NCI Management Discusses Q4 2013 Results - Earnings Call Transcript

Feb.12.14 | About: NCI, Inc. (NCIT)

NCI (NASDAQ:NCIT)

Q4 2013 Earnings Call

February 12, 2014 4:30 pm ET

Executives

Lawrence Delaney

Charles K. Narang - Founder, Chairman, Chief Executive Officer, Chairman of NCI Information Systems Inc, Chief Executive Officer of NCI Information Systems Inc and President of NCI Information Systems Inc

Brian J. Clark - President and Director

Lucas J. Narel - Chief Financial Officer, Executive Vice President and Treasurer

Marco F. de Vito - Chief Operating Officer

Analysts

William R. Loomis - Stifel, Nicolaus & Co., Inc., Research Division

Richard Eskelsen - Wells Fargo Securities, LLC, Research Division

Mark C. Jordan - Noble Financial Group, Inc., Research Division

Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division

Gautam Khanna - Cowen and Company, LLC, Research Division

Operator

Good day, ladies and gentlemen, and welcome to the NCI, Inc. Fourth Quarter and Year End 2013 Earnings Conference Call. My name is Kelsey, and I will be your conference operator today. In addition today's conference is being recorded.

I will now turn the presentation over to your host for today's conference, Larry Delaney, Investor Relations Counsel. Please go ahead, Mr. Delaney.

Lawrence Delaney

Good evening, and thank you for participating in NCI's conference call today. By now, you should have a copy of the press release we issued a short-time ago. If not, it's available on our website at www.nciinc.com.

With us are NCI's Chairman and CEO, Charles Narang; President, Brian Clark; and Chief Financial Officer, Lucas Narel, all of whom will deliver prepared remarks. Chief Operating Officer, Marco de Vito, is also here to participate on the Q&A portion of the call.

Before we begin our discussion, it's important that we remind you that on today's call, we will make certain statements that do not address historical facts and are thus forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to factors that could cause actual results to differ materially from anticipated results and include the risk and uncertainties identified in our earnings press release under the caption Forward-Looking Statements. For a full discussion of these factors and other risks and uncertainties, please refer to the section entitled Risk Factors in NCI's Form 10-K and Form 10-Q filed with the Securities and Exchange Commission. Also, we make -- undertake no obligation to update any of the forward-looking statements made on this call.

I will now turn the call over to Charles Narang.

Charles K. Narang

Thank you, Larry, and good evening, everyone. NCI continued to outperform our expectations for revenues and earnings per share in the fourth quarter.

In addition, fiscal year 2013 revenue and EPS were much better than our forecast at the beginning of last year. We were able to improve operating margin our earnings per share in 2013. As a result of disciplined cost cutting and improved performance on several key contracts among other factors.

However, bookings continue to lag behind expectations in 2013. We have made significant investments in business development and essentially transformed the way, we pursue and bid new work. As Brian will explain several major awards were expected to be competed -- competed in 2013, should not be procured in 2014.

In addition to these initiatives to produce organic growth, we will actively pursue acquisition in targeted areas of projected current spending. Brian will speak to this shortly, including the restructuring of our credit facility to give us more capacity to pursue these potential deals.

I can tell you that NCI is poised to win the awards in 2014. In addition to the bids, we've already submitted, we have stepped up a little bit in proposal efforts, thus far in the first quarter. We see strong potential for meaningful new bookings in 2014.

I will now turn the call over to Brian. Brian?

Brian J. Clark

Thanks, Charles, and good evening. NCI's results for the fourth quarter rounded out a year of solid operational performance for the company. Revenue was $82 million for the quarter exceeding the guidance issued by $7 million.

Earnings per share was $0.16, which you see at the top end of our guidance range by $0.05. The top line was due mainly to the higher materials purchases on several programs, higher than expected revenue from our PEO Soldier contract and to a lesser extent, award fees and other revenue gains.

EPS exceeded guidance largely as a result of the onetime gains, we said were possible. The higher revenue booked and to a lesser extent, lower general and administrative expenses, which yielded an operating margin of nearly 5% for the fourth quarter.

Lucas will provide more color on fourth quarter financial metrics in a moment. Gross bookings in the fourth quarter were approximately $30 million, with a resulting backlog of $488 million, December 31, 2013.

Potential needle-moving bids in response to RFPs, we expected to see in the December quarter, will pushed out beyond year-end, continuing the pattern, we saw throughout the last couple of years.

However, we are optimistic that these delays have run their course, as we are currently responding to a number of important RFPs, that we have been anticipating for well over a year.

And further expect several more in the coming months. We're excited to finally have the opportunity to bid on these programs and the prospects of significant improvements in the business bookings later this year.

After Lucas takes us through the numbers, I'll come back online and update everyone, on what we did to reposition NCI in 2013, and as a result, now we expect to meet our strategic goals in 2014, we will give.

Lucas J. Narel

Thanks, Brian, and good evening. For the fourth quarter of 2013, NCI's revenue decreased by 10.9%, $79.9 million. Year-over-year decrease in revenue was a result of the expiration of certain tasks, orders and contracts, decrease in revenue from our PEO Soldier program, and have reductions in scope of work on the contracts. This decrease is partially offset by revenue from the contract awards.

From the fourth quarter of 2013, our PEO Soldier contract accounted for 13.4% of total revenue, or $10.7 million that compares with 15.9% of revenue, $14.3 million in the fourth quarter of 2012.

Contracts, we are the prime contractor accounted for 92% of revenue in the quarter compared with 90% in the third quarter of 2013, and 89% in the fourth quarter of 2012.

DoD and Intelligence contracts made up 75% of total revenues, while Federal Civilian contracts comprised 25%. The DoD and Intel share was up 1 percentage point sequentially, and decreased by 2 percentage points year-over-year.

Fixed-price contracts accounted for 32% of revenue, up 2 percentage points from the third quarter of 2013, and up 3 percentage points year-over-year. Time and material contracts were 15% of revenue, down 1 percentage points sequentially, and down 8 percentage from the fourth quarter of 2012.

Cost-plus fee contracts accounted 53% on revenue, down 1 percentage point sequentially, and up 5 percentage points year-over-year.

GAAP operating income for the fourth quarter of 2013 is $3.8 million compared with a GAAP operating loss for the fourth quarter of 2012 of $54.3 million.

In the fourth quarter of 2012, we recorded an impairment charge, the remaining balance of our goodwill and a portion of our intangible assets totaling $58 million.

Excluding the impact of this impairment charge, we reported operating income of $3.7 million for the fourth quarter of 2012. Operating margin for the fourth quarter of 2013 was 4.7%, excluding the effects of the impairment charge, operating margin for the fourth quarter of 2012 was 4.1%.

Excluding this impact of the impairment, operating margin increased, primarily as a result of lower G&A costs, certain onetime gains, and reduced depreciation and amortization.

GAAP net income for the fourth quarter of 2013 was $2 million compared with a GAAP net loss for the fourth quarter of 2012 of $34.7 million. Excluding the impact of the impairment charge, net income for the fourth quarter of 2012 was $2 million.

GAAP diluted EPS for the fourth quarter of 2013 was $0.16. Excluding the impairment charge, diluted EPS for the fourth quarter of 2012 was $0.15.

Debit Sales Outstanding or DSO for the fourth quarter 2013 was 74 days compared with 66 days at September 30, 2013, an increase of 8 days. The sequential increase was caused by the timing of payments on certain contracts.

Cash flow provided by operating activities was $1.2 million for the quarter. Cash flow from operations was impacted by the delays in payment of bill receivables, which has largely been resolved now.

Cash flow from operations totaled $17.3 million for the full year. Capital expenditures totaled $1.3 million for the year, resulting in free cash flow of $16 million, or 2.1x net income in 2013.

Contract backlog at December 31, 2013, totaled $488 million, of which $195 million was funded. This compares with total backlog of $555 million at September 30, 2013, of which $163 million was funded.

Gross bookings on the fourth quarter of 2013 totaled $30 million.

Now moving on to guidance. For the first quarter of 2014, we expect revenues to be approximately, $74 million to $82 million and diluted earnings per share to be $0.12 to $0.14, on a weighted average diluted share count of 12.9 million shares.

We expect full-year 2014 revenues to be in the range of $280 to $310 million, and diluted earnings per share to be $0.40 to $0.50, on a weighted average diluted share account with approximately 13 million shares.

We estimate the interest expense for the first quarter of 2014, will be approximately $150,000 and $500,000 for the full year. Depreciation and amortization is expected to be approximately $1.5 million for the first quarter and $5.7 million for the full year.

Stock comp expense is expected to be approximately, $400,000 in the first quarter and about $1.7 million for the full year. We will continue to update you on future quarters as events and circumstances warrant.

And with that, I will turn the call back over to Brian.

Brian J. Clark

I want to start by adding some color to the guidance, Lucas outlined. As mentioned, we expect full-year revenue to be between $280 and $310 million. Midpoint $295 million assumes approximately, 88% comes from existing backlog, 7% from recompetes, and 5% from new business awards.

As for earnings, the midpoint of our annual EPS guidance is $0.45, important to understand how this EPS assumption, relates to key factors that drove our results in 2013, there impact going forward.

First, we spoke on last year's quarterly calls about the impact of onetime gains, such as award fees and the settlement of the purchase contingency related to our previous acquisition.

These onetime events contributed approximately, $0.12 to 2013 EPS. So, at $332 million in revenue, $0.60 would have equated to approximately, $0.48 on a purely operational basis.

Second in 2013, we posted an improved operating margin, net income and EPS, as a result of aggressive cost controls and improve contract performances, especially on fixed-price engagements. We expect, to continue to see the benefits of these initiatives this year, and these 2 factors that drive the midpoint of our fiscal 2014, EPS guidance.

Negligible onetime gains and more importantly, better contract performance and continue to improve the operating efficiency get us to $0.45 of EPS on a revenue midpoint of $295 million.

So our -- we're certainly pleased, with how our team has managed cost and improved performance on declining revenue base 2014, is the year -- the year, we're looking to see tangible results on the turnaround activities and investments for the past couple of years.

The good news is that we entered this year with greater confidence that the transformative base, we've been telling you about for some time now. Look as if many will finally be awarded this year. Our optimism for this year is driven in part by the improved political and budgetary environment.

While 2013 brought some of the worst instability and disruption, we've seen. The 2-year budget agreement reached last December, along with the follow-up spending bill passed last month, provides more certainty to our customers and for the first time in quite a while, they're able to meet to more reliably plan and commit funds. While the budgets are still greatly constrained, they're better than the full sequester would have brought and we're seeing an increase flow, previously delayed RFP in this first quarter. We expect the reward to also the follow this increased pace and many hitting throughout the year.

Today, we have nearly $500 million in bids submitted and awaiting award. And a healthy pipeline of bids that we expect to submit in 2014, would be greater number of them slated for submission in the first half of the year.

While its certainly possible, that we could see award activity in the first half. We expect, the majority of 2014 bookings will come much later in the year. Given the expected timing of our fees, and factoring and longer evaluation periods and protests. As such, we have baked in relatively little revenue for 2014 awards into our guidance.

And our primary objective is to set up fund foundation for bookings driven revenue growth in 2015. However, any meaningful new bookings in the first half of the year, would certainly move NCI's revenue number towards the top-end of the full year guidance.

And continued to qualify more of NCI's pipeline since last quarter. As of today, our pipeline stands at just over $10 billion, and both the qualified portion and the average bid size of opportunities showed increases from last quarter.

Of this approximate $10 billion pipeline, we expect a bid $2 billion in 2014, including approximately 15 having individual bid values of $50 million and more.

These numbers, of course, were dependent on RFPs, actually hitting streets, some of which have already been delayed by year or more from their originally advertised dates.

In addition to aggressively pursuing the business and practicing disciplined cost control, we'll actively pursue potential acquisitions this year, now that internally focused turned around activities are substantially complete.

Last quarter, we amended and extended our senior credit facility among other modifications, we now have lower interest rates and relaxed covenants to more efficiently pursue strategic acquisitions.

We began actively seeking synergistic, accretive targets to enhance our existing capabilities, or add new ones in expanded growth areas in the federal budget. These include areas such as cybersecurity, Health IT and select co-comps, among other areas.

I'm hopeful that we'll be able to complete the deal this year and accelerate our topline, as we head into 2015.

Before opening up the call, I want to restate NCI's commitment to return the company's topline growth and greater profitability. We believe, we have the pieces in place to pursue and win new awards in 2014. And we will continue to control costs and improve contract performance, as we sure up our backlog.

And with that operator, we will open up the call to questions.

Question-and-Answer Session

Operator

[Operator Instructions] We'll go first to Bill Loomis with Stifel.

William R. Loomis - Stifel, Nicolaus & Co., Inc., Research Division

I'm just looking at, you sound more positive fourth quarter, had the impact of the government shutdown as well, but yet, when I look to your first quarter guidance and extrapolate that even after fourth quarter kind of looks like you're expecting, sequential declines in revenues through '14. Despite the environment improving, is that being conservative or is there something that's -- that's dropping off further in through this year?

Brian J. Clark

Well, Bill. I think, what you are seeing is -- is that, as we had in the fourth quarter, we had some onetime revenue that came in the fourth quarter and we're also having that in the first quarter a lot of time that's related to materials purchases at -- frankly, I think, it's really a result of, what the budget situation has being going on, and that's the things have freed up or customers have -- have gotten better clarity there. They're going out doing some of the hard work on material purchases of that have been some pent-up demand, so we saw some of that come in late December, and we're seeing some of that into this first quarter and that's what driving the first quarter to be a little higher than the rest of the year. But I think, generally the message here is that if you look at it, maybe a little bit lumpy from one quarter to the next, a lot of times its driven by those kinds of things, but generally speaking, we kind of hit, what I would tell you is the balance point inside of the share, and were expecting to be heading on the way back up here.

William R. Loomis - Stifel, Nicolaus & Co., Inc., Research Division

And then, just one more on the government shutdown. In fact, what was it in the quarter both in terms of revenues and costs?

Lucas J. Narel

Yes, Bill, as we talked about the end of last call, we expected really just a few million dollars, as we reported at the end of October. There is what we saw, there was a couple of contracts, we had lingering concerns about that ran into November, those were resolved, and in fact, in some cases we're able to make up some of that missed work. So I'd say between $2 million and $5 million.

William R. Loomis - Stifel, Nicolaus & Co., Inc., Research Division

And on the margin side, was there any real impact, you just see that improvement margin or I guess also what were the onetime items that benefited onetime items there. Do you see the margin, can you quantify that?

Lucas J. Narel

Sure. I can kind of do it by -- by the diluted EPS obviously, we're happy to see that the revenue exceeded the top end of our guidance by quite a bit. I quantify probably 2 to 3 pennies just on the increased revenue, it helps absorb, our indirect support costs as well. So any revenue is accretive there. We also had the benefit of some of the award fees that were resolved, we've been talking about award fees for quite a while now. We're happy to say that the most of the backlog of the award fees have been caught up now. So we're pretty much up-to-date. We have fewer contracts now that do receive award fees, so we expect more of a normalized level of award fees going forward. But that brought in about a penny of earnings this quarter. In addition, we also pursue actively a lot of our old contracts that have been since closed, to go close those out with both our primes and subcontractors. This is not always an easy feat, so it's tough to determine, when exactly these things will occur, but we did -- we're able to close out several of those contracts in the fourth quarter, which provided some uplift there for about a penny. And other than that, it's really just a couple of things here and there related to contract performance. Some contracts are little bit better that was offset a little bit by a slight uptick in our effective tax rate in the fourth quarter.

Operator

[Operator Instructions] We move on to Edward Caso with Wells Fargo.

Richard Eskelsen - Wells Fargo Securities, LLC, Research Division

Rick Eskelsen in for Ed. I guess, the first question is, if I wonder if you could give a little more detail on, what you're seeing from your specific clients since the Ryan Murray and the Omnibus bills have happened. Are your clients now starting to get better clarity or is it still kind of trickling through before it gets down to the -- into the program management or the contracting officer area?

Marco F. de Vito

This is Marco. I would say, a couple of things are showing themselves across our client base. One is reluctance to add fund to task orders have seen to diminish and we're seeing an uptick in some of our task order work and funding being a little much consistent, and customers being more comfortable with that. The other real manifestation is this, slew of RFPs is that Brian talked about, which had slipped from a long time through last year and are now starting to hit. We saw them starting to hit, really at the end of last year, primarily though in January and in February and we will see some more in March. So those things show us that our clients are ready to commit the funds and -- and are not as reluctant as they were last year.

Richard Eskelsen - Wells Fargo Securities, LLC, Research Division

Great. And then on the DSO, the sequential increase. Are you seeing any underlying changes in client behavior, we've heard one of your peers saying that clients have kind of altered and pushed out some of their payment patterns?

Lucas J. Narel

This is Lucas. We're not really seeing anything across the board. From time-to-time, things pop-up with a particular customer that might cause an invoice to be delayed longer than we would hope. And as I stated earlier, for the most part, a lot of has been resolved. But I would expect our DSO to be in the high 60s or lower 70s. So, I don't anticipate any problems going into next year on that front.

Richard Eskelsen - Wells Fargo Securities, LLC, Research Division

Okay. And then, just last one from me, on the guidance. I think, Brian, when you're talking about the color, are you were saying at the midpoint of 45, it's a lot due to the improved operating performance, are there any -- can you quantify any one timers , it is in one timers, is it one timers that would push you to high-end, is that what you're trying to say, I'm just trying to make sure, I understand, your comments there on the guidance color?

Brian J. Clark

No. What I refer to the high-end of some of that revenue and that is if we had award activity happen sooner specifically, more on the -- in the first half of the year. If we saw some meaningful award activity that would certainly move our revenue targets towards the upright of the guidance. On earnings, the earnings that we put out, does not assume any material onetime events, there may be some -- there is always some good, bad. But last year, we certainly had about $2.5 million, or so is what equates that $0.12 of reference that we're kind of onetime, hiccups, if you will.

Richard Eskelsen - Wells Fargo Securities, LLC, Research Division

Okay, so just you're back to a more normalized pace after a big year in 2013. Got it.

Brian J. Clark

Yes. But I think what the -- I think it is important the color, I was trying to provide there was, if you look at it and say that last year, we came in at 332, if you kind of factor that stuff out, its not a perfect science, of course, but it's kind of factor that out-- kind of gets you in the upper 40s and I said $0.48. We're look at revenue number that to start the year out, it's going to about 10% below that and yet, we still think, we can hold-up earnings, so in other words, the margin on that would be incrementally better we have done, we continue and do so on a regular basis to evaluate infrastructure and indirect costs and where we can. Where it make sense, we try that, it's continued to make ourselves as lean as possible. So, that's an ongoing thing for us. And I think that's reflected in the guidance, that what -- that the point, I'm trying to get across there.

Richard Eskelsen - Wells Fargo Securities, LLC, Research Division

Okay. Maybe just squeeze one more in. On the M&A comments, are there any, where particularly, you're focusing into your M&A activity now?

Brian J. Clark

Well, we are looking at it from 2 fronts. Let me start by saying, in the past couple of years, we've really been on the sidelines from that standpoint is, as we've I think given quite a bit of color over the last 8 quarters or so of around internally focused rebuilding activity, turnaround activities to get us back, where we need to be. And those things, it just point out really done and behind us subsequently. And so, that was not a time, actually we not viewed as a time, where it made sense to take management attention away from the internal needs of the business. And also additionally, we had, we really wanted to shore up the balance sheet, we did that, we paid off all, we exit the year debt free. And if you roll back to clock a year ago, we are faced with the sequester coming to play that we're really knew how that was going to play out . We certainly don't want to go out -- didn't want to go out, and try to acquire something that they may have some real uncertainty around, what you're really going to get for it in the end and so now that all those things are substantially behind us. We want to reintroduce that and refocus that as a important part of our growth story going forward. Now, we're looking acquisitions on a couple of fronts. I think, it's important as we talk about before, we need to really get ourselves to more normalized margins, we continue to focus on -- on infrastructure and costs, but that has limitations and what we really need to do is -- is move the top line up. So we can do that organically, inorganically will -- acquisitions will help that as well and that will -- will get us back to more normalized and improved margins. So scale is important, but yet, you should not expect to see as just go out and do something, it's a pure bolt on, does not really bring any new incremental value to us. On the higher value side, the things that would be of interest towards things I said like, cybersecurity, Health IT, selected co-comps, those are areas that we'll certainly focus on, those are also areas that we'll probably, those are going to be generally more expensive. So they -- which goes against the concept of having a larger deal. So we're looking at it from both fronts, either one, I think is fine, if we can have find those ones that bring higher strategic value that's obviously, more interesting to us. But, adding some more scale on maths of the company is also a very attractive as well

Operator

And we'll now hear from Mark Jordan with Noble Financial.

Mark C. Jordan - Noble Financial Group, Inc., Research Division

Question relative to the new business effort. You talk about the transform, the way you pursue business, could you talk about specifically, the characteristics of the business that you are going after? And then, how do you track those opportunities up as they sort of move through their gestation process?

Marco F. de Vito

I would say that a lot of the larger jobs that we're pursuing are in line with our core business a lot of enterprise, infrastructure support kinds of contracts. And I would say that the way we -- we pursue these is to get in front of them a lot sooner and to resource those pursuits a number of months before, we expect the RFPs to come out, looking at the best way to put a right team and right solutions forward. And, it's really the nuts and bolts of the business pursuit and doing it early enough and resourcing it correctly and adequately.

Mark C. Jordan - Noble Financial Group, Inc., Research Division

Okay. Second question relative to the business model, which you have 5%, new business assumption is relatively speaks pretty conservative. What on the optimistic side, given the pipeline that's out there, if things were to fall into place better -- clearly better than expected? What percent could that represent of your revenue stream, could it be up 10% number, or 15% number?

Brian J. Clark

Mark, I mean, it absolutely could. But I would tell you that the a lot of the physics wouldn't disallow that, but that would require the things that we have really to move that needle and that significant fashion that would mean that, but things that $500 million that I referenced earlier is really in a very limited number of bids. And we had to certainly pick off at least one of those and would have to happen, pretty soon. To start generating revenue, of course, certainly, I think that a real scale that gets awarded. Hopefully, we are successful in pulling those in, we also have to account in that, we will see protests and delays. I mean, just to underscore that, this past fall back in September, October timeframe, we won a contract that was a $16 million in value. They got protested and delayed for a couple of months, and got re-awarded to us. We really have protested again dragged on that contract just started up, literally on Monday of last week. So, even on things that are -- while into $16 million contract is -- wonder was -- we're very excited to win those important to us strategically, not terribly -- terribly big, but it's still even things of that size are getting significant delay. So certainly, the protest environment gets even more intensified as the size those awards go up, you got to take all the things in account as well.

Mark C. Jordan - Noble Financial Group, Inc., Research Division

Okay. Final question, for me, if you're looking at the current year, and thinking about your M&A opportunities, what is the amount of capital that you have to invest in 2014, both of our sources internally generated funds that is sort of your how would you define your award chest?

Brian J. Clark

Well, I mean the real -- the very conservative number mark would be -- just operating purely within our existing credit facility and not taking into account necessarily what the financial characteristics of a acquisition target would bring to us. So, in that kind of conservative answer would be somewhere in the order of about $70 million, $75 million through the course of year, now we're taking account, any cash we generated on hand, before hand plus the $80 million facility that we have available to us. It's certainly, if we do something that really made sense it was larger, we're not afraid to go after something like that. You might expect the competition on larger deals is similar to the bidding environment. It gets more competitive and more on the pricing goes up as well. So we saw the right thing, we're not afraid to go after it, and that maybe, we need to do some additional gymnastics on the financing front. But what we've got right now gives us -- certainly gives us, pretty good capital to go out and get some things done that have been certainly move the needle for us.

Operator

[Operator Instructions] You next question will come from Tobey Sommer with SunTrust.

Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division

You mentioned a better flow of RFPs and contract activity early in the year so far. Do you think that's a, you're characterizing the market or is that your own experience and perhaps not characteristic of the broader market?

Brian J. Clark

Well, we can largely just talk about, what are our own experiences, but we think, there a lot of it's been tied up a, lot of things, we've been waiting on and have been tied up because of the all the budget uncertainty, as some of that has now freed up. We see customers putting these things out so it's our logical connection that's, that's what's happening there and I'd assume that it's only logical to assume, that is happening in the broader market, but it's absolutely, the case for us things that we've been -- been waiting on for in some cases a very long time are now finally coming out on our fee form first, that to bid on.

Lucas J. Narel

Tobey, the one thing, I would add is that, I think, there is a pent-up demand here, we saw both in our own space and our competitors space a lot of opportunities are a lot of incumbent work was continued on and follow-on tasks were provided rather than competed throughout last year and I think that looks to be reversing. So, it looks pretty wide-spread.

Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division

Maybe just to a delve into it a little bit further, do you see it from a particular set of customers or is there any way, you could delineate and how you are seeing your customers behave, whether it's -- I don't know how it want to stratify perhaps, civil versus military or across some other dimension?

Marco F. de Vito

I can't say with say that a lot of the opportunities, we are looking at right now are DoD oriented opportunities. But to be honest, some of those civilians space that we're looking at, is having a lot of the same activity as well. Now I wouldn't characterized it as just one segment of the market.

Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division

Okay. That's helpful. Could you remind me, what the total liquidity is that you have now, since you're going to perhaps look more intently at M&A?

Brian J. Clark

You mean, our borrowing capacity?

Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division

Yes.

Brian J. Clark

We've a -- our credit facility is $18 million worth a credit facility allows for?

Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division

Sorry. No, no it's okay. Sorry to interrupt.

Lucas J. Narel

No. I was just saying it's, the base facility you got is $80 million, you got an accordion fee strong there, let's take it up another $45 million or so. But that's -- it's just already provided for in there, its still another point of maybe going to get back to our bank group to bringing those additional commitments. But, we are comfortable with what we have got, we think, it'll suit the needs that we have for today. And like I said, if there is something that we think makes sense is larger and requires -- a larger financing package, I don't view that as an impediment I think that the lending group that we have involved or that works with us is -- is been -- being really great to work with, we worked with them personally, over the number of years that have been partners with NCI for a longtime as well. In a bit very encouraging that work with past several years. So, we got, what we believe is necessary to achieve what we would like to, we want to go bigger, we can go bigger, but for now, we think, we got...

Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division

Okay. Just one follow-up on that, And I'll get back in the queue. Given the budget being passed in a better flow of contracts, do you sense that consummating a deal in expectations on the -- the seller's side maybe higher?

Brian J. Clark

I don't know Tobey. That would -- I don't know that would be necessarily a big driver, I mean, I look the message here is we're going to turn that, we're going to turn M&A activity back on, as I says it been turned off for couple of years. It's something, we're very interested in, it's important tool in the box for us to grow. But we've got find the right things and you know frankly, we look that, we look lightly over some stuff over the past couple of years, just so we keep a toe in the water and keep an eye on things. And it's been some good ones and there has been a lot of things that are not so attractive. So, it's been largely be dependent on what's actually, what we actually see and what the expectations are. I think that we more to come on that, as we go move down the path and see -- see out there, we're not going obviously not going to jump in this. Jumping and doing deals just for the sake of doing them, that got to be good ones, but we will see how that pricing lines obviously, it's better, better companies are going to demand bigger evaluations and that's the way it works.

Operator

Moving on to Gautam Khanna with Cowen.

Gautam Khanna - Cowen and Company, LLC, Research Division

Brian, could you talk about maybe, you said this, but percentage of business after we recompetes this year? And what we recompetes represent in your outstanding debt pipeline?

Brian J. Clark

Well, what I've said, the outcome was that about 7% of the revenue in this year would come from recompetes. That's not necessarily, the value, the value of the given that recompetes curve through the course of the year. So we have things that, we have recompetes that are submitted awaiting evaluation right now. We have recompetes that are -- that will be worked on over the summer, and there are some that will for example, contract at it's end date is in end of September, so you got a quarter at risks that would fall into that recompete revenue number. So I don't deal with values.[indiscernible]

Lucas J. Narel

I would estimate that value to be about $40 million, $50 million would be my guess for this upcoming year.

Gautam Khanna - Cowen and Company, LLC, Research Division

Okay. And just, so your point Brian is 7% of the revenue guidance states that is that risk to recompete, but in terms of percentage of the annual base that's actually help to recompete, is it a normally 20% to 30% or is that ...

Brian J. Clark

Yes. Yes it's about, normally a year in terms of what we had in the numbers that are giving us, if we lost all of our recompetes and then you directly think $7 million or say 7% of the guidance that will come out, so you take about $20 some million out.

Gautam Khanna - Cowen and Company, LLC, Research Division

Okay. And just, in terms of the bids, you have been submitting and that you planned to submit it. Are these, do you expect that if you were to prevail these would be margin, accretive margin, accretive to the existing base or would they be, how do they compare to where we are today. So if you were to get these, I understand the leverage on the G&A line, but maybe if you could talk about contribution margin?

Brian J. Clark

So the answer is -- it's a mixed bag. Okay, some things, we're going to be, some things that are tight on margin frankly, some things have a richer margin profiles. But, you really hit the nail on the head -- what you really have to do is to look at what that contribution margin is to the overall company and that is on a contribution margin basis certainly, most anything you look at would be probably be some sort of double-digit range, when you look at what the impact is on the overall bidding on a contribution basis.

Gautam Khanna - Cowen and Company, LLC, Research Division

Okay. And is it fair to I think, we've had a couple of years of paying and the factor, I just wonder, given your comments on the budget and what were seeing coming out of DoD, is your view that we've now hit the trough that you will in terms or just overall, service demand dollars and if so what kind of looking to anticipate the growth rate will be off of that over the next couple of years and asking you to just project your, I holding it to any color would be great?

Brian J. Clark

You mean, what our customers are saying what our growth rate would be?

Gautam Khanna - Cowen and Company, LLC, Research Division

The market, the market. I mean, that obviously is a company is doing their own things, but I mean, at the market, we've had declining growth for a couple of years, I mean have we finally hit bottom and is the market do you think in the next couple of years is actually growing out of the space.

Brian J. Clark

I guess, I'd say that the market is stabilizing. And that's a significant improvement, we're looking forward to the day, when we see growth, right now we see stability.

Gautam Khanna - Cowen and Company, LLC, Research Division

Okay. Last thing, I just wanted to ask, I mean, you mentioned M&A as a increasing priority. I just wondered like, where specifically do you want to add capability and just your thoughts on leverage at this point in the cycle given the opaque visibility, we have on the macro. I mean, you talk about $80 million within an accordion feature, but what are the types of things are you hoping to fill and what kind of leverage are actually comfortable with.

Brian J. Clark

Yes. Leverage our existing, I'll answer it in reverse, our existing facility allows us leverage up to 3x on a pro-forma within acquisition, its a little bit lower than that right out of shoot. I mean, if obviously, you have a larger deal, the different financing package and all that stuff, you can certainly put leverage on, in excess of that, I'm comfortable going above 3, I don't know if I'd really like going above 4. So, probably somewhere in that range, but what we got right now is, it's really just a senior credit facility. Line of credit, but it allows it's pretty easy for us to its very easy for us to access that as longer as we're living in the parameters and we think that will serve our needs for doing the types of acquisitions that we would target at this juncture. As I said before, if you look at strategically, the areas would be a greater interest, will be areas in cybersecurity, Health IT and some of the select co-comps. So those would be modeling simulation, training would be another area of interest, but there is a number of areas that we believe have that will be continued to be well-funded, of course, our would be areas that would be -- would be focused on.

Operator

Well, ladies and gentlemen there are no further questions. Mr. Clark, I'll turn the conference back to you, sir.

Brian J. Clark

Okay, thanks. Thanks, everybody for joining, if you have -- anybody that has any follow-up questions certainly, don't hesitate to e-mail or call us and we'll be happy to us to get back to you with any clarifications that you may have. Thanks, again.

Operator

And again, ladies and gentlemen, that does conclude our conference for today.

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