V2X Inc (VVX) 2017 Q4 法說會逐字稿

Thank you for joining us for the Vectrus Fourth Quarter and Full Year 2017 Earnings Conference Call and Webcast.

Today's call is being recorded.

My name is Omar, and I'll be the operator for today's call.

(Operator Instructions)

And now, I'll pass the call over to your host, Mike Smith, Director of Investor Relations and Corporate Development at Vectrus.

Thank you.

Good afternoon, everyone.

Welcome to the Vectrus Fourth Quarter and Full Year 2017 Earnings Conference Call.

Joining us today are Chuck Prow, President and Chief Executive Officer; and Matt Klein, Senior Vice President and Chief Financial Officer.

Slides for today's presentation are available on our Investor Relations website, investors.vectrus.com.

Please turn to Slide 2. 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 statement in our press release and presentation material 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.

We assume no obligation to update our forward-looking statements.

At this time, I would like to turn the call over to Chuck Prow.

Thank you, Mike.

Good afternoon, everyone.

Thank you for joining us on the call today.

Please turn to Slide 3. I am pleased to announce that we completed 2017 with strong fourth quarter results.

We reported 3% year-over-year organic revenue growth, a 51 basis point improvement in operating margin and a 43% increase in adjusted diluted earnings per share.

Additionally, for the full year, we reported revenue, diluted earnings per share and net cash from operations that are all ahead of guidance.

We have made progress in every aspect of our business during 2017.

The execution of our strategy is providing demonstrable results as we recognized record quarterly operating margins, backlog and contract awards.

Additionally, we won all of our scheduled recompetes and successfully phased in $1.4 billion of contracts.

I'd like to thank our almost 7,000 employees for their amazing contributions in helping us reach several important milestones during the year.

Turning to 2018, with a backlog of $2.9 billion; additional talent at all levels of the organization; an expanded credit facility; enhanced capability via SENTEL, an acquisition we announced in January; and robust new business opportunities, we have a solid foundation from which to grow.

Furthermore, the passage of the Tax Cuts and Jobs Act, also known as tax reform, will allow us to continue investing in the business to drive growth, enhance our talent base and improve the foundational infrastructure of our business.

Now I'd like to discuss our fourth quarter and full year 2017 financial highlights.

Revenue for the fourth quarter was $296 million, up $8 million year-over-year and $26 million sequentially from the third quarter of 2017.

Our year-over-year growth is particularly notable when considering the APS-5 Kuwait contract contributed $47 million of revenue in the fourth quarter of 2016, which should not recur this quarter.

Operating margin increased 51 basis points year-over-year to 3.5% from 3% last year.

Adjusted diluted earnings per share, excluding the benefit associated with the tax reform act, increased $0.17 to $0.57.

Revenue for the full year was $1.115 billion, down $76 million year-over-year.

Our team did a remarkable job partially offsetting a $121 million year-over-year decrease associated with the APS-5 Kuwait contract and a $33 million reduction associated with Afghanistan programs.

In 2017, we phased in more than $1.4 billion of new contract wins and successful recompetes.

We continue to implement and invest in our strategic imperatives, all of which could have generally resulted in margin pressure.

However, the hard work and ongoing commitment of our team to improving our operating margin profile resulted in a 10-basis point year-over-year improvement in operating margin to 3.7%.

I view this as the first milestone and a path to margin expansion I expect from the execution of our strategy.

Adjusted diluted earnings per share for the year increased $0.01 to $2.17, excluding the benefit associated with tax reform.

In 2017, net cash provided by operating activity was strong at $35 million, exceeding our $24 million to $30 million guidance.

Our business continues to generate strong cash flow, which will be further enhanced by the recent tax form legislation.

In 2017, we established our new strategy to become a leader in the converged infrastructure market.

We added several key leaders and strengthened our talent at all levels of the organization.

I will talk more in detail with regard to our strategy later in the presentation.

During the fourth quarter, we successfully closed on a new and expanded credit facility, which allows for a significant flexibility in support of our growth plan.

This new facility increased the amount of funding available under our revolver to $120 million from $75 million.

A leading indicator of future revenue is backlog.

And in 2017, we secured several awards that propelled our backlog to $2.9 billion, which is up 24% year-over-year and represents 2.4x our 2018 revenue midpoint.

Our backlog does not currently include any contribution from the recent acquisition of SENTEL or the Kuwait DFAC 3.0 contract win.

During the year, we successfully phased in multiple long-term contracts located in several countries across the globe valued at approximately $1.4 billion.

This is a testament to Vectrus' ability to seamlessly transition and operate large and complex contracts anywhere in the world in support of our clients' missions.

Please turn to Slide 4. Our recent contract momentum and wins help secure our base and provide significant revenue visibility over the next several years.

We highlight some of these recent wins on Slide 4. At the top of the page, you can see the great progress we have made with the Air Force.

The Range Support Services II, or RSS II, Thule, Maxwell, Keesler and AFCAP awards in total represent $1.3 billion of potential Air Force revenue that spans over several years.

I am pleased at how our team has been able to expand market share with this client by offering differentiated and value-added solutions in support of their mission.

Vectrus is now a trusted provider of facility and logistics support to the Air Force in 8 countries.

Additionally, we continue to make great strides with our Army client and successfully retained our operations, maintenance and Supply-Europe, or OPMAS-E, contract recompete.

The firm fixed price contract had a total value of $115 million and a period of performance, including options, that extends through January of 2022.

OPMAS-E provides a full range of IT services to the U.S. Army Europe, the U.S. European Command and the U.S. Africa Command areas of responsibility.

Importantly, through our continued portfolio of contracts, Vectrus provides IT and network communication services throughout the U.S. and in 17 countries, spanning Western Europe to Southwest Asia.

I am pleased to announce that subsequent to the fourth quarter, we were awarded 2 new contracts with our Army client that are representative of how we are going in and around our base.

The first award was a $108 million 5-year Kuwait Dining Facilities, or Kuwait DFAC, 3.0 contract, which further positioned Vectrus as the leading provider of facilities and logistics services to the DoD and in the CENTCOM area of responsibility.

The second win is the Integrated Electronic Surveillance System Maintenance, or IESS, contract in Qatar, which while smaller in value, is a perfect example of how the physical and digital aspects of our clients' facility and logistics missions are converging.

In total, all of these recent awards equate to $1.5 billion of long-term revenue streams to Vectrus.

Please turn to Slide 5. As you can see, at the top left side of the page, these wins are starting to diversify our portfolio.

Our percentage of revenue with the Air Force increased to 16% in 2017, up from 14% in 2016.

For 2018, we expect the Air Force will increase to about 21% of our revenue at the midpoint due to the full year contributions from RSS II, Thule, Keesler and AFCAP.

Additionally, SENTEL will further improve our client diversification in 2018.

One component of our ability to improve margins over time is the shift to more fixed-price contracts from cost-plus type contracts.

While the risk to a contractor is low on cost-plus type contracts, so is margin.

Margins under cost-plus contracts are defined and governed by our clients.

However, under fixed-price contracts, the risk to performance shifts from the government to the contractor, but also allows for the potential of higher margins, depending on the level of the performance that can be achieved.

In essence, under fixed-price contracts, we apply technology and continuous improvement principles and techniques.

They have the potential generate better outcomes for our clients and higher operating margins for Vectrus.

In 2017, our fixed-price contract mix increased 2 percentage points year-over-year to 27%.

We are seeing more and more contracts migrating to fixed-price structures.

As a matter of fact, of the $1.5 billion in recent contract wins I just described, approximately 60% of their value is fixed-price.

Finally, in 2017, we performed with a prime contractor at 97% of our revenue.

We have a favorable prime/subcontractor mix, which allows for significant interaction and engagement with our clients.

As a trusted partner, this direct interaction allows us to better predict and respond to all aspects of our clients' missions.

Please turn to Slide 6. We recently closed on a new and expanded credit facility, which provides flexibility to pursue organic and inorganic growth opportunities that align with our strategy.

Looking forward, we anticipate leveraging our strong financial position and will flex to meet our 5-year goals, which I'll discuss in a moment.

Turning to new business.

Our prospect continue to trend favorably with almost $7 billion of identified opportunities, which we plan to pursue and potentially submit over the next 12 months.

This number is up from $6 billion we reported last quarter and is expected to fluctuate as our pipeline evolves.

We also have approximately $1 billion in bids submitted pending award, which is up from $400 million last quarter due to increased proposal activity.

It is important to understand that the $1 billion does not include any value associated with LOGCAP V or SENTEL, and removes the recent Kuwait DFAC 3.0 contract win.

I would like to now provide an update on our Kuwait-Base Operations and Security Support Services contract, known as K-BOSSS, and the Logistics Civil Augmentation Program V, or LOGCAP V, competition.

As it relates to K-BOSSS, our client has incorporated our current K-BOSSS contract as a task order into the LOGCAP V competition.

In 2017, the K-BOSSS contract contributed $476 million or 43% of our revenue.

Currently, K-BOSSS is operating under an extension, which has a base period of performance through March of 2018.

Additionally, the extension includes 2 option periods.

The first period being 9 months and the second period being 3 months, which if exercised by the client, would extend performance through March of 2019.

We anticipate receiving the first 9-month option award soon.

In terms of the LOGCAP V competition, we submitted our proposal this week.

There are expected to be up to 6 indefinite-delivery/indefinite-quantity, or IDIQ, contract awards and the government intends to make an award in the fourth quarter of 2018.

We believe our proposal offers the client a unique and differentiated solution that is supported by over 7 years of extensive experience, providing responsive and flexible mission support of our clients' multi-domain operations.

Our capability is strongly aligned to our client's requirements and the emerging operational environment.

Vectrus is well known for its ability to rapidly respond anywhere across the world in challenging and austere environments to meet our client's contingency mission requirements.

It's also worth noting that Vectrus is extremely familiar with the LOGCAP V mission requirements as we have generated revenue in excess of $1 billion performing as a significant subcontractor under the current LOGCAP IV program.

The U.S. Army's published acquisition plan has indicated that LOGCAP V would be awarded to support Army Service Component Commands, or ASCCs, aligned to each of the DoD's combatant commands, or COCOMs.

These include EUCOM, PACOM, CENTCOM, NORTHCOM, AFRICOM, SOUTHCOM and separately, support to ongoing operations in Afghanistan.

Each award under the LOGCAP V contract will consist of 2 elements.

The first will be a 10-year task order for set the theater.

This contract is for logistics planning support for the ASCC and COCOM.

The second award will be a 5-year performance task order, of which K-BOSSS is one of several.

The company that is awarded the set the theater 10-year task order will also receive the 5-year task order in the ASCC.

For example, the K-BOSSS task order is expected to be awarded to the company that wins a CENTCOM set the theater award.

At the end of the initial 5-year period, all awarded performance task orders would be competed among all the LOGCAP V contractors.

In order for Vectrus to retain the K-BOSSS contract, we would initially have to win the CENTCOM ASCC.

As the incumbent on the largest CENTCOM task order, we believe Vectrus is well positioned for both LOGCAP V in general and to win the CENTCOM task order.

Additionally, our recent Kuwait DFAC 3.0 win to operate all the U.S. Army and U.S. Air Force dining facilities in Kuwait further enhances our position as the leading provider of facility and logistic services to the U.S. Army in the CENTCOM area of responsibility.

However, if Vectrus were to win a LOGCAP V award other than CENTCOM, the associated task order would assist in partially offsetting any revenue reduction associated with K-BOSSS.

Our outlook is promising, and we continue to see significant opportunities for growth in our business.

As a result, we are issuing 2018 guidance which calls for 11% growth in revenue at the midpoint of our range.

While SENTEL is helping to contribute to growth, we also plan to grow organically.

It is also important to note that 97% of our revenue at the midpoint is expected to come from existing contracts.

Our operating margins are expected to further expand and, excluding transaction costs associated with SENTEL, are anticipated to be in the 3.8% to 4.2% range.

This represents a 30 basis point year-over-year improvement at the midpoint.

Finally, we expect diluted earnings per share to increase 36% at the midpoint to $2.96.

Please turn to Slide 7. I'd like to spend a few minutes to discuss the acquisition of SENTEL, which closed on January 23, 2018.

SENTEL was founded in 1986 and has a unique mission-focused business with experience in logistics and supply chain management, engineering and advanced technology solutions and the intelligence mission support.

The acquisition marks a major milestone in our evolution and serves as a strategic accelerator for our business.

SENTEL currently derives 100% of its revenue from the federal government and has clients that include the Army, Navy, Intelligence Community, Federal Aviation Administration and the Internal Revenue Service.

SENTEL operates in 3 core areas.

The logistics component of SENTEL is the largest contributor of revenue and is complementary to what Vectrus does.

In February of 2016, SENTEL won the largest task order in its history, which is to provide logistic support services, including maintenance, supply and transportation to the Logistics Readiness Center at Fort Bragg.

The contract was valued at approximately $200 million and extends into June of 2021.

SENTEL brings a significant [CONUS] presence with our Army client and augments our current facilities and logistic services while providing additional capabilities and past performance.

The next major component of SENTEL's business is the intelligence mission support.

This business line is -- focuses on logistics and other support services for the highly coveted Intelligence Community clients.

In late 2016, the company won its largest intelligence contract as a prime contractor to provide worldwide logistics management support services.

We see tremendous opportunity to engage and support this new client with our rapid deployment capabilities, IT and facility solutions and global footprint.

SENTEL's third service area is engineering and IT.

They provide systems integration, engineering, software engineering and secured network solutions, among other things.

They have a legacy in developing solutions designed for spectrum management systems, sensor networks and various detection systems.

They have IT contracts at the FAA, IRS and with the Navy, where their focus is ensuring that communications equipment on ships and aircrafts can be operated without interference from external transmission sources.

SENTEL brings past performance and talented developers and engineers that will assist the combined company as we mature our IT capabilities and develop solutions.

We expect to see accelerating convergence of our clients' digital and physical infrastructures and supply chains.

With SENTEL's strong technical background and legacy in spectrum management systems, sensor networks and various detection systems, we believe there is great opportunity to be a leader in this convergence.

I'd also like to note that SENTEL provides access to the Army's 10-year Responsive Strategic Sourcing for Services, or RS3 IDIQ, which was awarded in May of 2017.

The IDIQ has a $37 billion ceiling and provides knowledge-based professional engineering support services for programs with C4ISR mission requirements.

We believe there are several opportunities to leverage our global footprint to offer clients a combined solution that incorporates SENTEL's strong engineering capabilities with our last tactical mile IT and network communication services.

Please turn to Slide 8. In 2017, we created a new strategic plan.

And over the past year, have made great progress in advancing our 3 core strategies: enhance the foundation; expand the portfolio and add more value; as well as executing our strategic imperatives.

In 2018 and beyond, we will continue to execute our strategy to become a leader in the converged infrastructure market within government services.

We will aggressively explore new and adjacent markets, enhance capabilities in additional channels to drive growth and increase shareholder value.

Specifically, we established a 5-year plan and goal to grow revenue to $2.5 billion and expand EBITDA margins to 7%.

This is clearly an aggressive goal, but we see a path forward to achieve this plan through the combination of both strategic organic and purposeful inorganic growth activities.

We plan to drive organic revenue growth and margin expansion through repeatable strategies that include: infusing technology into our current facilities and logistics offerings, creating and deploying repeatable solutions, growing our existing footprint in current markets while expanding into more new markets and fully deploying the Vectrus Management System to coalesce enterprise-wide performance improvement initiatives known as Enterprise Vectrus.

Matt will talk more about Enterprise Vectrus momentarily.

We also plan to further engage in purposeful and prudent inorganic activities that will serve as a force multiplier for Vectrus and help us differentiate to become an innovator and leader in the convergence of our clients' physical and digital infrastructure and supply chain.

And we look forward to providing further detail on our roadmap over the coming quarters.

Now I'd like to turn the call over to Matt.

He will go through our financial results and discuss 2018 guidance, then we will open the call for questions.

Thank you, Chuck.

Good afternoon, everyone.

Please turn to Slide 9. Today, I'll be discussing our financial results for the 3 months and year ended December 31, 2017.

In the fourth quarter of 2017, revenue was $295.8 million, up $7.6 million or 2.6% as compared to the fourth quarter of 2016, and up $26.2 million sequentially from the third quarter of 2017.

For the fourth quarter of 2017, revenue increased $20.2 million from U.S. programs, $15.5 million from European programs and $3.9 million from Afghanistan programs, offset partially by a decrease of $32 million from Middle East programs, namely APS-5 Kuwait.

APS-5 Kuwait contributed $47 million in the fourth quarter of 2016.

Operating income for the fourth quarter of 2017 was $10.3 million, an increase of $1.7 million or 20.1% compared to the fourth quarter of 2016, primarily due to the decrease in SG&A costs.

Operating margin for the fourth quarter of 2017 was 3.5% compared to 3% operating margin in the fourth quarter of 2016.

During the fourth quarter of 2017, we recorded net favorable cumulative adjustments to our operating income of $3 million compared to $3.3 million in the same period of 2016.

There are many factors that drive contract performance, including successful contract modifications and extensions of current contracts.

Cumulative catch-up adjustments can be positive or negative, are a normal part of this business, and our guidance contemplates this reality.

Interest expense for the fourth quarter of 2017 was $1.4 million or approximately $100,000 higher than the same period of 2016.

The increase in interest expense was due to the expense of unamortized deferred financing fees related to the prior credit agreement, partially offset by decreased interest expense on a lower debt balance.

Net income for the quarter ended December 31, 2017, was $41.6 million compared to $4.4 million in the fourth quarter of 2016.

Net income for the fourth quarter was favorably impacted by the change in tax legislation by $35.1 million.

The favorable impact is a direct result of revaluing our deferred tax liabilities from the previous 35% rate to the new 21% tax rate.

Adjusted net income, excluding the impact of tax reform, was $6.4 million compared to $4.4 million in the fourth quarter of 2016.

The increase was primarily due to higher operating income of $1.7 million and lower adjusted income tax expense.

Diluted earnings per share for the fourth quarter of 2017 were $3.70 compared to diluted earnings per share of $0.40 in the fourth quarter of 2016.

Adjusted diluted earnings per share, excluding the impact of tax reform, were $0.57.

The increase in adjusted diluted earnings per share was due to an increase in adjusted net income in the fourth quarter of 2017 compared to the same period in 2016.

Now I'd like to discuss the financial results for the year ended December 31, 2017, reflected on the right-hand side of Slide 9. Revenue was $1,115,000,000, a decrease of $75.7 million or 6.4% as compared to 2016.

The decrease in revenue was primarily driven by Middle East programs of $70 million.

APS-5 Kuwait decreased $121 million year-over-year.

Additionally, we witnessed lower activity from our Afghanistan programs of $32.6 million, which was partially offset by an increase in our U.S. programs of $10.2 million and European programs of $16.7 million.

Full year 2017 operating income was $41.2 million, down $1.6 million or 3.7% when compared to the same period in 2016.

This change is due to the impact of lower revenue, partially offset by a decrease in SG&A costs.

Net favorable cumulative adjustments to operating income for the year ended December 31, 2017 and 2016, were $11.6 million and $7.5 million, respectively.

Operating income as a percentage of revenue was 3.7% for 2017 compared to 3.6% for 2016.

Net income for the year ended December 31, 2017, was $59.5 million compared to $23.7 million for the same period of 2016.

Net income for the full year was favorably impacted by $35.1 million due to tax reform.

Adjusted net income, excluding the tax reform benefit, was $24.4 million compared to $23.7 million in 2016.

The increase of $0.7 million was due to a lower adjusted effective tax rate, lower interest expense of $1 million, partially offset by lower operating income of $1.6 million.

Diluted earnings per share were at $5.31 compared to diluted earnings per share of $2.16 for the same period in 2016.

Adjusted diluted earnings per share, excluding the benefit associated with tax reform, were $2.17.

Year-to-date 2017 net cash provided by operating activities was $35.4 million, which is $1.2 million lower compared to the same period in 2016.

The cash conversion compared to net income was 145% and is in line with historical performance.

Our business continues to generate significant cash flow, which should strengthen even more due to tax reform.

Days sales outstanding as of 2017 was 54 days compared to 57 days in 2016.

We continue to focus aggressively on cash collections, and our performance in 2017 is representative of this effort.

I'd like to thank our teams for their extraordinary performance in 2017.

We ended 2017 with 0 net debt and a debt-to-EBITDA ratio of 1.64x.

The acquisition of SENTEL occurred after the year-end and is therefore not captured in these numbers.

The $36 million acquisition price was funded with cash on hand and with our new expanded credit facility.

Please turn to Slide 10.

For the fourth quarter of 2017, total backlog was $2.9 billion and funded backlog was approximately $700 million.

Total backlog excludes the newly awarded Kuwait DFAC 3.0 contract, which was awarded subsequent to the fourth quarter of 2017, and the SENTEL acquisition, which closed January 2018.

Total backlog includes both funded and unfunded backlog and represents firm orders and potential options on multi-year contracts.

Our contracts are multi-year contracts and the right to exercise an option period is at the sole discretion of the U.S. government or the prime contractor when we are a subcontractor.

Total backlog excludes potential orders under indefinite-delivery and indefinite-quantity contracts and contracts under protest.

Please turn to Slide 11, where I will discuss 2018 guidance assumptions.

Our 2018 guidance includes estimates related to the recent purchase of SENTEL and associated transaction costs.

For 2018, we expect revenue to be in the range of $1.205 billion to $1.275 billion with a midpoint of $1.24 billion.

This includes revenue from the acquisition of $150 million at the midpoint.

Excluding SENTEL, full year organic growth is expected to be approximately 1% at the midpoint of our guidance.

At the midpoint of our revenue guidance, 97% of our revenue is expected to come from existing contracts and 3% is expected to come from new business and recompetes.

2018 revenue guidance of $1.24 billion at the midpoint compared to 2017, includes the acquisition of SENTEL for $150 million.

Recent contract wins contribute another $86 million incrementally and new business is expected to contribute $32 million.

This $233 million growth in revenue is partially offset by a $108 million decline related to APS-5, anticipated declines related to recompete pricing changes, contract closures and a one-time change related to the new revenue recognition standard.

Operating margin is expected to be in the range of 3.6% to 4% with a midpoint of 3.8%.

Importantly, our 2018 midpoint includes approximately $3 million of estimated transaction costs associated with SENTEL acquisition.

Excluding the one-time costs, our operating margin range is 3.8% to 4.2%.

Part of our 2018 margin improvement is expected to come from the advancement of the Vectrus Management System, and our enterprise performance improvement imperative known as Enterprise Vectrus.

We are well on our way to operationalizing our transformation through collaborative and empowered enterprise support teams.

The new organization structure supports shared responsibility and accountability through innovative standard processes and measurements across the organization in a more efficient way.

We will also see a slight margin benefit from the relocation of our Colorado Springs headquarters, which is expected to be completed in August.

The relocation will yield an annual cost savings of $1 million, which will be partially realized in 2018.

The new facility will transition our headquarters to a modern high-tech location, which offers many employee-friendly amenities.

The location is immediately adjacent to the Garden of the Gods park in Colorado Springs.

The new facility allows us to offer what today's top talent seeks in a workplace.

We're extremely excited for this significant upgrade and refresh.

Net income will be in the range of $30.5 million to $36.4 million.

Diluted earnings per share will be in the range of $2.70 to $3.22.

The midpoint of diluted earnings per share is $2.96.

The range for diluted EPS assumes an estimated 11.3 million weighted average diluted shares outstanding.

2018 net cash provided by operating activities is expected to be in the range of $35 million to $39 million, inclusive of the benefit associated with tax reform.

With strong organizational performance, additional incremental income expected from the new tax regulation and aggressive growth plans in our future, we have decided to invest in our organization infrastructure.

Capital expenditures for 2018 are expected to be approximately $9 million, which includes $3 million to $4 million of normal contract requirements, including further buildout to support intelligence mission support and tooling equipment investments, plus infrastructure required for the headquarters relocation and investments in our enterprise supply chain and advisory service software infrastructure.

Depreciation and amortization is expected to be $4.2 million in 2018, which includes an estimate for SENTEL that may change upon completion of our purchase price allocation.

2018 mandatory debt payments are expected to be $4 million.

Interest expense is forecasted at $4.3 million, and we currently estimate a 22% tax rate for the full year of 2018.

Now I'd like to turn the call over for questions.

(Operator Instructions) Our first question comes from Brian Ruttenbur, Drexel Hamilton, LLC.

Yes.

So a couple of quick questions.

Very good year, congratulations, but book-to-bill, it looks like it was down in the fourth quarter.

Was that due to just large wins in the third period?

Was there anything just seasonal?

Because it looked like book-to-bill was less than 1, is that correct?

Brian, it's Matt.

You're correct, our bookings for the fourth quarter was $171 million, which was down.

But you remember, in the third quarter, we had a pretty significant book-to-bill -- annual book-to-bill.

We were at $1.6 billion.

So all the wins that Chuck discussed in his prepared remarks contributed to that $1.6 billion.

So $1.4 billion was new wins and then another $200 million of contract add-ons.

So overall, I think we had an outstanding year in our bookings.

Some of that kind of plays out differently over the course of the year in different quarters.

Okay.

And then in terms of use of cash, you're investing a little bit more in the company, but is there -- should we expect more acquisitions?

Should -- what else should we be looking for here in the near term?

Brian -- thank you, Brian.

We are going to focus on integrating SENTEL here early in the year.

As you mentioned, we're going to invest in hardening our infrastructure, but we fully expect to continue to invest in advancing our strategy.

So I wouldn't expect to see any acquisitive sorts of activity in the first of this year.

We are aggressively monitoring a pipeline of potential acquisitions for the future and continue to make prudent decisions with regard to how we utilize cash to grow.

Okay.

So the plan then, Matt, is to have -- assuming no more acquisitions this year in '18, what would the plan be in terms of cash and debt by the end of '18?

So the end of -- we believe -- related to the SENTEL acquisition, we believe that the whole acquisition will be paid for by the third quarter.

If you've read the K, which I know we just posted, we ended the year at $77 million of cash on hand.

So we used cash on hand and a slight dip into the revolver.

So that will all be behind us this year.

So then we're just talking about mandatory payments on the $80 million facility we just signed in the fourth quarter.

Mandatory payments will be about $4 million in '18.

We ended the year at $79 million of debt, less $4 million.

At the end of this year, we'll be at $75 million of debt.

And just one clarification to you, I didn't indicate that we wouldn't expect any additional acquisitive sorts of activities for 2018, but just probably not for the first half of this year.

Okay.

So assuming that there's no more acquisitions in '18, I'm just going to make that assumption because it's hard for me to model out acquisitions, you should end the year with roughly no cash and $75 million of debt or something in that ballpark.

Is that correct, Matt?

No.

We should have plenty of cash.

We'll have our normal cash balance of $60 million and no debt.

Yes, I think you had that reversed.

Yes.

I'm sorry about that, multitasking with another company.

So perfect.

Those were my -- oh, and then final question was on LOGCAP V. You expect with K-BOSSS, an extension of 9 months.

What is the update of the actual rebid of LOGCAP V?

Or it's not a rebid, but the LOGCAP V with K-BOSSS rolling into that.

Is it still going to be the fall that we're going to see all that come out and award in the fall?

Or do you expect it to get pushed out some?

So right now, the current plan -- we submitted the bid this week actually.

The current plan is to have an award in the fall.

We don't know anything to the contrary.

I would be highly confident, however, that the second 3-year option that we had -- 3 -- I'm sorry, second 3-month option that we had discussed, which would take us January through March of next year.

I would anticipate that as well.

Now, other than that, it's really depending on the timing of the acquisition process.

We should have more clarity as we move through this year as well, all right.

So we'll report as the quarters transpire in 2018.

Our next question comes from Ben Klieve, NOBLE Financial.

A few questions for you guys.

First, a question regarding the tax law change.

Curious with how this has impacted the status to your deferred tax liability beyond the one-time adjustments?

And specifically, how can we look at cash taxes for this year relative to your 22% tax rate that you've guided to?

Sure, sure.

So really, our deferred tax liability is made up of 2 large components.

One had to do with the goodwill that's on the books from the spin.

And another large chunk had to do with the unbilled receivables that we were allowed to defer historically.

So that whole balance has been revalued at 21%, and it's kind of reflected in the $35 million benefit we received in net income or tax in the fourth quarter and full year.

What has changed on a deferred tax liability is we will no longer be able to defer unbilled receivables.

There is a phase-out of that plan, so we'll do that over the next 5 or so years.

And so our cash tax impact changes very little.

So we've paid a little bit more in cash taxes the last couple of years, and we've managed that very effectively.

I really don't expect that to change in the next 2 or 3 years until we actually get through this -- the change in the unbilled portion of the tax law.

Okay.

Perfect.

And then a couple of questions regarding the SENTEL acquisition.

You talked about the Fort Bragg award running through 2021; outside of this, what does their portfolio look like from a recompete standpoint?

They had one contract that was up for recompete this year.

Or is it several?

We just got news that they won the IRS TIPS contract.

It was a 3-year award.

So we're pleased with that, real pleased with that.

Their exposure of the rest of the year or the exposure for the SENTEL contract is minimal in '18, so.

Okay.

And can you talk a bit about SENTEL's business development efforts before the acquisition?

Did they kind of take their foot off the gas leading up to the acquisition?

Or have they been pretty aggressive in their business development efforts?

I guess what I'm trying to understand is, are you going be able to really juice up their business development?

Or had they been doing a solid job before you acquired them?

I've been very pleased with the intensity, if you will, of the go-to-market activities in SENTEL.

As with most small businesses, those activities are very opportunistic, and I really look forward to leveraging our more robust infrastructure and process around go-to-market activities with SENTEL's relationship.

And so I'm very pleased with how I see the go-to-market activity with regard to the SENTEL client shaping up.

Okay, very good.

And one other, just a minor question here.

The $3 million of acquisition expenses that you're expecting in 2018, were there any acquisition-related expenses that fell into the fourth quarter?

There were a few -- a couple hundred thousand dollars in the fourth quarter, but most of those will be incurred in 2018.

And quite honestly, the $3 million might be conservative.

I think we can manage that very appropriately, and we should see that come down as we kind of move through the next couple of quarters.

Our next question comes from Joe DeNardi, Stifel.

This is Jon Ladewig for Joe.

First question I have is your thoughts on the impact of tax reform on margins.

Do you guys see peers kind of competing away the gains from the lower tax rate, especially given the more commoditized nature of this type of work that you're in?

It's Matt.

No, I don't expect that to really change a whole lot.

We are a low-margin business.

I would expect very similar to what we're doing as a company reinvestment into the business fundamentals.

That can be either in rewarding employees, buying back stock potentially or reinvesting in their businesses.

So I think that's the way you're going to see tax reform play out in the government services space.

But as far as margins or potentially pricing at discount into the bid, we're already talking pretty thin margins, so there is not much room there.

Okay.

Then just kind of looking at your customer base, it's been a fundamental change in the past few weeks given the balanced budget agreement that came out.

And I'm just curious to hear what you're hearing from your customers in terms of how the extra dollars that they kind of incrementally see coming their way.

Is that changing how they're going to bring work to market?

And in terms of RFPs, are they going back to try -- and kind of maybe tweaking a few things?

Or are they kind of staying with their plans?

And I'm kind of really looking at LOGCAP V, will that extra dollar that they could feasibly get change the way that they are approaching that work?

Given where we have been as an industry over the last several years, although we've had budget stability, our clients really haven't had a vision of how their budgets were going to materialize in the future.

That is much more certain now.

So we're actually hearing our clients talking about looking into the future and making investments to improve their long-term operations and their long-term missions.

So I see this as a really positive step toward, in our case, having our clients move to their next level of operational efficiencies, which we believe will be the converging of the physical and digital infrastructures.

Nice.

Just lastly, the -- is the Air Force range support service contract, is that now at a full run rate?

It is.

It's a full run rate in this quarter.

As you know, that's -- we're a subcontractor on that particular engagement.

And again, the point that we made in the prepared remarks that the fact that we are now a very scale-type provider to the Air Force, providing support to the Air Force in 8 countries, is really a positive change for our business model both in 2018 and beyond.

(Operator Instructions) Ladies and gentlemen, we have reached the end of the question-and-answer session, and I would like to turn the call back to Chuck Prow for closing remarks.

Omar, thank you very much for your support today.

Thank you all that attended the call, and we look forward to updating you on our progress as the year proceeds.

Thanks very much.

This concludes today's conference.

You may disconnect your lines at this time.

Thank you for your participation.