Kratos Defense & Security Solutions, Inc.
Q1 2015 Earnings Call Transcript

Published: 8 May 2015

[Operator:]

Good day, ladies and gentlemen, and welcome to the Kratos Defense & Security Solutions First Quarter 2015 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference is being recorded. I would like to introduce your host for today's conference, Deborah Butera, Senior Vice President, General Counsel, Chief Compliance Officer and Secretary. Ma'am, please begin.

[Deborah Sue Butera:]

Good afternoon, everyone, and thank you for joining us for the Kratos Defense & Security Solutions first quarter conference call. With me today is Eric DeMarco, Kratos' President and Chief Executive Officer; and Deanna Lund, Kratos' Executive Vice President and Chief Financial Officer. Before we begin the substance of today's call, I'd like to make some brief introductory comments. Earlier this afternoon, we issued a press release, which outlines the topics we plan to discuss today. If anyone has not yet seen a copy of this press release, it is available on the Kratos' corporate website at www.kratosdefense.com. It is also available on the SEC's website. Additionally, I'd like to remind our listeners that this conference call is open to the media and we are providing a simultaneous webcast of this call for the public. A replay of our discussion will be available on the company's website later today. During this call, we will discuss some factors and matters that are likely to influence our business going forward. Any matters discussed today that are not historical facts, particularly comments regarding our future plans, objectives and expected future performance, and the potential impact of sequestrations, Federal Government shutdowns and the constraints on the Federal budget constitute forward-looking statements. These forward-looking statements are subject to risks and uncertainties, including those found in the Risk Factors section of our Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q, which could cause actual results to differ materially from those suggested by our forward-looking statements. We encourage all listeners to review our SEC filings, including our Annual Report on Form 10-K and any of our other SEC filings for a more complete description of these risks. All forward-looking statements are qualified in their entirety by this cautionary statement, and we undertake no obligation to revise or update these forward-looking statements to reflect events or circumstances after the date hereof. This conference call will also include a discussion of non-GAAP financial measures as that term is defined in Regulation G. Certain of the information discussed for the quarter ended March 29, 2015 including adjusted EBITDA and the associated margin rates, adjusted EPS from continuing operations, excluding restructuring and acquisition-related items and other; amortization of purchased intangibles; stock compensation expense; costs related to pending contract change orders and contract modification adjustments; non-cash impairment charges and costs on completed contracts using a cash tax rate and using a statutory tax rate of 40% are considered non-GAAP financial measures. Kratos believes this information is useful to investors because it provides a basis for measuring the company's available capital resources, the actual and forecasted operating performance of the company's business, and the company's cash flow, excluding extraordinary items and non-cash items that would normally be included in the most directly comparable measures calculated and presented in accordance with generally accepted accounting principles. The company's management uses these non-GAAP financial measures along with the most directly comparable GAAP financial measures in evaluating the company's actual and forecasted operating performance, capital resources, and cash flow. Non-GAAP financial measures should not be considered in isolation from or as a substitute for financial information presented in compliance with GAAP and non-GAAP financial measures as reported by the company may not be comparable to similarly titled amounts reported by other companies. As appropriate, the most directly comparable GAAP financial measures and information reconciling these non-GAAP financial measures to the company's financial results prepared in accordance with GAAP are included in the earnings release, which is posted on the company's website. In today's call, Mr. DeMarco will discuss our financial and operational results for the first quarter of 2015. He will then turn the call over to Ms. Lund to discuss the specifics related to our financial results. Mr. DeMarco will then make some concluding remarks about the business, and then we will open the call up to your questions. With that said, it is my pleasure to turn the call over to Mr. DeMarco.

[Eric M. DeMarco:]

Great. Thank you, Deborah. Kratos had a solid first quarter of 2015 with both our revenue and adjusted EBITDA coming in within our previously communicated guidance. Q1 program performance, our bookings, backlog and our bid and proposal pipeline also were all as expected, and accordingly we are affirming both our previously provided second quarter and full year 2015 financial guidance, including a significant Q2 over Q1 sequential increase in adjusted EBITDA. This expected increase in EBITDA and the margins is being driven by our focus on higher margin critical infrastructure security system deployment work, which is resulting in higher gross margins and expected lower PSS revenue, and a favorable KGS business mix, which based on our backlog and the bid pipeline is also expected to result in higher EBITDA margins and somewhat lower revenue throughout 2015. Deanna will be going through our Q1 financial results and the affirmed financial guidance in detail in her prepared remarks. Important representative first quarter and supported programs for Kratos included

[Deanna Hom Lund:]

Thank you, Eric. Good afternoon. Our first quarter revenues of $182.5 million came in our expected range of $180 million to $190 million. First quarter revenues were impacted by delays in certain contract awards, shipments of unmanned aerial drone system targets and delays in shipments of hardened mobile tactical facilities in our Modular Systems businesses. A number of our production contracts generate revenues as the units are shipped and delivered as opposed to on a percentage of completion basis. Accordingly, there can be up to a six month or so delay in revenue and EBITDA generation, after contract award until product delivery occurs. Cash flow is also impacted in these instances, as the contractual terms under these types of projects typically do not provide for payment until shipments occur. On a year-over-year basis, revenues increased for our KGS segment from $131.5 million to $132.5 million, inflecting growth in our Simulation and Training business of $2.6 million, and in our Technical Government Services business of $4.8 million, in which we support directed-energy weapons and electromagnetic railgun efforts, partially offset by a reduction in our legacy government services revenue of $5 million and reduced shipments of electronic products and specialized ground equipment. On a year-over-year basis, as we forecasted, revenues declined for Unmanned Systems segment from $19.7 million to $12.4 million, as a result of the delay between AFSAT Program Lot 10 production, which we completed in Q4 last year and AFSAT Production Lot 11 for which shipments begin later this year in Q3, as well as delays in expected international awards that did not occur until the second quarter of 2015, as Eric mentioned earlier. On a year-over-year basis, revenues declined for our PSS segment from $48.9 million to $37.6 million, primarily reflecting the completion or near completion of a number of larger security system deployment programs, which occurred in the fourth quarter of 2014 and early 2015, as well as the company's shift in strategic focus in this business to focus on higher margin, typically smaller security programs and only selectively bid on larger lower margin programs going forward. As we have mentioned on our last conference call, we made significant personnel and cost reductions in the first quarter, which we should start realizing the full impact of in the second quarter, specifically in our PSS business, as we have reduced our cost structure in line with our recent change in strategic focus on lower volume, higher margin work. Our adjusted EBITDA of $11.6 million for the first quarter is from continuing operations and excludes the following charges, which have been reflected as adjustments since we either believe the items are non-operational and/or non-recurring in nature. Acquisition and restructuring related items at $1.9 million, which includes employee termination costs of $900,000 as we continue to right-size the business and excess capacity cost of $600,000 in our Unmanned Systems business, $300,000 of increased costs related to pending customer change orders related to scope increases and additional work performed in our PSS business, $400,000 of transaction, foreign transaction losses and $100,000 related to potential strategic transaction related expenses. We have now recently submitted change orders for two sizable PSS projects, both of which have been recently completed. We believe we will be successful in obtaining customer change orders to reimburse us for a good portion of the additional work we have performed based upon our historical experience. However, for accounting purposes, we have recorded all the costs we have incurred on these two projects without reflecting any of the anticipated change orders we have submitted or are in the process of submitting, until actual receipt of the signed change orders or receipt of the change orders is imminent. As expected, our adjusted EBITDA was impacted by the continued increased IR&D investments during the first quarter, which were at $4.8 million or 2.6% of revenues including in the unmanned systems, satellite communications and electronic product areas. On a GAAP basis, net loss for the first quarter was $16.3 million, which included $4.6 million of expense related to amortization of intangible assets, non-cash stock compensation expense of $2 million, as well as a $2.4 million income tax provision. Moving to the balance sheet and liquidity, our cash balance was $34.4 million at March 29, plus $1.6 million of restricted cash. Cash flow from operations for the first quarter was a use of $2.9 million, resulting primarily from an increase in DSOs from 102 days at the end of the fourth quarter to 119 days at the end of first quarter. As expected, the net working capital requirements in the first quarter, primarily related to the build of inventory and product as we are producing units that are not expected to be shipped and ultimately billed until the second half of the year once shipments have occurred and contractual billing milestones have been achieved and completed. As we have discussed previously, our DSOs can fluctuate due to milestones and shipments on our production type contracts, which will likely continue to impact our DSOs and cash flows from operations in the future. As we discussed earlier, as the revenue is not recorded and billing milestones on a number of our contracts is not achieved until units are shipped and delivered, our revenues, EBITDA and operating cash flow will be impacted in the near term. Our contract mix for the first quarter was 81% of revenues generated from fixed price contracts, 14% from cost plus type contracts and 5% from time and material contracts. Revenues generated from contracts with the Federal Government were approximately 61%, including revenues generated from contracts with the DoD and with non-DoD Federal Government agencies. We also generated 5% of our revenues from state and local governments, 20% from commercial customers and 14% from foreign customers with our aggregate non-DoD revenues comprising 39% of our total revenues. Backlog at quarter end was $1.1 billion with $650 million funded and $409 million funded – unfunded. Backlog at the end of Q4 was $1.1 billion. Now on to the financial guidance that we are providing at this time. As Eric mentioned previously, we are affirming our previously communicated second quarter and fiscal 2015 guidance. We currently expect a slight second quarter sequential revenue increase as we focus on higher margin PSS opportunities and as our business mix in our Government business improves, including higher margin satellite communications and signal intelligence work, and we expect second quarter adjusted EBITDA of approximately $14 million to $17 million. As we communicated on our last quarter call, we recently reached agreement with our UCAS government sponsor, which includes a one-time $3.5 million Kratos investment, along with certain government provided systems equipment, access use of government facilities and government personnel and services. The agreement was structured so that Kratos will retain 100% ownership of the intellectual property, technology and data rights to this unmanned combat aircraft. Accordingly, we will separately identify and exclude from our continuing results this $3.5 million non-recurring IP related investment, which will commence in the second quarter and is expected to be completed by the fourth quarter. And we will keep you informed of our UCAS initiative progress. The excess capacity at our Unmanned Systems segment is expected to continue throughout the balance of 2015 due to the expected timing of production based on anticipated awards compared to total manufacturing capacity. We plan to continue to exclude the unabsorbed overhead costs through the balance of the year consistent with last year. We expect revenue and EBITDA to continue to increase in Q3 driven by increased product deliveries and execution on our under contract programs. And we expect Q4 revenue and EBITDA to approximate or be slightly higher than Q4. We're continuing to make investments from an IR&D and CapEx perspective in certain of our Electronic Products, Satellite Communications and Unmanned Systems businesses. Our total estimated CapEx for 2015 is $15 million to $19 million, with the most significant investment being in our Unmanned business, as we will be manufacturing an increased number of aircraft for expected customer presentation requirements and includes production of UCAS aircraft. I will now turn the call back over to Eric.

[Eric M. DeMarco:]

Great. Thank you very much, Deanna. We'll turn it over to the moderator now for any questions you may have.

[Operator:]

Our first question will come from the line of Mike Crawford of B. Riley & Co. Your line is open.

[Mike Crawford:]

Thank you. Eric, you mentioned your new 178 aircraft. I believe that's the fighter (24

[Eric M. DeMarco:]

Yeah. The opportunity with the Army is probably somewhat less than AFSAT with Air Force or SSAT with Navy. However, internationally the opportunity is turning out to be much, much larger. And for example, we recently received a request from an existing customer for a ROM, a rough order of magnitude for over 100 aircraft. So this platform, the 178, at this time appears to have a much larger international potential than as relative to an Army potential and the other platforms relative to the Navy and the Air Force.

[Mike Crawford:]

Okay. Thank you. And then AFSAT, I think they've been doing test flights at a lower cadence than in prior years. Is that...

[Eric M. DeMarco:]

Yes because of the budgetary environment the OPTEMPO has slowed down in the last two years on the AFSAT program. It's gone from production of somewhere from 40 units to 50 units annually to somewhere, 20 units to 30 units annually. And that's just with the Air Force, that's not including international.

[Mike Crawford:]

Okay. Thank you. And then just briefly on the satellite side. So one of the products you highlighted today is actually a product that was released last year, but the NeuralStar SQM sounds like a combination of Integral Systems, acquired 2011 and I believe SYS. So is that true? And are these still distinct divisions within the company at all?

[Eric M. DeMarco:]

No, that is correct. The original NeuralStar cyber and network management program came – program software came from SYS. The other element came from Integral Systems. The cyber threat is both terrestrial and in space. We have combined those businesses to address certain customer needs. And it has turned into a very, very interesting opportunity for us. And we have recently completed some products specifically pointed to this opportunity.

[Mike Crawford:]

Okay. Thank you. I'd love to ask about the strategic process but I guess you can't talk about it. So thank you.

[Eric M. DeMarco:]

Thank you.

[Operator:]

Our next question comes from the line of Michael Ciarmoli of KeyBanc Capital. Your line is open.

[Kevin Ciabattoni:]

Hi. It's actually Kevin on for Mike. Good afternoon.

[Eric M. DeMarco:]

Hi, Kevin.

[Kevin Ciabattoni:]

Looking at the unmanned revenues, I guess looking into 2Q since AFSAT, seems like it was the biggest driver for the 1Q decline. I mean, should we expect since AFSAT is not expected to kick in until the third quarter that unmanned revenues are likely to kind of be at a similar level to the first quarter?

[Eric M. DeMarco:]

No. No, because there's some international opportunities that – other ones that are out there that – look, the one we just landed we were supposed to get in Q4 we just got it. But there are two pretty large ones that can happen any time in the next six months. They could happen next month or they could happen in six months. And if they happen sooner rather than later there could be a pop.

[Kevin Ciabattoni:]

Okay. That quickly even on the revenue line?

[Eric M. DeMarco:]

Yes because we have so many opportunities for certain of our aircraft and 90%, 95% of them excluding pay loads are similar that we have built and we are building an inventory of these. So God willing when certain of the orders hit, we will be able to turn them relatively quickly, ship them and book the revenue.

[Kevin Ciabattoni:]

Okay. Perfect. That makes sense.

[Eric M. DeMarco:]

Yes sir.

[Kevin Ciabattoni:]

And then looking at the R&D line, it looks like it came down fairly meaningfully sequentially, a little bit year-over-year. I mean, any color you can give on the expectations for the rest of the year on R&D. I mean, was there something specific in Q1 that rolled off maybe?

[Deanna Hom Lund:]

Kevin, this is Deanna. We do expect the R&D to increase sequentially from Q1 levels. So that was a temporary sequential decline.

[Kevin Ciabattoni:]

Okay. Was that specific to maybe one or two programs? Or was it just kind of broad based in 1Q that it was down?

[Deanna Hom Lund:]

It was a couple of programs that specifically drove that.

[Kevin Ciabattoni:]

Okay. And then, Eric, kind of a big picture one I guess. I mean, any updated thoughts from your side on kind of the budget process and how things are looking to shake out here as we get closer to the end of the government fiscal year?

[Eric M. DeMarco:]

Yeah. On that last question you had on the R&D the biggest drop in the quarter was in UCAS. The aircraft are complete and integration has begun.

[Deanna Hom Lund:]

And some of the work that we had originally anticipated on the non-recurring IP investment that I spoke of, the $3.5 million, we had thought we would start some of that in the first quarter but that's really going to be ramping much more in the second and third quarter. So that's part of it as well.

[Kevin Ciabattoni:]

Okay. So that'll flow through in the R&D line then?

[Deanna Hom Lund:]

Yeah.

[Eric M. DeMarco:]

Yeah.

[Kevin Ciabattoni:]

But you'll call that out specifically?

[Deanna Hom Lund:]

We will, yes.

[Eric M. DeMarco:]

What was the other question?

[Kevin Ciabattoni:]

I was just kind of asking for some updated thoughts from you on the budget process for the 2016 budget and what you're seeing there?

[Eric M. DeMarco:]

Right. Well, right now as – right now we are seeing very strong bookings and very strong activity in the satellite communications side, the missile system and radar side, railgun, directed-energy and hypersonics that we are seeing significant activity in those areas right now. Relative to 2016, we are hearing all kinds of things. We are hearing that what the Republicans appear to be looking to present to the President with a base budget somewhere around what the Budget Control Act is, what an $80 billion or $90 billion OCO may get through. I was briefed late last week there is coming together behind the scenes. It's not Murray and it's not Ryan, but a Murray-Ryan II. So I don't know. I have no idea but my tummy tells me that because of what's going on from a national security and threat profile out there that some type of an agreement will be reached so we don't go back to a full sequestration level $500 billion or $496 billion budget.

[Kevin Ciabattoni:]

Okay. Thanks. And then last one for me and I'll jump back in the queue. Just looking at free cash flow I mean is the expectation that we could see kind of flat to negative quarter in 2Q and then a big pickup in the back half of the year? Just programmatically and with the inventory build it kind of sounds like that's the way things will shake out, any color there?

[Deanna Hom Lund:]

Yes. Kevin, you're right on. So with the scheduled milestones and the inventory build and those shipments not expected to occur until the second half. As well we have the interest payment on the note in the second quarter. So yes, we do expect to see a use in the second quarter with significant generation in the second half.

[Kevin Ciabattoni:]

Okay. Great. Thanks, Eric and Deanna.

[Eric M. DeMarco:]

Yeah, Kevin, on Patriot we are right now building a number of systems. I'm not sure I'm allowed to say how many, a lot. And deliveries are scheduled to begin in Q3 and go for a number of months. So that is one of the, if not the primary drivers that we are building – we are literally building these systems right now.

[Kevin Ciabattoni:]

Thanks for the detail.

[Eric M. DeMarco:]

Yes, sir.

[Operator:]

Our next question comes from the line of John Nelson of State of Wisconsin Investment Board. Your line is open.

[John F. Nelson:]

Hi, Eric and Deanna. I was curious about the KPSS win rate, if it has – with your refocus on bigger projects and higher margin projects, has that seemed to change at all versus past experience?

[Eric M. DeMarco:]

Yes. John, I don't know exact numbers but I think our win rate is probably increasing because we're not going after most if not all mid to large size security deployments. We're not going after them. And the smaller ones we typically have a very, very high win rate there. But I don't have the numbers at my fingertips but I believe our percentage win rate has probably increased, it's going to continue to increase because we're foregoing the bigger ones and the bigger ones are typically a lot more competitive because that gets the attention of some of the big maybe nontraditional security system deployment guys.

[John F. Nelson:]

Okay. And then as far as in this latest quarter and to-date if you can talk about it, any new – any recent contracts won that are now being contested and any old contracts being contested that have been resolved?

[Eric M. DeMarco:]

Yes. Yes and no. So let me answer the second one first. We still have not heard on that very large radar contract that we won that was protested and then it was determined to be re-procured. It's been re-procured, we've submitted the bid and we're waiting.

[John F. Nelson:]

Okay.

[Eric M. DeMarco:]

Okay. So that one is still out there. In this last quarter the reverse. We lost a contract. We protested it. Now it's on the other side. Oh and very importantly that's related to another one that down in the South we were teamed with somebody, lost, we protested it, our protest was sustained and we're continuing to work on the job.

[John F. Nelson:]

Okay.

[Eric M. DeMarco:]

So the protest environment, the GAO just put something out in the past week how protests are accelerating and they say they're actually going to re-look at the rules or the process, because what we've been experiencing, what others are experiencing is just ruining the procurement process.

[John F. Nelson:]

Sure.

[Eric M. DeMarco:]

But we'll see.

[John F. Nelson:]

Okay. And then the last question is if you could look out two to three years, what do you think the defense unmanned aircraft markets might look like? And besides you, who else would be major players in it? And just give me a little brainstorming on your part on that.

[Eric M. DeMarco:]

The number of high performance unmanned opportunities that we are starting to see in the past three or four months is accelerating rapidly. And these opportunities are from various agencies and it's related to a next or new generation of unmanned aerial system that can perform its mission in fully contested air space over long distances. I believe that this is going to accelerate rapidly and that the Predator, the Reaper will always be there for certain missions but those are going to, in my opinion – replaced is the wrong word, but there's going to be a next generation of jet powered, unmanned – aerial unmanned combat aircraft to do a number of missions. But the current fleets are not – they were not designed to perform in that fully contested environment. Looking out two or three years for us in the unmanned aerial and unmanned drone system area, I think it's going to be fantastic. As we've said we're under contract on what's going to be the largest program in our company's history, we're going to go into LRIP next year and that could be an incremental $100 million a year for us, a year beginning two or three years from now. We have a second one we're under contract on that's confidential, we're going to go into LRIP next year, that's all I can say about that. And then there's a third one that we're on that if it goes it could be equally as big. And those three don't include some of these new ones we're pursuing. So I think that the threat environment is driving this, the market is there and we're fortunate enough that we're on three very large opportunities.

[John F. Nelson:]

Okay. Thank you.

[Eric M. DeMarco:]

Thank you.

[Operator:]

Our next question comes from the line of Eric Selle of SunTrust Robinson Humphrey. Your line is open.

[Eric Selle:]

Hi. Good afternoon. Getting to the guidance for the year and doing some quick math here, if EBITDA is flat to slightly down versus 2014, let's cuff that at around $80 million versus $82 million you did in 2014. And if I take the midpoint of guidance on Q2 that means the first half is going to run at about $27 million and you back into kind of $53 million in the back half EBITDA, which is twice the profitability in the first half. Can you guys give us the big drivers of that profit growth? Whether it be the employee savings, whether it be the unleashing of the non-pursuant (40

[Eric M. DeMarco:]

Right. So let's talk on the revenue side and then the profit side will fall out. So on the revenue side Patriot is a significant driver for us, DDG 1000 is going to be a big driver for us, Littoral Combat Ship, these are all under contract, is going to be a very big driver for us. In the satellite communication area, this is where probably the biggest is coming from, and these are ground command and control signal monitoring and signal intelligence products. Many are classified. We are going to be – we are ramping on a very large training system for our combat platform that we won last year. That is going to ramp up in the second half of this year. And I'm still on revenue, on EW, electronic products, we – as you know, we are on some very big programs, Trident II D5, EA-18G, P-8 Poseidon, SEWIP is going to ramp in the second half of this year as well. Again, these are all under contract. You may be following what's going on with the (42

[Eric Selle:]

And then what about booking margin compared to last year for the whole?

[Eric M. DeMarco:]

Last year I'm going to say it was mid-20% and I'm guessing but I'm going to say mid to low 20s% because we won a lot of large 20% security deployments primarily with some, not mass transit authorities, with some large critical infrastructure building deployments.

[Eric Selle:]

And then your guidance I assume does not include protested – so is your all that revenue is – there's no chance that any of that Patriot, DDG, combat ship, satellite, none of that can be protested? That's all beyond that phase?

[Eric M. DeMarco:]

Every one that I mentioned is, I believe is, other than maybe one of those SBIR bids is beyond protest.

[Eric Selle:]

So you have a lot of confidence in that back half ramp?

[Eric M. DeMarco:]

Oh yeah.

[Eric Selle:]

And then when we look at the head count cuts, what is the quantity or size of this head count cuts in savings? You paid I think just shy of a $1 million in severance. Is that a good proxy for the ongoing savings or could it be higher than that?

[Deanna Hom Lund:]

It's higher than that, Eric. So it's about 100 – it's a little over 100 heads for the quarter and rough order of magnitude it's about a $5 million to $6 million savings on an annualized basis.

[Eric Selle:]

That's around $50,000 per person, something like that?

[Deanna Hom Lund:]

Roughly. Yeah.

[Eric Selle:]

Okay. Okay. And then when we look at the – I know the first quarter was dampened by three programs that were – they weren't percent completion, they are upon delivery. Are all those hitting in the second quarter? And then you're backing?

[Deanna Hom Lund:]

No.

[Eric Selle:]

They're not. They're not so some of that's in the third quarter. Okay. Cool.

[Deanna Hom Lund:]

Yeah. Some of it's starting to – you'll see some of it in the end of the second quarter but not a lot. It's really the big driver you'll seeing in Q3 and Q4.

[Eric Selle:]

Okay. Great. And then just a final one, when you said second quarter revenue is slightly up, is that sequentially or year-over-year?

[Deanna Hom Lund:]

Sequentially.

[Eric Selle:]

Sequentially. So basically revenues stay low but to Eric's comment your gross margin on PSS is going to jump 50% from like 20% to 33%, something like that?

[Eric M. DeMarco:]

No. It's going to jump. It is but also our mix on the government side in the missile area, the electromagnetic railgun area, the satellite and the electronic products area has been – is really good, it's really good in our backlog and in the bids. And so those gross margins are therefore going to be higher than we originally expected as well.

[Eric Selle:]

Okay. And awesome. And just while I've got you that $5 million to $6 million, 100 people we should get probably a three – that'll be – that's an annualized number so we can probably get $3 million in the back half?

[Deanna Hom Lund:]

Yeah. There about. Yeah.

[Eric Selle:]

Okay. Hey. Thanks a lot.

[Deanna Hom Lund:]

Sure.

[Eric M. DeMarco:]

Thank you.

[Operator:]

At this time, I would like to turn the call back over to Mr. Eric DeMarco, President and CEO, for closing remarks.

[Eric M. DeMarco:]

Excellent. Thank you for joining us this afternoon. We will be chatting with you again soon. Thank you.

[Operator:]

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.