COMPANY OUTLOOK

Perspecta previews life without NGEN

COVID-19 pandemic also slows down intell but defense, civilian stay busy

Perspecta will find out soon if its protests over the loss of its largest recompete and alleged problems with how a separate new opportunity is being adjudicated will be successful or not.

In the meantime, the almost two-year-old government services company has given more of a glimpse at what it looks like going forward without the Navy NGEN program in the mix and with the coronavirus situation’s impacts factored in.

The COVID-19 situation is more straightforward but certainly fluid. In Perspecta’s fourth quarter and full-year earnings release Thursday, the company said it expects impacts of $75 million in revenue and $20 million in operating income for its current fiscal year that started April 1.

During a Thursday call with investors, CEO Mac Curtis said 5 percent of Perspecta’s nearly 14,300 employees have seen their work affected by COVID-19 and primarily in the intelligence agencies where those staffers cannot get to secure government facilities.

Perspecta and its peers are getting some relief from a section of the CARES Act economic stimulus law that lets agencies reimburse contractors for paid leave of their employees in that situation. Contractors cannot bill customers the fees on contracts under Section 3610, but that piece of the legislation is intended for workers to both stay on the payroll and be in a ready state for when sites open up again to more people.

That disruption is also affecting pursuits of some future work in Perspecta’s $13 billion awaiting award in its bid pipeline and not just what the company is performing on today..

“Over the last two months, in the intelligence community, it's kind of slowed down significantly. We had some big deals in that $13 billion that we're very excited about doing good work. That's kind of come to a crawl,” Curtis told analysts. “But the defense side, civilian side, it's moving.”

Ninety percent of that $13 billion represents potential new business opportunities, either as a takeaway from another incumbent or if the contract is a brand new requirement.

Now here is where Perspecta’s outlook for its current fiscal 2021 and beyond gets slightly more complicated. A starting point for this is how Perspecta ended its last fiscal year: $4.5 billion in revenue and a 17.3-percent adjusted EBITDA margin (earnings before interest, taxes, depreciation and amortization expenses).

Perspecta’s guidance for its fiscal 2021 factors in a $600 million-sales impact to the scheduled winding down of its NGEN contract to service the Navy’s global IT network in December, which also includes a 0.5 percent hit to the adjusted EBITDA margin.

For fiscal 2021 and excluding NGEN, Perspecta sees revenue of $3.66 billion-to-$3.81 billion and an adjusted EBITDA margin of 15.5 -to-16.5 percent. But Perspecta is protesting the loss of NGEN to Leidos and a Government Accountability Office decision on that is expected by June 17, while General Dynamics IT’s protest over the award has an anticipated decision date of June 12.

Those figures have a starting point of their own with $3.57 billion in revenue when factoring in the NGEN loss and a NASA end user IT services contract being out of the mix.

But another side of the coin for Perspecta can be found in how it has to recompete only 8 percent of its revenue over the next three years, hence the emphasis on new business to keep the company on the path of organic growth that is expected to be 3 percent for fiscal 2021.

“We’re going to take advantage of this run rate as we go forward to look at really focusing on the new business wins. We sure may not win. And so now we’ve just got to expand the BD (business development) team, get the right focus, speed and serve the enclosure of opportunities,” Curtis said.

Perspecta’s three-year targets are revenue growth of 4 percent-to-6 percent on a compound annual basis and adjusted EBITDA margins staying at 15 percent-to-16 percent that are industry-leading for government services companies.

In another sign of Perspecta thinking about life without NGEN, the company reported a 1.4 book-to-bill ratio (backlog growth versus bookings for sales) in its fiscal 2020 and 1.5 when not factoring in that contract.

Two other items came up from Perspecta’s call with investors. First, why they paid the now-disclosed $53 million purchase price to acquire DHPC earlier this month.

“This acquisition will further enhance Perspecta Labs’ capability to offer a robust, comprehensive, full life cycle EW (electronic warfare) and cyber solutions from designing and prototyping to deployment, integration and maintenance across multiple domains, including manned and unmanned air grounded missiles,” Curtis said.

Second was the biggest fish on Perspecta’s new business radar: the $7.6 billion Defense Enterprise Office Solutions contract to provide cloud-based email and other back office tools to the Defense Department.

DEOS remains under protest and nothing more was said beyond that. A GAO decision is expected June 15, two days before the NGEN ruling.

About the Author

Ross Wilkers is a senior staff writer for Washington Technology. He can be reached at rwilkers@washingtontechnology.com. Follow him on Twitter: @rosswilkers. Also find and connect with him on LinkedIn.

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