ManTech International Corp (MANT) 2009 Q1 法說會逐字稿

Good afternoon. My name is Brandy, and I will be your conference facilitator today. Today's call is being recorded. At this time, I would like to welcome everyone to the ManTech First Quarter 2009 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) Thank you.

Mr. Cormier, you may begin your conference.

Thank you, and welcome to ManTech International's First Quarter 2009 Earnings Conference Call, and again, we thank you for joining us today. I am Joe Cormier, Senior Vice President of Corporate Development.

Leading today's call from ManTech are George Pedersen, our Chairman of the Board and Chief Executive Officer, and Kevin Phillips, our Executive Vice President and Chief Financial Officer. Mike Kushin, our Senior Vice President and Chief Technology Officer, is also available to answer questions related to cyber security.

In our prepared remarks, George will discuss our strategic outlook; Kevin will detail our Q1 results and revised growth outlook for 2009; and George will briefly provide some concluding remarks.

Before we begin our discussion, it's 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 entitled "Risk Factors" in ManTech's annual report on Form 10-K filed with the SEC on February 27, 2009, 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'd like to turn the call over to George Pedersen. George?

Good afternoon, and thank you for participating in today's call. We are pleased to have the opportunity to discuss our first quarter's financial results.

The results from the first quarter present a somewhat different profile than we had expected on the revenue side because we generated less revenues from ODCs and materials and equipment purchases during the quarter. We will give you more details shortly.

We are happy with our net income result, which was up 23% over first quarter of 2008 and allowed us to meet our earnings projections.

Our operating margin improved to 9%, up from 8.1% in last year's first quarter, demonstrating a strong demand for our high-end services.

On a number of our army contracts, there has been a pause and a purchasing of equipment and materials for our Countermine, RSC, and other program. To be clear, this only became evident very late in the first quarter.

In the fourth quarter of '08, Countermine contributed $115 million, and RSC contributed $33 million to revenue. In the first quarter of '09, Countermine contributed $94 million, and RSC contributed $22 million for [Evanon] -- for revenue, both less than we expected.

We have revised our year-end revenue projection to $2 billion to $2.075 billion because we believe it is prudent to be cautious until we see the outcome of the supplemental appropriation bill decisions that are now underway in the Congress.

We are expected to be -- the supplemental appropriation bill details are expected to be finalized by the end of May.

We are also reviewing the potential opportunities generated by the recent $840 million reprogramming of funds by DOD to increase the support for MRAPs.

The supplemental, as envisioned last week, will be in the amount of $83 billion, but we understand this may be expanded by as much as 12 to $15 billion. This total was derived from Secretary Gates' original $60 billion request, which was increased by the House Defense Appropriation Committee to $75 billion and then further increased to the last proposed total of $83 billion.

Most importantly, this amount includes $45 billion for the Army. Please remember that when these funds are finally approved, they must be obligated or expended by 30 September. For this reason, we have confidence in the [UN] projection that we have provided and see a possibility of increased revenue later this year as the availability of funds is confirmed.

For the remainder of 2009, forward projections do not include any revenues or earnings from potential future acquisitions, and we continue discussions with a number of firms. We have completed three acquisitions over the past eight months which were relatively small in size but crucial from the customer, technology, and market penetration perspective, particularly in the cyber area.

Most recently, we completed the acquisition of DDK in March, continuing our focus on the cyber security sector. This acquisition provides access to a new and important customer, the Naval Criminal Investigative Service. We welcome DDK into the ManTech family, and we're already seeing benefit from the combination.

Our long-term growth strategy remains exactly the same, as it has served us well. We tend to -- we intend to grow aggressively. We have ample credit capacity with the banks, and our cash flow for 2009 will be strong. We expect to generate at least $80 million of free cash flow this year.

Our line of credit with the bank continues to be $300 million with an accordion feature to $400 million.

We view our strong balance sheet as a strategic asset as we look for additional acquisitions, and we believe our track record of performance and integration has made ManTech an acquirer of choice for mission-focused national security companies.

As you already know, we have carved out a very strong position in the cyber security market. To update you, in the past three months alone, the following has occurred regarding the comprehensive national cyber initiative, the NCI.

The White House 30 day -- the White House 60-day cyber review has been completed and will be released very soon. We believe that once the findings are released, you will see the government accelerate its activities on the CNCI by increasing the flow of funding to various organizations. This will begin with the intelligence agencies and the DHS and then expand out to the DOD and civilian agencies. We believe the timing of this will begin late in the second quarter.

Furthermore, we believe the 60-day review will lead to an acknowledgement that the CNCI is not comprehensive enough leading to additional funding dedicated to fighting this cyber war.

Over the same time period, ManTech's cyber security contract at the Department of Homeland Security National Cyber Security Division was renewed. This contract allows us to provide thought leadership in the execution of important cyber defense activities.

The same time, we continue to see money flowing into our existing classified contracts to support increased cyber security activities, particularly in the intelligence community customers.

Just yesterday, we were awarded a renewal with expansion of value on one of our classified cyber contracts.

These two awards, approximately $45 million.

Finally, turning to the fight against terrorism, I think we are all witnessing the new president's continuation of the nation's vigorous efforts to diminish the terrorist threat. President Obama is changing priorities, but I see no less of a dedication to the fight on terrorism that has been our nation's policy in the past. Our armed forces are expanding our ground approach in Afghanistan while continuing our mission in Iraq. ManTech will play a major role in this effort.

And with that, I would like to turn the call over to Kevin Phillips. Kevin?

Thank you, George.

Revenues for the quarter were approximately $450 million, representing 6% total revenue growth, with 3% coming organically for the first quarter compared to last year's first quarter revenues of $425 million.

Our largest programs, Countermine and JERRV, generated $94 million in revenue in the first quarter, while SOCOM generated $16 million, and RSC was $22 million.

One component of our revenue during the quarter, the volume of material procurement required by our customers, was lower, and the timing of those procurements changed, as we will discuss in more detail.

Our contract mix also continues to contribute favorably to margins, with 66% coming from contracts billed on a time-and-material basis and 12% from fixed price contracts. 22% of revenues came from cost plus contracts in the first quarter.

Our revenue mix by customer remained relatively unchanged during the quarter, with 98% coming from federal government sources. Defense, intelligence, and homeland security-related business comprised 95% for the quarter.

We are pleased that during the quarter, our level of quarterly bookings drove backlog growth. We had 502 million in bookings and 67% of those bookings came from new business wins and contract add-ons. This translated into backlog of 4.07 billion, up 18% over last year. Blended backlog also remained strong at 1.1 billion as of March 31, up 16% since last year.

Our qualified pipeline currently stands at 12.8 billion, and we are tracking over 40 opportunities that are over $100 million each, which will continue to drive growth in our backlog.

Our operating profit was $40.4 million in the first quarter, which yielded a margin of 9%, up from 8.1% in the first quarter of 2008. Key drivers of the strong margin performance were increased direct labor contribution in the quarter combined with lower-than-anticipated material pass-throughs.

Based on the significant operating margin, our first quarter net income was $24.5 million. This translated into diluted earnings per share of $0.68, which was up 19% over last year's first quarter earnings of $0.57 per share.

Turning to the balance sheet and cash flow metrics, we saw a significant increase in the DSOs due to delays in several large receivable collections expected to be received in the quarter. While those collections did not occur in Q1, they have been received in April. Our completion of the DDK acquisition also added $14 million in borrowings in mid-March.

Overall, trends within our customers appear to be causing delays in payments compared to last year's experience. This is caused, in part, by more lengthy review requirements imposed by our customers and their auditors. Going forward, we are expecting DSOs in the mid-70-day level, which will still allow for cash flow conversion during the year of at least 75% of net income.

As of March 31, the Company had $9 million of cash, $95 million of debt, and an equity base of $709 million.

Our anticipated cash conversion performance for the remainder of 2009 will allow us to pay down our debt and provide additional flexibility to fund future acquisitions.

As George mentioned, we have a $300 million credit facility with an accordion to $400 million that provides significant expansion capacity to grow our revenue and earnings base going forward.

At this point, we want to provide you with greater detail about the material procurement component of our revenue base.

In addition to expected delays and to timing of purchases during Q1 from our Countermine and MRAP support efforts, we were further impacted by reduced procurement volume on a number of other Army programs. This was due to the customers delaying or deferring material procurements late in the first quarter while the DOD reviewed their priorities and funding plans from the supplemental appropriations and their mission focus.

As stated in the past, our procurement activity is driven by various customer requirements and supplier dependencies and carry with them heightened variability and uncertainty. These material flow-throughs are non-fee bearing and do not drive significant returns to shareholders, but they are one component of how we support mission needs for our customers.

Material procurement has always been a subordinate and complementary component to our core service offering. The primary component is our labor-based services. We place heavy reliance on our customers' labor requirement indicators as we continue to experience upward demand for labor service support of mission requirements.

It is important to note that the number of military systems we support and armored vehicle counts remain high, which reinforces our expectation of continued growth. We have every expectation that increased procurements will take place in the second quarter and during the second half of the year. Nevertheless, we acknowledge the potential for future delays and have adjusted our revenue targets for the remainder of 2009 to reflect these uncertainties.

Turning now to our financial outlook, we have provided our initial second quarter 2009 guidance and revised our full-year 2009 guidance in our earnings release.

Our second quarter 2009 revenue guidance of 480 to $510 million represents 3 to 10% total growth over last year's second quarter. We are forecasting an operating margin of between 8.65% and 8.85%, reflecting the strong demand for services, as well as the variability of pass-throughs.

Our net income range of 25.7 to $26.7 million results in earnings-per-share guidance of $0.71 to $0.74 per share on weighted-average shares of 36.15 million. This represents 15 to 19% growth over last year's second quarter earnings per share. This guidance assumes net interest expense of 150,000 in the second quarter and a 39.2% effective tax rate.

Our revised full-year 2009 guidance, which does not include any future acquisitions or divestitures, of between $2 billion and $2.075 billion, represents a 7% to 11% revenue growth from our 2008 full-year results. This guidance implies organic growth of 5% to 9% in 2009.

I would highlight that the entire reduction at the low end of our guidance range is driven by more conservative material pass-through estimates given the greater variability of timing and demand for requirements on these programs. $75 million of the $100 million change is related to our Countermine, JERRV, and RSC contracts.

We are forecasting operating margins of at least 8.65% for the full year 2009, which is up from the 2008 operating margin of 8.2%. We estimate our 2009 net income to be 105.5 to $108.9 million, which results in earnings-per-share guidance of $2.91 to $3.01 per share based on weighted average shares of 36.2 million. This EPS range represents 15% to 18% growth over 2008 results of $2.55.

Our guidance assumes $450,000 of net interest expense in a year -- for the year and a 39.2% effective tax rate.

While we have adjusted our guidance to reflect current projections, ManTech's addressable market remains strong.

The earnings power of our core service business was evident this quarter as our strong operating profit growth and net income growth continued.

Our strong margin profile of the business is sustainable given the labor growth we have produced over the last several years and expect to continue during the remainder of 2009.

We are closely monitoring our open positions, hiring success, and retention initiatives. Currently have over 500 open requisitions.

Our annualized turnover rate was 19% in Q1, and we have begun to see some positive indicators of sustained improvement in retention. We believe our efforts to limit turnover are paying off, and our focus on recruiting will help us meet our labor growth goals in 2009.

Going forward, ManTech continues to focus on mission-critical markets while remaining diversified across the intelligence and DOD community. We have invested in and enhanced our business capture process to ensure we are optimally aligned with our addressable market. This will allow us to fully exploit our existing contract and personnel talent base while targeting resources in our opportunity pipeline. We believe these strategic decisions will allow ManTech to deliver the long-term growth that is our cornerstone.

With that, I will turn the call back over to George to conclude our prepared remarks.

Thank you, Kevin.

I would just like to reiterate my view that the total market for technology and the type of sophisticated services that ManTech [inaudible] provide to the government will not likely to decline; it will grow.

I have said it many times before -- I see our growth continuing for the next several years and our revenues and profits increasing, as they have over this past year.

Finally, we look forward to continuing to execute our mission in support of our nation, our customers, and our employees, and you, our shareholders, and to accomplish it with pride.

Now, we would like to take any questions that you may have. Thank you.

Thank you. (Operator instructions)

And we'll go first with Joseph Vafi with Jefferies and Company.

Afternoon. I guess maybe we could just kind of talk about the visibility on the ODCs. Obviously, they're pretty low margin, but here we are about a month away, a month through the quarter, and I know you were talking about some delays. Have you actually seen some of that ODC flow reemerge from the Army at this point?

It's Kevin. I'll provide the response in two parts.

First is on the in-theater operations for Countermine and JERRV. As we had mentioned, we had expected flow of ODCs to come through in the quarter that were delayed coming out of Q4 of '08. Those orders were placed, and they were just later deferral of receipt of those goods than anticipated. So in that arena, we are seeing a slight pick-up.

Having said that, the various customers we support in theater are planning for and addressing a repositioning of some of the systems that they have, and we felt it cautious to reduce the overall expected flow of ODCs until we have better visibility on when and how those systems will be positioned.

Having said that, the number of systems we support is growing, the number of personnel supporting those systems is growing, and we expect to continue to see long-term growth in the acquisition and purchases in those systems.

On the other programs, RSC and programs of lesser size, basically, there was a disruption within the customer sets for procurements of the evaluated buys. We're seeing some of the requirements pick back up. Having said that, though, we're being cautious about the timing of those plans and the receipt of those materials more weighted of the second half of the year, but we are seeing a greater level of activity within our customers to reprocure or begin to purchase and process for some of those ODCs.

Okay, that's helpful. So just to be clear, it sounds like the number of units or vehicles that you are supporting in Iraq and Afghanistan continues to climb; it's just right now a function of just reviewing some of the programs and then looking at the spares inventories? Is that the way to look at it?

Yes, the spares inventories and the timing of positioning or repositioning of some of those systems within the two theaters of operation.

Okay, that's helpful.

And then if we kind of added, say, 40 million bucks onto the quarter in revenue and maybe a modest amount of operating profit coming from some of those delayed ODCs, would you care to guess where that operating margin might have fleshed out in the quarter, Kevin?

Roughly between $700,000 and $1 million of additional return, or two pennies. So we would've had about a $0.70 return based on the absorption -- not the fee but the absorption likely to have been picked up on those material buys.

If I do the math, that sounds like about an 8.5% operating margin or something like that?

Correct, roughly.

Okay. And then just some of these delays that you were seeing here on the ODC side, has that rippled in anywhere in the rest of the business in the Army kind of reevaluating any programs that you saw in the quarter kind of on the direct labor side?

Well, what we saw was the disruption on a number of Army programs for the ODCs but no disruption on the amount of service requirements within the customer sets, and we supported these customer sets for quite a while and expect to continue to support them. So we haven't seen a redirection of priorities or funds on the service side of it, and as they've completed their review, we expect, again, to have more of a pick-up on the ODC flows that historically have supported these customer requirements.

Okay, that's helpful. And then maybe just one last one. I know you're not obviously looking out to next year yet in terms of guidance, but if we're seeing less ODCs this year on the contract, would that potentially mean next year that if we did see a pullout from Iraq and maybe less volumes on MRAP and JERRV that maybe whatever headwind that might have been might now at this point be a little bit less than it might've been if Q1 had come in as expected?

Yes, on the headwinds; however, I would say that we're seeing increasing amount of requirements on the newly awarded SOCOM program. We expect the number of systems that we're supporting in the theaters or operations on the Countermine and JERRV to continue, as well. And, as in the past, if we see any changes in that visibility of the requirements, we'll let you know, but we see this more on a timing issue with our customer sets versus a requirements issue.

Okay. Thanks a lot, guys.

And we'll take our next question from Michael Lewis with BB&T Capital Markets.

Thank you very much for taking my call. Two questions for you, Kevin -- first, Kevin, please.

If you look at the revenue guidance and compare it to last quarter's full-year number, you did say 75 million of the reduction was the responsibility of Countermine and RSC; is that correct?

Correct.

Okay. So that leaves us with about 25 to $50 million left. Can you kind of talk us or walk us through what -- where that weakness is and what else is going on there?

It is, again, related to the ODC flows on the other programs within the Army. We have a number of customer sets outside of RSC, outside of Countermine where we historically have provided support, whether it's the C4ISR systems, operations centers, supporting of additional requirements within their buildings, and things like that that were disruptive.

And, again, we see those buys supporting the services and the customer requirements picking back up in the second half of the year. But we wanted to be cautious about the catch-up on that and the timing of that given that we have a new disruption, a new pattern here, and we wanted to make sure we have better visibility on the timing of those procurements and the upside before we communicate any upside on it.

Okay, so just so I understand this, you're basically saying that the core business, ManTech core business, has not been impacted whatsoever, no other weaknesses as related by the guidance that you put out; it's just in relation to the low-margin pass-through ODCs over in Iraq and Afghanistan?

Correct. The services drivers of the business, the other core business, we still have a significant amount of opportunity. We've had, as an example, this month and last quarter over $80 million of incremental awards in the cyber security program that are going to be expanded. We see some good business opportunities in our core business going forward.

That's helpful.

George, just one question for you. One of your larger competitors on their call last week said that they had witnessed an unexpected drop-off on a few of their [intell] programs, and I guess my -- the logical question here is are you witnessing any weaknesses in any of your current portfolio of contracts? And if you could just comment on that?

I don't think we're seeing any drop-off on the intell side. I think we see, again, some shifting and changing. I might ask Mike here if there's anything you have seen on the intell side.

No, we have not seen any drop-off, and we see intell requirements increasing as we do preparation work for some of the activities in Afghanistan and the continued activities in Iraq.

Okay. Then just one follow-up to Mike, actually.

Mike, if you look at the utilization of the cyber operations business, is it higher today than it was, say, this time last year based on the number of employees that you have in the mix now? Can you talk to us about the trends on utilization of your employee base right now in the cyber effort?

It's Kevin. I'll try to answer that. I don't think we have an improved -- or increase in the utilization. What we do have is an increase in the amount of requirements that we are trying to support.

Again, there's a lot of incremental and future growth in the area, and our goal is to get training, get the people trained, and we've got training programs in place to expand the number of qualified personnel supporting these high-growth areas, but the utilization itself hasn't really changed.

Okay, thank you.

We'll take our next question from Bill Loomis with Stifel Nicolaus.

Hi. Thank you. Just looking at the delays outside the 75 million, can you just help us to understand the pattern that RSC is going to have through the year from the 22 million first quarter base?

Bill, we're projecting a flat carry-forward on that RSC number at 22 to 23 million a quarter until we have better visibility on the customer buys and habits in that one because we have over 10 locations that we support in a number of areas. In that one regard, we want to have better visibility on what their requirements are.

On the other programs that I mentioned -- as an example, the operations centers -- I think we have better visibility on those activities picking back up in the second half of the year, and that's why we built that in.

But specific to RSC, we're showing that at about a $90 million total for the year and at the bottom end of our range.

And then on the SOCOM contract, you told us what JERRV and Countermine combined will do for the year in your projections, but how about SOCOM? What kind of revenues -- from the $16 million you had in the first quarter, how do you see that tracking through the year?

It's going to grow. We've got a $90 million total expected for the year on the bottom end of our range for SOCOM, and again, as those requirements flesh out, we'll provide you any upside on that.

Okay. And then just one final question on DDK. What kind of revenues are in your assumptions for second quarter in the year on DDK?

Roughly $3 million a quarter.

3 million a quarter?

Per quarter, 14 annualized.

Okay. Thank you.

We'll go next to Ed Caso with Wachovia.

Hi, thanks. Just following on that last one, how much did DDK contribute, both in revenue and earnings, in the first quarter?

It was insignificant.

I mean -- Ed, it's Joe -- we closed the deal March 13, so you had two weeks of contribution there, so likely with the revenue and the cost associated with the deal, it was kind of net-neutral.

And what's the expectation for accretion for the year?

A penny.

And can you go a little bit more into the DSOs, the 89 days? How many days relate to DDK? How many days relate to money that showed up shortly thereafter? Kind of walk us back down. I think I remember the old assumption was at 70 days, and now you're saying mid-70s; do I have that correct?

That's correct. Okay, let's take about a $75 million collection target as the baseline. About 45 million of that is related to delays in receipts on large programs that we had to work on with the customer to help them review the invoices. We've got that process nailed down, and that was recovered, and we expect that those amounts will start being normally recovered during the course of the -- going forward.

Specific to the first quarter, we had about $10 million of additional receivables that were based on the timing of some of the ODC flows. We had mentioned the ODC flows would be more back ended in the quarter based on the timing and the shutdown and the end of Q4. Because of the timing of the receipt, we could not bill that out because we [inaudible] invoices from the vendors. I'm giving a lot of detail here, but I'm trying to lay it out.

The balance of that is collection areas where, in general, we think some of the timing of that is going to continue forward and push us into the mid-70 days, but we're going to continue to focus on collections and recovery and process around that. But, again, there's just more focus and review by the government that's taking longer. It's the same amount of activity they have, but it's just taking longer, and we're trying to help them through that process.

Question for George. These delayed decisions by the Army and then so forth, how much of that relates to the change in strategy or partial change in strategy by Secretary Gates? How much is it the Obama administration sort of telling the Defense Department to sort of slow down things? Can you give us some color behind just the sort of -- you know, why they're reviewing everything now?

I don't think that the slowdown has to do with the Obama administration telling somebody to slow it down, but I think this is a logical pause as they shift from one battlefield to the other, but I don't think there's any talk of the activity really declining.

Indeed, the most amazing thing is this supplemental they're talking about of some $83 billion, that over the past 48 hours has allegedly grown by another 12 to $15 billion. And the Army has $45 billion of that $83 billion, 18 of it -- $18 billion for O&M and $13 billion for products.

So I think once they get their strategies straight, they will execute effectively and they will begin to buy things and it'll move forward.

Any update on the COO search?

Yes. We continue -- KornFerry has come in, and we've interviewed so far four individuals. We like the field of people they're showing us, and we're going down the road, and we'll find the appropriate individual in a reasonable time here, but we like what we've seen.

Great. Thank you.

We'll go next to Tim Quillin with Stephens, Inc.

Good afternoon. I just wanted a quick clarification, and I think you've touched on this a little bit, but in your press release, you talked about the key guidance assumptions, one of which was the growth in the cyber security business development pipeline.

Now, is that -- is the assumption there that there's going to be new opportunities that present themselves in the cyber arena that will translate into new awards later this year that impact revenue? And what -- if possible, can you quantify what the assumptions are there, as well? Thank you.

Sure, Mike here. As George mentioned earlier, we do see, as the 60-day review is completed and some of the other government activities are put in place, an acceleration in not only the CNCI opportunities but other cyber opportunities, as well. And so we have been tracking over $600 million in opportunities in 2009.

We believe that a lot of these opportunities are going to be focused in the intelligence agencies where we are best positioned to be able to capitalize on those activities, as well as in other areas where we currently support customers, including Department of Homeland Security and DOD and civilian agencies. So we're pretty excited about the activities going on with the government, and we believe that it'll lead to new opportunities for us.

And in terms of the Countermine and SOCOM, [RG3133] contracts, I think that, at least in my eyes, the [GOD] and Secretary Gates has become a little bit more inclined to view those as longer-term parts of the tactical wheeled vehicle fleet. I mean do you have -- are you getting any increasing clarity on what your business might look like in a couple of years?

That's a hard one. The only thing, as I said, I think prior to the election, the assumption was that the United States would be withdrawing from the region, withdrawing from Iraq, and I don't think we've seen that. I think they're being very cautious and very disciplined in what they do in their planning for Afghanistan, and wisely so. So I think they're taking a pause here.

They know they are going to go. They know in general what they're going to do, and they're going to lay it out and try and do it right. But they're going to spend a lot of money no matter how you look at it.

And, Tim, it's Kevin. I'll add, you know, we still see, based on customer requirements, double-digit growth in the number of systems that are being fielded and supported, and our labor requirements near term and over the course of the year are reflecting that. And we do believe that they're going to become more institutionalized, and we are seeing some activity around supporting training for MRAPs within the US, as well. So it's becoming more institutionalized.

And the last think I note -- this is Joe -- is I think that you're seeing the alternative derivations of the types of vehicles that also are logical extensions into the contracts we already have. So we as the support contractor for either TACOM or SOCOM, whatever fleets of vehicles or types of vehicles come onto their purview, we will be supporting those through those contracts. So, in theory, I think we agree with you, Tim, that the timeline seems to be extending the more we look out into the future in terms of the viability of these programs.

Great. Thanks, gentlemen.

We'll take our next question from Gautam Khanna with Cowen and Company.

Thank you. Guys, how can you be sure that -- what gives you confidence, I should say, that it is a function of timing, not demand with respect to the slip on the Countermine and RSC? If I recall, the Countermine contract reads that they're going to try to insource more material over time to the Army itself. I mean what assurances do you have now that we're four weeks into the second quarter that [inaudible - technical difficulty]? How do you see the profile for the year?

Gautam, we have not seen -- we know that there's a intent by the customers to begin over time insourcing materials, and from the levels of requirements that we've seen in terms of the number of systems, the timing of them, being able to do that, all our visibility is pushing that sometime in the 2010 windows; material buys may occur.

So we don't see the current disruption or uncertainties about the material buys being driven by that more than the repositioning of systems. Having said that, if we get better visibility, we'll certainly let you know, as we have said in the past.

Have lead times on this program -- on both programs, RSC, Countermine -- JERRV, have they shortened to the point where you have -- if you can compare how the visibility on that program has changed versus even a quarter ago?

You're saying the lead times for requirements?

Correct, for your deliverables.

Yes, I think that the amount of support that we provide for the customers, the visibility's been fairly constant. It's been more of a timing issue on the ordering and the ability, the dependencies on the suppliers to get the parts procured, to get them in theater, and get them received within the areas that we're in.

So I don't see any change in the visibility around that more than the timing, and that's why here, when we're talking about a reduction in the ODC flows, it's more related to the positioning or repositioning of systems and how that might disrupt the timing of purchase requirements for the customer set.

Please remember something else. The MRAPs have become a program of record. It is now a unit that they must have and [inaudible]. And we are positioned to service these vehicles no matter where they are, whether they're in Iraq, Afghanistan, back here, Kuwait, someplace else. The key issue is these systems will require -- because of the investment, will continue to require service, and we are the ones that will do that.

Yes, I mean that's actually a good point, George. I guess what I've been trying to get at is there's a piece of this business that's recurring in the aftermarket [inaudible]. There's a piece of the [inaudible] dependent. And we know that after the OE component is declining, so a lot of the MRAPs have --

We lost your question.

Sorry. There's an OE piece of the business. There's a aftermarket component to the business. To the extent that the aftermarket is more of a recurring operational [tempo]-dependent demand given requirement, I understand that that's sort of steady. I guess what I see is -- what I'm wondering about is the original equipment [inaudible - technical difficulty] are coming at a declining pace.

Is that the reason we saw a decline into the quarter? Because if I recall, you look at Navistar's backlog, they basically were supposed to be mostly done by the end of February in terms of delivery, but [inaudible]. Is that kind of the source, the OE side of [inaudible - technical difficulty]. Do you have visibility on what's actually --

Hey, Gautam, it's Joe. Gautam, you're cutting in and out, so we're having a hard time picking up the question that you're trying to ask. I know it's about the OEM versus the aftermarket sustainment and the visibility, but if you can repeat one more time and you can pick up the phone or get off the speaker if you're on speaker, that'd be great.

Okay, can you hear me now?

Yes.

Okay, great. What I was asking was if -- there's two components, right? The OE and the aftermarket piece.

Yes.

If you look at the backlogs of the MRAP [primes], it appears as though most of the deliveries will be completed by the February timeframe. And what I'm asking is is the slowdown you saw at the end of the quarter more a function of the OE side of the business declining versus the aftermarket piece? And if so, then is there going to be a gap until kind of the next batch of MRAPs come to the field?

Kevin, I'll try to answer that. I do not believe that it's related to the OEM piece of the business. I think that the bulk of the materials that we purchase are for [route] clearance vehicles, and I don't --

Those haven't been --

Yes, I see those more as continuing sustainment of the systems in theater or the amount of materials that are required, the timing of the repositioning. We do have some requirements to support the MRAPs in terms of the procurement, and that may actually increase, but I don't think that it's related to the timing that you're talking about.

Thanks.

But we may have to follow up and get more clarity for you offline.

Thank you.

(Operator instructions)

We'll take our next question from Mark Jordan with Noble Finance.

Good afternoon, gentlemen. Can you talk a little bit more about the cyber opportunity? And in terms of the 600 million business you're tracking, is this building on existing relationship, new? And if it's -- and are you replacing existing service suppliers to add your service, or are you -- do you see these services being layered on top of the people that are already doing what used to be called, I guess, information assurance work at the potential customer?

Yes, hi, Mark. Mike here. We actually see a lot of new opportunities, and as we mentioned earlier, particularly within the intelligence community, which is really where we provide some real leading capabilities across the cyber security spectrum. So we see not only new opportunities in that space but also takeaway opportunities.

Now, we do also support those activities, again, in Department of Homeland Security and DOD and some civilian agencies, and we are targeting within that 600 plus million a number of takeaway opportunities.

In addition to that, we do see growth on existing contracts, as we always do. We continue to receive new task orders in, again, the core areas that we provide leading skills and [capabilities].

If you're trying to quantify what is new that's coming to the marketplace here as [inaudible] CNCI study and what is new that is going to be deployed and required over the next 24 months versus what has been in the marketplace today?

Yes. Of the 600 that's in the pipeline, I mean the majority of it is new for 2009. We have been tracking over $15 billion of CNCI opportunities, and as George had mentioned earlier, we believe that the results of the 60-day review is really going to show that the CNCI needs even more expansion, which is going to grow the potential opportunities out there over the next couple of years.

We're going to -- we think that the intelligence community is really going to be kind of leading some of the early opportunities here in 2009 and then will grow into the organizations that provide defensive capabilities in 2010 and beyond, such as DOD and VHS, and we have similar pipeline opportunities in 2010 and beyond for those markets.

Okay. Final question, if I could, just looking at sort of the Countermines, your package. If you were looking at the first quarter at 94 million, is it possible to break that down as to what percent of the 94 million is ODC and what percent is higher-margin ManTech-supplied labor? And does that ManTech-supplied labor component change much through the balance of the year?

It's Kevin. We generally don't provide that mix, but I would say that we are having an increased amount of requirements on the labor portion supporting the [Countermine] program because the MRAPs that have been positioned in the theater have a higher labor requirement than an ODC requirement. So we should see an uptick comparatively in the overall margin returns on the program.

Okay. Thank you.

And that concludes today's question-and-answer session. I'd like to turn it back over to our speakers for any additional or closing remarks.

Again, we appreciate your time and thank you, and we look forward to seeing you out on the road here in Q2.

Thank you for participating in today's conference call. This call will be available for replay beginning at 9 PM this evening through May 13, 2009. To access the replay, please dial 1-888-203-1112 for domestic calls, or 719-457-0820 for international calls, with an ID number of 8146922. This concludes our conference for today. Thank you all for participating.