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Edited Transcript of NCIT earnings conference call or presentation 5-Apr-17 9:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 NCI Inc Earnings Call

RESTON Apr 19, 2017 (Thomson StreetEvents) -- Edited Transcript of NCI Inc earnings conference call or presentation Wednesday, April 5, 2017 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Bridget Medeiros

NCI, Inc. - Corporate SVP of Business Development

* Lawrence Delaney

NCI, Inc. - IR Advisor

* Lucas J. Narel

NCI, Inc. - CFO, EVP and Treasurer

* Paul A. Dillahay

NCI, Inc. - CEO, President and Director

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Conference Call Participants

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* Gautam J. Khanna

Cowen and Company, LLC, Research Division - MD and Senior Analyst

* Kwan Hong Kim

SunTrust Robinson Humphrey, Inc., Research Division - Associate

* Mark Conrad Jordan

NOBLE Capital Markets, Inc., Research Division - Senior Research Analyst of Government Services and Defense Technology

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Presentation

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Operator [1]

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Good day, ladies and gentlemen. Welcome to the NCI Incorporated Fourth Quarter and Fiscal Year 2016 Earnings Conference Call. My name is Don, and I will be your conference operator today. This call is being recorded.

I would now like to turn the presentation over to your host for today's call, Larry Delaney, Investor Relations Adviser for NCI. Please go ahead, Mr. Delaney.

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Lawrence Delaney, NCI, Inc. - IR Advisor [2]

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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 our President and CEO, Paul Dillahay; and our Chief Financial Officer, Lucas Narel, both of whom will deliver prepared remarks. Our Senior Vice President of Business Development, Bridget Medeiros, is here as well to participate on the Q&A portion of the call.

Before we begin our discussion, it's important to remind you that we will make statements that do not address historical facts and, thus, are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements regarding future strategic initiatives and operational outlook and financial guidance for 2017, as well as statements relating to the recent embezzlement of company funds by our former controller.

These forward-looking statements are subject to factors that could cause actual results to differ materially from anticipated results and include the risks and uncertainties, including those identified in our earnings and press release under the caption Forward-Looking Statements. For a full discussion of these factors and other risks factors and uncertainties, please refer to the section entitled Risk Factors in our Form 10-K and Forms 10-Q filed with the Securities and Exchange Commission. We undertake no obligation to undertake (sic) [ update ] any of the forward-looking statements made on this call.

Today's call will also include a discussion of non-GAAP financial measures as that term is defined in Regulation G. Non-GAAP financial measures should not be considered in isolation from or as a substitute for financial information presented in compliance with GAAP. Accordingly, at the end of today's press -- earnings press release, we have provided a reconciliation of these non-GAAP financial measures to the company's financial results prepared in accordance with GAAP.

I'll now turn the call over to Paul Dillahay.

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Paul A. Dillahay, NCI, Inc. - CEO, President and Director [3]

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Thanks, Larry. I'm very excited to be speaking with you all for the first time as NCI's CEO. I'm honored to have earned the board's confidence to lead NCI to the next high point of the company's proud heritage.

Today, I'll give you our perspective on how the new administration's stated priorities might affect our business going forward. More importantly, following Lucas' review of the financial results, I'll tell you a bit about how I see the company I inherited, what sparked my interest in assuming my new role and what I believe needs changing, and the key elements of the strategic turnaround plan we've put in place. Lucas will describe the details of the embezzlement by our former controller, the internal investigation that took place regarding such matter and the remediation efforts we've taken to strengthen our internal controls.

For your reference, we would also like to direct you to Form 10-K we filed last Friday, which contains detailed information on our internal investigation and related matters. As outlined in the Form 10-K, while our internal investigation is completed, the government agency investigations are ongoing, and we are cooperating fully with such agencies.

At this point, I want to emphasize how proud I am with the way our company has handled the issue from the time we discovered the embezzlement to where we are today. I'm especially thankful to our employees who continue to focus on the business and delivering quality services to our customers while overcoming the challenges presented by this unfortunate incident, all without losing sight of our long-term strategic goals.

Before I turn it over to Lucas, I want to comment on the broader environment we're seeing for the federal IT services market. We see an improving budget for our addressable markets. Over the last few years, defense budgets have bottomed out and the requested budgets for government fiscal years '16 through '18 were planned to show 3% growth before supplementals.

The Trump administration campaigned on further increasing defense spending, and the preliminary budget request of $574 billion for fiscal year '18 reflects that objective. We would like to express one note of caution. With the government under continuing resolution for almost half of fiscal year '17 and the natural lag between budget appropriations and the actual flow of cash on projects, the market growth should be more visible in fiscal year '18 and beyond. The Trump administration's focus on expanding the size of the military and modernization should create a positive market environment and aligns very well with our portfolio of business.

Most importantly, our core customers, such as the Army, are expected to see increased spending to expand force structure, improve readiness and improve capabilities. Given the rapid pace of technology change, the government will need more information technology modernization. This also plays directly into our capabilities and contract vehicles, and we are ready to help our customers achieve their goals.

And with that, I'll turn the call over to Lucas.

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Lucas J. Narel, NCI, Inc. - CFO, EVP and Treasurer [4]

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Okay. Thanks, Paul. Before getting to our fourth quarter and fiscal year 2016 results and 2017 guidance, I want to summarize where we stand on the embezzlement issue.

First, some background. In January of this year, we identified a misappropriation of company funds by NCI's former Controller, Jon Frank. We filed an 8-K on January 23 saying that the information for the first 3 quarters of 2016 can no longer be relied upon. Our audit committee brought in independent legal counsel and forensic consultants to investigate the fraud.

On March 31, we announced that the internal investigation was completed and had revealed that Jon Frank embezzled $19.4 million from 2010 into early 2017 through a circumvention of controls, which included transfers from the company's payroll account to his personal account, creating fictitious invoices and altering bank account statements to conceal the misappropriations. We believe he acted alone and found no evidence of any other NCI employee was aware of or involved in the embezzlement of the company's funds, or that there was any unlawful activity apart from that associated with Frank's embezzlement of the company funds.

The amounts embezzled were primarily disguised as fringe benefit costs and therefore originally classified as operating expenses, and included in our cost of revenues and general and administrative expenses in our consolidated statements of income. For government contracting purposes, fringe benefit costs are allowable indirect costs and were originally recorded that way. After the discovery of the embezzlement, we restated these costs and removed them from cost of revenues and G&A line items in our income statement and reclassified them in a line item misappropriation loss. For government contracting purposes, a loss due to theft cannot be classified as an allowable cost and we reclassified them as a loss accordingly.

NCI had sufficient allowable but previously unbilled costs allocated to our contracts in fiscal years 2010 through 2015 to offset these unallowable costs related to the embezzlement. We do not believe that there was or will be a material impact on our results of operations for such periods. We have restated the income statements for fiscal years 2015 and 2014 on our recently filed 10-K to reclassify the embezzled amounts as misappropriation loss. The restatements for these years do not impact our net revenue or earnings for those years.

We are in the process of amending our quarterly reports on Form 10-Q for the first 3 quarters of 2016 and expect to file those 10-Q/As soon. You'll find more detail in our recently filed 10-K, especially items 9A and 9B. I could spend my whole time today reading the relevant sections of the K, including our material weaknesses and remediation plan, but we can just discuss any questions you have on those matters off-line. And again, I'll just be quoting from the 10-K anyway.

Also, we're going to be discussing adjusted non-GAAP metrics. We specified the terms of each adjustment and reconciled them to GAAP numbers in the earnings release we filed earlier today. So I'll make it easier on everyone by simply saying adjusted EBITDA, adjusted net income and adjusted EPS, and you can refer to the earnings release as necessary.

So fourth quarter revenue of $77.5 million and full year 2016 revenue of $322.4 million is just shy of the midpoint of our previously issued guidance. For the year, PEO Soldier accounted for 16.2% of revenue compared with 9.8% of revenue in 2015. Our CNOSS contract accounted for 11.5% of revenue in 2016 compared with 7.3% last year. For the full year, contracts for NCI as a prime account -- contracts for NCI as a prime contractor accounted for 93% of revenue, up 1 percentage point year-over-year. DoD and Intel contracts made up 63% of revenue for the year, while Federal Civilian contracts comprised 37%.

The share of DoD and Intel contracts was up 3 percentage points versus 2015. The DoD and Intel share increased year-over-year largely because of the growth in our PEO Soldier program and our CNOSS contract. Fixed-price contracts accounted for 23% of revenue, down 5 percentage points from 2015. Time-and-material contracts were 17% of revenue, down 6 percentage points year-over-year, and cost-plus fee contracts accounted for 60% of revenue, up 11 percentage points year-over-year. The higher cost-plus fee contract percentage is primarily due to higher PEO Soldier and CNOSS revenue, both of which are cost-plus vehicles.

Adjusted EBITDA for the fourth quarter was $7.5 million or 9.6% of revenue, compared with $8.6 million or 10.2% of revenue for the fourth quarter of 2015. Adjusted EBITDA and adjusted EBITDA margin decreased due to increased G&A expenses on our lower revenue base. Adjusted EBITDA for 2016 was $30.5 million or 9.5% of revenue, compared with $31.6 million or 9.5% of revenue for fiscal year 2015.

Operating income, as adjusted for the fourth quarter of 2016, was $5.6 million or 7.3% of revenue. Operating income as adjusted for the fourth quarter of last year was $6.7 million or 8% of revenue. Operating income and margin, as adjusted, decreased primarily as a result of the factors affecting adjusted EBITDA and adjusted EBITDA margin. Operating income as adjusted for 2016 was $23.5 million or 7.3% of revenue, and operating income as adjusted was $23.9 million or 7.2% of revenue for 2015.

Adjusted net income for the fourth quarter was $3.2 million compared with $4.2 million for the fourth quarter of 2015. Adjusted diluted EPS for the fourth quarter of 2016 was $0.23 compared with $0.31 for the fourth quarter of last year. Adjusted net income and adjusted EPS decreased primarily because of a higher effective income tax rate in the quarter as well as the factors impacting operating income as adjusted, partially offset by having a lower average balance on our credit agreement in the fourth quarter of 2016.

Adjusted net income for full 2016 was $13.9 million or $1.01 per diluted share, compared with $14.1 million or $1.03 per diluted share in 2015. Adjusted net income and adjusted EPS decreased slightly because of the same factors affecting fourth quarter adjusted net income.

Day sales outstanding or DSO at December 31, 2016, was 61 days, this compares with 66 days at December 31, 2015. Cash flow from operations for 2016 was $16.4 million, and capital expenditures were $3 million resulting in free cash flow of $13.4 million. NCI reported total backlog at December 31, 2016, of $625 million, of which $139 million was funded. This compares with total backlog at September 30, 2016, of $663 million, of which $173 million was funded.

And now moving on to guidance. As we mentioned in today's press release, we expect revenue for the first quarter of 2017 to be between $74 million and $80 million, and between $311 million and $335 million for the full fiscal year 2017. Our fiscal year 2017 revenue midpoint of $323 million assumes approximately 85% coming from existing contracts, 10% coming from recompetes and 5% coming from new business awards.

As for our earnings guidance, we are providing a range of adjusted EPS that excludes the following items: onetime legal and accounting costs related to the embezzlement, the embezzled funds in early 2017, any offsetting recovery of embezzled assets and any insurance-related recovery. After excluding these items, we expect adjusted EPS for the first quarter of 2017 to be in the range of $0.21 to $0.23 and between $0.84 and $0.98 for the full fiscal year.

We expect interest expense for the first quarter to be approximately $150,000 and $600,000 for the full year. Depreciation and amortization is expected to be $1.8 million for the first quarter and $7.2 million for the full year. Stock comp expense is expected to be approximately $400,000 in the first quarter and about $1.5 million for the full year. We're forecasting an annual effective income tax rate of approximately 39.5%.

And now, I want to provide more detail on our 2017 guidance. Our adjusted EPS midpoint is $0.91, which implies an adjusted EBITDA margin of 8.8%. The midpoint of our revenue and the adjusted EPS range assumes we'll maintain our existing contract base including recompetes, with revenue contribution from 2017 awards of approximately $17 million.

We expect lower margins in 2017 on an adjusted basis due to increased stock compensation expense, an investment in our business development processes and people, lower contract margins on recently won recompetes and increased overhead costs in support of ramp-up activities on several key contract wins in 2016.

We expect the portion of revenue from fixed-price contracts to increase as we move through 2017 and the amount from cost-plus contracts to decrease as we hit revenue run rates on PEO Soldier and CNOSS, and gain revenue from agile software development awards from DHS beginning in the second quarter.

As usual, we'll provide updates as events warrant. And with that, I'll turn the call back over to Paul for his observations, assessment and vision for the company.

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Paul A. Dillahay, NCI, Inc. - CEO, President and Director [5]

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Thanks, Lucas. I want to start by stressing that I have very high expectations of myself and this team. I want us to outperform our peers and return NCI to being a disciplined growth-oriented business. On the positive side of my assessment, when I joined the company in November, I saw many strengths. For example, NCI's win rates and recompetes have been 90-plus percent, exceeding the industry average of around 65%.

As I started the meeting with -- as I started meeting with customers, I recognize that the dedication and responsiveness of NCI's employees were instrumental in developing meaningful and enduring customer relationships. The company's breadth of IDIQ and GWAC contracts are an untapped potential for future growth. And most importantly, the company's outstanding technical pedigree aligns with our desire to compete in the high-end solutions and services market, specifically, our differentiated agile software development and lean O&M capabilities.

That being said, we failed to deliver sustainable top line growth and the businesses underperformed. This is under -- unacceptable to me and must be addressed. I've identified 3 primary areas of action: people, performance and pipeline. Let me start with people.

Since we are a services business, it's essentially important for us to invest in our people, providing highly skilled, motivated and passionate employees committed to our customers' mission is key to our success. We are in the process of recalibrating our corporate culture to reward our highest performing team members and give them the tools they need to do even better. As part of building a high-performing team, I have been making some key investments and it started with bringing Bridget Medeiros, an industry veteran, to lead Business Development. And we will continue to muscle-build throughout the organization.

Moving on to performance. I am implementing plans to drive operational excellence into our programs and back office, focused on agility and continuous improvement which will enhance contract performance and improve our future margins. Additionally, as we improve our BD process to differentiate our offerings, we will be able to use levers other than price to win new work.

Third primary area is our pipeline. When I reviewed our recent organic growth rate challenges, it was clear our pipeline was insufficiently mature to achieve sustained profitable growth. To address this issue, we started by performing a thorough scrub of the pipeline, which resulted in a realistic restatement of its size. The resulting 3-year pipeline is approximately $4 billion, with about 50% of that qualified and $500 million under evaluation. Our total pipeline is north of $7 billion.

Our prioritized pipeline now has fewer but larger and more complex opportunities. For example, in 2016, NCI bid roughly 90 contracts valued at approximately $1 billion. In 2017, we plan to pursue close to 70 opportunities valued at approximately $1.7 billion. These metrics represent a sea change for NCI, and we expect to see meaningful results within 12 to 18 months.

In addition to larger opportunities, the pipeline is now aligned with key elements of our strategy that focus on bids that incorporate NCI's capabilities on an enterprise-wide basis as opposed to a siloed set of capabilities. And it expands our footprint with existing customers, such as DHS. For instance, we are actively pursuing proposals where we can integrate our agile software development in O&M with our network modernization capabilities, and we are concentrating on expanding our agile capabilities into other DHS components on the FLASH contract vehicle.

We are also raising the bar on our task order business. Historically, we have been successfully competing on both the TEIS III and ITES-2S vehicles. And in order to continuing growing in this area, we have created a rapid response team within the BD organization that will be devoted to maximizing the growth from our numerous IDIQs and GWACs. This will allow our executive-level BD function to remain focused on qualifying, shaping and preparing for larger captures.

In summary, I believe we have the elements needed to achieve these goals. As was stated in today's press release, I saw the ingredients of an outstanding company shortly after I walked in the door. With the changes I've discussed, I am confident that NCI will deliver market-leading growth for shareholders, provide rewarding careers for our employees and deliver mission excellence to our customers.

And with that, operator, we'll open the call to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we'll take our first question from Mark Jordan with NOBLE Financial.

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Mark Conrad Jordan, NOBLE Capital Markets, Inc., Research Division - Senior Research Analyst of Government Services and Defense Technology [2]

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My first question would be relative to the revenue guidance for 2017. You've got a delta of about $24 million. Could you talk about what are the assumptions that would drive you to the lower end of that range versus the assumptions that deliver -- would potentially deliver the high end of that range?

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Lucas J. Narel, NCI, Inc. - CFO, EVP and Treasurer [3]

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Yes, Mark, this is Lucas. I didn't catch the first part of your question. I thought you said we were guiding down $24 million. The revenue at the midpoint is really pretty much flat year-over-year, slightly up. As I indicated earlier, we expect about 10% from recompete and 5% of new at the higher end of the range -- or I'm sorry, at the midpoint of that range. Obviously, at the higher point, we'd expect more -- a higher component of new business generated. And at the low end, essentially it's very little new business, maybe 1% or 2%. And then, really, it's the timing of materials on certain contracts that may or may not come in that will reflect us to hit the lower end of that revenue guidance range.

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Mark Conrad Jordan, NOBLE Capital Markets, Inc., Research Division - Senior Research Analyst of Government Services and Defense Technology [4]

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That answered it. A question relative to potential recovery related to the embezzlement. When would you assume there might be cash flow into the company from frozen assets? And at what time would you be able to formally make your claim to the insurance companies? Is that a '17 or '18 event?

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Lucas J. Narel, NCI, Inc. - CFO, EVP and Treasurer [5]

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Yes, Mark, so that's a great question. Obviously, we're anxious to find out what that answer is ourselves. As we've indicated and you've seen in a variety of public settings, the -- assets have been frozen. We are pursuing civil action against Jon Frank. There's obviously an ongoing criminal investigation as well. The timing of when we're actually going to be able to liquidate the assets that have been discovered is uncertain at this point. We're hopeful that we can get some recovery in this year, but that is just speculation at this point. With regards to the insurance claims, we immediately notified all our insurers of the incident and have been communicating with them appropriately. I think that's going to be an even longer process. There's obviously a lot of information they're waiting for, with the resolution of both investigations on the civil front and the criminal front. So I expect that any recovery from insurance would come much later in the process.

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Mark Conrad Jordan, NOBLE Capital Markets, Inc., Research Division - Senior Research Analyst of Government Services and Defense Technology [6]

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Okay. Final question from me. The company currently is underleveraged, doesn't really have any debt. You should have free -- good free cash flow from operations this year. Again, at some point in time, you should be getting some level of recoupment from the embezzled funds and insurance. What role can or should M&A play in your potential business plan this year? Do you have the bandwidth to look at that given, again, your underleveraged balance sheet? Or are you going to focus on organic operations for the next 12 months?

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Paul A. Dillahay, NCI, Inc. - CEO, President and Director [7]

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Yes, Mark, this is Paul Dillahay responding. My mandate is growth. Obviously, we spend a lot of time on this call talking about the organic aspects of it. But we're going to continue to push on the inorganic side as well. So I'd say we're continuing to look at ways which we can expand our customer sets, enhance our capability offerings and we'll continue to look at M&A. And hopefully, with the right opportunity and the right rigor and process, make an acquisition at the appropriate time.

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Operator [8]

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(Operator Instructions) We'll take our next question from Gautam Khanna with Cowen & Company.

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Gautam J. Khanna, Cowen and Company, LLC, Research Division - MD and Senior Analyst [9]

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Yes, so I was hoping you could comment on the trend in backlog we saw sequentially and how you anticipate bookings are going to line up sequentially through the year. Q1, Q2, sort of what are you expecting? Were there any big debookings in Q4?

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Lucas J. Narel, NCI, Inc. - CFO, EVP and Treasurer [10]

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Yes, Gautam, this is Lucas. Yes, the bookings for the fourth quarter were about 0.5:1, just about $40 million. You'll recall we had a significant booking quarter in the third quarter over 3 to 1x. So really, looking trailing 12 months, we were at 1.2:1 book-to-bill, which obviously is a decent year for us. So a lot of the change in the backlog and the booking is really a function of timing. It really relates to the timing of recompetes and extensions for our current work and really how many things are protested on new business that we pursue or really the timing of awards on new business. At this point, we expect Q1 will likely be a light bookings quarter for us. We are seeing a level of ramp up in the bidding activity really in the next couple of months. So we would expect that bookings to increase as we go through the year here.

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Gautam J. Khanna, Cowen and Company, LLC, Research Division - MD and Senior Analyst [11]

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Okay. And any anticipated book-to-bill for the year? Are you expecting another north of 1 showing for the entire year?

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Lucas J. Narel, NCI, Inc. - CFO, EVP and Treasurer [12]

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Yes. I don't know that I'd give you a number at this point, Gautam. Obviously, it's -- we're going to be pursuing a lot of opportunities. But the timing is always largely out of our control, so I wouldn't give you a number now to expect for bookings for the full year.

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Gautam J. Khanna, Cowen and Company, LLC, Research Division - MD and Senior Analyst [13]

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Okay. And just to follow up on your prepared remarks on the business development efforts. I was wondering if you could just give us a sense for what wasn't working well in your view in terms of processes or personnel. Because we -- it wasn't long ago where NCIT kind of reinvigorated the business development team, and here we are doing it again. I'm just wondering, what wasn't done well and how do you anticipate fixing it?

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Bridget Medeiros, NCI, Inc. - Corporate SVP of Business Development [14]

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Hi, this is Bridget. I think when I first came in and assessed what we really needed to course correct it was a focus on, as Paul said, people. We needed to actually increase our capture expertise and our technology expertise, and make sure we were aligned with where the government was going from a procurement standpoint. So I've really focused on the first couple months here in making sure that we have the right skill level of people to go capture these larger procurements that we have now put into our pipeline.

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Gautam J. Khanna, Cowen and Company, LLC, Research Division - MD and Senior Analyst [15]

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And your view is this is a people issue, it's not a firm-wide capability issue? That's actually what's preventing...

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Bridget Medeiros, NCI, Inc. - Corporate SVP of Business Development [16]

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Absolutely. I think we have the capabilities aligned with where our customer is asking for requirements in their proposals, but we didn't have the right level and skill of capture expertise to actually be able to shape and prepare to win those awards.

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Gautam J. Khanna, Cowen and Company, LLC, Research Division - MD and Senior Analyst [17]

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Okay. And one other one. Just wondering, this year, do you have any business that -- or what are you assuming in terms of amount of business that moves to small business set aside or that naturally sunsets as programs come to end of life? How much of that is a downer to the sales number this year?

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Paul A. Dillahay, NCI, Inc. - CEO, President and Director [18]

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Yes, this is Paul here, Gautam. We look at that on a routine basis. Right now, we see some of our work migrating to small business. But to be honest, it's a relatively small percentage. Obviously, the way the government procures their work, they are constantly putting out RFIs and sources sought to determine on just about all procurements if there is a small business eligible to compete or multiple small businesses eligible to compete. So I think this can change on any one of our competitors and ourselves relatively quickly. But right now, we don't see it as a major impact in 2017 based on the recompetes that we have and the direction the customer appears to be going.

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Lucas J. Narel, NCI, Inc. - CFO, EVP and Treasurer [19]

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Yes, Gautam, this is Lucas. I will follow-up on that. We did see that, obviously, in prior years, and in fact we had quite a bit of revenue declines year-over-year from '15 into '16 related to small business. So we're happy to see that -- or hopeful anyway that that's a trend that's going away now. But certainly in prior years, '14 through '15 to '16, we saw better than 5%, 10% or more of our business going to small business. So hopefully, that trend is stopping.

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Gautam J. Khanna, Cowen and Company, LLC, Research Division - MD and Senior Analyst [20]

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Okay. And last one. It wasn't but a year ago, I think, you talked -- your prior management talked about strategic alternatives and kind of undergoing a review. Can we assume that that's now dead? Or what new form is that taking?

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Lucas J. Narel, NCI, Inc. - CFO, EVP and Treasurer [21]

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Yes, Gautam, I think at all times -- obviously, we're a public company, we're always looking at that -- at all alternatives when it comes to strategic options. So we talked a little bit about M&A earlier and how we're focusing on growth in general. Long-term growth will include both organic growth as well as growth through acquisitions. Other strategic opportunities I think will be reviewed and identified at the board level as appropriate. But at this time, obviously, the focus is really on organic growth and short-term M&A activity.

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Operator [22]

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(Operator Instructions) We'll go now to our next question from Tobey Sommer with SunTrust.

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Kwan Hong Kim, SunTrust Robinson Humphrey, Inc., Research Division - Associate [23]

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This is Kwan Kim on for Tobey. In 2016, 37% of NCI's revenue came from Federal Civilian agencies. How has the federal hiring freeze among civilian agencies affected the procurement process? And how have your conversations with the agencies changed since?

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Paul A. Dillahay, NCI, Inc. - CEO, President and Director [24]

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Yes, Kwan, this is Paul. I will be honest with you, we're not seeing a material impact today in either the ability to get procurements out nor to make award decisions related to that issue. And we're also not seeing RFPs, where perhaps they would be looking to backfill those unhired positions. So I'd say, right now, we're not seeing a material impact at all.

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Kwan Hong Kim, SunTrust Robinson Humphrey, Inc., Research Division - Associate [25]

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Okay. And in the current environment, would you say the opportunity to pick up work or market share from the larger primes have improved?

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Paul A. Dillahay, NCI, Inc. - CEO, President and Director [26]

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Yes, I'd step back and look at what I think is a -- as a small mid-tier company, I think the agility of this team and the responsiveness of our team married with some pretty robust technical capabilities provides us an opportunity to do just that. And then -- and also align that with a really nice set of IDIQ vehicles, where we could hopefully migrate work selectively to those vehicles to position us to compete. So I think we stand a pretty good chance in this environment to do exactly as you asked.

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Operator [27]

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This concludes the Q&A portion of the call. I will turn the call over now to Paul Dillahay.

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Paul A. Dillahay, NCI, Inc. - CEO, President and Director [28]

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Thanks, Don. We'll be speaking with you again in a few short weeks to discuss our first quarter results. We'll also be on the road meeting with investors in May. In the meantime, if you have any questions, please direct them to Larry Delaney, and we'll be sure to get back to you promptly. Thanks, again, for joining us on today's call.

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Operator [29]

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This concludes today's conference. Thank you for your participation. You may now disconnect.