ManTech International Corp (MANT) 2010 Q4 法說會逐字稿

Good afternoon. My name is Ruthie, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the ManTech fourth-quarter 2010 earnings conference call. Today's call is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (Operator Instructions).

Mr. Davis, you may begin your conference.

Thank you, Ruthie, and welcome, everyone. My name is Stuart Davis, and I run strategy and communications here at ManTech. On today's call, we have George Pedersen, Chairman and CEO, and Kevin Phillips, Executive Vice President and CFO. We also have members of our senior team, including our three Group Presidents, available for the question-and-answer session.

During this call, we will make statements that do not address historical facts and are thus 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.

For a full discussion of these factors and other risks and uncertainties, please refer to the section entitled Risk Factors in our latest Form 10-K and our other SEC filings. 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.

Good afternoon, and thank you for participating in today's call. Before I speak to our financial results, let me address the issue of a possible government shutdown.

We have had discussion today with members of the Congress and members of the staff, trying to get some indication of where this issue stands. We do not believe that it is necessary that they will absolutely shut the government down, because both sides are working hard to reconcile the fiscal year '11 budget differences. We do not think that a shutdown is guaranteed, but it is a very complex issue.

In the unlikely event that this occurs, there's a lot of discussion of the exemption of people on site who are providing mission-essential services here and around the world. As you know, our mission support focus is the main component of our business, and we believe that we will continue to support our customers broadly.

Additionally, we are very strong financially and see nothing that would stress the Company's financial position.

Turning to the results, as you can see from today's release, 2010 was an excellent year for ManTech. We had double-digit growth, strong profitability and excellent cash flow.

For the quarter, revenue was within our implied guidance, and profitability and earnings were above the top end of our guidance as a result of strong revenue growth, cost controls, as well as excellent award fees. In addition, cash collections were better than in any fourth quarter that I have seen in all my time in the business.

There's a lot happening on the budget and acquisition front, so let's get right to it.

We are in a time of fiscal change here in Washington. We are still operating under the continuing resolution, a CR, through March 3. Defense Secretary Gates is lobbying hard for a core defense bill of $540 billion, compared to fiscal 2010 enacted level of $526 billion.

Last week, the House passed an omnibus spending bill with cuts to domestic spending requests. Even with these cuts, the House increased core defense spending in their bill by 1.6% to $534 billion.

The Senate refused the House cuts as too steep, so it is not entirely clear where we will wind up. We see the most likely scenario as another short-term CR, and then a final resolution, with defense up 1.5% to 2.5% and all other appropriations being continued at FY '10 levels or below.

Earlier this month, President Obama submitted his proposed budget for fiscal year 2012. The proposal calls for a base Defense Department budget of $553 billion, which will be about a 3% increase over the likely FY '11-appropriated amount.

Proposed funding for overseas contingency operations is $117 billion, down about $40 billion to reflect the withdrawal from Iraq. In aggregate, all the other appropriations are flat, demonstrating the administration's commitment to national security programs.

The President also calls for growth of about 2.5% in the base defense budget in each of the next four years. Our initial analysis of the 2012 request shows that command, control, communications, computers, intelligence, surveillance, reconnaissance -- our business, or C4ISR -- and the cyber programs are receiving an increasing share of the overall budget.

We have also observed recently that as the budget realities take shape, the DoD is retreating from insourcing policies. We expect the government will continue to turn to industries that control civilian hiring in order to address out-year budget demands.

Turning to mergers and acquisitions, we have completed two acquisitions since the last call. In December, we acquired MTCSC, which has a franchise position integrating Marine Corps C4ISR systems. The Marine Corps will increasingly require advanced integrated C4ISR systems to address emerging global expeditionary warfare challenges. MTCSC is also a Defense Information Systems Agency prime integrator for the information assurance [test streams].

We expect to generate double-digit growth off their 2010 revenue base of $85 million.

Earlier this month, we acquired TranTech, which gives us a prime position on the DISA ENCORE II contract. The Company did about $15 million of revenue providing network engineering and operations, as well as information assurance services. We expect that we will be able to leverage the $12 billion ENCORE II contract and generate at least $60 million in annual revenue within the next few years as we help DISA and the US Cyber Command and other elements within the DoD to protect and secure defense networks and information.

Overall, we are very pleased with our M&A progress. Over the past 13 months, we have utilized just under $400 million on four acquisitions that provide ManTech new capabilities and coveted contract positions with the US Army; Communications-Electronics Command, CECOM; the Missile Defense Agency of the Marine Corps; DISA; and the intelligence community.

Results to date from the acquisitions have been outstanding, and we have still just scratched the surface of the pipeline of new opportunities that made the companies attractive to us.

Our recent acquisition positioned the Company for a larger market share of the core DoD, intelligence and other agency requirements that are not directly tied to ongoing overseas contingency operations.

Looking forward, acquisitions will continue to be a part of our growth strategy. We will enhance our national security core, as well as look to extend our current discriminators such as cyber security into adjacent markets.

We have a robust pipeline of potential acquisitions in the $50 million to $200 million revenue range. We are optimistic that we will be able to complete additional acquisitions over the next year. And we believe we have the financial capability to do so. We know we have the financial capability to do so.

We will reach $3 billion in revenue this year. Our robust organic growth and demonstrated ability to acquire smartly will get us to $5 billion over the next several years.

Now Kevin will provide you details on our financial performance and our forward outlook.

Thank you, George. Our financial performance in the fourth quarter was very positive across the board. Revenue was within guidance, and net income, earnings per share and cash collections were all above the top end of our guided ranges as a result of strong and sustainable performance.

Quarterly revenues of $698 million represented 29% total growth above last year's fourth-quarter revenues of $542 million. For the year, revenues grew to over $2.6 billion, up 29% overall and more than 10% organically.

Excluding the impact of reduced material purchases supporting route clearance and MRAP contracts, organic growth was 15% for the quarter and 18% for the year. This growth reflects strong customer demand and our positioning in the other missions and customer markets we support.

Breaking down the components of growth, the S3 contract continued to be a real driver, with about $227 million in the quarter, up $162 million from last year. The $750 million in S3 awards from last quarter have largely ramped up and will contribute to growth for at least the next year.

This contract was recently extended to 2017, and it gives us an excellent platform to address the growing C4ISR market.

Other growth drivers were consistent with previous quarters. Cyber, test and evaluation, systems engineering and ISR business areas were large contributors for the quarter and the year, and, along with our other business, they should all continue to drive our growth going forward.

We believe that we are well positioned in critical customer markets.

The MRAP and route clearance support contracts contributed $138 million in the quarter, which was up $14 million from last quarter, but down $45 million from the fourth quarter of 2009. This drop-off was exclusively in material purchases, which come with no margin. Direct labor and profit continue to grow on these contracts. For the year, the MRAP and route clearance support contracts contributed $537 million, which was down $61 million from last year.

All together, our in-theater support was roughly 30% of 2010 revenue. Going forward, we expect the in-theater support to continue to grow over the next few years, but at a slower rate than the other pieces of our business.

Revenue from opportunities within the acquired business of S&IS, MTCSC and TranTech should grow even faster.

We saw an increase in the percentage of work as a prime contractor. It now stands at 79% of revenue, up from 67% a year ago. Contrary to the DoD's current acquisition guidance, we actually increased our level of time and material contracts for the quarter.

The Army continues to find T&M an appropriate arrangement for many requirements. For the quarter, 64% of revenues came from T&M contracts, 20% came from cost-plus contracts, and 16% came from fixed-price contracts.

Operating profit was $58.9 million in the quarter, up 24%. Operating margin was strong at 8.4%, with a relatively high mix of direct labor and a continued focus on strong cost controls.

G&A for the quarter ran at 6.8% of revenue compared to 8.1% for last year's fourth quarter, despite the fact that we added $3 million in depreciation and amortization as a result of our recent acquisitions.

We are lean and cost-competitive in today's market, and we continue to aggressively review our indirect infrastructure for efficiency and appropriate prioritization.

For the year, operating profit was over $215 million, which represented an 8.3% operating margin, above our original guidance of 8% for the year.

Net interest expense for the quarter increased by $3.7 million compared to Q4 of last year as a result of the $200 million of senior notes issued in April. Issuing the notes was a strategic decision to enhance our long-term growth through acquisitions. And since the issuance of the notes, the Company has used about $155 million to complete three accretive acquisitions.

With an in-line effective tax rate of 38%, fourth-quarter net income was $34 million, up 15%, which translated into diluted earnings per share of $0.93, up 13%. Without the additional interest expense from the debt offering, net income would have been about $36 million and earnings per share would have been about $0.99.

For the full year, net income was $125.1 million, up 12%, and diluted earnings per share was $3.43, up 10% from 2009.

Now, on to the balance sheet and cash flow statement, we had a tremendous fourth quarter from a collections perspective, with operating cash flows of $69 million or 2 times net income, and a DSO of 67 days.

Operating cash flow for the fiscal year was $171 million or a 1.4 times conversion ratio on net income. So what we are earning we are collecting, and what we are collecting we are deploying profitably and, more importantly, continuing to use our acquisitions to create excellent market positioning.

In the fourth quarter, we invested $135 million to acquire the S&IS business and MTCSC, leaving us with $85 million in cash and equivalents at the end of the year. In February, we spent another $20 million to purchase TranTech.

We discussed the S&IS financials and valuation on the last call, so let me update you on MTCSC and TranTech. Both acquisitions came at reasonable valuations, about 9 times trailing EBITDA. As we integrate these companies, we see their profitability as consistent with our own. For FY '11, both companies should generate double-digit growth.

Taken together, the returns in 2011 from the S&IS, MTCSC and TranTech acquisitions should fully offset the incremental interest expense from the $200 million debt offering. Succeeding years should be even better as we continue to deploy cash toward accretive acquisitions that will provide double-digit growth and margin expansion.

Our cash discipline and earnings visibility have allowed us to leverage up for acquisitions, and we have a proven track record of paying off our debt. With $200 million in long-term debt and no borrowing on our $350 million revolving credit facility, we are well positioned to use our balance sheet to grow the Company and shareholder value through strategic accretive acquisitions.

Turning to the business development, bookings for the fourth quarter were $257 million for a book-to-bill ratio of 0.4. Q4 bookings were affected by contract award delays and protests, as well as customer concerns about the continuing resolution.

Even though bookings were below expectations for the quarter, for the year we won $2.8 billion or a book-to-bill ratio of 1.1 times, with the average contract term for 2010 awards being shorter than historic levels.

In addition to our 2010 bookings, we had positive contract developments for new multiple award contracts and existing contracts during the fourth quarter. First, the S3 contract was extended through 2017, and the customers expressed that they intend to use the full duration in sealing the contract.

Second, we were a major partner to SAIC on the Vanguard II program with the Department of State. As our prime begins work on this program, we expect to have a strong participation and opportunities that will flow through this contract over its 10-year life. The win was not included in our Q4 total because the award was protested. But the protest has been resolved, and the award will be booked after the subcontract has been finalized.

Third, we won two major multiple-award contracts -- FBI ITSSS, and Marine Corps CEOss. Both contracts have long terms with large ceilings and support important and growing customer sets in the areas where we have real capabilities.

I would note that the CEOss contract award came through the MTCSC acquisition and the efforts of the great team we now have on board. This award adds to the already-strong set of opportunities available to us through this combination.

Fourth, the Army is reconsidering its position on one of the awarded regions under the ILSS procurement, and we've been granted an extension on our existing work within that region through midyear to continue support for the program.

Award activity has picked up significantly thus far this year, with about $700 million in bookings to this point, including a $488 million bridge contract for our MRAP and route clearance support. With the recompete now scheduled for an adjudication in November, we expect to realize the entire amount of the bridge contract in FY '11.

We also have strong capacity on existing task orders awarded under the S3 contract to support customer requirements as other contract awards may be delayed due to the continuing resolution.

Backlog at the end of the quarter stood at $4.9 billion, which was up 30%. And funded backlog was $1.6 billion, up 47% since Q4 of last year. These figures compare favorably with our history in terms of visibility into the coming year.

Our total qualified pipeline at the end of the year was essentially unchanged from the third quarter at $25 billion, as was the dollar volume of bids outstanding at $2.6 billion.

On the people front, 2010 was a phenomenal year for recruiting, as we added nearly 2200 employees to help support our customers' missions. We ended the year more than 10,100 people and continue to grow our staff. Voluntary turnover for the year was 18%, with improvements to our run rate during Q4.

As part of those hires, I'm especially pleased to have Judy Bjornaas on the team as my deputy. Many of you have worked with her in the past and can appreciate the contribution she is making to the financial planning and analysis activities of the Company.

The Company continues to hire critical talent necessary to help achieve our goal of $5 billion in revenues and expand our positioning as a midtier government services provider critical to our customers' missions and needs.

Turning now to the forward outlook, our guidance for fiscal year 2011 is consistent with the preview that we gave on our last call. With a healthy backlog and a strong market position, we expect to achieve revenue of at least $3 billion, which equates to about 15% growth.

To give a little more insight into that number, we expect about $500 million for in-theater vehicle maintenance support, which is $40 million below last year. We also expect each of the three operating groups to be at or above double-digit growth, with expansions in C4ISR offsetting the declines in vehicle maintenance for TSG, which is led by Lou Addeo; cyber and other security services; and awards including support of our expanded FBI presence driving MTCS, which is led by Bill Varner; and continued ramp on systems engineering as well as for Marine Corps, C4ISR and intelligence driving systems engineering, led by Terry Ryan.

On the earnings side, we expect net income of at least $136 million and diluted earnings per share of at least $3.67, up from $3.43 in 2010. This equates to an operating margin of about 7.9%. We are also assuming a tax rate of 38.4% and a fully diluted share count of 37 million shares.

We will continue to aggressively review and manage our indirect cost structure and target areas for efficiency. Our efforts to reduce the expense associated with various indirect functions and processes resulted in a year-over-year decline in 2010 of our G&A expense, excluding depreciation and amortization. Our objective for 2011 is to continue to drive process efficiencies that will reduce indirect costs and help us ensure that we achieve earnings returns to shareholders.

To help you set the quarterly pattern, we expect our material flows during the first quarter of the year to drop off from fourth-quarter levels, as they have in the past. This drop-off should offset the incremental gains from the MTCSC and TranTech acquisitions.

From there, revenues and earnings per share should grow fairly steadily over the year. Operating margins should be relatively constant over the course of the year.

Although we do not guide to cash flow, we expect to generate cash flow from operations above net income, with days sales outstanding remaining relatively constant. We believe our historic ability to achieve operating cash flows of around 1.2 times net income for the full year will continue.

As you can see, we've changed the manner in which we give guidance to reflect how we operate as a company. Given our market positioning, we believe we will achieve double-digit organic growth from our business. The guidance given is our estimate of what we expect to achieve based on current business and what we can see coming.

Given current market dynamics, as well as continued variability in the customer requirements for non-fee-bearing materials purchases and support of our in-theater route clearance efforts, we don't think it is especially helpful to put a range above that estimate.

Along with our strong market positioning, we have a strong balance sheet and a healthy M&A pipeline to help us meet or exceed our financial targets and grow shareholder value.

I am pleased with the current results and believe that 2011 will be another year in which ManTech achieves strong double-digit organic growth and completes additional acquisitions, thus outpacing the market. With our positioning within new key customers from the recent acquisitions, we are building our presence in growing markets that will endure regardless of current budget battles or operational tempo in Iraq and Afghanistan.

With that, I will turn the call back to George.

Thank you, Kevin. In summary, I'm extremely proud of the contributions made by our more than 10,000 people every day, and I'm pleased with our performance for the year and our positioning as we begin fiscal year 2011.

With that, I'd like to have the three Group Presidents join us to take any questions that you may have. With that --

So, Ruthie, we are now ready to take questions.

(Operator Instructions). Brian Kintslinger, Sidoti & Company.

The first question I had, George, you obviously opened with the talk of a government shutdown. And I'm wondering, on the outside chance or maybe less than -- maybe it's better than that -- that it does happen, what happens to the existing contract base? Do the contracts that are deemed not critical, they completely get halted until there's a budget?

Our legal people have looked at that issue, and the contract is in being. I don't think they have the right to terminate. They would have to terminate pursuant to the changes clause of the contract, and I don't believe that is possible.

Well, instead of terminate, would they have to stop it temporarily until something is in place so the government is back up and running?

I don't think that's the situation. The contract -- I have not heard anyone contemplate terminating contracts. Now, they may come to you and say that your employees are working on a government site and they cannot be at a government site, but we can continue to work on all the programs we're working at ManTech's sites. The contractual commitment is not ended.

I see. And then on the organic revenue growth for next year versus your bookings, right now, obviously, the fourth quarter was a little bit light, as expected. But if we remain in the sort of environment we are in right now, do we expect awards for new business to pick up? And how does that reconcile with the organic growth? Because I think the first quarter, most of that bookings were that $500 million recompete or the extension of bridge contract.

Right. So, if you look at the Q3 2010 awards were very strong and had a shorter duration. We have a good amount of awards so far in Q1 of 2011. And we believe, based on that positioning, as well as the capacity of our existing contracts and task orders, that we can hit double-digit organic growth as the government works through the CR process, and we tried to temper that and build that into our guidance.

And if you could, just on a follow-up on that, what does that assume about the outstanding proposals you have, that there will be some pickup in the first half of the year in contract awards?

The timing of awards should happen in the ordinary course, subject to some delays based on the customer's evaluation of the continuing resolution. That may impact some of the timing of awards, but again, we think we are currently well positioned to support and meet double-digit organic growth (multiple speakers).

Okay. I've got one last question. On the margin outlook, I think you mentioned that it would be relatively even throughout the year. Is the step-down, then, happening in the fourth quarter to the first quarter? Because there's a better contract mix you mentioned, that the hardware passwords are going to drop. But is it that you have certain contracts transitioning away from T&M this quarter? Is that why the drop is happening in the first quarter?

Historically, Q1s have had a little bit of compression on the margins as we get into front-loaded taxes for employees and the lesser [mandates] in the balance of the year. And I think that from our perspective, that is being offset by our strong positioning as we head into the year to make it fairly level.

Thank you.

Joseph Vafi, Jefferies.

Good results. Kevin, it sounds like, with the funded number being up so much here versus a year ago and some of your commentary around guidance, is it fair to say that your guidance is more conservative this year than it was last year?

I believe we are trying to reflect the fact that the continuing resolution may impact some of the customers' decision-making. But we do have strong awards with shorter periods, and we had a very strong deal ramp-up in Q4. So we think on average that our guidance is an appropriate distribution or communication to you.

Okay. And then, assuming nothing out of the ordinary relative to plan on the Southwest Asia contingent business, contingent ops there, can you give us an idea of what percent of revenue and operating profit you expect out of the region?

We don't speak to the region overall. We've had some increase in the ISR business. And as I've said, we ended 2010 with about 30% of our revenue for in-theater operations, of which $540 million was supporting the MRAP route clearance work. And we are expecting the MRAP route clearance business to be about $500 million for 2011.

Okay. And then, let's see -- so on the MRAP recompete, is there anything new that you can provide us with relative to how that recompete is shaping up? It sounds like it is now late this year in term -- anything different in terms of requirements or anything like that on the renewal here?

This is Lou. There's no material differences that we've seen. Schedule is July, and the award is sometime in November of the year.

Okay, very good. Thanks very much, guys.

Tobey Sommer, SunTrust.

This is Frank in for Tobey. Wanted to try and get a little color on G&A. You guys did a great job this quarter. That came down as a percentage of revenue. Can you maybe talk about some initiatives there?

Yes. Broadly, what we were focusing on is, with our systems and processes, making sure that across the entire organization, we are being effective and efficient in how we work in direct processes and the prioritization of staffing.

And it's not a one area of focus; it's a broad set of areas that we contribute and look at collectively to make sure that we maximize our indirect structures while providing good business development and capture support to topline growth. So, no one area of focus.

Okay. And of the $257 million in awards, how much of that was new business?

Hang on a second. Roughly half of that was for new work.

Okay, great. And in terms of outlook on the cyber security and contract opportunities there, could you give us any color in terms of run rate or what you see kind of going into 2011 there?

Well, this is Bill; thank you. We do see tremendous opportunity in the cyber market across the entire spectrum of computer network attack, exploitation and defense. The standup of the Cyber Command last summer was an indication of the administration's growing recognition that cyber security is critical to our nation's security.

We are seeing current opportunities coming from traditional sources such as NSA, the service components that stand up to support the Cyber Command, such as the Tenth Fleet and the 24th Air Force, and federal civil organizations that are increasingly concerned about protecting their data and networks.

You probably saw some of the press releases we issued recently about awards from the FBI that we've received. And we are also excited that our two recent acquisitions will allow us to tap into new portions of the cyber market, specifically DISA and the Missile Defense Agency. So we see very, very positive outlook for growth for the cybersecurity business.

Okay. And the margins in that area, can you give any color there?

It's Kevin. They are going to be customer-dependent, like any other areas. But I would say that generally, based on the demand for the service and the limited number of people who have that expertise, that you can potentially provide a higher level of returns for those efforts.

All right, great. Thank you very much.

Bill Loomis, Stifel Nicolaus.

Good quarter. Kevin, did you say the S3 contract was $227 million in the fourth quarter?

Yes.

So if I take that and the MRAP business out and look at it versus the third or the year ago, it looks like there was a large drop of about 10% year over year and sequentially from about $391 million to $333 million if we take out the MRAP business and the S3 from all the periods. What was the reason for that drop? What fell off?

It's hard to separate S3 contract vehicle itself, because we're ramping up on that vehicle for existing work we have had within legacy ManTech. So it's really hard for us to tell you that it's STI-related, because it's not. What we're doing is take advantage from our legacy business to use that vehicle to take prime positions and expand our business.

That was one of the reasons we were so interested in that acquisition, and that contract's value has really proven itself very strongly.

I'm sorry, Bill; this is Stuart. What number did you give?

If you just take the S3 contract revenues, the $227 million.

Okay, the $227 million, right. That's right.

And then you compare it to the, for example, the third quarter at $142 million and then subtract that and the MRAP business, the rest of the business shows a decline from $391 million to $333 million sequentially. And from what I heard, in this flat fourth quarter, ManTech must have been pretty successful in moving quite a bit of work onto the S3 contract that was done on other vehicles. Is that the right assessment here?

Yes.

And what -- anything fall off in the quarter in terms of recompetes lost? I know you said you're still doing work on global property.

Right. No, we had no significant drop-offs in any recompetes for Q4.

Okay. And then on TranTech, I saw that the ENCORE II contract they had was a small business. Is that the case?

This is Lou. It was, but as in any other ENCORE large to small acquisitions, that contract can move to large.

Okay, so you got that change made with the customer, then?

Yes, we did.

Okay, thanks. That's all I have.

Edward Caso, Wells Fargo Securities.

Kevin, I'm not sure, you may have mentioned it, but what is the interest assumption for next year, or 2011?

You mean sole interest expense?

Yes, please.

It's 15.5%. 15.5%, 15.6%.

Okay. And anything special in the quarter, any -- on either the gross line or the G&A line?

Nothing special in the G&A line. I would say that generally, we had strong deal growth in Q4, decent and good, strong award fees, and slightly less bid and proposal activity in Q4, just based on the volume.

Okay. And one for George. Any thoughts, Egypt, Libya, all that as far as the sort of nervous level and sort of demand level from your clients?

We are not seeing it. We do not have a large staff in that region of the world, so we are perhaps not a good organization to respond to that. We are not seeing a demand for our help and support from our customers.

Thank you.

George Price, BB&T Capital Markets.

I wanted to, just to be clear, what exactly is your assumption embedded in the 2011 guidance with respect to the CR, that there's a shortage -- there is no CR, and then we get a full appropriation? I guess I might not have heard it all, if you could just clarify that.

I think what you're hearing is there is talk of a one-week CR during which time they would negotiate the details of the longer-term CR. But I don't think they have a clear definition at this point in time -- at least I have not heard one -- where both parties agree to what it is they would do, except they both say the same thing; they don't wish to shut the government down.

Okay, so your expectation is basically for a full year under CR?

I don't think that's necessarily so. I think this is a time of change, and we will just have to see how they work it out. But I take them at their word that they don't think the government will shut down.

So I would add that we have provided in the guidance with the tempering note, the CR and its impact, but we think that based on the contract awards that we have and the capacity on existing tasks and contracts that we can hit that guidance number.

Okay. And again, just to clarify, there is no additional unannounced acquisitions in the 2011 guidance?

No.

Okay. And then lastly, can you give the acquired revenue in the quarter?

Acquired revenue in Q4 was in the range of $12 million, if you look at the two acquisitions.

Great. Thank you very much.

Erik Olbeter, Pacific Crest Securities.

Thanks for taking my call, and nice quarter. Very quickly, just looking out through 2011, what's your expectation on material flowthrough during the year? You know, fourth quarter, you mentioned that's the government's -- first quarter of their fiscal year. We're seeing a drop-off in support, or at least dollar support, for the war effort. How should we sort of look at modeling this on a quarter-by-quarter basis?

On a quarter-to-quarter basis, I would start by saying the overall volume, as you know, has gone down and is expected to go down again. It went down $60 million this year -- in 2010, that is -- and it's going down about $40 million, or we are projecting, for 2011. And I think other than some tempering of that seasonality in Q1, it should become fairly level, but it's highly contingent upon mission requirements, which we really can't project.

Okay, but you're not assuming that the fourth quarter of your fiscal year, that there will be some sort of drop-off because of the war spending change and the turn of the calendar on the government's fiscal year?

No.

Okay. When would you -- I mean, I know this is looking out a little bit farther than 2011, but how should we think about sort of that rolloff of 30% of the revenue of the war? Do you expect that to have a material impact over the next 18 months on any of the specific contracts you guys hold?

This is Lou, and I would say no, no material impact.

Okay, great. And direct labor content, you know, great job during the quarter. Can we expect that to sort of inch up in 2011 from that fourth-quarter level as we see the materials start to wane off?

Specific to the in-theater support, or overall?

Overall.

Overall, it should increase. If you look at the contract awards we have, we had a significant increase in DL in Q4 that will trend or continue to trend into 2011. And we should expect an increase.

Great. Thanks, guys.

(Operator Instructions). Mark Jordan, Noble Financial.

A question on G&A expense again. You know, you ranged between about 6.5% and a little over 7% in terms of quarterly percent of revenue. Is that the relevant range for next year as you continue to grow the Company, or can you drive that lower on added volume over time as you've -- it looks like you've taken that down about 150 basis points in the last 18 months or so.

So we are targeting to be plus or minus against the 6.8% range. We've built that into our guidance. Having said that, we continue to aggressively review our indirect structures to see if there is any improvement we can make from that number.

Do you see there's an effective floor that as a percent of revenue you just probably can't get below? Or is that something that, with scale, you can continue to slowly squeeze down?

A lot of that depends on the scalability of the systems that we have and how well we automate. There's obviously a floor; you can't have no indirect staff, despite what the Group Presidents would like. But -- I'm kidding; it's a joke. But at the same time, there are efficiencies that can be gained as we focus on -- and we have been -- on how to automate certain things, how to improve production and add more measures for output.

It's fair to say, Kevin, I assume that we are not likely to hit the floor in 2011?

Correct.

A final question relative to a potential shutdown. I guess historically when this happened in the '90s, the customers would define what was "essential work," and you could continue to work on that, and they did identify, at least in some cases, nonessential work that they didn't give a free pass on. And many contractors worked at risk of payment. It was my understanding that historically, at least, all work and payments were honored after the funding was put back into place. Is that correct?

Yes, to the best of my knowledge, that's correct.

Thank you.

And at this time, we have no additional questions in our queue. I'll turn the call back to our speakers for any closing remarks you may have.

I do appreciate your interest in the Company and appreciate your attendance on the call. Obviously, if you have questions as you pore through the numbers over the coming days, feel free to give us a shout. And we look forward to speaking to you then.

And ladies and gentlemen, this does conclude our conference. We appreciate your participation.