Q2 2020 Earnings Call

Please go ahead Sir.

Good afternoon, my name machine can et cetera, and I see I see as vice President of Investor Relations and thank you for joining our second quarter fiscal year 2020 earnings call.

Joining me today to discuss our business and financial results are not keen FDIC is chief Executive Officer, Charlie Mathis, Our Chief Financial Officer, and other members of our management team.

This afternoon, we issued our earnings release, which we found that investors that FDIC Dot Com, where you also find supplemental financial presentation slides to be utilized in conjunction with todays call.

Both of these documents in addition to our Form 10-Q to be filed soon should be utilized in evaluating our results and outlook along with information provided on todays call.

Please note that we may make forward looking statements on today's call that are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from statements made on this call.

I refer you to our SEC filings for a discussion of these risks, including the risk factor section of our annual report on Form 10-K , and quarterly reports on Form 10-Q .

In addition, the statements represent our views as of today and subsequent events may cause our views to change we may elect to update the forward looking statements at some point in the future, but we specifically disclaim any obligation to do so.

In addition, we will discuss non-GAAP financial measures and other metrics, which we believe provide useful information for investors in both our press release and supplemental financial presentation slides include reconciliations to the most comparable GAAP measures. It is now my pleasure to introduce our CEO Nazak Keane.

Thank you Shane and good afternoon, FDIC took another positive step forward in the second quarter of fiscal 2020, keeping our attention on operational performance progressing on the integration of utility acquisition and delivering strong financial and business development results.

While Charlie will discuss the financial results in greater detail, our second quarter reflects strength in a contract portfolio that is aligned to key areas of our market with strong profitability and free cash flow generation.

The second quarter delivered revenues of $1.6 billion in line with our expectations and equating to a 43% total revenue growth from the prior year quarter strong adjusted EBITDA margins were 8.4% for the second quarter up 90 basis points from last year.

The cash generation profile of the company continues to be compelling with second quarter and first half cash flow, providing continued confidence in our full year target and enabling capital deployment for shareholder value creation.

Net bookings for the quarter were approximately $1.9 billion, excluding about $400 million of single award IDI Q vehicles translate into a quarterly book to Bill of 1.2.

On a pro forma basis FDIC is trailing 12 month book to Bill is 1.1.

During the quarter FDIC was awarded contracts and task orders valued at over $1 billion of Recompete and new business from Us National Security and intelligence customers.

These awards also demonstrate the intersection of two areas of significant opportunities for growth space and it modernization.

It is very exciting to see the continuing buildup momentum as a stronger FDIC goes to market with these important customers.

Additionally, FDIC was awarded a recompete contract valued at $117 million from NASA to continue providing a variety of IP services to support the National Center for critical information processing and storage.

Also in the Recompete category was 93 million dollar contract award from the US Navy to support electronic warfare activities.

Awarded during the quarter, but not immediately contribute to bookings was a new business award of $106 million single Award IDIQ contract with the Defense Intelligence agency to provide media management and analysis efforts across the science and technology Directorate.

FDIC continues to operate in a favorable market environment in the closing months of government fiscal year 19, and looking forward into fiscal 20.

As appropriations are enacted we do not expect significant shifts in budget priorities and FDIC is well aligned in areas of national importance and funding such as space related commissions, it modernization and readiness among others.

Although a few customers have expressed concerns around facing that potential continuing resolution to start the government fiscal year for now proposal activity remains strong as demonstrated in the momentum we see in our business development activities.

Customer demand and our pipeline of qualified pursuit is expanding although we have also seen delays in some contract awards due to protest or new business that has not materialized.

At the end of the second quarter FDIC is total contract backlog stood at approximately $13.9 billion up about 3% from the first quarter funded backlog was approximately $2.6 billion.

The estimated value of FDIC submitted proposals awaiting award is $13.4 billion up from the end of the first quarter.

Approximately 75% of submitted proposals are for new business, an indicator of a favorable market environment, our low level of Recompetes this fiscal year and the potential for FDIC to accelerate growth over time.

Before turning the call over to Charlie I would like to provide you an update on the integration of agility.

As I mentioned in our June call. We have successfully achieved all of the year, one cost synergies and are on track to realize year to synergy targets next year.

In fact, we recently achieved another critical milestone the successful integration of many business systems, which is key to achieving our year to cost synergies. This is a significant achievement in the integration process and I believe one of the earliest acquisition related systems integrations in our space.

I want to personally thank the team for their tremendous effort and success in achieving this important milestone.

Through the end of the year, we will focus on two additional integration milestones harmonizing employee benefits and rationalizing our facility footprint.

We have more work ahead of us, but I'm very proud of the newly combined team and what we've accomplished so far.

Charlie over to you for our financial results.

Thank you Nick.

Our second quarter revenues of approximately $1.6 billion reflect total revenue growth of 43%, which were due to revenues associated with the agility acquisition.

Organic revenue, therefore was flat year over year, although adjusting for about $30 million of revenue dis synergies in the quarter organic revenue growth increased approximately 2%.

As a reminder, we have previously communicated an approximate $100 million of revenue dis synergies for the full fiscal year due to elimination of prime sub revenue lower revenue on cost plus contracts due to cost synergy achievement and other factors.

Second quarter adjusted EBITDA margins were again strong at 8.4% as a percentage of revenues up 90 basis points from the prior year.

Second quarter, adjusted EBITDA was $134 million, a $50 million increase from the prior year.

Adjusted EBITDA excludes $6 million of integration related cost in the quarter.

Second quarter margins similar to our first quarter was due to strong program performance and the favorable effect of accelerating our net cost synergies.

Net income for the second quarter was $57 million and excluding $6 million of integration costs as well as amortization of intangibles.

Our adjusted diluted earnings per share was $1.35 for the second quarter, an increase of 11% from the prior year quarter.

In addition, the year to date adjusted EPS accretion is also 11%.

Diluted earnings per share was 96 cents inclusive of the $6 million of integration cost I just mentioned.

The effective tax rate for the quarter was approximately 23% consistent with our previously communicated and reaffirmed today expected full year rate of 22% to 24% with a cash tax rate also unchanged at 13% to 15% benefited by the tax assets acquired from agility.

Second quarter operating cash flow and free cash flow, we're in a very strong $95 million and $90 million, respectively. Due to excellent cash collections and reduce working capital historically, our second quarter cash flow is the seasonally lowest cash generation quarter of the year due to an additional payroll cycle as compared to the other three quarters and two income tax payments I am very pleased with the free cash flow generation, we have achieved since the close of the acquisition.

Free cash flow for the quarter as $114 million increase from last year and on a year to date basis has increased approximately $200 million over the first half of last year. In addition, we have achieved approximately 60% of our full year target to date.

Day sales outstanding at the end of the quarter were 59 days.

During the second quarter, we deployed $156 million of capital consisting of $133 million to repurchase approximately 1.6 million shares $21 million in dividends and $2 million of mandatory debt repayment.

With regards to share repurchases, we announced in early July $100 million negotiated buyback from one of our private equity shareholders KKR that repurchased approximately 1.2 million shares from them directly at a discount to the previous day's closing price.

We believe this acceleration of our capital deployment plan in fiscal year 2020 is in the best interest of long term shareholders. We will continue to be thoughtful and disciplined with regards to the deployment of capital for shareholder value creation.

I should note that our board of directors will meet in mid September and will consider capital deployment opportunities going forward, including our next quarterly dividend that is typically payable to shareholders on October .

Now turning to our forward outlook, we exceeded our expectation for revenue in the first half of the year, but we are cautious about our revenue increase in our second half as gnostic mentioned, our outlook and impacted by the potential for a continuing resolution.

EWP business and has been protested or has not materialized and higher revenue dis synergies.

Partially due to accelerated cost synergy achievement, we expect second half revenues to be consistent with our first half revenues of $3.2 billion. This revenue outlook for the year does not impact our longer term outlook as contract award opportunities and business momentum is building.

Im very pleased with the strong margin and cash flow performance in the first half of the year, which gives us confidence in our full year outlook.

As far as margins our full year adjusted EBITDA margin is expected to increase about 80 basis points from the prior year Standalone FDIC adjusted EBITDA margin of 7.5%.

Which is at the middle to upper end of our previously communicated expectations.

Our more favorable outlook on margins is due to our first half performance better than expected cost synergy achievement and continued focus on operational and program performance.

Our free cash flow target remains at $425 million for the fiscal year.

With our strong first half collections working capital improvements and continued focus on achieving additional balance sheet synergies. We're confident we can meet or exceed this goal for the year.

Now back to you for concluding comments, thanks, Charlie I am very excited to have officially become the chief Executive officer at the beginning of August .

With our new scale and reach FDIC has the opportunity to be a stronger partner for our customers with an expansive portfolio of solutions.

We also have a deeper bench of talent and expertise in our company, which allows us to create a differentiated experience for our employees with broader career development options.

With these new opportunities the leadership team and I are taking a fresh look at our long term business strategy initiatives to execute on that plan and the key performance indicators to gauge success.

As we refresh our long term strategy to shape. Our priorities. There are three areas that have my immediate attention. The successful integration of agility driving profitable revenue growth and winning our war for talent.

As you know these three items are not mutually exclusive in the government services space. Our success will be enabled by our talented employees, who are inspired by purpose and are driven to grow our company by bringing innovative solutions to solve our customers' toughest mission challenges.

We have recently announced some leadership changes that reflect this intensified focus on our employees.

We welcome two new board members to FDIC, Carol good and Yvette Conniff.

Both Carol and if that are proven strategic leaders, who have established their careers and high tech companies in Silicon Valley and the San Francisco Bay area, they bring diverse perspectives and fresh ideas and we are excited to get their counsel as we shape, our talent and solution strategies.

I look forward to working with these two strong leaders and I am confident they will have an immediate impact on our organization and our ability to deliver business results.

As a newly integrated organization led by a strong leadership team FDIC aims to leverage our new market opportunities and employ the best talent in the industry with a strong foundation, a passionate and skilled team members. We are in a position to change our growth trajectory.

FDIC is focused on three tenants for success.

Inspire employees accomplished customer missions and reward shareholders.

Operator, we're now ready to take questions.

Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad.

If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.

Again press Star one ask a question.

Well pause for just a moment tonight, everyone an opportunity to signal for questions.

And well go first to Edward Caso with Wells Fargo.

Hi, good evening.

Hoping that you have a positive answer to this question just curious how your operations are doing down in Charleston, South Carolina, given the Asadorian hurricane.

Yes at this point that high Ed it's not that at this point, we close the facility and that is certainly one of the support all the employees being able to get to that they can play.

I have not heard of any any catastrophic issues at this point, but it's something we pay tremendous attention to up and down the east coast over the course. These last few days. We appreciate you asking it is very important to us.

Great and one and different question.

What.

Bookings do you have or what awards do you have that are still in protest or how big is that number.

Thats, one thats still in protest.

As we have.

All in about $1 billion still in protest.

Thank you.

Thanks, Ed.

And we'll go next to Jon Raviv with Citi.

Hey, guys. Thank you.

On the sales outlook for the year, you just give us a little more detail Ron will essentially what's going on you mentioned, a few things driving that revised outlook for the year.

You know kind of what new business is not materializing as she stuff is it then Jody stuff is it integrated opportunity stuff.

Is it mostly timing or it slips to the things that you expected to win that you lost like just give us some more sense of why it looks like you're going to finish the year below the sales target you identified on the last call.

Yes, Thanks, Jonathan Let me, let me just clarify again and give some additional color on that so.

We expect revenues to be consistent with the first half of $3.2 billion.

We're cautious in increasing the revenue outlook for the second half and the factors. There are three the first of which is we're anticipating higher revenue dis synergies for the full year, partially related to our success and accelerating that cost synergies.

We're expecting revenue dis synergies of $120 million up 20% from our previous expectations.

As you know reducing costs lowers revenue on our cost plus contracts and were approximately 60%.

However, this is a one time impact however at white 20 growth, it's about a 2% headwind.

To the to the revenue growth the $120 million.

But you know with the acceleration of the cost synergies to strengthen our margin outlook for the year and as I mentioned previously we expect an 80 basis point increase from last year's Standalone FDIC and this is to the middle to upper end of the margin range that we previously communicated.

Now the other two factors that are impacting the revenue outlook or items that are not as <expletive> mentioned, which are the protest in new business not materializing and thank here of a particular air force contract that was awarded back in the spring and sculpture, a protest protest cycle and more and continues to go through that and also a few and I'll emphasize the word few customer concerns around another continuing resolution to start a fiscal year. We do see this is a timing issue we do not see this impacting the hope that long term revenue outlook.

The pipeline proposals is very strong we are encouraged by the strength of the company or profitability the $13.5 billion proposals waiting to be awarded of which 75% of these are new business. So we feel confident with the long term outlook there.

Sorry did I Miss the third factor.

The third factor was the pits.

A few and I can't emphasize a few customer concerns around the CR to start the fiscal year.

Okay. Thanks, Thanks, very much for that thorough answer and then just on the free cash flow.

Hey, you mentioned that first half performance, thus far has been quite strong as any timing helping that.

The performance in first half 2000, and then also thinking more towards the approaching 522.

What are some of the drivers of sustainability thereafter, we know that the tax boost in there, but what about things like working capital. Thank you.

Yes, so thanks for that and I can tell you im extremely pleased with the outstanding job that our operations finance teams did to achieve this had been really focus and continued to make progress on the process improvements.

And with the two companies combined.

You know we are getting paid timely we're looking to incorporate some of the best practices from the combination that company.

And so I'm very pleased I know those people are probably listening to this call. So until they get I'm very pleased with our achievement in the first half of the year achieved 60% of the goal.

And.

No we're sticking with the.

The 425 right now.

We do have a systems conversion.

That Jeff was completed this month and although it with incredibly well, we'll wait another quarter to see how the cash collections look for before increasing or outlook our longer term outlook remains intact.

As as we said and.

So yes, we believe that we will get to the $500 million and by year three that we outlined.

Earlier in the year.

Thanks, I'll hop back in the queue.

And we'll go next to Matthew Sharp with Morgan Stanley .

Good afternoon.

I was just wondering if you guys could give us a sense of how the current quarter bookings are shaping up in that it tends to be.

The higher volume period with the end of the government fiscal year at the end of this month.

Yes. This is not that so and so yes, historically Q3 for us is it tends to be higher bookings quarter and.

We're seeing proof point to that as we go into the quarter with the with the activity over the last couple of quarters and getting things into this space. So we feel very confident with our third quarter bookings.

Again, one of the nuances that we navigate is.

Looking at this contract award as well as the single word is we still have many customers that tend to use the global were 90 accuses there their contract vehicle choice.

So yes, we do believe we'll go into the quarter of strong position from a sales perspective, and anticipate a strong quarter.

And then on the Air Force Itas contract, which you just alluded to a few moments ago and then the department of Justice.

Asset forfeiture program do you guys have any color around those programs in terms of when they might be or dissolve their award and I know that they are probably expected last month, or so and they have dragged down a little bit longer than expected.

Yeah.

So the short answer is.

You know, we don't exactly deadwood, when things are going to transpire weeks.

On certainly on the D. J, one could happen anytime and so well continue to look at that as it relates to.

Yes, they are going through their process and so.

So that will probably take another weeks or months at this point on this market.

Got it and then just one last one if I could on the integration of in Chile. It seems as though you guys are at this point in time well ahead of us.

Well ahead of schedule on cost take out or cost synergies.

Are you seeing any opportunity at this point in time to be your initial targets or or or upside to where you thought you might be.

Yes, I totally agree with your your statement on where we sit today. So we're very pleased I am very pleased with where we are.

We just the systems conversion with Dan.

Organization is fully integrated as I've shared with you before and a lot of decisions were made very very early on in our acquisition cycle. So extremely pleased with how the company to come together and we're seeing great proof points in going to market together as well as we look to leverage the capabilities across the entire portfolio to drive a stronger proposal activity and drive.

Incremental growth opportunity as it relates to the cost synergies and yes. We are we are ahead of plan, we're very very happy about that and we'll continue to look at every opportunity. We can to drive additional costs out of the equation that certainly top of mind for assets and then as we do that we also want to balance the need to invest in growth and so we're looking at that and looking at the trade space it exists to to drive.

The profitability that we aspire to drive in that we've communicated as a result of this acquisition, but also look to invest in growth to drive long term long term value creation.

Great. Thanks, I'll get back in the queue.

Well go next to Cai von Rumohr with Cowen and company.

Thanks, so much and great quarter.

Thanks, So could you give us a little more color on.

Revenue guidance normally your third quarter is stronger than your fourth is that kind of a pattern or.

They're going to be something different and how much of the shortfall would you say is.

Angeliki as opposed to heritage I say I see.

Hi, This is Charlie I would just say that.

Really gave us a guidance for quarterly revenue is theyre fairly consistent.

Expectations third and fourth quarter, and we don't breakout the agility right now fully integrated into the company and the.

So we're looking at one company and declines or revenue that goes down is this a C.

When you say revenues consistent third and fourth quarter, you mean third quarter should be close to the fourth or consistent with prior patterns, where the third was better than before I would just say that they're pretty consistent quarter to quarter.

Okay, and then margins in the first quarter, you had 8 million of favorable EA season. You said this is kind of above average normal normal as 4 million how much was it in the second quarter and what's your outlook now for the year for you guys.

It was 4 million EA see favorable adjustments in Q2, and that's the kind of normal run rate that we've seen and we would continue to expect that in the second half of the year.

Terrific and last one on cash flow I'm, a little confused I mean, you talked of strong collections and yet the Dsos were 59 days in the first quarter and you talked of the seasonal pressure of accounts payable, but it doesn't look like excuse me of payroll. It doesn't look like you kind of made any large payroll and it doesnt look like there were two tax payments. So maybe you can kind of.

Explain those items if you would.

Yes so.

The collection is that we had were actually favorable.

From the combined company when you look at combining agility and FDIC. The Dsos were actually pleased with.

The 59 days there.

There was also a reduction in working capital.

For the quarter of.

Managing different aspects of the working capital and inventory that also attributed to.

What was just an exceptional quarter, an exceptional first half and our free cash flow generation.

And.

Yeah. So we're going to have the extra payroll because it doesn't look like it hit this quarter. When it normally does did you have the two tax payments in this quarter.

Yes, yes, we did yes and.

And the additional payroll.

Yes, I believe that that did also hit for the quarter. So.

You know the good news on the tax payments side is that because of their cash tax rate being so low to the angelotti tax assets that we acquired.

Theres less less impact to an additional.

Tax payment in the quarter.

So it's you know I can just say Cai that there is tremendous focus on collecting timely ensuring that we have billings outstanding.

And we get the billings out on time.

And that they are accurate so that the customer pays without disputes and so that were collections are extremely good and there's there's continuous focus on that.

And in a continuing look at the process improvements that we have.

So we're very very pleased with very positive results so far.

Thank you very much and nice quarter.

Okay. Thank you.

And we'll go next to that Sheila Kahyaoglu with Jefferies.

Hi, Thank you good afternoon, just a.

Finally, thank you for sizing the items that are hitting the 150 million impact for revenues. This year I guess, when you think about the protest and that the ladies and the contracts does that you know how do you think about that changing if at all your 3% revenue growth CAGR through 2022, and how should we think about credit accelerating next year.

Yes, so we have confidence in our longer term revenue outlook that we've laid out.

As I mentioned, we have items that are impacting EFT white 20, specifically, namely the $120 million of revenue dis synergies. So again as we look forward and we're encouraged by this strengthened company more profitable company that $13.5 billion of proposals waiting awards, which is up the the amount of the 75% related to new business.

You know so.

We're confident that we can hit.

This long term revenue outlook that has not changed.

And a lot of this protest.

Contract delays being awarded is a timing issue.

So that's not impacting our longer term views.

And then the other thing I would add.

Just to give some color Charlie touched on this but if we look at.

As I look at what's happening in the company around the development pipeline the execution of the pipeline the opportunity to leverage the best.

Both companies to drive revenue synergies and revenue opportunities. We are seeing that as we are seeing those come to fruition to the pipeline and certainly at this juncture.

Maybe in the early stages of submits. So we are seeing some good momentum there and as Charlie mentioned the majority vast majority of what we have is a mistake. Even today is for new business. So as we as we continue to win our fair share of opportunities that are really in the sweet spots for anything I see we have confidence in growth improvement.

Couple of years.

Thanks for that now second I guess just to touch on like you said 13 billion of.

Beds and 75% our new business can you give us an idea of where you are betting and just the tide into margins you know first half margins aren't 8.4% EBITDA. Your target is eight one date for us you're already at the high end. It previously stated second half would be better.

I guess, just anything prohibit you from continuing to expand and expand margins.

Oh, no 70, I'm certainly the different programs have different margin profile and.

And as we have a significant portion of our portfolio on a cost plus structure.

You know that in of itself.

Hi, some guardrails I would say so but as we look at key areas. For example would be the IP monetization that is top of mind for us something that.

I see it sounds that in some cases of those proposals are submitted on a fixed price basis gives us higher confidence in being able to generate greater profitability over the months and years to come.

But we continue to drive sales across the entire portfolio.

But we're very very focused on some key areas that where we are stronger because of the agility acquisition, we've touched on those areas like Spain.

This phase domain, we're seeing good traction and thats across cross from Sidoti across the entire community across the civilian part of the portfolio, where we see great opportunities based on what we know to be the government is uncertain. This administration's priorities and we believe those are enduring so that's a great opportunities to drive growth as we look forward.

Coming out of this year.

Great. Thanks.

Thank you.

And we'll go next to Gavin Parsons with Goldman Sachs.

Hey, good afternoon, everyone.

Oh, just on the customer CR concerns.

Some of your peers have sounded a little bit more optimistic about a two year budget deal I know, we got a little bit of a sense of your exposure to shutdown in specific agencies at the beginning of this year, but.

Would you say that's a more recent development like in the last few weeks or so or is it just that you are inherently more the work that you do is kind of more exposed to or sensitive to a shutdown under a CR.

Hi, This is a great question and again I think as Charlie mentioned, we're not saying this concern across the entire portfolio by any means and we've just heard from a couple of customers that have some interesting work to start that they know they don't believe they can start until this particular items resolved. So it is.

For us it is isolated but it isn't a couple areas that.

Have caused some headwinds as we go into the back half of the year and I'm not hearing anything systemic my sense is it's customer by customer depending on what needs to get done.

Okay great.

And then on book to Bill I appreciate Theres, a somewhat of a different definition versus some of your peers and this may be an oversimplification, but if I strip out the revenue headwinds organic is kind of been zero percent or so for the last 12 months on the trailing 12 month, both funded and total book to Bill has been about one so what kind of book to Bill do we need to see for you to kind of accelerate growth to hit that 3% target or surpass it I mean, what do we need on a funded or a total book to bill to see growth accelerate on a reported basis, rather not stripping out all those one time pieces.

Hey, Kevin it's Charlie.

No I think to a book to Bill.

The way, we currently reported of 1.2.

In that range gets us into that to a low single digit revenue growth.

You know I would to also emphasize that we don't.

Included in the book to Bill The single award IDI cues of which there have been over $3 billion in the last 12 months. So.

We think that the pipeline for business is there in order to hit the longer term.

Outlook that we've given.

And the only the caution I would guess and I know we've talked about this before a book to Bill is an indicator certainly isn't the indicator and so we have to look at what is the stance how much of the Smith, our new business versus Recompete, and obviously taken consideration as Charlie mentioned the differences between single rightly accuse in contract vehicles and the way that we categorize them. So.

Obviously, we've had a tremendous amount of attention to is important but I think looking at bookings in isolation doesn't necessarily tell the story either way quite candidly.

Okay. Thank you.

Well go next to Joseph Denardi with Stifel.

Yeah, Hey, good evening.

Charlie sorry to beat this horse to death, but just on the $150 million how much of that should we just kind of write off and how much should we move into F y 21.

[noise].

So I would to look.

Most of this is a timing issue.

That we've laid out here on on these points the the one on the additional cost synergies is.

Headwinds for this particular year that carry for next year.

And the a and the remaining of those are really delays.

Of awards or that are in protest.

So I could you know I would think that these would.

Obviously flow into next year as revenue stream.

So do you think 50 million goes away in a $100 million shows up next year.

Well this is not like some certainly some sort of an absolute goes away. So if you think about the price that relationship that existed prior to closing the transaction does get pushed through the system and as you know those are gone forever.

Same with it to some extent the same with the impact of the cost take out and when you take the cost out there.

Contract and it also has an impact on revenue so.

I would consider those to be.

You know more isolated event that as we go into next year, certainly beat a matter that will be behind us.

So that's how I would think about it is as you look at the kind of mapping.

Okay, and then just on the customer feedback on concerns around a CR can you talk about which customers specifically that you're hearing that from is it kind of Intel to send that to any any color there.

No I prefer not to do that I will tell you that it's not isolated.

And again, it's not a vast majority of it. It's just a few customers that are hesitant to start anything until you know the the final budget cycle gets back to kind of get through the system. So.

But again its not widespread we're not hearing profitable, but I'd, probably prefer not to attribute it to any particular customer.

Okay. Thank you.

Thank you.

Well go next to Tobey Sommer with Suntrust.

Thanks. This is Josh per bed on for Tobey today, we're hoping you could share how you view the logistics and supply chain business as part of the overall per for low and if you could provide some color on the outlook for that segment that would be great. Thanks.

Yes so.

This is Charlie the logistics and supply chain business has actually been performing very well.

For this year and it's consistent it generates a ton of cash.

It's a.

No. It it's a very stable business very well run.

Although the margins there are lower and it creates about a 40 to 50 basis point headwind.

To our overall portfolio on the margin side, but the economics of the supply chain business is quite.

It is quite well and it's been performing well.

Okay, great. Thank you.

Well go next to Josh Sullivan with Seaport Global.

Hi, good afternoon.

Yeah, Yeah. So I understand here you have some customers you're preparing for it for the CR go but what are your expectations for the CR.

Comes in a full quarter has encompassed and guidance here.

Ah, Yes, so you know obviously.

I, probably know everything you know about that causes a CR or not so we all hope that the process go through them not just at the two year budget cycle comes to come to conclusion.

You know if it doesn't then I would expect that relatively short sea. Our you know get will navigate us as we need to and we don't see it as a significant impact on our business again I touched on the fact that we probably have a couple of contracts that we do have a couple that are that are new work and there had to start until this is resolved, but weve navigated to see our many many times over the course of the last several years and so we don't see it as a high risk or high impact.

Okay, Great and then can you just comment on that the Polaris JV.

Yes that will be up if you're successful a product like kind of margin profile.

Yes so.

That's the the vehicle program that we're doing.

With Polaris the joint venture and.

This is one at which this is very different from what we've done in the past with their vehicle platforms. At first I would just want to clarify that aspect of it.

This is one of which we are providing.

Similar type of work that we did with the MRF up great C is our type of work things that we've done very very well over a number of years and we're looking to do similar work there on.

On on this vehicle platform, we think we have a very good competitive vehicle very excited about it.

The margins would be similar to what we've done work previously and and.

And I think we are going to have a couple of those on display at the USA.

Do you want to.

What Charlie said and that is it is a different type of program. So we you know we just make a pit.

After the close out last year, and we kind of re thought about what made the most sense for us in these major programs of record and manufacturing vehicle. So weve elected to take a very different posture and position and this is a great example of that worth a proven vehicle. It is and in our role is really to help engineer it strengthened the seaborne kantar and they work with our partner in delivering a strong vehicle versus us only the manufacturing or something along those lines. So it is a very different type of work for us.

As it relates to the previous vehicle platform very consistent as Charlie mentioned with the core capabilities inside of it to actually if you think about engineering C R and and I think it plays very well to those from.

Great. Thank you look forward to seeing today.

Thanks.

Well go next to Jon Raviv with Citi.

Hi, Thanks for the follow up on the $500 million target enough by 22, just following up on that topic.

How sustainable is that I mean, I know there was a tax boost that rolled off at some point, but what other things are getting it up to that point beyond just profit growth is our working capital. It rolls off just again trying to get an idea of how sustainable the 500.

No. That's a it's a very sustainable number there is nothing in there there there are tax assets that roll off and years seven I think this is year, three where they start rolling off and coming down.

So.

It's a we see it as a sustainable and also I would like to mention on here. The fact that we do have the 300 million optionality.

When you exclude the dividends and exclude the mandatory debt payments over that three year period of.

Of.

Optionality for capital deployment over that three year period as well. So we see the the 500 million continues to grow as our profits will grow.

On your three.

Thanks for that clarification and non deployment with the acceleration of the flight 20 repo plan with the NSR couple of months ago should we expect minimal activity through the rest of second half or is that something you're still going to.

Evaluate and a couple of weeks with the board meeting.

Well with the strong free cash flow, we expect additional deployments in the second half, but we don't communicate or detailed future capital deployment plans will be discussing that with our board of directors in the near future and get back to you on that.

Okay, Great I, just squeeze one more in just on I'm not affect you talked about.

Revisiting or you know to go maybe putting your stands on a long term business strategy. Today do include looking at some of the K P. Eyes, you just set context for us. So what do you perceive what's the starting point what do you perceive to be the long term business strategy now what are the key KPI is right now where is that conversation starting so to speak.

Sure Great question, so really the driving factor for stepping back and refreshing our strategy was the acquisition of ingenuity. After this gives a very different position in the market in some key areas that we believe will drive more than average growth and so so the objective was to step back and take a look at our existing strategy and generally closed you know many of the gaps if you think about greater access to the Intel community greater access to the space missions and so what we're doing now is just you know taking a fresh look and Ah you know with the intent of getting better clarity and visibility on where the growth is going to come for the next one to five years and it also then aligning our resources our investments to facilitate and drive that growth and so that's how we're thinking about it right now and again I don't it's not going to be a radical right turn I think actually I see is exceptionally well positioned in a terrific market and you know the type of work that we do the solutions that we bring to bear are very.

Consistent with the national priorities and so you know, we just want to take a fresh look to step back and ensure that we absolutely are focused in the right areas now that we are a bit different company with the you know with agility, joining the FDIC family and that really is what's driving that.

Does that help yeah. Thanks, Thanks a lot.

Okay sure.

Well go next to Joseph Denardi with Stifel.

Yes, thanks for the follow up or not is it can you just talk about kind of how pleased you are.

Thus far with talent retention and agility and then just more broadly from an M&A appetite standpoint.

Are you in a position do you have the capacity to do.

More acquisitions now do you want to wait what's your feeling there. Thank you.

You bet, so on that would be to find nutrition side I'm very pleased with where we sit today and then moderate. This is as you can probably imagine you are our assets our people and so we you know we monitor this on a very regular basis. It has been we've been doing that as we close the transaction, but the decisions. We made early on the blending at the leadership team. The you know that the full integration from a organizational standpoint, I'm not the companys happening on day, one really contributed to.

I believe contributed to our ability to retain the talent that we need and especially as we think about the cleared resources that are so critical to our business. So I'm extremely pleased with where we are and but with that being said you know we're not to you know I'm not considering it Don or considering it finished until we get through this year, yes for the next couple of milestones and really begin to see the revenue opportunity that David I know, you'll be able to see as we go into next year, So and that's that on the people side on the M&A side that was down from a capacity standpoint, we absolutely have the capacity and the strength of FDIC now as a result of the ingenuity acquisition Charlie touched on the cash profile and so we certainly have the capacity Mike My first and foremost priority is to continue the successful integration of ingenuity and adding to that comes first but with that being said you know you can't always control what comes to market when and and we'll continue to look at M&A opportunities that would facilitate growth in you either in capabilities that.

Or customer access and Sally we keep our eyes open we continue to engage in conversations with something you know cuts across adapt and make sure that it's something that we don't want to take a look at or not.

But I will tell you, it's not our highest priority as we sit here today.

Thank you.

At this time I would like to hand, the call back over to our speakers for any additional or closing remarks.

Thank you very much for your participation in FDIC second quarter fiscal year 2020 earnings call.

This concludes the call and we thank you for your continued interest in FDIC.

That does conclude today's conference we thank you for your participation.