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Engility Holdings, Inc. (NYSE:EGL)

Q4 2013 Earnings Conference Call

March 13, 2014 05:00 PM ET

Executives

Dave Spille – Director-Investor Relations

Anthony Smeraglinolo – President and Chief Executive Officer

Michael Alber – Chief Financial Officer

Analysts

Patrick J. McCarthy – FBR Capital Markets & Co.

Bill R. Loomis – Stifel, Nicolaus & Co., Inc.

Brian W. Ruttenbur – CRT Capital Group LLC

Mark C. Jordan – Noble Financial Capital Markets

Edward S. Caso – Wells Fargo Securities LLC

Operator

Good day, ladies and gentlemen, and welcome to the Q4 and Full Year 2013 Engility Holdings Inc. Earnings Conference Call. My name is Whitley and I will be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session (Operator Instructions). As a reminder, this call is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. Dave Spille, Director of Investor Relations. Please proceed sir.

Dave Spille

Thank you. Good afternoon and thank you for joining us to discuss our fourth quarter and full year 2013 financial results. Please note that we have provided presentation slides on the Investor Relations section of our website. On the call with me today are Tony Smeraglinolo, President and CEO and Mike Alber, Senior Vice President and Chief Financial Officer.

Today, Tony will provide an overview of our operating performance and then Mike will discuss our financial results and outlook for 2014. We then will close with a question-and-answer session.

Management may also make forward-looking statements during the call regarding future events, anticipated future trends and the anticipated future performance of the company. We caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Actual results may differ materially from those projected in the forward-looking statements due to a variety of factors. These factors are described in the 2013 Form 10-K. We do not undertake any obligation to update forward-looking statements.

Management will also make reference to non-GAAP financial measures during this call. We remind you that these non-GAAP financial measures are not a substitute for their comparable GAAP measures, and reconciliations and other associated disclosures required by SEC rules are included in our earnings press release and presentation slides.

I will now turn the call over to Tony.

Anthony Smeraglinolo

Good afternoon everyone and welcome to our fourth quarter and 2013 year-end earnings conference call. 2013 marked the end of our first full year as a publicly traded company. During the year, we continued to build upon our 40-year legacy of providing exceptional results and value to our customers. We also enhance our reputation as a first mover and market leader through significant financial organic and inorganic accomplishments.

I am pleased to report that our fourth quarter and year end results either met or exceeded the guidance ranges we issued on our last earnings conference call.

For fiscal year 2013, we reported revenue of more than $1.4 billion, adjusted earnings per share of $3.45 and cash flow from operations of more than $150 million; this significantly exceeded our $110 million to $130 million guidance range. In addition to these results, we reported a very strong fourth quarter of funded orders and backlog. We closed the quarter with a book-to-bill ratio of 1.1 times.

We are very pleased with these results given the challenging industry conditions and the government shutdown that occurred in the fourth quarter. We also continue to improve our win rates and reported a number of single-award and IDIQ contract wins during the fourth quarter.

They included $142 million option year under our Forfeiture Support Associates joint venture to provide professional, financial and legal support to the Department of Justice, a $30 million single-award contract to provide engineering and technology support to the U.S. Navy’s Aircraft Launch and Recovery Equipment program, a prime position on a $4 billion DTRA multi-award contract to provide technology and engineering services to support research and development for combating weapons of mass destruction and a prime position on a $50 million multi-award contract to provide a range of engineering and technology support services for the U.S. Navy anti-submarine warfare (ASW) sensor systems. 2013 was a foundational year for Engility and I’m pleased with the progress we continue to make as a new public company. We continue to focus on controlling what we can control. We’re benefiting from strong performance on our customer programs and from our business model which differentiates us from our competition.

During 2013, we achieved a number of significant accomplishments, including reducing our adjusted SG&A expenses by more than 37% or $42 million, increasing cash flow by more than 340%, lowering DSOs by 16 days since the first quarter of 2013, improving our adjusted operating margin to 8.7% compared to 7.8% in 2012, winning seven major IDIQ contract vehicles during the year bringing our total ceiling value to more than $19 billion since our spin-off in July 2012, closing on a new senior secured credit facility which significantly reduced our future interest expense and provided the necessary capital to execute our inorganic growth strategy. And last but not least we ended the year by announcing our intent to acquire Dynamics Research Corporation. This acquisition was subsequently closed in January 2014, is expected to be accretive to our 2014 earnings and significantly accretive to 2015 earnings and beyond. It also had scale to our business and expands our addressable markets, customer base and capabilities.

Over the last several years, our revenue has been impacted by the drop-down of in-theater activity, the DRC acquisition helps reposition our service offerings to more enduring efforts in areas such us high performance computing, healthcare IT, financial and regulatory reform and intelligence. This repositioning will further enhance our future growth prospects.

As we look forward, we have confidence in our business and its long-term potential. We realize DoD and Federal civilian budgets will continue to be under pressure. However, we are encouraged that the Federal government ultimately passed the Bipartisan Budget Act of 2013, would set DoD and Federal civilian agency spending targets for fiscal years 2014 and 2015. We’re optimistic that this will provide our customers with a fiscal clarity and program stability they need to make timely cost affective purchasing decisions. We already appear to be benefiting from this uncertainty as we’ve seen a substantial increase in proposal activity over the past couple of months. We expect this additional volume will result in increased award activity during the second half of 2014.

We will continue to effectively manage what we can control. We’re building momentum on what we credit in our fiscal year as a publicly traded company and we’re excited and encouraged by the large number of opportunities that exist within our market. We feel that we are well-positioned in our industry with extremely talented employees by broad set of capabilities and the right business model to further drive market share gains and shareholder value in 2014 and beyond.

I would now turn the call over to Mike to discuss our financial highlights.

Michael Alber

Thanks Tony, and welcome everyone. We will be discussing our financial results today on an adjusted basis which excludes $8 million of restructuring costs, primarily related to lease impairments on facilities that are not being utilized, $1 million of legal and settlement costs, $2 million for non-income tax expense and $1 million in acquisition related costs. We believe our adjusted numbers provide a meaningful comparison to our prior and future results. So please note that we provided a GAAP reconciliation in our press release and in our slide presentation.

As Tony indicated, we are pleased with our fourth quarter results. Total revenue of $329 million was near the high-end of our implied Q4 guidance range of $312 million to $332 million. Our revenue decline from last quarter and last year was due to lower in-theater activity and lower revenue from contracts either ended or reduced in scope. We are unable to offset these declines with the expected new award activity given the cumulative effects from sequestration furloughs, the government shutdown and a political uncertainty that existed throughout the year.

As expected, fourth quarter adjusted SG&A costs decreased by $3 million from last quarter, primarily as a result of decrease in our gross receipts tax and legal expenses. Adjusted SG&A costs decreased by $17 million from the fourth quarter of 2012, primarily due to cost savings initiated during the last quarter of 2012 and the realignment we implemented at the beginning of the year.

For the 2013 full year, we reduced our adjusted SG&A expenses by more than 37% or $42 million, primarily due to the cost reductions, ongoing cost controls and realignment initiatives previously mentioned.

Our fourth quarter adjusted operating income was $31 million, resulting in an operating margin of 9.3%. This compares to an adjusted operating margin of 8.9% last quarter and 7.1% in the prior year period. The increase in our operating margin from the September 2013 quarter primarily was due to the continued cost discipline and the favorable resolution of disputed costs under one of our contracts.

Our adjusted tax rate in the fourth quarter was 34.1%, which was lower than we expected due to an increase in the mix of joint venture income and the settlement of an outstanding foreign income tax matter.

Adjusted net income for the quarter was $18 million, which is up $14 million last quarter and $13 million in the prior period. Our adjusted diluted EPS for the fourth quarter of 2013 was $1 per share compared to $0.80 last quarter and $0.77 in the prior year period. Our fourth quarter 2013 EPS includes the net benefit of approximately $0.11 due to the recovery of disputed contract costs I mentioned earlier.

Now let’s turn to the cash flow statement and the balance sheet. We reported strong cash flow from operations of $41 million in the fourth quarter and $151 million for the full year. Our 2013 cash flow increased by more than 340% and our DSO decreased to 73 days, which is down four days from last quarter and from the prior year period. Our DSO is now down 16 days below our peak of 89 days in the first quarter of 2013.

For fiscal year 2013, our free cash flow was $148 million, which translates to a free cash flow yield of approximately 19% at $44 a share. The increase in cash flow and lower DSO level were primarily the results of process improvements we implemented throughout the year to increase our cash velocity. I’m particularly proud of the company’s efforts last quarter as we achieved these strong results in the midst of a government shutdown for part of October.

During fiscal year 2013, we used 92% or $139 million of our annual cash flow to reduce net debt by 45%. Our fourth quarter net debt to trailing 12 months adjusted EBITDA leverage ratio was 1.2 times. Our net debt to trailing 12 month adjusted EBITDA ratio was approximately 2.4 times when you incorporate the DRC acquisition into our financial statements as of December 31, 2013.

Moving to backlog and funded orders, we ended the fourth quarter with $602 million of funded backlog and $357 million of funded orders. This equates to a book-to-bill ratio of 1.1 for the fourth quarter. On a trailing 12-month basis our book-to-bill ratio was 0.82 which is inline with our peer group. Now I will discuss our guidance.

For 2014, we are establishing a revenue guidance range of $1.45 billion to $1.55 billion. This guidance equates to a revenue growth of between 3% to 10% and includes 11 months or approximately $230 million of revenue from DRC. This range also includes approximately $110 million of in-theater revenue compared to the approximately $225 million we generated in 2013. I also want to mention that we anticipate our 2014 quarterly revenue to sequentially increase throughout the year as we expect to benefit from recent wins and increased award activity throughout the second half of this year.

In terms of our operating margin, we have done a very good job of driving costs out of our business to ensure we maintain our cost competitive advantage. We also feel we have positioned ourselves well for the drawdown of in-theater activity by repositioning our capabilities to more higher-end service offerings. However as we enter 2014, we will experience margin headwinds as some of our more profitable in-theater contracts continue to wind down and some of our high margin fixed price and TNM type contracts convert to cost plus.

As a result, we expect our adjusted operating margin to be between 7.3% and 7.8% in the fiscal year 2014. We expect our first quarter adjusted operating margin to be approximately 6% and then sequentially increase throughout the reminder of the year. Our first quarter margin will be impacted by payroll tax seasonality and fringe benefit expenses. 2014 GAAP diluted EPS is expected to be between $2.24 and $2.70 per share and our adjusted diluted EPS is expected to be between $2.70 and $3.20, cash flow from operations is expected to be between $95 million and $105 million. This includes $8 to $9 million of integration expenses.

Key assumptions in our 2014 guidance include; an effective tax rate of 39%, a diluted share count of approximately $18.4 million shares, adjusted SG&A expenses of approximately $80 million to $90 million, which excludes integration expenses of $8 million to $9 million, net interest expense of approximately $16 million, capital expenditures of approximately $5 million and adjusted depreciation and amortization of approximately $15.7 million. This figure excludes $5.8 million or $0.19 of additional amortization of intangible asset expenses associated with the DRC acquisition, which is excluded from our adjusted EPS range.

And with that, I will open up the lines for questions. Operator, would you please explain the Q&A process.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Patrick McCarthy with FBR Capital Markets. Please proceed sir.

Patrick J. McCarthy – FBR Capital Markets & Co.

Hey good afternoon guys. Thanks for taking my questions.

Anthony Smeraglinolo

Hey Patrick.

Patrick J. McCarthy – FBR Capital Markets & Co.

My first question is, so now you’ve gotten to know DRC a little bit and you have a better understanding of the contract vehicles, I’m just wondering what do you see in the way of potential revenue synergies for the legacy Engility now that you have access to those vehicles?

Anthony Smeraglinolo

Patrick, really haven’t broken it up, Engility DRC. As we said, when we did the acquisition, we are going to fully integrate this. We think that what this does for legacy, if we were going to take a look at the legacy businesses. As we said, with DRC, this gives them a whole new marketplace, but then to bring their high performance computing healthcare and for us, this gives us the access to Air Force and vehicles that we didn’t previously have in the past.

So as we take a look at that total company as that integrated company, we really get excited about the future plus as we’ve always talked about, scale matters and getting a company of this scale certainly has helped us take those buyback costs over that broader base.

Patrick J. McCarthy – FBR Capital Markets & Co.

Okay. On orders front, obviously the fourth quarter very strong relative to what you saw in the rest of the year or beginning part of the year, how does the first quarter feel to you, do you feel like things have loosened up a little bit, now that you have the agreement, the budget agreement?

Anthony Smeraglinolo

We are seeing the deal flow increase. Our proposal department is that this has been since the 18, 19 months since we spun. As we are saying in some of the prepared remarks, I think we’ll see that start to manifest itself Q2 and beyond. So again we are encouraged about what we see in terms of Q2 and beyond. We do think that there is still that lag that we are going to see by the time these opportunities, these pursuits turn into actual revenue.

Patrick J. McCarthy – FBR Capital Markets & Co.

Just semantically thinking about NextGen’s 2014 versus 2013, do you think a book-to-bill of above 1.0 is potentially achievable?

Michael Alber

Yes, I think it’s going to be better this year. I think it’s going to approach one, most probably in the mid 94%, 95%.

Patrick J. McCarthy – FBR Capital Markets & Co.

Okay, great excellent thanks for the details.

Michael Alber

Thank you, Patrick.

Operator

Our next question comes from the line of Bill Loomis of Stifel. Please proceed.

Bill R. Loomis – Stifel, Nicolaus & Co., Inc.

Thank you, good afternoon. Looking at the fourth quarter, the $0.11 benefit what was that before you closing out of contracts or was this for something in the past?

Michael Alber

Yes, this was an item that we have on a contract that there was a dispute of concerning the direct costs on that particular contract. As we closed on a lot of these contracts a lot of the portfolio there, we have various issues with different contracts, whether there will be billing or whether there will be collection issues as well, so this is one within the portfolio that we were able to close out this year.

Bill R. Loomis – Stifel, Nicolaus & Co., Inc.

Okay, but you left that in your adjusted EPS you didn’t take that out on the $1.

Michael Alber

Correct.

Bill R. Loomis – Stifel, Nicolaus & Co., Inc.

Looking to, and then just in 2014 on DRC, Tony you mentioned you expected DRC to be accretive. I assume you mean excluding the integration costs and excluding the amortization of the intangibles that you took out of the adjusted EPS?

Anthony Smeraglinolo

Right. So Bill with regards to the accretion statement, we do expect from a cost takeout standpoint that the amount of cost takeout that we will yield this year will exceed the integration expenses and so that’s why when we look at it on a accretive basis that is slightly accretive, yes.

Bill R. Loomis – Stifel, Nicolaus & Co., Inc.

Okay and…

Anthony Smeraglinolo

As we said 2015 to be on us, we have the full year of synergies and cost take up.

Bill R. Loomis – Stifel, Nicolaus & Co., Inc.

And you mentioned the adjusted margin in the first quarter will be 6%. So again that is excluding the restructuring cost and amortization right?

Michael Alber

Correct.

Bill R. Loomis – Stifel, Nicolaus & Co., Inc.

Okay.

Michael Alber

Really what we’re seeing is compression in that first quarter due to, one, the number of dates that are recurring in the quarter, seasonality with regards to some fringe benefits and payroll taxes as well.

Bill R. Loomis – Stifel, Nicolaus & Co., Inc.

Okay.

Anthony Smeraglinolo

Just put a fine point on it, so there is no ambiguity. We only have 11 months of the DRC revenue at earnings, since the deals have been closed on January 31.

Bill R. Loomis – Stifel, Nicolaus & Co., Inc.

Okay. And what’s the plans on the integration? Can you tell us what’s some of those costs you are going to involve and when do you expect the DRC to be fully integrated both from a system standpoint, looking at your business systems and then as a unit and organizational standpoint?

Anthony Smeraglinolo

Sure. So we’re going and taking a very methodical approach towards integration, really going through their portfolio, their systems, their network as well and really putting together a fairly detailed plan. With regards to integration expenses, they will include mostly things like severance costs and then other third-party expenses in order to convert systems and bring in some third party assistance to help bring on their network in our accounting systems and ERP systems as well.

Bill R. Loomis – Stifel, Nicolaus & Co., Inc.

And do you expect everything to be done by the end of this year or in six months? When do you expect it to be kind of fully integrated? So we don’t have any more adjustments?

Anthony Smeraglinolo

Right. So the lion’s share of adjustments will be booked this year. We do expect as with any kind of integration and activity that there’ll be some small piece of that tailing into 2015, but for the most part the lion’s share of it will be booked this year.

Michael Alber

As we said, when we did the acquisition, it’s our attempt to go as the one Engility in 2015. So it’s fully integrated, we’ll go to market as one company.

Bill R. Loomis – Stifel, Nicolaus & Co., Inc.

Okay, great. Thank you.

Michael Alber

Thank you Bill.

Operator

Your next question comes from the line of Brian Ruttenbur with CRT Capital. Please proceed.

Brian W. Ruttenbur – CRT Capital Group LLC

Yes thank you very much. First of all, on gross margins in the year, can you address that where you are seeing gross margins and may be by quarter, because it have the similar ramp where it starts low and works it way out and then can you give us a ballpark on the year?

Michael Alber

For 2014, the guidance that we’re putting up for gross margins is, we’re really looking at a range of between 12.8% to 13.6%. There is a little bit of lumpiness there with regards to the gross margins just as we have different work rolling on and a new work rolling off.

Brian W. Ruttenbur – CRT Capital Group LLC

Okay, but it will start off with the lowest gross margin in the first quarter and work its way up or were there be some lumpiness seasonality with lower gross margins in the fourth quarter versus third quarter and things like that?

Michael Alber

Yeah we expect gross margin in the first quarter to be the lowest of the four and then starts plateauing out after that.

Brian W. Ruttenbur – CRT Capital Group LLC

Great. In terms of M&A plans now that you’ve played DRC, do you have and you have good cash flows this year, is the plan to continue to consolidate or you going to use your cash to pay down debt or buyback stock, what are the plans?

Anthony Smeraglinolo

Brian, it’s that we have always said. Our first priority is to deleverage. We’re going to pay down debt. That being said, as you just noticed with last year as we get the leverage down to where we are comfortable and we see an acquisition that really set as with scale, new capabilities, new customers, actionable on our part and we will take a loot at that. If it’s a compelling value, we thought DRC was a very compelling value for us and we stepped out and did that. Even with that, we are still at very comfortable leverage ratios, so this year we will digest that, we’ll pay down more debt and as opportunities present themselves, we will take a look at that.

Brian W. Ruttenbur – CRT Capital Group LLC

Where is your leverage ratios oppose to DRC? What are you total debt outstanding?

Anthony Smeraglinolo

We are on a trailing 12-month basis, it’s 2.4 times.

Brian W. Ruttenbur – CRT Capital Group LLC

And what's your total debt with DRC?

Anthony Smeraglinolo

Total debt, we have about $200 million or $275 million on the term loan and about $170 million on the revolver.

Brian W. Ruttenbur – CRT Capital Group LLC

Okay and that’s with DRC, right?

Anthony Smeraglinolo

That’s correct, yes.

Brian W. Ruttenbur – CRT Capital Group LLC

Okay, perfect. Thank you very much.

Anthony Smeraglinolo

Thanks Brian, thank you.

Operator

(Operator Instructions) Your next question comes from the line of Mark Jordan with Noble Financial. Please proceed sir.

Mark C. Jordan – Noble Financial Capital Markets

Yes, good afternoon. What is your DSO goals for year-end 2014 with the inclusion of DRC?

Michael Alber

With regards to that, we continue to look at process improvements there, we are looking to really end the year kind of in net industry average in the low 70s. We don’t provide specific DSO targets for the year.

We continue to look for improvements going forward. We had a significant decrease this past year by reducing it almost 16 days since beginning of the year, so we are going to look for similar improvements going forward that’s one area that the corporation is very forward leaning and something that Tony spend a lot of his time working with the organization as well to make sure that everybody is very forward leading and really grasp the importance of cash flow and DSO dynamics as well.

So the most guidance I could provide is that we will look to continue to improve that going forward this year.

Mark C. Jordan – Noble Financial Capital Markets

Okay. Could you elaborate a little bit on in terms of the cost savings you expect to realize? I think you said that you expect to earn back the $8 to $9 million that you will incur this year? How much cost do you expect to take out over the entire range of the integration program?

Michael Alber

We haven’t provided that specific number yet and part of it is due to that fact that we’re still working a number of integration activities and planning out those activities as well. Obviously we’re going to be looking at duplicate functions that are out there. We are going to be looking for synergies by bringing them on to our network, our ERP systems and integrating most of the back office functions into Engility as well.

So from that stand point, those are kind of the traditional areas that we’re going to be looking at. Also some of the changes that have occurred already or just some changes within the org structure, within DRC and some of the reporting lines that are there as well. So as we continue to mature and our plans continue to progress as well, we will be looking for these cost synergies going forward.

This is something that we do quite well after having integrated that the five operating divisions within Engility into a single unit. So the organization is very focused on looking at being able to eke out these efficiencies going forward.

Mark C. Jordan – Noble Financial Capital Markets

Okay. Final question; relative to if you talk a little bit about the complete schedule you have for 2014 and then can you quantify, what level of contracts are transitioning to lower margin cost plus?

Michael Alber

With regards to that, when you take a look at it at, anyone at any point of time about third of our contract portfolio is turning over and that is always a mix of new business re-competes follow on as well. So we don’t specifically guide towards those individual buckets within that, but I think, we are fairly similar in terms of our overall portfolio with most of our peers as well, so that’s kind of where we are leaning toward in terms of looking at the portfolio next year.

Now with regards to contract mix, once again, we haven’t put out the specific guidance on that, but we will see our overall percentages of cost type work still end up around 50ish are little less than 50%ish range for next year.

Anthony Smeraglinolo

And Mark just, got a fine point on it as well, when we talk about those re-competes, Mike is right at the macro level. There is no re-compete that we have in 2014 that rise to the value of 2% of our revenue. So we will have some small re-competes, they are not unusual, this is just normal flow of business, but we don’t have those major re-competes coming up in 2014.

Mark C. Jordan – Noble Financial Capital Markets

Okay, thank you very much.

Anthony Smeraglinolo

Thank you, Mark.

Michael Alber

Thanks Mark.

Operator

(Operator Instructions) Your next question comes from the line of Edward Caso with Wells Fargo. Please proceed.

Edward S. Caso – Wells Fargo Securities LLC

Hi, good evening. I was hoping you could give us some more color to the current pace of award activity? You said your submittal shop was cranking up here, is that in response to particular comments or particular moves by your clients or you are just anticipating that they will finally get moving?

Anthony Smeraglinolo

Yes, what we’re seeing is those past quarters that $19 billion worth of tax quarters, start to break loose that we thought that was going to be happening in 2013 and with the paralysis of 2013, with budget uncertainty, just put a hold on those. On assets [Indiscernible] $7.5 billion IDIQ vehicles, we have already had that two we are working for more at this point in time, the Pillar contracts down in Charleston, we are seeing those break loose.

So all the things that we thought would happen in the second quarter and third quarter of 2013 is breaking loose in our first quarter. We also have a very good activity with [Indiscernible] that $30 million to $50 million range that we are working right now.

So not only that we are seeing to deal with these principles, we are seeing our civilian and state department work. So across the Board, really we are seeing all the activity starting to increase.

Edward S. Caso – Wells Fargo Securities LLC

And as you see renewals and extensions and so forth, what kind of relative pricing you indicated some shift to cost plus, so that’s effectively lower pricing, but sort of what’s on work that’s being like on existing work,. what kind of drop that you are seeing in the pricing?

Michael Alber

Yes, we really adjusted it well. Let me separate a couple of things. I guess questions wise it comes up on margins, are we seeing good drop in margins. In fact, we are not. We will continue to bid our normal margins for the risk profile, cost reimbursable, it will start within the 5% to 7% range. If it’s CNN, you will probably see something closer in the 8% to 10% range. So we are not dropping our margins, we’re going to go compete on efficiencies.

So we are benefiting by the lower price by being able to take that infrastructure cost down and provide $1 value to our customer in a more efficient fashion. So we’re not diving up price, we’re not diving up margins. We’re benefiting by the 40% takeout of our indirect cost.

Edward S. Caso – Wells Fargo Securities LLC

Any of your guidance for the coming year anticipate a faster run off of in-theater activity than you thought may be three months ago?

Anthony Smeraglinolo

Not faster, it is declining as we have expected. It will continue to go up and decline through 2014 or in many other global event what’s occurring. so nothing unexpected.

Edward S. Caso – Wells Fargo Securities LLC

Great thank you.

Anthony Smeraglinolo

Thank you. Appreciated it.

Operator

There are no further questions in the queue at this time.

Anthony Smeraglinolo

Well, thank you very much for joining us today and for your interest in Engility. In summary, 2013 was a very successful year. We increased our cash flow by more than 340%, won many new contracts, drove efficiencies throughout our organization to increase our competitiveness and lower DSOs and we announced and subsequently closed DRC acquisition. Although the industry remains challenging, we are encouraged by the recent uptick in proposal and award activity and believe we are well positioned for long-term growth.

And with that, we'll end today's call. We look forward to speaking with you again in the near future.

Operator

Ladies and gentlemen that concludes today’s conference. Thank you for your participation. You may now disconnect. Have a great day.

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