Perspecta celebrates first birthday with wins to spur growth and a couple setbacks

Perspecta turns the page on year number one with a mix of good news and bad, plus some uncertainty if it will win the recompete for its largest contract.

Perspecta is turning the page on year number one of its existence as a publicly-traded government technology company with a mix of good news and bad news -- all as it waits for news on whether its largest contract will stay in the portfolio.

First the good news as outlined in its fourth quarter and year-end earnings call Thursday. Chantilly, Virginia-based Perspecta can consider its first fiscal year a successful one on the business development front with $6.8 billion in awards.

That translates to a book-to-bill ratio of 1.6 to show the company added contracts to its backlog faster than drawdowns to realize revenue and is a key sign that top-line growth lies ahead. Perspecta’s fiscal year 2020 guidance indicates such: $4.35 billion-$4.45 billion from last year’s $4.27 billion, or by around 3 percent.

Those awards include a $905 million Army cyberspace support contract Perspecta already touted as confirmation of why it was created out of a complex three-way merger.

But during the call with analysts, CEO Mac Curtis announced a second large win that occurred in its ongoing first quarter: a potential seven-year, $740 million contract to help the Navy's Space and Naval Warfare Systems Command "establish and maintain cyberspace operations with a focus on interoperability at the tactical, operational, and strategic levels."

The company also evidently is in the game again on an opportunity to keep that trajectory going. During the call, Curtis said Perspecta’s bid for a $6.5 billion contract to run the Defense Information Systems Agency’s global IT and telecommunications network “is back in the competitive range” after a pre-award protest that raised issue with its exclusion.

Leidos is the incumbent for DISA’s Global Solutions Management II contract also known as “GSM-O.” The winner of that competition will run the military’s global information grid that is a backbone for command-and-control systems. An award is anticipated in September.

“We’re in play, we got a lot of dollar over this,” Curtis said.

Now for some bad news but first the backdrop. In February, Leidos successfully wrestled away a $2.9 billion NASA end-user IT services contract known as “NEST” that Perspecta is the incumbent on.

Fast forward to May 30 and the Government Accountability Office denied Perspecta’s post-award protest. That ruling is currently sealed under a protective order.

Curtis did not indicate what Perspecta plans to do next but said the company has “got options” -- including the possibility it could take its argument to Court of Federal Claims. Work under NEST contributes about $110 million-$120 million in annual revenue to Perspecta.

Then there is of course Perspecta’s largest contract it is fighting to keep: the $3.4 billion “NGEN-R” award for broad systems integration and other services to support a global IT network used by the Navy and Marine Corps.

Again Curtis did not have much more to say on the Next Generation Enterprise Network-Recompete contract, which Leidos and General Dynamics IT are also bidding for. Perspecta holds the work through May 2020. Curtis said the award is anticipated late in this calendar year.

But Curtis did acknowledge NGEN-R as “always a topic of keen investor interest,” and it is easy to see why. The contract contributes between 15 and 20 percent of Perspecta’s revenue base and is also important for its overall financial profile. In an April 3 note, analysts at Moody’s Investors Service wrote the “outcome of that re-compete will be pivotal for free cash flow generation beyond the near-term.”

Another area of keen investor interest is Perspecta’s appetite for acquisitions. Curtis said the thesis remains the same: a scale-based play is not likely, but deals of the tuck-in variety are more in line with what the company is looking at.

That is because Perspecta wants to keep its status as the industry’s clear leader on the bottom line. The company posted a 17.8-percent reading last fiscal year for its adjusted EBITDA margin: the percentage of earnings before interest, taxes, depreciation and amortization expenses to total sales.

Perspecta sees its fiscal 2020 adjusted EBITDA margin at 17-to-18 percent.