ManTech International Corp (MANT) 2007 Q2 法說會逐字稿

Good afternoon. My name is Cynthia and I will be your conference facilitator today. At this time, I would like to welcome everyone to the ManTech Second 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) As a reminder today's conference is being recorded. Mr. Cormier, you may begin your conference.

Thank you. Welcome to ManTech International Corporation second quarter 2007 earnings conference call. And we thank you again for joining us this evening. My name is Joe Cormier, and I am Vice President of Corporate Development.

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 ManTech's strategic positioning and the fiscal '08 budget outlook. Bob will review our operational highlights from the quarter and future business prospects and Kevin will review our financial performance in detail.

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 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 titled Risk Factors in ManTech's annual report on Form 10-K filed with the SEC on March 9th, 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.

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

Good afternoon and thank you for participating in today's call. I am pleased to announce another strong quarter for ManTech International. As you saw from our press release, we delivered revenue of $349 million, which represents over 21% total growth and 10% organic growth. Our earnings of $0.44 per share were up 13% over last year's $0.39 in the second quarter. Our mission-critical defense and intelligence markets continued to yield stable, consistent growth and we expect a strong second half for ManTech.

Along with the solid operating results, we generated exceptional cash flow during the second quarter, with over $33 million of operating cash flow. This was the result of our strong profits and successful receivables collection, which resulted in DSOs of just 68 days prior to the impact of the SRS acquisition. Based on this outstanding cash flow, we were able to reduce our borrowings by over $35 million from $170 million down to $133 million within two months of closing the SRS acquisition in early May. Because of our powerful cash flow engine, we find ourselves at just over one times debt to EBITDA, only two months after the largest acquisition in our history. This certainly provides us ample capacity to continue to target the right strategic acquisitions going forward and to fund our rapid organic growth.

The SRS acquisition has already exceeded our expectation as it relates to the cultural fit and business development and coordination. They have also slightly exceeded our financial expectation and Bob and Kevin will go into further details in their remarks.

For the last several years, we have consistently delivered solid organic growth in both revenue and earnings, due to our positioning at the center of the national defense, Homeland Security and counter-terrorism missions here and around the world. Based upon this positioning and the work we have in hand, we continue to feel well positioned to deliver double-digit organic growth for the remainder of 2007 and into 2008. In fact, our revised revenue techniques -- guidance implies 13 to 15% organic growth in '07 on the heels of 12 to 14% organic growth in '06 and '05 respectively.

With regard to the '08 budgets, it is still very early, but we believe that the DoD and the Homeland Security Appropriation Bill will be passed again this year in a timely manner. Early indications suggest that these bills will be at the levels above '07 spending for their base budget. This is obviously important for ManTech as 93% of our revenue is derived from the Department of Defense, Intelligence and Homeland Security related agencies. We believe that regardless of the current political situation, both parties are committed to our troops and will not delay funding for the war. They will, however, continue to separate the base DoD budget from the supplementals, which was not the original intent going into FY '08. That said, I believe we will the base DoD appropriation bill passed by 1 October regardless of politics the surrounding the process.

In closing, we have strong growth markets in which to deliver our services, strong trusted relationships with our customers, and we have dedicated employees ready to meet our customers' critical missions here and the 42 countries that we serve around the world. The second quarter '07 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 will turn you 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 these factors provide ManTech with a solid foundation for growth that I will touch on later in my statements.

As George mentioned, we are extremely pleased with the immediate impact SRS has made to ManTech. SRS has delivered stronger-than-expected performance. We continue to anticipate better-than-expected growth on some of their larger programs at the HS and Missile Defense Agency. As expected, there are also good opportunities for cross-selling our combined capabilities and our people are working together at all levels to develop and drive new business.

We are also integrating SRS' Document Detective product into our [Centrus] information, sharing and collaboration solution. Together, these products provide a comprehensive solution that addresses the government's critical need to collaborate and share classified and unclassified information on a need-to-know or a trusted basis across agencies. We look forward to leveraging Centrus and Document Detective to penetrate new customers and to drive additional service revenue.

As you saw on our press release, second quarter revenues came in at over $348 million, which results in overall revenue for the quarter of 21% with 10% coming organically. The results were driven by contract wins in our DoD and Intelligence customer base and SRS' contribution of over $28 million in revenue during the quarter. We continue to improve our business development process and we are seeing the benefits of our BMP investments over the past several quarters.

Bookings totaled $330 million for the quarter, bringing our first half bookings to $630 million. New business wins and contract add-ons accounted for almost 60% of the bookings total for the quarter and just over 70% of the year-to-date bookings. This translates into about $90 million in additional annual revenue or about 6% growth on a revenue base of $1.4 billion only halfway through 2007.

Our qualified pipeline now stands at $7.9 billion and we have 23 opportunities in the pipeline over $100 million. I would like to note that the bookings figures do not include our recent prime award on the $710 million State Department Security Assurance Services and Innovation IDIQ contract awarded during the quarter.

Also I am pleased to announce that our GWAC strategy is paying off as we received notification yesterday of a prime contract award on the GSA Alliant contract. Alliant is a $50 billion multiple-award GWAC to provide IT services in support of national security solutions. Obviously, these contracts are very important to ManTech as they are in the sweet spot of our capabilities and provide additional avenues for our customers to access our solutions and services. Also since Alliant is open to all federal agencies, it provides the opportunity to expand our business beyond the traditional DoD markets into the civil sector, which is consistent with our GWAC strategy.

Over the last 12 months, we have delivered a book-to-bill ratio of 1.6 times, which provides consistent and stable revenue growth throughout the remainder of the year and beyond. Based on our solid track record of awards and the addition of SRS, the total backlog now stands at $3.57 billion. This represents a 66% increase from $2.15 billion at the end of June 2006. Funded backlog grew almost 36% year-over-year to $746 million. Consistent with historic trends, our strong backlog provides significant revenue visibility into future quarters and years.

With regard to our work force, we currently have over 6,700 employees including SRS. Through June, we have increased our headcount by over 300 net adds, and this is ahead of plan but consistent with requirements as we continue to ramp up on some of our contracts awarded in 2006 and early 2007. The labor market remains tight for our highly classified programs, but we have been very successful in staffing some of our other mission-critical contracts to utilize a broader range of security clearances. Even with our success in driving net adds, we still have over 400 openings with a significant amount requiring the highest level clearances. Therefore our hiring goals remain consistent with our original 2007 plan. Our annualized turnover rate in the second quarter was down to 19%, which is consistent with industry averages.

I want to come back now to our growth opportunities for the remainder of 2007 and beyond. It is our belief that regardless of the politics in Washington, our government will continue to support the global war on terrorism through enhanced intelligence collection, information sharing and sustainment and replenishment related activities. ManTech has focused on these areas since 2002 and we continue to see opportunities for long-term growth in the intelligence and DoD mission support spaces as evidenced by our sustained double-digit growth rate.

We also are extremely well positioned to support the Army and the Marine Corps expanding Mine Resistant Ambush Protected, MRAP, requirements along with the Army's increased focus on reset and readiness. As you are all aware, ManTech has a significant presence providing logistics support, repair and related O&M activities for the Army's route clearing mission in-theater. We believe that our proven success in the CECOM theater of operations combined with our global presence and extensive army direct and general support experience uniquely positions us to greatly expand our involvement in their mission-critical MRAP program. We are tracking a number of MRAP-related opportunities and we believe, unfortunately, that the counter IED mission is here to stay for the long run.

ManTech is also well positioned to support the Army as they increase focus on combat brigade and division readiness. We are currently engaged in providing equipment tracking, inventory, and property book support to the Army under our Global Property Management Support Services contract. You may recall that we won this contract in the first quarter of 2007. Since award, we have seen a significant increase in requirements on this effort and we expect this contract to grow and expand as the Army prepares for its forthcoming unit readiness mission. As we have stated many times in the past, we continue to see ample opportunity for continued long-term growth at our mission-critical markets even when the war in Iraq draws down.

Based on our market position, recent hires, our new business wins, and our strong business development pipeline, we are forecasting third quarter revenue of $370 million to $380 million. This implies 30 to 34% overall growth with a 14 to 17% organic growth rate. We have raised the bottom of our full-year 2007 revenue guidance range by $10 million to reflect the strong revenue performance in the second quarter. The current guidance for 2007 revenue is $1.40 billion to $1.43 billion which represents 23 to 26% overall growth and 13 to 15% organic growth. Our operating margin improvement plan and strong cash flow throughout the remainder of 2007 has allowed us to increase our EPS for the full year by $0.03 from the lower end of our previous guidance range and $0.01 at the top end. Our new EPS guidance is $1.79 to $1.85 and Kevin will throw you in on the details.

We continue to execute on our goal of becoming 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 and profit improvement, 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 strong financial quarter, with continued growth in our operations, as revenues grew to $348.7 million, increasing 21% from last year's second quarter revenues of $287.5 million or an organic growth rate of 10% on a pro forma basis. Our organic growth is derived from pro forma revenues for the second quarter of 2006 of $317 million, which includes second quarter 2006 revenue from SRS and GRS.

This growth continues to be driven by our expanded activities in the intelligence and defense communities. Our largest contracts countermine and our Regional Logistics Support contract together generated over $73 million of revenue for the quarter compared to $61 million in the first quarter. For the quarter, over 97% of our revenue came from federal government sources. Defense, intelligence and Homeland Security related business comprised over 93% of our revenues. The portion of revenues coming from contracts build on a time immaterial basis was 60.8% this quarter. Our cost-plus contracts were 24.2 and fixed price contracts represented 15%. The majority of the rise in the fixed price percentage was driven by the addition of SRS, whose contract mix contains an increased proportion of fixed-price, level-of-effort contracts.

Our second quarter operating margin was 7.3%, which resulted in $25.5 million of operating profit for the quarter. While we saw a healthy increase in our labor growth, ODC as a percentage of revenue increased to over 42% compared to under 41% in Q1.

There were some unusual one-time expenses and income items that occurred in the quarter, which I will list. First, over $800,000 of facility related consolidation and termination expenses resulting from our constant drive to achieve operational efficiencies; second, $280,000 in one-time expenses from the termination of our old line of credit during the quarter. Excluding these one-time facility and credit termination costs, operating margins would have been approximately 7.6%.

Below the operating income line, we reported approximately 340,000 of other income as we received a one-time dividend payment from a legacy relationship from GSC Systems. In regards to interest income, we received over $200,000 of interest income related to tax refunds and the GSC payment. This translated into net income of $15.1 million, which resulted in diluted earnings per share of $0.44 on 34.5 million fully diluted shares outstanding.

Looking at the balance sheet and cash flow statement, our cash position was $3.6 million with $133.4 million of debt. We borrowed a $170 million to fund the SRS acquisition on May 7th. Based on our strong cash collections, DSOs came in at 68 days, prior to the impact of SRS, and down from 81 days in last year's second quarter and 74 days last quarter. In regards to our cash flows, second quarter was excellent. Operating cash flows during the quarter were over $33 million and allowed us to reduce our borrowings from the SRS deal by over $35 million within two months of closing the deal.

Moving to our guidance, which does not include the impact of any future acquisitions or divestitures, we have set initial third quarter guidance for revenues of $370 million to $380 million. As we look into the third quarter, we expect operating margins of 7.6%, 7.7 as our direct labor continues to increase and SRS is fully reflected in the quarter. Guidance for diluted earnings per share for the third quarter is in the range of $0.47 to $0.49 based on weighted average shares of 34.7 million.

Based on our performance in the quarter, the incorporation of SRS as well as our ability to continue growing our direct labor for the year, we have adjusted our revenue guidance range up to $1.40 billion to $1.43 billion. We have also raised our guidance range for diluted earnings per share for the full year 2007 up to $1.79 to $1.85 per share. Along with improved visibility and our margin drivers for the second half, the EPS range reflects our preliminary estimate of expected amortization levels of the SRS intangibles. Our 2007 EPS is based on weighted average shares of 34.6 million for the year -- for the full-year 2007. The third quarter and full-year guidance includes a 38.9% estimated tax rate and we expect interest expense to be approximately $3.6 million in the second half of 2007.

In closing, we are excited about the prospects of our business as we are operationally well positioned for continued growth supported by our strong balance sheet and cash flows. And now, we will be pleased to take any questions you may have.

(OPERATOR INSTRUCTIONS) We'll take our first question from Michael Lewis with BB&T Capital Markets. Please go ahead.

Good afternoon. Great quarter. And Kevin, I was wondering, if I could circle back to the 8-K that you guys filed on July 20th, implies about $4 million per year in amortization of intangibles. I think some of the prior expectations were slightly over $6 million. Now, with all this said, does that possibly move accretion on SRS into 2007 or should we just assume a few more pennies in 2008.

No, when we had spoke before, our initial estimate was over $6 million in amortization and our current estimate on an annualized basis is about 4.5. So you can expect and we do expect in the second half of the year to get some additional accretion as a result of that baked into our guidance.

Okay. That is helpful. And then towards (inaudible) with regard to acquisitions, when can we expect to see ManTech become aggressive back in the M&A market again?

We are constantly looking at the opportunities that are out there and there are numerous opportunities in books coming across our desks, as you know well. But we will not move forward -- we have the cash today and the line of credit. As you know, we recently negotiated a line of credit on up to $400 million and we are quite capable of doing it. When we find one that meets our criteria, new technology, new customers, new people and it is accretive, we will do the buy. We will stay in our space. We are not likely to go into the shoe business.

Okay. That is fair. But based on the books that you are seeing, would you expect the larger acquisition, north of a few hundred million, or are we talking about, say, $25 million to $75 million in size companies?

We see both. The $25 million level is getting a little hard to deal with because it sometimes doesn't have enough of an impact, unless there is a force multiplier in terms of their customers, that type of thing. But we are actively looking for the higher ones, in the $300 million and above level.

Okay. Then one more question, and I will get back in the queue. Kevin, have you paid down any additional debt since the close of the second quarter?

We expect to continue to have strong cash flows in the second half of the year.

Yes.

Again, our target is to be at or above one times net income in terms of cash collections and I think we have proven that we can hit that. We have very low CapEx requirements.

We are obviously very pleased that we paid that much debt down in two months time and if we keep driving the collection of receivables and keep driving our profits, we can't tell you at this moment, but it is going to be good.

Okay. Thank you. Keep up the good work.

We will take our next question from Gautam Khanna with Cowen & Company. Please go ahead.

Hey guys. A couple of questions. So it looks like you have been continuing the hiring trends, what is your expectations for net hires this year? Are you still going to add about 400 net this year?

I think we will exceed that Gotham, and we will be closer to 500 by the end of the year. As I mentioned, we have been fortunate that some of our newly awarded mission-critical contracts are able to utilize people with different levels of clearances. So that has helped with the hiring process.

Okay. So you are adding, what, 7% to the labor force. So should we expect the mix of direct labor billings to kind of improve next year, lifting the margins?

Yes. Unless the requirements continue to expand on these countermine and other activities proportionately, which is very hard to predict. We should expect to see improved visibility into the labor side and labor growth.

Okay. And can you tell us what the -- are the Regional Logistic Support contract and the countermine contract added this quarter in terms of --

Countermine contract was $49 million in revenue and the Regional Support Center contract was approximately $24 million -- $73 million total.

And can you just give us an update on your expected re-competes on size over the next year?

Next year, I think our re-competes are going to be a little higher than our historical average and that is primarily driven by some of the '07 re-competes slipping into '08, but also countermine which will be our largest re-compete next year. Now, it is our belief that the government is going to extend the countermine program as they work out their procurement strategy and I think the good news there is they are pretty pleased with our performance on that program. So we expect whatever vehicle they will come up that we will be providing that support for them in the future.

Okay. And what else is out there? I know you have that recompete and your staff, but it there anything else on size on countermine next year?

Any other ones that we have are pretty much like 2% or 3% of the revenue base. So it is not much.

Okay, great. And thanks, great quarter guys.

Thanks.

Thank you.

We will take our next question from Edward Caso with Wachovia. Please go ahead.

: Hi thanks. Just Kevin, you said a bunch a numbers at the end, I didn't catch them all. Can I just -- the interest rate or the interest expense -- net interest expense assumption going forward the next few quarters, now that you have got SRS baked in?

We expect to have $3.6 million in interest expense in the second half of the year, about 1.9 in the third quarter and the balance in the fourth.

: Okay. And the tax rate in the back end of the year?

38.9%.

: And the amort level, that is all baked up in your SG&A, right? You don't break that up?

Right.

: I remember there was something about seasonality with your DSOs in Q1, can you refresh my memory and sort of what is sort of the expectation for DSO level going forward?

I think it was related to timing of the payments. And so -- I think that was more on the AP side than the receivable side in terms of seasonality and that is more specific to two factors on the balance sheet side -- the timing of payment and the flow-throughs of ODCs which I can't say is seasonal more than customer requirements. They roll quarter over quarter and the second is the timing of our overall payroll payments, which basically cycle every other quarter on one extra payroll.

: So it is the level -- the just low 70s levels, is that sort of a normal level for you or is there further opportunity?

We believe that a low 70s is now fairly constant and achievable number. We are obviously going to try to improve that, but I'll communicate you to build in a low 70s and then we will see if we can do better.

: On the bookings number, $330 million I believe, how much of that SRS?

We didn't include any of SRS in the bookings figure this quarter. I don't think -- it might have been somewhere around $3 million at the most.

: And same question for backlog.

We actually adjusted SRS' backlog down by $50 million. So, we included $700 million of SRS in the backlog.

: Okay, thank you.

We will take our next question from Bill Loomis with Stifel, Nicolaus. Please go ahead.

Hi, thank you, and good quarter. Looking at the Regional Logistics Support contract and countermine, it looks like the sequential growth there accounted for about half or less than half of the growth excluding SRS, was there any particular contracts that accounted for the bulk of the rest of it or is it more based?

It is more broad based. It is spread pretty evenly across the base.

And on those contracts, specifically last time before the re-compete, the RLS contract had up to $29 million kind of run rate a quarter, is that where the $24 million is heading to on that contract do you think?

Kevin, I think a $25 million run rate is a reasonable expectation. It may increase but right now I think 25 is what we see.

And on countermine, that had a nice jump and it is higher than it has ever been. How far do you expect that to continue to decline versus the run rate we saw in the second quarter?

Countermine is requirements driven, so it is -- I think we expect that it will be level for the rest of the year.

And Bill, and we are assuming a level in our estimates we are providing.

Okay. And then on the MRAP opportunities, are these things outside of countermine, other support opportunities that you are looking at?

Yes, I think the big thing is that if you look at what the Army views, they view their MRAP as part of their route clearing mission and we are one of their primary contractors providing route clearing services to them. So we see the opportunities as potential add-ons to some of our existing contracts but also new opportunities that are out there of course.

Okay. And now just one final question on DoD, George, I know you said you thought the radar budget will be passed on time, how do you view your business if we do get a delay in both the regular budget and the supplemental in '08? If we get into some contention, and as a net result and it ends up being say end of November or something, how do you see that impacting your business, particularly the RLS contract and the countermine?

Let me just comment that I don't believe there will be a delay. The House is, as we speak, talking about a defense markup of $459 billion. They expect it to have a vote on that by Friday. As you know, the House is currently tied up in the discussion about insurance recovery. And it is my understanding that even if they have to work all Friday night and into Saturday, we will have a defense bill by Saturday. Now, the Senate isn't coming back to review this until September, and by that time they will have -- we don't expect the Senate bill to be very different from the House bill. But I have not heard anyone of their talk or a lay out scenario that they don't have a defense bill and a Homeland Security bill on 1 October. Not at all. Now, if they do have one, I have asked a question about a CR. There is no scenario that they don't have an appropriation bill. There is no way they would allow the troops to be without funding. And they could basically do an omnibus bill which would rollup all of the appropriations and I don't think they will do that. Now, I have asked a question, because the key question to us and others would be is the CR only good for the base amount of the appropriation bill? In other words, could it only cover, let's say, $450 billion as opposed to $650 billion? And I am told that they are allowed to write language, so the CR would be at the higher level. So if that occurs and there is a CR, I don't see it having an impact. It is a long answer. But I don't see it having an impact on us or my industry.

This is Kevin. I will note and I hate add on to it, but uncertainty has been around for a while and we have still hit double-digit growth each year this question has come out.

Okay. Thank you.

We will take our next question from Ferat Ongoren with Citigroup. Please go ahead.

Good afternoon. Good numbers. First question, on the guidance, second half, we had significant revenue growth acceleration, I was wondering how much of the second half revenues is in the backlog already?

It is a fairly large number. I don't have a specific percentage in front of me but we have good visibility in the second half of the year.

Okay. So it is actually you don't need to win anything to deliver the quarter -- two quarters ahead of us?

I think we are pretty confident with the numbers we have put out there.

Okay. The other question is, I was wondering whether you could tell us the incremental profitability in countermine. Was the margin similar to the margin in the last quarter?

The countermine and RSC contracts are still in fairly low margins, still running at about 2.5%, 2.6%.

Just here is a question, we have (inaudible) low margins, so not much contribution, so if I look at the incremental revenues coming from your other businesses excluding countermine, it seems like the incremental margin on those revenue has been in effect one timers. That is close to 10%. Could you tell us what is going on with maybe the intelligence business and some of the other businesses in terms of margin performance?

I think all we can say is, you have the math in front of you. It supports the locations we are in and the importance and criticality of the type of work we do.

And some of your competitors will say they are seeing pricing pressure on intelligence, it seems like you are not seeing that.

No, we really haven't had -- we haven't been impacted by that yet.

Okay. And then you mentioned that for free cash flow, you were targeting over one time net income. Is there a particular number in mind that you are planning for now?

I don't have a particular number, but I think that we are starting to see a 1 to 1.1 time. If you look at the D&A, it is going to be increasing and obviously that is going to lend itself to having a higher cash return against net income.

And was there any low-hanging fruit at SRS in terms of growth in capital collections?

No.

Okay. Thank you very much.

We will take our next question from Tim Quillin with Stephens. Please go ahead.

Hey, good afternoon.

Good afternoon.

Was there any revenue from JERRV during the quarter that you have contracts?

Yes, it was about 4, 4.5 -- again, it is consistent with what we have expected from it.

Right. $4.5 million. And so the margins on countermine and JERRV are around 2.5%, and did you say earlier what the margin on RSC was during the quarter?

What I said is that the margins on RSC and countermine are running consistently at about 2.5 to 2.6%. I think the JERRV returns, even though they are not much higher, slightly higher.

Okay. Is RSC EBIT margin, I think, in 2006 was closer to 6.5%, 6.6%, is that something that can trend higher, maybe both that and countermine trend higher as they get a more labor content and less pass-through over the next couple of quarters?

I think it is potential for the RSC to have some higher trend based on the requirements, but the countermine activity is going to be a little more consistent. Just depends on the amount of flow.

Okay. And this is -- I understand not a particularly easy question, but how should we think about countermine as we head into '08 and I understand you are kind of thinking of it as flat over the next couple of quarters and likely to be extended, should we kind of think of it as flat but consistent over '08 as well.

I think that is the best way to look at it, yes. I believe that the Army expects to continue with their route clearing mission.

Okay. Thank you.

We will take our next question from Mark Jordan with AG Edwards. Please go ahead.

Good afternoon. Kevin, a question relative to interest expense, is your fully loaded interest costs just over 6%, 6 to 6.1%?

Yes.

And then secondly, if we are modeling interest expense out for '08, should we just utilize net income as the net reduction and then sort of spread it pro rata over the quarters to calculate interest expense?

That is reasonable. Yes, I would do that.

Okay. On the countermine, is there some ability to enhance the amount of direct work that you do there to address the margin potential or is this just fundamentally a 2.5 to 3% operating profit business?

I think a lot of that -- the answer to that is going to be dependent on the requirements and the criticality of this as we go into additional contracts and requirements for the customer. And I can't get into too much detail because future consumers are unknown in terms of their structure, but there is some potential, but it is something that we are really factoring in or expecting.

Okay. A final question relative to the MRAP, there has been a lot of contracts awarded, so there will be there probably a significant number of vehicles at least delivered in-theater through the latter part of this year, what type of timing do you expect to see with regards to action by the Army as to -- making decisions as to how these vehicles are going to be supported?

While we are in the process of responding to some of the MRAP opportunities, I don't have an indication for you in terms of the Army's long-term plans for support. I think a lot of that is going to be driven by the funding and just how strong it is for the O&M tale on that.

The Army is getting pressure from Chairman (inaudible) as you know, and he is providing them with funding and I think he will do everything in his power to accelerate the process.

Okay. Final question, relative to the funded backlog number that you have, over the last six months, have you seen an orderly flow of that funded backlog into actual spending or has there been any deferral that you have seen of tasks that are funded that has just been put on hold?

This is Kevin. I don't think there has been a deferral. It has been kind of spotty. If you noted in the last quarter, our funded backlog became very high and I think that is especially on the timing of when the funding comes in for the different procuring customers to put in on contract. So we haven't seen any determinable seasonality from it.

Okay. Thank you very much.

Thanks.

(OPERATOR INSTRUCTIONS) We will go next to [Greg Wilkins] with Banc of America Securities. Please go ahead.

Good afternoon. Attrition sounds like it has come down to about the 19% level in the quarter from about 20% in Q1 '07. Just curious to see here what you think is the optimal level and where you think it could settle out longer-term.

This is an issue we continue to struggle with. We target the mid teens for turnover, but as you know, there is a lot of demand for our people with the high-level clearances. Turnover in the Metropolitan DC area where we have over half our workforce I think is pretty normal at the 19% level. So we target the low teens or the mid teens and we are doing everything we can to drive our turnover down to that level.

Okay. Also, did you mention what the utilization was in the quarter?

No.

Do you have that number or --?

It is not a measure we provide.

Okay. Thank you.

We will take a follow-up question from Bill Loomis with Stifel, Nicolaus. Please go ahead.

Hi thanks. Just one question on the Global Property Management contract. You mentioned that is growing and kind of implied that is going to grow faster than the award amount, and I think that was $80 million over five years, so that is $4 million a quarter. Are you seeing that growth significantly above that quarterly run rate, is that what you are communicating?

Yes, we are seeing some expansion on the GPMSS contract, absolutely. It has been a little bit faster ramp than expected and that is due to the demand from the Army.

Okay. So it is going to be materially bigger than what the implied run rate is from the initial award?

Yes. Our additional funding requirements have put it over $100 million to date. So you should expect a higher amount of requirements coming.

Okay. And then on the contract wins, if I take out the $700 million out of backlog from SRS, it is down slightly sequentially, can you just talk about how you expect with your BMP investments you have made, what kind of award activities do you expect? Did you see some slippages into the current quarter of things that might be awarded and how should we look for that as far as backlog -- sequential backlog growth over the next few quarters?

We do see some slippage in award activity and I think that is primarily driven by the tight acquisition work force on the government side. Also, we see them taking a little bit longer than usual to award opportunities and we think that is driven by the number of protests. So I think that overall the backlog number looks strong and expect it to go up throughout the remainder of the year.

Okay. So you expect the client to make more decisions on awards in the third and fourth quarter versus what we saw?

Typically, those are stronger booking quarters for us, yes. But as I mentioned, some of the things are slipping a little bit. So Q3 may not be as high as historical average but we expect overall to be a strong bookings year for us.

Okay, thank you.

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