ManTech International Corp (MANT) 2005 Q1 法說會逐字稿

Good afternoon. My name is Carmen [ph] and I will be your conference facilitator today. At this time I would like to welcome to the ManTech First Quarter 2005 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS).

At this time, I’ll turn the conference over to Ms. Maureen Crystal. You may go ahead ma’am.

Thank you, welcome to ManTech Corporation’s First Quarter 2005 Earnings Conference Call. My name is Maureen Crystal, and I’m Executive Director of Investor Relations. Leading today’s call for ManTech are George Pederson, Chairman of the Board and CEO, Bob Coleman, President and Chief Operating Officer, and Ron Spochel, Executive Vice President and CFO.

Before we begin our discussion, it is important that we remind you that on this call we will make statements that do not address historical facts, and thus are forward-looking statements made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to factors that could cause actual results to differ materially from anticipated results, including for example failure to successfully integrate recently-acquired companies or businesses into our operations, or to realize any accretive or synergistic effects from such acquisitions.

For discussions of these factors and other risks and uncertainties, please refer to the section entitled Risks Related to the Company’s Business in ManTech’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 16, 2005, and from time to time in ManTech’s other public filings, such as our recent Form 10-Q and Form 8-K. Also, we undertake no obligation to update any of the forward-looking statements made on this call. Finally, the entire contents of today’s call, which is being recorded and webcast, is a copyright of ManTech, and may not be reproduced in any form, without prior written consent.

Now I would like to turn the call over to George Pederson.

Good afternoon and thank you for participating in today’s call. On the call with me today is our President and Chief Operating Office, Bob Coleman and our Executive Vice President and Chief Financial Officer, Ron Spoehel

As you are aware from our announcement today, we have a lot of news to share with you. And particularly we have announced a definitive agreement to acquire Gray Hawk Systems, Inc. This acquisition is another step in ManTech’s growth strategy to broaden our footprints in the high-end defense, intelligence, and Homeland Security markets and is immediately accretive to our 2005 earnings.

Gray Hawk is a terrific company with a proven track record of outstanding growth, profitability, and excellent customer service. This acquisition greatly expands our presence in the mission-critical areas that gives ManTech access to new markets in key intelligence agencies, which we believe will become increasingly important as the influence of the intelligence format of 2004 unfolds and mandates the horizontal integration and fusion of data between agencies.

Finally, with this acquisition, ManTech’s annual revenues are anticipated to exceed the $1 billion mark this year.

As for our agenda today, I will lead off with our comments, briefly recap our quarterly results as well as cover some of the pertinent information regarding our proposed acquisition of Gray Hawk.

Immediately following my comments, Bob Coleman will define further just how well the acquisition fits into our current business portfolio. Next Ron Spoehel will walk you through our financials for the quarter. We will then answer your questions.

First, I am pleased to report another solid financial quarter for ManTech. Revenues for the quarter were up 15% to $217 million. Net income from continuing operation was up 22% to $12.8 million. Diluted earnings per share from continued operations were up 18% to $0.39 per share.

New contracts awarded for the quarter were $333 million, and we ended the quarter with a cash balance of $65 million, up from $22 million at December 31 as a result of a very focused cash collection program.

Overall we continued to gain both strength and share within the key markets we serve. In keeping with the strategic direction articulated since our IPO in 2002, ManTech’s goal has been to establish leadership positions in critical applications relating to National Security, particularly within the intelligence community and the Departments of Defense, State, and Homeland Security. The acquisition of Gray Hawk further advances our ability to establish these key leadership roles.

Under the terms of the agreement, ManTech will acquire all of the stock of Gray Hawk Systems for $100 million in cash. Financing the acquisition will consist of available cash and borrowings under our credit facility. We will also make a 338H10 election, and we expect a $25 million benefit as a result of that tax deduction. The acquisition is subject to various closing conditions and approvals, including approval under Hart-Scott-Rodino and is expected to be completed in May.

To conclude my comments, prior to going public in February 2002, our revenues for the year ended December 2001 were $431 million. In a span of just over 3 years since we went public, we have more than doubled our revenue -- well we’ve gone from $431 million to considerably more -- significantly increased our profitability and greatly enhanced our technical skills. We look forward to being able to provide more service to our customers now that we have a $1 billion platform with all of the additional capabilities that represents. And with that I’ll turn the call over to Bob Coleman.

Thank you George. Before I discuss our acquisition of Gray Hawk, I would like to touch on a few key operating metrics for the first quarter. During the quarter, ManTech received a number of significant new contract awards totaling $333 million, up from $305 million in the fourth quarter of 2004. The new contract wins include a large re-compete and expansion effort in one of our existing customer’s special access program, along with new awards from our Army and State Department customers.

These new contract wins in the last several quarters continue to drive our revenue growth toward the higher end of our guidance. Overall growth for the quarter totaled 15% with 14% coming organically. The total qualified pipeline is over $6 billion with $2.7 billion in bid opportunities expected to solidify over the next 9 months.

I also would like to note that our GSA schedule work for the quarter was just over 36% of revenues, which is under our recent operating metric of over 40%. As you know, the contractor community has experienced changes regarding the use of GSA schedules, which has created some delay in the GSA schedule contract awards. As a result, we are proactively migrating some of our work off the GSA schedule to agency-specific vehicles and other broad agency vehicles, such as GovWorks. These new vehicles will help us to respond better to our customers’ emerging needs, and should result in faster contract awards. I also want to point out that the agency vehicles typically reflect GSA schedule labor rates and therefore are not expected to impact our earnings.

Moving on to our recent news, we are extremely pleased to announce today that we have signed a definitive agreement to acquire Gray Hawk Systems, Inc. As we have discussed over the past several months, Our business strategy has focused on expanding support for our customers in the area of high-end intelligence analysts, counter-terrorism, and counter-intelligence activity. Looking forward, we believe that these activities represent some of the greatest growth opportunities within the intelligence community and will be the focus of new Federal outsourcing initiatives.

We are positioning now to take advantage of these emerging opportunities as Gray Hawk is at the center of this mission. We are very impressed with their capabilities, and they have an outstanding reputation in the community as a high-end service provider in the area of intelligence analysts, counter-intelligence, and counter-terrorism, warfare systems engineering, and critical infrastructure protection services. While we share much of the same customer base, there is virtually no overlap in our respective services within those customers. In fact, Gray Hawk’s capabilities are extremely complementary to ManTech’s information technology and related capabilities, and will allow us to better support our customers’ expanding missions by addressing all aspects of the intelligence cycle from systems design and development through the creation of finished intelligence products.

For example, ManTech currently develops many of the IT systems used to collect, categorize, extract, and visualize critical intelligence information. Gray Hawk personnel in their intelligence roles use ManTech systems to develop a threat profile and create a finished intelligence product for our customers. Additionally, ManTech and Gray Hawk have complementary capabilities with the National Counter-terrorism Center, which will become a component of the newly-established National Intelligence Directorate under Director Negroponte. Our combined capabilities will better position us to compete for new opportunities within the National Intelligence Directorate and enables us to compete for and win larger opportunities within our existing markets.

It also will enable us to expand our presence within the growing law enforcement and counter-intelligence markets. We expect law enforcement activities, particularly the FBI to continue to grow as the Department of Homeland Security fulfills its mission objectives. We also anticipate expansion of the counter-intelligence mission to meet the growing threats of rogue nations and other emerging threats.

We have had very positive and productive discussions with the Gray Hawk Management Team. Their culture, customer commitment and shared vision to become a leading provider of high-end National Security solutions within the intelligence community fits extremely well with the ManTech culture. Founded in 1995, Gray Hawk has over 500 highly-qualified and talented personnel. Over 90% hold security clearances, and over 70% are cleared to the top-secret level. As you know, security clearances are a key discriminator in our marketplace where barriers to entry remain high due to the classified nature of our work.

We look forward to working with the Gray Hawk Management Team to integrate them into our existing operation as quickly as possible and to begin leveraging our combined capabilities to develop and build new business.

Approximately 72% of Gray Hawk’s contracts are prime, and the contract mix is 88% time and materials, only 9% cost plus and 3% fixed fee. They have enjoyed a compound annual growth rate in excess of 40% over the past 3 years, nearly 100% contract retention, and they are well positioned in key agencies such as the Department of Homeland Security, The National Counter-terrorism Center, The Counter-intelligence Field Activity, Department of Justice, Foreign Terrorist Tracking Task Force, and others. Revenue visibility is excellent, with over $195 million in backlog and a qualified pipeline of over $850 million.

As I mentioned earlier, we see the opportunity for revenue synergies when we come together. We have already identified opportunities that we were each positioning for as a sub-contractor that we now may be able to target as a prime contractor. We also see the potential for additional margin expansion after closing the transaction. We look forward to closing the transaction by the end of May and officially welcoming our new Gray Hawk teammates into ManTech.

In closing, we are committed to making ManTech the leading provider of National Security solutions within the Intelligence and DOD community. To achieve that goal, we will continue to focus on strong organic growth coupled with strategic acquisitions that enhance our capabilities and extend our markets. The Gray Hawk acquisition is the next step in the continuing execution of our business strategy. They bring new and important capabilities that position us to expand within our existing customers and open new markets.

With that, I will pass it over to Ron to discuss our financial results. Ron?

Thank you Bob and good afternoon everyone. As George covered earlier, we are pleased to report continued growth in our operations in the guidance range previously indicated publicly and to elaborate further on the opportunity presented through the acquisition of Gray Hawk.

The concerted efforts of our operations and receivables collection also provide substantial cash inflow in the first quarter. And we ended the first quarter with $65 million in cash, up from $22 million at year end. In the first quarter, our operations generated revenues of $217.5 million, increasing 15% from last year’s first quarter revenues of $189.6 million, an internal growth rate of 14%. We would remind everyone that prior to our financial results have been recast for comparison purposes as a result of the discontinued operations accounting used MSM as we had discussed in our last conference call.

Net income from continuing operations was up 22% for the quarter to $12.8 million from $10.6 million in last year’s first quarter. Including this quarter’s $2.3 million after-tax gain from the previously briefed sale of our Medi operation to Alliance Science and Technology.

Our first quarter operating margin was 8.1%, in the range we had indicated in our last conference call, with operating income of $17.5 million for the quarter, down slightly from last year’s first quarter of $17.9 million as a result of several factors, including an increase in ODCs and an increase due to the timing of certain direct labor costs. Fixed price contract overall also accounted for under 9% of revenue this quarter, while T&M contracts accounted for 59% and cost plus contracts increased to 32% of revenues.

Substantial positive cash flow was generated in the MSM operation this quarter as MSM collected all of the remaining DSS receivables which had been outstanding, over $16.8 million in the quarter. MSM’s operations posted a net loss reflected in discontinued operations of $904,000 for the quarter, and as the value of MSM’s operation had been independently assessed to be greater than our tiering [ph] value, no loss accrual was recorded.

Diluted earnings per share from continuing operations were consistent with our guidance at $0.39 for the quarter, including the approximately $0.07 per share of gain on the Medi divestiture.

The growth achieved in our operations this past quarter and our expectations for continued growth are reflected in the continued expanse in this quarter of backlog to $1.7 billion, up from $1.6 billion at the end of last year. Funded backlog was $390 million at the end of the first quarter as compared to about $440 million at year end. As Bob covered earlier, contract awards in the first quarter including many follow-on and classified awards that could not be publicly announced were over $330 million, reflecting continued focus in success in our National Security markets.

Our proposal pipeline has also continued to expand with the qualified opportunities in the pipeline now standing at well over $6 billion. The mix of our business was relatively consistent with past levels across most areas of our continuing operation as our percentage of work under prime contracts was 83%, and DOD and Intel-related work comprised approximately 94% of our revenues, while 98% came from the Federal Government. As with many in our industry recently, we too are proactively shifting work off of GSA schedules to other vehicles with similar attributes reducing the proportion of our GSA revenues to 36% in the first quarter from over 40% previously as Bob had covered in detail.

Turning now to the balance sheet and cash flow, our operations at all levels continued to focus on receivables management and were successful in generating net cash flows from operations of $33.4 million in the first quarter, with an end-of-quarter cash position of $64.6 million. Further, our DSOs remained relatively constant this past quarter at 80 days up from last quarter’s 79 days freeing up substantial working capital given our revenue level in the quarter and further increased by the timing of tax payments from the previously-discussed sale of Medi.

With respect to other items of note, depreciation and amortization remained under 1% of revenues this quarter, and capital expenditures were even lower at about 0.5% of revenues.

Option exercise proceeds contributed about $2.4 million to our cash position and as well contributed to the increase in stockholders’ equity which rose to over $335 million. That was constant at $25.2 million as our longstanding $25 million interest rate swap remained outstanding. And our net cash position was almost $40 million at the end of the quarter. This should put us in a strong position to fund the acquisition of Gray Hawk, maximizing the use of our cash position as was noted earlier by George. We intend to fund the acquisition purchase price through a combination of available cash and our bank line. Obviously, the specific mix will depend on our cash position as of the particular day of closing.

Gray Hawk’s business mix is complementary to ours and will add to our work in Homeland Security, law enforcement, DOD, and Intel. As Bob mentioned, Gray Hawk is 88% T&M, the balance being mostly cost plus. Gray Hawk has shown its ability to grow as evidenced by its over 40% compound annual growth rate over the last several years. 2004 revenues were approximately $70 million, and it is anticipated that the revenue growth will be in excess of 25% this year with margins running in excess of 10% consistent with their historical margins on a proforma basis.

Gray Hawk’s cash generation and working capital profile is expected to be reasonably consistent with ManTech’s and is not expected to change the targets we have set in these areas. ManTech’s strong balance sheet, contract award and new business profile, operational performance and market positioning continue to support our outlook for achieving continued growth. Guidance in the second quarter and full-year 2005 anticipates the continuation of very strong underlying trends in our National Security business, as well as in the Defense and Intelligence sectors as covered earlier by George and Bob. It includes the acquisition of Gray Hawk and the associated accretion estimated at at least $0.03 per share in 2005.

Also we have updated guidance to reflect a recent change by the SEC delaying the implementations of FAS 123 or option expensing until calendar year 2006 benefiting guidance by about $0.05 per share in the second half of this year, 2005. For the second quarter, guidance for revenues is in the range of $240 million to $245 million reflecting the 12% to 15% internal growth we’ve previously indicated. Consistent with that range, guidance for the second quarter diluted earnings per share from continuing operations is in the range of $0.33 to $0.35 per share. For the year, revenue guidance has increased to the range of $980 million to just over $1 billion, $1.005 billion. And we are revising upwards by $0,08 per share the diluted earnings per share from continuing operation guidance to the range of $1.48 to $1.58 per share.

In closing to affirm the remarks made earlier in the call, we are well positioned for continued growth supported by the financial capacity and flexibility provided by our balance sheet, by the performance of our operations, and by the opportunity presented in combination with the operations of Gray Hawk reflecting how well we are both positioned in growing National Security markets.

And now, we’d be pleased to take any questions you may have.

Operator, we’re ready to take questions.

Thank you. (OPERATOR INSTRUCTIONS).

Joseph Vafi, Jefferies & Co.

Good afternoon, great results.

Thank you sir.

Just maybe we could start with just looking at some of the organic growth numbers in the quarter. Good performance there. Any color on any kind of specific vehicles or programs that were kind of notable the most in terms of driving the growth?

No I don’t think there’s anything in particular. It’s just the continued broad-based environment that we have in the Intelligence sector particularly, and we continue to see contract wins in that area, and are continuing to grow that business.

Almost all of the customers continue with the same needs or requirements all going up as you know.

Sure, and then on the new awards activity, looks like it was quite robust. But then seeing some of the other comparables in the sector, maybe a little bit of a slowdown in actual new contract awards but funded backlog and other metrics turning up based on existing vehicles and new tasking there. Do you have any kind of view or insight into kind of the pace of the new contracts versus funding off existing vehicles?

No we haven’t broken that down specifically. Funded backlog as you know continues to move up and down quarter-by-quarter just in when funding comes through from particular contracts, and that fluctuates over the year. But I haven’t seen anything in particular trends in new contracts versus continuing work under existing contracts.

We certainly don’t see any slowdowns, and some of our customers obviously have stronger missions and more funding that the others, but across the board it’s in general [inaudible].

Yes sir, great, and then finally one of your comparables was a couple of days ago talking about the fact that it might be seeing some ODC budgets flush off the GSA this Government fiscal year given some changes there. Would you be expecting the same thing as we kind of end the fiscal year here for the Government?

I think what they’re talking about there is this concept that they would send money off to GSA to kind of put it in a bank or on a shelf or however you want to describe that. I’m not sure we yet know how that’s going to play out. We just know that when they need to spend that money at the end of the year, that’s what the requirement is, it will get done. So they’ll find a way to do it.

Okay, very good gentlemen, and George congratulations on that $1 billion in the guidance there.

Is that a [inaudible]? Well it isn’t just a number. We told you that from the beginning, and the main thing here this acquisition is accretive. We haven’t made an acquisition as you know since I guess a year ago February. And of course we like everyone else, we look at 5 to 10 a month, and we think this one is very unique for us. It wasn’t really on the market per se. Yes it gets us to the $1 billion and we think that platform is important for all the reasons you know all too well sir.

Yes, it looks like a nice asset for ManTech.

I think so, and everyone here does too. They’re good people, they’re really good people.

Thank you.

George Price, Legg Mason.

Hi, thanks very much. I just wanted to follow up a little bit on Gray Hawk. Was there any sub-revenue for ManTech with Gray Hawk? Were you doing any work with them?

No, as I mentioned we work in the same customer base but we do not overlap.

Okay, and I just wanted to confirm. You said basically there’s going to be a $25 million tax benefit is it present value tax benefit?

No, that’s the actual tax savings. Present value is something lower than that, probably in the $10 million to $15 million.

Okay, and how did you become aware of them? I mean, I guess was it just through the client base or was there any other way that you became aware of them as a target?

From working in the community. As you know, this is a very compartmented customer that we deal with and a lot of times the only way you find out about these companies is by working side-by-side with them in the agencies.

We have a network of people out there, and I’ve heard Gray Hawk’s name I would say for a good year. But again, they were not formally on the market. There’s no book out there, and we used that opportunity to go have discussions with them with this result.

Okay and just a last question, profitability wise it sounds pretty profitable. Can you give us a specific level of profitability maybe just relative to where you are now?

Well, as we said on a proforma basis, their profitability should be over 10%, so that’s probably as much as we have to disclose at this point.

And is that contribution going to include intangible amortization related to the acquisition?

That’s before intangible amortization.

Okay, and before any synergies I think as you noted.

Correct.

Okay, great, thank you very much.

Tom Meagher, Friedman, Billings, Ramsey.

Yes good afternoon, once again congratulations on the quarter. George maybe you could comment on something we’ve hear from some of the other comparables out there. And that is perhaps they’re starting to see some limited reprogramming in lieu of not having the supplemental out there, specifically that the mission-critical C4ISR support work is continuing to get funded, but the services are kind of pushing back on some of the acquisition management, support stuff I think more the Stateside based office kind of work. I was just wondering if you guys were seeing that at all or is that something that has any effect on what you’re doing.

We have not seen it yet. It’s different agency-to-agency. I think the organization that has the most pressing problem is the Army, and I think the Army has properly reported that they have an issue in the first 2 weeks of May. However, there are assurances that the $81 billion appropriation bill will be approved. I think they’ve had their conference agreement. I think the House will get it approved, and I think the Senate will come back shortly after their recess and approve it for the President’s signature I’m being told by the 15th.

But you’re absolutely right, there are serious people looking at this, but in the areas that we are involved, I haven’t seen any pullback yet.

Okay, thank you very much.

Michael Lewis, BB&T Capital Markets.

Hey guys, nice quarter.

Thank you sir.

Bob or George, I understand Gray Hawk conducts a good bit of business with the FBI kind of terrorism operations. Is this the primary driver for Gray Hawk, or is there another area we should pay attention with regards to their operation?

Well, I think they do have a very large contract in the Foreign Terrorist Tracking Task Force. That’s a component of the FBI, that is a very well-funded and well-supported contract. As a matter of fact, I believe last year FBI took some of their own internal funds to increase the levels on that contract. They also have a fair amount of work in the counter-intelligence field activity, which is a DOD entity under the Department of Defense. They are in the agency, CIA and have a presence in the Department of Homeland Security.

And you said there wasn’t overlap currently in current operations?

No, there is no overlap currently.

So this is going to be a good opportunity to cross-sell all of those organizations, services across broad base agencies?

Absolutely, it gives us the opportunity. What it does it rounds out our solutions offering. I was saying we focus more on the IT side of the house, and it all being the systems and the platforms, and they focus more on developing the finished products that come out of the system.

Okay, I’ll jump back in queue, thank you.

Cai von Rumohr, SG Cowen.

Yes, thank you very much. Could you give us a little more color on Gray Hawk’s customers, maybe any kind of percentage breakdown in terms of where the revenues come from?

Sure, we right now the way we have it categorized is about 75% of the revenues come from the Department of Homeland Security, Homeland Security-related customers. That includes the DHS, DOJ, and NCTC and the counter-intelligence skilled activity. Probably about 20% of their work comes out of the DOD, particularly the Navy. They have a strong presence in the EGIS [ph]community, and they do a lot of modeling and simulation in that community as well. And then about 5% of their business comes out of the Intelligence Agencies.

One of the good things here too is they tap into 4 or 5 appropriations bills. They are not focused into a single appropriation bill, and that’s big plus.

Okay, and just on the pricing, if we take the $70 million and the 10% proforma and assume some DA, I mean it looks like it’s about $8 million in EBITDA, and if I take the 15 off the 100 because of the present value of the tax benefit, it looks like you’re buying them for about 10 to 11 times EBITDA. Is that a reasonable calculation?

Yes, I’d say it probably rounds to 12, but yes.

Okay, and just the last question, I’ll let someone else go, if I look at your kind of new guidance it looks like you took the revenues up by $52 million if I take the mid-points and the earnings by $0.08, and kind of if I take $90 million and assume you completed it in, it’s equally spread over the year it looks like Gray Hawk would contribute $56 million so that the rest of the revenues were down, is that correct? Or is Gray Hawk going to contribute less than -- I had it contributing like $56 million or $60 million.

Yes, I think you’ve cut it a little more finely than we would have, but fundamentally here we’ve not changed the pattern of guidance at this point for what we had in the operations of ManTech previously. We increased it by the $0.05 we talked about in the 123R option expensing and then increased it by amounts that relate to the range that could occur on Gray Hawk and what it will take to integrate it in the sort term.

And we have not included any projected revenue for the synergy that we see in their customers. And it’s in a category of we’re looking at in the first 6 months do no harm.

And your assumption on, what is your assumption on what they’re going to contribute in revenues, and what are the margin synergies you see?

We haven’t said anything on margin synergies. That wouldn’t be something we’d put forward yet. The revenue, roughly in the $50 million plus range.

So that’s assuming a late May completion?

In the ballpark.

Okay, thank you very much.

Tim Quillin, Stephens, Inc.

Good afternoon, nice quarter.

Thank you.

On the raised guidance, assuming that you said about $0.05 of the E[S increase is the change in the timing of FAS123, so that, am I wrong to assume that the $0.03 is accretion from Gray Hawk?

No, that’s correct. Specifically the split that we have if you will add it specifically to the guidance.

Okay, very good. And then what are the integration plans, and my limited understanding of Gray Hawk’s business is that they’ve made some acquisitions and so how do you intend to integrate the Company fully into your operations over the next 12 months?

Of course, you know with any of these acquisitions the primary concern is for the people and the customers, and our primary focus will be making sure their folks understand where ManTech’s going, how they fit into that vision, and how they, the career opportunities that exist for them within our Company. We both share outstanding reputations in our customers, so I think that’ll be very positively received by those customers.

And in terms of the integration, we will immediately bring them onto our accounting system and our policies and processes internally, and over the next 6 to 8 months, we’ll look at how to align ourselves organizationally to take best advantage of our capabilities going out to our customers.

And just lastly is there any business that they have A-Day [ph] or Disabled Veteran business that you would need to transition to kind of full an open business at any time over the 12 to 18 months?

I’m not aware of any in that area either.

Okay, very good, thanks gentlemen.

No, I don’t believe there are any contracts that are along those lines.

Ed Caso, Wachovia Securities.

Good evening, this is Clint Finley for Ed. George I wondered if you could comment on the long-term impact if you guys migrate some of your work off from the GSA-specific vehicles.

What will happen as you know is the Government is trying to figure out what to do with GSA. GSA is fighting for its position in its marketplace. The Navy is coming out with its own version of a GSA contract. I have not yet seen the transfer from GSA to other contractual vehicles cause us any problems. I’m not convinced in my own mind that GSA will disappear as some others have forecast.

The one thing that I think is important in most cases is they’re still using the same pricing schedule. It isn’t as if we’re moving off of GSA and someone is deciding to go out, fixed price, technically acceptable low bid. We have seen nothing like that. I think also the transition has been smoother, that’s not exactly the right word, but smoother than I might have expected even 2 or 3 months ago. But GSA is not gone yet, so that’s my judgment.

So you don’t see a near-term impact to margins.

I don’t see any near-term impact because I think right now the mission is so critical particularly with our customers that they can’t allow a contractual thing like GSA or something to get in their way. Right now, they’re doing whatever they have to do to support the mission. And believe me, that’s -- we’ve seen a number of cases where they do whatever they have to do.

Ron congratulations on the cash collections in the MSM unit. Was there any special way that you calculated the DSOs given those collections? Were they separated given that it was a discontinued op?

Yes, what you will see reported is the cash flow from discontinued operations in the operating cash flow is separated out, and that was about $16 million or $16.1 million, and about $17.4 will come, $17.3 or $17.4 from continuing ops.

Okay, thank you.

(OPERATOR INSTRUCTIONS).

Cynthia Houlton, RBC Capital Markets.

Hi, just a question on Gray Hawk, could you discuss -- I know you kind of split out their percentage of revenue by some of the larger agency groups, but could you discuss if there are any large contracts or if any contracts are up for renewal over the next kind of 12-month timeframe?

Most of their contracts, the top 10 contracts that they have are recent wins, and run through ’07 and ’09. So there are no immediate [indiscernible] we see.

And then maybe if you can’t give by contract how much revenue are the top 10 contracts as a percentage of totals?

About 70% of their total revenue in the top 10.

Okay, great and then just as a follow up in terms of the, looking kind of who Gray Hawk was competing with I guess. Obviously you did some due diligence before this transaction was done. I mean were they in their, do they have very specialized skills that they were going to I guess different competitors. I mean maybe just a little bit more on who, kind of they would see as their direct competitors and a little bit more granularity maybe in terms of what type of work and where they’re often called in as expertise.

Well, I think like ManTech they compete against a lot of the primes working in this community, and typically have not had the scale to work in those as prime contractors in some cases. That’s why we’re excited about this merger of the 2 companies because hopefully it will allow us to go after the larger contracts in a prime role rather than sub.

They specialize in Intelligence analysts, counter-intelligence, and counter-terrorism. These are people that are typically out of the Government or out of the military that understand the Intelligence business and know how to piece together the puzzle to develop a profile or a scenario that could potentially happen in the future.

Very, very talented people in this Company.

Really the positions they work in are typically, well I should say historically were not outsourced by the Government, and now are the focus of some of the outsourcing initiatives we see.

Would it be safe to characterize that -- again, when say Intelligence analysts, is this kind of more of a staff kind of augmentation or staff fulfillment versus what we think of more kind of project driven, or IT? Do you know what I’m saying, operational stuff?

I think if you just took that component of it that is true. However, our intent in coming together with this Company is to be able to offer turnkey solutions to the customers and that is what they’re driving this community towards. They want us to come in with total solutions for them, and they don’t want to outsource bits and pieced to different companies.

Thank you very much.

Brett Manderfeld, Piper Jaffray.

Ron just a quick housekeeping question. Will the net debt be about $60 million post the deal, best guess right now?

As I mentioned it depends specifically on the day it closes. We hope it’s a little bit less but it’s in that ballpark.

And what rate are you paying approximately on the debt currently?

Just go back for a second, as I said you know we have this swap debt outstanding so I don’t count that in the mix. The debt we’ll be looking at here is probably 4% to 5%.

Okay, thank you.

Mark Jordan, A.G. Edwards.

Good afternoon gentlemen. Question, does the amortization of debt is that about, or excuse me the amortization of purchase intangibles, is that running at about $2 million for the acquisition on an annualized basis?

Until we have the finalization of the purchase evaluation of the intangible assets, I can’t answer that definitively, but you’re in the right ballpark.

Okay, secondly looking at your guidance can you tell us what is the assumption with regards to operating margins through the balance of this year? And secondly related to amortization since you’re now going to have at least a meaningful piece here, are you going to break that out separately to show its impact in terms of impact on operating margins?

We do break out depreciation and amortization, so the differential I think will be readily apparent and we’ll be glad to provide that information as we do now in terms of where it shows up. The operating margin assumptions remain in the 8% to 8.5% range as we’ve previously had.

Okay, and that would include the larger slice of purchase amortization from Gray Hawk?

Yes, that’s correct.

Okay, thank you.

Michael Lewis, BB&T.

Ron, sorry I missed the DSO number. Could you just repeat that again?

Sure it was 80 days for the quarter versus 79 at the end of last quarter.

Okay, that’s it. Thank you guys.

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