ManTech International Corp (MANT) 2009 Q2 法說會逐字稿

Good afternoon. My name is Jamie, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the ManTech Second 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 Corporation's Second Quarter 2009 Earnings Conference Call. My name is Joe Cormier, and I am Senior Vice President of Corporate Development. Leading today's call from ManTech is George Pedersen, Chairman of the Board and Chief Executive Officer; Larry Prior, President and Chief Operating Officer; and Kevin Phillips, Executive Vice President and Chief Financial Officer.

In our prepared remarks, George will discuss our strategic outlook; Larry will discuss operational highlights and outline his areas of focus in his new role; and Kevin will detail our Q2 results and growth outlook for 2009.

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 second quarter financial results, which were strong. The results from the second quarter support ManTech's track record of delivering significant returns to our shareholders.

Revenues grew by 11%, while expanding operating margins produced 21% growth in our operating income. Our bottom line net income and EPS grew at approximately 30% over last year's second quarter. At the same time, we were able to significantly improve our cash collections, which generated approximately $100 million in operating cash flow and allowed us to be net cash positive at the end of June.

As a reminder, our 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 last year, and once again, we have paid down all of the debt relating to those acquisitions. We continue to enjoy a clean balance sheet, driven by over $100 million of expected free cash flow annually and our untapped $300 million credit facility. This represents an important strategic asset in this tight credit environment.

We will use our financial capacity for the right strategic opportunities to supplement our organic growth. We believe our track record, performance, and integration of previous acquisitions has made ManTech an acquirer of choice for mission-driven national security companies.

As all of you know, the Supplemental Spending Bill was passed at the end of June with over $106 billion appropriated. As a reminder, when this process began, Secretary Gates said the Department of Defense originally requested $60 billion, which was increased as the bill took shape and ultimately provided the DoD with significantly more funding than originally requested. This included $80 billion of war funding and over $10 billion for the State Department and Foreign Operations, which are all customers that we support.

All of these funds must either be spent or obligated by the end of this fiscal year, 30 September. This leaves a small window of time for the Department of Defense to utilize these funds, which should drive significant dollars to existing contracts and increase overall award activity in this sector. Given ManTech's position and priority national security programs, we stand ready to support our customers as they allocate funds and execute on their missions.

Finally, before I end my remarks, I wish to formally introduce Larry Prior, our new President and Chief Operating Officer. We are extremely pleased that Larry has joined the team, and we have been impressed with his focus, his leadership, and vision for ManTech. We conducted a rigorous search process that had a number of qualified candidates, and Larry was clearly the best person for the opportunity, based upon his background, his accomplishment, his energy, his leadership, and his dedication to the national security mission. I look forward to partnering with Larry and continuing to build ManTech into a premier mid-tier national security firm.

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

Thank you, George. Before I get into the discussion of operational highlights and second quarter results, I wanted to share my insight for continuing ManTech's success and what drew me to this opportunity.

ManTech's mission-driven culture and its courage and commitment to its national security customers is a clear market differentiator that will give the ManTech team a competitive advantage. Whether we're supporting CENTCOM in its theater or supporting State, AID, and the intelligence community globally, ManTech's technical depth in cyber computer network operations is a clear competitive advantage, and we will leverage this for growth.

ManTech has wonderful deep domain expertise and counter-narcotics support in border security, and I've been impressed with ManTech's technical depth, engineering talent, and global logistics capabilities to support our nation's smart power initiatives as well as arms control threat reduction.

Additionally, ManTech is very well positioned for the government's increased intensity on managing OCI--organizational conflict of interest. While this new law is a real threat to many of the large prime contractors with CAT-A programs, it also provides SETA support. It is a very real market opportunity for ManTech, and it opens up the playing field considerably for our Company to compete.

Our Board of Directors and our balance sheet are both best of class in our market. We have a Board with great depth of national security expertise and business acumen, and we have a balance sheet that offers us a lever to substantially grow. George's leadership, entrepreneurship, and passion for creating cash is just a wonderful catalyst for growth. We will build on the work of the last several years to give ManTech the platform to grow with both management discipline and talented leadership. It's a great team, George, and I'm proud to play a role.

Now that I've been on the job for a whole three weeks, my initial impressions are limited by a 50,000-foot assessment. But there are three areas I plan to focus my attention on in our second half. First and foremost, top line revenue growth.

Second, I'm focused on our people and the retention of our talent. I view our turnover rate as having a lot of room for improvement, and I'm going to challenge our management team to improve this metric. I want our leadership team to think about people first as they start each day. We will spend time on proactively developing and redeploying talent to lead the growth we expect in the second half and in 2010.

Third, in order to support this future growth, I'm committed to improving our program execution which, by the way, is already pretty darn good. I'm very interested in how we can improve program start-up with a disciplined ramp-up and preparation even before we win a new award. As I look at the number of proposals ManTech has submitted that are awaiting decision, as well as what we've got in the proposal center today, this is a great area of focus for management attention in the second half, and it will be essential to our growth.

Now let me shift to the quarter. Q2 was a strong quarter for ManTech. Revenue and earnings both exceeded our expectations due to increased demand for our global mission-driven services and continued strength in our operating margins. In fact, our margins expanded by over 70 basis points compared to last year's second quarter.

As you saw from the release, our bookings in Q2 were $422 million. We had anticipated a lighter Q2 for awards, but we also expect the second half to benefit from increased decisions by our customers and additional DoD appropriations, which George detailed. They'll both increase bookings for ManTech.

One positive indicator from the second quarter was the new business and add-on segment of the bookings--80%--which will help drive organic growth in the future. I would also point out that a large value of the expansion came from our classified and cyber contracts--in fact, over $250 million. We have noted in the past the importance of cyber, and this metric continues to be very positive for ManTech.

Our qualified pipeline currently stands at over $13 billion, and our current bids outstanding to be decided in 2009 total over $1.3 billion. The proposals outstanding are much larger than ManTech's historical levels due to our expanding opportunities, but it also reflects the delays in decisions in the RFP process that's been caused by the delay in the Supplemental and the overburdened acquisition workforce, both of which are now picking up speed.

That said, as decisions are made in our favor in the second half of the year, it will provide a base for solid organic revenue growth in the second half of 2009 and, more importantly, give us a solid foundation as we enter 2010.

Turning to talent management and specifically retention, the voluntary turnover year to date has improved to 17%, and we continue to see some positive indicators of sustained improvement in retention. My goal is to improve this metric every year, but I need some time with the team to get to more granular metrics and work the details. And I'll have more color for you in the Q3 report.

We recruit and we hire well at ManTech. We've got a great HR team as well as excellent compensation and benefits. We need to build on this going forward.

There are two areas of program execution I'd like to highlight today. First, our cyber security offering, led by Alex Nieves and Tiffanny Gates. Alex is also the President of our newly formed Cyber Solutions International subsidiary, CSI, and their team just released a new product, Crowbar. We believe we are the preeminent company supporting computer network operations for cyber security. This involves highly classified contracts under well funded programs related to the CNCI.

As an example, we mentioned that in this past quarter, over $250 million of our bookings came from cyber and classified contracts. One contract with a lead intel agency for CNCI has seen expansion of approximately $200 million in bookings since its inception just last year, which will help fuel our growth over the next several years. It is because ManTech has demonstrated our competency in program management capabilities that we received the additional contract value, funding, and responsibility. I commend Alex and Tiffanny and all our cyber professionals for their technical depth and their domain expertise, and I really look forward to working with this team in the future.

The other example I would highlight is in our Technical Services business led by Lou Addeo. As many of you know, we have critical global logistics contracts supporting the United States Army in the Counter IE mission, which directly protect our troops. Through our route clearance and MRAP-related contracts, ManTech has a great team led by Kevin Cody. And this team is responsible for the supply chain on behalf of Tank and Automotive Command's fleet of vehicles and systems. Our performance against the timelines for readiness of the vehicles runs at over 90%, which is a great accomplishment given the complexity of executing a mission.

Today, we touch roughly 5,000 systems, and we expect the systems base to grow by double digits through 2010 and into 2011, which will allow for continued growth in revenue on these programs.

Based on our focus in mission-critical markets across the intelligence and DoD community, we are very well positioned for continued long-term growth in both revenue and earnings. As a result of the demand we see across our contract base, we have increased our 2009 revenue guidance, and with our strong margin profile, we have significantly increased EPS guidance, both of which Kevin Phillips will detail for you in a minute.

In closing, I look forward to adding to the great success and legacy George and the team have already built, and to work with them to take ManTech in the future to its next level of growth.

With that, I'll turn the call over to Kevin.

Thank you, Larry. Revenues for the quarter were $514 million, representing 11% total revenue growth, with 8% coming organically for the second quarter compared to last year's second quarter revenues of $465 million. Our largest programs, Countermine and JERRV, generated $132 million in revenue in the second quarter, while SOCOM generated $24 million and RSC was also $24 million.

Additionally, our revenue from cyber-based contracts increased significantly over last year's second quarter and represented 7% of revenue. Our contract type mix also continues to contribute favorably to margins, with 68% coming from contracts billed on a time-and-material basis, and 12% from fixed-price contracts; 20% of revenues came from cost-plus contracts in the second quarter.

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

Our total backlog was $3.89 billion, up 13% over last year, and funded backlog was $971 million as of June 30. As Larry mentioned, our qualified pipeline currently stands at $13 billion, and we are tracking 40 opportunities that are over $100 million each, which will continue to drive growth in our backlog.

Our operating profit was $44.9 million and grew 21% over last year's second quarter. Our second quarter operating margin was 8.7% and was up 70 basis points from 8% in the second quarter of 2008. We had strong margin performance resulting from increased direct labor returns as well as improved contract execution across our business space.

Based on this significant operating margin and a lower-than-anticipated effective tax rate of 36.1%, our second quarter net income was $28.5 million. The tax rate was lower than estimated due to favorable fluctuations in our deferred compensation assets, as well as a gain related to state income taxes. This translates into diluted earnings per share of $0.80, which is up 29% over last year's second quarter earnings of $0.62 per share.

Turning to the balance sheet and cash flow metrics, we saw a significant decrease in DSO due to outstanding receivable collections during the quarter, which resulted in exceptional cash flows of over $98 million. This impressive cash flow allowed us to reduce our debt and build cash by the end of the quarter. As of June 30, we had over $33 million in cash and $20 million of debt we had locked into, resulting in a net cash position of $13 million.

As a reminder, we have no long-term debt. Our conservative cash management and discipline around collection has allowed us to leverage up for acquisitions. We have a proven track record of paying off our debt. It is core to our culture. This uniquely positions ManTech in today's credit environment to have ample flexibility to complete sizable strategic acquisitions and fund continued organic growth through available debt capacity and future cash flows.

We are very pleased that we were able to improve our DSO within the environment requiring more lengthy reviews by our customers and their auditors. Given the variability resulting in increased customer reviews, we anticipate DSOs to run in the low to mid 70-day level during the remainder of 2009. Based on this target and our first half cash flow of $67 million, we anticipate cash flows for the year to be over $100 million, approaching 100% of net income.

Turning now to our financial outlook, we have provided our third quarter 2009 guidance and increased our full-year 2009 guidance in our earnings release. Our third quarter 2009 revenue guidance of $525 million to $555 million represents 8% to 14% total growth over last year's third quarter. Our net income range of $27.8 million to $28.8 million resulted in an EPS guidance of $0.77 to $0.80 per share on weighted average shares of $36 million. This represents 15% to 20% growth over last year's third quarter earnings per share. This guidance assumes net interest expense of $100,000 in the third quarter and a 38.8% effective tax rate.

Our increased full-year 2009 guidance, which does not include any future acquisitions or divestitures, of between $2.025 billion and $2.1 billion, represents 8% to 12% revenue growth from our 2008 full-year results and reflects our improving visibility into customer requirements after temporary disruptions that occurred in Q1 moved behind us.

We estimate our full-year 2009 net income to be $109.2 million to $111.7 million, which results in EPS guidance of $3.03 to $3.10 per share based on weighted average shares of 36 million. This earnings per share range represents 19% to 22% growth over the 2008 results of $2.55. Our guidance assumes $700,000 in net interest expense for the year and a 38.2% effective tax rate after the favorable tax treatment in Q2.

Going forward, ManTech continues to focus on mission-critical markets while remaining diversified across the Intelligence and Department of Defense communities. We are invested in and enhanced our business capture processes to ensure that 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 and our opportunity pipeline.

We believe these strategic decisions will allow ManTech to deliver the long-term growth that is our cornerstone.

With that, we will be happy to answer any questions you may have.

(OPERATOR INSTRUCTIONS.) And we'll take our first question from Ed Caso with Wells Fargo Securities.

Good evening. Welcome, Larry, to the team. I guess my question, one of the focus areas here is cyber and intel, yet you have this other issue coming about in the market on in-sourcing and we've heard chatter that, particularly at the CIA, it's seeking to pull inside some of their people. So can you help reconcile growth, your desire to pull down voluntary turnover, and the in-sourcing phenomenon?

So, yes, Ed, and thanks for the welcome. When you look at what the agencies have been doing over the last couple of years, CIA under General Hayden's leadership did purposely in-source. We've seen them back away from a little bit of that over the last half. Now, we still expect that they will for real core requirements. I think in-depth analysis is an area they may pull it back in. But it's lessened, and it hasn't had a significant impact on ManTech.

I think a lot of the in-sourcing energy you're going to see in OSD is around acquisition support, where Shay Assad is very driven to bring in things like program analysis and costing. And again, we've got very little exposure to that.

Now, on the other hand, we've seen a lot of growth in cyber, and I mentioned the increase, both in our revenue growth as well as a burgeoning pipeline. So I think the Administration recognizes how important industry plays in cyber and we'll continue to play aggressively there.

George, any thoughts on the QDR that's coming out in the last few days. They're talking about flat budgets, flat real budgets in the next five years. Anything you can offer from a services perspective?

Well, as you know, the budget that they're proposing to put together, while Chairman Murtha's committee has put a budget in of $636.3 billion, I think the Administration asked for $640 billion, so they didn't really modify that a lot. And the proposal is that there will be no future Supplement. I think the conventional wisdom in town is those are good words, but next year we will have a Supplemental by perhaps some different name. And I see the budget continuing to grow.

I think the important thing is that Chairman Murtha has gotten a bill completed in the House, and in fact, he expects it to be done by Friday. The Senate will address it when they come back. But I don't share the view that the budgets are flat or will not go up during the year.

Last question. Kevin, the new cyber effort and maybe some other things that may be going on--will this lead to license fees and therefore more volatility in the future in the margins?

It's Kevin. I'll speak to two parts to that. On the cyber activities, the growth in our contract awards, it will not create volatility, but it will certainly provide us good growth opportunities going into the second half of this year and into next year. The potential for licensing has some upside, but the variability of that is something just we'll have to wait and see if we have a lot of success. But for now, no.

Thank you.

And we'll take our next question from Joseph Vafi with Jefferies and Company.

Hi, guys. Good evening and great results, and also my welcome to Larry here on the ManTech team.

Thanks, Joe.

If you could start with some of the work in theater. I think we all saw this really large award on these MRAP type vehicles being awarded to Oshkosh. I think we've heard some chatter that maybe they might be doing some of the maintenance on those vehicles themselves. But any insights that you might have on how that, the tempo of all those extra vehicles being added to theater might benefit or affect your operations over there?

Yes, Joe, this is Larry. When you think, first and foremost, with Secretary Gates adding 22,000 soldiers to the United States Army, it's to help sustain the growth, the expansion, and the deployment patterns for Afghanistan. When you think of those soldiers operating there, the Secretary of Defense is going to want them protected and will want the vehicles to do that, all of which need to be sustained.

We see growth in that area, and it basically takes us into 2010. It starts bridging us to 2011. And I think that's been a significant factor, as Kevin and George reported out the change in our guidance.

Now, obviously, we've got that up for recompete towards the end of 2010, but we see it as critical to the nation's security when you juxtapose that instability in Afghanistan right next to Pakistan and Iran. So continued commitment on this Administration. Those soldiers will need MRAPs, and we'll play a significant role in sustaining that growth.

Okay, but any commentary on that Oshkosh order specifically at this point, or is it something that's being thought about, or how you think it might play out?

It's Kevin. I would just say that we still see a double-digit increase in the number of systems that we're going to be supporting in theater, regardless of the vendor. And there are tiers of maintenance support. ManTech is very well positioned to provide first- and second-tier level support, and our customers are increasing their demand for our services in those regards.

Okay, that's helpful. And then just maybe one more question on the bookings numbers, and I think you might have hinted to it, that you just got a little bit better visibility in theater now, but you had a nice increase to the guidance here for the rest of the year. If you can maybe bucket that between the in-theater work and maybe some of the cyber intelligence work and some of the other work and kind of where the upturn, how much you might attribute the guidance increases to each of those buckets?

Yes, in terms of the Company as a whole, I think that all parts of our business are going to start expanding and seeing good growth in the second half of the year based on the cyber awards, based on the in-theater expansions, based on the potential for ODC flows in the second half of the year related to Supplemental. Now, we see moving to 10% organic growth in the second half of the year, excluding the in-theater of operations. We'll certainly continue double-digit growth in the in-theater operations as well. So I would say it's in all areas that we see. And given the amount of awards in the second quarter that were new or add-ons, that's going to significantly help us support that growth in the second half.

All right. Thanks. Very good. Thanks. Good quarter, gentlemen.

Thank you.

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

Hi. Thank you, and welcome aboard, Larry. Just looking at the, on the margin component, where do you see the--obviously, you gave the guidance for the year--but what do you think the drivers are in terms of margins, keeping the margins up so high if we take away the Countermine and SOCOM contracts? That's one point or question.

Then the second question is, just to be clear, getting that $132 million is, that's the number to directly compare with the $94 million in the first quarter, and then the $24 million is directly compared with the $16 million in the first quarter?

That's correct. It's 94 to 132 and 16 to 24 and RSC, 22 to 24.

Got it. Okay. And then, just on the margin piece, kind of back out, can you give what the margin is if we back out SOCOM and Countermine, and how are you able to maintain that so high?

Sure. Outside of those two pieces of business, our margins are running about 9.8%. The reason, as has been in the past, is we're very focused on mission-critical support. When you look at the types of work we do, whether that's cyber-related business and growth, whether that's supporting C4ISR, we're in areas that continue to be in demand for our services, and that provides us the opportunity to bid and retain and grow our business in higher-margin areas.

And can you see that continuing to go forward? You're not seeing any other type of margin pressure as far as customers, federal customers pushing back or anything like that?

We see a mix of margin pressures as well as margin opportunities based on the types of work that we have, so I don't see any decline based on the environment today, but I'll let Larry add to that.

Yes, Bill, I do expect that it will be more competitive, but ManTech's got a fairly competitive set of wrap rates. One of the things that really contributed was our DL's improved, our direct labor. So whether it's year over year or sequentially, it's improved for us. And then just utilization. People in a down economy tend to work harder, and our team's really been pitching in to build the business.

Okay, thank you.

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

Hi. Thank you very much for taking my question, Larry. Like everyone else, welcome aboard. A question for you, though, Larry. You had stated in your prepared remarks a comment about OCI. And I was wondering, where are you anticipating some of these opportunities? Do you think there's going to be some significant M&A opportunities within the next 12 months? And more specifically, where do you think ManTech will focus most of its attention in opportunities there?

Great question, and I'd recommend to everybody to take a look at the Weapon Systems Acquisition Reform Act of 2009, and really look at the OCI Section in 207. And what it lays out is you're going to be on the advisory or the performing side, especially if you've got CAD-A programs. So for all of the large primes that have a CAD-A programs--so think of the largest production contracts--they've got to get out of the SETA business. So that's the open playing field.

Now where we're going to start with each of our business unit presidents, as well as Shawn O'Brien on our BD team, just get out there on the playing field and compete for business. And we're seeing real leadership in this venue by the National Reconnaissance Office. We're seeing real leadership on the part of several agencies. They're cleaning this up very quickly.

So out of the gate, we're just going to bid and compete for more business, and it creates interesting teaming possibilities for us. And you're right; over the next couple of years, many of those large primes are going to have to unbundle, and they're going to have to probably disgorge units. And with George's record of great cash management, strong balance sheet, we'll, of course, be competitive in that venue as well.

Okay, thank you. And just one more question. Some of the commentary in the release--I was hoping you would address in a little more detail some of the cyber activities that you're seeing which are basically coming in better than what you had expected, and what management has planned for over, say, the last six or 12 months, and where do we think the trajectory outside that one large IC program, where you see the increase of bookings of about $200 million over the past year. Can you talk about other areas that you're seeing opps?

Well, you can tell that I'm walking a tightrope here as I try to give some color and some depth to our competitive ability in the cyber market, realizing it's sensitive, a lot of it's classified, and we care more about our customers' confidentiality. But given that, our pipeline really continues to expand, and it's about $800 million in 2009 remaining, and that's up significantly from last quarter. And then when you look at our pipeline for next year, it's a multiple of that. So we're seeing this Administration taking it seriously, add resources to the budget, and with the team's ability to walk across computer network ops, both defense and attack and exploitation, we're competitive in everything, whether it's intel, core DoD, or starting to think about other agencies of government.

For example, we just won a recent award with the Department of Agriculture. So that's where we're doing the ability to do development and implementation for cyber security support for those folks, and that's a more expansive market than most people think.

So while we're 7% of our revenue today, we think, under George's leadership and the team we've got, we're going to break that 10% growth goal fairly quickly and have it as 10% of our overall business much faster than we thought.

Thank you very much.

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

Hey, thanks for taking my question, and welcome, Larry.

Thank you.

No problem. One quick one on the guidance, maybe for Kevin. It looks like sales guidance was taken up $25 million. Countermine guidance specifically is up $55 million from what your expectations were last quarter. If you could fill in the blanks on RSC and the JERRV SOCOM work so we can figure out, was there anything with respect to the rest of the business, where your expectations came down a bit? Any recompete losses of size on the top line? And then working down to the bottom line, it looks like the tax rate guidance is now a percent lower, so that adds a nickel; it would be in the quarter by $0.06 off the top of your guidance. So how should we think about that $25 million sales raise in the context of all this stuff and what the incremental margins are on that $25 million? Thanks.

Okay. Good questions. In terms of the minimums again, we did adjust 465 on SOCOM. We think about $90 million, still, based on this run rate as a minimum. And RSC went up from the $90 million we previously provided as a minimum to about $95 million based on the bump-up in some of the business.

We don't have any other businesses that have been dropping off. We're trying to make sure that we provide for, as we have in the past, any uncertainties around the ODC flows in other parts of the business to come up with the lower end of our range.

Having said that, we've maintained a wider range, even though there's less quarters in the year remaining, because of the variability in the upside and some of the flows.

In terms of the margins and returns, we're projecting somewhere around an 8.7%, slightly less than that, margin for the second half of the year because the mix and the demand is an even mix in the labor as well as the ODC components, and we want to account and represent both of those. Very strong business, very strong upside in services as well as the ODC mix.

And for the second quarter--and I think that's one of your questions--when you take the tax impact out, our earnings per share from the core business, from the business itself, would have been about $0.76 per share, and that was above the range as well. So the business is very solid. The growth is coming from the cyber arena, C4ISR arena, the Countermine, and in-theater operations as well. So we're excited about the opportunities across the board.

Okay, and just if I could follow up, I think Larry made some comments about 2010. I know it's early, but how should we think about the requirements for Countermine JERRV in '010 based on what you can see now? Do you expect it will be slightly up, or do you expect to start winding that down in '010? Thanks.

It's Kevin again. As we said, we see a double-digit increase in the number of systems that are being fielded that we're supporting. We do not see a decline in the number of systems in Iraq. We do not have any indication that the requirements to support that theater of operations is going to decline. Yet, at the same time, there's an increasing amount of systems that we're supporting in the mini-bases that are receiving systems in Afghanistan. So for the material component as well as the labor component, we still see continued demand. We see a higher growth in the services component of the business, which has and will continue, we believe, to drive up some of the margins in that area overall. But we do not see any decline in that requirement for 2010.

For 2010. And then, would that also apply to RSC and to the SOCOM JERRV as well? Do you (inaudible)?

It applies to SOCOM JERRV. The RSC is more spotty, because we have so many locations that we support, both in INCONUS and OCONUS, it is less contingent upon OPTEMPO in some of those centers. So I do not have the same recommendation or belief on RSCs, but that's a to-be-determined component.

Thanks.

And we'll take our next question from Tim Quillin with Stephens, Inc.

Hey, good afternoon. I'll be the first jerk and not welcome Larry aboard. With regards to Countermine JERRV, Kevin, it was all pretty substantially 2Q versus 1Q, and then you have, you're assuming it's going down in 3Q. Was there some kind of catch-up on the ODCs in 2Q?

Yes. About $10 million of that was the timing of the receipt in theater that we had anticipated in Q1, and we just don't want to use that as a run rate estimate until we have visibility above the 120.

Okay. And how do I square that conservatism with two things--the increase in the number of systems and, two, the fact that you have this pending new tasking from TACOM regarding MRAP support for Afghanistan? Shouldn't both those drive an increase in revenue in the tail end of the year?

Yes, but they will primarily be services-based. The materials component of this top line is heavily driven by the Countermine support versus the MRAP support. And the requirements there and the amount of materials that we buy are very much contingent upon the use of those systems. And we don't want to build in additional ODC flows until we have the visibility of what systems are fully being fielded in Afghanistan or route clearance activities.

Sure. And at this point, is there any way to size up the opportunity in terms of service or the headcount that would be required to support the new taskings in Afghanistan for MRAP support?

When we mentioned about the double-digit growth in the number of systems that are being fielded that we're going to support, that services component of our business will trail with that. So I can't give you a specific headcount other than to say that we have over 900 people in the Iraq and Afghan theater, and we still see double-digit services growth to support those systems.

And it's double-digit growth that we expect to see as we're going into 2010, bridging us to 2011, realizing we've got to recompete, but the sense of urgency on the part of our customers and the growth they'll need to support their soldiers, we think it's apparent we've got transparency, and it catalyzed Kevin and George to think about changing guidance.

Okay, good. And just lastly, there was a new contract award at SPAWAR award for C2 integration support, a contract you share with SAIC. What is the opportunity there? Is that ramping up now, and how will that business grow for you? Thank you.

I think Bob Hayes and the team did a great job of working the Tactical Comm's proposal. And it's a recent award. It will really allow the two of us to go head to head. So we went from a sub position to a competing prime. So it has pretty good growth potential for us. I would expect, given the summer to get up and running, it to start to contribute towards the latter part of our second half. So it should be positive for us in Q4.

Brilliant. Thank you.

And we'll go next to Brian Kinstlinger with Sidoti and Company.

Great. Thanks very much. The first question I have is can you tell us roughly how many MRAP or MRAP-type vehicles right now you are supporting?

It's over 5,000.

Over 5,000. And then I'm curious. You talked a lot about intelligence and the bookings there. Can you give me a sense for what percent of revenue intelligence is right now, and/or how many top-secret clearances you have?

We generally don't provide the percentage of revenues coming from intelligence customers, but if you look at our staff, about 75% of our headcount--or staff, I'm sorry--have secret clearances, and about 41% have top-secret or above.

Great. Can you give us a sense for what the labor market is like there? Obviously, everyone has that many, and there's not that many obviously floating around. So give us a sense for what salary increases are like there with the, how long it takes to hire someone and get some of these clearances right now? That would be helpful. Thanks.

You also have to remember that with the amount of folks retiring or leaving the military after tours in Afghanistan and Iraq, there's always a labor pool that's available in this area that have a lot of experience in intelligence, some of it military-based, some of it agency-based. So that it's really gotten better, I thought, the last couple of years in terms of your ability to recruit and retain intelligence professionals in our industry. So the average days to close is not significantly different from what we see in many of the other job categories that we have.

Now, the customer traditionally has paid kind of a higher wrap rate because you'd have better benefits and fringe for many of these employees. So we're keeping an eye on that. But so far, I think it's not something that's stressing ManTech or any of our peers.

And can you also give us a sense of what your growth plans in terms of maybe headcount is for the second half of the year and where you are right now?

Sure. This is Kevin. We have over 130, roughly, net adds, and we expect, based on the demand and the people in the pipeline right now, to have 300-plus additional adds, and we're well on our way to do that based on the growth in staff.

Did you give your total headcount? I'm sorry, did you give your total headcount at some point today? I missed it.

We're a little over 8,000 today.

8,000. And you mentioned attrition, which I'm not sure you have in the past. What was it last year if it was 17% this year?

In terms of our voluntary turnover, year to date it's 17%. Last year we were at 20%. So there was year-to-year improvement, and that's even with the stress of in-sourcing where the government is probably the greatest source of where our voluntary turnover goes to. So we've improved year to year, and we'll continue to try to do that.

And you talked about retention being so important. How much will be something such as paying more or increased benefits that could all could impact you guys?

It varies considerably, and I've spent a lot of time looking at people-first projects in the past. And first you have to understand the core business model. So ManTech has greater weighting in terms of its mix of time-and-material contracts, and they generally will have higher turnover than cost-plus contracts with heavy scientific backgrounds.

Second is, remember the population of 1,000 employees in Iraq and Afghanistan. They generally have higher turnover. So we need to dial it into the appropriate business model. But what I've always seen works is for first-year employees, make sure you're onboarding well your first 30, 60, and 90 days. And then for employees after the first year, can you give them a sense of how well the Company's growing, and by God, ManTech can do that. And then second, career development and some hope that they can stay with one company for a longer period of time.

So we'll look at all those aspects and try to appropriately dial in the right retention goals for the Company.

Thanks. And the last question I had, you guys have made a lot of small acquisitions, obviously, in cyber. I'm curious, now that you're in a net cash position and talking about acquisitions, outside of some of that OCI opportunities that may come, where else might you look to make a move, and what size acquisition might you be thinking about?

Well, we traditionally look at companies in the $50 million to $300 million revenue range. And as we've said before, we will not buy sales. It has to bring new technology, new people, new customers, sometimes new geographic locations. We are tending to stay within the marketplace that we have had--the defense, intel, Homeland Security, FBI, more and more some of the agencies that are dealing with border security. We look periodically at other elements of the federal marketplace, and we may modify it. But for the moment, our focus is the area that where we have grown. Remember, we've come from $500 million to $2.1 billion sticking in this space.

Great. Thanks very much, guys.

And we'll take our next question from Peter Arment with Broadpoint Amtech.

Yes, good afternoon, or I should say good evening, George, and welcome, Larry, of course. A lot of questions have been asked. Could you--you mentioned, though, last quarter, that you were tracking over $600 million in the cyber-related opportunities. Is that now what you just quoted as $800 million?

Yes, it was. So that was just kind of quarter-to-quarter growth as we're looking at our qualified pipeline, and it's going up this week, going forward into the 2010 pipeline.

Yes, and you mentioned that it was a multiple of that for 2010. Could you--is it just all in the same core areas that you've mentioned previously on the intelligence? Are we seeing any other change within the other parts of the government?

I think both. So if you think of the core agencies employers, they're deepening their offering and their understanding. So think of the study that Melissa Hathaway put forward. In parallel to that, they created a Cyber Command. General Alexander's going to get his fourth star. A lot of energy around DISA we'll be doing as well. So there's greater depth in those core agencies. But then it's broadening with more interest in energy, with DHS and many of the other entities in the federal government.

When you see them start off with a $17 billion budget, it's being obligated and you're seeing them start to put the proposals to get ready for the next edition in 2010 and 2011. This is one that's got real legs to it, and all of industry needs to respond with a great team to deliver on this.

And it sounds like you're not being constrained from the labor perspective.

We will at some point in time. Your core technical competencies around forensics and the deep understanding of cyber is a limiter, but because there's such a concentration of that talent at ManTech, it is a great lever for us when we look at teaming relationships for this qualified pipeline.

Okay. And just Kevin, just quickly so I understand the, just bookings a little bit better, should we still expect, though, bookings for the year to be above one?

Yes. We are targeting to be above one. Having said that, we have more new and incremental add-on business that will help to support growth regardless. But we do expect to be able to be above one and we're targeting that.

Okay, great. Congratulations on the nice results.

And we'll go next to Erik Olbeter with Pacific Crest Securities.

Hi, guys. Larry, welcome aboard. Two questions. One is relating to recompetes. Could you brief us on any pending recompetes over the back half of the year?

Yes, Kevin. I'd say that we don't have a significant amount of recompete risk. Less than 5% of our revenue in the second half is at risk. And there's a lot of those that have been pushed to the right. And so we have very little risk for the remaining balance of this year.

Okay, great. And a number of other companies, multiple (inaudible) product companies, are reporting that in end of June, they saw what they thought was some of the budget flush coming a little bit earlier than expected, and to your comments, George, talks about the government having a significant amount of excess cash dedicated to IT that hasn't been spent. Have you seen any of that roll through your income statement? Do you expect that this is going to be on the sales line, that will be a significant driver your 3Q?

It depends on how quickly they move on this money. It takes a while. As you know, it has to make several stops, OMB and elsewhere. It will come, and they have to spend it, but I can't predict for you right now exactly when. But it will be there.

Great. Thank you, guys. Great quarter.

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

Good afternoon, gentlemen. You had mentioned in the presentation you had a $1.3 billion bids outstanding that you expected to have resolution on in the second half. Does this total also include options of long-term programs that could be exercised, or is that another increment of potential new order fill?

That's another increment.

Could you quantify it?

I really couldn't. When you look at, we're always looking at what we've got in terms of single-award contracts. We then layer on what we think about multiple award and what task orders may be from it. But there's some outstanding opportunities, and one that many of you have highlighted is SITE, which is an IDIQ follow-on to DIESCON 3 at DIA. It's not in the number. So we're very competitive for an IDIQ like that with A-Space. My God, you know, everybody wants us. So that should be a competitive advantage. It should have a high-P win. It's not in that number.

Okay. Last quarter you talked about $600 million worth of cyber opportunities in the second half. You also mentioned that you'd had some good bookings in that area in the second quarter. Is there still that, those $600 million in opportunities still part of that $1.3 billion?

Mark, yes. Over $600 million of that opportunity is cyber related. A lot of activity in that regard, a lot of opportunity.

Okay. Final question. Relative to M&A, you've obviously been very underleveraged for six months or more. The fact that you haven't pulled the trigger on an acquisition over that last six months, has it been a function of pricing, or has it been a function of not having the appropriate property out there?

It is not pricing. It is the appropriate property that meets our criteria. And, as you know, we've been very diligent not to go outside of our box. So there are opportunities out there. We do look at them, but it's not a pricing issue.

Thank you.

(OPERATOR INSTRUCTIONS.) And we'll return to Bill Loomis with Stifel Nicolaus.

Hi, thanks. Kevin, just on--did you say, first of all, 9.8% on the non-SOCOM, non-Countermine, non-RSC margin? Did I hear that right?

Yes, correct.

So they take that out, it looks like the other remaining three contracts had a pretty sizable increase in margin, both sequentially and almost 200 basis points, and quite a bit over the year-over-year. What's the main driver there?

If you look--I think you have RSC and SOCOM in there as well. But speaking to the in-theater support, as we said, we have an increasing amount of services supporting the systems being fielded. That has increased the overall returns on those contracts and programs, and it's the primary driver of the delta that you're talking about. So we have over a 5% return this quarter on the Countermine JERRV programs, whereas historically, it was running between 4.0% and 4.5% and starting to bump up.

And Bill, there will always be sensitivity to ODCs, but when you look at the ramp in Afghanistan and around those contracts, quantity has a quality all of its own.

And was there any other one-time items? Because even if I boost that margin up a lot higher on Countermine, it's still giving me a higher margin for the rest of the business. So was there any time of award recognitions or anything unusual in the quarter?

We had a slightly higher amount of award fees than usual in the quarter based on our performance or contract performance, yes.

Okay. Thank you.

We'll return to Gautam Khanna with Cowen and Company.

Kevin, just a quick follow-up on the cash flow guidance for the year. Did you say it's going to be $100 million free cash and then--?

Yes.

Okay. And how does that split? Normally Q3, or Q3 has typically been a big quarter. You had a big quarter in the second quarter, so how should we think about the split?

What we need to think about is that the third quarter, based on the DSOs potentially rolling back up to the low 70s, is going to be below the net income level, positive but below the net income target, whereas Q4 will be much stronger based on getting back up to the run rate. So it's lighter in Q3, heavier in Q4.

Thank you.

You have to consider what Kevin and his team have done with the receivables. You know what the industry has gone through over the past months on the new regulation, new procedures. He didn't fight it. He made our systems compliant, and he and his team did an outstanding job.

And thank you. That does conclude our conference, today's question-and-answer session. We do thank you for participating in today's conference call. This call will be available for replay beginning at 9 p.m. this evening through August 12, 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.