ManTech International Corp (MANT) 2007 Q1 法說會逐字稿

Good afternoon. My name is Sherlan, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the ManTech First Quarter 2007 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.) Mr. Cormier, you may begin your conference.

Thank you, and welcome to ManTech International Corporation's First Quarter 2007 Earnings Conference Call. We thank you for joining us this evening. My name is Joe Cormier, and I'm the Vice President of Corporate Development for ManTech. Leading today's call from ManTech are George Pedersen, our Chairman of the Board and Chief Executive Officer, Bob Coleman, our President and Chief Operating Officer, and Kevin Phillips, our Executive Vice President and Chief Financial Officer. In our prepared remarks, George will discuss our strategic positioning and future vision for ManTech, while Bob will touch on our operational highlights from the quarter, and Kevin will review our financial performance and outlook.

Before we begin our discussion, it is important that we remind you that on this call we'll make statements that do not address historical facts and thus are forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to factors that could cause actual results to differ materially from anticipated results and include the risks and uncertainties identified in our earnings press release under the caption, "Forward-Looking Information." For a full discussion of these factors and other risks and uncertainties, please refer to the section entitled, "Risk Factors" in ManTech's Annual Report on Form 10-K filed with the SEC on March 9, 2007, and in ManTech's other public filings. Also, we undertake no obligation to update any of the forward-looking statements made on this call today.

With that, I would like to turn the call over to George Pedersen. George?

Thank you, Joe. Good evening and thank you for participating in today's call. I am very happy to announce another solid quarter for ManTech International. As you saw from our press release, we delivered strong revenue of over $294 million, at the top end of our guidance, and achieved a billion of $2.94 billion, which is up over 30% from last year at this time.

In addition, we announced the acquisition of SRS Technologies on April 9 and expect to close the transaction next Monday, May 7. We believe SRS represents a great addition to the ManTech team. It provides us with a deeper set of C4I and systems engineering capabilities and access to new customers such as DARPA, the Defense Research Projects Agency, the Department of Homeland Security, the Missile Defense Agency, and the NRO, the National Reconnaissance Office, to name a few. Most important, we will add over 800 talented, highly new talented, highly educated and cleared employees to ManTech.

In conjunction with the SRS merger, we entered into a new $300 million credit facility, which has an accordion feature that can be expanded to a debt capacity of $400 million. After the SRS merger, ManTech will continue to have a strong balance sheet with [modest] average of 1.5 and additional flexibility to grow both organically and through future strategic acquisitions.

As we have told you many times, over five years ago we developed a strategic plan to become a pure player in the high-end intelligence and defense market with revenues over $1 billion. We have achieved the $1 billion revenue mark and strengthened our focus on the national security community. The addition of SRS is consistent with our strategy and puts us on a run rate well above the $1.5 billion revenue level entering 2008. We continue to refine and improve the focus of our original strategic plan and see no need to change from the focus that we've had these past several years. Recent history has validated our original vision.

The demand for our services remains strong, and as we look to the future direction of the Department of Defense and the intelligence community, we feel uniquely positioned and qualified to meet their ever-increasing information collection, processing, and analytical needs. The Department of Defense Chief Information Office's strategic plan focuses on how the DoD will execute the transformation to a Net-centric force and the importance of information sharing in classified environments. This plan is almost identical to ManTech's capabilities and focus.

Because we have faithfully executed our plan and continue to focus on the future, we feel very well positioned to meet the DoD, Intelligence, Homeland Security, and other agencies' current and future missions. Lastly, we believe that regardless of who controls the Congress or the White House, information and access sharing collaboration will be the core focus of the Department of Defense and the intel budgets well into the future.

From a current budget and funding standpoint, the Supplemental Bill in the amount of $124 billion has yet to be signed by the President, but may be split into two segments. We continue to see strong demand for ManTech's unique skills which meet the critical needs of our customers. We have seen very strong growth in our funded backlog, which demonstrates the critical nature of the programs we support. I would like to remind everyone that ManTech achieved 12% organic growth in 2006, even though last year's appropriation process encountered significant delays.

In closing, we have expanding markets in which to deliver our services, increased trusted relationships with our customers, new and old, and we have dedicated employees ready to meet our customers' critical missions here and in 40 countries around the world. The first quarter results continue to demonstrate our success. We look to continue executing in support of our nation, our customers, our employees, and our shareholders. And with that, I would like to turn the call over to Bob Coleman. Bob?

Thank you, George. We remain very optimistic about the outlook for 2007, given our strategic positioning, strong contract awards, and significant new business wins over the last several quarters. All of these factors provide ManTech with a solid foundation for growth as we move through 2007 and beyond. We continue to expand our capabilities and broaden our reach across the Defense, Intelligence, and Homeland Security markets, and our recent acquisition of SRS will strengthen our market position and increase our long-term growth outlook.

As you saw in our press release, first quarter revenues came in at over $294 million, which results in overall revenue growth for the quarter of 7%, with 6% coming organically. Our results were driven by contract wins and our DoD and Intelligence customer base. Bookings totaled $300 million for the quarter, and new business wins were very strong and accounted for over 85% of the total. Our book-to-bill ratio for the quarter is a steady one times revenue, and we continue to build momentum on the heels of our strong awards in 2006. Over the last 12 months, we have delivered a book-to-bill ratio of 1.5 times, which will drive our revenue growth throughout the remainder of the year and beyond.

The total backlog stands at $2.94 billion, a 31% increase from $2.24 billion in March of 2006. Funded backlog grew almost 50% year over year, to $767 million. The qualified pipeline now stands at $7.7 billion, and we continue to see opportunity for continued growth in our national security market space.

I want to spend a moment and discuss our recent acquisition of SRS Technologies. SRS represents the largest acquisition in ManTech's history, and we are extremely excited about our prospects as a combined company going forward. SRS is a very complementary acquisition, and they bring us new customers and new capabilities, and they open up new programs for ManTech in existing customers. We have watched SRS for many years, and they have C4ISR and related systems engineering capabilities that we had planned to develop within ManTech according to our strategic vision and plan. This acquisition reduces our time to market for those capabilities and will allow us to immediately penetrate additional mission-critical market areas within the Intelligence and DoD sectors.

This was a highly coveted and sought-after company, and we are very pleased that they have viewed ManTech as the acquirer of choice due to our market position, strategic fit, and culture. We are pleased to welcome the over 800 highly skilled SRS employees into the ManTech family, and we look forward to the many new opportunities to cross our services, better support our customers' missions, and provide new and enhanced growth opportunities for all of our employees.

Based on our recent wins and our strong business development pipeline, we are forecasting second quarter revenue of $310 million to $320 million. This implies 8% to 11% overall growth, with a 7% to 10% organic growth rate. We have raised our full year of 2007 revenue guidance range by $10 million to reflect the strong revenue performance in the first quarter. The current guidance for 2007 revenue is $1.27 billion to $1.31 billion, which represents 12% to 15% overall growth and 11% to 14% organic growth. These figures do not include SRS's contribution to ManTech's results for the remainder of the year. As we detailed in the earnings release, we expect SRS to contribute $120 million of revenue for the remainder of 2007. Given the associated interest and intangible costs, we anticipate SRS having a neutral impact on earnings for the rest of 2007. However, the deal will be immediately accretive on a cash basis.

With regard to our workforce, March and April were strong recruiting months, and year to date we have added over 140 employees to ManTech. We currently have over 600 openings across the Company, which again speaks to the demand for our services from our customers. Our annualized turnover rate for the first quarter was steady at 20%, and we are on track to meet our staffing goals for 2007. We continue to execute on our goal to become the premier provider of national security solutions within the Intelligence, Defense, and Homeland Security related community. We will continue to focus on driving strong organic growth coupled with strategic acquisitions that enhance our capabilities and extend our markets throughout 2007 and beyond.

With that, I will turn it over to Kevin. Kevin?

Thank you, Bob, and good afternoon, everyone. As George and Bob covered earlier, we are pleased to report a solid financial quarter with continued growth in our operations, as revenues grew to $294.3 million, increasing 7% from last year's first quarter revenues of $275.3 million, an organic growth rate of 6% on a pro forma basis. Our organic growth rate is derived from pro forma revenues for the first quarter of 2006 of $278 million, which includes first quarter 2006 revenues from GRS. This growth was largely driven by our expanded activities in the Intelligence and Defense communities. Our largest contracts, Countermine and our Regional Logistics Support Contract, together generated over $61 million during the first quarter compared to $53 million in the fourth quarter of last year. You would note that the Regional Support efforts largely completed their transition to a new contract vehicle during the first quarter, as anticipated. In the quarter, over 97% of our revenue came from federal government sources. Defense, Intelligence, and Homeland Security-related business comprised over 94% of our revenues.

The portion of revenues coming from contracts billed on a time and material basis was 66.1% this quarter. Our fixed price contracts represented 10.4%. Cost plus contracts were 23.5%. As Bob mentioned earlier, contract awards in the first quarter were $300 million.

Our continued strong awards activity reflects our success in expanding within our national security markets. This award activity translated into backlog as of March 31 of $2.94 billion. Funded backlog grew to $767 million at the end of the first quarter, up 48% from the $519 million reported in the previous year. On a sequential basis, funded backlog increased by approximately 22%, from $622 million in the fourth quarter of last year. Our record total and funded backlog demonstrates ManTech's positioning at the center of the national security mission.

Our first quarter operating margin was 7.3%. This resulted in $21.4 million of operating profit for the quarter. Our operating margin was impacted by some one-time fringe benefits expenses in the quarter and bid and proposal activity running higher than anticipated. Non-recurring fringe benefit costs related to several items, such as 401(k) and employer tax items totaling $700,000, occurred in the quarter. Additionally, B&P expenses were approximately $500,000 higher than anticipated in the quarter based on the requirements to support several large opportunities, as well as continued support of proposals whose anticipated award dates were extended. These B&P expenditures have resulted in growth in our backlog and contract awards during the first quarter. Our income from continuing operations was $13.4 million, which translated into diluted earnings per share from continuing operations of $0.39 on 34.3 million fully diluted shares outstanding.

Looking at the balance sheet and cash flow statement, our cash position was $34.1 million, and we again had no debt as of March 31. For the quarter, our DSOs came in at 74 days, which is down 12 days from last year's first quarter. In regards to cash flow, the first quarter saw the effects of (inaudible) payments and employer tax payments which normally impact our cash outflows in the quarter. Operating cash flows during the quarter were also impacted by payments for material and ODC purchases which, as you may recall, increased during the fourth quarter of last year. Payments supporting our Countermine and Counter-IED activities were the primary contributors to the first quarter activity. These factors resulted in a use of $10.2 million at the operating cash flow line for the quarter.

I would like to focus your attention to the financing section of our cash flow statement. During the quarter, we made a distribution from a Supplemental Executive Retirement Plan that was put in place in the late 1980s for Mr. Pedersen. The SERP held approximately 609,000 shares of ManTech stock and matured portion of the distribution. Our financial required to withhold taxes on the distribution and pay out approximately $9.1 million in taxes on behalf of Mr. Pedersen. As consideration for this tax payment, we received approximately 243,000 shares of stock on the SERP distribution, which we are holding in Treasury stock and stockholders' equity. Because the SERP was put in place at a time prior to certain provisions of current tax laws, the Company was able to employ a tax strategy which resulted in a tax deduction on the fair value of the SERP distributed to Mr. Pedersen. You will also note an excess tax benefit of approximately $8.6 million on the statement of cash flows and is reflected in additional paid-in capital on the balance sheet.

Moving on to our outlook for the second quarter in the year, we expect strong cash flows from operations near or net income levels throughout the remainder of 2007, which will allow us to reduce the level of debt we will incur upon closing the SRS acquisition. As we mentioned in our release yesterday and as George discussed, we have entered into a new $300 million credit facility, and we would anticipate borrowing up to $170 million to fund the SRS acquisition. ManTech's market position, which is reflected by our contract awards and associated backlog, increased openings, and direct labor growth, support our outlook for achieving our continued growth.

Guidance for the second quarter of 2007 anticipates the continuation of strong trends in our national security business and does not include the addition of SRS. As Bob mentioned, we have over 600 openings and year to date have increased our employee base by over 140 employees. We have raised our full year 2007 revenue guidance by $10 million from our previously provided guidance range. As we look into the second quarter and the remainder of 2007, we expect to achieve operating margins at or near 7.7% or improve this over the course of the year as our staff levels continue to increase. Based on the opportunities at hand, we are maintaining our previous EPS range for the full year. Our guidance does not include the impact of the SRS acquisition or any future acquisitions or divestitures.

Focusing on the second quarter, guidance for revenues is in the range of $310 million to $320 million. Guidance for diluted earnings per share for the continuing operations for the second quarter is in the range of $0.43 to $0.45 based on weighted average shares of 34.5 million in the second quarter. For the year, we have raised our revenue guidance range from $1.27 billion to $1.31 billion. Our guidance range for diluted earnings per share for continuing operations for the full year remains at $1.76 to $1.84 per share. This is based on weighted average shares of 34.6 million for the full year. Second quarter and full year guidance includes a 38.7% estimated tax rate.

In our press release, we provided the expected contribution from SRS for the remainder of the year. We anticipate the acquisition to close on May 7. We expect SRS to deliver revenue of approximately $27 million in the remainder of the second quarter and $120 million for the rest of 2007. On an earnings basis, we expect SRS to have a neutral impact for 2007, SRS's positive impact on earnings beginning to occur late in 2007. When we close the second quarter, we will incorporate SRS into our future guidance.

In closing, we are excited about the prospects of our business and the opportunities that we will have available from SRS joining our team. Their operation is well positioned to continue our growth, supported by our new bank facility, as well as our strong balance sheet. And now we will be pleased to take any questions you may have.

As a reminder, the question-and-answer session will be conducted electronically. (Operator Instructions.) We'll pause for a moment to assemble our roster. We'll have our first question from Joseph Vafi, Jefferies and Company.

Hi, gentlemen. Good afternoon. I was wondering, first thing, we'll start with a quick question for Kevin. Did you--maybe I missed it--did you talk about the gross margin profile in the quarter? It seemed a little bit light relative to historical levels, and why that was?

Yes, the gross margin profile was light in the quarter. Again, we had some one-time expenses in our fringe benefits line to about a tune of $700,000, and $500,000 of B&P expenses that were higher than we had anticipated for the quarter.

Okay. And then if we look at this funded backlog number, significantly up here year over year. And if we look at what's in the funded backlog now, has that changed at all in terms of how long or the average duration of that backlog relative to historical levels?

Joe, this is Bob. The duration of the backlog is still averaging about five years. As you know, we had a lot of new awards last year, and those awards have been well funded. We think that's a result of the market position we have and the mission-critical nature of the work, so it's funding that's driven that.

So if look at just at the funded backlog piece, it's still up a ton, and so I'm just kind of--it does make sense relative to your guidance, which I think is, shows a, I guess implies a pretty strong second half acceleration, but just trying to get a view into seeing that funding, the funded backlog convert for the rest of the year in terms of the next two quarters.

I understand. Also, some of it is, the new awards are, there are several of them that are still in the transition period and have not fully ramped up, so that also will occur in Q3 and Q4.

Okay. And then maybe, maybe a little color from George. I know that, I think about a few minutes ago, the President vetoed the Iraq bill, and I know you mentioned a little bit about splitting some of this up. What's your view here on the timing, do you think, on getting this appropriation finally passed into law?

The date I've heard is May 25, and the significance of that date is when the Congress goes on Memorial Day recess. And there are several scenarios, as you know, and there's one in the Senate and one in the House, and the concept of splitting it into two parts is under discussion in the House. I'm not sure it's under discussion in the Senate. But if they split it into two parts, their first one would perhaps be $50 billion, and then the second one, the balance. But I hear no scenario indicating that they will leave town without providing funding for the Department.

Okay, and then, if indeed for whatever reason we saw funding getting delayed again, can you maybe provide some color on perhaps where that might affect your business for the rest of the year? Thanks.

I really don't see it affecting us because of programs that we're involved in probably have the highest priority in terms of funding. As you know, also, they're looking at moving some money around from perhaps the Navy and the Air Force to the Army and things of that type. But I think at the end of the day, they will fund them in a timely manner, and they will spend, as you know, about $700 billion this year.

Thanks so much.

We'll have our next question from Michael Lewis, BB&T Capital Markets.

Good evening. George, I was wondering. During your opening remarks, did you state that you anticipate revenue at $1.5 billion in '08?

No. I said that by the end of '08, we will be operating at, hopefully operating at the $1.5 billion level.

Okay. That's fair.

At the end of '07 going into '08 is what I'm saying.

Okay. And then, if you could just, with regard to a potential split, if indeed that does play out on the supplemental, and if $50 billion does come out in the first traunch, do you have any clear expectation of what the tie-in would be on second payment? Or what's your feel? Do you think that this will even occur, or is this just, do you have some flares of what we're hearing over on Congress today?

I think it changes. It depends. The President, as you know, is trying to reach out at this point in time to members of the House and the Senate. It depends on how that goes. Now, the original supplemental bill was $124 billion. Chairman Murtha will tell you that he increased the DoD appropriation by $4 billion. The President asked for $93 billion. He added $4 billion. So he approaches it from the point of view that, "I've given them more money than they asked for." There was also $5.6 billion in that amount for the State Department. Now, the $24 billion was added as additional items, and I can't, only I don't know where that money goes, and I have some indication that perhaps that would be split out. So when they say they might get $50 billion in the first piece, it would be really 50% of it, not a lesser percent, as you were calculating. But I think under any set of circumstances, they will get the funding to the troops in a timely manner. I don't hear anyone engaging in any type of scenario where they don't get funding as they need it.

Okay. That's helpful. And Kevin, I was wondering. You were talking a little bit about the cost of sales. What was in the cost of sales this quarter that inflated it a little bit more than what, at least I was expecting? Can you go over that again? You said it was $700,000 for one piece, then $500,000 for another?

Sure. Okay, $500,000 is additional B&P expenses that we expected, and there's some continuation on some activities where the banking tenets tended to have (inaudible) around those. And also we had very large contracts that we're still going after that are costing, from my understanding.

The second is in our fringe expense line, there's about $700,00 of expenses that we didn't anticipate. One component, as an example, over half of this is related to a 401(k) payment where we modified plan designs in '06 for some of our cleared personnel, and at the end of the year there were some gaps in there that we felt did not appropriately meet their expectations, and we elected to fund that to support the employees as we had originally anticipated. And that cost us some money.

Okay. And did you happen to break out the GRS revenue in Q1?

I did. $3.4 million.

Okay. Thank you very much.

We'll have our next question from Mark Jordan, A.G. Edwards.

Good evening, gentlemen. I was hoping you'd talk a little bit about SRS. Could you say, tell us what the pre-amortization operating margin would be normal for this company and then what the charge would be? Thirdly, could you talk about what your goals are in terms of paying down the $170 billion of debt incurred when you consummate the acquisition?

Sure. And obviously, the amortization's going to be subject to finalization on close, but we're expecting about a 9.3% to 9.5% operating margin prior to that. We're projecting about $1.5 million this quarter in amortization, and as I mentioned, we're going to have a good, strong cash flow from core ManTech, as well as cash flow generated from SRS, and we expect that to be able to generate cash and reduce our debt levels each quarter. And I think you can just model that up, and one times net income for us, and we will achieve that over time from cash components of SRS as well.

Okay, so that becomes accretive on a bottom line basis as you just pay down the debt, then?

And as it grows.

Right. And we don't have any synergies built into the combination. We think that it's achievable on a stand-alone basis. It's a very good company, and we believe that it can be accretive by the end of the year, based on a stand-alone, as a stand-alone entity.

Okay. Thank you very much.

We'll have our next question from Ed Caso, Wachovia.

Hi. Thank you. Any special pass-through levels above the normal pace, or is there sort of an ongoing shift in the business with Countermine and (inaudible)?

No--it's Kevin. The Countermine flow-to was fairly consistent. A little bit above, but fairly consistent to prior quarter. The RSV/LRC business moved up a little bit. I think it was $14 million last quarter, and it went to 20 man-dollars this quarter. And as I think we mentioned before, there was a contract transition that's pretty much complete, and it seems to ramp up on that contract. JERRP was only $2.5 million for the quarter, which we expected, so I think that that flow is pretty consistent with what we anticipated. No real surges.

Can you tell me what percent of your revenue comes from prime, and what's the direction that would be post-SRS and what the long-term goal is?

Right now, it's about a 55/45 split prime/sub ratio. Obviously, that's heavily influenced by our RSC sub on S3 and our Countermine sub under R2. We have a plan in place to work those levels back up to their historic mix, but I don't want to get into the details of that, obviously, for competitive reasons.

This is Kevin. Just a reminder. SRS's prime/sub mix is 75/25, so that should roll into about a 60/40, a little bit above that, prime on a pro forma basis.

Can you repeat the headcount metrics? You said you had a very good hiring quarter? I didn't quite, wasn't sure if you had mentioned January through April or January through March kind of time frame.

Year to date, we're up 140 net, Ed, and March and April were particularly strong recruiting months for us.

So year to date includes April?

Yes.

And what's the March number? Year to date through March?

Around 90.

Thank you.

We'll go next to Erik Olbeter, Stanford Group.

Hi, guys. This is [Mehmet] for Erik. Hello?

We're here.

This is Mehmet for Erik. How much is the current bids outstanding for this quarter?

It's over $1 billion. It's somewhere around $1.4 billion.

$1.4 billion. (Inaudible). Okay, thanks. Thank you.

We'll have our next question from Tim Quillin, Stephens, Inc.

Good afternoon. Kevin and, did I hear you correctly in terms of revenue from RSC, when you were saying $20 million, that's the total revenue contribution from RSG in the first quarter?

Correct.

Okay. And $2.5 million from JERRV, and what was the revenue contribution from Countermine?

Forty.

Forty. Okay, very good. And in terms of the full year projections, are you still looking for, is it $145 million, roughly, from Countermine and $20 million from JERRVs?

$20 million from JERRV is still what we project. I think that if Countermine is consistent with what we provided, and the RSG is going up slightly, based on the run rate increase.

Okay. And how should we think about the Countermine business? Should we think of that as a business that needs to be recompeted as we go into '08? Will there be a follow-on contract? Will it be related to a completely different counter-IED program? How do you replace or continue that revenue into '08 and beyond?

Tim, it's our understanding from working with the customer that they do intend to continue the Countermine mission. They would like to continue that mission with ManTech. They've been very pleased with our performance on that contract. The question is whether they continue it under R2 or break it out into some sort of limited competition. But either way, we feel like we're well positioned to regain that work share again. If there is a competition, it will be late in Q3 or Q4.

And is it different? Are you supporting different counter-IED programs? In other words, after a certain technology is fielded, do you move on to the next technology?

No, not necessarily. We--well, we--what we do is we support the vehicles that the systems are embedded in. So whether it's a Buffalo, an RG, or any other type of vehicle and theater, we provide the support of the IED detection and defeat devices on those vehicles.

Okay. That's helpful. And just lastly, can you talk about the JERRV program or the support for the JERRV and what your expectations are in terms of potential logistics support for MRAP and helping in the fielding of MRAP's?

JERRV, as you know, is a large contract, and the demand on that, we really don't have a good handle on the demand for that yet. Like Kevin mentioned, we have $20 million forecasted this year for JERRV. We know that they're increasing the mission in theater, and we would expect over time to see some additional ramp-up on that contract.

Is it your understanding that what you're doing is directly related to the broader MRAP program?

I would say it's--yes. Yes. I would say it's part of the MRAP program, yes.

Okay. Okay, thank you.

We'll have our next question from James Harlow, Stifel Nicolaus.

Hi, everyone. James for Stifel, Nicolaus. Can you comment on any recompetes you have coming up?

Again, the recompetes for this year are--typically, our recompetes average about 20%. This year, a lot of those recompetes have been sliding to the right, and any recompetes that we expect to have will happen late in the year, late Q3 or Q4. The impact on our revenue and EPS is insignificant this year.

Okay. Thank you.

(Operator Instructions.) Our next question will come from Ferat Ongoren, Citigroup.

Hi. Looking at your guidance, you mentioned recompetes being immaterial. What percent of the '07 guidance is already funded in the backlog, what percent in relation to new contracts that they haven't won yet, and what percent is from task orders that you expect to get during the year?

It's Kevin. There's a large amount--I don't have a specific percentage, but a large amount is already in hand and subject to requirements. There's enough capacity in our backlog in the awards to support the growth, and again, the 600 openings certainly support the level of growth that we're anticipating for the year. Again, $300 million of awards for the first quarter. A significant part of that--I think 85%--were new, was new business. So I think that we have a lot in hand currently. Recompete compelling us again. I think we mentioned this last quarter. Less than 5%--I think it's less now--of our revenue for '07 would be at risk under any recompete based on the timing. At that time, the big holes got pushed to the right a little bit, so I think that there's not a large risk this year in the revenue for any recompetes.

Okay. And given the need for recruitment going forward, would you say that you feel more comfort about that if you can't, you know, recruit those guys, there could be some pressure on the margins going forward? Outsourcing requirements?

We've been very focused on staffing, which Bob can speak to, but I think that our recent growth in headcount and staffing, specifically going March through April, and the opportunities currently available make us comfortable with the revenue growth and the margins generated by the labor-based revenue growth. However, it is a restrictive market, and we have to be aware of that, and if we have limitations, it may impact that range.

And in terms of the margin walk-through for the, down quarter in the second quarter, should we expect third quarter year over year up or neutral?

Year over year, I think that we would expect, if we were at 8.1 in Q3 and 7.7 in Q4, we're expecting margins to be above 7.8, but certainly not pushing beyond 8.0 unless we have a significant amount of labor growth on top of what we anticipate.

I see. Okay. And then looking into the acquisition, I mean what's the backlog that will come with SRS? If you look at their, maybe their last 12 months, what was their book to bill and what kind of a backlog you will see coming from them?

Ferat, it's Joe Cormier. In our release, we talked about the backlog that should come from SRS will be roughly $750 million. And essentially, they have won all of their recompetes over the last five years, and they are in the early stages of most of their contracts, so we see a lot of runway, and that's why that backlog number is very high.

So you say essentially, looking at the $120 million number, all of it is the backlog, basically? Is that fair to say?

A very good portion of it.

Okay. Thank you very much.

And that does conclude today's question-and-answer session. Thank you for participating in today's conference call. This call will be available for replay beginning at nine o'clock p.m. this evening through May 15. To access the replay, please dial 1-888-203-1112 for domestic calls, or 719-457-080 for international calls, with the ID number of 5524860. This concludes our conference for today. Thank you, and you may disconnect at this time.