ManTech International Corp (MANT) 2003 Q1 法說會逐字稿

Good afternoon everyone and welcome to ManTech International's First Quarter Fiscal Year 2003 Earnings Conference Call. Today's call is being recorded. For opening remarks and introduction I would now like to turn the call over to ManTech's Senior Corporate Vice President Peter LaMontagne, please go ahead sir.

Thank you Mitch and good afternoon ladies and gentlemen and welcome to ManTech International Corporation's 2003 First Quarter Earnings conference call. My name is Peter LaMontagne and I'm a Senior Corporate Vice President at ManTech International. We are pleased that you are able to join us for today's call, whether by telephone or via the web cast. Leading today's call for from ManTech are George Pedersen Chairman of the Board, CEO and President and; John Moore, Executive Vice President and CFO.

Earlier this afternoon we released our fiscal year 2003 first quarter results and our agenda today will cover the material in more detail as follows. First we will have opening remarks by George Pedersen followed by John Moore who will provide us with the financial and operational overview of Q1 2003, including an update on the acquisitions and their integration into the enterprise. John will conclude with financial guidance for 2003, both the second quarter and for the full year. And finally George will wrap up the call with the summary and then we have plenty of time for your questions.

Before we begin our discussion now, it's important that we provide you with the required statement relating to our written and verbal disclosures and commentaries regarding ManTech and our results and operations. Our discussions this afternoon will contain forward-looking statements related to future events, developments, and business performance during the second quarter of 2003 and beyond. These statements are intended to qualify for Safe Harbor from liability established by the Private Securities Litigation Reform Act. These statements are not guarantees of future events, developments, or business performance, and are subject to certain risks, uncertainties, assumptions, and other factors some of which are beyond the company's control that could cause actual results to differ materially from those anticipated. Some of the factors that could cause actual results to differ materially from those anticipated are mentioned in today's earnings press release, and others are contained in our annual report on Form 10-K and other reports on file with the SEC. Also, the entire contents of today's call which is being recorded and simultaneously web cast is a copyright of ManTech International Corporation and may not be reproduced in any form without prior written consent.

With that I would like to turn the call over to George Pedersen for introductory remarks, George.

Thanks Peter and good afternoon everyone to all the call participants. Thank you for joining us today. The first quarter results were very strong that and present further evidenced that our strategy of to focus on expanding the expanding DOD and intelligence community ITP security markets is the right strategy. At a recent briefing presented by the Department of Trans - Office of Transformation, they use a new term the American way of war. We have just seen a demonstration in Iraq where the use of the overwhelming technology combined with the highly trained extraordinary military force of men and women overwhelmed the world's fourth largest standing army in a matter of days.

Supporting that technology is ManTech's core business and ManTech's personnel are participating in the war if at on a battlefield and are deeply involved in the preparation for this war. Our industry is enjoying strong budget support, as you multi support as you saw in the’03 appropriation and you will see more in '04, which begins in 1 October. The converse congress just passed and the President signed a $79b defense settlement supplemental bill. It's There’s a chance that there will be another $30b supplemental defense bill before one 1 October.

There are many areas of spending in the recent supplemental bill beyond support for the cost of the Iraq operation that will benefit other defense homeland security and counter terrorism efforts. Because the engagement in Iraq was so short we believe that the DOD did not expend as much funding on war ordinance as one would have expected. We believe that this may add flexibility to the DOD spending and allow additional resources to go a more expanding investment in Intelligence and IT, areas that will benefit our industry. If there is an additional supplemental appropriation it will add even more momentum to the IT and transformation spending trend. Although it is still very early, at this point we anticipate that the defense appropriation process will be completed on schedule this year by one 1 October.

Now let's turn back to ManTech and our quarterly results. We continue to see positive trends as is being reflected in our first quarter results that we will be discussing today. And we saw a very positive contribution from our four companies that we acquired in 2002 and earlier this year.

ManTech's industry research ManTech's ETX, ManTech IDS and ManTech MSM all reported delivered strong results in this quarter, in line with our expectations. Revenue was up 37% compared to with the first quarter of 2002. While our four acquisitions displayed strong growth in the quarter, for core ManTech businesses also performed well. Most important we saw in the first forth you saw in the first quarter concrete examples of cost selling and joint contract wins by ManTech in this recent acquisition. In fact, ManTech won over $90m in contract that would not have been possible without the acquisition. The award involved ManTech, MSMN, Research Corporation, and support of the contract wins of the Department of Defense security service and the Department of State, there $90m.

While these two contract wins are the most obvious examples of the success of our acquisition program, we are witnessing many similar examples of coordinated business development and technical capability transfers among the respective business units across the enterprise. This is exactly the type of synergy that we anticipated. Our solid top line growth is complimented by strong expansion of our operating margins. We hit 8.6% in Q1 compared with 7.0% in the first quarter of 2002, that's 23% nearly 23%. So John will provide you with more details in a moment. We attribute this success to both the continuous solid performance by our pre-acquisition magic ManTech business units plus forecasts and improvements in margins that we saw as a result of our recent acquisition.

You may recall that ManTech reviewed approximately 66 acquisitions cases candidates over the past 18 months and the four we completed we're premier companies in that group. Given the strength of our new platform which now has stronger technical capabilities and market penetration than never before, we will not likely add to any -- we will not likely add any new acquisition for the remainder of 2003. We will focus on integration. These recent acquisitions are strong line agents of the growth. In short, ensure that the acquisition reflects both ManTech's tradition of excellence, references as well as our commitment in to transformation to technology. The acquisitions are healthy, and are on track with integration plans and helping us with new the business and to penetrate in the market - all in line with our strategy of timing. Now I would like to hand the call over to John to cover the detailed financial operating details that support our objectives, John.

Thanks, George and good afternoon everyone. Hope you all have access for to the financial information we provided in our earnings release, copies are already available on our website www.mantechManTech.com, if you need a copy. Please note that in an effort to provide you with this update as much data as possible, in addition to he condensed consolidated statements of income.

We've included in release a condensed consolidated balance sheet and cash flow statement. Our earnings release contains a great deal of operational and financial detail upon but for this call want to focus on some of the key to light highlights for the quarter. As George has already mentioned we had a very strong quarter, solid revenue growth with record operating margins. Let’s go lengthen right to the financial and operational metrics.

Prominent Revenue for the quarter ended March 31, 2003 came in to the $148.1m compared to $108.1m in Q1 '02. Contributions from our recent acquisitions were the leading driver form top line growth but we also had top solid performance from our Legacy ManTech programs to reap reach the overall 37% growth rate. In anticipation to of some of your questions, and as we noted in our last conference call, we will not be taking the revenue down by each acquired business unit on this call, quarter business by this quarter as the combined activities of these units across the enterprise make that metric less meaningful.

The combined win by ManTech, MFTC, ManTech MSN and ManTech agents resources research is a great advent for them. However, we feel confident in asserting that the acquisitions in core ManTech business are delivering growth in line with the expectations as we had have outlined them in the past. Income from operations return on tails was 8.6% up over 22% from last year in the first quarter. We are particularly pleased with this operating margin improvement, which was driven not just by our acquisitions, but by our overall standard growth expanded work in secured systems in IT solutions work. While where we tend to see high return up sales as a result of prevalence of TNM and fixed price contract.

We anticipate that we will end the year with our operating margin in the 8.3% to 8.5% range as forecasted in our last call. Net income also increased up 52% to $7m for the quarter from $4.6m last year. Fully diluted earnings per share tended at 22 cents up from 20 cents for the period last year. As was noted in today's release however, our earnings were impacted by approximately 2 cents per share as a result of the fourth quarter of 2002 net loss incurred by a ManTech affiliate, the way we accounts run through these under the equity method of accounting. Backlogs for March 31, 2003 for ManTech was approximately $1.4b compared with $935.3m on the same date 2002, an increase of 51.3%. Funded backlog as of March 31, 2003 was $277.6m compared with $230.5m on the same day in 2002. GSA schedule contract values from for ManTech the end of the quarter was approximately $1b up from $860. 6m on the same date in 2002, an increase of 17%.

I would encourage those of you not to familiar with our reporting of GSA's scheduled contract days value, to see our press release for additional details on how we calculate this important metrics. Regarding (GSA) schedule contract revenue, ManTech derived 36.4% of its revues for the quarter ended March 31, 2003, from work under these flexible acquisition schedules. ManTech's overall revenue for the first quarter had a similar profile for to the break down we reported in the past.

Approximately 97% of our revenue came from Federal government contracts. Revenue from Department of Defense, and the intelligence community accounted for 87.9% of revenue from for the first quarter up from 85.8% last year. Revenues from secured systems and infrastructure solution and our information technology solution operations combined to account for 80.2% of revenue in the first quarter compared with 73.3% in 2002 for the same period.

Revenue from systems engineering solutions in the quarter accounted for 9019.8% down from 26.7% in 2002. This shift in revenue toward more secure systems in ITC work is one driver behind our growth in expanding margin. We are 've seeing a number of new starts in and expansions in the secured systems in IT arena, especially in support of classified DOD and intelligence community customers. You will recall that through our acquisitions, we acquired a large number of personnel with high-level characters clearances that allow us to work on these Fellow re-priority programs. ManTech service served as prime contractors for 89.2% of it's revenue in this quarter. Regarding contract price in this quarter, time, materials, and fixed price contracts combined to account for 63.1% of the revenue while cost-plus contract accounted for 36.9% a mix somewhere similar to Q1, 2002.

Our cash position as of March 31, 2003 was $12.7m, reflecting the completed acquisitions for cash for of both IDS and MSM. DSOs for the quarter were 87.6 days on a pro forma basis to reflect how having both IDS and MSM within the enterprise for the entire quarter. The increase from our general DSO guidance dilute can be attributed primarily to our automatic test equipment operations and to a $4.9m cash deposit that was expected to be received on March 31 but was not received until April 1. Calculating our DSO’s was independent of these factors our DSO’s would have been 79.5 days for the quarter. We expect this increase to be a one time event and project to return to our customized customary some sum 80 day hire term in the second quarter as throughout the balance of 2003. As definite to this we calculated DSOs from the month of March at 80 days.

Again, we expect sub-80 day DSOs for the balance for the year.

George has already covered the very positive news throughout our acquisitions and the business development synergies that we are seeing on wins, such as the $40m State Department for having investigation and the judication support contract. As noted in the release, quality all the acquisitions will be operating on our centralized GRP platform in the near term. MSM and the TPX by the end of Q2, and IBX not later at the end of Q3. Another very positive trend on the acquisition process front is reflected in our annualized voluntary turn over rates including the acquisition. ManTech had 13% voluntary turnover compared with over 18% last year at the same time. Regarding contract list, I would encourage you to see the earnings release for the highlights. One contract with significant potential was the GSA connections wind and IDI blanket X lack of purchase agreement that could bring new streams of revenue towards the end of this year as the contract develops. At this time, we have not assumed any revenue from connections in our backlog.

Awarded to 17 companies, this contract has an estimate ceiling of $35b over 7 years. Not included in the contract announcements, of course, are our filed tax orders quarters under GSA contract and new DOD and civilian classified work that we cannot discuss for security reasons. We believe our standing backlog and GSA contract revenue, however, are solid members of - measures of our revenue visibility and growth. In addition, we have a very healthy multi- dollar pipeline that calls for qualified leads from new and existing programs that will carry NASDAQ into the 2005 and beyond. And certainly

In summary, the first quarter was very strong, 37% top line growth and operating margins of 8.6%. Our recent acquisitions are performing as expected and driving growth in new markets. The integration process is on track.

With that positive, let's turn to our financial guidance for the second quarter and the full year. As I am sure you have seen in the earnings release, we have increased our revenue and earnings guidance for the full year 2003 as follows. For the full year 2003 we are projecting revenue to come in between $680 and $690m . Based on 32m 202,000 304m weighted average common shares gross standing for the full year 2003, we expect diluted earnings per share to be between $1.03 and a $1.07.

We anticipate revenue for the second quarter in the range of $170 to $174m and based on 32m ,018,000 837m weighted average common shares outstanding for the second quarter, we expect diluted earnings per share to be between 25 cents and 27 cents. The expense expanded guidance reflects the increasing confidence we have in our acquisition and our original method ManTech business, as well as positive spending trends. The $170m target for the second quarter puts us no on track for 40+% plus quarter-over-quarter growth over last year. And the high end of our nuclear new full year guidance reflects to press down growth in line with the 371% increase we saw this quarter. With acquisition and cross selling acting as primary drivers for growth.

That covers my key items, we had a very strong quarter and the balance of the year looks promising. I look forward to your questions but first let me hand the call back to George for a few concluding remarks. George.

Thank you John. I also wanted to get straight to the questions and answers so in summary we saw the first quarter results as a good indicator of the balance of the year. With just two months having passed since our last acquisition transaction we're pleased with the progress of the prospects that we’ve seen. The acquisitions have had a significant impact on our technologies technology skill base in addition to expanding our excess access to new customers, plus especially in intelligence community. That was our plan, and it’s working. Now let's get the operator and answer some somebody...answer some questions.

Mitch you can go ahead with the questions.

Ladies and gentlemen if you would like to ask a question, please press "*" then the number "1" on your telephone keypad. Again, to ask a question press "*", " 1". We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Joe Garney (ph) with Jefferies and Company.

Hi guys. Good afternoon.

Hey Joe.

Hey. Few questions here, and I know you don't want to - you're not providing tremendous amount of color on the revenue growth break but it might interesting to just kind of get a flavor of, you know, the core legacy, you know, ManTech business which is - which you know very well has been around is going to last for years and years and how the tone of that business and you know, we just feel for the organic growth rate in another business right now?

Sure Joe, this is Peter. I'd be happy to have to answer that and just echo John's comments that we feel very comfortable reasserting our original 10% progress targets for the year and growth rates at 10%. The legacy ManTech business, our core business has been ManTech for these years, it's doing quite well. As you know, even prior to the acquisitions we have had significant exposure to the DOD and the intelligence community already and we're seeing benefits from that spending now that we see the years underway. So we feel very comfortable with that. And on the point of the guidance, I think it's important to note our outstanding expanding guidance, and when we look back to the last call we talked about getting 10% organic and at least 15% through from our acquisitions. I think our 37% growth year-on-year is fully reflective of that. So the legacy ManTech businesses that we've had, especially in those areas that focus on the secure systems on and the IT is going in line with what we expected and we feel very, very comfortable with that going forward.

Okay. And that just on the DSO I know there were those two primary drivers for the increase there. If we could can you just give us more color on each of those and, you know, where maybe DSO stands now and were where they billed or and non-unbilled or was, that would great? .

Okay. On the DSO themselves, we mentioned there were two items that drove DSOs. One was the payment, the payment that came in on April 1 that was supposed to be March 31, that was $4.9m in cash.

Right.

Actually, So that was a significant piece that would have drove positive operating half about the earning cash flow for the quarter and also changed the DSOs. The Second relates to our ATE automatic on that test equipment operations but we have milestones going to payments that relate to some of our automatic test equipment.

Those milestone payments are on track. We did not have a blip in the quarter. Just a matter of just timing, so if you go back to what I said regarding March, March itself was 80 days, which is on par with our guidance. If you take those two blips out, Joe, it’s 79.5 days. As far as billed and unbilled for the quarter billed was -- about of our total 155m receivables, billed was a $119.532m, unbilled was $36.076m .

Okay. And on the automatic test equipment business, are you going to hit a milestone? When do you think you have the next billing milestone in that?

In the second quarter.

Okay. Great, thanks a lot.

Thanks.

Your next question comes from the line of Bill Loomis with Legg Mason.

Hi, thank you. Strong quarter guys. On the affiliated business, was that GSEA that you had to recognize the loss?

Yes it was Bill.

And which line is that, is that in the other expense line?

Yes.

And, what's -- I guess every -- if the company continues out losses that's a non-cash charge, you're obviously right?

Yes.

Unless the company has another loss in the first quarter it would be the same next in the second quarter.

Yes it would.

And second question on the just on the defense business, a lot of those moving currents out there can you just give us a couple of examples of -- first of all just the general comment on obviously you didn’t have things deferred too much, given their strong revenue performance, but give us some examples of programs that were deferred and may come up later in the year. We’ve heard a couple instances to coupling business from other companies about programs that were accelerated in the quarter did that they the second quarter happen in the first. Did you see any of that?

Bill we have no deferred programs. We haven't experienced what apparently some of the others have, I just don't have any thing. I’ll would tell you that we would have come in the first quarter is coming in a third quarter it's just not in all our categories.

Yes and Bill, this is Peter, the only thing that we are seeing is I think with some in incumbent contracts where people are maybe anticipating the NRP for a weekend re-compete coming out at the end in a particular month may have been pushed to the right by 30 days or 60 days because folks were busy with the work, but now nothing substantial in especially new start areas.

I also think Bill, as you know 89 to 90% of our revenue comes from the DOD and those appropriation bills were passed, last one 1 October. We are not as dependent on the other agencies where those appropriation bills were delayed. So we perhaps some don’t have the thing in same impact.

We thought to make it couple of other companies noted acceleration and as right into related to the war, we're just the absolute opposite of deferrals where they have revenue they expected to in the second quarter actually occurred in the first quarter.

Well actually we didn't know did you see that? Where Well, we have people in the battlefield, as you know, we've been pumping revenue out of that sort source, but I just don't see it having an impact in the second quarter. -- I just don't see an impact in the way I as understand in the question.

No we would see it as a steady stream go Bill. We’re in the services business. People are our biggest assets, did has people have to get that. So the people aren’t going to go right away. Some of them have been employed four troops in other places that when the four troops come back, they'll come back and resume the job that they had before. We are looking at this in a slightly different way and we don't know the impact we had yet of the reconstruction interacts. We may see that as an area where there’s a significant expenditures coming. As you know they've only awarded two contracts. That's an area where we may see money that wasn't budgeted, that wasn't planned and is likely to come ready for very soon.

Okay thank you.

Your next question comes from the line of Tom Meagher with BB&T Capital Market.

Yes. Good afternoon once again congratulations on a good quarter. George you are kind of the subject matter expert on the tracking the money in this sector I think, and I was curious even though it's not a large part of the business you mentioned the DOD piece and what's happening there -- there with some of supplementals and what not. But I'd like to kind of get your thoughts and how you see the FY'04 budget going in terms of some of the civilian agencies that are out there as well.

Can’t tell you yet. The ones we want say they are of greatest interest to us are VA Hunt and other government agencies because of our national NASA work and our EPA work. They were 95 beginning this last year. I think it will go up I don't know how much. State commerce, is just as I think we'll will get additional funding I can't tell you how much. The only new discussions I have heard is on the defense side and that's $400b at least. And again as you know you the year after, may be $500b. I don't hear of anybody talking about a delay in the appropriation process, and I don't know hear anybody talking about cuts. I think the congress is in town to spend money because this is an election year.

Okay and then -- just then what's going to count a kind of related question here as far as '03 goes, are you starting to see any kind of you know spending ramp up now that the '03 budget has been signed or the appropriations bill has been signed?

Again, on the defense side there is more spending coming and again just there’s talk of a second supplemental. There’s talk of a $30b supplemental before 1 October. Now what is so different in this situation I don't think that they budgeted out the war being over in a number of days and I don't think they have spent anywhere near the amount of money of ordinance that they might have forecasted as you know they fired off 700 cruise missiles on day one and that's $700m. So I don't want to tell you that they’ve got money laying around but I think that they are not going to be as short of money if you that’s the right words.

Okay thanks very much. Congratulations on a good quarter.

Your next question comes from the line of Cynthia Holton with RBC Capital Markets.

Hi. If we could just go back to the organic growth question, I know that you said it was in 10% range of kind of the target. In general it is fairly common statistic and other comps in the group are giving, I just want to get a better idea of why that isn't going to be a metric going forward and in the current quarter I would think that that would still be something you could slice EBIT placed out.

Sure Cynthia -- this is Peter. I'll take that one, I think you are correct but that as we move forward and the acquisitions and the integrations are completed, there it will be a much more accurate reflection of the integration and the organic growth when we are on a unified platform. Right now what we are seeing is, for example with the state department link win, where we you had three separate entities winning the a contracts and delivering support not just on that—. That's an example of a contract when win. But we are also seeing, and saw in this quarter in the first quarter, actual work being done on the same basis. So spicing slicing it out is not as straight forward. For example one of our acquisition folks winning some sole source tasking as a results of, the we think, the acquisition based on the strength that they feel that ManTech were brought to the table. So looking forward at the integration -- as the integration proceeds and we can confidently sort of pike break out. You know when there hasn’t been an acquisition for some time I think we will be emphasizing that our organic growth, but again we feel very comfortable on asserting the 10% that we've asserted all along.

And I think it's also noteworthy, especially since we charted chatted about this earlier. On the last call, if you go through our guidance, I think you'll see that in this quarter now that we have had the acquisitions for - to a couple of months, and the most recent 2, and based on the fact that the war is underway. We had it the supplemental was passed. That we had a much better chance in particular for IDS and MSM to look at their pipelines and to meet their customers, but that we feel very comfortable with our guidance and you'll see that things reflected -- that we are now, you know, squarely on track with 10% organic growth with the core ManTech enterprise based on the very specific data that was provided in the past, and 15% growth from the acquisitions at least going forward. So I think we're on track with where we have reported in the past and I don't see it as a huge departure from what we said in the past.

Okay and then on backlogs for this -- for the March quarter for total -- was there reason why that was a flat quarter-over-quarter?

Which back? And there's two pieces of back?

The total backlog number, I know that funded did went up quarter-over-quarter, but looks like the total number was flat from December?

No the, --. Oh, from the previous quarter?

Yes, and I guess and I’m a little confused why that would be the case.

The previous quarter for Q4 was a $1.354m Cynthia. The current backlog is a $1.415m so it's not up $60m.

It's $1.3 at the end of Q4 it was $1.354m, 1.355b and three hundred and fifty-five thousand. Q1 ’03 it’s $1.415m accretive to four fifteen expect over, so that’s over $60b. $60m, I'm sorry.

Okay. I guess that seems like fairly small increase considering the new contract awards?

We have reported backlog each stuff month relative to sales. We’ve earned $150m in backlog in the first quarter.

Okay.

And you also have to look at GSA.

Okay.

GSA, were went up $90m. So the two together, because GSA represents, that's a huge portion of revenues. The two together of backlog went up a $150m just in the quarter. Now either - you know, that also contract awards and our proposals etc., drive that and, you know, as of today, we have over $500m just in proposals that are on the street and probably another $500m in process. So churning timing of awards are also critical in -- from a total standpoint. But we don't look at it from previous quarters, we look at it over the past year from a quarter-to-quarter.

Okay, thank you.

Your next question comes from the line of Brett Manderfeld [(ph]) with Piper Jaffray.

Good evening guys and congratulations. My question - I just want to make sure on the internal growth, I'd like to add that, not to hammer on this, as I would get it just going back of the overall envelope calculation, it looks like if you apply 15% growth of the acquisitions plus 10% organic on the quarter core, that come out almost exactly with to your guidance. So I just wanted to make sure that was the case. And secondly question related to GSA revenue, looks like it was down a little bit with that relatively to last year. Does that relate to acquisitions? Thanks.

Partially, yes. Because from the income intell side of some of the acquisitions that we acquired, they do not have the high concentration of some of the GSA contracts that we have because of the type of agencies that don't get involved in the GSA schedules because of a security nature of the work.

And I think perhaps, just to echo that as well. That said even though they are not GSA contracts schedules they tend to be time and materials limited, fixed price or cost-plus award fees, which are allow us to earn on margins that are similar to those under GSA. So it's still a good solid operating margins there. And the, to answer to your first question, you’re higher percentage100% on track when you do that calculation. You know, essentially right on target with 10% credit growth for the core enterprise and 15% growth from the acquisitions.

Okay, good. And just as I look to the second quarter relative to the first, looks like there's a pretty good jump in revenue forecast. I understand that, IEDS and then MSM some will be contributing fully in the quarter. But is that a kind of one-time project or new programs that are starting in the second quarter? Thanks.

No this is -- you're going to have something some pick up on state.

Well, you know, we do have that, the awards we got our on state department. There’s no major projects that are consuming that increases just, it's part of our overall plans.

Yes, and that’s a -- let's say there's no one-time anticipated pass through or income like that that we're anticipating in the second quarter that gets us there. This is our strong run rates from our existing business and expansion as well as the full effect of the acquisitions where we have the full quarter contributions from all of the acquisitions.

As George mentioned I mean that we haven't even included anything for the potential of these Iraq construction contracts that may come up. We will be involved in the communication side, not in the construction side and also the connections contracts. So there's nothing none of that that's been forecasted in our revenue at all.

So when do you expect to get gain some revenue from the connections contract?

The connections contract as everyone knows is a follow-up to the FTDS contracts. And those contracts are beginning to expire in the second and third quarter of this year. We are doing intense marketing right now. There happens have been some awards under connections as some small business orf contracts that have brought run out. But right now, we’re probably looking in the third or fourth quarter Bret.

Okay thanks.

Your next question comes from the line of Sandra Notardonato with Adams, Harkness & Hill.

Hi. My first question, not to beat the a dead horse up here, but it's around the organic growth number. I guess I'm wondering why we wouldn't see organic growth accelerated as you can kind of first three on some of the acquisitions that are faster growing, as well as continue to see a positive revenue mixture?

Sure. I think we will see a positive revenue mix shift in --and we're already seeing as John that is still highlighted on secure systems and IT side. With regard to - I think you get down to definition of our organic -- what organic legacy systems are and I think we'd augment outlined that in past, the pre-acquisition worked and as we get, all of these aren't onto the same platform, of course.. You're going to see that we're accelerating our growth as they are all coming to together. We haven't given guidance beyond '03 at this point. But we believe certainly, at the end of year when you finish up the year guidance going from 500m and at the end of the year, we are going to be obtaining 680-690. About That year on year growth, we believe it's solid and again, however, you sliced out apple as our the revenue pie, we're expecting some from our that legacy business and in conjunction with our acquisitions business to be solid growth and going forward, as in to our new acquisitions that organic growth rate will be reflected by strong growth.

Great. So that we could potentially see organic growth from ManTech closer to what some of the other larger companies that you are saying? Something between 12 and 15%?

Yes, I think that's -- on a weighted average situations as the acquisitions are integrated, you know, as we've said in the guidance that we have out there, core ManTech to the acquisitions are at 15. So as you are providing those, you're going to have a higher rate.

Right.

So we -- our guidance although we're saying core ManTech is 10, which we've produced historically over the last 5 years as a baseline, and the acquisitions are 15-20 ManTech, the blending is higher than 10.

I am not sure if you can answer this question, but can you break out how much will be operating margin extension expansion this quarter you saw came from the core ManTech versus acquisition?

No, we’re not tracking that. I am struck in that. We have not given out that information. We are tracking but we've not given out that information because then we've been involved in segment reporting. But let me just tell say you one other thing that you said initiate initially in your question, and I think it's really important. As we start the process in the IPO, as you may remember we had 70% secured systems and IT business and 30% systems engineering. Today as we just reported in this quarter, the secured systems are 80%, that in round numbers and systems engineering nearing slightly below 20%. So we have executed our strategy of targeting the high growth pieces and the synergies that we are getting off of these three things is driving the margins also because we have acquisitions that have higher growth rate and also higher margins so that's with been the our acquisition strategy all along. So from ManTech's growth potential, we have already talked topped out from the 70%, for '01, we've already above 80% from '03 that was our strategy and as we mentioned on growth pro forma, we expect that to be above 80% for the year, which is driving the margins.

Okay. That was actually my next question so you do expect edit to continue to favor the higher margins business-- ?

Yes because and that's been idea to use that for 1 month in the quarter and we're already at 80.2%.

Okay, great. Do you care to share with if there was any capital revenue that contributed to the upside this quarter if there was any?

No, there wasn't.

Okay, great. Just a couple more questions here and I don't remember to if you give this out or not -- do you give the win rate on your new business in the re-compete rate?

No, we don't.

Okay.

In the past we've said, you know, overall we have a 50% win rate but we have not given out specific information on those particular cases pieces. And the reason we don't send it that so much of our businesses with GSA where we get extended expanded tax order, some of them for significant business and was we’ve never reported those as new wins, we see it as organic growth but that we haven't given - have not given that out this half.

Okay. Any chance that some of the intell work is going to come under GSA it seems like most of it is done under profit cost plus?

Well of cost plus, some of the acquisitions we have are cost-plus and award phase, which are has higher in than the traditional margins. Some of those intell communities do use cost plus free fixed B contract and or But the cosmos cost plus award B contract. But the corporate cost plus awards fees tend to be in line where with the GSA. There is a notable vehicle have done a lot that’s gotten a lot of attention, it's the fax cross next contract I did ever out at NRO, so if that's the trend and they are making some use of that vehicle and in fact for folks who have significant business with the national accountant's office that may will be a factor.

By the way it's - let me just...

Yes.

...get back to the past two questions. Really see that ODC is a percentage of revenue for the first quarter were 29.3% versus 31.5% a year ago quarter-to-quarter. Our labor is up, labor and related cost, so our actualities ODC’s are down.

Right, so again real evidence of very strong organic and you know growth on the labor side not the pastor pass through side.

Right.

And it certainly is currently reflected in the margin. My last question is the guidance. Obviously very happy to see the guidance, I'm just curious to know what exactly have you seen in the last month or so since you reported the December numbers and provide guidance for '03 and today where you're providing a much more in line outlook for '03 that at least I would was expecting.

Sure. I think in the past month press plus into the last quarter, it's a good question. I covered it could a little bit more about but I’ll be the more specific. Several factors. First of all, you recall in our conference call we had just completed the acquisitions of IDS and MSM, merely literally a week old. We have wanted to make sure that we were comfortable with those companies that we had met with our customers, talked to the lead business environment development personnel especially with regard to ideas IDS, where we're they were targeting some contracts any in intelligence agencies where we had existing work, whether through core ManTech or through the acquisition of Aegis and also CTGX. To make sure that there weren’t over lapping areas in the pipeline so we are setting ourselves up for double counting and you know that -- you never know that so we a chance to meet the customers.

The second factor at that time, we haven't yet started the Iraqi war yet, we just didn't know what the impact was going be on our operations, whether the extended war part was going to lead to upside or if there might be some downside in it and soon month or half or so we saw seen the war went remarkably well so far. iIn addition the fact we have the supplemental facts pass, so the fear that some core DOD are operational units would be stealing money or you know, by transitioning money from other non-core elements was a concern at that time. So that was another factor that's changed since that period. And finally of course, as John said we have limited exposure on the civilian appropriation side but we do have state department work, as well as INS work. And the appropriations bill at that time for the civilian side it had just passed. So we were making sure all those factors combined, made us the more conservative of our approach to the guidance in the first quarter. As it turns out, although almost without that was our exception, in fact without on that one exception every one of those key factors. We had positive news that came in the in past 30-45 days, that allowed us on this call and in our guidance currently to upgrade that and to make that the call that we feel comfortable and confident going forward and in delivering the growth along the lines that will lead us to the $680 to $690m for the year and again the $170 to $174m for the second quarter. Does that - did that answer your question?

Yes it does, very well, thank you and great job.

Your next question comes from the line of Joy Mukherjee (ph) with AG Edwards.

Good evening I'm stepping in to here for Mark Jordan. The few questions here, would you talk a little bit about what your normalized operating margin would have been for the first quarter, I know that couple of the acquisitions kind of closed late and so, you know, that obviously affected the margins. What would you say is the normalized margin?

Well I don't think it affected Mark as the margin because they closed late, because we only had 1 month for both MSM and IDS. But that I planned then at the end, but as we reiterated in our guidance we are -- our guidance given out it's is between 8.3% and 8.5% more or ROS for the year and that's where we stand today.

Secondarily, on your MSM acquisition, would you talk a little bit about insight of backlog what market opportunity is perhaps, you know, what the competitive positioning is?

Yes sure, I think it's good question. First of all of the market opportunity I think what's important to note, first of all on the market opportunity, I think it was important to note down we talked about this little bit more pre - before on previous calls. We see the background investigation in the judication support work for the Federal government as a strong market place for several reasons. First and foremost of course, is the establishment of the Department of Homeland Security, which is going to result in increased demands, for our security, uh, our cleared personnel for the Federal government. In addition to the fact, that Homeland Security work around there as well as counter intelligence is concerns will result again and in increased focus on background investigation security clearances. All of this happens in an environment in an industry where all of the personnel that work for the company's that you cover these need security clearances and each one of those clearances needs to be updated, you know, every three to five years, so it's a recurring business we as very strong. In addition, within this marketplace we see a modest -- a large number of competitors and we also see a market which is primarily fixed price so the opportunities to earn solid margins as we become more efficient leverage technology which we bring to the table, we think will allow us to have significant upsides. Overall we see it's very, very strong market opportunity.

And final question is...

May I just add to that? There are unusual events occurring. The Environmental Protection Agency, EPA, has 18,000 employees. From In the past they have never obtained security clearances as for their people. Now they are going to do that because they do touch environmentally sensitive areas. So there are whole new markets opening in that with agencies that in the past for had other customers. We just see strong growths in it.

And then on the backlog question we don't give our out backlog for this the specific our companies all or business units. But we can note, as you said saw, that we did have preferably approximately $90m in wins during this quarter that are attributable to the business associated with our investigations, which again there though is three at least three ManTech business units, the ManTech MSGS, Aegis research corporation with expertise in the judication as well as MSM which is the driving edge in behind the highly backlog background investigation work.

My final question would you talk a little about your free cash flow generation for the year?

Yes, our operating cash flow projection for the year is between $19 and $21m. And our free cash flow for the year is projected between $15 and $17m.

Thank you.

Your next question comes from the line of David Garrity with American Technology Research.

Hi, good afternoon guys. Congratulations on a decent quarter. Lot of questions are to already been covered, last thing I would ask was you comment in the release on transitioning over let's see, IDS may to be change over your enterprise system by the end of the third quarter. And I was just curious what kind of savings might you expect from that event alone?

Add the acquisitions and fast forward them together, when you combine back office you do get some -- you get synergies and savings, etc. We have not commented on that nor have given any other information relative to the individual acquisitions. So but we do- we expect to overall, I think you see in the first quarter there is a drop in G&A, and we would expect that G&A to continue to same lines that we have. So from an overall stand point we don't give out information on specific savings, other than savings saying there will be some because of the back office.

And Dan Dave I think probably equally important, probably a lot more important really than one part has really been then unifying on the centralized DOD platform of about cost savings is the insight that we gain into the operations with the centralized IT platform. Allowing us to its track data and better understand our day-to-day operations and frankly, it’s the operating efficiencies that aisle allow us to communicate to make sure that we are tracking our business that are most important not the one time cost savings that we gain.

Okay, one of the other questions pertaining to quarter-to-quarter change with regarding to backlog, even though you closed these acquisitions in March, it doesn't seem like you've really had all of that significant a bump up. Am I missing something here?

David, I don't know I'll take a crack at that one. I think as John hit it before where you have, you know, because of the percentage of the backlog that we have on, I guess the GSA [ph] contract values I should say, were, not the a significant portion of our business and as those rolling wind down, you actually see -- do see a decrease. So the increase Dan there I think it's more dramatic because you have to account for the drop in the number of years or the months that are less. But I think equally important as John highlighted, it is timing for awards. We have a significant number of proposals in process that we're waiting on and I think that will normalize things if there is slight decrease quarter to quarter. I think we have future contract wins we'll rectify that.

And also IDX and MSM. IDX was annualizing sales of approximately $40m MSM to $20m. So if you use a traditional backlog where people have three to four types times of backlog, it's not a large number that would change significantly large numbers.

Sometimes your competitors have discussed pipeline, can you provide something comparable?

What we've said in our description today in our call, we have a multi- dollar pipeline and today, when and these opportunities run up to 24 months of over traffics or although we’re tracking some a little bit further than that. I will say that overall, that best pipeline just within the 24-month period is over $4b.

Which is we believe is in line with our PO group.

Very good, thank you.

Your next question comes from the line of Tim Quillin with Stephens Incorporated.

Good afternoon. Couple of quick questions, one is if you can just help me understand a little better why you are looking for 8.3% to 8.5% operating margins with an 8.6% operating margins in the first quarter?

Well, when you look at the guidance between $680 and $690m that's why we brought in as far as the average between those two particular pieces. And the 8.6 that we achieved in the first quarter, whether it comes from a contract mix, that's the average we expect for the year. We are not looking at -- you know, it's going to go incrementally increase in each of the quarters but we have said in the past and from our total times guidance for the year is we did 7% in '01, 7.7% '02, and for '03 we are were looking to increase our margins at the all levels at 10%. So and we've already we have achieved that, you know, from a guidance standpoint the 8.3 to 8.5 that we've given out, and 8.6, we're on target for the year. In this the fourth quarter, which is usually lower than the rest of the year, because we have some factors I'm not going to see what our first fourth quarter EBIT was.

You know, fourth quarter is usually a higher performance preponderance of the pass through revenue based on the fact that our customers tend to try to push through a lot of purchases at the end of the government fiscal year. That can result in certainly slightly lower margins in the fourth quarter, so based on our historical performance, we're making sure that we have that covered in the event that we do get our a high [indiscernible]pass through there with our lower margin.

Okay. So if we modeled sort of flat sequential margins for second and third quarters and down in the fourth quarter that would tend to get you where good modeling for the full year?

And the other one is I don’t want to certainly instructing outer you on how to build your bigger model but I think that logic is consistent with what we're saying.

Fair enough and then just the second question with regards to the below the line other expense, if you could just go over that again and then your expectations going forward and I guess my understanding it's related to your investment in GFC?

Right first of all maybe additional information on GSA I will refer you to our 10-K or on page 55 that talks about our investment in GFC and the percentage ownership. We, at GFC deposit is a public company trading under the symbol GDP under the American Stock Exchange, and I'll refer to you to their public press releases and their other information that they've given out on their guidance call, as to where they expect to be. We cannot comment on their public performance, since they're public company, we're not running that the particular company. But we had to take a charge because we all have the equity method of accounting that is explained in the 10-K. They did have a fourth quarter charge which you can look up due to a lot of non cash items on their balance sheet that they had to take charges for, we saw that resulted in extraordinary charges that we end up having to pick up, that was not anticipated from an operating standpoint. So but I would refer you to that real their public announcements and their part public of calls where they expect to be this year.

Okay it's that’s fair enough. Are you looking at a need to write down that investment at all?

No. At this timewe have done a risk assessment based on where the company is, and some of their expectations and we've seen that at this time no potential write down of our investment that we have in GFC which is approximately today $5.3m.

Okay and lastly, just a question on the connections contract which you talked about. I am just wondering as you go about your modeling marketing activities, do you have any sense or any expectations of what kind of revenue you might be able to generate in 2004 from that contract?

Well, I don't think we're going to face place a number of on that. Of course it was noted that CO1 the ceiling on that is now at $35b. It is a telecommunications contract, so there is hardware and equipment as part of that $35b. We of course will be focusing on the services and the solutions and the good news is, however, is that all telecommunications now is built upon and is integrated with and really located works hand and glove with information systems. So we see that there’s lots of development opportunities, but we have not quantified that. As we go forward and potentially have some more wins would certainly spend more time explaining.

Okay, thank you so much.

Sure.

Once again ladies and gentlemen I'd like to remind everyone in order to ask a question please press the "*" and then the number 1 on your telephone keypad. Your next question comes from the line of Joe Garney with Jefferies & Company.

Hi guys just a few quick follow ups here. Looks like we have had a funded backlog that was up sequentially around $80m or so. Can you, the best you can, provide color as to the contributors there, I mean the acquisitions the couple of acquisitions in the quarter right relative to up business that was already, you know, ongoing but for those acquisitions were done and how those contributed to the funds?

On the size of a...

Hey Joe, first of all we did have two acquisitions that we picked up. So we picked up gross their funding. But as we said in the past, the fund is backlog to timing issue depending on incremental funding that you received in from the customers. The more important thing, we equate the funded backlog is the DSOs. So because it is if you don’t have the funding you can't bill associated with that. So it went off up, its incremental timing issue from whether it's GSA or normal contracts and we are not giving out specific information of the acquisitions and how much of that funding related to that.

But as I do think that's, you know, as we said in the past, you know, the GSA portion of the funding tends to be a quicker turnaround of time meaning that, for example, if a government agency is acquiring services via GSFA they're most less likely to part a full year of funding through the to GSA and the let GSA holds that cash. We tend to see incremental funding on a shorter-term basis and again because of the strength of our GSA work we see not the type of a growth you'd expect and in the funded backlog but you saw some incremental growth this time. We're thinking in line with, as John said the timing factors but we're very comfortable doing that funding ins.

Great. Okay, fair enough. And just one other quick one for John. I think you mentioned your view on operating cash flow for the year at around 19m, give us an idea where we should looking at in second quarter?

Second quarter should be in the bagged for an operating cash flow standpoint of between 5 and 7m.

Great thanks a lot.

Your next question comes from the line of Sandra Notardonato with Adams, Harkness & Hill.

Hi, just a clarification. Does the guidance for Q2 and/or 2003 include similar work a similar loss on GSE or is it not included?

It's not included at all.

Okay. Thank you.

Your next question comes from the line of David Garrity with American Technology Research.

Hi. A follow-up question again on GSE, explain the rationale for the company's investment in that company?

I think if you go --. Well I'll let George answer that question.

Yes GSE was formed some years ago. We had a subsidiary within the corporation that focused on building full scope simulators and nuclear power plants. And we took that subsidiary and we merged it with two others, one here in the United States and one in Sweden and we created that company that and eventually took public. It in time apply acquired a process control business. that It was technology, it was software and it was engineering. So within our line, but in the special area. GSE has been a public company I think since 1994. Now, we have had some high expectations for GSE after 9/11. Believing that the nuclear power industry would greatly enhance security, not only external but internal, and the software systems and the engineering simulation systems would have been very significant in determining the internal threat to nuclear power plants. For a variety of reasons neither the NRA, the Nuclear Regulatory Commission, NRC, while the Department of Energy have looked to really funding that. And the public utilities themselves do not have much so we don't unfortunately see the significant growth we had hoped for a couple years ago. The company, I don't know what they put out as guidance but I believe the company expects to be profitable for the year.

One follow-up. Does Do you think in this plant order from this point forward, is there a rationale for continuing the to hold that investment if you were to sell it, what kind of taxable event would that be for the company?

We examine all of those options continuously. I am not a tax guy, our policy will be take pay no tax. But I don't know what it would be, sir.

All right, thank you.

At this time there are no additional questions.

Okay what we'll do is, hand it back to George to wrap up. George.

We thank all of you for your questions and your interest. We started with comments on our operation Iraqi Freedom. We had to go back and thank our people and Americans military man and woman that were over there. We continue to play the supporting role in the home armed services and talk to the intelligence community that our business, we’re proud to be here. We see the recent acquisitions and the growth in our marketplace just is very powerful thing. We look forward to a very good and a good year next year. That's all we have to say and thank you again.

Ladies and gentlemen, that concludes today's teleconference. Thank you for participating in today's ManTech International First Quarter Fiscal Year 2003 Earnings conference call. This call will be available for replay beginning at 9 pm Eastern time today through 11:59 pm Eastern time on Wednesday May 7, 2003. This conference ID number for the replay is 9690309. Again the conference ID number for the replay is 9690309. The number to dial for the replay is 1- 800-642-1687 or for international participants 706-645-9291. Again ladies and gentlemen, thank you for participating you may now disconnect.