Leidos Holdings Inc (LDOS) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the SAIC first quarter 2009 conference call.

My name's Emity, and I'll be your coordinator for today.

At this time, all participants are in listen-only mode.

We'll facilitate a question-and-answer session towards the end of this conference.

(OPERATOR INSTRUCTIONS) I'd now like to turn the presentation over to your host for today's call, Senior Vice President of Investor Relations, Mr.

Stuart Davis.

Please proceed, sir.

Thank you, Emity, and welcome, everyone.

Here today are Ken Dahlberg, our Chairman and CEO, and Mark Sopp, our CFO.

Larry Prior, our COO, will join us for the Q&A session.

During this 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 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.

With that, I'll turn it over to Ken.

Thanks, Stuart, and good afternoon, everyone.

While in my opinion and by every metric we're off to a great start for the year.

Building on last year's momentum we continue to accelerate organic growth and improve our operating margin.

We are also off to a strong start in generating cash and deploying it for shareholder returns.

So far this year we closed both the Icon Systems and SM Consulting acquisitions and we significantly ramped up our share repurchase activity.

We expect this year to be strong for our company, based on our first quarter operating results, our positive new business wins year to date and our expectation of a relatively stable near term funding environment.

Turning to government funding, there's been a lot of activity but not a lot of results since the last call.

Congress has returned from the Memorial Day recess yesterday and the House is taking up the Senate passed supplemental appropriations bill, which provided $165 billion for war-time operations and $10 billion in domestic spending.

Both houses of Congress realize that the army will soon run out of funds.

While the supplemental spending bill may follow a torturous path in the coming days, we do expect final agreement on a bill that the President will sign prior to the July 4th holiday.

We expect that the supplemental bill will fully fund the war-time expense for government fiscal year 2008, and also provide the new bridge funding to carry into the spring of 2009, which will remove the largest funding uncertainty through the remainder of our fiscal year.

To date, we've seen little if any impact from the delay and do not expect any as long as the supplemental is approved before the July 4th recess.

The House and Senate armed services committees have separately approved defense authorization bills and both increase the defense budget with strong funding for our future combat systems program.

That said, it is almost certain that the government will not have in place any full year stand-alone fiscal year 2009 appropriations on October 1st.

The continuing resolution could run for the entire fiscal year or be the subject of additional consideration in either a lame duck session or more likely after a new President and Congress are sworn in.

Although we would prefer to have the appropriations in place for all of our government customers, an extended continuing resolution would provide a stable funding environment and should not cause us to alter our guidance for this year.

Turning to new business, business development picked up substantially from last quarter, driven primarily by the strength in the intelligence area.

Our new business bookings were $2.5 billion, for a book-to-bill ratio of 1:1, which by the way is on track with our target for the year.

More importantly, only 1/3 of the bookings were from recompetes, so our wins offer significant growth opportunities.

Backlog at the end of the first quarter was $15.1 billion, of which $5.4 billion was funded.

Total backlog was up 5% from Q1 of last year and funded backlog was up 15%, consistent with the strong funding environment.

As you recall, the backlog does not include any amounts from IDIQ contracts.

In the first quarter we won almost $.5 billion in expected value in the energy and environment area alone, including the Chevron and Air Force Center for Engineering and environment contracts, where we've had long-term relationships and an established revenue pattern.

Our largest first quarter wins come with publicity restrictions, but I can tell you that the awards are providing increased visibility in our fiscal year 2009 results.

As of the end of the first quarter, greater than 75% of our projected revenue is in backlog.

As a comparison at the end of the first quarter of last year, we had approximately 70% of final revenue in backlog.

Since the end of the quarter, business momentum and revenue visibility have increased substantially.

In the last three weeks, we've issued press releases on three contract wins that are each in excess of $200 million, if all options are exercised.

And we have just as I just -- mean just received the approval to announce that we have won the AITS competition.

So in total, we've won six contracts greater than $100 million since the end of the first quarter.

Three are standard contracts or task orders that will add more than $800 million in bookings and three are large IDIQs, including two single award IDIQs, where we will not have to compete for individual task orders.

So I think it's clear that our federal business is very healthy.

The increases in our revenue, op income and backlog were all driven by our core government business.

One area that I want to highlight is our support to the Warfighter.

Our support in Iraq, Kuwait and Afghanistan is increasing certainly with MRAP but also with the rest of our defense and intelligence businesses.

While this revenue is potentially more at risk with the drawdown of troops, much of it will continue.

I would say the largest at risk piece is our MRAP C3 integration.

That represents a new capability for us with our [sky work] customer and we look to carry on that type of work on other platforms in the future.

Moreover, we've leveraged the C3 integration work to provide in theater logistics support services for the MRAP vehicles and that work will extend for the foreseeable future.

Now, on the other hand, our commercial business is fairly stagnant.

Although it is cash positive, it's not generating the kind of returns we expect.

There are pockets of strength especially in the state and local markets, but the, excuse me, the pure IT services work is struggling.

This work is becoming more price sensitive, where it's hard for us to differentiate ourselves.

Over the remainder of the year we will evaluate how to shift our focus to more noble commercial work like data management and data analytics.

To some extent you can see this effect in our federal business as well, but it's a much smaller part of the overall government portfolio.

We do operate data centers and perform enterprise network administration tasks for some of our key customers, but we tend to focus work where customer intimacy, deep domain understanding and high caliber science, engineering and technology expertise are critical.

Many of our lower cost IT jobs were won in years past when the company viewed all revenue as good revenue.

We have since instituted a more disciplined approach and look for areas where we can add real value, not only for our customers but for our shareholders.

For example, we did lose one recompete during the first quarter, where we were providing technical support and managing the data center for the Center for Earth Resources Observation and Science, or EROS.

We love the domain of global climate and environmental change and have tremendous qualifications in geospatial data, but the contract was generating about 1% fees.

When the contract was recompeted, the customer split out a new requirement to provide systems engineering and integration for a land site satellite ground station.

In the end, we lost the data centerpiece on price, but we kept the new more technically challenging piece at company average margins.

As a result of the EROS data center loss, we involuntary separated about 350 people, leaving headcount essentially flat over the quarter.

However, this should not mask what was a very positive quarter from a people perspective.

We hired over 2,000 people in the quarter, and our voluntary attrition rate was 12.8% for the quarter, marking the second straight quarter below 13%.

Entering the year we set a stretch target of bringing voluntary attrition down 150 basis points.

Our management team in incentivized around the target and I am pleased with our demonstrated progress in building, growing and retaining our most important asset.

With that, I'll turn it over to Mark for the financial details.

Thanks, Ken.

As mentioned, we are off to a solid start in fiscal 2009.

Revenues and profits are above our operating plan through our first quarter, which ended April 30th.

We are particularly pleased that our performance and actions in the first quarter now puts us back on track for our annual earnings per share growth target of 11% to 18%.

I'll cover this a little bit more later on.

Getting right into the results, revenues for the first quarter were $2.37 billion, that's up 18% on a total growth basis over last year, up 14% on an internal growth basis over the first quarter last year.

This growth was fueled as usual first by retaining our diverse contract base with recompete wins, next by strongly executing and expanding work on existing contracts, and finally, of course, winning new work.

Now, before I get into some of the specifics on revenue growth drivers this quarter, I want to note that our 14% internal growth metric comes over a fairly weak first quarter last year, where we had internal growth as you may recall of about 2%.

We then followed that up with internal revenue growth averaging 8% over quarters two through four last year.

So while this by no means dampens the strength of our revenue growth this quarter, it does make it much harder to achieve a similar rate of growth for the rest of this fiscal year.

That said, for the rest of this year we expect to continue sequential growth in Q2 and again in Q3, with a slight pullback in Q4, which is consistent with our historical trends.

Notable drivers for internal revenue growth in Q1 were our two MRAP contracts that Ken discussed which together contributed about three percentage points of that 14% internal growth.

We're very pleased to see the rest of the growth spread throughout so many of our core business areas, defense, intelligence, logistics, product support, and homeland security, all contributed to our strong first quarter top line results.

Growth came from expansion of existing programs, such as FCS, volume picked up after a declining last year, and new start-ups such as a new NSA program, and our 10-year DLA, Defense Logistics Agency tires contract.

Our [polcam] contract also with the DLA is still in start-up transition and we do not expect to see meaningful activity there until our third quarter.

First quarter revenue was split 61% from direct labor, and 39% from materials and subcontractors.

This split is consistent with the run rate over the previous three quarters, and our forward expectations.

Materials and subcontractor related revenues are up sharply from Q1 of last year, consistent with our move to larger systems integration contracts, including our MRAP work, our Defense Information Security Agency network global solutions contract and our Air Force Global Positioning System contract.

There were no major changes in our contract type mix with cost reimbursable contracts comprising 47% of revenues, and time and materials and fixed price contracts at 35% and 18% respectively.

Operating margin was essentially as we expected for the quarter and up 50 basis points above the same quarter last year.

Margin drivers again as expected included higher overall contract fees and economies of scale on our higher revenue base.

Our government segment operating margin performed a little ahead of expectations, approaching 8%, but this was offset by subpar margins in our commercial business.

While the strength of our much larger government business validates our confidence in migrating aggregate margins to above 8% in the long term, we have to align the cost structure in our commercial business with its lower revenue expectations to earn [relative] margins.

These actions are being addressed right away.

In the nonoperating category on the P&L, results were better if the first quarter than we can expect going forward.

We had $8 million in other income, including income from joint venture activities and a gain on the sale of two venture capital portfolio investments.

The other income and expense category has generally been a wash to slightly negative in the past and we expect that to generally be the case in the quarters to come as well.

We also earned $8 million in interest income, all from liquid low-risk investments.

We expect to run about a half -- about half of that rate for the forward quarters due to lower cash balances and lower interest rates, as we experience the full impacts of the federal rate reduction actions earlier this year.

Our lower cash balances are the result of significantly increased deployment of cash in the first quarter, which I'll discuss more in a moment.

Our strong revenue growth and improved margins drove higher net income from continuing operations, resulting in EPS from continuing operations of $0.25 per diluted share.

While we lowered the share count with more aggressive repurchase activity in the quarter, this did not affect our EPS result as the majority of the repurchases took place the latter part of the quarter.

We'll see the results of these repurchases favorably affecting EPS in the quarters to follow.

Before I move on to the balance sheet and cash flow area, let me now address our forward view in terms of operating performance.

As mentioned in today's release our performance in the first quarter coupled with strong visibility over the rest of the year, further confirms our confidence in achieving our long-term financial goals this fiscal year.

We have very good momentum on existing contracts and in winning new and sizable contracts.

The current funding environment is strong and our forecast assumes the second supplemental budget to pay for the war, as Ken mentioned, will be enacted by early next month and will extend past the end of January 2009, when the new President takes office.

We further assume the Department of Defense will operate under a continuing resolution from October through the rest of our fiscal year.

Our belief is the funding environment will be reasonably stable under these assumptions.

So with all of this we reaffirm our expectations of internal revenue growth in the 6% to 9% range for this fiscal year.

Should major funding disruptions occur, we would disclose any changes to our guidance in the following quarterly earnings release and conference call.

With our strong performance and a significantly reduced share count we also now expect to achieve our long-term year-over-year EPS from continuing operations growth goal of 11% to 18% this year.

The recovery of lost income from reduced interest rates is now more than offset in roughly equal amounts by stronger expected top line results at constant margins and from significantly reduced share count.

Thus, our current view is that we will achieve all of our long-term annual performance goals in fiscal 2009.

These goals were listed in today's earnings release.

Turning now the balance sheet and the statement of cash flows, as just mentioned, we strategically deployed more cash this quarter.

In light of our strong position in cash coupled with the sharply reduced interest rates as we entered the new fiscal year, we significantly increased our repurchase volume, deploying roughly $400 million in cash on share repurchases, and one acquisition in the first quarter.

With this, we repurchased roughly 12 million shares during the quarter under our public repurchase programs and another two million shares in internal transactions, which will significantly reduce share count and propel earnings per share for the rest of the year.

In addition, we repaid $100 million of debt at maturity on February 1st, as planned, enhancing our credit statistics and reducing interest expense.

On our last conference call we discussed the state of the credit markets and our bias towards maintaining a conservative capital structure posture.

This has not changed.

Despite the significant deployment of capital just discussed, we finished the quarter with over $650 million of cash on hand, well above the $500 million we feel is needed to preserve our current credit rating of A minus.

In fact, you might have noticed back in April, Standard and Poor's reaffirmed our A minus credit rating and actually improved our rating outlook from negative to stable.

For cash flows we track consistent with our operating plan for the quarter.

Our days sales outstanding stayed steady for the quarter from year end at 73 days, a statistic we certainly intend to improve over the balance of the year.

While we recovered from the billing problems related to our new systems conversion, we did not recover from some of our collections issues.

These included delays related to our intelligence customers, systems conversion difficulties that we told you about last quarter, but also some cases where contract shifted to different contract vehicles or government payment offices and we also had a contract [motivation] related delay.

We expect all of these collection issues to be temporary and resolved this fiscal year.

In a larger sense, operating cash flow for the first quarter ended up at a positive $13 million.

This reflects strong P&L results offset by planned net uses from receivable growth, and the payment of our annual incentive compensation, which has historically been paid in the first quarter.

Our cash flow model for the year is on track and consistent with the annual expectation we set at the beginning of the year.

That concludes my financial remarks.

I'll turn it back to Ken for conclusion.

Thanks, Mark.

Now, before turning to your questions, I want to emphasize how seriously we take the commitments that we make to our shareholders.

Last quarter, we had to warn that the drop in interest income could cause us not to meet the EPS range that we had previously guided.

Having said that, we did not stand idly by.

We aggressively deployed our capital and stepped up our execution to allow us to reconfirm our original guidance.

This is what you can expect from us, candidly describing the risks in our business and working hard to keep our commitments.

Now, with that, Emity, we are now ready to take questions.

(OPERATOR INSTRUCTIONS) Questions will be taken in the order received.

(OPERATOR INSTRUCTIONS) And your first question comes from the line of Mr.

Edward Caso.

Please proceed.

Good afternoon.

Terrific quarter.

I was wondering, Ken, if you could give us some sense for your expectation on contract wins and contract task funding.

As we sort of get just before and just after the election, how you think that may differ this time than other sort of election year cycles -- presidential election year cycles.

That was a little difficult to hear, but to paraphrase, my sense on contract wins and contract activity post election?

Yes.

Right.

I'm just trying to get the sense if this four-year period will be different than other four-year periods, as far as maybe a decision making pause on both announcing contracts and also funding contracts.

Well, I mean, that's difficult to speculate, and I care not to.

I mean, I think we continue to state, we've gained market share, we've aggressively pursued strong sub markets in the overall IT services market, and you're starting to see that result with these wins and the internal growth.

The speculation that regardless of with it's a democrat or a republican, that they will still have a strong defense budget, probably even more have a stronger homeland security budget, so I don't see that there will be much change early on in the process, but every administration has their own agenda.

And I wouldn't care to speculate what that would be.

Great.

Mark, can you give us a sense on your assumptions and on your tax rate and your share count for this year?

Sure, Ed.

On the tax rate front, we still have a full-year expectation of in between 39% and 40%.

That has not changed.

We did have some pick-up in the first quarter from some reversal of some contingencies, but that's not recurring.

We continue to hold the view that the research tax credit will not be renewed, if you will, which I think is a conservative measure.

Maybe that will go in our favor, but we are staying conservative on that.

If that happens to come through, that would be a pick-up of about 50 basis points.

So 39% to 40% this year.

On the share count, the repurchase activity of [$12 million] in the first quarter will have a full year effect of about a 10 million share count decline for the full year, based on the timing, using the weighted average approach.

So as we enter the year, we had projected a creep of about five million in share count for the full year and now we've offset that by about 10 million, and over the rest of the year we'll just have to see how it goes quarter-to-quarter in terms of any other activity and repurchases, share price, etc.

Great.

Thank you.

Thank you, Ed.

Your next question comes from the line of Joe Nadol with JPMorgan.

Please proceed.

Thanks.

Good afternoon.

Ken, to start, could you give any more details on the AITS win, what that means, do you expect a protest, and what it means in terms of for top line next year?

Well, we don't expect a protest.

The protest period is passed.

This was a program before my time that the company had won, and we're delighted to now be able to service the national guard and the army reserve.

It's a big contract.

I wouldn't guesstimate, but it's multiple hundreds of millions over five-year period.

So you can do the math.

It's a substantial revenue generator for us.

That will start a bit this year, ought to be a good ramp up and then get to a sustainment level in the ensuing years.

Okay.

Any more color available on what happened on the commercial side this quarter?

Was it loss of a specific contract?

Was it lower volume on contracts?

Was a specific business area within commercial?

Just seems like things are kind of happened relatively quickly there in terms of your disappointment.

By and large, we're seeing a conundrum, if you will, with our oil customers.

The price of oil being as high as they are, they're going the opposite way and retrenching in the project work, there's more noble work that we continue to do year in and year out.

So a couple of our key clients have really retrenched, and I got to say that was unexpected from our commercial business area.

And now we need to take a look going forward with being reality at least for the rest of the year, we just have more SG&A than we should for the revenue levels.

Okay.

And how many scanners did you deliver in the quarter and -- versus last year, and how much -- what was the positive impact on margins year-over-year?

This was a lower shipping quarter.

We delivered seven units.

I don't remember what we delivered in -- two, the prior year quarter.

Okay, but it did have a positive impact on margins and I guess that was offset a little bit by some of the commercial issues.

Is that a fair characterization?

Had a negligible effect on margins year-over-year.

We do, however, expect those shipment volumes to increase in sequential quarters which will attribute to improving margins this fiscal year as we move through the year.

Okay.

And then just one more for you.

On the top line, you're keep -- you're sticking with that 6% to 9% range.

Obviously this was a really strong start to the year.

I think you had had said, Ken, that you could move closer to the top end of the range if you got more visibility on the funding environment which it sounds like you have.

Why not bump that up a little bit?

Why not?

Well, because continuing resolution, there's still some uncertainty in our Q4, so we feel confident with the good start that we have that we can guide in that range.

If good things happen, better results will occur.

But I think we're doing what we should do as good stewards of the company and prudent.

Okay.

Thanks.

Nice quarter.

Thank you.

And your next question comes from the line of Laura Lederman with William Blair.

Please proceed.

Yes.

Thank you for taking my questions.

Just a few.

One is looking at the commercial business again, would one of the things you do potentially divest that or something you view as very strategic?

And shifting gears a little bit, looking at your mix between civilian and DoD, if we end up with a democrat, would you shift that more towards civil and where is that sitting now as a percentage?

And final question, total revenue from the Warfighter, as that starts to ramp down, how much of the revenue does tie to that?

Thank you.

And very good quarter.

Thank you.

How could you ask three questions in one minute?

That's well done.

I can talk really fast.

If that doesn't work out, I'll be an auctioneer.

Well, let me address the commercial.

One quarter does not make a decision for me to divest a business.

Everything goes through its cycles, including our government business portfolio.

This was unexpected.

And our team is focusing on returning to the kind of profitability that we expect in that business.

And I think as I highlighted in my earlier comments, we're focusing on the more noble work in the commercial space, where our customers see the value add of a science and engineering company like ours.

What was the second question?

The second question was civil versus DoD and kind of thoughts on that mix going forward for you.

Well, we've had some good state and local wins of recent note.

That tends to be an area where if we can pick and select the appropriate contracts to compete for, we've done exceedingly well in the past and we will continue to do that in the future.

It's certainly an area that we want to stay focused on because under a new administration with perhaps some declines in a robust defense budget, you want to look across the full range of the markets, and I'm glad we're in that civil space.

And we'll continue to do well there.

And the final question was the Warfighter, as that ramps down over time, what percentage of revenue is purely directly related to what's going on with the Warfighter in Iraq and Afghanistan?

So, I want to make a -- this is Larry Prior.

We should make a distinction between what's associated with our MRAP support and two contracts, and some of that work is physically in Iraq, Kuwait and Afghanistan, but a big portion of it is actually work being done in Charleston, but supporting the Warfighter.

Roughly about $240 million, $250 million a year is associated with the MRAP support, probably less than $150 million for the rest of our work.

We do believe that's increased some year to year.

And we would expect even with a planned drawdown by the next administration, you'll see continued support for the logistics part of MRAP and you'll see continued investment on the part of the next administration in the security really needed for whatever scenario they put forward.

Thanks.

So as we approach $10 billion we're talking about $100 million to $200 million, it's rather insignificant.

Thank you.

Your next question comes from the line of Jason Kupferberg with UBS.

Please proceed.

Thanks, and good afternoon, guys.

You had mentioned that the large buybacks so far year-to-date are one of the reasons why you now expect to be in the annual target range on the EPS growth of 11% to 18%.

I guess I had had always thought that that range excluded any buybacks.

I just wanted to get a sense if you can clarify whether you would be in this range without the benefit of the buybacks, as well as the $0.01 or so of EPS that you got from the nonrecurring, nonoperating income in the quarter.

Jason, the comment made was that the repurchases already done now have the effect of recouping interest income that we lost from the rate reductions.

We're not projecting in that statement any future repurchases as we have always done.

So again, half of that recovery, if you will, again lost from the reduced interest income, which you will recall was $25 million, on the interest income line, was recovered by the repurchase activity, if you will, on an EPS basis, through the first quarter, and then also by stronger top line expectations at the margins that we had guided all along, the 20 to 30 basis points improvement year-over-year.

So those two pieces collectively recover that lost income from the rate reductions as of now.

Jason, this is Stuart.

Just to be clear, we have the long-term model of 11% to 18%, which really does not include any uptick in terms of the share repurchase, but at the same time it doesn't envision any downtick in interest income, so we were able to make those up.

Those aren't -- that's not sustaining part of our 11% to 18% model.

Okay.

Okay.

I'll work through the rest of the math offline.

But that's helpful.

I appreciate that.

As far as the funded backlog, it seems like that's been increasing as a percent of the total backlog.

Is that just kind of vagaries of quarter-to-quarter movements, or should we interpret that as a sign of increasing visibility from your point of view?

Yes, this is Larry Prior.

In both cases, I think for our business development team and our four group presidents, the pipeline's improved, the backlog's improved, and both are just healthy signs of the business.

In part it was Ken's leadership driving us to those $100 million opportunities.

We now have [138] of those in some various stages of the pipeline.

So we're seeing healthy improvement.

Okay.

And finally, just an update on the [Deltek] roll-out in terms of how the latest deployments are going and your expectations for the rest of this fiscal year.

Right now we're sticking to the plan that we had set out.

We're doing continuous improvement with the two business units and the corporate deployment.

Good many lessons learned.

John Hartley, our Controller, is doing continued improvement on all of the financial processes and our financial concept of operations, and we're looking to stay on plan.

Okay.

Thanks.

Your next question comes from the line of Joseph Vafi with Jefferies & Company.

Please proceed.

Hi, gentlemen.

Good results here this afternoon.

Was wondering if the book-to-bill or backlog, how that might have been affected if we took into account those single award IDIQs that sometimes you get and bill and generate revenue in a single quarter.

So this is Larry Prior.

We're very disciplined about our book-to-bill not including those.

As you saw in the release and in our discussions, there's a very healthy contribution to the top line growth with this company through both the multiple award, as well as the single award IDIQs.

It will continue to be a very valuable top line driver for us.

We have benefited from the task orders on many of those vehicles.

But as we report out to you in the conservative SAIC fashion, we're going to continue to keep those out.

We will update, however, on a quarterly basis with some color around it and we'll continue to improve that as we meet with you guys.

Okay.

So just trying to get a sense, and looking at the momentum in the business, and one of the things we look at is book-to-bill and funded and then another piece of the equation for you is that single award IDIQ input.

Is there a way that we should be looking at that to kind of help us gauge the momentum in the business as we look forward over, say, the next couple quarters?

In one of the ways we're trying to do it is when you see that our funded backlog's improved about 15%, our total backlog by 5%, our overall pipeline has improved 8%, and our $100 million pipeline, again, double-digit 11%, that will include some of the growth that we've had on the IDIQ wins.

What we've begun to do and you'll have seen the three press releases of larger wins, those include the Guardian contract, as well as one that was highlighted by the longest acronym known to man, the C5ISR program.

Those are great examples of single award IDIQ where we'll do the press release, we'll detail in those press releases what the revenue expectation is.

And if you marry that up with our book-to-bill, it will start to give you I think the color that you need to go ahead and forecast our top line growth.

Okay.

That's helpful.

And then just maybe a couple of items for Mark on the minority interest number.

Obviously it looks like you had some minority interest income this quarter.

Is that something that we should expect to continue moving forward?

And then I guess you also paid some debt down, so how should we be looking at interest expense moving forward?

We didn't have minority interest income, per se, in the normal GAAP vernacular, but we did have income from a joint venture with [Bechtel] and our work at Yucca Mountain.

That actually was about $3 million for the year.

I would not consider it recurring.

Our work there continues, but we have award fee dates that come far apart, and it's kind of an all or nothing deal.

So we don't project that we will get that each time, and they're pretty far spread apart.

So we'll probably have a little bit more the rest of this year, but it's not significant.

And as I mentioned, we had some gains from the sale of investments in our venture capital area.

In the past, those have largely been impairments and losses, but we were fortunate this period to pick up, again, about $3 million in this case for those activities.

There is risk going forward in that whole category for further impairments.

I think we've disclosed those risk amounts before.

Joe, could you repeat the--

Yes.

And then any change in the interest income outlook here?

I know you paid some debt down and interest rates are coming in a bit.

Right.

Well, interest income as I said, which was 8% for the quarter, will be halved going forward based on our current estimates from lower cash balances and lower rates.

On the expense side, the $100 million brings our interest expense down by roughly [$10 million] for the year.

And that was well projected in our IPO due diligence and so forth.

Okay.

Great.

Thank you very much.

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

Please proceed.

Yes, thank you very much.

Quick follow-up on the commercial.

If you made 8% margins in government, by my calculation, unless corporate expense was de minimus, commercial was near break even on sales of about $140 million.

Is that correct?

So it was really down a fair amount from the fourth quarter.

3%?

It's a little north of that your and you'll see that in the Q.

It's in the order of 3% plus.

Right, Cai, the government segment you'll see is about 7.8%, the commercial's about 3%, when we disclose the segment numbers in the Q tomorrow.

Got it.

Okay.

And then you mentioned I think 14% internal growth, organic growth.

I mean, that would imply close to 3% acquisitions.

That number looks high.

Where did all that acquisition revenue come from?

Is that correct?

You're up almost 18%.

That is a large company, it's roughly $200 million run rate.

We picked it up last -- early August and growing well.

Our Benham operation, the energy management business that we acquired.

So really it was about $60 million from acquisitions, that's essentially -- the math is correct?

That's correct.

Okay.

Okay.

Great.

And then last one, could you go over the number, the bids you had outstanding going into the quarter?

The bids awaiting decision?

So if you look at the total number, right now, give it a dollar item, there's $13.5 billion of total submits that are under evaluation.

If you're looking at the $100 million jobs or larger, we have 27 submitted today.

That dollar item actually includes more than just the $100 million bids, but I thought it would be good to give you the color.

So the $13.5 billion is as of the end of the quarter?

And that's all in, yes, sir.

Okay.

Terrific.

Thanks so much.

Great quarter.

Thanks, Cai.

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

Please proceed.

Hi, thank you.

Great quarter, guys.

Looking at the organic growth in the quarter, the 14%, was that about in line with what you would -- I know you don't give quarterly guidance, but is that about what you expected when you gave guidance last quarter?

The revenue results were ahead of our expectations coming into the quarter, Bill.

Okay.

And what were the key drivers there?

Because bookings were about as you projected at one times revenue, they wouldn't have added much revenue anyway in the quarter.

You knew what you wanted the prior quarter.

What were kind of the deltas that gave you the upside?

Just -- this is Larry.

One thing that helped.

It was more broad-based than we expected.

So if you look at our 20 plus units, 15 of them were well within that growth range.

And six of our business units were actually doing double-digit growth.

So there was broad-based performance, great leadership by all of our group presidents, and it was very positive to see this early in the year.

Okay.

And is there anything that's going to change in the back half that would lower it down to the kind of mid single digits, keep it in your full year guidance range?

Or again, you mentioned, Larry, being conservative, do you think that's a conservative number.

I think Ken was appropriately cautious, we had hoped to see a supplemental before Memorial Day.

We're now hoping to see it before the 4th of July.

There's still the unknown and uncertainty of how they play out, the appropriations, and the continuing resolution.

More importantly, we're more than likely be under a CR for most of our fourth quarter, which means the government will fund existing contracts, not new contracts.

So -- and our Q4 historically has been a less revenue generator than the prior three quarters.

And just remember, as I said earlier, while we do expect to grow sequentially from here, those prior year numbers are much bigger comparables as a base to compare against in Q2 through Q4, and that has a slowing effect on the rate, as I said.

And, Mark, you mentioned we got to $8 million other income, but how about on the award fees or stuff that's above the other income line, was there anything unusual in the quarter in terms of a big award fee that kind of outside the normal?

No, sir.

There was not.

Okay.

Thank you.

Thank you.

Your next question comes from the line of Greg Wowkun with Banc of America Securities.

Please proceed.

Thank you.

Ken, one initiative you laid out last quarter was to create a significant business in the cyber security area.

Any notable wins or traction being made in this area that you can speak to?

Not yet.

Lots of traction around building our program team, lots of beginning to bid opportunities, but momentum really will occur in the cyberspace, I think more in Q3 and Q4.

Great.

Thanks.

Your next question comes from the line of Erik Olbeter with Pacific Crest.

Please proceed.

Congratulations on a great quarter, guys.

The problem with going last is most of the good questions are taken.

So I'll ask a piddly one on SG&A.

Can you provide us the breakdown and talk about bidding proposal activity, the expenditures there, and how you view them going through the rest of the year?

Erik, Mark Sopp here.

B&P was actually up in the first quarter over last by quite a bit.

That was slightly offset, not totally, by a little bit less in IR&D.

And the reason for that is some of the technical folks we use for IR&D are needed on the bid and proposal front, and that's a trade-off we make all the time.

But our trends on SG&A, we had a pretty low result in the quarter, 6% of revenue.

Actually expect that percent to rise a little bit in the second quarter.

We have some expenses we'll deal with partially related to the commercial area we discussed earlier, but then staying in the low 6% range thereafter.

Okay.

Great.

Thanks, guys.

Great quarter.

Thank you.

I'm showing you have no further questions at this time.

Okay.

I guess that's going to go ahead and close the call for today.

On behalf of the team I really want to thank all of you for your interest in the company and hope to see you out on the road soon.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Good day.