Leidos Holdings Inc (LDOS) 2008 Q1 法說會逐字稿

Good afternoon. My name is Celeste, and I will be your conference operator today. At this time, I would like to welcome everyone to the SAIC first quarter fiscal year 2008 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

At this time, I would like to introduce you to our speaker for today's call, Stuart Davis, Senior Vice President for Investor and Employee Owner Relations. Thank you. Mr. Davis, you may begin your conference call.

Thank you, Celeste. And welcome, everyone, to our first quarter fiscal year '08 earnings conference call. Here today are Ken Dahlberg, our Chairman and CEO, and Mark Sopp, our CFO. During this conference call, we will make forward-looking statements to assist you in understanding the Company, and our expectations about its future financial and operating performance.

These statements are subject to a number of risks that could cause actual events to differ materially, and I refer you to our SEC filings for a discussion of these risks. In addition, the statements made during this earnings call represent our views as of today. We anticipate that subsequent events and developments will 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.

Ken?

Thank you, Stuart. And good afternoon, everyone. The first quarter was a solid start to our fiscal year 2008. We met our financial objectives for revenue, op income, earnings per share, and cash flow. Mark will guide you through the numbers in a moment, but I want to reiterate we are on track for the year to grow shareholder value by accelerating organic growth, improving our operating margins, and deploying our capital on accretive acquisitions, as well as share repurchases when it makes good financial sense.

Now I will address the major developments in our market and our Company. As you know, we now have the $120 billion FY07 supplemental spending bill approved, so the funding outlook through September is positive. DOD money managers should no longer be concerned about diverting defense O&M dollars to fund the wars. And we are already seeing funds flowing more freely. The focus now has turned to the FY08 appropriation bills. President Bush has requested $716 billion in total discretionary spending, including a $481 billion base Defense budget, and a $142 billion war-time supplemental.

Both the House and the Senate have already passed Defense authorization bills, that add to the President's request for Defense funding, and the House Appropriation's Committee has approved spending allocations, with strong funding for our core defense and Homeland Security customers. However, despite these positive signs, we believe it is likely the Government will start the new fiscal year on October 1 with continuing resolutions for most or all of its spending. The House is separating the War Supplemental from the Defense Appropriation Bill, so there will be likely to have multiple opportunities to debate Iraq, which as you know, remains a very contentious issue.

The timing and size of the final budgets may in large part be determined by the upcoming September testimony of General Petraeus, and the administration on the progress in Iraq and the outcome of the troop surge. Of note for our Company, the President's request included a $300 million increase in spending for future combat systems. Our largest project, which represents about 3 to 4% of our revenue.

In their separate versions, the House trimmed $867 million, excuse me, from the President's budget, but the Senate added $115 million. The Senate's position is a strong statement of confidence in the program, and we expect the reconciled Appropriation Bill to be somewhere in the middle, which is consistent with our assessment that we gave guidance in December, of being flat to slightly down.

Now in the new business arena, our new business orders were about $1.8 billion for the quarter, but we had a customer signal that they intended to shift $300 million of work on a definite delivery contract, to one or more of our indefinite delivery, indefinite quantity vehicles. Accordingly, we took the amount out of our unfunded backlog, and our net bookings were then adjusted to $1.5 billion, for a book-to-bill ratio of 0.7. This led to a sequential decrease in our unfunded and total backlog, but funded backlog was slightly up at $4.8 billion, reflecting a strong funding environment.

As we have said before, unlike some other companies in our industry, our definition of bookings does not assign any value to our IDIQ contracts. Thus, our book-to-bill ratio and backlog figures do not reflect our business development successes, that are expected to come from our recent and continuing IDIQ award wins. If the expected value of these IDIQ awards were included, our net bookings for the quarter would be much higher.

Much of this incremental value comes from single award IDIQs, where we as the only supplier, such as our recent PACAF recompete, where we generate about $70 million a year, and the DLA outsourcing contract, where we will manage the supply chain for tires for all military ground vehicles. In fact, with our large DLA single IDIQ awards, our book-to-bill will probably not get much higher than 1 due to the quick turn to revenues.

You can read our press releases for a description of individual awards, but I want to highlight our success in the DLA outsourcing arena. Shortly after I arrived at SAIC, we instituted a strategic planning discipline, and soon identified that logistics and product support was an attractive business area, one that we believe would grow rapidly and show a strong return on our investment.

It was clear that we had some good capabilities, but we needed an acquisition to anchor the business. We went out and acquired ProcureNet in November of '04, and the business has significantly exceeded our original plans. On the IPO Road Show, we spoke about this whole logistics and support area as a key potential growth prospect as the DLA, the Defense Logistics Agency outsourced more work.

And in fact in Q1, we won the contract as a subcontractor to Michelin to manage the supply chain for all ground vehicle tires. And just recently in Q2, we won the prime contract to manage the supply chain for packaged petroleum, oil, lubricants, and chemical products, although this win now has been protested.

Assuming our Prochem win is upheld, we expect that these two contracts will reach an annual run rate of about $200 million, and there are much more opportunities for this type of work in our pipelines. Our successes here further validate the strategic value of the ProcureNet acquisition, and the strong capability that we have developed over the past two years. In other developments, we continue to streamline our organization so that we can better align ourselves with our markets, and be more efficient in delivering services and solutions.

In January, we consolidated from five groups to four, and from 24 business units to 22. Effective last week, two of our high-potential executives, Joe Craver and Charles Koontz assumed their new roles as Group Presidents, replacing George Singly and Larry Peck. George has begun a well-deserved retirement, and I have tasked Larry to lead a comprehensive review of our corporate structure and spending. During this transition, we also took the opportunity to further align our group structure with our markets and capabilities.

As President of our Defense Solutions group, Deb Alderson now oversees Command and Control, System Engineering and Integration, and Training and Simulation for all of our services. Larry Prior continues as President of the Intelligence, Security, and Technology group. Charles Koontz's new IT and Network Solution Group includes our commercial business, as well as all our government IT infrastructure business. And Joe Craver's Infrastructure and Product Solution Group includes our logistics, our inspection, our security products, environmental, our chem bio rad and nuclear, and our test and evaluation business. And I am pleased to say all four of our group President's combined proven experience and demonstrated leadership, with many years remaining in their professional careers.

We did not complete any acquisitions this quarter, but our M&A pipeline remains positive. Private company valuations are still generally frothy. We are in detailed discussions though, with several prospects that we expect to consummate in transactions this year, that will add strategic and financial value. As you know, we have plenty of capital and financial capacity, but we will not stray from our discipline of buying good companies at reasonable prices, and deploying cash in other ways to add shareholder value.

Mark will now provide detailed results for the quarter, and the outlook for our fiscal year 2008. Mark?

Thanks, Ken. The snapshot of our financial performance for the first quarter is that we are executing consistent with our operating plan and guidance on all major fronts. With first quarter results on track with our plan, strong performance in business development, and the war supplemental budget now in place through September, we reiterate our existing guidance range top to bottom. I will first provide some additional color on the first quarter results, and then I will move on to briefly address forward expectations.

Revenues for the first quarter were approximately $2.1 billion, representing total growth of 6%, and internal growth of 2% over the same quarter last year. As we expected, internal growth slowed sequentially, due to lower materials and subcontractor revenue. Compared to last quarter, that is Q4 of fiscal '07, labor-related revenue was up by about $40 million, but materials and subcontract revenue was down about $120 million.

On the products front, as expected, we had a low volume of shipments in our cargo inspection products business in the first quarter, but this is primarily a timing issue, with higher revenues of scheduled shipments planned for the second and third quarter. We did not see any material adverse funding situations as a result of the recent debate, and delay in approving the second supplemental budget to pay for the war. We view the current funding environment, as Ken said, as healthy at least through the end of the government fiscal year, that is obviously September.

As I mentioned up-front, our business development team continues to execute well, winning all major recompetes in the quarter, including PACAF, our largest recompete for this fiscal year. Of interest, while this bid was very competitive, we actually increased our negotiated fee rate on this contract compared to our prior contract.

As Ken mentioned, funded backlog remains strong at $4.8 billion, slightly above last quarter. This represents over six months of forward expected revenue, and is consistent with our confidence in the funding environment. Our backlog combined with our positioning on key IDIQ contracts gives us high confidence of meeting our revenue targets. We now have more than 70% of our expected Q2 through Q4 revenue in backlog, with 20% of the remaining from new tasking and recompetes under existing programs that we serve, with less than 10% coming from new business.

Moving on to profitability, operating income was $140 million for the quarter, or 6.8% of revenues. Profitability was pretty much as expected from our Government segment, where operating income, or operating margin that is, came in at 7% for the quarter. While this is consistent with our plan, it lagged behind the first quarter of last year, where operating margin for the Government segment was 7.7%.

You might recall that our Internal Research and Development, IR&D and business development spending pattern last fiscal year was back-end loaded, and as a result operating margins were higher in the first half of the year, and lower in the second half of the year. We had indicated before that our goal for fiscal '08, this year, was to better balance IR&D and business development spending, consistent with making continuous investments in the business throughout the year. We are basically on track to do just that.

For example, IR&D for the quarter is up $5 million, or 100% over the first quarter last year, itself accounting for 20 basis points of margin difference year-over-year. With flatter spend pattern and increasing revenue, we expect operating margin to gradually increase during the year, and we are still tracking to achieve our goal of 20 to 30 basis points of improvement over last fiscal year 2007.

We underperformed on profitability in our commercial business in the quarter, which had an operating margin of 5.8%. First, we had low product sales and secondly, significantly unfavorable labor mix, and a fixed price contract write-down in our U.K. commercial business, which mostly serves Scottish Power and British Petroleum.

This business requires a heavy composition of offshore labor to support these IT outsourcing contracts, and our projected level of content was not achieved in the quarter, due to high employee turnover coupled with recruiting shortfalls in our Indian subsidiary. We have made several changes to improve the retention and recruiting results in India, which we expect should remediate this issue over the course of the year.

Furthermore, contract renegotiations stemming from Scottish Power's acquisition by a Spanish utility, resulted in lower-than-planned consulting work for the quarter. Our forecast includes some degree of reduction in this area, but these negotiations are ongoing, which makes business visibility related to this contract difficult at this time. We will update you on this matter, of course, as it develops.

For the rest of the P&L, non-operating items and the tax rate were consistent with our expectations, and diluted earnings per share from continuing operations were $0.18. While this was consistent with our plan, it was down from the prior year's $0.27 by 33%. This decrease was caused by slightly lower operating income, lower interest income from lower cash balance due to the special dividend we paid last year, a normal but higher tax rate this year, and more shares outstanding as a result of the IPO last October.

Moving over the cash flows, we used roughly $130 million in cash from continuing operations during the quarter, again in-line with our expectations. The largest driver is that we pay our annual bonuses from the prior fiscal year in the first quarter. Secondly, day sales outstanding, or DSOs, increased by 4 days up to 73. This is a seasonal trend we have historically seen, this year, however, was accentuated due to heavy materials and subcontractor activity in the fourth quarter, all of which we have billed, but some of which we have yet to collect as of the end of the first quarter.

Accordingly, we expect to improve our DSOs in the second quarter, and to return back to around 70 days over the course of the year. We used about $95 million in cash for repurchases of stock during the quarter, which was through a combination of open market repurchases, and repurchases in connection with our stock option investing share programs.

Our repurchase philosophy is to continuously evaluate the prospective returns of alternatives in deploying capital. Investments for internal growth, acquisitions, and repurchases are the main categories of such alternatives. When assessing repurchases as an alternative, we evaluate our stock price, the market overall, our projected performance, our M&A pipeline, and other factors in determining, if you will, the pecking order of using available capital. This creates uncertainty in predicting levels of future repurchase activity, which is exactly why we assume no repurchases in the forward guidance. But of course we will continue to provide quarterly updates of our actual repurchases as they are made.

We ended the quarter with about $950 million in cash on hand, and no debt outstanding on our $750 million credit facility. $100 million of our senior unsecured notes outstanding shifted on the balance sheet from long-term debt to short-term debt as that traunch matures, and must be paid next February.

Wrapping up discussion on the quarter, let me now address quickly the Greek contract. First, let me point out that the contract has two main components, a system development and delivery piece, and a services and maintenance piece. The services and maintenance activity is performed by in-country subcontractors. Some of the systems have been completed or substantially completed and delivered since the Olympics in 2004, and have been used by the Greek government ever since.

Now with respect to recent activity, we now have received final acceptance for many of the systems delivered, and we also have received payment for past services provided, as called for the in the contract modification we talked about last quarter. However, we also unexpectedly received a rejection of one subsystem, and did not receive some of the payment for systems previously delivered, as required under the modification.

We believe that the rejection was caused by lack of coordination within the Greek government, and we are very confident that we delivered the required capability of that subsystem. As you might gather, the situation fluctuates on a daily basis, but this is where we are today.

So given the uncertainty of how this contract will be resolved, we plan to account for the system development phase using the completed contract method going forward. This means that all development, revenue, and costs are deferred until this phase is completed. If all goes well, this would occur in the second half of next fiscal year. If we reach a point where we expect losses in excess of accruals on the books, we will recognize the losses at that time.

Upon completion, if revenue exceeds accrued costs, we will conversely reverse the portion of losses that we previously recognized. For the services and maintenance portion of the contract, we will recognize revenue for services provided to the extent that payment is received, and that will be of zero margin because the overall contract is in a loss position. Separately, there were no meaningful developments on the Telecom South Africa matter in the first quarter.

Now I will finish up with forward guidance. Our philosophy on guidance is to provide it annually, and leave it alone as long as we expect to fall within it as we progress through the year. We do not want to spend a lot of time fine-tuning it, narrowing ranges, or the like to seek high precision each quarter.

So with that said, we reiterate the same guidance we had set for the year back in December, which is revenue in the 8.7 to $9 billion range, diluted earnings per share in the $0.83 to $0.87 range, and cash flow from continuing operations to equal or exceed $450 million. With the Supplemental being passed and with new contract wins, and a new opportunity pipeline, our confidence in executing our plan is high, and consistent with the position we articulated in our April conference call. Specifically, we still expect to grow organically by about 5%, and expand our operating margins 20 to 30 basis points.

With regard to the upcoming government cycle, government budget cycle for the fall, we are assuming a stable funding environment in the October through January timeframe to wrap up the fiscal year. While there is of course risk, this does not occur, we do not see overwhelming evidence to expect that at this time.

That completes my prepared remarks. Ken, back to you to finish it up.

Thanks, Mark. Before turning it over to Celeste to answer your questions, I just wanted to preview our upcoming shareholder meeting that will actually take place this Friday. We are pleased to announce we will be welcoming two new Directors to the Board. Dr. Min John and General John Jumper. Dr. John retired from Sandia National Laboratories after 24 years, the last seven of which she served as Vice President of Sandia's California division. Dr. John is a member of the Defense Science Board and the Threat Reduction Advisory Committee and the National Research Council's Naval Studies Board. General jumper retired from the Air Force in November of '05 after serving as the Chief of Staff to cap an extraordinary career.

In addition, management has forwarded a proposal to move from a staggered three year terms, to annual election of all Board members. Friday's vote will determine if the proposal passes. In any event, the Company remains committed to good corporate governance and being responsive to shareholder concerns.

With that, Celeste, we are now ready to take questions.

Let me interdict here for a second. I made a mistake in the earnings per share guidance. I said $0.83 to $0.87, that is incorrect, it should be $0.83 to $0.88, which was the guidance in December and April, and on the press release. I made a small mistake there, I apologize.

It is okay. I see the beads of sweat on your forehead.

(laughter)

We are ready now.

(OPERATOR INSTRUCTIONS) Your first question comes from the line of Jason Kupferberg with UBS.

Hi, guys. Can you hear me?

Yes, Jason.

Good afternoon. Just wanted to pick up on a comment that you guys had made last quarter regarding timing of the fiscal '07 supplemental. I think at the time you had said if it was delayed beyond June, the low end of your guidance might be a more likely scenario. Obviously, we got a little bit of an upside surprise there, and we got it done at the end of May. Just following that logic, does that suggest that the middle of your range becomes much more likely, or even the high end? Any incremental granularity we can get there?

As I said in my remarks, Jason, we don't want to get too precise quarter to quarter with guidance, but our overall view of the market and our business hasn't changed since that call. So you can take that for what it is.

Okay. Let me shift to the balance sheet then in terms of priorities. You talked about some of the same general priorities that you have discussed in the past. And I think in the past you have talked about the potential to lever up the balance sheet further for M&A, if the right transaction came along at the right price.

But my question is, if you are unable to find sizable acquisitions that meet your criteria, would you lever up the balance sheet solely for the purpose of buying back perhaps even more stock than what has currently been authorized?

We certainly would consider that, as we do with all methods of deploying cash on a continuous basis. So our first rule of thumb with respect to excess liquidity is to not do anything stupid, so we do evaluate our stock price, the market, our forward outlook, as I said, and the pipeline and M&A, and call it as we see it, based on changing conditions.

I think we constantly evaluate to try to get to an optimum capital structure. We recognize we have got more cash on the balance sheet, so we will find ways to deploy that. But not foolishly, as Mark pointed out.

And just one final clarification. I think, Ken, you had mentioned there are some active M&A prospects that you are having conversations with right now that could be consummated this year. Were those in the private company category, specifically, or not, we shouldn't necessarily assume that?

Yes, you shouldn't consider that. It could be a combination of both.

Both public and private?

Could be.

Okay. Fair enough. Thanks, guys.

You are welcome.

Your next question comes from the line of Bill Loomis with Stifel Nicolaus.

Hi. Thank you. Mark, I know you don't give quarterly guidance, but when we look out through fiscal '08, is it fair to assume that we should show kind of sequential improvement in operating margin and revenues through the year, fiscal year, or do you see some other seasonality impacts, like we had in fiscal '07?

Our view on that hasn't changed since the IPO, so our seasonality is pretty much as you said, where we climb through the year, although Q3 to Q4 tends to be flat, if you will, and then we kind of decline a little bit in the first quarter and then move back up again. So the same follows going forward with margins. So we had an upside down last year, because of timing of discretionary that I think we have been very clear on, and we expect to gradually migrate northward in operating margin, assuming we continue the course of balanced discretionary spending, i.e. IR&D and business development, and so far we are on track to do that.

On the contract win side and the pipeline side, how do you think the current quarter is going to factor out, in terms of we had the Supplemental pass at the end of May. Do you see a pick-up here in contract award activity? And how about as we close into the government fiscal year end, how do you see the environment in terms of contract awards and bid opportunities?

Well, we are bidding a lot as we speak, so the comment I made about now that the Supplemental has been signed, we are seeing more of the O&M dollars flowing, meaning more RFPs, we are bidding a significant amount. We also see our pipeline of greater than 100 million opportunities rich, and we are actively developing a short list to pursue those. So we are somewhat bullish on at least those prospects. Having said that, we won a big [pole chem] award and we have got a protest. So that is going to delay a little bit of our revenue until that gets adjudicated.

Okay, thank you.

You are welcome.

Your next question comes from the line of Cai von Rumohr with Cowen and Company.

Thank you very much, gentleman. The $300 million that shifted to IDIQ, can you tell us what contract did that occur? And are you seeing requests or pressures from customers, to shift any other definite delivery to IDIQ?

Cai, this is Mark. I will describe the contract, but not name it. But it is a contract to help the government put in place a data center. And this in our view is an isolated case, we do not see this trend. So that is really the simplicity of it. The customer is DHS in this case, but again we have not seen this in any other case in our business.

Okay. And you had mentioned commercial, the margin was 5.8. What were the revenues? And so obviously commercial looks like that is considerably weaker than it has been. What are the prospects for recovery? It sounded like with the changes at Scottish Power that we might be going at this rate? Is that fair to say, and is that below where your plan was?

You will see the breakdown of the segments in the Q, which we will have on file either tonight or tomorrow. The revenues were slightly down quarter-over-quarter, and that is attributable to the things I mentioned, lower product sales, lower consulting work. And we expect to grow north from here during the year. Our issues mostly were margin issues for our commercial business this quarter for the things I mentioned.

Yes. Not as much revenue.

Okay. So a lot of that was really timing related. And you had mentioned the Greek contract, were there any other negative adjustments on the Greek contract, or elsewhere in your business in the quarter?

None.

Okay. And shares, you have mentioned that you don't assume repurchase, but you do assume repurchase from employees. How much, you did $2.7 million in the quarter. How much are you assuming for the year in terms of repurchase from employees, since you are assuming that?

It is in the range of 1 to 2 million per quarter, shares.

Got it. Could you give us the number of shares outstanding at the end of the quarter, and kind of what you expect the issuance ex buybacks to be approximately for the year from plans, if you have an estimate?

The diluted share count, Cai, is going to be 418 --

No, I mean what it was at the end of the first quarter, if you have that number?

That is the number. 418 diluted at the end of the first quarter, fully diluted. And the annual issuance of shares to cover all compensation programs is in the 10 to 12 million range.

Got it, okay. Last question, how are we doing with the conversion to Delta? How is that going?

We have a very motivated team. They are doing well, but we did decide to push back the first implementation of pilot units about four months. Part of that was true delay in the project, if you will, for spending more time on testing and training.

But we also wanted to avoid conversion in the very busy months of September and October. So we are looking at November for our pilots, and then we will more precisely determine the rollout of the rest of the business, which will start in as early as February of the next fiscal year, and then throughout that year, and we expect to be done by the end of fiscal '09.

Thank you very much.

Cai, I just wanted to, this is Stuart. I wanted to step in, I think there was a little bit of confusion in terms of the share count. The actual shares outstanding as of the end of the quarter is 417, as opposed to the diluted share count average over the quarter, which is 418.

Okay. Thanks so much.

Your next question comes from the line of Alex Hamilton with Benchmark.

Hi. Good afternoon. I apologize, I have some computer issues, so I don't have my model in front of me. Two questions. Figures it is the time the computer is going to go down. What is the last, what is the remaining authorization on your stock buyback?

The remaining authorization is roughly 35 million.

35 million, right?

Yes.

Okay. And once again, like I said, I don't have my model in front of me. If I look at your CapEx last year, it seemed to be back-end loaded. How should we look at CapEx this year? Should it kind of follow the same ramp that we saw last year?

It tends to be back-end loaded every year.

It does.

So you could take that same assumption, and you wouldn't be far off.

Great. Thank you very much.

(OPERATOR INSTRUCTIONS) Your next question comes from the line of Julie Santoriello with Morgan Stanley.

Hi. This is Matt Spiegelman standing in for Julie today. My question was in regard to the FY08 budget process. Do you expect the DOD budget cash flow managers to start withholding cash again, as we get closer to August, September, given the uncertainty there?

Well, hold the FY07 fiscal year ends in September, so it would be a new start. What we are projecting, is it would be more than likely a continuing resolution, which means they hold to the same funding levels that they had the prior year, with fundamentally no new starts.

Okay. And do you have any sense as to how long you think the CR will last?

Not at this point.

Okay.

It is still debatable whether or not there will be a CR for defense, but with all the issues around the Iraq war, and the pending change in administration, we just think that the prudence is that it probably would be under a CR for some period of time.

Okay. And could you just comment generally on the competitive environment out there, in terms of pricing and competition?

Well, we are winning. Our win rates are still quite high. We have really done well in our recompetes, both from a quantity and dollar value. And sure, it is tough competition, that is why we tend to work on those things that discriminate us more with our science and technology emphasis. But I won't kid you, it is a competitive environment.

Okay. Thank you.

Your next question comes from the line of Edward Caso with Wachovia.

Great. Thank you. I was wondering if you could give us any sense of an update on how many insider shares may have come out into the system since the IPO?

Stuart, that is you.

As Mark said, we are going to be filing the Q later today or tomorrow, and the figure that is quoted on the front of the document is that there are 113 million common shares that are outstanding.

So it looks like over the past, let's call it two months, another 15 million shares have converted from preferred to common. Now not all of those are sold, necessarily, but that is the best guess we can take at it at this time.

Great, thank you. Can you talk a little bit more about this potential for a CR? We haven't on the Defense side, we haven't seen that in a few years, so we have lived with it on the Civil side. And maybe could the Civil CR be shorter given the Democratic control, and their bias to some of the more non-Defense areas?

Your guess is as good as mine there. I just don't, I wouldn't want to predict. And I don't want you to say that I am convinced that there is going to be a Continuing Resolution, I just suspect that because of everything that is being dithered around the war and an upcoming presidential election, that this will be the time for a lot of those issues to be hotly debated, and that will draw the attention away from Congress to do their approps and authorization, so we just think it is a higher likelihood that there will be a CR.

We have said it time and time again, we said it on the Road Show, regardless of an administration change, there will be a strong emphasis on protecting Homeland Defense and Core Defense. So I see it as an interim step, not cataclysmic.

Last question, voluntary turnover?

Voluntary turnover is steady, and actually showed a little bit of improvement. I think we are right around 13% thereabouts.

Thank you.

(OPERATOR INSTRUCTIONS) There are no further questions at this time. Do you have any closing remarks?

No, I don't, Celeste, but I appreciate your interest in the Company, and obviously, if there are questions that come up, as usual, Mark and Ken and I will be around to answer them after the call.

This concludes today's conference call. You may now disconnect.