget that NASA has remaining in 2021 and then whatever the by the administration does for 2022.
Thank you that's helpful. And then just a follow up to one of the the last questions around kind of the breakout of the impact of revenues in Q4, I know you don't necessarily provide quarterly guidance and some of those headwinds I'd probably lifted some of them.
Maybe continue through 2021, when you think about organic growth throughout 2021.
Is it more level loaded or should we see some acceleration.
The stuff like Amgen ramps up and the back half of the year and maybe some of the COVID-19 impacts become a little bit less.
Yeah.
It's a great question, we definitely see the the growth being more backend loaded as we see some of these recent contract wins and the rest of the resolution of the protests and give us the opportunity to begin ramping now and the first quarter, but it really isn't until Q3 and Q4 youre going to see the real impact of that.
Thank you.
Thanks.
Our next question is from the line of Cai von rumored with Cowen. Please proceed with your question.
And thank you very much. So Roger you just did these two acquisitions, maybe give us a little color in terms of how much they would add in terms of on revenues and maybe what their profitability is and kind of on how they fit in.
Well the Cai.
Of course, you know we don't do that.
So.
And what we really you know they're there they will both be and the defense segment of.
Yeah, there and again, we just don't we don't disclose revenue and EBITDA on our deals and I'll come back to the strategic nature and 19 O. One clearly fits with our digital transformation business, which is very significant for us and accelerates our ability to offer.
Services.
On and as a service basis, which we believe is a growing trend and the industry gives you and Cox.
Is an exciting opportunity for us we've learned a lot about autonomy and the navy business and in our M. USB program I think we had a very very competitive bid, but we didn't win and as good as we were about the mission of equipment on the autonomy I think there were things that we learned and naval architect.
<unk> and ship design and and the discussions with Gibbs and Cox, we're very excited about how Gibson Cox springs their capability around the design of the ship and the ship systems and we bring if you will the mission equipment and we're really excited about how that will fuel.
Growth for our maritime business going forward and <unk> will talk a lot more about Gibson Cox after closing we're in that.
Rather sensitive period between signing and closing where we're starting to file all of our regulatory filings and so we're.
We're going to let that get behind US and then we will reach out.
To you all and talk of a bit more about Gibbs and Cox and its history and where we see that go on.
Got it and then maybe you could review for us the.
Expected COVID-19 impact sort of what programs.
On the revenue is not there because of Covid.
And one of the milestones that could kind of turn those back.
Well Cai this is Jim.
There are a number of programs that are impacted but I'll I'll just review with you some of the some of the examples where COVID-19 will have some impact into of.
What we would normally see in in 2021 first with.
And with our National Science Foundation customer.
On the volume.
People and material that have gone down to the ice and that are coming back that'll be lower there's a significant construction project that we would have been doing now that has been deferred.
Two of later year, when when Covid will largely have abated or be gone and not considered a risk of of of bringing COVID-19 down to the Antarctic and.
Another example is I mean, obviously, we've talked about the impact on the DNA business, where while we had a revenue impact there we're working to consolidate operations get our cost synergies and get the combined business to margins that are well above where the pro forma.
And had been on the acquisition date the.
And the other COVID-19 impacts.
We're still recovering and getting to the what would be higher than normal volumes in.
And the medical exam business. So that business has a lot of backlog to run off and and that is included in our view of 2021.
And then the places where we're not seeing a lingering impact.
<unk> and lingering impact is that and our intelligence business.
The the customers there are largely.
Not 100%, but they're getting pretty close to it and we're pleased with where we see the the volume and margin outlook and that business going so the there's a few examples of kind of I would just reiterate.
We think we've taken a very thoughtful view of Covid and our guidance for 2021 and.
And we've all learned a lot about this pandemic and how it affects the economy and we've really I think.
<unk> taken a.
A very informed view of how it affects our business and our programs and their.
And we could go through literally of 20 or 30 programs our disability business.
And there are ins and outs there are some tailwind because of some things that pushed from last year to this year that we're excited about and then clearly transportation of air travel is down and businesses associated with that will be down until the volumes come back I mean, it's just a part of the reality that being said border and ports.
We know that business seems to be going quite well and so it.
It is a mixed bag and you should just take comfort is that we have gone on literally program by program through our portfolio and taken a thoughtful view of the Covid impact for 2021 and our guidance.
Thank you very much.
Our next question is coming from the line of Peter Arment with Baird. Please proceed with your questions.
Yes, good morning, Roger Jim.
And then.
Can you, maybe just highlight a little bit about.
Just looking at the health segment, just the margin performance. There continues to be really impressive about kind of of the sustainability of the at these levels. When you think of that business just all the moving parts of the going on and also the the ramping up of the new contract there. Thanks.
Sure.
Peter of the first thing that I would say is that and our view the margins there are sustainable and and while the health business didn't have what we normally see and growth. There. We continue to think of health as being a place with.
Above average growth potential and that's evidenced by our ability to win the two large programs one of which is under protest and the health group that'll get our growth track.
Back to where you've seen it in the past and then in terms of what else we like the the margin performance.
And historically and the health group has been because we are.
And finding areas, where we can apply our differentiated solution and our approach to solving customer problems with customers, who are willing to pay us for the value that we bring and again, bringing margins that are higher than the average for the the overall company.
Okay. That's helpful and just a quick quick follow up just on just on re competes and I know this is something that you you deal with on a on a on a daily and annual basis, but is there anything you would call out thinking about you know when you're thinking about your growth outlook for this year.
Well it competes.
And this year coming are the two.
The one year is going to have a lot less in terms of a recompete compared to the prior to 2020.
If you think of that we do have a large recompete with one of our intelligence customers. We only have one that is has a contract value of over $1 billion and the second largest one is and army Corps of engineers.
And it's called HR three D. The.
And that contract is a little over half of 1 billion.
And then we have a number of recompete sort of kind of in the $5 billion range, but.
And <unk> 'twenty 'twenty was the year of re competes but not so much in 2021, but with that said.
We have of record pipeline.
And we still have a record amount of bids that are awaiting decision by our customers and and we feel that.
And 2021 is going to be yet another year of significant increase to our backlog.
Thanks very much.
The next question is from the line of Gavin Parsons with Goldman Sachs. Please proceed with your questions.
Hey, good morning, Hey, good morning, gentlemen.
I appreciate all the color on the the bridge the year over year bridge for operating cash flow. This year, but I just wanted to ask if you have still good visibility into the as you call. The nonrecurring recurring benefits I mean, I think at one point for 2020, you'd been thinking you could do as much as 300 million of.
Factoring of receivables so.
Is that still an option for this year and just curious why and why you didn't include any one time items and guidance.
Well, let me, let me touch on some of the strategics and and Jim can walk you through the details of.
The first.
We think we understand what the binding of administration and there's going to do on the payroll tax deferral and so we put that into our guidance. There is some discussion that they may defer it and if so that could be of positive about we have of 123 and the deferral, if they decided to defer to another year not on the one point and time nine trillion, but there's a subsequent bill.
And that's likely to come so that could be of nonrecurring item.
On the asset back program and the accounts receivable, we use that when is it advantageous based upon cost of borrowing right and that's really what the facilities. Therefore as opposed to you know like a revolver of commercial paper program or using a 364 day facility. So that goes in and out depending upon.
And of that.
Advantageous interest rate, but the the overall cash story really was we had a great fourth quarter and.
And we had some advanced payments, we got pay we got some nonrecurring <unk> M.
And we far exceeded what we thought we would achieve and fourth quarter and as a result, some of what would have been in 'twenty and 'twenty. One happened in 2020, and we've tried to take you through that reversal and then this.
And 10% to 15% growth that we expect next year requires working capital we're on.
And we're a capital light.
The business model, but we still have working capital and so when we grow.
Just the difference between the liabilities and and and assets requires us to find and that comes out of out of cash I know, Jim you and add more color I just just one thing on the <unk>.
I think you use the same term, we do internally here Gavin and that's the recurring nonrecurring.
We can't forecast what they are you know.
There is the virnetx issue out there that could come.
As of Bluebird tailwind, we just don't know when it when it will kind of it could be a year it could be two years and so that's not in our forecast. The other is a customer advance payments.
You know where to two consecutive years now ending the year with <unk>.
Previously on forecast big customer of advanced payment balances and.
We can forecast how we're working those off but you know the.
And that could also represent some upside to operating cash flow the when.
And when we look at it this time next year.
Got it that's helpful and then maybe and I can just try guys question on the Covid impact again, just I think you've been guiding for something like a 500 million dollar headwind in 2020.
Including both the.
Direct impact of the delayed delayed starts and ramps and on contract growth that didn't materialize.
And obviously that sets up a pretty easy comps and the.
The back three quarters of the year. So just curious just your growth guidance assumes that you'll recoup most of that or if you. I know you said you have taken a conservative approach and just curious how much of that you assume you actually recover in 2021 versus beyond.
Yeah, I think the our view is that and baked into our guidance is that theres, probably about $150 million of that 105 hundred $60 million net debt is still a unrecovered and put in and really and in fact pushing more of the right. So you know while there might be customer requirements that that push.
Into 2021, Theres still going to be more movement of of more work to the right and and that's that's what's implicit and how we're thinking about this.
Thank you sure.
Thank you at this time, we've reached the end of our question and answer session and I will hand, the floor back to Peter Berl for closing remarks.
Great. Thank you Rob and thank you all for your time this morning and for your interest and light US we look forward to updating you again soon have a great day.
Thank you. This will conclude today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.