Engility Holdings' (EGL) CEO Anthony Smeraglinolo on Q2 2014 Results - Earnings Call Transcript

| About: Engility Holdings (EGL)

Engility Holdings (NYSE:EGL)

Q2 2014 Earnings Conference Call

August 7, 2014 5:00 p.m. ET

Executives

Dave Spille – Vice President – Investor Relations and Corporate Communications

Anthony Smeraglinolo – President and Chief Executive Officer

Michael Alber – Senior Vice President and Chief Financial Officer

Analysts

Patrick McCarthy – FBR Capital Markets

Bill Loomis – Stifel Nicolaus

Brian Ruttenbur – CRT Capital

Brian Kinstlinger – Maxim Group

Michael French – Drexel Hamilton

Operator

Ladies and gentlemen, good afternoon and thank you for joining the Second Quarter 2014 Engility Holdings’ Earnings Conference Call. My name is Ryan, I'll be the operator in the event today. And at this time, all participants are in listen-only mode. We will be opening the lines later to facilitate questions and answers (Operator Instructions) As a reminder, we are recording the event for replay.

And now, I'll pass over to your host Mr. Dave Spille, VP of Investor Relations and Corporate Communications.

Dave Spille

Good afternoon and thank you for joining us to discuss our second quarter financial results. Please note that we have provided presentation slides on the Investor Relations section of our website. On the call with me today are Tony Smeraglinolo, President and CEO; and Mike Alber, Senior Vice President and Chief Financial Officer.

Today, Tony will provide an overview of our operating performance, and then Mike will discuss our financial results and outlook for 2014. We then will close with a question-and-answer session.

Management may also make forward-looking statements during the call regarding future events, anticipated future trends and the anticipated future performance of the company. We caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Actual results may differ materially from those predicted in the forward-looking statements due to a variety of factors. These factors are described in our 2013 Form 10-K and on subsequent periodic filings with the SEC. We do not undertake any obligation to update forward-looking statements.

Management will also make reference to non-GAAP financial measures during this call. We remind you that these non-GAAP financial measures are not a substitute for their comparable GAAP measures. And reconciliations and other associated disclosures required by the SEC rules are included in our earnings press release and presentation slides.

I now will turn the call over to Tony.

Anthony Smeraglinolo

Good afternoon, everyone, and welcome to our second quarter 2014 earnings conference call. Our second quarter results were in line with our internal expectations and our adjusted bottom line results exceeded our plan.

We continue to effectively manage what we can control. And our results for the first half of this year have played out as we have expected. We either met or exceeded our internal revenue and profitability targets and our DSOs continue to improve. However, contract solicitation and award delays are impacting our revenue expectations for the second half of this year. Despite these revenue pressures, we are committed to proactively managing our bottom line and we expect our fiscal year 2014 adjusted diluted EPS will be within our original guidance range though towards the low end.

We plan to accomplish this through our continuing focus on cost efficiencies. We also expect our cash flow for 2014 to remain within the original guidance range as result of our anticipating cost savings and lower DSO levels.

For the second quarter of 2014, we reported revenue of $364 million and GAAP EPS of $0.61. And adjusted operating margin at 8.1% and adjusted EPS of $0.83 both of which exceeded our internal expectations. And we reported significantly improved DSO results of 70 days which enabled us to achieve strong cash flow from operations of $32 million for the quarter.

We are pleased with our results for the first half of the year and continue to win our fair share of business despite slow award activity throughout our industry. During the second quarter, we reported a number of significant contract wins including $60 million USAID single award IDIQ contract. Under this new opportunity our training and learning specialist will assist with designing, developing and delivering professional development for USAID employees worldwide. We will accomplish this through a combination of instructor-led training, web-based training, distance learning, and facilitation services.

A $13 million firm fixed price contract to support the secure payment system of the US Treasury Department. Under this contract, we will provide secure transmission and certification of payments. We now are supporting the secure processing of more than 1 billion transactions with an estimated annual value of $2.5 trillion for the U.S. Government.

In addition, we were awarded $11 million contract by the Naval Surface Warfare Center in Panama City. Under this recompete award, we will continue to provide logistic services to support sustainment of legacy logistic products and manage fleet modernization program support. We also won $10 million cost-plus-fixed-fee contract to provide technical advisory services to USAID and Guatemalan Government to support the production and implementation of low emissions development strategy.

Under this new award we will assist Guatemalan teams with billing local capacity to help implement initial reduction projects related to large and small scale agriculture, natural resource management and other forms of land use. These wins are representative of our diverse customer base and broad portfolio of capabilities. We are gaining traction in the federal, civilian and international markets and continue to diversify our business away from in-theater activities. Our DRC acquisition has furthered our goal of increasing our presence in the federal, civilian market.

We are very pleased with the operational and strategic integration our DRC acquisition. We continue to see strong program execution and strength in DRC's core business as evidenced by recent key wins at the Treasury Department and the U.S. Air Force Unmanned Aircraft System Program.

We are also continuing to leverage our combined portfolio of contract vehicles and capabilities to pursue larger and more strategic programs. We are seeing more opportunities in the higher end software development, data analytics, system engineering and acquisition support markets.

DRC has been a great strategic fit for us and we are extremely happy with the talented employees and the strong set of capabilities they have added to our business.

Our proposal activity continues at a healthy pace. We currently have approximately $1.2 billion in submitted proposals under evaluation by our customers and on a dollar basis we have already submitted more proposals in the first half of 2014 than we did in all of 2013.

However, award activity remains slow. But, we expect it to increase in the second half of 2014 as we approach the government fiscal year end and experienced typical calendar fourth quarter funding increases. This should position us well as we enter 2015.

Looking ahead, we remain optimistic about our business and opportunities for continued success. Although contract solicitation, award delays are currently impacting our revenue, we believe we have the right team and the business model in place to achieve long term growth in our large $150 billion addressable market.

With that I will now turn the call over to Mike to discuss our second quarter financial highlights.

Michael Alber

Thanks, Tony. Welcome, everyone. We will be discussing our 2014 second quarter financial results today on an adjusted basis, which excludes $1 million of restructuring and legal and settlement costs, $4 million of integration costs and $2 million of additional amortization of intangible asset expenses associated with our DRC acquisition. We believe our adjusted numbers provide a meaningful comparison to our GAAP financial results. Please note that we have provided GAAP reconciliation in our press release and in our slide presentation.

We are pleased with the second quarter results on a number of fronts as we generated strong profitability and cash flows and we reported DSOs that were significantly lower over the last quarter and last year. For the second quarter we reported total revenue of $364 million which was in line with our internal plan, but down approximately $14 million from the second quarter of 2013. This decrease was primarily the result of $78 million and reduced demand for services on certain contracts supporting legacy, agility DOD programs including a reduction of $35 million related to the drawdown in Afghanistan.

This was offset in part by an increase of $36 million in DOD related revenue for DRC and $28 million of federal civilian revenue. $24 million of which was generated from DRC related contracts and $4 million from legacy and agility contracts. In total DRC generated $63 million of revenue in the second quarter of 2014.

On a sequential basis, we achieved total revenue growth of 7% and organic revenue growth of 1%. As expected, we reported second quarter adjusted SG&A expenses of $24 million which was consistent with the first quarter of 2014. Adjusted SG&A cost increased by $7 million from the second quarter of 2013 primarily as result of increased win proposal cost and the addition of DRC expenses.

Our second quarter adjusted operating income was $30 million which resulted in an operating margin of 8.1%. This was better than we expected due to efficiencies on fixed price and time and material type contracts as well as increase funding on certain DOD contracts. Our tax rate in the second quarter was 37.6% which was lower than expected. This was driven primarily by an increase in our mix of joint venture income and positive foreign income tax settlement. Adjusted net income attributable to agility was $15 million or $0.83 per diluted share which was higher than expected as a result of the items I previously mentioned.

Now let's turn to the cash flow statement and the balance sheet. During the second quarter we generated $32 million of cash flow from operations which was better than expected and an increase from last quarter and last year. We reported significantly lower DSOs for the quarter. Our second quarter DSO of 70 days was down 7 days from last quarter and down 13 days from the prior year period. The increase in cash flow and the lower DSO level primarily were driven by strong quarterly collections and our continuing focus on improving internal processes to increase our velocity of cash. We expect DSOs to remain in the low 70 day range for the remainder of the year.

Our second quarter net debt to trailing 12 month adjusted EBITDA leverage ratio was 2.4x on pro forma basis when you include DRC's trailing 12 month adjusted EBITDA. Our free cash flow was $155 million on a trailing 12 month basis which translates to a free cash flow yield of 24.8% at $35 share price.

Moving to backlog and funded orders, we ended the second quarter with $522 million of funded backlog and $304 million of funded orders. This equates to a book-to-bill ratio of 0.8 for the second quarter. This is an increase from last quarter and last year's book-to-bill ratio of 0.6. On a training 12 month basis, our book-to-bill ratio was 0.8.

Before I discuss our guidance I wanted to mention that in June we filed a shelf registration statement on Form S-3 with the SEC. This registration statement enables us to issue various forms of debt and equity securities. We currently do not have any plans to issue securities under this registration statement but it does provide us with the opportunity to leverage market conditions and support our future growth objectives.

Now I will discuss our guidance. We are updating the fiscal year 2014 financial guidance we issued on May 12, based on our financial results for the first six months of 2014 and on our outlook for the remainder of the year. For 2014, we now expect our revenue to be between $1.35 billion and $1.45 billion. At $1.35 billion our revenue guidance assumes that our in-theater work continues to drawdown as planned and is not replaced by any revenue for new business. At $1.45 billion our guidance assumes we generate $100 million of revenue from new business in the second half of this year. Given anticipated work days and current win rates we believe that generating $100 million for new business is possible during the remainder of 2014.

At both the low and at the high end of our range, our guidance assumes we would generate 11 months or approximately $213 million of revenue from DRC. This range also includes approximately $110 million of in-theater work compared to approximately $225 million we generated in 2013.

We anticipate our 2014 revenue to decrease in the third quarter and then increase in the fourth quarter due to timing of new planned awards. In terms of our operating margin we continue to expect our adjusted operating margin to be between 7.3% and 7.8% for the full year. 2014 GAAP diluted EPS is expected to be between $2.24 and $2.44 per share and our adjusted diluted EPS is expected to be between $2.77 and $2.90 per share. Cash flow from operations is still expected to be between $95 million and $105 million. This includes $7 million to $8 million of integration expenses. Key assumptions in our 2014 guidance include an effective tax rate of 39%, diluted share account of approximately 18.2 million shares, adjusted SG&A expenses of approximately $85 million to $90 million which excludes $2 million of restructuring and legal expense, and legal settlement cost. $6.2 million of additional amortization of intangible assets expenses and $7 million to $8 million of estimated integration cost associated with our acquisition of DRC.

Net interest expense of approximately $14 million, capital expenditures of approximately $5 billion and adjusted depreciation and amortization of approximately $15 million, this figure excludes $6.2 million or $0.21 of additional amortization of intangible assets expense associated with the DRC acquisition which is excluded from our adjusted EPS range.

And with that I will open up the lines for questions. Operator, would you please explain the Q&A process?

Question-and-Answer Session

Operator

Certainly (Operator Instructions) Our first question comes from Patrick McCarthy with FBR Capital Markets.

Patrick McCarthy – FBR Capital Markets

Hey guys! Good afternoon and thank you very much for taking my questions. My first question is on the order flow. I was wondering as you analyze the delays in the awards if there is any way if you were to characterize it either by agency or the type of work that's not coming out?

Anthony Smeraglinolo

Patrick, we’re seeing across the board. We are seeing that our customers are taking little bit longer entering the approval process. I think this is some reaction to making sure that it's protest proof maybe that's a good thing in the long run, but we are seeing the delays in the awards but we are probably seeing based on that maybe fewer protest. We are seeing a little bit better in the Fed Civ side and on the DOD side. So, if I was going to say that one person or the other, Fed Civ will be better in terms of award flow or deal flow than the DOD, but pretty much this new environment of trying to protest proof stuff is slowing down everybody.

Patrick McCarthy – FBR Capital Markets

So historically, you guys have been very judicious about bidding on opportunities where you rightfully have an ultra competitive position. Have you thought about opening up the aperture or that wouldn't solve the problem?

Anthony Smeraglinolo

Yes, our philosophy at times like this you need to get more focused. You are taking the finite resources you have and applying those in the areas that you have the highest probability of success. I don't think, it’s time to change that strategy, I mean, to serve this well. We are not opportunity constrained. As a matter of fact if our pipeline is ever been better, our quality pipeline is $2 billion over where it was last year. So opportunities are there for us. We are just putting the right resources on it to have the highest probability of win.

Patrick McCarthy – FBR Capital Markets

Okay. Great. Thanks.

Operator

Next question comes through from Bill Loomis with Stifel Nicolaus.

Bill Loomis – Stifel Nicolaus

Hi, thank you. Just continuing on the awards question, a 0.8 book-to-bill in second quarter obviously much better than a year ago and first quarter, but you’re lowering guidance because awards are tracking lower and you think, is that as late in the quarter you thought you would get more because it seems unusual that you would be looking for a high award quarter in the June quarter?

Michael Alber

So Bill this is Mike. I think as we look forward over the next two quarters, we expect to probably be in the 8.5 to 9.5 range for the full year given the current contract solicitation environment and award days there. Historically, Q4 has been over 1 for us from a book-to-bill but that's kind of where we are seeing things right now.

Bill Loomis – Stifel Nicolaus

Do you, when you say 8.5 to 9.5, do you mean 0.85, 0.95 book-to-bill or is that – or you are talking about another figure?

Michael Alber

Right.

Bill Loomis – Stifel Nicolaus

O

kay. And that was below – that was from the 0.95 I think you gave on the last call?

Michael Alber

Correct. For the full year.

Bill Loomis – Stifel Nicolaus

What about the – what you want, what about that 0.8 you want in the second quarter, have you seen those ramp up or is the customer also being slow on wins stepping up and getting going?

Anthony Smeraglinolo

That's part of this as well. We are not – we are getting the contracts awards, we have the contract sealing but the funding against that is little slower than we would normally have expected. So we have that both things going on. The ones we are winning are getting funded as quickly as or as robustly as we like and we are seeing the award decisions taking little bit more time.

Bill Loomis – Stifel Nicolaus

What about the –

Anthony Smeraglinolo

I think the position is well for 2015.

Bill Loomis – Stifel Nicolaus

On some of the bigger IDIQs that you have that are relatively new like SSC, Nextgen, Pillars and I guess DRC on Eagle 2 any change in activity in the last couple of months on those?

Anthony Smeraglinolo

Yes we are seeing more activity on SSC, Nextgen that's going to be a real good area for us when we take look at the opportunities there. We are very, very encouraged. I would just, down the trails and talking to SPAWAR they’re having little troubles getting started on those pillar contracts. Things are little bit slower than they thought. They are putting more attention on it so we may see some better deal flow in the second half of the year but clearly they’re disappointed in the – how long it's been taking them to get task orders out and the task orders that have come out how long is taking them to get them under order.

Bill Loomis – Stifel Nicolaus

And are there bigger IDIQ, any other one kind of jump out at you as having some change in pattern here in the last two or three months other than SSES and Nextgen?

Anthony Smeraglinolo

Again, SSES is going equal to better than we thought, SPAWAR pillars are going little slower than we thought. I think it's probably normal on the rest of the stuff.

Bill Loomis – Stifel Nicolaus

Okay. Thank you.

Operator

Next question comes from Brian Ruttenbur with CRT Capital.

Anthony Smeraglinolo

Hey Brian.

Brian Ruttenbur – CRT Capital

Hi guys, how are you guys doing?

Anthony Smeraglinolo

We are good.

Brian Ruttenbur – CRT Capital

Good. Okay. Just so trying to understand the next couple of quarters at least through year end, your gross margins should be trending flat to slightly down from second quarter is that what I am looking at and SG&A should be kind of flattish to slightly down from these levels from second quarter levels?

Anthony Smeraglinolo

Yes Brian I think those are good assumptions when we take a look at third, fourth quarters. Yes.

Brian Ruttenbur – CRT Capital

Okay and then tax rate question, these are all kind of housekeeping I apologize, but the tax rate you said was down in the second quarter. You expected to be back up at normalized levels, maybe 38.5%, 39% further remainder of the year or what's the number for the remainder?

Michael Alber

Yes we do expect at the end of the year GAAP tax rate of 39%, we see some probations throughout the year with regards to how we account for the joint venture and then we also see other probations with regards to some of the international tax situation. I think for guidance purposes, 39% is where we expect to be.

Brian Ruttenbur – CRT Capital

Okay and then in terms of EPS trends and everything else, we should still see a seasonally weaker fourth quarter versus third quarter because of holidays and everything else that should be seasonally weaker or is there – do you anticipate something different this year?

Anthony Smeraglinolo

I think when we, with regards to looking forward, the change in EPS is really going to be driven by new task orders coming on board, continue to ramp down on the OCO work which has historically carried higher margins and then more task orders coming on board that are cost plus in nature which typically carry a lower margin rate.

Brian Ruttenbur – CRT Capital

Okay and then DRC are they fully integrated at this time or do you anticipate or when do you anticipate full integration?

Anthony Smeraglinolo

We are from a technical standpoint and strategic standpoint we are well ahead of schedule right now. That integration is going really, really strong, and going really well. We will have all systems cut over within the first quarter of next year. We will basically be converting them to our cost point system in the first quarter of next year. And so pretty much be completed with all of the integration activities the majority of it will be done this year and then we will have some completed over to the first quarter.

Michael Alber

Yes Brian from an additional point of view, there are already fully integrated. We are seeing the synergies between the business groups. So operationally be integrated is right business system end of this year first quarter of next year.

Brian Ruttenbur – CRT Capital

Okay and then final one on the DSOs, is the goal still get to the high 60s and is that reachable and can you reach that by year end?

Michael Alber

If Tony had his way, we would be – we would have been there already. Obviously, it is achievable because when you take a look at others that are in our space that have similar portfolios as we do, they are running at that rate. So our goal is to get down and be able to function comfortably in the mid to upper 60 range, but once again it's just making sure that we have got all of our processes aligned and we continue to streamline processes and make sure we are hitting on all cylinders.

Anthony Smeraglinolo

And one other thing Brian as Mike pointed out is, this portfolio gets more cost reimbursable though you see a little bit softness in the margins, or different margins you probably see an increase in velocity of cash.

Brian Ruttenbur – CRT Capital

Okay, and then Tony for your crystal ball, everybody anticipates a continuing resolution what’s the over render on how long it's going to last this time?

Anthony Smeraglinolo

Brian, you know me, I am not a betting man. I only do sure things. I no longer bet on what our government is going to be going to go do. So –

Brian Ruttenbur – CRT Capital

Okay. Thank you very much.

Anthony Smeraglinolo

Thank you, Brian.

Operator

(Operator Instructions) Our next question comes from Brian Kinstlinger with Maxim Group.

Bill Loomis – Stifel Nicolaus

Hi good evening. Thanks for taking my question. First one I have got is to Bill's question in the 2Q book-to-bill, was a majority of uptake in funding the result of existing programs that you retained versus takeaways on new programs, does that explain why the book-to-bill was pretty good but it's not turning into more revenue?

Michael Alber

Yes it's, - I was going to say mathematically, if we take a look at this obviously the majority of that was funding on existing programs, but we had a sure takeaways, some takeaways quota we took some takeaways in -- focus so we had our share of takeaways but again the majority of book-to-bill was in portfolio.

Anthony Smeraglinolo

Yes there were some key wins we had on Department of Treasury and also the Air Force Unmanned Aircraft Program as well.

Brian Kinstlinger – Maxim Group

And $1.2 billion of submitted proposals, is 80% of it new, could you give us a rough percentage of how much is, what is your takeaways or new problems versus existing ones that you have got?

Anthony Smeraglinolo

Yes. 90% I believe is new. So therefore, matter of fact slightly over 90, so yes we are getting the major being recomepte follow on.

Brian Kinstlinger – Maxim Group

Then what's your confidence Tony that government is not going to issue another set of bridge awards in September versus awards are going to start to come out for new programs, not new programs but actual full contracts?

Anthony Smeraglinolo

Yes Brian, you’ve spending a lot of time with our customers and universally they feel that they have clarity through 2015, so I don't think that we are going to see bridge contracts, 2016 gets a little cloudy, again sequestration could kick back into 2016, but if I see it going into fiscal 2015, government fiscal year 2015, I don't see bridge contracts. I think they are going to try to take advantage of this new competitive environment and see the cost savings. So they are moving out to get new awards. They are moving out to make sure that they get the new awards versus bridge which is different than we saw in 2013.

Brian Kinstlinger – Maxim Group

Great and then two more, first one on your own recompletes, maybe what's the dull time pricing that you expect when you are trying to retain work or maybe how many what percentage of people do you lose for maybe de-scoping?

Anthony Smeraglinolo

Yes what we have said is, as your investment thesis is our business model, is not to compete in terms of margins. Now if the customer has a different scope, if there is better efficiencies, clearly we will pass that one to the government. But in terms of what sailing and in terms of our margins, we are not competing on margin. We are going to bid our traditional cost reversal margins, we’re going to bid our traditional T&M margins. All of it – how we run the company and how we run programs is to continuously improve and we will pass those savings onto those customers. Now you will see a shift as Mike pointed out in terms of returns because we are seeing the government shift from fixed price T&M to cost reimbursable. So it is not that we’re competing our price that is driving the margins down. It's because that the contract mix is changing.

Brian Kinstlinger – Maxim Group

And then the last question I have got, sorry, go on.

Anthony Smeraglinolo

No, as pointed out to Brian, _ the upside of that is velocity cash.

Brian Kinstlinger – Maxim Group

Right. The last question I have got for Mike when you look at the cost that are excluded as part of adjusted earnings, what are the cost that are left in 2015 as you just the small piece of amortization maybe $3 million or are there additional cash costs related to those underlying items?

Michael Alber

We will have a handful Brian of expenses related to some labor, indirect labor expenses related to some financial staff closing, closing out to folks for 2014. We expect to have most of that closed down. There is about $3 million of amortization related to DRC for next year. So, it's from a noise perspective, it's relatively minor.

Brian Kinstlinger – Maxim Group

So handful of expenses for on the finance side in closing, that’s this calendar year or you are saying 15 or some of that?

Michael Alber

In 2015, first quarter of 2015.

Brian Kinstlinger – Maxim Group

Got it. Thank you very much.

Operator

(Operator Instructions) Our next question comes from Michael French with Drexel Hamilton.

Michael French – Drexel Hamilton

Good afternoon gentlemen.

Anthony Smeraglinolo

Hey Michael, how are you?

Michael French – Drexel Hamilton

Good. Good. So it seems like the strategy there reduce the DSOs is resolving strong cash flow and I just wanted to see if you guys have changed your outlook in terms of uses of the cash. You had said that the number one priority is de-levering, just wondering if we should be surprised to see an acquisition any time soon?

Anthony Smeraglinolo

Michael at this point we are still looking at deploying cash to de-lever the company from an acquisition standpoint, as we have said in the past, we are looking at various opportunities that are presented to us and we are keeping the aperture open with regards to that but there is nothing specific on the rise right now.

Michael French – Drexel Hamilton

Okay. And then, can you address this a little bit but in terms of reducing the cost that you have in the business and fully getting everything fully integrated, I don't know if you want to do it in terms of percentage or earnings but how far along are you in a process and how much work do still have ahead of you?

Anthony Smeraglinolo

From an integration standpoint what we are really doing right now, it's really getting ourselves decisions so that when we cut over DRC, on-door accounting system on to our bid proposal system, on to our payroll system, and our network is well, we have got everything – everything is well tested and we are ready to do that. So we are really, the second half of this year is really getting ourselves posture so as we close the year out, we are able to transition those systems over release those individuals that are responsible for it. So that really when we are – that first quarter of next year we are up and running as fully integrated company. One single network, one single accounting system, one single payroll system, BD system all of the systems are all aligned. So the time that we spend right now is ensuring that we – that come January we are hitting on all cylinders and that there are no missed steps with regards to how we are going to be collecting cost or paying people or any of those items.

Michael French – Drexel Hamilton

Okay and now are the efficiencies achieved for everything you just described, are they going to offset or more than offset the margin pressure you are seeing from the contract mix?

Anthony Smeraglinolo

Yes, the positive thing about DRC was that they were over 75% fixed rate business. So the economy said that we will see by bringing DRC into the portfolio, their ability to be able to execute under our rate structure. We will see some uplift from that going forward.

Michael French – Drexel Hamilton

Okay. Very good, that's all I have. Thank you. I appreciate you answer my questions.

Anthony Smeraglinolo

Okay Michael. Thanks.

Operator

That's all the time we have for questions. So I will pass it back to Tony Smeraglinolo for any closing comments.

Anthony Smeraglinolo

Well, thank you very much for joining us today and for your interest in Engility. In summary our results for the second quarter and for the first half of 2014 have played out as we have expected. Our results were in line with or exceeded our internal top and bottom line targets. We continue to manage what we can control and win our fair share of business. We remain encouraged by the quality of pipeline and the amount of bids we have submitted to our customers. The contract solicitations and award activities remain slow. However, we expect award activity to increase in the second half of this year and are optimistic about our future.

And with that we will end today's call and we look forward to speaking with you again in the near future.

Operator

Ladies and gentlemen that concludes today’s call. Thanks for your participation, you may disconnect and have a great day.

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