Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

NCI, Inc. (NASDAQ:NCIT)

Q2 2008 Earnings Call

July 29, 2008 5:00 pm ET

Executives

Maureen Crystal – Vice President, Investor Relations

Charles K. Narang - Chairman of the Board & Chief Executive Officer

Terry W. Glasgow – President & Director

Judith L. Bjornaas - Chief Financial Officer & Vice President, Finance

William M. Parker - Chief Operating Officer

Analysts

Erik Olbeter – Pacific Crest Securities

William Loomis – Stifel Nicolaus & Company, Inc.

Alex P. Hamilton – Jesup & Lamont Securities

Timothy J. Quillin – Stephens, Inc.

Mike Smith – BB&T Capital Markets

Mark C. Jordan – Noble Financial Group

Christopher W. Donaghey - SunTrust Robinson Humphrey

Operator

Welcome to NCI, Inc.’s second quarter 2008 financial results conference call. (Operator Instructions) I would like to turn the presentation over to your host for today’s call, Maureen Crystal, Vice President of Investor Relations for NCI.

Maureen Crystal

Here is our agenda for today. Charles Narang, NCI’s Chairman and CEO will provide a high level overview of our accomplishments during the second quarter of 2008. Terry Glasgow, our President, will then provide some comments on our current market conditions as well as provide more granularity on our operational and business development accomplishments during the quarter. Next Judy Bjornaas, our Chief Financial Officer, will discuss our second quarter financial and operating metrics. She will also review the third quarter and full year 2008 guidance published in today’s earnings press release. We will then open up the call for your questions. We will have Bill Parker, NCI’s Chief Operating Officer, join us during the question-and-answer session.

Before we begin our discussion it is important that we remind you that on this call we will make statements that do not address historical facts and thus our forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to factors that could cause actual results to differ materially from anticipated results and include the risks and certainties identified in our earnings press release under the caption Forward-Looking Information. For a full discussion of these factors and other risks and uncertainties please refer to the section entitled Risk Factors in NCI’s Form 10-K filed with the Securities and Exchange Commission. Also we undertake no obligation to update any of the forward-looking statements made on this call.

I will now turn the call over to Charles Narang.

Charles K. Narang

We are pleased to report the second quarter was another strong quarter for NCI. We remain on target for those stated objectives and we continue to deliver solid operating results. We had the following achievements through the second quarter of 2008, our top line revenue grew 44% to $96.3 million, our organic growth rate was 10.3%, operating margin increased to 7.6%, earnings per share increased 34% to $0.30 per share, new bookings for the second quarter were approximately $67 million and backlog of $994 million continues to reflect our solid base of book business in the Federal IT marketplace.

We continue to drive forward and execute our business strategy. We’re progressively improving results exhibiting strong growth in our core business areas. Further we continue to expand to new markets with new complementary capabilities and service offerings as a result of our recent acquisitions. We have created a robust platform for future growth and our currently focused on growing NCI into a $500 million firm by 2010 through a combination of organic growth and acquisitions.

NCI continues to invest in key resources of staff. We are investing in these resources to eventually focus on new business development opportunities. In particular we are pleased to announce that Bill Parker has been promoted to Chief Operating Officer of the company. Bill brings over 20 years of senior level executive expertise to NCI in the defense and information technology industries. We are very excited about adding an individual with Bill’s experience to our executive management team. We’re also pleased to announce that NCI was added to the Best of 3000 Index. We feel that this is testament to growth we have received since our 2005 IPO and to our success of building NCI into one of the leading providers of IT and professional services to the Federal government.

Turning now to macro issues affecting the government IT services marketplace, as we head into the second half of 2008 there are a number of issues that will most likely cause uncertainties for companies in this sector. These include potential impact and timing of new awards caused by the caused by the later pool of the Defense Supplemental Spending Bill, the potential delays in budget approvals including the likelihood of continuing resolutions, the pending Presidential election, the timetable for phasing down of troops in Iraq and funding shortfalls due to initial costs for global war and terror efforts on the world as well as domestic security.

To some degree everyone working in the Federal sector is impacted by these issues. However because of diversity of services provided by different companies and variety of customers the impact varies from company to company. We anticipate that none of these issues will impact our 2008 guidance and in just a moment Terry will discuss the long term impact of these issues on 2009 and beyond.

In closing we have all the key elements in place, the client relationships, the [inaudible] contract vehicles, the management team, the skills we employ and the financial resources needed to deliver on our promises to our stockholders.

With that I will now turn the call over to Terry to provide an operational update.

Terry W. Glasgow

We’re very pleased with our second quarter business results. These results support us as we continue to drive forward in executing our long term business strategy. We strong believe that we are on track with our stated plans and that we have established a strong platform for future improvement across all of our key operational objectives. Awards for the quarter totaled $67 million approximately 60% higher than Q2 of 2007. The pattern of increased new business proposals that we experienced in the first quarter continued into the second quarter. During the second quarter we prepared and submitted a significant volume of new business proposals. As of today we have in excess of $450 million of proposals that have been submitted and that are awaiting award.

It is our expectation that the majority of these awards will be adjudicated in the third quarter. In addition we are expecting to submit $300 million to $400 million of new proposals in the balance of the third quarter. We had anticipated that the award of some of these proposals would have occurred in the second quarter but as it turned out very few were in fact awarded as originally planned. Clearly the delay in the approval of the $162 billion War Supplemental Spending Bill until late June impacted the timing of many awards. The impact manifested itself into late procurements or, in some cases, delayed award of programs pending the resolution of the Spending Bill.

Our book-to-bill ratio for the quarter was .7 times. Awards for the first half of 2008 were $213 million and the book-to-bill for the first half was 1.1 times. The first half new business awards and the book-to-bill ratios were substantially than the first half of either 2006 or 2007 and reflects an overall increase in the activity in our sector as well as our expanded service offerings and customer positioning gains through our acquisitions of Karta and PEO Soldier. The first half new business performance puts us on track to deliver sustainable 10% to 15% organic growth.

During the quarter we were awarded several new ITES-2S Task Orders totaling approximately $11.8 million. All of the new ITES-2S Task Orders were for new work to NCI. The ITES-2S contract vehicle remains a very productive contract for NCI. Within the last 12 months NCI has been awarded in excess of $200 million of Task Orders under this vehicle putting NCI into top three out of 16 competitors on this important Army GWAC vehicle. We believe that this vehicle will continue to be viewed by Army and other DOD customers as a GWAC contract of choice and will be used extensively over its nine year period of performance.

Also during the second quarter we received new awards supporting other Army, Air Force, Intelligence and civilian agencies. New awards accounted for approximately two-thirds of our bookings with progressive engagement accounting for the balance. Progressive engagement is our practice of expansion of work with existing customers by offering new or additional services. Progressive engagement awards returns a very attractive ROI and there is minimal investment required to acquire the work.

As mentioned in previous calls staffing on several of our newer, larger contract awards have phased ramp up plans spanning over most of 2008. Most notable of those is the ITES-2S netcomm EMS program which was awarded in December of 2007. Staffing for that program began in January 2008 but the majority of the staffing for the program is anticipated late in the third quarter with the balance in the fourth quarter of this year as work transitions from other incumbents to NCI. Total staffing on the program is expected to exceed 150 people when fully transitioned.

We have excellent visibility into the staffing profile and the timing of the transitions which provides us with high confidence in our forward projections on these efforts. As you may recall this $97 million program was hotly pursued by virtually all of the ITES-2S primes reflecting the strategic importance of the work being performed and the competitive positioning that it provides to the contractor doing the work. We are pleased with the way in which we have implemented the program in the first six months and even more importantly the customer is very pleased with the professional manner in which we have executed our transition plan.

Similarly at the end of the first quarter we announced the win of the $94 million ITES-2S Gulf Region Division IT support services contract. That program is now fully staffed and is at its full run rate. Staffing for positions in Iraq are being performed by Viatech, one our ITES-2S teaming partners who has in country staff as well as strong experience and presence with its core of engineer customers.

Let me now make a couple of comments about the overall business environment for 2008. As mentioned earlier new business activity has picked up considerably in the first half of 2008 as reflected in the number of requests for proposals that have been released in our addressable market space. We believe this increased activity is a reflection of the existence of improved spending bills for the civilian agencies and for DOD and is now further supported by the passage of the War Supplemental Spending Bill which should help drive order flow through the third quarter.

There does remain however a number of issues that may impact our marketplace including uncertainty with respect to the elections and the impact of a new administration, the timing of the phase down of Iraq troops, an increase in the number of small business set aside procurements and changes in acquisition regulations enacted under the National Defense Authorization Act which now allows the protesting of Task Orders. Previously Task Orders under GWAC contract vehicles were not allowed to be protested.

Looking forward to 2009 passage of the FY09 budget is likely to be impacted by political agendas as well as the November Presidential election. Clearly there is a real likelihood of continuing resolutions in 2009 for civilian and DOD agencies. Passage of the second installment of the FY09 War Supplemental Spending Bill is likely to incur similar delays. We are nevertheless encouraged by the increased activity in our addressable market areas and believe that our market areas will continue to offer NCI good opportunity for both progressive engagement and market share expansion consistent with our stated goal of 10% to 15% long term sustained organic growth. We also believe that the market areas we are in and the customer sets we support will continue to be well funded throughout 2008 and 2009.

Now I’d like to share some insights on our new business focus. Over the last year we have been aggressively building a new and stronger new business pursuit organization. We have made a number of key hires bringing in people possessing strong government and industry experience. Our investments have covered the full life cycle of new business activities including experienced business development professionals, capture manager experts, seasoned proposal management personnel and marketing staff. These key individuals combined with other investments for staff in important technology areas and operations management have given us a strong foundation to pursue, win and perform new business in both existing and target new client areas.

With this expanded set of resources we are seeing substantially improved performance in qualifying and pursuing new business as well as yielding us the capacity to address broader markets and to bid on larger new business opportunities. Key to our organic growth strategy is the focus on our portfolio of GWAC contract vehicles. Our GWAC contract vehicles continue to generate a strong flow of new business Task Order opportunities across a wide and well funded set of customers. We believe we hold some of the most important and leverageable GWAC contract vehicles in our market area. As part of our growth strategy we’re pursuing additional new GWAC contract vehicles to further broaden our ability to access new Federal agency customers.

While these opportunities are in our pipeline we do not include any value for these vehicles until won and then we only include values for specific Task Orders under the GWAC vehicles. Our pipeline reflects our energized new business development initiatives as well as our expanded services offerings as clearly shown in the following metrics. Our total new business pipeline of identified opportunities in qualification and pursuit now exceeds $10 billion almost $4 billion higher than a year ago. Approximately $1.3 billion of the opportunities is for opportunities to be awarded in 2008 with the balance for opportunities in 2009 and beyond.

We have 73 programs with values of $25 million or more in the pipeline broken down as follows, we have 19 programs with values of greater than $100 million, we have 26 programs with values of between $50 million and $100 million and we have 28 programs with values of $25 million to $50 million. As mentioned earlier we had a heavy volume of new business activity in the second quarter and as of today we have over $450 million of new business proposals that are submitted and are currently in evaluation or pending award. The third quarter is traditionally the busiest quarter of the year for new business and as previously mentioned our expectations for the balance of the third quarter are that we will prepare and submit proposals totaling between $300 million and $400 million.

In summary we believe that we have very strong new business development, capture, proposal and operations leadership teams. These teams continue to compete for and win business against large and aggressive competitors. We have great confidence in our new business pursuit and support teams and believe we have in place the processes and resources to compete effectively.

Last quarter we announced the completion of the acquisition of the PEO Soldier business area from MTC Technologies. This $238.5 million single award IDIQ contract has been fully integrated into NCI and we are now fulfilling all responsibilities under this contract. The transition was completed flawlessly as evidenced by our customer satisfaction and by the retention of the PEO Soldier professional staff. We are exceptionally pleased with the acquisition of this work and the exposure it provides us to an important Army customer.

Now briefly on our staffing, we continue to show improvement in these metrics, our total staff is approximately 2,300 employees an increase of approximately 250 people since January. Turnover for the first quarter is in the upper teens.

I will now turn the time over to Judy who will present the financial results and guidance for the balance of 2008.

Judith L. Bjornaas

For the second quarter of 2008 revenue was up approximately 44% to $996.3 million. This compares to $66.7 million for the second quarter of 2007. Our second quarter organic revenue growth rate was 10.3%. Operating income for the second quarter was $7.3 million compared to $4.8 million for the second quarter of 2007. Operating margin for the second quarter was 7.6% compared to 7.2% for the second quarter of 2007. This improvement in operating margin is due to significant award fees received this quarter approximately $600,000 more than we received in Q2 2007 as well as an increase in our direct labor based revenue which typically carries our highest margins. These increases were offset by increased general and administrative expenses from higher bid and proposal costs and investments in our business development functions that we have previously discussed.

We incurred approximately $770,000 more in bid and proposal costs in the second quarter of 2008 than we did in the second quarter of last year due to the much higher proposal activity that Terry discussed. Net income for the second quarter was $4.1 million compared to $3 million for the same period in 2007. Diluted earnings per share for the second quarter were $0.30 per share compared to $0.22 per share for the comparable period in 2007. The effective tax rate for the second quarter of 2008 was 39.8%. Diluted shares outstanding for the second quarter of 2008 was approximately 13.6 million shares compared to approximately 13.5 million for the second quarter of 2007. Stock compensation expense for the second quarter was approximately $197,000 compared to $112,000 in the second quarter of 2007.

Moving on to our second quarter metrics, approximately 83% of our revenue was performed as a prime contractor compared to 80% for the second quarter of 2007. For the second quarter 79% of our revenue came from Department of Defense and intelligence agencies. Approximately 17% from federal civilian agencies and approximately 4% from other sources, primarily training services provided to commercial customers. Our contract mix for the second quarter was approximately 47% from time and materials contracts, 23% from cost plus contracts and 30% from fixed price contracts. Our cost plus contracts have decreased a percentage of revenue primarily because the acquisitions we have completed tended to have a higher mix of time and materials and fixed price contracts as well as many of our new task orders under our GWAC have been either time and materials for fixed price.

Now, for a brief summary of the balance sheet and cash flow statement. Cash flow provided by operations for the first six months of 2008 was approximately $4 million. Our outstanding bank debt at the end of the second quarter was $57 million and this included the debt associated with the March acquisition of the PEO Solider contract assets. I’d like to note that the PEO Solider acquisition did not include any accounts receivable prior to the acquisition date so our cash flow for the quarter did not contain any recipes from prior periods which is the primary driver for the increased receivables and the lower cash provided by operations for the quarter.

At the end of the second quarter our DSOs or day sales outstanding was 88 days down from 92 days at the end of last year. While the PEO Solider contract [novated] quickly, it did take some time to get all of the paper work processed through the payment office which delayed payment longer than usual. We’ve also been negotiating a modification on another large contract which had delayed billing. If these two contracts had been paid under typical payment time frames, our DSOs at the end of the quarter would have been down an additional four to five days. As we mentioned in our last conference call, we continue to focus on improving our DSOs and have revamped our accounts receivable process to improve efficiencies. We remain committed to getting DSOs down in to the mid 70s. Our total backlog was $994 million at the end of the second quarter with $156 million of this funded. This compares to $755 million in total backlog at the end of second quarter 2007 of which $137 million was funded.

I’m going to spend my remaining time on the call giving you an overview of the guidance for the third quarter and full year 2008 that we published in our earnings press release today. For the third quarter of 2008, we expect revenues to be in the range of $96 to $100 million and diluted EPS to be in the range of $0.29 to $0.31 per share. This guidance is based on weighted average shares of approximately $13.7 million for the third quarter. The third quarter guidance reflects the impact of the delayed awards that Terry discussed and the ramp up on some of our programs as well as some transition costs associated with those ramp ups. Overall, we are still well on track to deliver out our 2008 projections. For the full year 2008 we are reconfirming that we expect revenues to be in the range of $385 to $395 million and we are increasing the lower end of the EPS range with diluted EPS now expected to be in the range of $1.16 to $1.22 per share. This guidance is based on weighted average shares of approximately 13.7 million for 2008.

The third quarter and full year guidance includes a 39.8% estimated tax rate for the balance of the year. We are estimating net interest expense for the third quarter of approximately $550,000 and $2.2 million for the full year. Depreciation and amortization is expected to be $1 million for the third quarter and $3.8 million for the full year. Finally, stock option expense is expected to be approximately $230,000 for the third quarter and about $850,000 for the full year 2008. This guidance does not reflect the impact of any potential future acquisitions.

With that operator, we are ready to begin the Q&A session.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Erik Olbeter – Pacific Crest Securities.

Erik Olbeter – Pacific Crest Securities

Real quick sort of getting back to some of the work you saw pushed off, I think you sort of talked about the supplemental not being passed as sort of a key issues, are these things that could slip sort of beyond the third quarter? Or, have you seen sort of a pickup in activity sort of post the passage of the supplemental at the end of June?

Terry W. Glasgow

As you know, there were a lot of alternative plans being postulated in the event it was not approved and so most of the services and agencies were kind of in a hold mode through the June timeframe. What we’ve seen now is they’ve now turned it back on again and I would not expect this to extend in to the fourth quarter of our year because this is the fourth quarter of the government year and they need to get these done. My expectation is that we ought to see some fairly good awards coming out in the near future in terms of the market place.

Erik Olbeter – Pacific Crest Securities

Judy, it seemed like direct labor content was up in the quarter a little bit more than expected. Do you sort of expect to go back to more of a normal seasonal pattern in the back half of the year? And, in terms of award fees, that $600,000 is fantastic but I assume for the rest of the year we should have a normal award pattern as well?

Judith L. Bjornaas

Yeah, about half of that award fee was unexpected. It came in a little bit earlier than we were thinking it would. As far as the DL, it depends on how fast some of these things transition over that Terry talked about. PEO Solider did have kind of a high labor content in Q2, we’re expecting a little bit lower on that the balance of the year. Again, it’s just kind of hard to say with the GWAC and the awards under the GWACs from our teammates, but yes we are expecting it to be a little bit lower in the second half of the year.

Operator

Our next question comes from William Loomis – Stifel Nicolaus & Company, Inc.

William Loomis – Stifel Nicolaus & Company, Inc.

Can you just be a little more specific on some of these contracts that ramped up? When they started to contribute and when do you expect full staffing? Specifically if I could just run through three of them, on the PEO Solider, when did that fully impact your P&L?

Judith L. Bjornaas

We completed that transaction in mid March so Q2 was a full quarter and like I just mentioned to Eric, it was actually even a little bit higher in Q2 than we expected and we expect that to drop a little bit in Q3 and 4.

William Loomis – Stifel Nicolaus & Company, Inc.

Then on the $97 million Army NETCOM contract that’s staffing up, you said you’ll reach 150 people by the end of the year, I think you mentioned. Is that true and where was the staffing at the end of the second quarter?

Terry W. Glasgow

The staffing was about a third of that occurred in the first half. About two thirds was intangibly at the back end as those tasking from the other folks transitioned to us. So, about two thirds of that is expected in the second half of the year Bill. Most of it comes towards the end of the third quarter and then we have some pick up in the fourth quarter. By the end of the fourth quarter we’ll be at a full run rate on that.

William Loomis – Stifel Nicolaus & Company, Inc.

And then finally, on the $94 million task order you have to support IT in Iraq, when did that start? Where was that at the end of the second quarter and where do you think that is going for the rest of the year?

Terry W. Glasgow

It was pretty much up to speed by the end of the second quarter. And, as you recall Bill, most of that staffing, in fact, all of it over in Iraq is being done by subcontractors so that is not impacting our DL portion there.

Judith L. Bjornaas

Bill, I’d like to point out on that one as well, as Terry mentioned, by the end of the second quarter they were fully engaged but there were some upfront expenses like the annual living quarter, things like that that hit in Q2 as well. So, the Q2 profile on that was actually pretty close to what it’s going to be going forward.

William Loomis – Stifel Nicolaus & Company, Inc.

So the higher expense is related to that contract? It won’t repeat, but you’re expecting.

Judith L. Bjornaas

Yes, the revenue amount was about what it’s going to be going forward.

Operator

We’ll go next to Alex P. Hamilton – Jesup & Lamont Securities.

Alex P. Hamilton – Jesup & Lamont Securities

Two quick questions, book-to-bill you mentioned was 1.1 in the first half of 08, what’s the year-over-year comp? I haven’t done the numbers yet.

Terry W. Glasgow

It was about .7 last year for the same period and the same thing in 06.

Alex P. Hamilton – Jesup & Lamont Securities

Is it a fair characterization that the heavy lifting in terms of DSO improvement has been done and it almost sounds like you’re on the downhill slope?

Judith L. Bjornaas

We hope so, yes. We’re still implementing some of the, we spent a lot of time looking at the process, we’ve come up with some ways to automate some things. I think some of those issues that we had on the government side at the end of last year with the payment offices, I think all of that except for maybe a little bit of Department of State has been cleared up so the stuff that was out of our control I think has been cleaned up.

Alex P. Hamilton – Jesup & Lamont Securities

I don’t know if you mentioned any re-competes coming up this year?

Judith L. Bjornaas

Our 2008 overall re-compete from 07 revenue was 10% to 15% of our 07 revenue, it equated to about 5% of our 08 guidance and I think we still have one or two programs outstanding for the fourth quarter of this year.

Operator

We’ll go next to Timothy J. Quillin – Stephens, Inc.

Timothy J. Quillin – Stephens, Inc.

Could you help me with the organic growth calculation? As I recall you do it on a pro forma basis. Could you talk me through the numbers there? It seems like it implies that there was maybe $21 million from acquired companies in the year ago quarter combined PEO Soldier and Karta. Were either of those down year-to-year?

Judith L. Bjornaas

No, they weren’t down and in fact, PEO Soldier there was a predecessor contract. The contract we acquired actually didn’t start until I think the April-May timeframe of last year but to compare apples to apples we did annualize that back into 2007 but yes, your figure is about right of between $20 million and $21 million of acquired revenue and no, nothing is down from last year from the acquired revenue.

Timothy J. Quillin – Stephens, Inc.

Maybe it just seems like that’s lower than I would have expected, does that imply though that PEO Soldier versus the predecessor contract was flat or Karta was flattish or growing slower than the rest of the business?

Charles K. Narang

I don’t think so.

Judith L. Bjornaas

On track with the rest of the business.

Charles K. Narang

Neither one of those things are true. Both are growing, it’s not PEO Solider or Karta slowing down. I think the numbers are correct, maybe it’s something Judy can take a look at it again and get back to you.

Timothy J. Quillin – Stephens, Inc.

It’s probably a problem with my math.

Judith L. Bjornaas

I think too we didn’t really talk about net sense products because that was a very low figure for us this year and especially this quarter but last year I don’t know if I have the specific Q2 number but year-to-date it’s about $3 million less this year than it was last year. We offset that revenue with what we would consider higher quality revenue so that’s part of the comp issue I think as well.

Timothy J. Quillin – Stephens, Inc.

In terms of the Netcom Task Order can you give us a sense of revenue contribution in 08 and what kind of run rate you’ll be exiting the year with?

Terry W. Glasgow

Typically Tim we don’t provide specific contract revenue and it is certainly less than 10% of our revenue base. I think if you probably look at the total contract value that came in and understand that that probably represents a run rate that was there previously it might give you some insight to it but it certainly won’t be the numbers for 2008 since we’re ramping at a phased level.

Timothy J. Quillin – Stephens, Inc.

I guess you intend to get to 150 people on that program by the end of the year, where are you now?

Terry W. Glasgow

About one-third of that right now. And that by the way was always the phase-in plan, that hasn’t changed from when we won it. There were many different Task Orders underneath that that had different periods of performance so that they were letting the periods of performance run out and then transitioning. That was being done because of the way they had funds allocated though and obviously the government doesn’t want to give up funding that they already have in place.

Operator

We’ll go next to Mike Smith – BB&T Capital Markets.

Mike Smith – BB&T Capital Markets

I believe previously you guys had said that you were looking to make acquisitions but not really above or to exceed $50 million to $60 million in revenues?

Charles K. Narang

That’s the profile we had, that we were always talking about somewhere close to $50 million in revenue and that was based on the fact that it’s easy for us to look at the customer base and easy for us for integration purposes because on top of that line of credit that we’re carrying we didn’t want to go beyond that. There are many factors at looking at from $30 million to $50 million profile. If something shows up bigger than that that does fit in to our market and core confidences and is very complementary to us we’ll take a look at it.

Mike Smith – BB&T Capital Markets

If you could please maybe highlight your top three or four contracts in terms of revenue contribution for us?

Judith L. Bjornaas

We typically as Terry just mentioned don’t like to give out revenue specifics on contracts.

Operator

We’ll go next to Mark C. Jordan – Noble Financial Group.

Mark C. Jordan – Noble Financial Group

First a question on the $450 million worth of pending bids that you have in, what percent does that reflect new business versus re-compete? If we look at that $450 million number and divide it by five then that would represent what it would be at sort of annualized run rate that those bids would represent?

Terry W. Glasgow

First of all the nature of proposals is that it’s really hard to take in and extrapolate one quarter in new business and say that’s a run rate. That’s really driven around specific procurements and timing there so I’d hesitate to do it. I would guess and I don’t have the numbers with respect to the new versus existing but it’s somewhere in the 75% range or so is new.

Mark C. Jordan – Noble Financial Group

Secondly, could you talk about the timing of and your strategy for NetCents re-compete and a second question related to re-competes what percent of your 2008 revenue base is up for comp re-compete in 09?

William M. Parker

The government’s acquisition strategy on NetCents II has been evolving, if you’ve been tracking that you probably realize it but I can tell you sort of what the strategy is today. Today the plan is to break the NetCents into really eight separate procurements almost, under one umbrella but eight separate initiatives divided into functional areas, divided between small and large business and also a product component as well as different function areas. In terms of timing we anticipate seeing some RFP drafts for at least the products part of it next month and potentially a first draft of perhaps one of the functional areas next month and anticipate actual RFPs through the fall attempting to make awards by the May-June timeframe of 2009. We’ll see if all that happens but that’s the track that they’re on right now.

Mark C. Jordan – Noble Financial Group

The second question relative to the percent of 08 revenues that’ll be up for re-compete in 09?

Judith L. Bjornaas

We haven’t calculated it down to the smallest half quarter level but this year was 10% to 15% of last year’s revenue. I think it’s going to be a little bit higher next year, probably 15% maybe getting up closer to the typical 20% that you would expect to see on an annual basis.

Mark C. Jordan – Noble Financial Group

Could you roughly characterize what percent of NetCents would be of that 15% to 20%?

Judith L. Bjornaas

No, not off the top of my head. I’m not sure exactly.

Terry W. Glasgow

Because peer performance goes through next year and you weight in all that stuff, so it’s not all the NetCents [inaudible] it could go over.

Judith L. Bjornaas

Yes, they’re definitely all up for re-compete next year.

Operator

We’ll go next to Christopher W. Donaghey - SunTrust Robinson Humphrey.

Christopher W. Donaghey - SunTrust Robinson Humphrey

It sounds like you have a pretty healthy pipeline of proposals outstanding and proposals you’re about to submit, I’m just wondering if you could comment a little bit about how your view of the macro situation is impacting what you think timing is going to be like on those awards? Given your guidance does seem a little conservative with about $700 million or so in proposals either out or about to be out.

Terry W. Glasgow

Obviously we are conservative because the marketplace has taught us that lesson a long time. The macro environment is such that they are coming up in their high activity period which is August and September and I don’t see anything in the macro environment that would impact those things that have been submitted already unless it would be the typical conflicts they have with too much work and not enough acquisition core and things like that and that’s always a problem. But I really don’t see any of the macro things impacting in the near term. I think the macro things are going to impact us as we look at a continuing resolution into the government’s next fiscal year and the uncertainty that that will bring as well as the uncertainty around the election. There is one thing in there that a lot of us are probably more concerned about now than we have been in the past and that is the fact that we have more protests that we’re seeing and protests now can be used on certain Task Orders on GWAC programs in Task Orders where the value is greater than $10 million though. Obviously if we see an uptick in protests there that could serve to slow down some of the momentum that would ordinarily be there.

Operator

We’ll have a follow up from Timothy J. Quillin – Stephens, Inc.

Timothy J. Quillin – Stephens, Inc.

I probably missed this at some point over the past few months but have you given out what the run rate is on the PEO Soldier contract, at least in some terms? And you said it was a little bit higher in 2Q, can you give us a sense of where you expect, at least what the delta might be 3Q versus 2Q?

Judith L. Bjornaas

I believe at the end of last call we said we were expecting about $20 million in 08 from Soldier and I’m expecting maybe up to even a $2 million delta between Q2 and Q3.

Timothy J. Quillin – Stephens, Inc.

So was PEO Soldier $7 million in 2Q or will it be below $5 million in 3Q?

Judith L. Bjornaas

It was little bit North of $7 million in Q2.

Operator

Thank you everyone, it appears there are no further questions at this time. This concludes today’s conference call. We do appreciate your participation.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: NCI, Inc. Q2 2008 Earnings Call Transcript
This Transcript
All Transcripts