CSRA Inc. (NYSE:CSRA)
Q1 2017 Results Earnings Conference Call
August 10, 2016, 05:00 PM ET
Stuart Davis - VP, IR and Strategy
Lawrence Prior - President and CEO
David Keffer - EVP and CFO
Edward Caso - Wells Fargo Securities
Amit Singh - Jefferies & Company, Inc.
William Loomis - Stifel Nicolaus & Company
Gautam Khanna - Cowen & Company
Frank Atkins - SunTrust Robinson Humphrey
Good afternoon, and welcome to the CSRA First Quarter 2017 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.
I would now like to turn the conference over to Stuart Davis, Vice President of Investor Relations and Strategy. Please go ahead.
Thank you, Amy and welcome everyone to today's quarterly earnings conference call. Larry Prior, our CEO; and Dave Keffer, our CFO are here to discuss our financial results, business momentum and forward outlook. Today's call is being webcast on the Investor Relations portion of our website where you will also find the earnings release and supplemental financial presentation slides that we'll be using during today's call.
Turning to Slide 2 of the presentation, please note that during this call, we will make forward-looking statements that are subject to known and unknown risks and uncertainties that can cause actual results to differ materially from anticipated results. For a full discussion of these risks and uncertainties, please refer to our SEC filings including our Form 10-K from May.
In addition, the statements represent our views as of today and subsequent events may cause our views to change. We may elect to update the forward-looking statements at some point in the future, but we specifically disclaim any obligation to do so.
Finally, as shown on Slide 3, we will discuss some non-GAAP financial measures and other metrics which we believe provide useful information for investors. The slide deck for today's call includes an explanation of those adjustments and other reconciliations of the figures to the most comparable GAAP measures.
It's now my pleasure to turn the call over to Larry, who will begin on Slide 4.
Thank you, Stuart. Good afternoon, everybody. We’re pleased to begin fiscal year 2017 with another strong quarter of execution. In the first quarter we posted excellent results across key financial metrics, continued our business development momentum to lay the foundation for future growth and demonstrated progress in our strategy to differentiate CSRA as the leader in digital innovation for government. In addition, we are implementing a talent management approach that will brand us as an employer of choice for high tech professionals.
Let me flush out each of these four major achievements in detail. First, revenue, EBITDA, EPS and free cash flow are all on track. So we reaffirm the guidance that we gave on the last call. EBITDA margin was especially strong at 17.4% driven by the twin CSRA hallmarks of excellent program execution and cost discipline. Our foundation of fixed-price contracts motivates us towards innovation and cost efficient delivery and enables us to deliver for shareholders.
In addition, we generated excellent cash flow in the quarter. Through disciplined financial management we were able to generate operating cash flow of $156 million which allowed us to continue to pay down debt, pay dividends and begin to evaluate acquisitions. Second, we posted another positive quarter with $1.3 billion in bookings. This marks the sixth straight quarter with a book to bill ratio of 1.0 or greater. Our book to bill ratio of 1.3 times for the trailing 12 months points to future growth and demonstrates that we can compete fiercely in the federal IT marketplace.
Our health business, which is our fastest growing market, led the way with two key wins in the quarter. We won $180 million re-compete of our work for the Congressionally Directed Medical Research Program. This global funding organization supports cancer, military medical and other disease and injury specific research. It manages more than $1 billion in biomedical research investments annually funding groundbreaking research projects intended to transform healthcare, provoke military service members and the general public.
Dr. Steven Goldberg directs our peer review and science management team which is the nation's preeminent provider of scientific peer review solutions. Over the last 20 years on this program, we've developed and deployed a world-class approach for engaging scientists, clinicians and consumers in the evaluation of grant applications. In addition, the New York State Department of Health rewarded our support with a one-year $127 million extension of our contract to enhance operate and maintain the health insurance exchange implemented under the Affordable Care Act.
To date we have enrolled more than 3 million residents through this program and the program is a recognized leader across all states. We expect to reach agreement on a multiyear extension early next year.
The largest new business win in the quarter was with the U.S. Coast Guards Telecommunication and Information Systems Command. Kudos to Pam Bosque [ph] our Coast Guard Account Manager who will serve as the PM for this program for her leveraging of our next-generation IT expertise and just the teams creativity to win this $55 million five-year contract. We have a great opportunity to strengthen communications within the Coast Guard through lifecycle management, server consolidation and technology insertion to enhance both current and future missions.
In addition to providing enterprise IT services and responsive technical support we will lead the development and the deployment of the U.S. Coast Guard's IT infrastructure managing sensitive secret and top-secret networks, both onshore and afloat. The maritime domain is complex and the challenges and threats in our operational environment have never been greater. As the largest pure play IT systems integrator for the Department of Homeland Security, CSR is well-positioned to support TISCOM's vital mission of ensuring our nation's security and prosperity.
Across the company we submitted $4 billion of proposals for new businesses in the first quarter and we are on pace to achieve our FY '17 target of $16 billion in new business submits. As of the end of the quarter we had $11 billion in submits outstanding and looking only at new business we had about $6.5 billion awaiting decision including 14 opportunities greater than $100 million in total value.
Our second quarter is shaping up to be a very strong one on the BD [ph] front. Our proposal rooms are overflowing and we expect to submit another $5 billion of new business proposals in the second quarter. Q2 award volumes are usually high because it is the end of the government's fiscal year, but most of the awards tend to come in September. We began the quarter with the best July we've had in years with multiple $100 million plus wins.
These large wins defend our base with competitive re-competes that include $131 million award for architecture and design work for Navy ships and the wins also drive new growth with new business including $167 million fixed-price IT job for the Defense Intelligence Agency where we unseated two entrenched incumbents. We did so by leveraging the competitive advantage of our shared services center in Bossier City, Louisiana and a deep technical expertise of our groundbreaker team in Maryland.
As of the end of Q1 our backlog stood at $15.1 billion, which is about three times annual revenue. Backlog is up 5% year-over-year driven by strong bookings over this last year and if we keep these positive trends going revenue growth will certainly follow.
Third, we are enhancing our leadership in digital innovation as part of our overall strategy to drive sustainable growth by implementing next-generation technologies for our government customers. Central to that strategy is working closely with technology innovators. We recently announced new strategic partnerships with Amazon Web Services, Racemi and Docker.
These partnerships extend well beyond the standard prime software integrator-vendor relationships, so commonplace in the aerospace industry. In this case we share go-to-market strategies. We treat them as partners. We get preferred access and pricing and we share development strategies with our partners to our mutual benefit but more importantly to the benefit of our government customers.
I truly believe that no one can provide our partners the same level of delivery excellence to government IT customers than CSRA can. This strategy is not some recent development or a pet project of a few techies, rather it is the motivating construct that utilize our customers, our business our company and its of course our investments.
In fact, late last month senior CSRA technology leaders and I spent a week on the West Coast meeting with established tech partners, meeting with emerging technology companies and meeting with the Defense Innovation Unit Experimental DIUX which the DoD stood up to bridge between the military and companies operating at the cutting edge of technology. This trip came on the heels of this summer's CSRA Emerging Technology Partner Day where we met with 11 companies from leading venture capital funds to discuss capabilities and opportunities.
It is clear from all of these interactions that we can catalyze adoption of these technology innovations as we deliver IT capability for government customers with incredible critical needs. We have already identified great outstanding collaborative opportunities where we can work together to create new solutions for our customers' mission challenges. In fact I believe we will have tangible success that will be material in our next two quarters. In addition to revving up the business development engine, it will help us drive organic growth through this innovation on programs that we're so proud of today.
Fourth, we are excited about the progress we are making on talent management front and we are committed to building CSRA into an employer of choice. Over the past quarter, we have seen consistent headcount growth for the first time as a public company. Our voluntary attrition has been trending down over the last couple of months since we have concluded much of the organizational integration activities driven by our synergy case.
We are seeing strong interest in our job openings and have averaged a record number of offers accepted over the past quarter. A big shout out to our HR team and to all of our recruiters. We are recognizing employees through our FY '17 quarterly performance award program and celebrating key contributions to our customers' missions as well as to company performance that serves them.
We launched our new Tuition Reimbursement and Certification Program to support employees continued development which in turn will also help our customers in their digital transformation. We see our employee focused culture as our key future discriminator in our ability to recruit and to retain the best talent especially for next-generation technologies. For example ,we implemented a new wellness program that included a variety of offerings such as weekly fit-bit competitions amongst our interns, employee walking sessions at lunch, yes are taking part in discounted weight watcher programs as well as working at biometric improvements.
Our intent is to make wellness and caring for our employees wellbeing a cornerstone of our CSRA culture. In October we will complete the migration to one HR system. Now on the one hand it is going to bring us significant number of improvements, it will increase the efficiency of hiring and promotions and performance reviews, but what we find really exciting is we are working with our SaaS partner Workday on the new system and this is consistent with our customers' zero philosophy of bringing NexGen technology into our company as we deliver for our customers across the government. We are making strong progress in branding CSRA as a great place to work.
And now I'll ask Dave to provide more detail on the financial results as well as our forward outlook.
Thanks Larry and good afternoon everyone. The first quarter results were in line with our expectation and keep us on track for the guidance that we laid out on our last call. With this our third public quarter, GAAP and adjusted results are coming into closer alignment. There is no pension mark to market impact this quarter and fewer spin, merger and integration costs. I will focus on the adjusted results and note any deviations from GAAP along the way.
Turning to Slide 5, revenue for the quarter was $1.25 billion down 3% sequentially and down 5% from pro forma revenue in the first quarter of fiscal year 2016. Most of the year-over-year decline was in our Defense and Intelligence segment consistent with the headwinds we outlined on our last earnings call.
On a pro forma basis, our Civil segment, which includes health, Homeland Security and other civilian agencies was down 2% and our Defense and Intelligence segment was down 8% year-over-year. The largest contributor to the decline was the logistics modernization program for the U.S. Army followed by a lower overall volume of direct material and other direct cost purchases. We're still negotiating with the L&P customer on the wind down of the program. But it's worth mentioning what a successful engagement this has been.
The SAP development program has saved our customers $6 billion through lower software maintenance costs and better inventory management. We look forward to supporting the Army however we can and competing on the next increment of development at some point in the future.
Our contract mix remains essentially unchanged. As a percentage of total Q1 revenue 42% was on fixed-price contracts, 21% on time and material contracts and 37% on cost-plus contracts. As a result of merger synergies and strong contract performance, profitability and earnings were excellent.
Adjusted EBITDA for the quarter was $218 million up 4% from the same period a year ago as EBITDA margin increased from 15.9% to 17.4%. Similarly, adjusted diluted earnings per share for the quarter were $0.51 up 2% from last quarter. Adjusted diluted EPS was unchanged compared to the first quarter of fiscal year 2016, but the year ago quarter included a pretax gain of $17 million on the sale of Welkin. Without the divestiture gain, adjusted EPS would have increased 12% from the year ago quarter.
I will quickly walk you through the principal elements between revenue and earnings. Gross margin was 21.2% aided by a pickup on the Department of Homeland Security program that we've been tracking for several quarters. Pro forma SG&A was $52 million which was down $30 million year-over-year based on cost synergies and up $7 million sequentially from higher bid and proposal expense as we accelerate our submittals. The net of the program pick up, the elevated B&P [ph] spend and other similar items was about $0.02 of EPS above our steady-state rate.
First quarter pension related income was $24 million consistent with the rate laid out on the last call. GAAP depreciation and amortization expense was $65 million which includes the $16 million of intangible amortization expense associated with SRA's funded contract backlog that we back out of our adjusted net income and EPS. Also excluded from adjusted EBITDA and EPS was $13 million of other pretax merger and integration costs. These costs continue to decline and should be even lower in future quarters.
Interest expense was $30 million in Q1 up slightly from last quarter given the additional costs from the interest rate hedge we executed in March which was offset somewhat by reduced debt levels. Given that we no longer have significant transaction related adjustments in our quarterly tax rate, we're using the GAAP tax rate in our calculation of adjusted earnings per share. The effective tax rate for the quarter was around 36% which added a little over $0.02 to EPS compared to the previously projected long-term rate of 39%.
Now turning to Slide 6. Operating cash flow for the quarter was $156 million helped by incorporating SRA into the company's accounts receivable purchase facility, which increased operating cash flow by $46 million. This program makes clear financial sense as it accelerates cash collection for enhanced deployment at a very low cost of capital.
As a result of the strong cash flow, we aggressively executed on our balanced capital allocation program and deployed $98 million to pay down debt, $50 million of which eliminated the outstanding balance on our revolver and $48 million of which satisfied the FY '16 excess cash flow sweep requirement on our term loans. We also used $18 million to pay dividends.
Our capital allocation approach continues to balance growth and fiscal responsibility for shareholder returns. First quarter free cash flow of $67 million excludes the impact of the receivables purchase facility and reflects normal fluctuations in quarterly working capital performance. We expect frequent cash flow to increase in the second quarter and to remain on track for the year.
Days sales outstanding were 54 days as of the quarter end, a degradation of one day sequentially from an unusually strong Q4 level. As of July 01, 2016 we had $133 million in cash and cash equivalents and $2.7 billion in debt. Our steady cash flows and $700 million of undrawn revolver capacity provides substantial liquidity and flexibility to manage the business, pay down debt, return cash to shareholders and to make accretive acquisitions.
With an in line quarter, we are maintaining our forward guidance as shown on Slide 7. We continue to project fiscal year 2017 revenue between $5 billion and $5.2 billion, adjusted EBITDA between $870 million and $905 million, adjusted diluted earnings per share between $1.91 and $2.04 and free cash flow between $300 million and $350 million.
Our assumption for pension income of $96 million is unchanged. We have slightly tweaked other base assumptions. For the full year we now expect our effective tax rate to be around 38% and our fully diluted share count to be around 165 million shares. Annualizing revenue for the first quarter yields the low end of the FY '17 guidance range. So we will need new business wins to move up through the guidance range. We expect new business wins to materialize from our high volumes of submittal awaiting adjudication and continued robust bidding activity.
Annualizing first quarter EBITDA and EPS point to the middle of the guidance ranges after controlling for the program pick up and lower tax rate. That said, we expect revenue, EBITDA and EPS to step down slightly in Q2 before turning to sequential growth in the back half of the year as we ramp new business wins.
In summary, I'm pleased that we’re able to drive improved profitability while investing heavily in the organic growth engine of the company. With a robust volume of submitted proposals and strong positioning on upcoming next-generation IT and critical mission support opportunities, we look forward to accelerating new business wins while maintaining our industry-leading profitability and strong cash generation.
With that, Amy, we’re now ready to take questions.
Thank you. [Operator Instructions] Our first question is from Edward Caso at Wells Fargo.
Good evening. Congrats on the results. Can you talk about your capital deployment priorities, particularly where share repurchase might fall into the equation or when might it pick up?
Hey Ed, it is Dave. I’m happy to talk through that. Of course, there’s more art than science to that analysis, and it’s one that we spent a lot of time thinking about and assessing every quarter. To date, we’ve deployed about $268 million to debt pay down, about $100 million to shareholder returns and have not yet, since the spin and merger with SRA, made another acquisition.
So to date, we’re in the 30% range for shareholder returns and 70 for debt paydown. Long-term guidance ranges for cash deployment, of course, are 50% for debt paydown, 40% for shareholder returns and 10% for M&A. Those priorities will continue to evolve over time, obviously, over the first year out of the gates here, M&A was less of a priority for us, reducing debt from the current – from the initial $3 billion level was a high priority and sprinkling in some effective shareholder, share repurchases under our $400 million authorization also a priority.
Going forward, we’re comfortable. We’re pleased with the current volume of debt we’ve been able to pay down. We will look at shareholder – share buybacks going forward. We’ll continue to look at those carefully each quarter. And as we said on the call, we are open to M&A in places where it can be strategically valuable to us and help spur further organic growth.
Can you clarify the two big contracts you mentioned, the Army contract which is running down, is there opportunity here? Is there something in the near term or you explain exactly what sort of the scenarios are going forward? And also with the New York State one as well, how that might decline and then rise again? Thank you.
Yes, this is Larry Prior. So with the Army, with the logistics modernization, we've got a core development team that’s continuing to provide help with some of the incremental improvements with this SAP program. And the discussion with the Army is not bringing it down as fast as was originally planned and how do we keep some of that talented enterprise software skill set alive and well supporting the Army program as we get ready to compete on several other SAP programs. They’ve been really open to the discussions and recognize for the Army and their commitment to SAP, it’s fairly strategic.
We’ve got one of the best software teams around it. So we continue to discuss, how do we protect that team for the good use of Army enterprise planning, while we’re bidding aggressively on several SAP opportunities. When it comes to New York State, remember there’s two programs both continue to see some extensions. eMedNY was the first one for center for Medicare and Medicaid.
We did not bid on the re-compete. We thought it was a flawed model. A competitor won it. As they face any challenges, we stand ready to help the State of New York with this essential function of government, and we continue to benefit from extensions on that.
The one I mentioned on the call though was New York State of Health around the Affordable Care Act. We got a one-year extension. And as we go through the life of it, we expect that we’ll grow into a multiyear extension. It’s a very good program for us. We cherish the work. We perform well on it, and we think it’s a nice base for us as we look to the rest of ‘17 and into ‘18.
Great, thank you.
The next question is from Amit Singh at Jefferies.
Hi guys, thank you for taking my questions. On the full-year guidance, I mean in the prepared remarks, it seems like to come at the upper end, you sort of need to win more business. But if you're looking at the lower end of your revenue and EPS, I mean is that - does that seem very - do you feel very confident in achieving that based on just whatever you have right now?
Sure. This is Dave. I'm happy to give you a few more context points there on visibility as we think about our guidance outlook. So to the low end of the guidance that you mentioned, we need to win about $150 million of new business or generate $150 million of new business revenue, I should say, in this fiscal year.
To get to the midpoint it's $250 million and of course, the high end would be $350 million. So think of that $150 million to the low end as 3% and then 5% to the mid-point and 7% to the high end. Given the volume that we have pending, we talked about $6.5 billion worth of new business bids, not re-competes but full new business. We're excited about the opportunities to win new business this quarter in what's traditionally a very strong quarter for contract award notices and we feel like that's what gives us the confidence in our guidance range and what we've seen throughout as the opportunity to deliver on that guidance range.
All right. Perfect. And just quickly on M&A based on what we were discussing in the last question. So I mean, broadly, you're targeting sort of 10% of your cash deployment towards M&A, but could there be scenarios where you could think about a much larger activity and M&A in the near term?
Yes. I just want to make sure that we underscore our balanced approach to capital deployment. And having three quarters under our belt, we think it's important to have the discipline of that balanced approach where, first and foremost, we're retiring debt. I'm thrilled that we took down the revolver.
Second, we believe that repurchasing shares and buyback is a really good thing to do and we'll consider acquisitions, but they have to really perform in three fronts. They have to give us a technology edge as we think about cloud-enabled digitization of the marketplace. We always look for customer intimacy and competitive advantage.
And then almost always, we want to think of future contracts that will have a really positive result from any acquisition. Examples in our past have been 426 and Tenacity. But be clear, priority 1 is a balanced approach around capital deployment, and we take some pride in reducing our debt in such an aggressive fashion as we've been disciplined about also doing share buyback.
All right, perfect. Thank you very much.
The next question is from Bill Loomis with Stifel.
Hi thank you. Good evening. Let's see. I guess, Dave, maybe on kind of second quarter slightly lower sequentially. Any chance you can give a little more color on that because obviously, that sets up for as you have talked about more aggressive back half growth? And then how much was the pickup on the DHS contract, you mentioned?
Hi Bill, it's Dave. So on the first point around the Q2 decline, we said in our prepared remarks to expect a slight decline. I think that's consistent with the way we characterize it here. It's hard to quantify without getting into specific quarterly guidance, but not a meaningful step-down from quarter-to-quarter but a slight decline is what we see on each of the lines.
On the contracts, pickup in the quarter, given the sensitivity around specific contract items, we're not going to get into the specific details on any one, up or down. We called it out as we did a couple of quarters ago talked about EAC adjustments, in general, being a few million higher than we would traditionally see.
We called this one out because it added a bit to the results in the quarter. The net of that item and other kind of unique items in the quarter, as we said, was about $0.02 favorable to the company. You can think of on a pretax basis a $0.01 equaling about $2.5 million. So think of the net of those factors being in the $5 million range.
Okay. And then just a pension question, what was the cash flow impact with the pension, any contributions or any cash impact and then for the quarter and then for the year?
No, no cash contributions made into the program of any materiality. The $96 million is the pension income expected for the year absent any mark-to-market ups or downs at the end of the year and the remeasurement. So think of that as the adjustment between adjusted EBITDA and free cash flow.
We have a small, as I mentioned immaterial volume of cash that flows into the pension program related to the service [ph] program one of the smaller elements of defined benefit programs, but again nothing that materially affects our financials.
Okay, thank you.
The next question is from Gautam Khanna at Cowen & Company.
Yes for sure, I was – I had a couple of questions on the guidance first. Well, first of all, before that, I think re-compete losses in the quarter?
I mean the ones we’ve got hanging out is STRATCOM, so we had protested that. GAO looked to support the original decision. We're going to evaluate what it looks like and tune our next steps. But that's when we had already reported out, and when we've taken out of our plan.
Okay, and so that's down if I recall in the December quarter is that right?
So, in the September quarter?
Okay. On the guidance Dave, you’ve mentioned the 150, 250, 350. So this is still go get business or is this you already have booked a lot of stuff and it starts to convert $150 million of revenue from the backlog already to sales. If you could just comment on how much is truly go get on the comp business?
That 150, 250, 350 is the remaining go get, Gautam. So you can imagine with a large volume of awards to be adjudicated this quarter, we intend to win our fair share of those and have those contribute meaningfully to revenue towards the second half of the year, and that would be what contributes to the 150, 250, and 350.
And Gautam, I would characterize it as it's known, it’s amidst awaiting decision and there's nothing more exciting than the last quarter of the government's fiscal year in the month of September when you've brought as much to bear awaiting decision as we have. I did mention that July had gone well for us. One of those new wins we're already ramping up and I'm hoping the conversation is going to evolve from one where we're talking about our pivot to growth to one off executing on the growth we've achieved.
Yes, likewise that would be wonderful, I was wondering if you could also frame for us, so September quarter is going to be seasonally strong from a booking standpoint, but presumably December and March, we might be in an extended CR situation and when you look at the stuff you're hoping to win in the September quarter is any of this new business Greenfield type opportunities that could be delayed by an extended CR or is this mostly existing business of other competitors you hope to take away and any comment of how we should frame with CR into your thinking?
Yes, I think, so we've gotten used to CRs I mean how strange that and CRs have become the norm. So a lot of our government customers seem to be fairly disciplined. We take real pride in watching FEDSIM as a bastion of adults running acquisition in the government today. And we think they'll continue to operate in a very professional, disciplined manner.
There’s other great examples of that. So I think this quarter it is lining up to be fairly disciplined with lots of award activity. And I don't think any thought of the CR coming with the new fiscal year has slowed down anything. As we go into the government's first quarter, I still expect a CR to be shorter in duration. I still think they'll be the omnibus package probably built on a defense appropriations bill. Everyone will hang a Christmas ornament on it.
And then watch the dialogue around supplemental, where they're thinking about a budget request in parallel on the national security side, built around overseas contingency ops. But then a matching security side that's focused on helping federal civilian government, I think that play is going to be run again.
And Gautam, this is Stuart. As we look at how we're expecting wins to lay down over the rest of the year, we could actually see a fairly positive December depending what happens on the protest activity. We've built them in a little bit of flexibility there that there could be some slippage, although we certainly took heart from the fact that the DIA award that Larry talked about was not protested.
Okay, that's helpful. And then maybe if you could just remind us of any sizeable re-competes that we should be watching for in time and in size over the next couple quarters?
Hey Gautam, it’s Dave on that one. So I would point to two re-competes and these are contracts we've talked about before, both of which we're expecting award decisions on right around the change in the fiscal year for us, which is obviously next spring. The first of which would be the groundbreaker program, which as we've mentioned in the past is roughly 7% of our revenue today.
The second would be the re-compete of our TSA IT infrastructure program, which has in the past run approximately 3% of our revenue as well. Those are on a similar procurement timetable. Obviously the exact timetable or an award decision and transition of our work toward new contract is TBD, but those are both primarily FY’18 events.
And is groundbreaker, do you still think the sum of the three parts could aggregate to equal what you are currently doing is the prime on groundbreaker or do you think the work scope is not going to expand such to enable us to be flat even if you succeed in that three?
Yes, I think it's way too early to make that call as ourselves, our competitors have our bids submitted and we need to have people trying to reengineer that back to think about pricing.
Understood. All right, thanks guys, good luck.
[Operator Instructions] Our next question comes from Frank Atkins at SunTrust.
Thanks so much for taking the questions. I wanted to ask a little bit about the cyber security environment if you could remind us the scale of work you're doing there, the growth rate in the end markets as you see it and any changes in pricing if any?
Yes, so we do it a couple of different ways. So for us cyber time is a direct sale where we're focused on doing work with security operation centers. Examples are the work we do for the FAA, the work we do for State Department Security, the work we do for the 24th Air Force.
So we have we have a robust direct sales program where it's competing head to head for pure-play cyber work. Most of it however, is Integral to enterprise IT where anywhere you are in the stack out to your endpoint computing, you are helping your government customers have everything beyond perimeter defense and thinking about active means to really identify threat.
I think there's a greater propensity of the government now to invest in cyber as part of their integrated IT build. You see the proposal by - in the President's budget, there's a couple of bills in Congress to think of industrial funding to help with the infrastructure, the legacy, hardware and software to upgrade it to a place where good hygiene really matters and cyber will be something that at least has a foot in a foundation in an infrastructure that’s 2016 generation instead of 2003.
Relative to the pricing I think it's again, customers want out of IT a lower price. They expect us to consolidate data centers, they expect us to go virtual, they expect us to leverage cloud enablement, but they also expect to have pristine elements of cyber throughout the bid, and then they’ll make that differentiation. So I see customers who will invest in cloud, invest in cyber, invest in data analytics and expect us to deleverage delivery and give them a better price.
Thanks, that’s helpful. And then I wanted to ask about kind of the human capital talent side, any changes in your ability to find good people or retain good people out there?
It’s a dynamic environment. We’re spending a lot more energy on talent around next-generation IT, enterprise IT and some is just the core domain knowledge of our customer sets. We’re having good success in building and recruiting our leverage teams out of Bossier City, Louisiana, but we also see greater mobility, that a lot of our employees are taking advantage of technical searches, and they’re thinking about how they move across our enterprise in doing exciting careers in next-generation IT.
We’ll always have the challenge with all of our peers of working their way through the process of clearances. Our advantage is we have a base of thousands of cleared IT professionals. And Leigh Palmer and Ben Gianni in the Intel team are really doing a good job leveraging some of that talent across what our traditional barriers, i.e. the Potomac River, so trying to get really good tech talent to cross from Virginia to Maryland and vice versa. If the work is exciting enough if there is a period of time they’re willing to do it and excited to do it.
So I think each company has got to hit it a little different way. For us what’s core, talent once next-generation search, they want mission that matters, they want flexibility in the workplace. We’re pretty casual with open spaces. We are fine with software developers working at midnight just so long as their peers think whatever they deployed to get hub is really cool, and I think that's the advantage that we're going to bring as we create CSRA as a company that's our first choice for that technical talent.
Okay. And last one from me, any changes in the kind of traditional September quarter billing slush or spend as a result of – how can I put it, actually the dramatic election cycle here?
Yes. So I've been a bit cynical about what was our traditional budget flush of years ago and as I've tracked it year-to-year and as you've seen, I don't know, five or six CRs, government is more rationable about ratably spending their material buys. And you'll have some element that they will do something in the last month, they'll do something in the last quarter.
I mean we've had a couple of customers, yes, they moved it in July and we helped them with it. I think the quarter in September is far more important relative to awards of new business and setting the table for the next six months of our fiscal year as well as for FY 2018.
Now my view is, Dave is looking along with our whole team at the second quarter, we'll work our upside, down side, we will work our initiatives around any materials that might help with the quarter. But I see it as a second order issue compared to getting a book-to-bill way north of one three and helping set the future of our company as well as our industry. And I think for ourselves and our peers, it feels like a normal quarter.
Okay, great. Thanks so much.
Amy, it looks like that we don't have any more questions, so I think that's going to conclude our call for today. I want to thank you Amy for your assistance with today's call, and I want to thank all of you who were able to join for your interest in CSRA, and will hope to see you out there on the road someday soon.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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