Q1 2022 Vectrus Inc Earnings Call
Amount of material and pass through content that has a different margin complexion.
I would like to point out that approximately two thirds of our revenue is coming from contracts in the first 18 months of their lifecycle, which provides substantial revenue visibility.
As is standard in our business operating margins tend to be lower at the beginning of the contract and generally improve over time, and we execute our well established process improvement and enterprise <unk> initiatives.
EPS for the quarter was 24.
And adjusted diluted EPS was $1 one steps importantly, during the quarter, we continued to expand our geographic footprint through additional growth in endo pay com, which now makes up 4% of revenue. We expect continued growth in the region and note that the Dod recently released fiscal year 2000.
'twenty three budget calls for another major exercise in the region, which we believe could be similar in size to the task we performed in 2021.
We also continued to expand and solidify our portfolio of work within the Army Navy and the intelligence community through new wins and securing recompete.
Given our year to date results, we are reiterating our 2022 guidance and the non-GAAP guidance ranges.
We believe our momentum will likely drive full year revenue to be at the high end of our range with margins at the low to mid given the aforementioned ramp in new programs and greater pass through volumes with that said there was an increasing opportunity to provide greater support to contingency events, which traditionally Q.
<unk> higher margins.
Given our visibility momentum adjusted EPS is expected to be above the low end of the guidance.
Finally on March 7th we announced our agreement to combine with vertex in an all stock merger.
Which I will cover later in the call. Please turn to slide five.
In the first quarter, we continued to focus on the needs of our clients and supported several important missions and requirements.
During the first quarter vector was selected to complete the final phases of the application development for five G Naval base coordinate all smart warehouse.
Which is demonstrative of our ability to provide converged solutions and operational technologies to clients.
Importantly on April 29th veteran leadership in Dod clients attended at ribbon cutting ceremony.
And demonstration of the warehouse.
The demonstration is focused on five <unk> radio access network and its optimization of warehouse operations via increased throughput of data Internet of things and low latency. This is a major milestone for vectren and our client as Coronado with one of the first sites to test this technology for the U S.
Military which will help map <unk> strategy.
<unk> and deployment across the Dod.
In addition, we demonstrated our ability to transition quickly and recently became fully operational on Logcap five Kwajalein approximately a month and a half.
Head of schedule.
This was a significant accomplishment given the extreme travel and logistical challenges we faced as a result of the pandemic.
The phasing of quasi one involved over 500 employees and partners of vectors that are now provide a full spectrum of services, including operating schools commissaries retail stores and community centers.
We are also providing health care environmental management facility support transportation and it services across the island.
All of the functions being provided are additive to our core O&M offerings and will provide past performance to pursue adjacent and expanded opportunities with clients in the future.
We also leverage our process oriented phase <unk> system and in a short period of time became fully operational at the logistics readiness Center at Fort Benning. Following our December 2021 $250 million Award.
We are proud of this achievement and look forward to providing world class maintenance transportation and supply services for the U S Army maneuver training center over the next five years.
During the first quarter, our team demonstrated vectors as rapid response and global capabilities by assessing the Dod.
With the establishment of a water supply system and water remediation in Hawaii. This effort was accomplished by using granular carbon activation units that were utilized to flush over 100 water distribution points I again want to thank our teams who have worked tirelessly on this critical contingency ops.
<unk>.
Additionally, late in the first quarter <unk> was awarded a strategically important task order to provide support for the U S Air Force in Europe as part of the European Deterrent initiative.
While currently small in value. This contingency effort is providing vital and mission critical services to our air force client in Europe , and positioning us well for additional support.
This effort exemplifies our global positioning and rapid response capabilities supporting our clients' most challenging and critical missions.
Please turn to slide six where I will discuss some notable notable contract wins.
Our growth related activities continued to experience positive momentum. Several recent wins have helped lay the groundwork for our continued revenue growth and demonstrate success in our campaign to diversify our portfolio.
We are continuing our positive traction working with the Navy and were recently awarded a follow on contract for spectrum management valued at $60 million over five years.
Award continues our work that helps the navy and solving a float electromagnetic interference and compatibility challenges for the fleet, while maintaining spectrum dominance.
This ensures that all components platforms systems and equipment on a ship pardon aircraft can operate without interference.
Our support for this program dates back to 1987.
And development of the original spectrum management tool.
We also won an effort as a subcontractor to continue performing electromagnetic test and evaluation engineering that supports the mitigation of electromagnetic interference on airframes and aircraft instrumentation. Finally, we were awarded a position on a $250 million five year <unk>.
IQ vehicle that provides rapid deployment prototyping and systems integration to the Navy joint and coalition forces worldwide.
Adding numerous platforms and integrated capabilities.
<unk> will focus on <unk> and <unk> systems that include cyber hardening, new technology insertion and retrofit of existing systems.
These key wins demonstrate our capabilities in engineering and operational technologies, and our commitment to delivering a more integrated and comprehensive suite of solutions in support of the converged environment.
<unk> has worked diligently over the past several years to expand its presence in the intelligence community and during the first quarter. Our teams were successful in securing several wind that enhance our footprint. These awards continue our support of <unk> and integrated security services that protect physical assets IP.
And computer systems for the intelligence community.
Our first quarter results are demonstrative of that Chris is realization and execution to strengthen and grow the business through outstanding program execution capability expansion and diversification of our geographic and client footprint now I would like to turn the call over to our Chief Financial Officer, Susan Lynch for a review.
The financials.
Thanks, Chuck and good afternoon, everyone Tour with me now to slide seven to discuss our first quarter results.
First quarter 2022 revenue was 456 5 million up $23 million or five 2% year on year.
Our solid top line growth was boosted by the transition to full operational capability on Logcap five programs.
In Iraq, and Kuwait late last year and closure lean. This year. In addition revenue benefited from transitioning the bidding program and volume associated with rapid response and contingency efforts importantly.
Importantly, we were able to grow the top line. Despite the headwinds of the withdrawal of U S military from Afghanistan.
Operating income was $5 2 million and was impacted by the incurrence of $9 1 million of M&A and integration related cost adjusted.
Adjusted EBITDA was $18 2 million or 4% margin as compared to $27 million.
Or four 8% in the prior year.
Adjusted EBITDA margin was influenced by the significant amount of revenue and contracts that are in the early stages of their lifecycle.
We believe margin on these contracts will improve over time as we apply our process improvement and enterprise initiatives.
Margin was also affected by our increased support of our clients supply chain needs, which is driving an increase in material and pass through content typically carries a lower margin.
In aggregate on average and over time, we expect to see improvement in the margin profile as we drive operational efficiencies and diversify into higher margin scopes of work.
Net income for the first quarter of 2022 with $2 9 million.
The effective tax rate in the first quarter of 2022 with 19, 7% compared to 17, 5% in Q1 2021.
The effective tax rate this quarter was higher than anticipated due primarily to the accounting treatment of certain M&A transaction costs related to the vertex merger.
Adjusted net income was $12 million compared to $14 2 million in the prior year.
Fully diluted earnings per share for the first quarter of 2022 with 20 <unk>.
Adjusted EPS, which adds back merger integration and amortization of acquired intangible assets was $1, one compared to $1 20 in the prior year.
Change in adjusted EPS was primarily due to the aforementioned change in adjusted EBITDA.
Turning now to slide eight.
Cash used in operating activities in the first quarter was $26 4 million compared to $21 7 million in the prior year.
Cash used in operating activities include an approximately $8 million repayment of cares act tax deferrals, and a $2 million payment to support merger activities.
Cash at quarter end was approximately $23 million.
Total debt was $119 8 million down $57 2 million from Q1 of 2021 as we continue to pay down the debt tied to the acquisitions of genetics and HB.
The company's total leverage ratio was one four times down from 2.0 times in Q1 2021.
Please turn to slide nine.
Our backlog remains solid at $4 5 billion and is nearly two five times revenue.
Unique attribute of our business, providing visibility into the remainder of the year and beyond.
The amount of urgent rapid response and contingency task orders that Vectren has been awarded over the past 12 to 18 months is higher than the levels. We have witnessed over the past several years driven in part by Logcap five.
We believe this pattern will continue for the next several years and are expecting a greater volume of task orders that could quickly materialize as revenue in the same period. The order is booked.
<unk> me now to slide 10.
In 2022, we are maintaining our focus on program execution, while driving expansion associated with our campaigns and new business pipeline.
In line with these efforts and our solid Q1 results. We are reiterating our full year 2022 guidance ranges for revenue and adjusted EBITDA and adjusted diluted EPS and net cash provided by operating activities, excluding M&A related activities.
Revenue guidance remains at $1 82 to $1 $86 billion, reflecting year on year growth of 2% to 4%.
With the accelerated phase in of low cap five and closure lean successful startup at Fort Benning remediation efforts in Hawaii and work supporting the Air Force in Europe , we're tracking towards the high end of guidance on revenue.
As a result of the significant amount of contract wins and startups and the complexion of material and pass through content. We expect adjusted EBITDA margin to be in the low to mid range of our guidance of four 5% to four 7%.
Given our visibility and momentum adjusted EPS is likely to be above the low end of our guidance range of $4 57 to $4 93.
Due to merger activity with vertex, we are not providing GAAP guidance or a reconciliation due to the difficulty in forecasting the transaction timing and quantifying certain amounts that are necessary for the reconciliation.
Excluding merger and integration related payments, we expect net cash provided by operating activities to continue to be 50 to $53 5 million.
I'd like to now turn the call back over to Chuck.
Thank you Susan.
Now I'd like to give you an update on the merger we announced on March 7th with vertex.
On April 27, 2022, we issued the special meeting proxy, which provides shareholders with more information pertaining to the specifics of the transaction. Additionally, today, we filed a supplemental investor briefing with the SEC that contains information regarding the merger with vertex much of.
Which was contained in the proxy.
For the remainder of the call we will cover several of the slides contain in this interest investor briefing.
Please turn to slide 12.
The combination of vectors and vertex creates a stronger more diversified company and a leading global provider of mission essential solutions and technology to National Security defense civilian and international clients. The combination provides a significant value creation opportunity for our shareholders.
Broader and deeper capabilities to our clients and greater opportunities for the people of the combined company.
There are many benefits to this combination several of which are being identified on this slide.
Pro forma revenue and adjusted EBITDA for the combined business is approximately $3 $6 billion and $290 million, which.
Which includes $20 million of previously disclosed run rate synergies.
This equates to an adjusted EBITDA margin greater than 8%. This should not be construed as 2022 guidance. We plan to issue 2022 formal guidance after the merger closes.
Visibility and long term contracts of the combined company is an important attribute and differentiator.
Inclusive of our Texas recent $850 million Navy test wing Atlantic win the combined business will have over $12 billion in backlog.
Please turn to slide 13.
Many of you know that Vectren has a proud history going back to $19 45 at Federal Electric Corporation, which was a service arm of ITT. However, it is also worth noting that vertex has a 45 plus year legacy stemming back to beach Aerospace services, which was originally formed from the beach aircrew.
<unk> company that was founded in $90 32.
Vertex business was acquired by Raytheon and 1980 and later by L. Three until eventually being purchased by AIP and 2018.
In December of 2021 vertex acquired the technology and training solutions business from Raytheon ultimately, creating what is known today as the vertex company.
As can be seen on the page.
<unk> vectors have decades of experience in history, but also share our values based and client focused culture that is built on a shared mission and the key principles of integrity respect responsibility and professionalism.
Please turn to slide 14.
As mentioned vertex has a long legacy operating in the aerospace and defense market and our capability rich portfolio that spans over 125 locations across the globe.
Key capabilities of vertex include engineering and logistics.
Aerospace and defense services modernization, and Sustainment training solutions sensor and platform integration and mission support.
For our Texas agility rapid deployment capability and client optimization have been key components and distinguishing the company from its competitors.
With revenue approaching $1 8 billion and.
And adjusted EBITDA margins of approximately 11% vertex is a leader in its markets.
Please turn to slide 15.
The table on this page shows exactly how complementary vectors and vertex Saar.
As can be seen the combination creates a truly unique comprehensive set of capabilities across the operations and logistics aerospace training and technology markets.
Please turn to slide 16.
The strategic benefits associated with the combined company's capabilities are significant.
We see meaningful revenue synergies and opportunities to leverage the portfolio of technologies and solutions to better provide full lifecycle support services to critical and enduring missions. However, the diversification benefits of the combination are also material.
As you can see on the right hand side of the page. The combined business will have a much more balanced portfolio of clients and contract types across an expanded geographic footprint.
We will not only balance our client portfolio with our concentration in the army moving to 41% from 64%, but also added several new clients that increase our route to market and cross selling opportunities.
<unk> the diversification of our portfolio helped provide topline resiliency through various economic and political cycles.
From a contract perspective, the overall portfolio was much improved as we will have over 300 contracts with no task order estimated to make up more than 11% of revenue.
Furthermore, while vertex and vectors have been successful in winning significant new and Recompete contracts that are in the early stages of their lifecycle with notable periods of performance remaining. Our example in March vertex, one a new $132 million five year task order to provide air.
Fourth global strike command with Rotary wing maintenance.
The Air Force Global strike command is responsible for providing combat ready for us was to conduct strategic nuclear deterrence.
And global strike operations.
Moreover, in April of our text announced it was awarded a new $850 million seven year contract to provide aircraft maintenance to the naval test wing Atlantic.
Which has five squadrons comprising of a range of fixed wing rotary and unmanned aircraft.
The aircraft supported by this contract perform a variety of test and evaluation missions.
While the award is currently under protest. This is a significant win for vertex that demonstrate the momentum of this business.
The strong velocity of awards, resulting in a total backlog for the combined company that has over $12 billion.
Including Naval Test wing this equates to approximately three four times the combined company's pro forma 2022 revenue.
Please turn to slide 17, the results from our previously mentioned wins are visible on this table with both vertex and vectra as having many contracts that extend into 2025 and beyond.
Several contracts represented in this table extend into <unk> and beyond 2028 importantly.
Importantly, the contracts listed on this page comprise over 40% of the pro forma 2022 revenue and we believe provide substantial visibility over the next several years.
With a significant portion of our recompete behind us and a solid amount of revenue under contract over the next several years. We believe the combined company is well positioned to aggressively focus on addressing new opportunities to further grow the business now I'd like to turn the call back over to Susan to discuss some of the financial attributes of.
Merger.
Thanks, Chuck Please turn to slide 18.
The pro forma financial profile of the company remains compelling with improved scale strong margins with significant cash generation revs.
Revenue for the combined company is expected to be approximately double where veterans is today and provides enhanced scale and ability to compete.
Additionally, pro forma adjusted EBITDA margin is expected to improve markedly from the midpoint of <unk> 2022 guidance of four 6%.
Inclusive of $20 million and run rate synergies EBITDA margin would exceed 8%.
An important characteristic of both vertex and vectors are the very low capital requirements to operate the business.
We believe that normalized capital expenditures of the pro forma business would be less than 1% of revenue.
As we mentioned during our last call. There are also several attractive tax attributes that lowered the effective tax rate and generate cash tax savings for the combined company.
The tax attributes are $1 1 billion in aggregate and are estimated to yield $18 million in annual cash savings over the next 12 years.
Please turn to slide 19.
As Chuck mentioned, both companies have won a substantial amount of recompete and new business, which provides excellent visibility over the next several years with a solid platform for growth.
We believe the combination of revenue growth strong margin and high cash generation will result in significant value creation for shareholders over the next several years.
The left hand side of the page shows our opportunity to potentially achieve materially higher revenue in the future.
While revenue growth is subject to timing of awards protest budgets and other factors.
We believe that looking ahead topline growth can yield strong adjusted EBITDA and margin.
This is expected to be achieved through business mix supply chain contract and business efficiency, the automation of core processes technology insertion and operating leverage from fixed cost.
I'd like to point out that the 2022 adjusted EBITDA includes $20 million of run rate synergies, which are anticipated to be fully achieved in 2024.
The associated cost to achieve synergies totaled $20 million over the next three years and are not included in adjusted EBITDA.
Vertex also anticipates approximately $18 million of additional annual net cost savings tied to its 2021 acquisition of the technology and training solutions business from Raytheon.
And with full run rate savings achieved by the end of 2023, partially phased in in 2022 and 2023.
These cost savings are incremental to the previously disclosed 20 million of synergies related to the combination of veteran and vertex.
The associated costs to achieve synergies totaled $18 million through 2023 and are not included in adjusted EBITDA.
We anticipate total net synergies to make up approximately 1% of combined revenue a conservative target when comparing to relevant transactions in our sector.
Please turn to page 20.
We believe that our combined revenue growth and margin opportunities in conjunction with our low capex requirements will drive substantial cash flow generation.
The cash generation capability of the combined company as illustrated in this pro forma walk from adjusted EBITDA.
This illustrative bridge assumes adjusted EBITDA of $290 million, which includes $20 million of run rate synergies.
Interest expense of $72 million is based on the capital structure outlined in the proxy.
Cash taxes of $28 million assume luster, Dave 23% tax rate and include the previously mentioned $18 million.
Cash tax benefit.
Capital expenditures are currently estimated at $20 million working capital is estimated at $25 million and stock based compensation is $15 million in this illustrative scenario.
Please note. This scenario does not include one time merger and integration cost.
Please turn to slide 21.
We believe the powerful cash generation capability of the combined business will support the ability to rapidly de lever from the anticipated three eight times pro forma net leverage at close.
We see a clear path to achieving a net leverage ratio of approximately three times within 18 months of close.
Now I'd like to turn the call back over to Chuck.
Thank you Susan please turn to slide 22.
We remain confident that the merger with vertex will create significant value for our shareholders.
I'll further exemplifying our leadership in the emerging converged market and creating a larger more balanced and differentiated business with greater growth opportunities for our people.
In terms of timing since announcing the intent to merge with vertex on March 7th we have been working several actions required to close the transaction.
Myself and the members of the senior leadership team have had several integration planning meeting with vertex leadership.
We are unanimous in our feeling that our cultures could not be more complementary.
And we are eager eager to work together post close.
We remain on track to close this transaction in the third quarter as noted on slide 23, now I'd like to turn the call open to questions.
We will now begin the question and answer session.
Ask a question you May press Star then one on your telephone keypad.
If you are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two at.
At this time, we will pause momentarily to assemble our roster.
Our first question is from Joe Gomes with Noble capital. Please go ahead.
Good afternoon, Chuck and Susan nice quarter, Thanks for taking my questions.
Thank you Joe.
So the first one I have here.
Revenues in the quarter were up five 2% above the.
2% to 4% guide I'm just wondering.
For the quarter was that in line with your expectations better than expectations, what kind of drove the for lack of a better word outperformance on the top line in the quarter.
There are a couple of items, Joe and thanks for identifying that.
We were very successful in the.
The case of the Endo pay Com Kwajalein task of moving that full operational date.
To the last five or six weeks as I noted.
In my remarks, which was.
A portion of that over performance secondly, there were some aspects of an extra size and <unk> again.
That were initially planned for later in the year that occurred earlier in the year and finally.
Water remediation effort in Hawaii actually went a bit longer at a slightly larger scope than we had anticipated.
Okay.
Thank you for that.
And then you've talked a couple times.
Yes.
Margin improvement that we're in.
<unk>.
The early days of a lot of the contracts and as the contracts mature.
<unk>.
Should see some some margin improvement is there a way to.
Quantify or provide color as to.
At what point, you were saying 18 months I think.
You mentioned a number I don't have it right in front of me of what percent of revenues are are within the first eight two thirds of revenues within the first 18 months of their contract.
That 24 months 36 months when do you think you really start to see margin improvement is it longer than that just trying to get a little better sense of when we should start to see some more margin improvement.
I would say I would say at the every year mark of each of the contracts. So the way things typically work.
As youll have a base year that that the lowest margin. If you will which is where the pricing reset that we always talk about occur.
And then what will happen from there as we will see some margin improvement going in to year to the first option year or the second year of the contract.
Then from there.
The second option year in the third option year, and where we really get to a fall.
The operational realization of the margins in those particular contracts.
And if we look back over history at some of our wins over the last five or six years, you see a very similar ramp to that I will tell you that having two thirds of our revenue in the first.
18 months, which would be the base here and a portion of the option year.
Highly unusual.
The great thing by the way don't get me wrong, we're very fortunate to have that situation.
But again I like the way our teams are working together with our clients.
Two again reposition work that could have been fixed price initially I'm, sorry strike that could've been cost type initially to more of a fixed price orientation.
Okay. Thank you on that.
Kind of switching gears, a little bit here.
Three of the major contracts that you guys are on K boss.
Logcap, Iraq Logcap Kuwait.
All come up for.
I think pay boss expires in August the log caps.
Go into I think it's the first option year.
For those.
Can you kind of walk us through how that all.
Lays out of Okay boss was about $280 million revenue opportunity in 2021 does that bulk of that revenue just slow now and to Logcap.
Wait contract construct or maybe you can just.
To illustrate how that all will work going forward.
Yes, that's exactly that's exactly right Joe so.
We continued to wind down the historical cave off task.
The vast majority of that work move then to the Kuwait task under Logcap.
And as you know as we've talked about over time there are components.
The cable off the original <unk> contract as they are not part of Logcap, specifically the security portion of K boss.
So we should get to a kind of a standard.
Run rate if you will on the.
The new Kuwait task without K boss here and.
In the second half of the year and that should be then a very visible to everybody Susan.
Susan I think that no.
I think youre right on the last two quarters, we've been at about <unk>.
<unk> $98 million to $105 million. So I think we're probably right in that range and going forward.
Okay, great. Thank you for that.
Yes.
If we could turn to the act was the vertex acquisition for a moment.
Obviously, you went come through with timeline here.
We just filed the proxy.
Chuck in your discussions with with your stakeholders our shareholders.
How have they come across.
To you about the acquisition or any concerns being expressed by some of your major shareholders and if so how do you address them.
Yes.
The transformational merger.
To be very clear and early after the announcement, we had many conversations with our current investors.
Other add ons like yourself and as the logic became clear.
Our investor base at that point in time became.
Comfortable that the strategic objectives.
The acquisition.
Such as the increased profitability margin the increased diversification.
Both contracts and geography, so the industrial logic becomes very clear.
So while I hesitate to predict the future at this point in time I feel that there is a general understanding of the strategic benefit of the acquisition and we look forward to moving into the shareholder growth.
Yes.
And maybe I can sneak a couple more quick ones in here. So you were talking about.
Susan the cost synergy cost synergies I know you always talked about $20 million when you announced the call and then you have the $290 million.
Adjusted EBITDA number and then today, you're you're mentioning about $18 million more.
Cost synergies.
From the act with vertex.
Vertex acquisition I would think of the Raytheon assets.
Is that additive to the 290 or how does that all play out.
Yes. Thanks for the question. So there is a small portion of the <unk>.
$18 million that is.
Randy in that $2 90, or the $193 million specific to vertex, but it kind of.
Ramps in 2023 and it is all in the 2024 numbers and beyond that you see in the proxy.
So it's already kind of feathered into the plans that you have in the proxy.
Okay.
Okay, two more quick ones, if I if I may.
Sure.
Yes.
Over the last couple of years, you have a lot of phase III striction due to COVID-19.
Any of that remainder of laughter, they all pretty much gone.
And two.
Obviously, one of the key items Thats brought up here.
Higher earnings season has been employee attraction and retention.
I'm just wondering how you guys are ferring in that area. Thank you.
I would say that the bulk of the COVID-19 related operational.
The realities are behind us.
But we still have pressure staffing around the globe.
Like you would imagine.
So again I would not attribute.
Our current staffing.
Tension if you will.
The only COVID-19, but COVID-19.
Obviously set a stage that now needs to be.
Continued to improve over time.
Secondly, there are supply chain realities and supply chain operational reality is out there.
But I would say would have their route.
In and Covid, but again operationally I think we're behind most of those situations.
Okay.
Great. Thanks for taking my questions I'll get back in queue.
The next question excuse me. The next question is from Tobey Sommer with <unk> Securities. Please go ahead.
Thank you.
With respect to the merger I was wondering if you could comment.
The revenue synergy opportunities.
I have in mind, one of the slides.
The checks of capabilities on one side versus the other and where there isn't overlap.
Where do you see the best opportunities.
Okay. Thank you told me how are you.
One of the great things about this acquisition that we've talked about.
On several occasions.
That we are two very complementary businesses.
And we do not.
C. Much what we call revenue dis synergies at all.
The fact that we are.
Focus on different segments within the operational aspects of the federal services marketplace.
Having said that.
We do believe strongly that there will be revenue synergies that our combined capabilities and our combined scale.
To be able to address and we see this in areas that have not been in our traditional markets.
Such as the international markets in certain certain foreign military sales markets as well as within our core markets, whereas I've already stated the combined capabilities.
Just make us.
A larger more capable.
The offering to our clients. So we do believe strongly that there will be revenue synergies and as we get through the vote and end to operating as a combined company, we fully expect to update you and the investor base in general.
About where we see those opportunities.
Could you maybe give us a sense of the cadence.
Within the quarter, and then and then here so far in <unk> about.
Maybe off tempo and what that's been like because we clearly have.
A major conflict in the world in some of your customers may be.
Responding to that and then from a pure budgetary standpoint, we then got a budget mid month in March and I'm curious what it was like sort of before and after from an award perspective.
I would say from an award perspective.
The first quarter or the first four months of the year are always have traditionally been I should say a bit slower for us, but in terms of the op tempo around our existing program base as well as.
We discussed in the prepared remarks.
Those contingency contracts, we have that <unk> has been very high.
Very strong across the globe for obvious reasons.
We obviously talked a bit about the.
The European activities.
There are still activities in the middle East.
<unk> with the particular changes that occurred in Afghanistan.
And we had talked about again in the prepared remarks active.
Activities in Endo pay com, but actually move to the left in terms of exercise support.
So it's a bit of a long winded way of answering your question the op tempo around our current installed program base and in our contingency contracts is.
<unk> been a tailwind for us here and.
In the first quarter of the year and.
As you know, we kind of held our guidance but.
Tilted towards the top end of the range for revenue.
Be able I think to provide a little bit more clarity on that as we get through the first half of the year and the next time, we talk to you in August .
Thanks, Mike.
My last question is also a kind of a broad budgetary one but what are you hearing from.
Your contracts on Capitol Hill with respect to.
President <unk> budget request, which is kind of a marker in the different.
In the different branches of the military and their sort of budget.
Outlook as we look into fiscal 'twenty, three and I know, we just got a budget for fiscal 'twenty two but.
It's always onto the next thing so.
Our focus as you know have traditionally on the O&M all lines of the budget.
We continue to see.
Strong demand maintaining the infrastructure then the operations.
That we support and I would also mentioned, although not part of the combined business yet at this point in time.
The older platforms in the aerospace market.
Fall into that same category.
So I think there will obviously.
Given the amount of spending in the various national security operations globally.
It always pressure on the funding, but I'd also say that actually tells us favorably to the O&M components some of the budget.
And it's really up to us at this point in time to work with our clients and value adding ways in ways that we can demonstrate how we can improve the O&M operations.
Thus, making things extend longer and ultimately providing a higher value and the total lifecycle cost of <unk>.
The operations and the platforms we support.
Thank you very much.
Thanks for calling in.
The next question is from Bert <unk> with Stifel. Please go ahead.
Good afternoon.
How are you.
Good. Thank you. Thank you for the time Chuck if.
If we strip out Logcap five.
It's the best way to think about organic growth for the rest of the business and maybe just a follow up to that what should we expect the full run rate for logcap to be as a percentage of <unk> revenue.
I think that what we what we have talked about here publicly is that.
Logcap.
As a vehicle is significant to our business I will indicate very clearly that the extra sizes and so forth that we continue to perform on and win.
We're not a part of the original award.
Logcap as a route to market for US is significant and we will continue to be significant with regard to very specifically.
The Kwajalein task, which as you know with net new <unk>.
And the Kuwait task.
Which was protective of our base.
We see.
We see the Kuwait task.
Very similar.
The security scope.
As we encountered in the prior came off activity.
Kwajalein, we see looking not just similar to the prior incumbent.
That was in Kwajalein.
And with regard to Iraq.
Iraq current run rate as you can see.
In the prepared materials.
It is.
Much more significant in terms of dollar run rate than we had originally bid and announced initially.
So not an exact answer to your question, but logcap as a route to market is substantial and we continued to leverage with new wins active.
Activities under the Logcap contract.
I can move to other contracts.
Like the spectrum work that we just talked about today like the App Caf work, which is addressing additional contingency operations globally.
Well as the continued string of wins, we've had in the Navy.
As a way to demonstrate that we continue I believe.
To be very successful and bolster protection of our base of new wins and not only of logcap, but across the various.
Areas in the operational space that we support.
So would you say, it's fair to say that outside of Logcap, it's excluding that contract vehicle.
Underlying business is organically growing I know you highlighted several.
Absolutely right.
Sure the short answer to your question is yes short.
Short answer to your question Jeff.
And then maybe just digging deeper on the non Logcap stuff you noted in the release increased activity during the quarter that was coming from Adi European deterrence initiatives.
The funding there.
If we go back a few years had been cut and seems to be growing again, it looks like the budget request. There is getting better can you help us frame what opportunity you have as a company there may be this year and next.
When it comes to when it comes to the various European activities.
Demand signals, we've seen to date.
Have been predominantly through the Air Force.
And then in parts of our client sets that we can't spend a lot of time talking about today.
I will say, however that the juxtaposition to the activities.
Not just in Europe .
The other exercises and August call it op tempo enhancements.
That we've seen and then they'll pay com is also.
It is also significant we talked a bit about on the prepared remarks.
The startup of <unk>.
Vetting for bedding.
That that SAR startup was very quick it was very seamless that contracting not go.
Through through a protest.
And.
The ability to bring net new contracts like that online quickly.
At the cost profile that we projected.
It is a big deal.
And again, we continue to demonstrate an opportunity.
We continue to demonstrate an ability I should say.
Not just to continue to.
Scope competitively in the marketplace, but then they get that scope transitioned.
To full operational capability.
And very.
And kind of a very efficient way.
Just to clarify on the.
No you said Air force and it sounds like the classified customers. There in Europe , you noted in the release that it is.
Immaterial now with the Air Force do you expect that to become material or is that sort of too hard to say right.
It's obviously too hard to say, but my experience has been.
If you arrive in support of our mission and you perform at a very high level the likelihood of that mission expanding is.
As is good right and again as we normally do as our teams normally do as we demonstrated in Hawaii.
Earlier this year at the end of last year.
<unk>.
That is the.
The proof point that we always fall back to with our clients and thats ability to execute seamlessly.
To execute with agility and support of their various missions.
And just and thanks for that Chuck, but just one last one for me.
Have you noticed.
<unk> any change in the competitive environment for the contracts Youre bidding on it seems like the largest competitors. They used to historically go against have started to move up the higher tech end of the spectrum, but they do still do operations logistics work. It just seems like they're doing less of it Im curious if youre seeing any change in the competitive environment for contract bids.
I think we are I think we are as you as you know quite well because you cover the space.
A consolidation that has occurred in the.
The operational aspect of the federal services marketplace has been significant.
<unk> seen that and and vertex has seen it on the aerospace business as well.
So as a result that doesn't mean <unk>.
Petition is any less.
Just means our competitors are that much more kind of focused and coordinated we continue to execute our go to market strategy. We stay very much focused on the campaigns that matter to us.
And as well.
When any industry consolidates that actually provides some opportunities but it also provides some challenges and we're fairly we're very aware of both the opportunities and the challenges and are converging marketplace.
Thanks very much.
Yes. Thank you.
This concludes our question and answer session I would like to turn the conference back over to Chuck Pro for any closing remarks.
Thank you very much everyone and thank you for joining us on our call today, we look forward to reporting back to you both on the status and progress on the merger as we move through this quarter and to the next time, we talk in.
August Thank you very much and we'll talk to you soon goodbye.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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Okay.
Yes.
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