Q4 2020 ICF International Inc Earnings Call
Welcome to the fourth quarter and full year, 'twenty and 'twenty ICF earnings Conference call. My name is Vanessa and I will be your operator for today's call during the.
And patients all participants will be in a listen only mode. Afterwards, you will be invited to participate and a question and answer session.
At that time, if you have of questions. Please press star one on your Touchtone phone to register for a question. Please note. This conference is being recorded on Thursday February 26, 2021, and cannot be reproduced or rebroadcast without permission from the company.
And now I would like to turn the program over to Lynn Morgen of Advisory partners.
Thank you Vanessa good afternoon, everyone and thank you for joining us to review Icf's fourth quarter and full year 2020 performance with US today from ICF are John Watson Press.
President and CEO and Bill.
She and a well CFO joining them is James Morgan Chief of business operations.
This conference call, we will make forward looking statements to assist you and understanding ICF management's expectations about our future performance.
<unk> are subject to a number of risks that could cause actual events and results to differ materially and I refer you to the last February 20th day. After 2021 press release, and our SEC filings for discussions of those risks. In addition, our statements. During this call are based on our views as of today, we anticipate the.
Future developments will cause our views to change please consider the information presented in that light.
Hey at some point elect to update the forward looking statements made today, but specifically disclaim any obligation to do so I will now turn it over the course of Icf's CEO, John and Washington to discuss fourth quarter and full year, 'twenty and 'twenty performance John.
Thank you Lynn and thank you all for participating on today's call to review, our fourth quarter and full year, 'twenty and 'twenty results and discuss our business outlook and guidance for 2021.
First I would like to recognize the outstanding way that ICF employees adapted to 2000 Twenty's challenging business conditions are people immediately responded to pandemic related limitations by staying fully engaged with clients and each other and delivering on programs and winning new business, while working remotely.
And so it was a great example of Icf's collaborative culture enabled us to effectively deliver on existing programs and make 'twenty and 'twenty a record year for new contract Awards.
We ended 2020 with very strong fourth quarter revenue performance that drove total revenue and non-GAAP EPS above the high end of our guidance ranges and replicated the positive service revenue trends that have continued throughout the year.
To summarize a few highlights first revenue growth and the fourth quarter was led by our federal government and commercial energy businesses.
The exceptional increase and revenues from commercial and marketing clients was onetime in nature.
And the completion of a large contract the primarily involved pass through revenue associated with the media buys.
Second service revenue, which represents the work done by ICF employees increased four 1% for both the fourth quarter and full year.
Approximately 55% of our total 2020 service revenue represented work and key growth areas, namely it modernization and public health disaster management energy efficiency and utility consulting along with climate and environment and infrastructure consulting all of which are closely aligned.
With the priorities of the new administration taken.
Taken together, we expect the growth rate and these areas to be 10% of more over the next several years.
Third adjusted EBITDA of the service revenue for both the fourth quarter and full year benefited from favorable business mix higher utilization and lower SG&A and fringe benefit costs well.
While SG&A and fringe benefit costs will increase once we emerge from this pandemic the portion of the cost savings that we achieved this year will become permanent.
Fourth we used our substantial cash flow to pay down of considerable amount of debt and the fourth quarter ending the year with the net debt to EBITDA ratio of just under two five.
This is in line with our long term pattern of levering up to make accretive acquisitions and utilized and cash flow to reduce our leverage ratios and short order.
Finally, we had record fourth quarter and full year contract wins, and giving US a book to bill ratio of one three for the year and setting the stage for continued growth and 2021 and beyond.
I believe it's noteworthy and only 30% of our 2020 contract wins represented Recompete, which is a strong indication of ice's ability to capture new opportunities and growing markets.
Also our year and pipeline was over $6 3 billion, which we expect will build as the new administration's priorities converted the funding for civilian agency programs.
Even before there was additional funding we believe yet we believe that as this year progresses. The new administration will free up funds that have already been appropriate for example for mitigation, which presents additional upside for us.
Taking a closer look at our results we continue to achieve strong growth and revenues from federal government clients, which were up 19% for both the full fourth quarter and full year, reflecting organic growth and our ITG acquisition.
U S government accounted for just over 44% of our total 2020 revenues and we continue to strengthen our position and key growth markets within this client category.
And 2020, we went over $300 million and it modernization contracts and our pipeline and this market is over $1 5 billion.
We expect the size of the pipeline to increase as the year progresses, given the debate and administration sees it modernization is of critical priority and is already included some additional funding for it and it's Covid rescue plan.
And we believe the new administration will likely drive critical it modernization efforts that can support agency efforts to respond to COVID-19, and accelerate the delivery of enhanced digital services. The citizens are demanding.
And the fourth quarter ICF continued to win new business related to the COVID-19 response, bringing our total to just under $40 million for the year. This quarters wins represented additional words on research.
And communications support and the department of Health and human services and the centers for disease control.
This includes new work supporting the Hh S office of minority health on communication activities to mitigate the impact of Covid, 19, which and racial and ethnic minority communities and where.
We're also doing pandemic related survey work for state and local government clients to help them develop health programming and messages.
With HHS is our largest client we see significant growth opportunities for ICF and the public health Arena post pandemic.
As we move from the COVID-19 response phase, we expect the recovery phase to require of modernization of disease surveillance systems and associated analytics, and our expanded IP modernization capability together with our public health expertise will be very relevant to these programs programs.
Additionally over the longer term, it's likely that there'll be significant work undertaken to ensure that the U S improves its readiness and the face of future Pandemics and ICF is well positioned to play a role of supporting clients and this endeavor.
The new administration's priorities and the areas of climate change and environmental stewardship and infrastructure are directly and our sweet spots and we have out of these areas as additional ICF growth catalysts over the next several years.
Funding from any of the newest creatives will require of legislative action and order.
And they are fair and therefore, it may take some time to materialize.
And so therefore, it provides upside in 2022 and beyond.
On the consulting practice is one of the largest and the country with over 250 professionals.
We have of full service practice encompassing climate strategy regulation analytics, and resiliency for federal state local and international and private sector clients.
See also ICF also provides adjacent services that kind of closely the climate, including disaster mitigation, the carbonization public health impacts and environmental Justice.
Similarly, our environmental water and transportation and practices, which employ 600 professionals support the implementation of infrastructure with advisory planning and permitting services.
If I didn't ministration as an overarching goal of Decarbonising the U S economy.
And it took early action in this regard by rejoining the Paris climate accord, which could ultimately commit the U S to specific greenhouse gas emission targets ICF is well positioned to support the many initiatives that will be needed to drive towards these targets.
As part of this new goal the new administration has mandated the climate be considered and every major.
And across the government and.
In fact, the Treasury Department already has announced the establishment of a climate hub.
This mandates should create significant opportunities for ICF, creating more demand for analysis valassis expertise tools and coordination.
And a key element of Decarbonising U S economy is the promotion of the non carbon emitting resources, such as solar wind and advanced nuclear.
Its expertise in these areas, both with government and commercial clients positions of from well to capture of emerging opportunities.
2020, approximately one half of Icf's 2 billion and contract wins represent a work from federal government clients of <unk>.
Largest contract win and the quarter was the single award blanket purchase Recompete with the ceiling of $94 million that was awarded to US by the environmental Protection Agency to continue of work on the energy Star program.
ICF has support of energy star since its inception, 30 years ago, providing strategic technical and analytical support for energy star labeled products and residential commercial and industrial programs and.
And 2018 alone energy startup partners helped America save nearly 430 billion kilowatt hours of electricity and avoid 35 billion of energy costs with associated emission reductions of 330 million metric tons of greenhouse gases.
We're very proud of our ongoing supported this innovative program and the rule and establishing the nation's most recognized brands.
The state and local government business. The majority of which is ease of federally funded or funded by municipal bonds and accounted for 15% of our full year revenues compared to 19% last year.
As projected disaster management represented approximately one half of our full year of state and local revenue and 2020.
We continue to effectively execute on the FEMA and head funded disaster recovery contracts, we won in Puerto Rico, and Texas as well as smaller contracts and North Carolina and the Gulf Coast States.
We're pleased to note that the new administration has moved to reduce numerous burdensome requirements for funding of disaster recovery projects and Puerto Rico and we.
We are optimistic this will expedite and expedite opportunity of opportunities for us and traditional disaster recovery and mitigation projects.
And the fourth quarter ICF was awarded initial funding of over $40 million to do mitigation work from our public sector clients.
This award together with our wins throughout the year represented a large portion of the dollar amount of <unk> funded mitigation contracts.
And by States and localities and 2020.
The other half of our state and local business, which provides environmental consulting and monitoring services around the infrastructure projects remain busy and the fourth quarter.
Despite some COVID-19 related restrictions, we continue to work on a number of state and local projects, particularly and transportation water and energy and environmental planning and development.
After the three challenging periods, our international government business picked up sequentially and the fourth quarter. Thanks to recent contract wins and the energy and climate arenas.
While we expect the COVID-19 impact of continued to affect our international events business sort of at least through the first half of this year.
The revenue decline and Tony Tony was tied to pass through revenues on which we earn very little to no margin.
We do anticipate a return to growth and revenue from non U S government clients and 2021.
Moving to review of our commercial business commercial marketing and accounted for about 16% of our total of 2020 revenues.
Our commercial marketing clients continue experienced dependent and different ways.
And health and financial services clients has seen less COVID-19 related downside and <unk>.
And the advantage of marketing opportunities.
Many of our consumer packaged goods clients had a good year and budgets of expanding as we go into 2021.
We've worked with our clients and travel and tourism hospitality and retail the recovery curve is considerably longer.
Given this and adjusting for the completion of the large media buying related contract, we expect revenues from commercial and marketing clients to be approximately flat in 2021.
We have closely managed expenses and material, while continuing to do great work for clients.
ICF next our Merck and services brand received many awards and recognitions in 2020.
Notable among them Forrester research recognized ICF next and two publications and the fourth quarter and loyalty marketing and Commerce services, starting as of strong performer among customer database and engagement agencies.
Commercial energy markets accounted for 16% of total revenues of 2020 and posted over 6% revenue growth of the year.
The strong performance reflected continued growth and a large energy efficiency business, which in the fourth quarter executed on existing programs with contract extensions expansions and certain areas and significant new awards.
And at the same time, our energy Advisory consulting group posted double digit year on year growth, providing financial and technology advisory services on transactions of renewables storage and gas asset development.
Our distributed energy resources consulting business also performed well as utilities address the impact of distributor resources on the grid.
With respect to the California energy efficiency opportunities, we have been notified that ICF has been selected for over $60 million and New awards from California utilities, some of which require additional CPUC approvals and other still in the contract negotiation stage.
We're pleased with this initial showing but given the timetables, we would not expect to see material revenues from these wins until the beginning of 2022.
We are continuing to bid on and track of additional program opportunities and California.
We expect the by the administration priorities to create significant long term growth opportunities for Icf's commercial energy business as well.
Specifically, our leadership and developing utility resiliency metrics and investment programs advanced distribution planning initiatives for utilities, and transportation electrification business and planning congested and analysis and environmental services from transmission projects and align with the new administration's plan to modernize the grid replacement.
Fossil fuels with electricity.
The energy system, more resilient and expand the energy infrastructure.
To summarize ICF ended 2020 with positive momentum, which we expect will drive a substantially higher rate of service revenue growth of 2021 and continued progress and the coming years.
And 2021, we plan to utilize a portion of the savings from the optimization of our real estate footprint and reduce travel and entertainment expenses to invest and people and technologies to expand our capabilities and the high growth markets we have identified.
Now I'll turn the call over to Bettina Welsh from a financial review of Bettina.
Thank you John Good afternoon, everyone I'm pleased to share more details of ICF fourth quarter and full year 2020 financial performance and provide our expectations for certain 2021 financial metrics.
Total revenue for the fourth quarter of 2020 increased nine 5% to $434 3 million, which is as John mentioned.
The reflected higher revenue from federal government and commercial energy clients and the significant increase and pass through revenue associated with media buys for a single commercial and marketing clients.
And this increased fourth quarter of pass through revenue to 39, 6% of total revenue compared to 36, 5% and last year's fourth quarter.
Service revenue a better indicator of our underlying performance was up four 1% to $262 2 million year over year.
Our gross profit increased 5% to $139 2 million and the fourth quarter benefiting from a more profitable business mix and higher utilization.
Most margin on service revenue increased 50 basis points year on year, while gross margin on total revenue declined by 130 basis points to 32, 1% due to the higher percentage of pass through revenues, which yield lower margins.
Indirect selling expenses of $109 million includes $13 6 million and one time expenses associated with the retirement of our executive chairman and the early termination and our discontinued use of 16 office leases.
Adjusting for these two items and direct selling expenses were 36, 4% of service revenue.
<unk> to 38, 8% and last year's fourth quarter.
We have earmarked and large portion of these cost savings for reinvestment and people and technology to support our ability to capture the substantial growth opportunities. We see ahead.
Excluding all of special charges, adjusted EBITDA was $44 9 million compared to $37 4 million and last year's fourth quarter.
Adjusted EBITDA margin on service revenue expanded 220 basis points to 17, 1% as we benefited from lower SG&A and fringe benefit related costs, particularly lower travel healthcare and paid leave costs.
Operating income was $21 8 million compared to $28 3 million reported and the fourth quarter of 2019.
The 2024th quarter includes the special charges I mentioned as well as an increase of $1 6 million and amortization of intangibles, primarily related to the ITG acquisition, which was completed at the end of January of 2020.
Our tax rate was 28, 5% compared to 24, 5% and the fourth quarter of 2019.
Certain non deductible items in 2020.
Net income for the quarter was $12 8 million or <unk> 67 per diluted share inclusive of 56 cents of tax effected special charges of which 51 cents represented the onetime executive retirement and lease related charges I mentioned earlier.
This compares to $19 4 million or a dollar and one per diluted share and the fourth quarter of 2019, Inc.
Most of the <unk> of tax effected special charges, primarily tied to M&A.
Non-GAAP diluted EPS, which excludes the impact of the onetime and special charges I mentioned earlier as well as amortization of goodwill was $1 36, compared to $1 18 reported and the fourth quarter of 2019.
Now, let me summarize our 2020 full year results.
We had record revenue of $1 five 1 billion up one 9% year on year and service revenue increased four 1% to a record of $1 4 billion driven by performance and the federal space.
Adjusted EBITDA was $143 2 million, representing an adjusted EBITDA margin on service revenue of 13, 7% for 2020, resulting from favorable gross margin and lower than normal medical paid leave and travel costs.
Adjusted EBITDA for 2019 was 13, 4%.
Full year 2020, net income amounted to $55 million or $2 80 per diluted share inclusive of <unk> 79 of tax effected special charges of which 53 represented the onetime charges mentioned earlier.
Non-GAAP EPS was $4 17 per share slightly ahead of the $4 15 per share we reported for 2019.
Moving to our cash flow statement and the balance sheet, our operating cash flow was $173 million significantly above the prior years and $91 million and our guidance of $120 million for the year.
This is year on year increase was mainly due to three factors first we had very strong collections.
Second we had approximately $50 million of unexpected accelerated collections related to pass through revenue from media buys for which the associated spend will occur in 2021 and.
And third under the cares Act, we were able to defer $20 million of employer, social security tax liabilities until 2021 and 2022.
The improved collection of contract the receivables as evidenced by the reduction of our DSO to 67 days and this year's fourth quarter from the 83 days and the similar period last year.
Of which 11 days is due to the previously mentioned accelerated collections.
We significantly reduced our debt following the January acquisition of ITG.
At year, and our net leverage ratio was 247, which compares favorably to the $2 six we originally forecasted and the $2 88, we reported at the end of September 2020.
Capital expenditures for 2020 were $19 4 million compared to $28 5 million and the prior year, mainly due to our efforts to manage costs and light of the ongoing COVID-19 impact.
And 2020, we repurchased 278582 shares for a total outlay of $21 9 million to offset the dilution of our employee incentive programs.
As always we take a balanced approach to capital allocation and our priorities remain funding organic growth acquisitions and debt reduction, while repurchasing shares to minimize dilution and paying our dividend.
Speaking of the ladder today, we declared a quarterly cash dividend of <unk> 14 per share payable on April 13th of 2021 to shareholders of record on March 26 of 2021.
Looking at the anticipated cadence of 2021, we are expecting a similar quarterly seasonality for revenue and earnings to that of 2020.
With the exception of the greater Progressive improvement from Q1 to Q2 of them last year.
For modeling purposes, we want to share our expectations for a number of 2021 financial metrics.
Depreciation and amortization expense is expected to be and the range of $20 5 million to 21 five.
And $5 million for the full year 2021.
Amortization of intangibles to be and the range of 11 eight to $12 2 million.
Full year interest expense should range from $11 million to $12 million.
Full year tax rate to be no greater than 27%.
We expect fully diluted weighted average share count of approximately $19 1 million for 'twenty and 'twenty one.
And capital expenditures are anticipated to be between 20 million and $22 million.
Our 2021 cash flow is forecasted to be approximately of $100 million. After the payment for the year and media buys previously mentioned and half of the tax liability that was deferred in 2020.
It is noteworthy that over the past five years, we have had very strong cash conversion. Despite the unevenness, resulting from year to year of timing differences.
With that I will turn the call back to John for his closing remarks.
Bettina based on our year end backlog and robust business development pipeline. We are looking ahead to considerable organic growth and service revenue for 2021 cutting to a range of one point of <unk> 5 billion to $1 3 billion.
Which represents year on year of growth of six 6% at the midpoint compared to the four 1% growth we achieved in 2020.
Cost of revenues are anticipated at approximately 28% of total revenue in 2021 compared to 31% and 2020. This implies total revenue of 1525 to 157 5 billion.
EBITDA is expected to range from $145 million to $155 million.
The equivalent to an EBITDA margin on service revenue of 13, 5% at the midpoint of the range.
GAAP EPS is projected to be $3 90 to $4 20, and non-GAAP EPS is expected to range from $4 35 to $4 65.
Cash flow for 2021 is expected to be approximately $100 million.
As we look ahead, we see significant organic growth opportunities on the horizon beyond 2021 and.
And we're making the requisite investments to capture that growth.
Additionally, we have the financial resources to pursue acquisitions that can further expand our addressable market.
And finally, ICF has prioritized being a good corporate citizen and as such we've attracted likeminded people, who are passionate about their work.
And the fourth quarter, our annualized personnel turnover rate was 11, 7%.
Moving below the industry average and reflecting the relevance of the work and its positive impact on society.
Please be sure to access of 2020 corporate citizen report, which is available on the website to learn more about how we address our ESG responsibilities.
With that operator, I'd like to now open the call to questions.
And thank you we will now begin our question and answer session. If you have a question. Please press Star then one on your Touchtone phone if you wish to be removed from the queue. Please press the pound sign or the hash key if youre using a speakerphone. Please pick up the handset first before pressing the numbers once again, if you have of quest.
And please press Star then one on your Touchtone phone.
And we have our first question from Joseph <unk> with Canaccord.
Hey, Jamba Tina James a great way to end the year congratulations.
And you kind of talk about the bookings strength here.
John you noted that for the year, only 20% was renewal and.
And I see we've got some acceleration.
So the business coming here in 2021, which is.
Great to see.
And I was wondering is there any kind of change and kind of duration and the kind of bookings that you've seen this year versus other years that you know may.
And they reflect.
Perhaps more of less acceleration and backlog conversion versus other years.
And then second just with the bite and administration coming in and I was wondering if that at all changes your kind of strategic view on potential areas, where you could do some acquisitions.
Sure. So I think as you know Joe we had quite robust awards for the quarter and for the year. We ended with the trailing 12 month book to the ratio of one three.
And quite pleased with that I think it's been driven certainly of course.
The key growth drivers we've been emphasizing.
And in terms of the the translation of that into backlog you I think we would expect it to be consistent with what we've seen in the past the I'm not sure I would.
And there'll be of great acceleration there I would also note that and some of these markets. There is the trend of winning larger longer term contracts. So five to seven year contracts.
And it modernization and then and some of the disaster recovery work, but.
But I think given the strong awards and.
And actually the risk of record awards, it certainly sets us up quite nicely for growth.
For 2021 and beyond given the the length of those contracts.
And then in terms of the Bud administration of what I would say to you is.
We've been talking for the last several years about the four key growth drivers.
And in front of us.
And it modernization.
Public health disaster recovery and utilities and I think those growth drivers I think will remain strong and about and administration I think as I said in my opening remarks, certainly, but if we see additional growth catalysts opening up here and there.
Areas of climate and environment and infrastructure and.
So I think several several new gross dialysis have been added to the list. So I think gives us greater confidence.
And for growth as we go forward I think as we talked at the end of our third quarter call. I think we had indicated at that time given the four growth drivers. We saw at least mid single digit service revenue growth going forward.
And obviously, we've now guided to at the midpoint of $6 six of six 7% of service revenue growth and I think given some of these priorities that I just mentioned with the by the administration, there's certainly upside for growth as we look down the road and.
For 2021 and beyond certainly.
Sure that's great and then just maybe one quick follow up on kind.
Current stimulus Bill out there is there anything.
The notable to call out there that could be and opportunity for you, it's quite large and broad bill I believe.
I think that to the.
To the extent that there's public health funding I think thats the potential area of of.
Upside for us.
I think so I think that would be the primary area I think there's also some funding and there for some amount of it modernization.
And so I think there is potential upside there.
There is also talk about a second stimulus bill at some point that would focus on infrastructure, obviously, if that came along that.
And that would be quite positive for us.
<unk>.
Great. Thanks, a lot from the color congrats again.
Thank you.
And we have our next question from Tobey Sommer with <unk> Securities.
Thank you and look to build on the last question.
And with the E and.
Infrastructure, Bill what sort of cash.
Positioning or.
Okay.
Good.
Could we read about and the bill like that when that eventually comes.
That would make it easier or less favorable from the company.
Yeah, I mean, I think that from.
And the infrastructure perspective, I mean to the extent that it's focused on.
Clean energy technology, I think that's a source of strength for US I think as you know we've done a lot of front end of it.
Planning for.
Energy projects transmission lines moving.
Electricity generated from renewable assets.
Out west.
Done work on and so I think that the clean technologies off and an area, we have significant expertise and distribute energy.
As I say around the front and environmental permitting and monitoring of Cleantech. The clean energy projects, so that would be positive and I think.
The more traditional high speed rail sustainable infrastructure again, another area, where we have significant.
Environmental on capabilities the wood.
It could be beneficial for us.
And then.
Obviously electrification again, I think just given the capabilities and our.
And our energy business and in our buyer.
And the mental health practices.
Would be quite good.
And obviously, we do a significant amount of transportation work so.
Activities around electric vehicles, and things of that nature of it would be quite quite positive too.
Thanks, and then kind of stepping back from.
Thinking about newly appropriated funds.
Net.
Thinking about what the.
Just simply of change in administration can you eat.
Ken Bureaucratically and administratively the.
The new administration.
Implement changes and pursue policies that are constructive for revenue gross adds confirm so I'm trying to get a sense for like ex new dollars entering the marketplace.
Does the does the change manifest itself and the change in the outlook for gross of the company.
I would say a couple of things and respond to that.
Toby.
First of all I think there are things the administration has done and.
Can do quickly too.
<unk>.
To accelerate spending of already appropriated dollars and areas that we work in that are and some of our key growth drivers and then anything around disaster recovery as I said in my opening remarks.
The.
The new ministration could cause certainly.
And I would expect would accelerate the.
The spending of mitigation funding to address.
And the disaster recovery area, which we've talked about.
And again funding there.
On the $15 billion to $20 billion that the prior administration.
Had not.
Spend and any significant way.
I would also say on the public health front that some of the.
Stimulus fills that occurred when the pandemic first happened I think theres still funding there potentially for some of the public health agencies of goods could be spent quickly and so I don't if theres any question that theres opportunities for this administration given their their policy focus sort of and the public health focus on now.
Having a plan following the science.
And that there could be opportunities there and I do think as the.
Obviously, we as the.
The illustration looks at.
Putting new policies in place, putting new rules in place.
And Thats, our bread and butter, we've done policy and regulatory analysis, and the environmental and energy and transportation and.
Arenas for decades, and so on.
I think the.
Net that Theres, a shift and our focus.
Go there.
We could certainly see a pickup and our advisory work.
And I'm here pretty quickly.
And.
And those areas for sure.
Thanks.
I'd like to touch on the commercial energy and energy efficiency.
Part of the business, you mentioned and a nice contract win that you are still negotiating could you discuss your win rates and pursuing the.
The new work emanating out of California.
Where we sit relative today relative to the total opportunities of still.
Early innings or are we kind of midway through through the.
Of this opportunity and I think.
As we said I mean I think we've.
We've been informed we've won.
$60 million of California energy efficiency opportunities to date.
And which we're quite pleased on it I think it's.
Do require Cps.
The CPUC approval and finish the negotiated the contract.
And I would say we are.
Halfway halfway through I think there is still the turtle opportunity for us out there.
To be awarded we remain busy on proposals.
And so I think we feel pretty good about the initial set of awards and the opportunities still in front of us and I think it can be.
On material growth driver force here over the next.
12 months to 24 months and.
And so I think we generally feel good I guess I'd better not get into the Widmer and <unk>. The details of that but I think we feel pretty good about where we are what we've accomplished.
Thank you.
And thank you we have our next question from Sam England with Bahrenburg.
Hey, guys. Thanks for taking the questions. The first one can you give us a sense of how strong the page or RFP pipelines looking at the moment on the government side and particularly are you seeing any variation between the strength of the pipeline on the federal state and local sides.
I think the.
I think the pipeline is.
Certainly quite robust on the.
The federal government market I think.
Contingency.
The significant opportunities and there is we've talked about it modernization.
Health.
And across our key civilian clients.
We really haven't seen a significant slowdown or a pause here.
With the new administration coming in and the federal space of state and local I think on our disaster recovery pipeline remains robust.
We are waiting on some.
Awards, there board decisions and.
And in Puerto Rico.
As I said in my remarks, we've won contracts last year and the Gulf States.
The significant litigation.
<unk> contract for us and the fourth quarter of $40 million.
Contract.
And so I think we're.
We're still awaiting the release of the very significant Puerto Rican mitigation.
Opportunity, which I think will come and the first quarter here for bid.
So we feel good about that market.
And.
So generally I mean, the commercial pipeline remains robust and so.
And so I think generally I think we feel we feel good about the pipeline, we really haven't felt we haven't seen it.
And we've seen a pause or any any.
Falloff and are the opportunities in front of us and our key markets.
Okay, Great and you touched on the freeing up of some of the disaster mitigation dollars and is that something you were expecting the happened and the first half of this year can you just give us an idea of the sort of sky on the dollars that you're talking about.
And I think we would expect it to happen I think from my perspective, it could benefit on some of our traditional disaster recovery work, we haven't assumed the significant pick up and that this year from that I think I think what I would be more optimistic on the.
The.
The change of administration and the change and.
Policy as the as I said the mitigation opportunities.
And that that money will be will be spent.
And those opportunities that were certainly the operators who are waiting on I think we will.
We will.
Play out here and the first half of the year I would also note.
The one of the things the by the administration has done.
And with FEMA they have.
They have they did make a decision the FEMA mitigation dollars under the.
Program can support climate related projects.
And so that's another example, where the body administration is kind of.
And I think dots using of FEMA.
The mitigation bucket of money that's available to 50 states to bring of climate focus to those activities and that's an example, where we benefit from the administration of connecting those dots using using a new bucket the bucket of money of FEMA to address the mitigation from climate.
Okay, great. Thanks, and then maybe just one more before I pass the I thought I just wanted with the margin improvement how much of it is coming from pandemic related cost savings like travel and entertainment and things like that and how much will work on us next year or even the next year as we return to normal.
I think it's a mix I mean I think.
And as you saw.
We.
We delivered a 13, 7%.
Adjusted EBITDA of the service revenue.
And we're guiding to the $13 five for this year and so I think part of the reason Thats come down is because there was one time.
Benefits from.
Related to Covid that we won't be able to sustain going into next year, but so I think it's it's a mix of both.
And the savings that are not sustainable on the long run and then part of the margin improvement.
And so the mix of our business.
And in terms of.
How much of the savings, we're not forcing I don't know if the Tina do you want to add anything on that.
Sure. So you know we've seen a lot of reduction in travel on our meals and entertainment and when we look ahead and the future we see that.
Maybe the $10 million year over year savings and travel related.
Savings this year.
C. A large portion of it is not sustainable, but we think maybe about 25% of it going forward and makes sense, we've learned how to work remotely and how to interact with our customers remotely as well and I think.
And that there is knowledge meant though that there is also on the medical and the lean savings that we experienced this year that that will return to normal at some point in time.
So that's not something that we see will continue to see on a sustainable savings perspective, we have also though.
<unk> taken some measures for our facility expenses and so it will.
Take some of that on an ongoing basis and the future too.
Okay, great. Thanks, very much guys.
And thank you. Our next question is from Andrew Nicholas with William Blair.
Hi, This is actually Trevor Romeo and per Andrew Thank you for taking the call.
Just wondering if I could ask another one on the the energy efficiency market.
Wondering if you could give us an update on the competitive landscape there kind of given the energy and climate are obviously increasingly important topics and addition to the tailwind from from the New administration, just curious if youre seeing any sort of new entrants there are changes and the competitive dynamics either on the public or the commercial side.
I wouldn't say, we've seen any significant changes and the competitive landscape and.
And energy efficiency the climate I mean I think.
There's the same handful of.
The firm's at scale that we compete with them on the energy efficiency side.
On climate and tends to be of much more diversified market I mean, we're certainly of market leader there.
And we've done we've done our fair share of climate rate of work in California.
And so it's the competitive market Theres, a lot of interest and those markets climate and energy efficiency. I mean, those are two markets, where we have significant scale significant.
Capabilities and so.
So it is competitive but I wouldn't say, there's been a significant shift that there's there's a lot more interest in those markets, but I thought so that's been a significant shift and the.
Competitive landscape.
Okay, great understood and then.
Just given the change in administration I was wondering if you could talk about how the staffing levels at your key agency customers are kind of trending if I remember correctly I think you guys had talked about some delays during the last of administration change four years ago and no. It hasn't been all of that long since the change this time, but just curious if you'd expect to see anything like that.
This time around.
I would expect that the buyer demonstration will fill the key political positions.
Quickly much more quickly and the Trump administration did and I think.
And the work to get people confirmed on me I think.
I don't think that will be done more quickly and more efficiently and some of which will be positive.
To the extent that that transition could happen.
Quickly and efficiently and we can get people confirmed and those rules permanently.
So I don't I think it should be and improvement from the.
The fire of administration.
Okay. Good to hear well, thank you very much for the color.
And thank you we have our next question from Kevin Steinke with Barrington Research.
Okay.
Good afternoon and.
And wanted to ask about some of the Covid related contract wins you mentioned.
Total of about 40.002 million 20.
Do you see any larger opportunities.
Coming up and the pipeline here.
As you mentioned maybe moving to.
The next phase of the recovery phase.
And the pipeline that might be larger as you can specifically tie to the.
The pandemic.
I would say, Kevin as we've talked about.
I think the.
And the federal government I think is still and the response phase here and very focused on the kind of the.
Price is in front of them from the.
Everything you are reading the headlines and obviously very focused on vaccine at the moment.
So I would say our clients by and large the opportunities. We're seeing are shorter term kind of immediate response under existing contracts. So we're winning work under existing contracts getting new task orders under existing contracts.
And so I think.
By and large I think it's a bit early to <unk>.
And two significant.
Covid opportunities that are kind of.
The recovery Phase focus I think we do expect those to.
Two.
Two to materialize.
But I think it's still a bit early for that I mean, obviously HHS is our largest client I think 16 or 17% of our revenues.
And we have a robust pipeline of opportunities there I think we've talked on prior quarters about of contracts with one of the ITU monetization from with ITG and HHS.
But I think on some of the broader areas around the disease surveillance.
On analytics.
And broader issues around how to better prepare for.
And the future Pandemics.
Still a little early we have seen some opportunities similar opportunities on the survey front around.
Around COVID-19.
Response and.
Sure.
But I think it's still.
I think it's still a little early to.
Similarly for.
For those opportunities.
Realize and become Rfp's of bids.
Yes of course know that makes that makes a lot of sense.
In the.
The earnings release, you mentioned approximately 55% of your 2020 service revenue.
Coming from work and key growth areas, where you expect growth rates in the aggregate of approximately 10% over the next several years.
I just.
I think I have all of the buckets here, but I just wanted to make sure.
You know everything that you're including in there.
Just so we have that.
As clear as possible on our minds.
Yes sure so.
And I think we had a climate consulting the disaster management.
And our head of environment water and transportation business.
It modernization.
Public health.
And our utility and energy efficiency business.
Okay perfect. Thanks.
And.
I believe it was mentioned when you talked about the.
Cadence in 2021 of similar cadence, except for a larger sequential increase and the second quarter can you talk about what.
What would drive that the SEC.
Quarter bump.
I mean I think typically.
And typically our quarterly phasing of our business.
And the seasonality is Q1 tends to be.
Weakest quarter of the years would come into the new year, it takes a little bit longer to ramp up particularly on the commercial business side and then we.
And we go into the second quarter and where we are.
We're building.
Certainly and commercial and I would say on the government business and then.
The third quarters.
And the busiest quarter of the year. So I think it's typical seasonality I think they feel of the point. We wanted to make is that folks have looked at the year I guess.
Similar.
And kind of results from <unk> to two <unk> prior year.
But we would expect Q1 day.
A ramp up from Q1 to Q2 this year.
When you look at one eight okay.
Okay great.
Thanks, that's helpful. On this one and for now thank you.
As a reminder, if you have a question. Please press Star then one we have our next question from Marc Riddick with Sidoti and company.
Hey, good evening.
Hey, Mark.
Wanted to touch a little bit on the.
The office.
Situation and I guess, maybe I guess, maybe I'm looking for something maybe.
Generally speaking and broaden how we should be thinking about the with the leases and how that might continue to place and moving.
Theres sort of a bigger broader message around.
Post pandemic thoughts of office space needs or what how should we kind of think about that particular part of the the process and the journey that you won't be revenue.
Right. So I think as we said and our.
Remarks on and our release I think we.
We are.
It's early termination of discontinuing use of 16 offices office office leases.
Generally the offices that we took the Stefan had remaining leases of.
Two.
Two to three years remaining.
And they would also often areas, where we had more than one lease and the city I think.
With the pandemic, we certainly learned some lessons around.
And how folks will work remotely and.
And I think given that I think we.
Well certainly we expect the people will return to the office and.
And that will be important part of.
And the future of the business in terms of insured and collaboration and brainstorming and those types of things I think given what we've learned and the pandemic. We felt we could shut these offices down manage the use of the space.
And doing so we've I think we save about $2 $5 million of year.
Going forward and I think our intent with that is too low.
Largely of reinvest that and business development, given all of the opportunities in front of us in terms of growth to take full advantage of them, but I would expect as future leases.
Spire that we're going to take a hard look at.
Our footprint and and I will.
The expected.
Over time, the footprint is certainly going to come down given I think we'll end up and some kind of hybrid people will work from the office and also but also continue to remote work remotely on some level.
And so you won't need any collaborative space.
Space where people can.
Sign up for an office for a day or work on a collaborative environment, but we'll be able to use the space much more efficiently. So I think.
So.
And would hope we could.
2025% savings on our facilities footprint going forward.
I mean, not a bad goal.
Thank bettina mentioned that we sort of.
Look at.
Travel and entertainment going forward. The I think we'll need to return to that and we will begin to at some point this year, but again I would I would hope we could save 20% to 25% on that and again I think we will look to reinvest that or or.
Habit helped.
The driver of profitability.
I think those of the.
But certainly we're taking a hard look at the facilities as we go forward and that will be and ongoing thing I mean, it's the leases leases come up for renewal and sort of take the hurdle.
Okay, Great and it was nice to hear about the the wins and California, I just wanted to touch a little bit of you had made mentioned as to thinking thats more of a.
And that will be more of a 'twenty 'twenty two contributor which makes perfect sense is it reasonable to say that that's probably more back half of 'twenty two related given the sort of the timing expectation.
Well I think we will begin work on that that work will begin in the second half of this year, but it will take a bit to ramp up.
So.
And so no I think it's going to be at 22.
I think it will be ramping up and ramped up I think by as we go into 'twenty and 'twenty two.
It's just going to take some it's not going to be a quick burn here.
And in 2021.
Partly because we still need PUC approval of <unk>.
The contracts and Theres also some of the work we are doing and.
California.
The utilities are have pushed it back to late in the year because of it.
We're going to be leveraging the.
Our it systems and several of these utilities of upgrading the system. So they don't want us coming in and doing it on work until they've got their system upgrades done.
But it's sort of will be of 2022.
Opportunity of stuff would be the second half of the year.
Okay makes sense. Thank you very much of the color.
Okay.
And thank you we have no further questions in queue I will now turn the call over to management for closing remarks.
Okay, well. Thank you for participating on today's call. We look forward to engaging with you at upcoming virtual conferences and meetings. Thanks again.
And thank you ladies and gentlemen, this concludes our conference. Thank you for your participation you may now disconnect.
Okay.
And then.
And.
And.
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