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ManTech International Corp. (NASDAQ:MANT)

Q1 2009 Earnings Call Transcript

April 29, 2009 5:00 pm ET

Executives

Joe Cormier – SVP, Corporate Development

George Pedersen – Chairman, CEO and Co-Founder

Kevin Phillips – EVP and CFO

Mike Kushin – SVP and Chief Technology Officer

Analysts

Joseph Vafi – Jefferies & Co.

Michael Lewis – BB&T Capital Markets

Bill Loomis – Stifel Nicolaus

Ed Caso – Wachovia

Tim Quillin – Stephens, Inc.

Gautam Khanna – Cowen and Company

Mark Jordan – Noble Finance

Operator

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.

Joe Cormier

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

Leading today’s call for 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 revise 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 our forward-looking statements will be 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 10K 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 would like to turn the call over to George Pedersen. George?

George Pedersen

Good afternoon and thank you for participating in today’s call. We are pleased to have the opportunity to discuss our first quarter financial results. The results from the first quarter presented somewhat different profile than we had expected on the revenue side, because we generated less revenues from ODC’s materials and equipment purchases during the quarter. We will give you more detail shortly.

We are happy with our net income results, which was up 23% over first quarter of 2008 and allowed us to meet our earnings projections. However, operating margin improved to 9%, up from 8.1% in last year's first quarter, demonstrating a strong demand for high-end services.

On a number of our army contracts, there has been a pause in the 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 a $115 million and RSC contributed $33 million to revenues. In the first quarter of '09 Countermine contributed $94 million and RSC contributed $22 million for revenue, both less than we expected.

We have revised our yearend 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.

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 billion to $15 billion. This total was arrived from Secretary Gates original $60 billion requests 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 30th, 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 already seeing benefits from the combination.

Our long-term growth strategy remains exactly the same as it has served this well. We intend to grow aggressively. We have ample of 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, our performance and integration has made ManTech and acquirer of choice for mission focused national security company.

As you already know, we have carved out a very strong position in cyber security market. To update you, in the past three months alone the following has occurred regarding the Comprehensive National Cyber Initiative, CNCI.

The White House 60 days 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.

Rather more, we believe the 60-day review will lead to an acknowledgement that the CNCI does not comprehensive enough leaving to additional funding dedicated to fighting the cyber war.

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

At the same time, we continue to see money flowing into our existing classified contracts to support increase cyber security activities, particularly in the intelligence community customers. As yesterday, we are awarded renewal 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 rigorous efforts to diminish the terrorist threat.

President Obama is changing priorities, but I see no less of the 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 and while continuing our mission in Iraq ManTech will play a major role in this effort.

With that I would like the call over to Kevin Phillips, Kevin?

Kevin Phillips

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 and 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 build on a time and material basis and 12% from fixed priced 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. These translated into backlog of $4.07 billion, up 18% over last year. Funded backlog also remain strong at $1.1 billion as of March 31st, 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 this strong margin performance were increased direct labor contribution in the quarter combined with lower than anticipated material pass through.

Based on this 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. All those collections do 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 like a review requirements imposed by our customers in their orders. Going forward, we are expecting DSOs in the mid 70 day level, which will still allow 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 based 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 based going forward.

At this point, we want to provide with greater detail about the material procurement component of our revenue base. In addition to expected delays and the timing of purchases during Q1 from our Counter Mine and MRAPs 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 differing material procurements late in the first quarter. While the DoD review 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 there are one component of how we support mission needs for our customers. Material procurement has always been a subordinate complementary component to our core service offering.

The primary component of our labor is labor based services. We placed heavy reliance on our customers' labor requirement indicators as we continue to experience upper demand for labor service and support of mission requirements.

It is important to note that the number of military systems, we support and armored vehicle count remain high. It reinforces our expectation of continue 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 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 million to $510 million, represents 3% to 10% total growth over last years 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 pass through.

Our net income range of $25.7 million to $26.7 million is also an 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 second quarter earnings per share.

This guidance assumes net interest expense of $150,000 in the second and a 39.2% effective tax rate. Our revised full year 2009 guidance, which does not any future acquisitions or divestures between $2 billion and $2.075 billion, represents 7% to 11% revenue growth from our 2008 full year results.

This guidance comprises organic growth of 5% to 9% for 2009. While highlight that the entire reduction at the low-end of our guidance range is driven by a more conservative material passed 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 Counter Mine, 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 a $105.5 million to $108.9 million, which results in earnings per share guidance of $2.91 to $3.01 per share, is on weighted average shares of $36.2 million.

The EPS range represents 15% to 18% growth over 2008 results a $2.55. Our guidance assumes $450,000 of net interest expense for the year and 39.2% of effective tax rate. While, we have adjusted our guidance to reflect current projections, ManTech’s addressable market remained 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 successful retention initiatives. We currently have over 500 total [ph] acquisitions, our annualized turnover rate was 19% in Q1, and we have begun to see some positive indicators of sustained improvement in the 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 continue to focus on mission critical markets, while remaining diversified throughout the intelligence and DoD community. We have invested 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 contracts and personal talent base, while targeting resources in our opportunity pipeline. We believe these strategic decisions will allow ManTech to deliver, the long-term growth set as a cornerstone.

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

George Pedersen

Thank you, Kevin. I would just like to reiterate my view, that the total market for technology in a time for sophisticated services. At ManTech it appears, provides for 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 over these years. Finally, we look forward to continuing to mission in support of our nation, our customers and our employees and you our shareholders and to accomplish with pride.

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

Question-and-Answer Session

Operator

Thank you. (Operator instructions) And we'll go first with Joseph Vafi with Jefferies & Co.

Joseph Vafi – Jefferies & Co.

Good afternoon. I just maybe, we can just kind of talk about the visibility on the ODCs obviously, they are pretty low margin, but here we are, about a month through the quarter, and I know you were talking about some delays. Have you have actually seen some of that ODC flow re-emerge from the Army at this point?

Kevin Phillips

Yes, Kevin, I will provide the response in two parts. First is on the in theater operations for Counter Mine. 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 where 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 theatre are planning for and addressing 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 or procurements of the evaluated buys; we are seeing some of the requirements pick back up. Having said that though, we are being cautious about the timing of those plans, and the receipt of those materials more weighted in the second half of the year, but we are seeing a greater level of activity within our customers to re-procure or begin the purchasing process for some of those ODCs.

Joseph Vafi – Jefferies & Co.

Okay. That’s helpful. So, just need to me clear, it sounds like the number of units or vehicles that you are supporting in Iraq and Afghanistan continues to climb. It is just right now a function just reviewing some of the programs and then looking at the spare inventories is that the way to look at it?

Kevin Phillips

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

Joseph Vafi – Jefferies & Co.

Okay, that's helpful and then if we kind of add it say, $40 million bucks on to the quarter in revenue, and may be a modest amount of operating profit coming from some of those delayed ODCs, would you care to guess where that operating margin might have flushed out in the quarter Kevin?

Kevin Phillips

Roughly between $700,000 and a $1 million of additional return or $0.02. So we would have about $0.70 return based on the absorption, not the fee but the absorption likely to have been picked up on those material buys.

Joseph Vafi – Jefferies & Co.

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

Kevin Phillips

Correct, roughly.

Joseph Vafi – Jefferies & Co.

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

Kevin Phillips

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 this 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 completed their review, we expect again to have more of a pick on the ODC flows that historically have supported these customer requirements.

Joseph Vafi – Jefferies & Co.

Okay. That's helpful, and then may be just one last one. I know you are not obviously looking out to next year yet in terms of guidance, but if you are seeing less ODCs this year on the contract, would that potentially mean next year that, you know, if we did see a pullout from Iraq and maybe lots of volume are 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 have been if Q1 had come in as expected.

Kevin Phillips

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 are supporting in the theater of operations on the Countermine/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.

Joseph Vafi – Jefferies & Co.

Okay. Thanks a lot, guys.

Operator

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

Michael Lewis – 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 then 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?

Kevin Phillips

Correct.

Michael Lewis – BB&T Capital Markets

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

Kevin Phillips

It is again related to the ODC flows on the other programs within the Army. We have a number of customers that's outside of RSC, outside of Countermine, where we historically have provided support whether its C4ISR systems, operation 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 and new pattern here. 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.

Michael Lewis – BB&T Capital Markets

Okay, so I understand this. You are basically saying that the core business ManTech core business has not been impacted whatsoever. No other weakness as related by the guidance that you put out. It's just in relation to the low margin pass-through ODCs over Iraq and Afghanistan.

Kevin Phillips

Correct. The services drivers of the business and their 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.

Michael Lewis – BB&T Capital Markets

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 Intel programs. And I guess 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.

George Pedersen

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

Mike Kushin

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

Michael Lewis – BB&T Capital Markets

Okay. And then just one follow up to Mike actually, Mike if you look at the utilization of 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?

Kevin Phillips

It's Kevin. I will try to answer that. I don't think we have an improved or increase in utilization, what we do have is an increase in the amount of requirements that we are trying to support. Again, there is a lot of incremental and future growth in the area and our goal is to get training, get people trained and we've got training programs in place to expand the number of qualified personnel's supporting these high growth areas, but utilization itself hasn't really changed.

Michael Lewis – BB&T Capital Markets

Okay, thank you.

Operator

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

Bill Loomis – Stifel Nicolaus

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

Kevin Phillips

Bill, we are projecting a flat carry forward on that RSC number, $22 million to $23 million a quarter, until we have better visibility on the customer bias and habits in that one because we have over 10 locations that we support in a number of areas. If that one regarded one have better visibility on what the requirements are. On the other programs that I mentioned, as an example of the operation centers, I think we have better visibility on those activities picking back up in the second half of the year-end, and that's why we built that in, but specific to RSC, we are showing that that about a $90 million total for the year at the bottom-end of our range.

Bill Loomis – Stifel Nicolaus

And on SOCOM contract, you told us what JERRV and Countermine combined will do for the year in your own 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?

Kevin Phillips

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

Bill Loomis – Stifel Nicolaus

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

Kevin Phillips

Roughly $3 million a quarter.

Bill Loomis – Stifel Nicolaus

$3 million a quarter?

Kevin Phillips

14 annualized.

Bill Loomis – Stifel Nicolaus

Okay, thank you.

Operator

We’ll go next Ed Caso with Wachovia.

Ed Caso – Wachovia

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

Kevin Phillips

It was insignificant.

Joe Cormier

Ed, its Joe. We closed the deal on March 13, so we had two weeks of contribution there. So frankly with the revenue and the cost associated with the deal, its kind of net neutral.

Ed Caso – Wachovia

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

Kevin Phillips

$0.01.

Ed Caso – Wachovia

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 us back down. I think I remember the old assumption was 70 days and now you're saying mid-70s, do I have that correct?

Kevin Phillips

That's correct. Okay. Lets 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 customer to help them review the invoices we've got that process nail down and that was recovered and we expected those amounts will start being normally recovered during the course of the year 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 plus, we had mentioned the ODC plus would be more back entering the quarter based on the timing and the shut down in the end of Q4, because of the timing of the receipt we could not build that up because we didn't have invoices from the vendors.

I am getting a lot of detail here, but I'm trying to layout. 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 are going to continue to focus on collections and recovery and process around that, but again there is 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 are trying to help them through that process.

Ed Caso – Wachovia

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 the Obama administration, sort of telling the defense department sort of slow down things. Can you give us some color behind just why they are reviewing everything now?

George Pedersen

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. I don't think there is any talk of the activity really declining. Indeed, the most amazing thing is this supplemental talking about of some $83 billion dollars set over the past 48 hours has allegedly grown by another $12 billion to $15 billion, and the Army has $45 billion of that $83 billion. $18 billion for O&M and $13 billion for products. So, I think once they get their strategy straight, they will execute effectively and they will begin to buy thing and they will move forward.

Ed Caso – Wachovia

Any update on the COO search?

George Pedersen

Yes. We continue, Korn/Ferry has come in and we’ve interviewed so far for individuals. We like to feel the people they are showing us, and we are going down the road and we will find the appropriate individual in a reasonable time here. We liked what we have seen.

Operator

We’ll go next to Tim Quillin with Stephens Inc.

Tim Quillin – Stephens Inc.

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 the assumption there, that there is going to be new opportunities that present themselves in the cyber arena that will translate into new awards later this year that impact revenue. If possible can you codify what the assumptions are there as well?

Mike Cushion

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 and acceleration in not only the CNCI opportunities but other cyber opportunities as well. 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 are pretty excited about the activities going on with the government. We believe that will lead to new opportunities for us.

Tim Quillin – Stephens Inc.

In terms of the Countermine and SOCOM RG 31, 33 contracts, I think that at least in my eyes, the DoD and Secretary Gates has become a little bit more inclined to view those as longer term parts of the tactical oil vehicle fleet. I mean, are you getting any increasing clarity on what your business might look like in a couple of years?

George Pedersen

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 Iraq and I don't think we've seen that. I think they are being very cautious and very disciplined in what they do, and they are planning for Afghanistan and wisely so. So I think they are taking a pause here. They know that they are going to go, they know in general what they are going to do and they are going to lay it out and try doing right. But they're going to spend a lot of money, no matter how you look at it.

Kevin Phillips

Tim, it's Kevin, I'll add. 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 in near-term and now of course you're reflecting that. And we do believe that it's going to become more institutionalized and we are seeing some activity around supporting training or MRAPs within the U.S. as well. So it's becoming more institutionalized.

Joe Cormier

And the last thing I know, 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, we have our 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.

Tim Quillin – Stephens Inc.

Alright, thanks gentlemen.

Operator

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

Gautam Khanna – Cowen and Company

Thank you. Guys, what gives you confidence? I should say that it is the function of timing not demand with respect to the slip on the counter mining. I recall the counter mining contract reads that they are going to try to in source more material overtime. I mean what assurances do you have? In other words, four weeks into the second quarter, how do you see the profile for the year?

Kevin Phillips

Gautam, we know that there is an intent by the customers to begin overtime in sourcing materials and from the levels of requirements that we've seen in terms of the number systems, the timing of them being able to do that. All our visibilities are pushing that sometime in the 2010 when those material buys may occur. So we don't see the current disruption or uncertainties about 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.

Gautam Khanna – Cowen and Company

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

George Pedersen

You're saying the lead times for requirements?

Gautam Khanna – Cowen and Company

Correct, for your derivatives.

George Pedersen

Yes, I think that the amount of support that we provide for the customers, the visibility has been fairly constant. It's been more of a timing issue on the ordering and the ability, the dependencies on the suppliers, we get the cards procured and get them in theater and get them received within the areas that we are in. So, I don’t see any change in the visibility around that more than the timing and that’s why here when we are talking about a reduction, the ODC poses more related to the positioning or repositioning of systems and how that might disrupt the timing of purchase requirements for the customer sides.

George Pedersen

Please remember something else; the MRAPs have become a program of record. It is now a unit that they must have and much soon and we are positioned to service these vehicles no matter where they are whether in Iraq, Afghanistan, back here, Kuwait, some place else. The key issue is these systems will require because of the investment, we will continue to require service and we are the ones that will do that.

Gautam Khanna – Cowen and Company

Yes, I mean that's actually a good point, George. I guess what I've been trying to get at is, there is a piece of this business that's recurring in the after-markets too was a piece of the lead dependent and we know that DoD component is declining throughout the MRAPs?

George Pedersen

We lost your question.

Gautam Khanna – Cowen and Company

Sorry, it is an OE piece of the business, there is aftermarket components of the business. To the extent that the aftermarket is more of a recurring, operational tempo dependent demand driven requirement, I understand that sort of steady I guess. What I am wondering about is the original equipment (inaudible) it is that the reason you saw a decline at the end of the quarter, because if I recall, you look at (inaudible) started backlog, basically you're supposed to be mostly done by the end of February in terms of (inaudible). Does that kind of the source of the (inaudible) aftermarket being relatively decline? Do you have visibility and what's actually (inaudible)

Joe Cormier

Gautam, it's Joe. Gautam, you are cutting in and out. So we are 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 if you can pick up phone or get off to speaker if you're on speaker, that'd be great.

Gautam Khanna – Cowen and Company

Can you hear me now?

Joe Cormier

Yes.

Gautam Khanna – Cowen and Company

Okay, great. What I was asking was if there is two components, the OE and the aftermarket piece, if you look at the backlogs of the MRAP times, it appears as though most of the deliveries will be completed by the February timeframe. What I'm asking is, if 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 there's going to be a gap until kind of the next batch of MRAPs come to the field.

Kevin Phillips

Gautam, I will 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 we purchased of Iraq and its vehicles, and I see those more as continuing sustainment of the systems in theater, the amount of materials that are required, time of the repositioning. We do have some requirements to support the MRAPs in terms of the procurement. That may actually increase, but I don't think that it's related to the timing that you're talking about. We may have to follow-up and get more clarity for you as – offline.

Operator

(Operator instructions) We will take our next question from Mark Jordan with Noble Finance.

Mark Jordan – Noble Finance

Good afternoon, gentlemen. Could 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 relationships new and if it is and are you replacing existing service suppliers to add your service or 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 potential customer?

Mike Kushin

Hi, Mark. Mike here. We actually see lot of new opportunities, and as we mentioned earlier, particularly, within the intelligence community which is really where we provide some world 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 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 and again the core areas that we provide leading skills.

Mark Jordan – Noble Finance

If you are trying to quantify what is new that is coming to the marketplace here as of all of this 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?

Mike Kushin

Of the 600 that is in the pipeline, 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 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 DHS and we have similar pipeline opportunities in 2010 and beyond for those markets.

Mark Jordan – Noble Finance

Okay. Final question, if I could just looking at sort of the Countermine/JERRV package, if you are looking at first quarter $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 into the balance of the year?

Kevin Phillips

It's Kevin. We generally provide that mix, but I would say that we are having an increase amount of requirements on the labor portion supporting the Countermine/JERRV program because the MRAPs that are 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.

Mark Jordan – Noble Finance

Okay. Thank you.

Operator

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

George Pedersen

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

Operator

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 callers or 719-457-0820 for international callers with an ID number of 814-6920. This concludes our conference for today. Thank you all for participating.

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Source: ManTech International Corp. Q1 2009 Earnings Call Transcript
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