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Executive

Jim Regan - Chairman & CEO

Dave Keleher - VP & CFO

Analysts

James Harlow - Stifel Nicolaus

Mike Smith - BB&T Capital Markets

Mike Crawford - B. Riley & Company

Michael Kim - Imperial Capital

Mark Jordan - Noble Financial Group

Warren Derelich - Morgan Keegan

Dynamics Research Corp. (DRCO) Q1 2010 Earnings Call April 29, 2010 ET

Operator

Good day, ladies and gentlemen and welcome to the Dynamics Research Corporation first quarter 2010 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operators Instructions) As a reminder this conference call is being recorded.

I would now like to turn the call over to your host, Dave Keleher.

Dave Keleher

Thanks, [Melina]. Good morning and welcome to Dynamics Research Corporation’s first quarter 2010 earnings conference call. Jim Regan, DRC’s Chairman and Chief Executive Officer is also here with me today. Following this introduction, Jim will comment on first quarter 2010 results and the outlook for our business and industry. After Jim’s remarks, I’ll review the company’s financial results and discuss our projections for the second quarter and full-year 2010. Following the prepared remarks, there will be a question-and-answer session.

Before beginning with our comments, I’d like clear up an accounting calculation item in the press release. Our Q1 diluted earnings per share from continuing operations, calculates $27.39, while our diluted earnings per share including discontinued operations, which was $1.32 calculates a $0.29 in total.

So, we have an addition problem and in order to report our earnings per share on an additive basis in our press release. We have reported diluted earnings per share from continuing operations at $0.28. So I just wanted to make sure if any of you were confused about why we were showing $0.28, that's the explanation.

Thanks. Yesterday evening, we released our results for the first quarter of 2010 and will refer to the press release when reviewing the financial information. If you have not received it, a copy is available on our website www.drc.com or you may call Chris Witty at 646-438-9385 and ask for a copy to be sent to you.

I’d like to remind everyone that our comments today may contain forward-looking statements on the company’s financial results and business conditions, which by their nature are uncertain. Consequently, actual results could differ materially from these forward-looking statements, which are being made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. For more detailed information concerning how these factors could affect the company’s financial results, please refer to DRC reports filed with the Securities and Exchange Commission.

I’ll now turn the call over to Jim.

Jim Regan

Thanks Dave and good morning everyone. I’m pleased to be discussing with you today our 15 consecutive quarter of improving financial results. Following that I’ll provide my views on current industry trends and the outlook for 2010.

Overall, the first quarter was another period of strong improving results by all major measures of performance. Book-to-bill continued at a ratio of 1.1 to 1 and we ended the quarter with $172 million or 7.5 months of funded backlog of the 7.2 months at the end of 2009. Our core federal business grew by nearly 6% in the quarter and we booked 30 million in new business contact wins. These included a $14 million contract supporting the F-16 program on the LMSS contract, which more than doubled our work with his customer.

A $4 million contract provided business transformation services to the Defense Logistic Agency, a new engagement with his customer, a $5 million contract with the Coast Guard providing performance management services driving modernization initiatives, a $4 million contract for the Joint Strike Fighter F-35 program identifying high priority cost reduction opportunities for the second engine program and a new contract, which we have not yet issued a press release involving the single award task order contract from the Maryland Procurement Office. This contract has a ceiling value of $33 million and is totaled one base year and four option year.

Two initial task orders with performance periods of six months totaling $2.5 million have already been awarded under the contract. We will be performing business process reengineering and systems planning design and implementation, as well as support for document management, records management, collaboration, and work for automation initiatives.

A total qualified pipeline in new business opportunities now stands at $620 million, up from $533 million at the end of 2009. As we have noted in our previous conference calls, we expect the pace of federal government award activity will accelerate in the second half of this year. Our win rate, our new business bids were 38% to the first quarter and our recently win rate was nearly 100%.

From the financial viewpoint, there are several other highlights in the quarter. Earnings from continuing operations were up 40% over the first quarter a year ago or 27% excluding a onetime tax refund, which benefited the quarters earning by $0.02. Also cash flow was very strong in the quarter. As expected we received to about $28 million in payments from the State of Tennessee and DSO for our federal business dropped from 73 days at year end to 68 days at the end of the quarter. Combined, we generated $13 million in cash from operating activities in the quarter.

Next I’d like to comment on two current industry trends, in-sourcing and organizational conflict of interest. Regarding in-sourcing, we have seen continued activity under this federal initiative, as approximately 20 of our positions were in-source during the first quarter primarily in our legacy ANAS business. We anticipate further in-sourcing throughout the remainder of 2010 and have reflected this in our guidance.

Regarding organizational conflict of interest, we continued to see opportunities for us, as other firms deliberate and decide how best to address their existing and emerging conflicts. We’re watching this closely and we’ll be alert to potential acquisition opportunities that provide solutions in program, in markets we are targeting for growth.

Overall, our strategy for growth clearly is working with our business expansion and gross markets outpacing softness in other areas. We now have significant presence in growth sectors. Our differentiated high value solutions and broad portfolio, a prime agency and government wide contract vehicles is enabling us to diversify and expand our work in this market.

Also we announced on Monday of this week that Paul Strasser has joined DRC as the Senior Vice President for Strategic Development. Paul has more than 28 years of successful industry experience and senior management positions, growing professional services businesses with federal government customers. I have a highest confidence that with Paul’s contributions, we will see even greater success growing our federal practices in the year ahead.

Our business development initiatives are focused on those federal market sectors, which are projected to continuing expanding for the foreseeable future, homeland security, healthcare, financial agencies, high priority defense program, cyber security and intelligence.

In our solution set, human capital management, business transformation, training and performance support systems, business intelligence, IT infrastructure, information assurance and cyber security, engineering, healthcare services and program management are all in demand across these markets.

We remain well positioned for revenue growth, margin expansion and cash flow generation in the quarter to come and we will continue to execute the business plan that has successfully transformed the company into a leading provider of critical government services that it is today.

That concludes my prepared comments. So I’ll now turn the call over to Dave.

Dave Keleher

Thanks Jim. Our first comment on the company’s operating results followed by observations on the balance sheet. To wrap up I’ll comment on the financial outlook for the second quarter and full-year 2010. Please refer to today’s press release as I begin with comments on first quarter results.

Total revenues were $68.6 million for the first quarter of 2010, compared with $67.2 million for the same period in 2009. Revenue growth was reduced by $2.4 million as a result of expiration of 8(a) set-aside contracts received through the Kadix acquisition for which the period of performance is now expired. After the effect of the 8(a) contracts, revenue grew 5.8% in the first quarter of 2010, compared with the same period 2009.

Direct margin on revenue was 40.6% down from 42.1% in Q1 last year. Gross profit was $10.8 million or 15.7% of revenue compared with 16.8% a year ago. The decrease in gross margin was a result of an increased portion of our revenue being arrived from subcontracted services.

SG&A expenses for the first quarter of 2010, totaled $6 million, or 8.7% of revenue down from $6.3 million or 9.4% of revenue for the first quarter of 2009, reflecting lower facilities and pension cost. First quarter 2010 amortization expense of $385,000 was down $588,000 from the first quarter last year, which included in amortization of intangible assets associated with 2004 impact innovations acquisition. We’re now anticipating calendar year 2010 amortization expense of $1.5 million down from $3.3 million for 2009.

Operating margin for third quarter of 2010 was 6.4%, up 50 basis points from the first quarter of last year. Net interest expense for the quarter just ended, was $376,000, down $243,000 from the first quarter of 2009 due to lower debt level from the interest rates. Our average combined effective borrowing rate on the $20 million term loan outstanding including the swap agreement associated with that March 31 was 3.93%.

Our income tax rate on continuing operations for the first quarter of 2010 was 34.1% compared with 42.4% in 2009. On April 5, 2010 we received a cash refund of $253,000 related to 2003 tax reductions which have been in question, so we recorded the refunding in quarter ended in March 31, 2010. After the refund, our effective tax rate was 40.2% for the first quarter. For the full-year 2010, we are assuming an effective tax rate of approximately of 40%. Concerning the discontinued Metrigraphics business, we are confident our transaction will be completed this year.

Moving to the balance sheet, from a cash flow view point we ended the quarter with $6.9 million in cash and cash equivalents. Cash provided from continuing operations for the first quarter of 2010 was $3.1 million. Total receivables Days Sales Outstanding was 88 down from 11 days from the end of 2009. Our federal DSO 58 days, which excludes the effective state contracts decreased by five days from the end of 2009 generating approximately $3.5 million in additional cash flow. That completes my comments on the balance sheet. At this point I’d like to provide with you information on our expectations for the second quarter from full-year 2010.

As we’ve reported last night, we’re projecting revenue at $65 million to $68 million for the second quarter of 2010. Absence of $2.5 million effect of lower revenue from our state business in expiring 8(a) contracts related to the Kadix acquisition. Our revenue estimate for the second quarter of 2010 implies organic growth in the range of 2% to 7%. Our projections for the second quarter are dampened by project completions in Q1 such as our Navy Trident program work and the wind down of the Tennessee effort as this system deployment as well as the in-source that we’ve seen.

Also most of the $3.6 million F-35 engine study, which began in the first quarter, was also completed in that quarter. We anticipate that follow on work with the study will begin in the second half of 2010. For the full-year 2010, revenues projected to be between $277 million and $286 million, unchanged from previous guidance reflecting anticipated top line growth of 3% to 6% on a reported basis; and 8% to 11% excluding the $10.5 million effect of lower revenue from our state business in expiring 8(a) contracts from the Kadix acquisition.

From an earnings view point, we project full-year 2010 operating margin to be between 7.7% and 7.9% unchanged from previous projections and up more than a 100 basis points from 2009. As we’ve mentioned in the past, the improvement in operating margin affects a $1.8 million reduction in amortization expense, a $1 million reduction in facility expenses, and $0.5 million reduction in pension expense due to improved pension plan asset performance.

For the second quarter of 2010, we are projecting earnings from continuing operations of $0.24 to $0.27 per share and for full-year 2010 we are projecting earnings of a $1.18 to $1.26 per share from continuing operations unchanged from previous projections.

Looking at EBITDA, our projections imply at 2010 EBITDA of $25 million to $27 million or 9% to 10% of revenue. From a cash viewpoint, for the full-year, we are projecting federal DSO at 68 to 72 days and total DSO of 70 to 74 days; for full-year free cash flow we are projecting $26 million to $30 million net of $5 million to $6 million in capital expenditures. Currently our intent is to build our cash balance rather than prepay our term loan.

That concludes my comments. I’ll turn the call back to Jim.

Jim Regan

Thanks, Dave. We’re up to good start in 2010 and we look forward to reporting on a continuing improving performance as the year progresses. I’ll now turn the call over for questions. Please go ahead Melina.

Question-and-Answer Session

Operator

(Operators Instructions) Our first question comes from James Harlow from Stifel Nicolaus.

James Harlow - Stifel Nicolaus

Looking at the kind of year-over-year revenues, can you talk about Homeland Security, which have been growing pretty well it was down 1% it looks like and federal civilian down 23%. What are the reasons for those big changes?

Dave Keleher

Inside to the contract completions that I mentioned here with us, our projects doing work out in it is the Customs and Border Patrol Helicopter, the National Air Training Center that project was winding down. We also enhanced a couple of projects with [IJET] we’re coming to the end of their completion. That’s a more we are coming on with option renewals and so forth as the year progresses.

James Harlow - Stifel Nicolaus

So is that reasons for headcount coming down a little bit sequentially?

Dave Keleher

The headcount we noted approximately 20 in-sources, but the project completions including that Tennessee in trying…

Jim Regan

Maybe try to since the three base things.

Dave Keleher

So we have got a decline in DO headcount, which other those films increased with some subcontracted work. So we got an exchange as well.

Operator

Thank you. Our next question comes from Mike Smith from BB&T Capital Markets.

Mike Smith - BB&T Capital Markets

I was wondering. Could you clarify the pipeline, the qualified pipeline again, Jim? I think it was $1.3 billion last quarter, if I…?

Jim Regan

No, that was the raw pipeline. The qualified pipeline, as we go through the sustain prospect qualified process and the qualified pipeline has actually grown about $100 million.

[Multiple Speakers]

Jim Regan

That’s broad a bit, yes, quite a bit.

Dave Keleher

Yes, it’s quite a bit. We’re really focused on hourly on (Inaudible) and we’re seeing really an expanding array of opportunities here that wasn’t so and that’s resulting entire qualified pipeline and a rough pipeline that we just don’t have that number right here to give you a number.

Mike Smith - BB&T Capital Markets

The pending awards, they were $138 million last quarter. Have those ticked up as you guys were anticipating this greater bidding activity? Are they larger than that now, or…?

Jim Regan

This a bid submitted to a winning award?

Mike Smith - BB&T Capital Markets

Correct.

Jim Regan

That’s at 89 right now, Mike.

Mike Smith - BB&T Capital Markets

$89 million?

Dave Keleher

Yes. That’s winning award.

Mike Smith - BB&T Capital Markets

Dave, could you please breakout the federal, the actual federal AR numbers, and the state AR number as well, please? Do you think you have that?

Dave Keleher

Yes. I’ll call you back Mike, to give you that specific -- and I’ll check on the portfolio over, I think I got.

Mike Smith - BB&T Capital Markets

Then just a couple of other things, the Trident program, I mean that thing has been winding down for a while now. Is this kind of the last of that program, or is there going to be some kind of extension or maintenance work or --?

Jim Regan

Yes, that was the last of it now with determination at work. It could be less the cost measure covers that they do need something in the future or we maybe talking about. So that on their, but that is the last thing with Draper. We are no longer doing Trident work as a subcontractor for Draper Labs. So that’s the end of the 50 year engagement on that program.

Mike Smith - BB&T Capital Markets

One last one, Dave, do you have the 8(a) revenue contribution for the remaining quarters that Kadix kicked in? Is there an amount that’s longer term that we can kind of look at to figure out maybe what the growth would be excluding those numbers?

Dave Keleher

Yes. Could you excuse me the wrong numbers in the first quarter of 2010, there was $400,000 from 8(a), but we’re little less than net at 360 or so in Q2, 300 in Q3 and 150 in Q4. Mike, I think I got the few numbers in. Let’s see, so that fees receivables were $14.3 million at the end of March. The rest was settled.

Operator

Thank you. Our next question comes from Mike Crawford from B. Riley & Company.

Mike Crawford - B. Riley & Company

That free cash flow guidance is a little higher than I expected, so I think part of that is due to the DSOs coming down into the low 70s. Is that something -- at what pace do you think the DSOs comedown, and how sustainable is that going forward?

Dave Keleher

We’re at 68 federal at the end of Q1 and the state receivable will pay way down by the end of the year, that’s why we’re in the low 70s in total by the end of the year. We’re not expecting any large state stock participant contracts over the next 12 months. So I would say that we’ll be able to sustain a low level of DSO after getting for at least that 12 month period. What happened, Mike, is if we do take on a large stakes in this contract, they’re usually very back ended on payments. So the steady part of that is we’ll start to raise one for the whole steady and low on the federal.

Mike Crawford - B. Riley & Company

Then that $90 million jump in the qualified pipeline, are there a couple of big noteworthy opportunities you are looking at there you can discuss?

Jim Regan

No, Mike it’s actually collection opportunities. You got a pretty broadly diversified target market set now and it just bunches individual contract. So I haven’t start at this, there’s no one item, or two items, or five items that are driving that.

Mike Crawford - B. Riley & Company

Final question relates to Kadix. So these set-aside contracts that are coming up that was always expected, you didn't really per se pay for that revenue when you acquired the businesses --?

Jim Regan

Actually when we acquired the company, as you point out, we didn’t anticipate that, we didn’t pay for that though. What happens, the unexpected activity roles for the customers granted waivers when they saw the acquisition and was very keen on keeping the Kadix involve and the Maryland procurement office contracts that are reported with the $33 million ceiling and my comments fight directly as a follow to some of that words that was unexpectedly expanded. So the good news was accommodation revenues. The bad news is it’s going to go away and then we will not be able, but it is then replace in March significantly more than replaced by the win from the Maryland procurement office right now.

Operator

Thank you. Our next question comes from Michael Kim from Imperial Capital.

Michael Kim - Imperial Capital

First, on the in-sourcing the 20 heads in the quarter, where they primarily from one specific area or program or was it fairly spread out across a number of different areas?

Jim Regan

The concentration Michael, it remains with the Air Force at Dayton doing advising and assistance services work and its individual none whole projects.

Michael Kim - Imperial Capital

As we’re to look out later in the year, do you envision entire programs being outsourced that you are involved in or sort of continued onesies and twosies throughout the year?

Jim Regan

Right now, of course this environment we’ve all been -- a little bit of pace for us, but we’re expecting to continued losses due to in-sourcing individual losses, not program losses as Dave talked about in his comment, this is based into our guidance. -- While the in-source is going on, there is also a new work that we’re able to win even in that environment. We have a large presence with competitive program --

Dave Keleher

We announced the F-16 work that -- while there are some losses going on, we got some wins coming in.

Michael Kim - Imperial Capital

Do you have a headcount expectation exiting the year then?

Dave Keleher

For the company?

Michael Kim - Imperial Capital

Yes.

Dave Keleher

No, we don’t provided guidance for that, of course, when this business -- what happens by September 30 non-contract award is really the selling moment and that’s as why we kept our guidance range fairly wide on the revenue because the best information if we met down won’t be in our hands until end of September.

Jim Regan

We’re fairly ramping up new business wins. You got a 35 from direct labor acquisitions right now and well over 117 including contingent acquisitions related to bids.

Michael Kim - Imperial Capital

Then just on the guidance there, are you contemplating a similar mix from subcontract that we saw in the first quarter or do you start seeing it move more towards, where we had it in 2009?

Dave Keleher

Well, it’s an excellent question and I will address it not just for this year, but longer term as well. We’ve got great portfolio prime contracts and so we’re bidding a lot of jobs as primes can see that percentage increasing, it comes along with that often in some subcontract works. So we’re expecting a total DL headcount will rise. We’re going to bringing a long subcontract work with them. So I don’t have any answer as to whether our mix is going up or down. I’d to obviously the more DL the better for ourselves, but we have to take the way to bids and it comes with being a prime.

Michael Kim - Imperial Capital

Then just on the second quarter, given the guidance on the top line, it looks a little bit better, were some contracts completed or some programs completed earlier in the first quarter versus second quarter? How does that start, from a timing standpoint, play out?

Dave Keleher

We have some completions as I noted earlier, in homeland security there were a couple, the Navy Trident work completed and the F-35 engine studies, most of that while we booked in the first quarter, most of it down in the first quarter as well and so that was about $3 million. So that’s why when you look at the sequential revenue changes, it look it’s sequentially low down from Q1 and Q2.

Michael Kim - Imperial Capital

Then just on the state business, are you expecting I believe additional payments from the State of Tennessee?

Dave Keleher

A bulk of the remaining receivable will come in the third quarter. So I think it was about to the $14 million at the end of the quarter, we’ll see that in the fourth quarter.

Michael Kim - Imperial Capital

Then obviously, there’s been a lot of chatter about cyber security and information assurance. It’s been fairly significant part of your business, but any thoughts on how you start to see that ramp, either this year or do you look at it more of the 2011 opportunity?

Jim Regan

We are working on our gross strategy in that space right now, I would expect in future cost that will result in more about that. It will be an area that perhaps -- priority less to work so more to come we’re working on that answer right now.

Operator

Your next question comes from Mark Jordan from Noble Financial.

Mark Jordan - Noble Financial Group

First, your guidance implies a reacceleration of revenue on the second half. Do you have those contracts in hand, or have those that are going to generate that up tick, or is that something that’s still expected to be received?

Dave Keleher

Mark I think some of which we haven’t hand the contractor to (Inaudible) announced as Jim noted and either I said we were expecting some optional renewals with process on them that will add to the regular base in the second half of the year. As Jim noted the pipeline is growing a lot, so we’re anticipating a huge rush a bit on the lead up to the end of the government fiscal a year and that is probably the single largest factor that we see in terms of the acceleration growth.

Mark Jordan - Noble Financial Group

Relative to the G&A, you mentioned the reduction in headquarter expenses savings of $1 million a year. Were initial savings seen in the quarter, or were there expenses related to the move in the quarter? How should we view G&A moving forward in the latter quarters?

Dave Keleher

Your question, Mark we moved in December and booked our moving expenses in the fourth quarter of last year. So we don’t have to reduce the run rate starting January, 1.

Mark Jordan - Noble Financial Group

The sequential pickup in G&A, is there a specific driver for that?

Dave Keleher

Yes, we’re expecting, we’re going to be adding some direct labor, we’re at saving benefit cost coming along with it so there’s a lot of our business development and proposals…

Jim Regan

For investing in business growth, in a larger pipeline applies there can be more investment in the proposal area base.

Mark Jordan - Noble Financial Group

A final question, if I may, you highlighted that you would be expecting to generate, I think it was $26 million to $30 million of free cash flow this year. Are you opposed to deploying that in acquisitions, or are you looking to just build your cash position?

Dave Keleher

Good question and we’ve said in the past and I’ll repeat that I would surprised if we did not make an acquisition this year. We’re focused on trying to strengthen ourselves in top priority markets we’re focused on. So an acquisition with cyber security content, healthcare content, intelligence, those markets that we are really focused on, would be the likely targets for us and we utilize that cash for us.

Operator

Thank you. Our next question is a follow-up from Mike Smith from BB&T Capital Markets.

Mike Smith - BB&T Capital Markets

A couple of quick ones here, on the contract mix, I thought the cost-plus ticked up just a tiny bit. I was wondering if you’re seeing any type of trend there or any indication that customers are looking to move more towards a lower margin cost-plus contract versus fixed price and time materials?

Jim Regan

No, Mike that’s just an anomaly the trend familiar, a longer term trends that we continue to move to those fixed price, but fairly we’re going to fixed price.

Mike Smith - BB&T Capital Markets

Then on some of those larger vehicles that you’ve targeted CIO-SP3, NETCENTS all of the larger ones, are there any ones out there that maybe that are new to you, that you’ve not necessarily discussed in the past?

Jim Regan

The one that we are looking at the and we haven’t discussed in the past the WAT4 contract and Luminent they just announced this morning that that’s going to be fairly accelerate to the end of May, so we have been looking later in the year to that so that’s the one. Yes, that could affect the our plans on as well.

Mike Smith - BB&T Capital Markets

That is new work or is that a re-compete?

Jim Regan

Yes, that’s will new work. It’s an IT work at the DLS. It’s a large radioactive.

Mike Smith - BB&T Capital Markets

Then going back to the acquisitions, I mean Kadix has worked out quite well for you. What size are you guys comfortable with?

Jim Regan

The size is not the great critical, but I’m going to let Dave dive in here, but as it was mentioned in our prior comments, some smaller important to us is the market factors that gains the penetration points in our target market factors that’s where healthcare and cyber come into the top along with Intel got two, three areas of high interest towards and to get the kind of penetration, typically those companies are available at present themselves in a range of $30 million to $40 million or like that. So that’s were the majority of the opportunities emerges. If you get much pretty earlier than that, you deal with a company and funds more diversified in markets where we really don’t need to be acquired in presence. So, Keleher you can add to that.

Dave Keleher

I forgot really liking Mike and there was $100 million company all in the right spot and (Inaudible) so that’s not a high probability item. More likely it’s going to be a smaller company where we’re paying for stuff that we really want and that’s getting a lot of stuff that we don’t want. So it could be a little less $15 million in revenue, or it could be as much $80 million and that’s probability of the sweet spot of probably somewhere in the middle of $40 million to $50 million.

Operator

Thank you. Our next question comes from Warren Derelich from Morgan Keegan.

Warren Derelich - Morgan Keegan

Most of my questions have been answered in regards to acquisitions. Just the last angle, if you can give some highlight on how would these acquisitions be funded? Can you give us some idea the different potential structures of funding?

Dave Keleher

Sure. Inside we’ll in progress a little from one capital so as to another. We ended the quarter with some cash on the balance sheet and unused $25 million of revolving credit facility. As you can see, where we’re going to be generating quite a bit of cash this year, so if you will roll forward six months to the end of September, we will tell it generated quite a bit more cash receipt payments say (Inaudible) and so far.

So between cash and our revolving credit facility, you could picture us funding up to $23 million on a liquidity capacity. We have capacity to take on additional term loan, so between our existing cash and our capacity for senior debt, we could probably fund an acquisition that’s to the another $60 million, if we were to go beyond that, we get into other integral sources.

Operator

Thank you. Our next question will come from Mark Jordan from Noble Financial.

Mark Jordan - Noble Financial

Could you just comment on the tax rate in the first quarter and what you’re expecting for the balance of the year?

Dave Keleher

Mark, we’re expecting something in the area of 40% for the year. The first quarter rate have the tax rate then refund that over a $0.25 million, which dropped the 34%, if you took that $250,000 out of the tax created out of the provision, the range was about 40% right on the number of that we’re looking far for the year.

Operator

I’m sorry, no further questions at this time, sir.

Jim Regan

Well, thank you Melina. I want to thank everyone for your continuing interest in DRCO and our business performance and prospects, and with that, I’ll conclude today’s conference call.

Operator

Ladies and gentlemen, thank you for your participations in today’s conference. This concludes the conference and you may now disconnect.

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