Q4 2022 V2X Inc Earnings Call
Thank you for joining us for the V to X fourth quarter and full year 2022 earnings conference call and webcast.
Today's call is being recorded.
My name is Betsy and I'll be the operator for today's call.
At this time, all participants have been placed in a listen only mode.
Following managements presentation I will open up the call for a Q&A session.
To ask a question you May press Star then one on a touchtone phone.
To withdraw your question. Please press Star then two.
And now I'll pass the call over to your house.
Vice President of Treasury, Investor Relations and corporate development N V to X.
Please go ahead.
Thank you.
Afternoon, everyone.
Welcome to the <unk> fourth quarter and full year 2022 earnings conference call.
Joining us today are Chuck Prow, President and Chief Executive Officer, and Susan Lynch, Senior Vice President and Chief Financial Officer.
For today's presentation are available on the Investor Relations section of our website at Www Dot go beat UX Dot com.
Please turn to slide three.
During today's presentation management will be making forward looking statements pursuant to the safe Harbor provisions of the federal Securities laws.
Please review our safe Harbor statements in our press release and presentation materials for a description of some of the factors that may cause actual results to differ materially from the results contemplated by these forward looking statements. The company assumes no obligation to update its forward looking statements.
Additionally, I'd like to point out that in addition to GAAP earnings we will be discussing and reporting various adjusted non-GAAP metrics, including pro forma revenue.
Adjusted operating income and margin adjusted EBITDA and margin adjusted operating cash flow adjusted net income and adjusted diluted earnings per share.
The definition of these non-GAAP measures can be found in our presentation materials available on our Investor Relations website and in our press release filed with the FCC.
At this time I would like to turn the call over to Chuck problem.
Thank you Mike and good afternoon, everyone. Thank you for joining us on the call today, Please turn to slide four two.
2022, with a very successful year, achieving several milestones, including the completion of the merger for the vertex and making significant progress on the integration, while driving strong results with high quality uninterrupted service and support to our clients. Our success is a testament to our employees' unwavering commitment to our <unk>.
And the missions we support.
We ended the year with strong fourth quarter revenue of $978 million up 20% year over year on a pro forma basis.
This growth was driven by new business wins.
For Recompete on contract growth and continued expansion in bill pay Com in Europe adjusted.
Adjusted EBITDA was $79 million in the fourth quarter.
Representing an eight 1% margin higher than our expectation due to favorable program performance strong execution and acceleration of program productivity that was expected in 2023 adjusted.
Adjusted diluted earnings per share was 92 cents, we continue to focus on debt reduction and in the quarter, we paid $25 million on our $185 million second lien term loan. Additionally, just this week, we were able to successfully refinance the portion of our debt into new lower cost.
More efficient credit facility.
The facility is expected to generate substantial interest expense savings.
<unk> liquidity and drive additional value for shareholders.
Our integration related activities continue to progress and we were successful in delivering our expected cost synergies for the quarter.
We'll continue to align our business for future revenue synergies and enter 2023 with three operational business units that are focused on the core capabilities of advanced technology Aerospace and global mission trading and Sustainment.
Leveraging these capabilities across the organization and are seeing early success as I will discuss in more detail shortly.
In summary, we remain on track to achieve our integration milestones and previously communicated cost synergies.
Our year end results provide strong momentum coming in 2023, and we believe we will drive revenue growth of 5% at the midpoint.
And the more we anticipate over 90% of revenue to come from existing contracts.
Topline growth combined with ongoing synergy recognition is expected to generate adjusted EBITDA growth of 8% year over year.
Please turn to slide five.
Our visibility in 2023 is further enhanced by several recent wins and the alignment to our clients not funded and high priority missions. For example, our revenue from the Pacific region or <unk> com.
Increased to $54 million in the fourth quarter up seven fold from last year.
At a macro level funding and Endo paid time has increased as the D. O T continues to invest in the Pacific insurance initiative or PDI.
The PDI is a set of prioritized defense investments and activities to enhance U S insurance and defense sure.
Sure Allison partners and counter anniversary threats in the region.
Notably in fiscal year 2023 Congress authorized a total of 11 $5 billion for the PDI, which represents a 62% increase year over year.
Importantly over the past five years <unk> has strategically invested to boost its worst set of capabilities and converged solutions and Intel Paypal today, we provide fully integrated electronic security systems.
Critical assets and infrastructures in the region.
We are also integrating sensors force protection assets and other data sources and that's part of an internet of things solution that will provide early warning and enhance situational awareness of potential threats.
Additionally, we deliver specialized E radar upgrades.
Engineering and communications support to the forward deployed afloat force throughout the region.
You weren't multifunctional logistics and Sustainment capabilities <unk> is currently maintaining ground vehicles.
Various preposition stocks and aircrafts.
Our infrastructure operations are critical to expected future growth and to pick up and now includes support in the Philippines.
Thailand, South Korea, Japan, and Hawaii, as well as over 1500, Btu ex employees, providing health care environmental management.
<unk> support transportation and it services at Kwajalein.
<unk> has materially increased its footprint and paid.
Which has driven our revenue to over $200 million annually, we see additional opportunities for growth by leveraging our enhanced capabilities and are continuing to invest to increase our positioning and service delivery in the region.
In summary, we believe our unique converged solutions and long history of providing complex mission critical support and austere and challenging environments is a differentiator and positions <unk> to support the dod's enhanced posture and our clients' requirements in the region.
Moving from the Pacific to the Arctic Circle, we are pleased to announce that during the fourth quarter of <unk> joint venture was awarded a 12 year contract with the U S space force to provide infrastructure to statement and the Rd.
This key win further demonstrates our geographic footprint and capabilities.
Currently under protest <unk> and looking forward to continuing our seamless and effective broad array of multi dimensional support services.
Moving air field management or operations, similar engineering, our production supply chain and facilities management in the Arctic region.
It is worth noting that the new iteration of the contract and a $3 $95 billion maximum ceiling value compared to the prior contract value of $411 million. We believe there is opportunity for growth associated with this contract at 97% of the buildings at the base for constructive between 19.
52.
And $19 59, and half challenges due to aging extreme temperatures and permafrost. Additionally, environmental factors are creating geophysical challenges that can further impact operations and infrastructure.
And our key defense node with missile defense facilities radars early warning sites and remains a critical region for our projection and homeland defense.
Growing strategic importance other region was evidenced in late 2022, when the White House released its national strategy for the Arctic region. Its first update to the strategy. Since 2013. Additionally in September 2022, <unk> established an Arctic strategy and global resilient office to ensure.
U S strategy and policy protects U S interests in the region.
Importantly, <unk>.
A little over a month ago was the first time that the F 35 day stealth aircraft West White was deployed to the base ingredient.
Aircraft participated in a joint exercise operation novel defender with our partners in Canada.
Lastly, subsequent to the quarter and <unk> was awarded a five year contract valued at over $90 million on an existing national security effort.
This key win which represent one of our largest national security programs was a result of our exceptional support that we have provided to this client since our original award in 2016, I'd like to point out that our global footprint capabilities and strong performance have yielded significant contract growth.
Since the original award I'd like to thank our team for their excellent performance and commitment to this mission critical program.
Please turn to slide six.
The culmination of the achievements I've, just discussed are yielding growth and diversification for <unk>.
Based on our strong visibility, we our projections projecting 2023 organic growth of 5% at the midpoint, which is supported by a backlog of $12 $3 billion and waste you over three times revenue coverage. Furthermore, over 90% of 2023 revenue is expected to come from.
Existing contracts.
Surely re competes are expected to comprise only 2% of revenue I would also like to note that our top 10 programs have close to four five years of future revenue already under contract.
Also as you can see on the lower half of the slide our organic growth acquisitions and mergers have substantially improved our diversification of our business for example.
Contract perspective, there is only one task order that had over 8% of revenue and is under contract through 2026 <unk>.
<unk> is also equally balanced between cost plus and fixed price contracts, which helps hedge against inflation with an ability to improve margins over time.
From a client perspective, our diversification provides opportunity for further organic growth, but also helps mitigate potential future budgetary dynamics that might impact client spending.
Finally, as we have stated previously our geographic footprint continues to expand as a result of both the merger and our deliberate campaign based approach to growth.
Let us move to slide seven to discuss our strategic framework.
Our market is rapidly transforming as a digital and physical aspects of our clients' missions converge. This transformation is creating a significant opportunity for <unk> to differentiate and deliver growth.
<unk> strategy is to be a leader in the operational segment of the broader federal services market.
Abiding converged solutions, they have fused the digital and physical environments and help our clients increase efficiency reduce cost improve readiness and strengthen national security.
This strategy centers on four four elements, which consist of expand the base.
Capture new markets deliver with excellence and enhanced culture.
With regard to the first component expand debase this effort focusing on enhancing our business by strengthening our methods to deliver higher value high impact services growing our foundation and our core capabilities across submission lifestyle.
Specific actions included the expansion of scope on existing business execution of our solution sell through model and client engagement initiatives.
Moving to capture new markets. This effort focuses on introducing new clients new capabilities, new products or solutions and also prioritizes international client expansion and targeted growth campaigns.
Deliver with excellence component of our strategy focuses on standardizing improving and automating our core operational capabilities to enterprise systems excellence as well as technology insertion and enablement. For example, we are leveraging our enhanced scale and footprint to further enable global supply chain.
And of course service.
This is expected to drive efficiencies to both external clients and our core internal operations finally.
Enhanced culture aspects of our strategy is an essential component to our growth and business our company wide initiatives as part of enhancing culture include.
Building communities of engagement.
Maximizing retention leadership development.
Environmental social and governance leadership please.
Please turn to slide eight.
Over the past several years, we have worked hard to make bto accident employer of choice.
And develop a culture of ESG leadership.
The top of the slide you can see some of the many accolades earned by V to X, which includes being a leading employer veteran and veteran spouses are like I pointed out today that more than 42%. Our U S employees report as military background, which is something we are extraordinarily proud of.
Diversity equity and inclusion has been a foundational element of our business and one that we have continued to invest in this focus has positive results across the business and in our culture.
Some recent notable items related to our <unk> initiative at <unk> include the publication of our inaugural D. Eni annual report in 2022.
Additionally November 2022, the DNI Executive Council hosted over 150, DTE electric women leaders in the middle East for a professional and personal development networking events.
These leaders are contributing everyday to the success of <unk> and <unk>.
Allowing us to achieve even greater performance.
Do you think all of our team for their continued focus on improving E S and G leadership across the company.
Please turn to slide nine.
We are well underway and leveraging our capabilities to drive growth in support of the expand the base and capture new markets dimension of our strategy.
We entered 2023 with three core business areas to provide multiple service offerings and solutions. We also entered the year executing ourselves too.
And sell through organic growth model. This.
This model is designed to serve as a force multiplier for each of our business areas.
For example, our advanced technology business is continuing to serve its current client, but is now being sold through our aerospace solutions and global mission training and sustained with clients.
This approach will leverage our highly technical development integration production and modern modernization capabilities and over 500, most multi disciplined engineers that will allow <unk> to continue differentiating in the market.
And adding more value to our clients.
The harnessing of capability is also being applied in a campaign strategy for new clients. We are already seeing early success from this approach and during the quarter. We were awarded a small but important task order with a new client that our aerospace team had been working to engage for many years.
As V to X, we are now able to demonstrate the full magnitude of our production and engineering capabilities.
And how that would further build on our aviation maintenance repair and overhaul solutions.
The combination of our solutions answered the call of our clients and we believe will yield global growth over the next several years, our combined set of capabilities are allowing <unk> to access expanding and higher margin markets not historically available to the legacy companies.
Market demand and growth is being driven by our client's priorities and needs to maintain readiness improved performance increased service life lower cost and enable connectivity across our digital and physical environments for all domains of their operations.
Based on assessment of this market, we see an addressable market opportunity of approximately $160 billion.
<unk> is purpose built to lead in this market and was approximately 2% market share and the opportunity for future growth now I would like to turn the call over to our Chief Financial Officer, Susan Lynch lens to discuss our fourth quarter and full year results Susan.
Thanks, Chuck and good afternoon, everyone.
The results, we will be discussing today reflect the contributions of Vectren from January one 2022 through December 31, 2022, and vertex from July 5th the close date.
December 31, 2022, unless otherwise noted.
Please turn to slide 10.
Our fourth quarter financial results were strong and provides solid momentum for <unk> as we move forward into 2023.
Fourth quarter, 2022 revenue with $978 $2 million, representing a 20% pro forma increase year over year, when compared to revenue of $816 $3 million.
Revenue growth was attributed to continued expansion in endo pay column volume associated with Logcap, five and rapid response efforts in Europe , and new programs, including important bidding.
Advanced helicopter training system Navy test swing Atlantic and global strike programs.
As Chuck discussed above we are pleased with the portfolio diversification that the merger has created our client capability contract and geographic concentrations are more balanced when compared to legacy Vectren.
For example, our revenue with the army and the fourth quarter now makes up 39% of total revenue compared to 63% for legacy Vectren last share.
Our revenue with the Air Force now makes up 17% of revenue compared to 14% last year and revenue from Navy now comprises 31% of total revenue compared to 14% last year.
Finally, our revenue from civilian and other clients and putting in the intelligence community.
So the drug enforcement agency.
Royal Navy and commercial comprises 13% of revenue.
<unk> to 9% last year.
From a contract mix perspective, our portfolio is now much more balanced as well with approximately 50% of revenue from cost plus contracts and 50% coming from fixed price and time and materials contracts.
This contract mix balance allows the V to X to mitigate the impacts of inflation, while crane opportunities to improve margins over time.
For example, our cost plus contracts, we are paid or incurred cost plus a profit which can be fixed or variable depending on the contracts fee arrangement. It's important to note that on cost plus contracts, we do not bear the risk of unexpected cost overruns.
On our fixed price and time and materials contracts, we have not experienced broad based increases due to inflation in our cost that are material to the business as a whole.
Additionally, the risk of labor related inflationary pressures on fixed price contracts are largely mitigated by the terms of collective bargaining agreements with labor unions.
The contracts are subject to and customers are bound by.
Furthermore, most of our contracts the cost of materials associated with the program are included on cost Reimbursable line items on the contracts we have.
Continuing to monitor the impact of rising costs on our active and future government contract, but currently do not see a material impact to the business.
Operating income was $31 million, including merger and integration related costs of $23 4 million and amortization of acquired intangible assets of $20 $1 million adjusted.
Adjusted EBITDA was $79 $3 million or eight 1%.
And EBITDA was higher than expected driven by our team's focus on program execution efficient operations management and the acceleration of program productivity that was previously expected in 2023.
Interest expense for the quarter was $31 million cash interest expense was $27 $1 million.
Adjusted diluted EPS, which adds back merger integration and amortization of acquired intangible assets and debt issuance costs with 92 cents.
Diluted shares outstanding were 31 3 million shares.
Turn now to slide 11.
Full year revenue was $2.891 billion compared to 1.7 to eight $4 billion in 2021.
On a pro forma basis full year 2022 revenue was $3 $67 billion up eight 8% from 3.3 dollars $72 billion last year.
Revenue growth was driven primarily by new contract wins.
This expansion and phase in of New Awards.
Full year, adjusted EBITDA was $201 million with a margin of 7%.
Pro forma full year, adjusted EBITDA was $278 million with a seven 6% margin adjust.
Adjusted diluted EPS for 2022 with $4 60 sets.
Turning now to slide 12.
Following the merger, we posted adjusted operating cash flow of $125 million for the second half of the year.
This excludes $51 million of merger and integration related payments.
Pro forma adjusted operating cash flow for the year with $85 $8 million and excludes $62 million of merger and integration related payments and an 8 million dollar cares Act repayment.
Our ability to generate strong cash flow and low capital expenditures is an important attribute of our business and we plan to continue.
Lastly, managing cash collections and improving working capital.
Our performance during the year enabled the company to lower its net debt position by $87 million since the merger close.
During the fourth quarter, the company repaid $25 million of its second lien term loan as part of efforts to continue reducing interest expense.
Net debt at the end of the year was one point to two $1 billion.
We have been able to reduce our net debt leverage ratio from four times at close to three seven times as of December 31.
Cash at year end was $116 $1 million.
A company wide emphasis to deleveraging the company's balance sheet remains our.
Our operations contracts and finance teams make contract billings and collection a priority and we are focused on the continuous improvement of our enterprise cash management processes.
Turning now to slide 13.
Safe to announce that just this week <unk> successfully refinanced portions of its debt into a more efficient lower cost pro rata credit facility, which is expected to generate significant value for our shareholders, while improving our overall capital structure.
This was a major achievement and a testament to our strong fundamentals.
Ability and methodical approach to balance sheet management.
Importantly, we expect to generate annual interest expense savings of $8 million or greater per year. This facility refinanced our second an incremental first lien term loans into a new 250 million dollar term loan a and cash flow revolver with notably lower interest rates and then.
Ability to further step down pricing and reduce rates, depending upon leverage ratio.
As part of the refinancing the company was also able to increase the size of its revolver to $500 million from $200 million previously, which further enhances our balance sheet flexibility and liquidity.
Debt reduction remains a primary goal for our management team and we have a clear path to rapidly reduce the company's debt supported by a robust backlog long term contracts limited recompete risk and solid revenue visibility.
Our midterm net leverage ratio of two to three times remains unchanged.
In summary, this improved facility is an excellent outcome and step forward for <unk> and exemplifies the confidence that our banking partners have in the company and its leadership team.
Please turn now to slide 14.
Guidance for 2023 is as follows.
Revenue is expected to be 3.8 to $3 $9 billion, representing 5% organic growth at the midpoint importantly.
Importantly, our guidance at the midpoint assumes over 90% of revenue comes from existing contracts and only 2% comes from Recompete contracts.
Furthermore, our revenue guidance range contemplates the extended timeline that we have witnessed in contract award activity.
Adjusted EBITDA is estimated at $290 million to $310 million, representing 8% growth at the midpoint.
Adjusted diluted earnings per share guidance is $3 80 to $4 30.
EPS for the year it takes into account the current interest rate environment, which could continue to fluctuate at this time, we are forecasting cash interest expense of approximately $123 million in 2023.
Interest expense for the year is estimated at approximately $153 million and includes $21 million associated with the extinguishment of debt financing costs from the prior facility.
We expect adjusted net cash provided by operating activities to be $115 million to $135 million.
Capital expenditures for the year are estimated at approximately $28 million, reflecting investments and integration activities.
Normalized capital expenditures are still expected to be approximately $20 million.
I'd like to now turn the call back over to Chuck.
Thank you Susan we are proud of the progress we've made in <unk> so far.
To be excited about the path in front of us.
Now I'd like to turn the call open to questions operator.
We will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone please pick up your handset before pressing the keys.
Is it any time your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
The first question today comes from Tobey Sommer with Suntrust.
Suntrust. Please go ahead.
Sure.
A decent number of months away from the closing of the merger what what's your sense now for where the firm is in terms of.
Teaching the employees internally about the capabilities and the portfolio of services that can provide customers and then maybe how would you juxtapose that with.
Where you are in the process of teaching your customers all that you can do.
Maybe how are you thanks for the question.
I couldnt be more thrilled really with the way that our employees.
Our working not only within their program team, but across program teams with RFA health organizations to adapt to new ways.
Doing things new technologies.
So many of those technologies when you were with us in Indianapolis I know, but it's it's really encouraging to see.
The enthusiasm our people have around these new capabilities.
Before last I actually spent the entire weekend and opaque.
Talking to many of our clients and our clients fully understand.
The graph and the important addition of all of these capabilities to the portfolio.
It helps us both from a contingency requirement perspective.
But it also helps us in terms of.
And our scale perspective.
Our clients are looking to it.
Increased their op tempo, if you will in regions that are as broad and as vas that endo pay com as an example.
And then.
Could you maybe expand a little bit in on the.
Arctic Sustainment.
You did provide some detail in your prepared remarks, but I was wondering.
What could this mean for the income statement over the next the next few years not asking for any kind of.
Specific number for this year, but as that ramps up in and you become more active how consequential could it be.
It actually could be quite consequential.
The Thule contract, which as you know we've had in the portfolio for several years now was revived in such a way.
That we bid in a very.
<unk>.
Strategic joint venture.
With a couple of local companies and the net result was a contract that has a substantially higher ceiling value as I mentioned, there was the almost $4 billion and ceiling and what that will allow us to do.
As that base is reset from an infrastructure perspective over the coming years.
We will have an opportunity through that contract and the contract ceiling to.
To provide new and different types of services with.
With our joint venture partners.
That we believe.
Can provide substantial opportunity for us over in fact, the 12 year life of the contract. So we are again, we're thrilled to have <unk>.
And then re awarded the contract we mentioned it is.
Still under protest.
But we are we like where we stand with our with our current joint venture partners.
And then last question for me and I'll get back in the queue.
The we have a nice budget for this fiscal year, but there is a lot of.
Uh huh.
Lively debate in Washington about future trends et cetera, what kind of assumptions you have in your guidance for what happens with the fiscal 'twenty four as we work our way to the end of the year.
Yes, we still have in our guidance.
Sumption of gas slowing New awards, if you work if you will.
But he also indicated such a large percentage of our revenue is currently within our backlog.
That gives us a lot of confidence in the.
And the guidance that we have set as.
As we move into the year it will be interesting to see how the increased op tempo in place of like getting they'll pay com as an example.
Really begin to turn into.
End of 'twenty, three and 'twenty four revenue opportunities.
But time will tell how we're going to continue to work with our clients and have every day every week every month on that very point.
Thank you.
Thank you Tobey.
The next question comes from Bert <unk> with Stifel. Please go ahead.
Hey, good afternoon, and I appreciate the time.
Hi, Bert.
Hey, Chuck.
Maybe just a follow up to that question more broadly your sales guidance in 'twenty three assumed what would seem like.
Pretty conservative growth level, considering you have a couple of larger contracts that are in the process of annualizing.
And you'll likely have continued growth in MRO and across the Pacific.
Do you contemplate the talisman exercises in this guidance or is that sort of a zero right now and what do you think is required to get you maybe to or above that high end on the sales side.
Yeah, I think the exercises and opaque.
As they normally do really materialize kind of mid summer the late summer early.
Early fall.
We do have anticipated activity around the exercises.
We're not going to know yet for a couple of months the kind of the exact scope and scale of those exercises.
I will tell you that we do have in our business.
Of natural erosion that occurred predominantly.
In our in our aerospace aviation business.
It's fully contemplated within our guidance.
But we're really balancing that known erosion with really the continued slowness of new awards as well as we do again have a good understanding of the outcome <unk> associated with the exercises.
But in the abundance of caution we're going to wait to see how that materializes here and we get closer to the middle of 2023.
Maybe just a follow up to your point there you know what what are some of those headwinds on the aerospace side can you give us just an update on what youre seeing on general military MRO trends.
Well you know as as is normally the case in aerospace engineering. There are particular airframe that are retired over time.
Again that is fully contemplated within our guidance I wouldn't overstate that.
But I would say in our industry as you've heard from other <unk>.
Competitors in the industry as well.
These new awards have been particularly through and actually turn into.
Submitted awards again, we feel very comfortable.
With the op tempo associated with our exercises.
Which again gives us a great deal of comfort with our guidance.
Yes, but we really need to see new awards, particularly can be awarded.
More at a more kind of a historical rate and pace if you will.
Which has now been flowed for really three maybe four quarters.
Yeah, I guess I meant more on the just specifically like the military MRO side I understand that's maybe more.
And more reliant on some new activity there, but if the demand pretty robust I mean, that's a pretty consolidated end market in it.
The demand the demand that we're seeing and we didn't we didn't talk about it.
In the prepared remarks.
Total pipeline within the next year now $14 $2 billion.
So we have we are very very comfortable with the amount of new and important things coming into our pipeline.
We continue to see slowness of awards.
We have bid submitted of slightly more than $2 billion right now so.
So we have a we have a very very healthy bid submitted.
Grupo contracts our pipeline, we continue to feel very strong about the pipeline, we talked about our addressable market being as high as $160 billion.
We can see the continued convergence of both the physical and digital infrastructure that we support.
We couldn't be more bullish on.
On the marketplace that we are right in the middle up here, but the reality is.
That the rate and pace of the New awards are a little slower than we would like and we need to see those awards live and up here a bit.
But again the the exercises that we have wind up in Endo pay come again give us a great deal of confidence in terms of the other.
The guidance that we've provided today.
Okay. Thanks, I just have one follow up for for Susan do you guys contemplate section 174 in your guidance in 'twenty three is that having an impact and what's your general assumption about working capital I'm. Just wondering if that's a material headwind as we head into this year.
Yeah. So yeah, we did contemplate section 174 in our guidance you know, it's a little bit more than $4 million, you know I would use a $4 million to $5 million.
I have it in your estimates and.
Working capital we expect.
As we grow to maybe be a slight use of working capital.
But nothing material.
Thanks for the time.
You bet. Thank you I appreciate it.
The next question comes from Brian .
<unk> with Raymond James.
Go ahead.
Yeah, Good evening and thanks for taking my questions I'm wondering if you could just expand on the pipeline. It sounds like there's a lot of opportunities out there you've got 2 billion bid submitted.
It sounded like another 12 billion on top of that.
But there are a little bit slower to matriculate can you maybe talk about how you think that rhythm will change as customers want to spend before the budget uncertainty at the end of the year.
And then maybe some of the areas you're most excited about within that pipeline.
Sure. We can say, we continue to see a very healthy aerospace pipeline.
Last year I think you remember we were awarded naval test when Atlantic.
In our pipeline for this year Naval Test wing Pacific again, we feel we feel.
Very good about our offering there and I will also tell you that the significant number.
Full and open bids in Indo pay com. Many of them are Navy now in places like Diego Garcia, Singapore, Guam, and a few other places.
We see an emerging pipeline in Indo pay com that are complementary to our Indo Pacific.
Foot print in Logcap.
Those are two areas, specifically, where we're very bullish.
I'll also say that we have an emerging.
Advanced technology business with.
You know 1000, plus engineers 500 specialty engineers, where we really like the pipeline that's emerging.
Behind our advanced technology business.
And both Susan indicated in her remarks and myself in my prepared remarks.
The the balance that we have now as the business.
Both from a contract type perspective from a capability perspective from a geographic perspective is really astonishing compared to just a year ago.
That's really helpful. Thank you.
We think about your 5% organic guide for the year.
In the amount of visibility you have and particularly some of those first half kind of tailwind that you have with some of the wins you had in the second half of last year.
How should we think about the way you've contemplated the organic growth rhythm throughout the year. It seems like it would be a little bit front end loaded organic growth wise and then you're just giving yourself some room for contracts to matriculate in the second half is that a fair way to think about it.
We do like our momentum, but as you know from following the business for a while now.
We really do have this kind of 60, 40% first half 60%.
Second half that really remains.
Kind of a characteristic of our business. So while yes, we do have momentum.
We may particularly on the revenue side see a bit more than 40% this year, but I would stick with that 40 60 characteristic that has.
That has been with the business now for several years.
Fantastic and then last one before I jump into queue I I think I understood you talked about generating roughly $100 billion of free cash.
Can you just prioritize the use of that capital and where we might think net leverage might be at the end of the year. Thank you.
Right. So were kind of targeting about three six times by the end of the year and then you know.
Getting lower in 2024 in our midterm target is to get between two and three times.
And as you saw us pay down the second lien and then use some cash here in the first quarter.
To restructure that debt into a lower cost of capital. So we're doing as much as we can as fast as we can to pay down the debt.
And I'd like to say, we're very happy with the new structure in all the banks that supported us and refinancing our debt.
Yeah.
Great. Thanks, so much.
You bet.
The next question comes from Ken Herbert with RBC Capital. Please go ahead.
Yeah.
Yes, hi, good afternoon.
Hey, Chuck I, just wanted to start off when you think about into pay common and the growth you saw through 'twenty three does the guidance assume sort.
Sort of as a run rate on this low <unk> on a quarterly basis for 'twenty three or is there growth off sort of where we're exiting 'twenty two implied into pay com as part of your outlook for 'twenty three.
Yeah, I would say that for the first of all Ken How're you doing.
Yes, I would say that we're going to see a modest increase in endo pay com throughout 'twenty three.
I've indicated we really like our Indo pay com pipeline here for the next 18 months.
So I continue to see for the next couple of years, and then they'll pay com being a driver of growth for us.
It was out there the week before last I guess it was now.
And the.
The opportunities.
Our real the opportunities are emerging and we're going to continue to invest in different ways to make sure that.
We are pre position in the areas.
That are most closely aligned to where our clients needs are going to be.
That's very helpful. Thank you.
And as I think about your comment on sort of the 40%, 60% is that the right framework as well as we think about the.
The adjusted EBITDA in 'twenty, three or do you, maybe even see a little bit more of a pronounced <unk>.
I can have ramp on the EBIT side.
My I would I would start with the I would start with the 40 60, maybe a little bit more pronounced where you could be like it in the 38 ish or something but the.
A 40 60 has been a good a good guide still in force in recent years and.
And then and Mike will continue to stay focused on.
What that exact mix that exact mix will be.
Okay, well, that's great and just one final question.
As we just to follow up on some of your comments on <unk>.
24 defense budget outlook.
Sort of a path between.
The request and when it gets put in place at the end of the year does the guidance assume.
Sort of a structured maybe three months CR.
And at the end of calendar 'twenty three for fiscal 'twenty, four or how would you specifically sort of thought about risk around timing of.
Appropriation of the fiscal 'twenty for budget.
Well as we indicated in our prepared remarks, I mean, we have such a high coverage of.
Our 2023 revenue based upon contract we already have in hand.
And 0.2 as you know we are so heavily focused on.
Alignment to the O&M budget.
We really didn't have a significant.
Impact from any delays in the budgetary processes this year.
We'll say however, getting back to my earlier.
Questions and answers to the questions I should say that that does impact actual new awards right. So we're fortunate and blessed to have the coverage.
90% revenue coverage this year 2020, 2020 'twenty three.
But again that really is a that really is a a twenty-three comment and we're going to have to look at closely as we move into 'twenty four.
Great Alright, Thanks, Chuck I really nice end of the year.
Thank you appreciate it.
As a reminder, if you would like to ask a question. Please press star one to enter the question queue.
The next question comes from Joe Gomes with Noble capital. Please go ahead.
Good afternoon, thanks for taking the questions.
Hey, Joe.
So.
Chuck you mentioned.
The growth.
What are some of the strong growth was both from.
Our contract growth and some phasing in our new contracts I Wonder if you could kind of give us a weighting as to you know.
How much of the growth was from an on contract or existing ones and how much was from new New awards.
Well as we have indicated in the prepared remarks that mean that the <unk>.
20% growth, we talked about it in the fourth quarter. So you didn't brand through the litany of new contracts. So we <unk>.
We benefited greatly from new contract wins throughout 2022.
And I'll tell you say naval test with Atlantica is an example, I was probably I don't know six weeks ago now was down talking to the client and the bank.
The accolades that we received from the ability to seamlessly transition that new contract again was what was very very heartening.
So our teams continue to distinguish themselves from the field by their great program performance.
Theyre seamless seamless transitioning of new one contracts.
So again, the organic growth engine continues to work very well.
For our business and we continue.
To expect good things from our organic growth.
Teens here as we move into 2023 and beyond.
Okay. Thank you for that.
You mentioned it.
Remarks about 62% growth.
For the Pacific parents initiative.
Just looking at your Little chart, there thats over $4 billion increase of.
That how much of that.
It would be applicable to.
<unk> and the services that you guys provide.
Well the the Pacific Deterrent initiative is a broad set of initiatives that are operated.
You know by the Indo PK and opaque.
Combatant commander in theater of operations I would look at that as any time, where you have Trump op tempo involved.
In the Pacific deterrent in PDI, that's opportunity for us that is increased number of exercises its increased number of troop movements.
It's a request to store and move pre positioned stocks would be a great example.
We have some work right now going into Australia associated with the with the PDI in preparation for future activities.
So just like much else that we talked about in our business Joe.
You really need to take a look at the broader Dod.
Initiatives and how those initiatives are turned into op tempo.
Wherever you see op tempo materializing, you typically see you see <unk> in the wings.
Enabling all of that.
Troop movement.
Material movement et cetera.
Okay. Thank you for that and just what you mean.
Mentioned on a number of occasions about the most.
The slow pace of awards.
Trying to get your feeling as to you know what what is kind of behind that what happens needs to happen in Europe pinyon.
Wanted to see that pace start to pick up to a more normalized level or rate of a run rate of awards out there.
I'd be speculating, but it but it really is.
Our clients are overwhelmed with many many many things that they have to move through the acquisition cycle.
And I just think that.
The rate and pace of.
The various acquisitions has slowed based upon that reality.
We again, we heard about the.
About the Arctic situation here recently, we heard about the.
About the clear program. So we are seeing some movement.
But again, it's it's just one of those things that occurs from time to time on our industry and our clients the rate and pace of their awards just needs too.
In to kind of catch up if you will with the Rfps and that's the cycle that we're in right now.
Okay. Thank you for the congrats on the quarter.
Appreciate it good to talk to you.
This concludes our question and answer session I would like to turn the conference back over to Chuck Prow for any closing remarks.
Thank you very much and thanks to all for joining US today, we look forward to reporting back to you at the end of the next quarter and.
Hopefully with another equally good result will talk to everybody soon thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
[music].