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L-3 Communications Holdings (NYSE:LLL)

Q1 2011 Earnings Call

April 21, 2011 11:00 am ET

Executives

Ralph D'Ambrosio - Chief Financial Officer and Senior Vice President

Michael Strianese - Chairman, Chief Executive Officer, President and Member of Executive Committee

Eric Boyriven - Investor Relations

Analysts

Cai Von Rumohr - Cowen and Company, LLC

Howard Rubel - Jefferies & Company, Inc.

George Shapiro - Citi

Joseph Nadol - JP Morgan Chase & Co

Robert Spingarn - Crédit Suisse AG

Troy Lahr - Stifel, Nicolaus & Co., Inc.

Operator

Good day, ladies and gentlemen, and welcome to the L-3 Communications First Quarter 2011 Earnings Conference Call. My name is Keisha, and I will be your operator for today. [Operator Instructions] I would now like to hand the conference over to Mr. Eric Boyriven with FD. Please proceed.

Eric Boyriven

Good morning, and thanks for joining us for L-3 Communications 2011 First Quarter Earnings Conference Call. With me are Michael Strianese, Chairman, President and Chief Executive Officer; and Ralph D'Ambrosio, Senior Vice President and Chief Financial Officer. After their formal remarks, management will be available to take your questions.

Please note that during this call, management will reiterate forward-looking statements that were made in the press release issued this morning. Please refer to this press release, as well as the company's SEC filings for a more detailed description of the factors that may cause actual results to differ materially from those anticipated. Also, please note that this call is being simultaneously broadcast over the Internet. I would now turn the call over to Mike Strianese. Mike, please go ahead.

Michael Strianese

Thanks, Eric. Good morning, everyone. Thanks for joining our call. Let me begin by saying that we had a good performance in the first quarter in the face of a very challenging environment and the ongoing budget uncertainty. We continue to focus on excellent execution and taking the necessary strategic steps to enhance our presence in the market, and better position us to serve the needs of our customers. We won a number of key re-competes and new awards during the quarter, and continued to perform well on our major programs. Particularly, in the current environment, it's critical that we ensure we are taking actions necessary to enhance our ability to anticipate and effectively address customer priorities and promote growth, while also optimizing the efficiency of our businesses. Along these lines, we recently streamlined our operations by consolidating the majority of our products group, with our sensors and Simulation group to establish the new Electronic Systems group, which of course is part of the Electronic Systems segment. This reorg [reorganization] will result in technology synergies and product enhancements, as well as reducing our overall operating costs.

Along with our continued outstanding performance, collaboration among our units is critical to our business strategy. We're executing well on this front, and these efforts continue to yield positive results. Our Warrior Systems business, which was formed last year after we acquired Insight has become a center of excellence with a large market share and new orders for night vision equipment, continues to be steady. We also received industry recognition when using a team -- with a team using product and integration capabilities of multiple L-3 divisions, accepted the 2011 William J. Perry award for their joint effort in project Dragon Spear, which was a Rapid Response ISR initiative. And I'd like to thank our employees for their continued focus on execution, and representing the company so well.

We spend two minutes on the budget and how we see things. First of all, there's a lot of discussion surrounding the budget. The fiscal '11 budget is $513 billion. It's a 1% or $5 billion real increase in defense spending at a time when many federal departments experience cuts of up to 18%. The fiscal '12 request is $553 billion. Most of the reductions came from areas identified by Secretary Gates as acceptable savings in his five-year $78 billion in program cuts and $100 billion in efficiencies, which won't take effect until fiscal '13. Of the 20 programs that were reduced or eliminated, no significant L-3 programs were impacted, and those efficiency savings will be reallocated to several priority areas, including ISR and equipment refurb [refurbishment] and upgrade, which are two very strong areas for us. Also, TSA funding that will support acquisition of advanced imaging technology, including our ProVision machines was not reduced. In fact, the current agreement provides for 500 additional AIT [advanced imaging technology] machines and 291 million for our EDS [Explosives Detection System] purchases and installation.

Secretary Gates has also begun a comprehensive review of the DoD budget to achieve the $400 billion in cumulative reductions by 2023 that the President has asked for. This works out to be roughly $33 billion per year, or about 6% of the total DoD budget, and will be spread out, of course, over a number of years in many areas. Any specific cuts would have to balance budgetary needs, with managing risks associated with future threats. Spending within this timeframe will undoubtedly be impacted by any leadership changes in Pentagon, and future administration changes. With Secretary Gates slated to depart this fall, the fiscal '13 budget represents the first opportunity for a strategic review of any new leader's priority efforts. Overall, our take of the situation is not as grim as some have reported, and we continue to view our operations for efficiencies that would limit the impact on L-3 and these changes.

On the financials, I'll give you a brief view. Ralph's going to take you through all the details. Our earnings were $1.95 for the quarter, up 4% compared to 2010's first quarter before the $0.10 per share charge related to the March 9 redemption of our $650 million of 5 7/8 senior subordinated notes. We continue to be very focused on taking advantage of the interest rate environment, and have almost refinanced. We have one issue left for all of our previous high yield debt with an investment grade paper, and that has significantly taken -- given a chunk out of our borrowing costs over the last two or three years.

Excluding that charge, EPS is in line with our full year 2011 projections. Sales were $3.6 billion. Orders were $3.4 billion, resulting in a book-to-bill of about $0.93 for the quarter. We expect that ratio to improve as we go through the year. Our funded backlog at the end of the quarter was approximately $11 billion. In terms of our business mix, we continue to believe we have a great balance in our portfolio. As budget shrink, my view is technology insertions on existing platforms and systems will be favored over new starts. In addition, there'll be more MRO [maintenance, repair, overhaul] required for both reset and service life extension of existing platforms, including a lot of ISR platforms. Also with potential for personnel and strength reductions from the government side, there will be occasion for an increase in demand for lower-cost contractor provided services and staff augmentation.

Talk a little bit about some significant awards and orders in the quarter. First of all, there's some major recompetes, including the largest element of the SOCOM EITC [Enterprise Information Technology Contract] recompete. The Office of Naval Intelligence, JDISS [Joint Deployable Intelligence Support Systems] program, the C-12, CLS [Contractor Logistics Support], that's Logistic Services contract for the Air Force and the Navy, the Department of Justice International Criminal Investigative Training Assistance Program, which you may remember, as ICITAP; and the DOJ asset forfeiture support, an important recompete also, is now underway. This program has anticipated value of $1.6 billion over the next five years.

We also had a number of follow-on orders on several important legacy programs. I won't name them all, but it's the P-3 sustainment and upgrades to tactical quiet generators for the Army, airborne, EO/IR [existing electro-optical/infrared] torrents and night vision equipment continue to grow very strongly. Global Hawk Block 10 award for spares will deliver three airborne systems under a three-year program. The EP-3 LRIP [low-rate initial production] was turned on for three aircraft with two kits, field services for the Phoenix systems; deployable spares on the C-27J that is expected to be deployed in late June, early July into theater, which will be the first deployment of the active duty of that airplane; buckling, data links, security systems for cargo, checked baggage, as well as the

ProVision; an international order for 10 HELRAS [Helicopter Long Range Active Sonar], that's the helicopter-based dipping sonar from Italy; a number of orders for communications-on-the-move products, and commercial aviation products is starting to pick up as well.

Some of the other recompetes that are coming up later in the year, I'll ask Ralph to cover in his pitch. In terms of some of our major programs, Project Liberty, we're providing Logistic Service support now for the entire fleet. We'll deliver another five aircraft this year, expanding that fleet to 42. We'll also retrofit the first seven aircraft, which have an older mission system installed to the current configuration.

We're currently supporting the transition to the Air Force as a program of record now for Liberty, though Big Safari remains the executive agent for the next three years. Project Liberty highlights our C3ISR integration capabilities, and continues to be recognized as an example of performance of cooperation between industry and government. In fact, I don't know if you have noticed, in Defense News this week, that came out on Monday in the far right column, there was an article that addressed the Nexgen bomber. And right up front, they said that there was some desire to use the procurement process that was used on Liberty as the model, which I felt very flattering. I don't think that will actually happen, but it's been widely recognized in the Air Force as a tremendous success in terms of program.

EMARSS, I think many of you are aware, the agency is taking voluntary corrective action on that program in response to the protests. It's very difficult to call. We believe we submitted the best value proposal. We're hopeful that the agency will award us the contract pursuant to the re-evaluation that's underway. I can't guarantee anything, and I can't give you any definitive sense of the timeframe. It could run through the year. I'm not really sure. Notwithstanding that though, we have received orders for two pre-EMARSS or Liberty-like EMARSS aircraft last year. They're underway. In addition, I believe there's a strong likelihood of additional aircraft being ordered during this period with the protest, I think, at least, three more, in fact, depending on funding.

U.K. Air Seeker, I know there was some concern about the funding going on in the U.K., but I'm happy to report, it's underway. It's a key program for us. It's worth about $800 million a year for seven years. We continue our modification work on the first group of joint aircraft in our Greenville facility. The anticipated delivery of Aircraft 1 is going to be December 2013. We're already projecting to be ahead of schedule.

In addition, the U.K. aircrews have been training on the U.S. River Joint platforms as well. So their aircrews will be ready when these airplanes are delivered. The ProVision and advanced imaging technology product, the update there is the TSA has begun its automated target recognition initiative, which will eliminate the privacy concern to travelers since the image generated is a generic mannequin. We participated in successful TSA trial, using our ATD in three airports. The initiative is continuing, with our systems being tested in a lab environment as well. We remain on track for cert of our system in the near future, and expect ProVision orders to include our ATD software. I'd also think there's a potential that it'll probably retrofit the existing installed base at some point.

Overall, we have over 600 of those systems deployed worldwide, and our systems are performing well. We continue to receive favorable feedback from travelers, who appreciate the speed, safety and efficiency of the system. Additionally, we expect international airport build out to continue to be a growth driver for our airport security products, especially in the Middle East and the Asia Pacific. We continue to receive requests for demonstrations and trials from international regulators, and we are anticipating a trial using our ProVision ATD in Australia later this spring.

So for new business opportunities, as you know, we're pursuing a number of them. I'll name a few of them. There's CLS program for the NAVAIR T34, 44 [T-44] and T6 aircraft. From our AM&M segment, Liberty-like small aircraft, ISR opportunities are growing internationally. We have, on our own R&D budget put together, what I would call expert export version of Project Liberty that would be clear or demo in international markets. My belief is it's a lot more powerful, the story to bring the product with you, and let the customer see it and demo it and certainly, more effective than a PowerPoint presentation. That aircraft will be unveiled at the RIAT show in Farnborough -- not in Farnborough, in the U.K. later this year. It's in July, and we'll see what kind of reaction we get at that point, since that is an international event, but it's military. It's not the Farnborough show. It's the military Royal International Air Tattoo, numerous classified service contracts, a number of classified IT intel [intelligence] support contracts as well.

As always, the timing of these awards could be impacted by protests and other delays, and we'll update you on all of them as they develop. Additionally, we're increasing our concentration on our non-DoD businesses and opportunities in these markets. Our intelligence agency work continues to grow, and our Commercial Avionics business is starting to improve, as we expect an increase in demand from the transport and business jet market. Other areas of focus include Commercial Communications and Security & Detection systems. We're also starting to see a flattening out from the declines in the past on the shipbuilding industry. So our Marine & Power Systems group is, I think, it's now leveled off, and we're expecting future growth in 2012. But I think their orders ran ahead of plan, and I know their orders ran ahead of plan in the first quarter, which was very, very encouraging sign for us.

Let me give you a little perspective on Services. While the growth slowed due to Iraq and Afghanistan drawdowns, there's increased competition for contracts. Notwithstanding that there are areas that provide opportunities for potential future growth, including intelligence, Cybersecurity and Enterprise IT. Our win rate in intelligence programs is strong, and we're actively pursuing cyber and Enterprise IT contracts as a prime. Cybersecurity is a top concern for the DoD and the Pentagon. It's expected to introduce its cyber strategy in the next few weeks. There are also international opportunities in these areas as well.

We've achieved best-in-class margins, at the same time, build attractive positions in many of our businesses. We expect to continually actively manage that portfolio and build long-term shareholder value. And as we've done in the past, that means we'll continue to take cost out of the business. We'll invest in areas we see better positioned for growth. We'll harvest areas where we see reasonable opportunities to do that, and we may include exiting a number of areas, if and where we see better value creation opportunities elsewhere.

On capital allocation, we are very focused and continue to focus on improving shareholder value through a very disciplined approach to our cash deployment. Last year, we returned over $1 billion or almost 80% of our free cash flow to shareholders. $834 million of it was through share repurchases, and $184 million was in dividends. Those share repurchases represented over 10% of our average market cap. This morning, we increased our guidance to reflect an increase in the planned repurchases for 2011 to $800 million, still matching last year's from the $500 million that was in our plan, which is reflecting our one, confidence in our free cash flow, and two our current outlook for M&A this year.

So I think we will be doing at least what we did last year, if not, a little bit better. And it's our plan to continue to pursue this strategy, while we believe our share price represents a compelling value. So if you look at that, assuming the same run rate for next year, 2012 as well, we will have acquired approximately 25% of our average equity market cap over these three years. That's 2009, '10 and -- I'm sorry, '10, '11 and '12. In addition, we'll also be delivering over $600 million or another 8% of our average market cap in dividends. We're also maintaining our disciplined approach to M&A. We are very aware of the trading disparity between the large public defense companies and some acquisitions out there, and the discipline is not going to change. As always, there's a number of prospects we're evaluating. But unless value is compelling, especially when compared to the value presented by reacquiring our own shares, we will act accordingly.

As I mentioned, we updated the guidance this morning. The EPS range is now $8.50 to $8.60 a share compared to the prior, which was $8.40 to $8.55. That represents growth of about 4% at the midpoint versus 2010. We did lower the sales guidance slightly to $15.5 billion to $15.6 billion, which is mainly a result of the Government Services business. The segment business areas for 2011 versus '10 or in the release, and I'm sure you can see them, and if you have questions, I know you'll ask them.

In concluding, despite the challenging market conditions, L-3 performed well this quarter. We are leaders in our business areas, and provide our customers with cutting-edge technologies, and outstanding performance. We will remain attuned to customer trends to offset uncertainties related to the timing of orders, funding levels and contract awards. In the current DoD environment, our strengths are in the areas that have less exposure to cuts and in many instances, will benefit from the reallocation of funds. Now I am in no way saying that L-3 is immune from the wholesale reduction in the defense budget. What I am saying is I believe we are positioned very, very well for the current environment, and what looks like the future trends.

So we'll continue to review our portfolio and business operations to align them with these needs, and have committed to maintaining effective, efficient and productive cost structures. At the same time, we'll continue to explore additional markets, strategic partnerships and international opportunities. Balance sheet and cash flow remain excellent. It affords us many avenues to drive our growth, including further increases in the dividend and further increases in share repurchases, and we'll continue to execute on the disciplined M&A that I mentioned. And we think that these actions will deliver the best value to customers, as well as financial performance for shareholders.

In conclusion, we did a good job this quarter in managing the business in the challenging environment. The EPS and cash flow remains strong, and we're committed to continuing this performance throughout the year and the future. The strategy remains solid, and we're confident that we will continue to perform well. L-3 has a very balanced and diversified portfolio, and we are positioned to deliver long-term growth and value in the future.

Now I will ask Ralph to give you some color on the financials, and then I'd be happy to take your questions.

Ralph D'Ambrosio

Ok. Thank you, Mike. Our earnings release covered the major trends in our first quarter 2011 versus 2010 results. Therefore, I will limit my comments to highlighting some trends in the first quarter, and reviewing the changes to our updated 2011 guidance. And I'll finish with some comments about our capital structure.

Our diluted earnings per share for the quarter decreased $0.02 to $1.85 compared to the first quarter of last year. The declining EPS was primarily driven by the $0.10 debt retirement charge and $0.02 of incremental interest expense that we incurred for overlapping debt in connection with our first quarter debt refinancing. Still, EPS was better than we expected due to a favorable sales mix and a lower tax rate. With respect to sales, first quarter consolidated sales were in line with our expectations at $3.6 billion, down a little less than 1% versus the first quarter of last year. However, sales to our commercial customers increased 12% to about $364 million.

The FY '11 continuing resolution and the delay in enacting the FY '11 appropriation impacted our first quarter results by reducing our sales by approximately $30 million, with related orders of about $170 million. At the segment level, sales grew in C3ISR and Government Services. And were offset by declines in the Aircraft Modernization and Maintenance segment and in Electronic Systems segment. First quarter sales for both Government Services and the Aircraft Modification and Maintenance segments benefited from the calendarization of our fiscal first quarters for 2011 versus 2010. In the first quarter of this year, the quarter closed in April 1. Q1 of last year closed on March 26, so we had extra days for the first quarter of this year, and it aided approximately $60 million to Government Services sales, and about $23 million to the Aircraft segment.

The extra 6 days in the first quarter will reverse this year in our fourth quarter. C3ISR sales grew 2%. That growth rate was reduced by a decline of about $20 million for force protection equipment, for which the entire negative comparison for 2011 versus 2010 happened all in the first quarter. So we expect that the C3ISR growth rate will accelerate for the rest of this year. In Aircraft Modernization and Maintenance, segment sales decreased 9% versus Q1 of last year. But if you remove the impact of the SOFSA [Special Operations Forces Support Activity] contract which declined $99 million, the segment grew by 6%.

Moving on to operating margin. Consolidated margin was 10.8%, down 50 basis points versus Q1 of last year, and that was driven by the change in sales mix that we expected to happen in C3ISR and in Electronic Systems. The Electronic Systems segment also had a $6 million profit item in the first quarter of last year due to the favorable sale of a supply agreement.

And additionally, in this year's first quarter, we had two charges. We had a charge and a profit item that largely offset each other. In C3ISR, we had a $9 million charge on a contract termination. And in AM&M, we had a contract price increase adjustment of $10 million. They offset each other. With respect to free cash flow, it was $186 million in the first quarter, down $59 million compared to the first quarter of last year. And that was due to higher pension contributions, which is entirely a quarterly timing item, as we expect full-year 2011 pension contributions to be about the same as last year's $186 million.

Moving on to the updated 2011 guidance. We increased our EPS range to $8.50 to $8.60. At the midpoint, EPS was increased by $0.07, and it was comprised of more share repurchases, a lower tax rate, a higher profit margin, partially offset by the debt retirement charge from lower estimated sales. The changes in EPS guidance are itemized in our earnings release. With respect to sales, while the first quarter, actual sales were in line with our outlook, events and changes and circumstances year-to-date have required us to lower our 2011 sales estimates. We lowered the consolidated sales guidance by $250 million or about 1.6% at the midpoint, making the new range $15.5 billion to $15.6 billion in sales, which is about a 1% decline from 2010.

At the segment level, we only reduced sales guidance in Government Services. We had a couple of -- actually, more than a couple of business unit realignments in the first quarter, and they impacted the sales guidance, with C3ISR decreasing by $66 million; Government Services by $13 million, with an offsetting increase of $79 million in the estimates in Electronic Systems. So C3ISR is going to continue to lead our growth in 2011. And while our guidance range did not change, if you account for the business unit realignment I just talked about, the guidance actually increased in C3ISR. The growth drivers are DoD, small aircraft ISR programs, international ISR programs, ROVER manpacks, and communications systems for UAVs, as well as helicopters. I will add that the DoD FY '11 appropriation delay could put some pressure on our funding on the small aircraft ISR programs. I want to see what happens.

In the Electronic Systems segment, we are now seeing a stronger demand for our EO/IR torrent system, and that is being offset by an Egyptian maritime simulation job that has been stopped due to the unrest there, subtracting about $40 million from our estimated 2011 segment sales. Additionally, we're seeing slightly lower funding on U.S. Army programs, including WIN-T profit, SOCOM impacts and night vision goggles. For the Aircraft Modernization and Maintenance segment, we're currently at the high-end of our sales range -- guidance range that is, which implies that if you remove the impact of SOFSA, the segment will grow about 2% or 3% this year versus 2010. That growth is being driven by recent competitive wins for CLS work on C-12 aircraft and other aircraft.

For Government Services, we lowered our sales guidance by $300 million on both ends, making the new range $3.6 billion to $3.7 billion. First of all, if you recall, on the fourth quarter earnings conference call, we said that we were at the low-end of our sales guidance already in that segment, and that was due to the impact of not winning an Afghan training contract. And we also had commented that we had downside risk in Government Services, and we talked about that on that call. While in the first quarter, the situation changed. In Government Services, we saw some new business pursuits slide out of 2011 into 2012, most notably the DLITE linguist competition and the NexGen for SSES. Additionally, the Iraq drawdown is happening faster than we expected, and is reducing our estimated sales for linguists and other intel [intelligence] support services by about $80 million. And while we did win several new contracts in the first quarter in this segment, we lost the NASA [National Aeronautics and Space Administration] ICS [Integrated Communications System] competition, which if you recall, was in our sales guidance for $60 million. And finally, we stopped work as we decided to stop work on a maritime security enhancement program for a foreign government customer due to some collection issues that we're having there, and we didn't want to continue to increase the risk on that program. That's subtracting about $54 million from the Government Services sales guidance.

Moving on to consolidated operating margin, we increased to 10 basis points on a consolidated basis to 10.7. That's due to improvements in C3ISR and Electronic Systems. We also increased our free cash flow guidance by $30 million to $1,290,000,000.

Finally, looking at the second quarter of 2011, we expect sales to be about $3.8 billion, with EPS of approximately $2.10, free cash flow of about $200 million, and operating margins somewhere around 10.7%, consistent with the full-year guidance. We expect the book-to-bill ratio in Q2 to be about 1.0 and the full year book-to-bill ratio to be close to 1.0. Mike covered some comments about the balance sheet, including our strong -- and it is including our strong liquidity. So I'll just say that the refinancing that we did not only reduced our interest expense, but also pushed out the maturity on $650 million of our debt by six years. So we view those as very positive actions with respect to our capital structure. That concludes my comments. Thank you, and we'll go to the Q&A now.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Robert Spingarn with Credit Suisse.

Robert Spingarn - Crédit Suisse AG

Mike, could you talk about -- or perhaps Ralph, the adjustment in the revenue guidance at Government Services, and maybe reconcile this to your talk about your comments on portfolio shaping?

Michael Strianese

Ok. We'd say the adjustment in the guidance -- what are you looking for, Rob?

Robert Spingarn - Crédit Suisse AG

The decline in the revenues by 8% or so in the Government Services revenues.

Michael Strianese

I think it was a combination of new awards slipping out as well as the mix. And on the recompetes, there were about seven of them in the quarter. The business unit won four of them, the DOJ asset forfeiture program, the largest, which is about just under $1 billion; the ICITAP program, which is $0.5 billion; and the SITEC [Special Operations Forces Information Technology Enterprise Contract] Distributed Computing, it's about $400 million. As well as the JDISS program, which was $2 million. But the offsets on that, there were three recompetes that they lost. One of them was the Nuclear Regulatory Commission IT support, this FAA, ITIS and the Coast Guard training. Now those are smaller, respectively, $220 million, $180 million and $70 million. And Rob, it's really reflective of the competitive environment, and people coming in and wanting to buy business, so...

Robert Spingarn - Crédit Suisse AG

Well, that's where I'm going with this, Mike, because this particular segment has been offered a great deal of pressure for everyone, both on the revenue side and on the margin side. I think you said last quarter that you're hoping that the margin pressure would abate, but yet it's down again here and clearly, to some extent, it's volume driven. But, I mean, is this just sort of an endless trend in this particular business?

Michael Strianese

No. I don't think it's an endless trend. I think it'll settle out. I'm not sure we're done. Let me give you a longer answer than you're asking for, but I think it's important to just let you and the rest of the community understand how we're looking at this. First of all, we had significant growth in -- I don't know, Ralph? Well, five, six and seven during the ramp-up in Iraq and Afghanistan. The Services segment was the growth leader, and I can't figure. It was well understood that we had a lot of Iraq and Afghanistan exposure in that Service segment. And of the roughly $0.5 billion in volume that's come out over the last two or three years, that Iraq exposure is getting drawn down. So that accounts for a lot of the volume. It also accounts for a good part of the margins, since that was generally higher margin work. Notwithstanding the margin commentary, I will tell you that the margins of our Services segment are market leading. We're either the 1 or 2 out of any company that's in Government Services. I don't care it was standalone public companies, or they are the segments of the other primes. I mean we're at the top of the list, so we still run a very tight ship in terms of margin, and I could tell you, we're ceding some market share to protect those margins. I was pretty vocal on saying there is certain work we're not willing to do for 4%. We're not going to do it, and we've been trying to focus on areas that offer us better margin potential. Now I think that from a portfolio balance situation, Services does provide, as it did in the past, a bit of a counterbalance. So I could say, hypothetically, if the future involves less hardware procurements at the same time, and strength is drawing down in the military and some Pentagon staffing is reduced, the only way the government's going to be able to make up for that work is through outsourcing, and outsourcing is -- remember, we talked about in-sourcing two years ago. Well, in-sourcing is out, now outsourcing is in, and that could be the future trend, so...

Robert Spingarn - Crédit Suisse AG

But Mike, is it possible that they're both out, given the budget constraints?

Michael Strianese

No, because -- no and again, anything can happen. So this is our view. Nothing is concrete, of course. But generally, what happens is when you have those reductions and end strengthen, and headcount in the building, contracted services are generally used to replace capabilities lost, and are always at a lower cost. But I think the part of the answer that you're really looking for is what are we going to do about it. And we are seriously looking across that segment, the areas where we are very confident in one, our market position; and two, our future growth, cyber and intel [intelligence] support, to name a few, where we have had significant competitive wins in those spaces, and have unique capabilities, and those areas that continue to grow. However, we are going through the portfolio, and we are starting to challenge some of the areas where the growth opportunities are more challenging, where margins are below average, where their outlook is below average, with a very minimal outlook for improvement, and the operations are non-core to us, and nothing is really non-core, but let's call it peripherally core to what we want to do with this business going forward. And in that case, we are evaluating potential alternatives for those units, including consolidating into stronger units or exiting, be it your sales, spin, wind up. I mean, it's all on the table in terms of what we might do. We are anticipating this process is going to continue over the next several months. Without totally committing, I think I will be able to give a lot more color at the mid-year earnings call in July. If not by then, certainly, I'll have more detail certainly by September. I mean it's a long process we're in the middle of. So I don't think it's appropriate now to identify specific units, although we know where they are. And in terms of size, I know you'll ask that question or the next guy will. And right now, we're in the $1 billion neighborhood, maybe a little more, maybe a little less, depending on our final decision, including what the market might bring, what the tax basis is, what the future outlook is, but we are very sensitive to the future outlook in that segment. I mean the worst thing -- what's the risk that I see? The worst thing would be to throw everything overboard, have ISR flatten out, have more demand for services, and we don't have the counterbalance in the portfolio anymore. So while nobody likes to see the Services segment come down the way it had, it has been a counterbalance in the past, and it has the potential to continue to be a counterbalance to other things in the future, now...

Robert Spingarn - Crédit Suisse AG

Ok, so just to finish this line of thought because you did go the direction I was looking for, in essence, when I reconcile this with what you said about transactions, you've been looking at high multiples and so on. At this point, you'd rather be a seller than a buyer?

Michael Strianese

In Services?

Robert Spingarn - Crédit Suisse AG

In Services and frankly, probably in any other area. That's a question.

Michael Strianese

Yes -- no, I wouldn't necessarily say that, Rob. That's very general. I mean my answer was more not so general. It was more in the context of identifying those areas that we see limited opportunity for future growth, margin improvement, and things that are not in our core focus areas for the future. So I will not agree with -- it's more of a surgical approach rather than everything's for sale at the right price.

Robert Spingarn - Crédit Suisse AG

But is it surgical throughout the company, or surgical within Services?

Michael Strianese

No. I would tell you it's -- the bulk of it would be in Services. And Services could mean both traditional Government Services, and maybe small segments of AM&M. On the product side of the business will include everything else. But probably, there's nothing in ISR. But when you get to the products portfolios, I discussed we just completed consolidating the products group with sensors and sim, right? And as a result of that, there are a number of things being consolidated. There are the potential for us to do small operations to be divested, given the right prices and market conditions that normally would occur when you go put some good operations together. There's pieces that don't fit. So I'm looking for cost savings. I'm looking for synergy. I'm looking to increase our capability. And reshaping doesn't -- it doesn't necessarily mean selling, although, that's kind of the logical answer.

Robert Spingarn - Crédit Suisse AG

Right. Last question on this, and then I'll let someone else go. But there is some chatter that we may get a request from the Iraqis to hang around beyond the end SOFEL [ph] agreement, the end of the year, maybe 30,000-plus troops. To what extent might that change your outlook?

Michael Strianese

That's an impact that would improve our outlook for 2012 and beyond as it relates very specifically to a lot of the work in MPRI that has been augmenting the U.S. Military, and I can look at it two ways. You could say, well, one, the drawdown isn't complete. Therefore, there will be some higher trailing contractor support services than we're currently anticipating, is one. And number two, for the first time and unfortunately, I've been saying this for probably three years, there is finally some activity going on under FMS, where the government of Iraq has been requesting FMS under the FMS program hardware buys and other things, if you will, from U.S. contractors. Now that is just starting, so you have both the augmentation of the 30,000 troops you mentioned, as well as direct sales to the government of Iraq. I'd say the overarching concern here is that the security situation is not quite what I think the U.S. had hoped it would be, and it looks like it's going to take longer, and that certainly will change our outlook to the positive.

Robert Spingarn - Crédit Suisse AG

Ok. Thanks, Mike.

Michael Strianese

Ok.

Operator

Your next question comes from the line of George Shapiro with Access 342.

George Shapiro - Citi

Ralph, if you could just go through -- you said Iraq's coming down quickly. You provided in the past the amount of sales to Iraq and Afghanistan. Could you just run through those numbers as to how they changed?

Ralph D'Ambrosio

Sure. Ok, so included in our guidance update today, sales at approximately $1 billion related to Iraq and Afghanistan, and that's without attributing slow aircraft ISR programs to those theaters, namely Liberty. So if you look at that $1 billion, a little less than $800 million is in Services. The balance is in a variety of products. In the Service categories, about $230 million of it pertains to CLS work in the Aircraft Modern and Maintenance segment, mainly on the contract deal teams, and on a new program that we won recently, doing equipment maintenance in Afghanistan, and partially on the U.S. Army C-12 work that we won last year, where among other things, we're supporting guardrail aircraft in Southwest Asia. The balance in that Services would be in the Government Services segment, and it's comprised of about $80 million for linguist, about $180 million for a variety of intel [intelligence] support type programs, and the balance of $300 million pertains to training, and law-enforcement support jobs coming out of MPRI. The product, which is about $260 million or so, that includes manpacks, aerostats in Afghanistan, power generation equipment, and some other communication-type terminals. So that's where it stands. So in terms of changes from the last time we spoke about it, we've seen a reduction on the linguist work, which I talked about, and that was offset by now expecting more sales on aerostat EO/IR programs and the guardrail work on the U.S. Army C-12 logistic support contract that we competitively won at the end of last year.

George Shapiro - Citi

And in terms of like the $300 million guidance that you had reduced, I know you went through a lot of the program. How much of that was effectively allocated to Iraq and Afghanistan that you lost?

Ralph D'Ambrosio

About $80 million or $90 million in the guidance reduction of $300 million. But remember, it's really not $300 million, because the last time we talked about this, I said that we were at the low end of the guidance range, which was $3.9 billion.

George Shapiro - Citi

Right. Ok. And then Mike, just one for you, to follow up on some of Rob's comments. What percentage of the Government Services business would you venture at this point would get the kinds of multiples that we've just seen in the M&A world, I mean, the most recent being SRX, which looks like it was something north of 10x EBITDA?

Michael Strianese

George, unfortunately, I am not an investment banker, and I have absolutely no skill in that area.

George Shapiro - Citi

I'd figure I'd try, Mike. What the heck?

Michael Strianese

I'd like to be one someday. But actually, George, it never ceases to surprise me, some of the multiples. And beauty is in the eyes of the beholder here. And for me to go out and predict what multiple, what percentage might bring a certain multiple, I honestly couldn't do that. I don't know whether bigger is better, smaller is better, or the mix is -- we have different mixes, and things like that. But you have some interesting multiples being paid, and some serious leverage being put on these businesses too that obviously, we, on the industrial side, can't do, but which I think is fueling it. So I don't think we'd be -- I'd like to say we'd be close, but I obviously don't know the answer to that.

George Shapiro - Citi

Yes. Ok. Thanks a lot.

Michael Strianese

Thanks.

Operator

Your next question comes from the line of Cai Von Rumohr with Cowen and Company.

Cai Von Rumohr - Cowen and Company, LLC

Thank you very much. Ralph, you had mentioned the difference in days. Could you give us the days, working days for each of the four quarters, so we can kind of think about that going forward?

Ralph D'Ambrosio

Look, there's two ways you can count working days. You can just count conventional five days per week, or you can count seven days per week. It's a mixed bag, because a lot of the Services work and Logistics Support work that we do is performed seven days a week, in some cases, 24/7. So I don't think it's productive to try to parse it between those two items. That said, we have 91 calendar days in this year's first quarter. It was 85 days in the first quarter of 2010, and had the same number of days in Q2 and Q3 this year as we had last year. And as I said earlier, we're going to have 6 days less in the fourth quarter. And that nets out to 0, which proves that my math is correct.

Cai Von Rumohr - Cowen and Company, LLC

No, that's good. That's reassuring. And then Mike, you've mentioned, I think, in response to Rob's question that you might consider looking at doing things, with maybe $1 billion, I think, I heard it in Government Services, north of, obviously, people have watched the spin they did of Huntington Ingalls. As you consider things that you're going to do, I mean, given that some of these businesses have relatively low tax basis, is it possible you would consider a spin, or is that just something that's really very unlikely?

Michael Strianese

No, Cai. Actually, that's why I'm saying this is under review as to what strategic moves we may make, because that is a serious consideration for us in terms of -- as you know, the company's been put together over many years and in many times, in tax sufficient transactions that could get triggered on a sale, so now that is certainly something that has got our attention, and that's being evaluated as part of everything we evaluate.

Cai Von Rumohr - Cowen and Company, LLC

And kind of as you consider what you might do, obviously, you guys are value enhancing. But, I mean, is the major objective to kind of enhance value by -- because others will pay more than it's worth than maybe your multiple is, or is it that you feel that just businesses are not as well suited to L-3 as they might be others?

Michael Strianese

Cai, it's more the latter. I think that as we look at it, it's a combination of things actually. Yes, I mean, I think there could be better parentage for some of these business, because they're not necessarily in our core sales for future growth, not that we don't pay attention to them, but they're not the areas where see more growth, number one. Number two, as I said, have some potential OCI, nowhere near the size of any of the other primes' potential, but we've been managing them very effectively through our mitigation plan. So that's a consideration, and that cuts across a number of different areas. And I guess the part you left out would be yes, we want to deliver shareholder value the best way we can. And so the question is -- and I guess there's always estimates and speculation is would the remaining L-3 be better positioned and trade better than it would with or without these potential divestitures. So it's all of the above. It's delivering value through the transaction and having what's left being better positioned for growth. I mean there's three things that would be desirable: better growth rate, higher margins, less Iraq exposure. So think of it that way.

Cai Von Rumohr - Cowen and Company, LLC

Ok. Terrific. Thank you very much. Good answer.

Michael Strianese

Well, I like that you understand the story.

Cai Von Rumohr - Cowen and Company, LLC

Yes.

Michael Strianese

Ok.

Operator

Your next question comes from the line of Howard Rubel with Jefferies.

Howard Rubel - Jefferies & Company, Inc.

Thank you very much. I won't ask another repositioning story. But what I want to ask, Mike, is could you talk a little bit about some of these internal growth items in their specific -- a couple in C3ISR? And I know EMARSS is still under protest, but it still seems as if you have the right solution, and there seems to be other things that are percolating that will cause you to be building and selling aircraft? And then also, talk a bit more about cyber, if you can, and some general matter, please?

Michael Strianese

Yes. We'll start by saying Rob goes last next time. The growth initiatives internally are one, we have -- after Liberty was launched, there was a lot of interest that was raised that -- let me put myself back at that time. In Farnborough, for one, a couple of years ago, where the King Air was there. There was a markup that we worked on together with Hawker Beech. There was a number of inquiries from international customers on it. As you know, the Liberty configuration has equipment that is not approved for export. And therefore, we can't sell Liberty internationally. So we undertook an internal R&D project, which I turned on last year, whether it would be -- it was last right year, I think, say, let's build -- Curtis was shaking his head, yes, it was last summer, to say, can we use the platform that we just integrated to Liberty since we've got the expertise that's current and the workforce that happens to be there for this King Air 350, and use internationally available or export-qualified sensor systems, comm [communication] systems, et cetera, that would pass muster for international sales, and we did it. And it has some great capabilities on it, including video, night vision, synthetic aperture, radar small-scale and things that make it a very compelling story at the price point that we're going to bring this to the market with. So we're not talking $70 million system. I'm not going to say the price, but I could tell you it's a very compelling price compared to what else is available in the market, with tremendous performance, parameters and a good track record in theater. We're talking about 99% mission efficiency. So that's one. Number two, we had first introduced this concept of an integrated vehicle sensor system at AUSA last fall. There was a recent IDEX [International Defense Exhibition] show, which was in the Middle East, Abu Dhabi, where we actually have our system installed on a vehicle, on a U.K. vehicle, armored vehicle, which includes an open-architecture type of a system, but allows the customer to configure out of an array of different things we make, everything from night vision to counter IED [improvised explosive devices] to comms on the move, to GPS, et cetera, et cetera, et cetera. You can configure a vehicle to be command and control, to be an expeditionary vehicle, to be a communications node and the like. Again, I mean, this is an introductory product. It will be for demo, and we believe in these types of systems, building the demo and getting them to the customer is the way to go versus trying to get some funding in this environment, which is just -- you'll never get there, the way things are. Thirdly, I have to check, can we talk about the AUSA? Yes. So given the way the world is going on commercial devices like iPhones and iPads and what's the word, Droids, Craig's here coaching me on this. We put together an L-3 apps store, if you will, to military customers, where we can provide apps to commercials, not -- it doesn't work with the Apple line at this point. It works with the different operating environment, but allows for a COTS system, commercial system, fairly sophisticated military technology that can be rapidly deployed in the field and everything from casting -- not from casting, from accessing the overhead video in a handheld device to navigation to comms over secured -- not as quite as robust as our ROVER, but at a lower price point that's kind of addressing the current reality. We're trying to be -- we don't want somebody coming in and eating our lunch with some COTS. We're there. So those are the kind of the three that I would focus on, and there's a numbers of other things we're doing, but those are the things we have been getting a lot of my focus and time. And a couple of years or so, 18 months, we talked about our UAV efforts. We came up with three things: the Mobius, the EUAS and the COTS-less systems. I've got to tell you that EUAS, first time out of the gate, won a program of record against two incumbents that are very well seeded in that business. Our new entrant kind of did it on price and performance. Mobius is not a program of record yet, but I can tell you, we finally got funding from a customer that's very interested in it. And we've also got interest now in an upsized Mobius, so a larger one that's more capable, and that funding is coming along. So I mean, these are great stories. Individually, they'll move the needle over time. They will where we didn't have to go out and spend a $1 billion to buy a UAV company. We're able to do it on our own nickel for -- I mean, fractions of the cost. I don't think we have more than $20 million to $30 million divested in the UAVs, so far, because of the capability of the company.

Howard Rubel - Jefferies & Company, Inc.

And then just -- no, that's terrific. That explains a lot. And just one follow-up, Ralph, on the balance sheet, are you sort of -- and Mike, maybe it looks like with the increase in the share repurchase, you more or less want to keep the cash about where it is. Is there any desire to allow you to have more cash and lower leverage to increase the firepower, should it be the right opportunity?

Ralph D'Ambrosio

Well, with the economies update we provided today including share repurchases, we estimate that we'll end calendar 2011 with about $950 million of cash on the balance sheet, which is why we said that we have more potential to buy back even more stock, should we decide to do so.

Michael Strianese

And also let me -- look at it this way. You have that cash, that gives us options. We have an uncapped revolver that gives us options, and we have access to the investment grade credit market that lets you do transactions that are done in like three hours. So if the right target comes across the screen, it is of paramount of importance to me that we have that firepower to be as opportunistic as we have in the past. And remember, L-3 was built in the pre-9/11 -- most of the company's built in the pre-9/11 period when valuations were much lower. We haven't been jumping at things that are trading at high multiples, but I'm confident that there will be opportunities. And when that day comes, we'll be ready.

Howard Rubel - Jefferies & Company, Inc.

Thank you, both gentlemen, very much.

Operator

Your next question comes from the line of Joe Nadol with JPMorgan.

Joseph Nadol - JP Morgan Chase & Co

A couple here. Book-to-bill for the year, Ralph, you mentioned we're looking at 1.0. I think you were 0.93 or so in Q1, and I think it's something like you mentioned that -- or the numbers work out such that they would've been closer to 1.0, if not, for the CR [Command Receiver], given some of the numbers you gave. What has to happen to get to that 1.0 for the year, either Mike or Ralph? Are there any big swing items?

Ralph D'Ambrosio

Well, the biggest single program award pertains to the FY '11 JCA [Joint Cargo Aircraft] order, which is programmed and funded freight aircraft. That should happen in the second quarter, and it's going to be close to $300 million. So that's the biggest single contract award that's necessary for us to get to the book-to-bill that I told you about. So the other thing, which I also mentioned, was that the funding has to come through on a number of our small aircraft ISR programs, and that was disrupted a bit and slowed in the first quarter, because the continuing resolution dragged out past March 4. So one thing that still needs to be shaken out, I guess, is the fact that now, we have an appropriation, so the CR is behind us, but the appropriated budget was $18 billion less than was requested, FY '11. So we need to see where that goes, and we don't think that it's going to have a lot of impact on us, but there's still the potential for reprogramming actions to happen the remainder of this year.

Joseph Nadol - JP Morgan Chase & Co

Ralph, I'm sorry, how did you calculate the $170 million of delayed orders from the CR?

Ralph D'Ambrosio

Very simple. We have planned in the forecast, and assumed orders, supply [ph], business and program that we forecasted to happen in the first quarter versus what actually happened.

Joseph Nadol - JP Morgan Chase & Co

So the assumption you're making is that everything that didn't show up was because of the CR rather than some other reason?

Ralph D'Ambrosio

No, the $170 million that I said was related to the CR, but that's how we gathered and analyzed the data. I made sure it wasn't other type items.

Joseph Nadol - JP Morgan Chase & Co

Ok. And then on the foreign customer where you stopped work, what's the exposure there?

Michael Strianese

There is no exposure because we had either collected everything or reserved it. But what happened was during the performance of this program, the customers decided to deviate from the payment schedule in the contract and discontinued making progress payments. So we've discontinued doing work, and running through the balance sheet of it. So there is no impending charge or anything that's coming in there, Joe. It's just unfortunately, we had to take it out of our sales, because -- there's a potential they to come back because they have a half-complete system, and they have breached a contract. But I kind of held the line fairly tough internationally that I'm not willing to take on that exposure because once you do, you're in a very weak negotiating position when you have all this money now invested. So that's the way I look at that.

Joseph Nadol - JP Morgan Chase & Co

That makes sense. Well, just one more. Michael, was I interrupting you?

Michael Strianese

No, I just wanted to add, though, that Ralph, there was a discussion of the continuing resolution and everything there. I haven't heard you mention it. But I'm just wondering if you guys are sensitive to it, is that because this took so long, even though we have a budget passed, right, the real challenge now is between now and the year end, which is September 30. Getting all this money obligated, that's what's worrying. That's what's worrying me about it. That's the worry, is that they don't get the money obligated. That's just because of the manpower needed to get these contracts all in place. And I know just from talking to customers, they're concerned. And if they're concerned, I'm concerned. So we're doing everything we can do to assist and get pricing out as fast as we can, and work closely with our customers to make sure our programs get the attention that they should, and they obligate the funds. But again, this has put a lot of stress on the folks in the Pentagon now that have to get this money programmed. I mean that's the issue.

Joseph Nadol - JP Morgan Chase & Co

Yes, now that's what I was getting at with the question, actually. So I'm glad you said that. But it sounds like you expect to kind of get that to 1.0 this quarter, and then higher than that in the back half of the year to offset the flip in Q1?

Michael Strianese

We do. Now we do, anyway, so...

Joseph Nadol - JP Morgan Chase & Co

Ok. Yes. Just one more. And this is, I guess, probably for Ralph. With the Electronic Systems, with the switches, it looks like net-net, that number came down a little bit as well after you factor in the realignment? Where is the incremental weakness there?

Ralph D'Ambrosio

Net-net, it didn't come down at all. But the increase, was there enough for me to think that we should raise the guidance then? It's a rounding item.

Joseph Nadol - JP Morgan Chase & Co

Well, it's $100 million or either close to it. So yes, ok. It's a little bit on the margin, but there's really nothing specific there that you're seeing in terms of slower business?

Ralph D'Ambrosio

Well, other than what I talked about, I talked about the maritime simulation[ph] job that we have in Egypt, which we thought was going to be $40 million, and it looks like it's not going to happen there this year with what's going on there. And then I talked about that we've seen funding slow down, and some reductions on programs like WIN-T profit, and on night vision goggles out of the Army.

Joseph Nadol - JP Morgan Chase & Co

Yes. Ok. Thanks.

Operator

And we have time for one more question. Your final question comes from the line of Troy Lahr with Stifel, Nicolaus.

Troy Lahr - Stifel, Nicolaus & Co., Inc.

Thanks. I was just wondering if you can talk a little bit about the back part of the year, the C3ISR? Are the margins -- I mean, can you just maybe talk a little bit about the margin profile there? I know you had some lower margin logistics work. Does that continue, or is this just kind of a near-term issue with some of that lower margin work flowing through that segment?

Ralph D'Ambrosio

We may continue in 2011?

Troy Lahr - Stifel, Nicolaus & Co., Inc.

Yes, in 2011, and I guess beyond.

Ralph D'Ambrosio

Well, our updated guidance is 11.0% to 11.2% for C3ISR margin. They were 11.4% in the first quarter, which tells you they're going to be a little lower than that -- the balance of the year. But they're going to be around 11% going forward, and we see those margins as being sustainable beyond this year, and we're certainly going to try and improve those. Well, I'm not going to commit to it yet.

Troy Lahr - Stifel, Nicolaus & Co., Inc.

But is the mix of that logistics work that you have in that business, is that about the same, or is that rolling off and some other lower-margin work is coming online?

Ralph D'Ambrosio

We're seeing it being relatively consistent beyond this year to this year.

Troy Lahr - Stifel, Nicolaus & Co., Inc.

Ok. And then with the cut to expeditionary fighting vehicle, have you started to see, or do you expect to see money starting to flow into some Bradley upgrades kind of near term, or is that just kind of a longer-term issue that you think is going to take place?

Michael Strianese

No, Troy. We are expecting to see $60 million to $70 million of funding to show up later this year. We'll work on new components, primarily transmissions, to plan the refurb [refurbishment] of the existing fleet. That requirement has not gone away, as I've been saying and it hasn't. That work is still out ahead of us that, that way will reset. It's not in the sales for 2011 in the plan, but the money is just -- obviously, we'll start to see it in sales. But I'm reasonably confident that just as in industrial base issue with DoD, we've had a discussion about it. We are self-sourced, we are the only place you can get a Bradley transmission, and I don't think this a desire of the Pentagon for us to consolidate or shut down that operation, and then not going to fund the marching army forever, and the requirement is real and it's there, so I expect this to move this year.

Troy Lahr - Stifel, Nicolaus & Co., Inc.

Ok. And then lastly, on the commercial avionics side, I think you had a pretty good quarter. Are you still expecting an uptick throughout the year? Are you seeing signs of that, or can you just maybe talk a little bit about that? I think last quarter you said you expect orders to come through kind of mid-year is particularly when those start to come in?

Michael Strianese

Yes, I think that everything we've seen in Bizjet commercial space has been positive signs. And given the downturn we've had over the last couple of years, there is certainly life now in that marketplace, we have some new products coming out as well in the ACSS area, and that business is looking healthier and healthier. So we expect to see those numbers move up modestly as we get through the year.

Troy Lahr - Stifel, Nicolaus & Co., Inc.

Ok. Can you cite that market for us a little bit, just the commercial avionics, like for you?

Ralph D'Ambrosio

Sure. This year, we expect our commercial aviation product sales to be somewhere between $230 million and $250 million.

Joseph Nadol - JP Morgan Chase & Co

Ok. Great. I appreciate it, guys. Thank you.

Ralph D'Ambrosio

About $200 million for 2010.

Joseph Nadol - JP Morgan Chase & Co

Ok. Perfect. Thanks.

Operator

And that's all the time we have today for questions. I will now like to hand the conference back over to management for any closing remarks.

Michael Strianese

Yes, thank you. So listen, thanks everybody for the time on the call. I think you should walk away understanding as we think 2011 will be a strong year in terms of cash flow, earnings, more aggressive on share repurchases. I said last year, this year and next year could represent 25% of our average market cap in terms of repurchases. We'll continue to be opportunistic on acquisitions as they come along. But the priority now is we're going to take full advantage of our share price. Where it is, we're not happy with it, and we will be very aggressive around the repurchase program. In terms of the orders in the top line, when you couple the continuing res [resolution] with the ability to get the money program with the budgetary pressures, we are certainly in a space where the visibility isn't quite where it's been in the past. In fact, it's not even close to where it's been in the past. And it's taking a little bit more -- it's put a little more volatility into the quarterlies on orders and sales. But net-net, we think we'll operate pretty tightly to our plan, and we'll get back to you, and update you in a few months on the second quarter. So thank you.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect your lines. Good day.

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