ManTech International Corporation
Q2 2015 Earnings Call Transcript

Published: 30 Jul 2015

[Operator:]

Good day, ladies and gentlemen and welcome to the ManTech International Corporation second quarter fiscal year 2015 conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference Stuart Davis, Executive Vice President for Strategy. Sir, you may begin.

[Stuart Davis:]

Thank you, Amanda and welcome, everyone. On today's call, we have George Pedersen, Chairman and CEO, Kevin Phillips, Executive Vice President and CFO and Bill Varner and Dan Keefe, our two Group Presidents. During this call, we will make statements that do not address historical facts and thus are 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. For a full discussion of these factors and other risks and uncertainties, please refer to the section entitled Risk Factors in our latest Form 10-K and our other SEC filings. We undertake no obligation to update any of the forward-looking statements made on this call. Now, I would like to turn things over to George.

[George Pedersen:]

Good afternoon, everyone and thank you for participating in today's call. In the second quarter, ManTech showed strong momentum across all of our key metrics. Compared to the first quarter's revenue, operating income, operating margin, net income and earnings per share were all up as a result of our excellent contract awards in the quarter with a clear path to continue growth. We had nearly $700 million in bookings with well over half of these bookings were new business which will build revenues and profits. Our strong bookings demonstrated that customers are beginning to move procurements forward and that we are able to compete well in the current environment. We also executed our plan to invest in growth markets through strategic acquisitions. During this quarter, we acquired both Knowledge Consulting Group and Welkin Associates, both of which greatly enhance our position in cyber defense services, high-end systems engineering and intelligence community. In July, we combined our commercial cyber products division with CounterTack which provides a greater upside for cyber products, allows us to focus on investments in cyber services, which is the true strength of ManTech. We will believe what is happening in our industry supports our organic and acquisitive growth plan. Today more diversified companies are evaluating their portfolios looking to sell attractive services to sell attractive services businesses. We expect to begin the government fiscal year with a continuing resolution. Although it might be a contentious summer and fall, with veto threats and the pending debt ceiling, the funding trend for me, the industry and for ManTech are all positive and our customers are expecting stable and increased funding. Now Kevin will provide you with details of our financial performance and outlook. Kevin?

[Kevin Phillips:]

Thank you, George. Second quarter was a strong one for ManTech with positive indicators across the board. Revenues for the second quarter were $384 million, up $14 million or 4% compared to the first quarter of 2015. Direct labor was up 7% sequentially, so we had a greater proportion of our own labor in the revenue mix for the quarter. Our support for overseas contingency operations contributed $30 million which was up about $7 million from the first quarter. Revenues were slightly lower than expected as new contract awards came in late in the quarter or pushed into the third quarter. There was little change in the standard revenue breakouts that we report. Prime contractor mix was 88% of revenues, contractor mix was unchanged. 68% of second quarter revenues were on cost plus contracts, 11% were on time and material contracts and 21% were fixed-price contracts. Operating income for the quarter was $21.1 million which was up $1.3 million or 6% from first quarter. Quarterly operating margin of 5.5% increased 10 basis points compared to the first quarter and 30 basis points compared to the second quarter of 2014, aided by cost management initiatives and some non-recurring pickups. This marks the fourth straight quarter of year-over-year margin expansion. Net income was $12.5 million and diluted earnings per share were $0.33 for the quarter, which were both up 6% compared to the first quarter of 2015. Net income increased 62% and earnings per share increased 57% from the second quarter of 2014. The year ago quarter included a one-time charge of $10.1 million for redeeming $200 million in senior notes. On to the balance sheet and cash flow statement. During the quarter, cash flow from operations was consistent with our model at $18 million or 1.5 times net income. DSOs were 83 days for the quarter, an improvement of four days compared to the first quarter of 2015. We have a corporate focus on DSOs and they should continue their down path over the next several quarters. Our balance sheet at quarter end shows $4 million in cash and $53 million of debt after paying $8 million of dividends and $101 million to acquire spoken Welkin and KCG, which together will represent over $80 million in annualized revenues. Our acquisition strategy is enabled by our ability to generate cash on a consistent basis. Until our next acquisition, we will maintain minimal cash, pay down debt on our $500 million revolving credit facility. We will maintain our strong balance sheet as we look for future acquisitions. After the quarter close, we divested MCSI, the former HBGary business to CounterTack. Beginning in the third quarter financials, we will show the investment as an asset on our balance sheet and we will not incur ongoing software development and sales expenditures required in the products business. This turning to business development. Bookings for the quarter were $692 million or book-to-bill ratio of 1.8 times. This figure does not include the $4 billion in ceiling on new IDIQs, which provides fresh sales channel for us. 58% of bookings were for new business, primarily in the areas of intelligence, cyber security and systems integration and engineering. Many of the awards came relatively late in the quarter, but the government is moving more quickly on contract awards. We also saw some protest being resolved quickly, which is good news for ManTech and the industry. The strong awards quarter brings our year-to-date and trailing 12 month book-to-bill ratio to 1.1 times which puts us in a growth posture. Total and funded backlog both grew sequentially with strong book-to-bill. Total backlog at the end of the quarter stood at $3.4 billion and funded backlog was $0.9 billion. total backlog increased 13% sequentially, the first time it has risen since the third quarter of 2013. We believe that we have turned the corner as we head into a seasonally strong awards quarter. We now have a total qualified pipeline of $19 billion of which $3 billion is outstanding and waiting adjudication. We are still on plan to submit about $8 billion of proposals for 2015. In addition, we achieved our ISO 20000 certification in the quarter, which will open up new opportunities to us and make us more competitive in the growing enterprise IT market. This certification demonstrates our enterprise IT capabilities, allows us to deliver better services at lower risk and creates a discriminator in the federal marketplace. Now to the forward outlook for 2015. We expect to achieve revenues of $1.55 billion to 1.65 billion, net income of $51 million to $53.3 million and diluted earnings per share of $1.35 to $1.41. The guidance reduction resulted from award delays but we see continued growth spurred by our recent awards and acquisitions in priority markets. The lower end of our revenue guidance is consistent with our year-to-date performance plus incremental expansion from recent awards and acquisitions. We can achieve the upper end through new business expansion and material purchases on current contracts. Operating margin for the year should be 5.5% to 5.6%. Cash collections should remain strong throughout the year, consistent with our enhanced focus on our core services business. Now Bill will speak to our cyber and intelligence business. Bill?

[Bill Varner:]

Thank you, Kevin. In terms of building for the long-term future, the second quarter was very successful for MCIS. The quarter was marked by strong new business awards and strategic acquisitions that expand our reach into new markets and strengthen our competitive position in existing markets. With the $279 million task order for the Defense Intelligence Agency or DIA enhances our presence in the enterprise IT for the intelligence community which we see as a growth market. This program is a takeaway so it should ramp up quickly, although revenues could be lumpy with large IT equipment purchases. This award was issued under DIA Solutions for the Information Technology Enterprise or the SITE vehicle and earlier this month, we won a prime position on the follow-on E-SITE contract. We see DIA as an important long-term customer for ManTech. On the last call, I described the rationale for our Welkin acquisition, so I will give an update now that integration is complete and we are seeing very positive signs. We are already bidding opportunities that leverage our combined capabilities and that neither of us could pursue it as a prime. The addition of Knowledge Consulting Group or KCG fits with our strategy of expanding into the growing cyber services and homeland security markets. KCG provides full lifecycle cyber security solutions and risk assurance, cyber operations and infrastructure security to identify and manage risk for our nation's most critical infrastructures and institutions. In addition, KCG is at the forefront of cloud security for government agencies as one of the first and most active cyber security companies accredited as a third-party assessment organization or a 3PAO under the FedRAMP program We are very excited to add KCG's talented people, trusted capabilities and important customers to ManTech. The KC acquisition is off to a great start. Shortly after the acquisition, KCG was awarded a task order on the continuous diagnostics and mitigation contract, their second CDM task order win. As CDM processes to major services competitions, ManTech and KCG are well positioned. Finally, we made an adjustment to our cyber strategy by merging MCSI, formally known as HBGary, into CounterTack. We believe that combining forces with CounterTack provides the best means to capture the value inherent in MCSI. Together CounterTack and MCSI create a powerful combination of real-time operating system surveillance with in-memory threat analysis capabilities. CounterTack now has the technology, scale and capital structure to emerge as a clear market leader in the endpoint detection and response market and ManTech can now focus on its core strength in cyber services. With the addition of KCG, ManTech has a very strong set of people and capabilities ready to secure the data and networks of government and commercial customers. The recent data breach at the Office of Personnel Management or OPM validates the critical need for cyber services and ManTech is extremely well-positioned to take advantage. Dan?

[Dan Keefe:]

Good afternoon. As we get towards the end of the government's fiscal year, we at ManTech mission solutions and services group are seeing a pickup in award and proposal activity. Notably, the $40 million task order to support Program Manager Marine intelligence, PMMI, is all new work to ManTech that expands our presence with the Marine Corps in the area of systems integration to support operating forces. In the Army, we have seen a lot more extensions and bridges than new work. In the quarter, we had three Army extensions totaling about $120 million. Within the health market, the third quarter is when most of the bidding activity happens in the VA. So we are actively working new opportunities there. We are looking forward to pursuing work under three large IDIQs that we received prime positions on in the quarter, which opens up of $4 billion sales channel. We will be competing for a wide range of engineering, logistics, maintenance and other technical services at Army TACOM, IT solutions and services for the Air Force and hardware and software support for unmanned maritime systems for the Navy. We have the capability and the past performance to be competitive in all these areas. As we discussed on our last call, we are starting to see stability in our OCO work. The requirements can change based on ground conditions and political decisions. We now expect OCO related work to contribute about $95 million for the year. George?

[George Pedersen:]

Thank you. In summary, in the second quarter, ManTech is positioned to grow based upon strong awards and excellent acquisition. We expect the funding environment will support our continued momentum through the remainder of this year and into 2016 and beyond. With that, we are ready to take your questions.

[Operator:]

[Operator Instructions]. Our first question comes from Brian Kinstlinger of Maxim Group. Your line is open.

[Brian Kinstlinger:]

Hi. Good evening. I am curious of the 58% of the bookings that were new. Are the protest periods behind the company? I know you mentioned it's improving. Or is there still some risk in some of those large awards being protested?

[George Pedersen:]

The protest periods for those are behind us and we will start seeing a ramp up. The timing of that ramp up is very much continued upon the customers transition of staff and the new work will have a greater mix of material and ODC as well.

[Brian Kinstlinger:]

And so that was my next question. Maybe is it a low percentage of direct labor? Is it in line with your business? And then if I look to the duration of those contracts, we are adding about to $100 million a year in annual revenue once ramped? Or is it less than that?

[George Pedersen:]

Yes. Annual rev will be slightly less than that. I would say that the mix of business will be slightly more proportionate to ODCs but it will still have a strong labor component and it's more of a timing of the ramp-up of that labor that we would expect to consider that the base growth from a labor perspective. Does that answer your question?

[Brian Kinstlinger:]

It does. And then the last one, there's a few pieces to it. I think you mentioned you still expect a seasonally strong September quarter for awards. So we didn't any early awards, which is unlikely in this industry in 2Q that will lead to a weaker 3Q. Is that right?

[George Pedersen:]

That's correct. We still have a strong amount of expected awards in Q3 and Q4 this year.

[Brian Kinstlinger:]

Okay. And then the last one. I know the wins we have that will recompete, was there a pricing pressure? Do you assume about 5% of it goes away on pricing? How should we think about that? Thank you very much.

[Dan Keefe:]

Yes. This is Dan. Certainly in the services, Army and Navy, pricing pressure still exists. You can see it as a very competitive market with respect to pricing.

[Brian Kinstlinger:]

Thank you so much.

[Operator:]

Thank you. Our next question comes from Gautam Khanna with Cowen & Company. Your line is open.

[Gautam Khanna:]

Yes. Good evening. Thanks.

[George Pedersen:]

Hello.

[Gautam Khanna:]

Yes. It's nice to see you. I just wanted to ask a couple of questions. One on the HBGary, I guess, reallocation or sale, I don't know what the right word is, what is the P&L impact of that in the guidance for this year?

[George Pedersen:]

So in the guidance what we will expect is that the gross margin level, it will come down a bit, gross profit level, based on that number shifting. But the G&A will also go down and net net, there should be about a 20 basis point operating margin improvement for the second half of the year from that. And in our guidance estimates, that will be off a little bit based on the ODC mix and the timing of labor awards. So it will have about a 20 basis point improvement on overall bottom line returns long-term.

[Gautam Khanna:]

Okay. And it was losing money presumably in the first half, is that a fair assessment?

[George Pedersen:]

Yes.

[Gautam Khanna:]

So just going [indiscernible], did that drive positive variance to the guidance versus the prior guidance in Q1?

[George Pedersen:]

Yes, as far as positive variance to the bottom line, which is partially offset by the ODC mix that we may have in the second half, but I think that trending into 2016, based on this as well as the labor growth we may expect from the awards, then we should start seeing some margin trend upward as we have previously stated.

[Gautam Khanna:]

Okay. Just to be clear, Kevin, on the ODCs, those are profitable, right? They are not a loss.

[George Pedersen:]

No.

[Gautam Khanna:]

The operating margins.

[George Pedersen:]

Yes. Operating profit is going up. Operating margin will be fairly consistent based on the component composition until we get the labor ramped up.

[Gautam Khanna:]

Okay. And so just to quantify it, the EPS benefit from exiting the HBGary is what to this year, for this year?

[George Pedersen:]

So for this year, the EPS benefit should be around $0.03.

[Gautam Khanna:]

Okay. And you made a comment earlier I think that you wanted to focus more on cyber services and solutions you provide as opposed to hardware. Does that suggest that your M&A focus is not going to be in things like HBGary going forward? Or is it just on the service side that's where the greater opportunities lie?

[Bill Varner:]

Yes, this is Bill. At least for ManTech, the greater opportunities are in the commercial and federal cyber services area as opposed to products. So you probably will not see us looking into another HBGary type company, which is almost totally product focused. But you certainly will see us actively looking in other commercial and federal cyber security services plays.

[Gautam Khanna:]

Okay. And last question. The two acquisitions, the latest one I guess KCG, is there anything different about the profile of the company? We hear the word consulting and I wonder the utilization rate is very different at that business than they are at the rest of ManTech that could drive some variation that didn't exist before?

[Bill Varner:]

No. I don't think so. I would not focus on that word consulting in the company name. Their business is very similar to ManTech. For that matter, we are both prime contract holders on that continuous diagnostics and mitigation program I mentioned for the Department of Homeland Security. We are both in the cyber defense business. So they offer a lot of good solid adjacencies to us.

[Gautam Khanna:]

Thank you very much.

[Bill Varner:]

You are welcome.

[Operator:]

Thank you. Our next question comes from Steven Cahall with Royal Bank of Canada. Your line is open.

[Steven Cahall:]

Yes. Thank you. So as we think about the strong bookings in the quarter and it sounds like we have got kind of a nice rising tide as well as some good competitive positioning, but with the margin guidance coming down, as we start to think about maybe a normalized margin after we get through some of the new start cost, what kind the margin kind of exiting 2015 or just medium-term do we start to think about based on some of the pricing pressures that were discussed earlier?

[George Pedersen:]

Well, we expect based on the timing of the labor ramp that we will be in the 5%, 6% operating margin range with some upper trending if all goes well. There is some margin compression but at the same time we do have a greater proportion of labor coming in and the type of work that we are getting is generally at the at or above average type of business. So we are hopeful that going into next year we will start seeing upward trends against the current operating margin.

[Steven Cahall:]

Okay. And then any change on our expected tax rate for the year? I know it was just a little bit higher in the quarter. So I didn't know if the rest of the year's background at 39% or if the full year is around that 39%?

[George Pedersen:]

It's a good question. So the full year tax rate is going to be at 40.1% is what we are expecting. Our guided EPS is impacted by about $0.02 for that and that's up from the original expectation of 39.2% and that's due to a shift in where the work location will happen into some states that have slightly higher state tax.

[Steven Cahall:]

Okay. And then just a last one maybe on the M&A pipeline. It sounds universally from yourself and your peers that we are hearing, that the quality of assets is certainly improving, but what about pricing? What kind of expectation is out there? And is that a challenge to get effective deal done? You don't seem to be the only bidder in the market these days.

[George Pedersen:]

Well, I would say that we continue to be very focused and selective from an acquisition standpoint and within the businesses that we look at, because we expect top line growth out of the businesses that will be a competitive market for that, but it will not be out of line with what we have tended today for these businesses.

[Steven Cahall:]

And has pricing gone up over the last say three to six months? I mean, has there been any shift there?

[George Pedersen:]

No. I would say, it's mixed. It's more competitive, but I would say that it's still on a 1 or 1.5 turn basis for the ones that we end up selecting.

[Steven Cahall:]

That's helpful. Thank you.

[Operator:]

Thank you. Our next question comes from Brian Ruttenbur with BB&T. Your line is open.

[Brian Ruttenbur:]

Yes. Thank you very much. I just want to understand guidance. Previous guidance, as I understand it, you needed to add about $100 million in new revenue to hit the midpoint of the range. In the current guidance that you have, number one, how much are the acquisitions adding and then how much do you still need to win in order to hit that midpoint of guidance?

[George Pedersen:]

Okay. Great question. So we had been running into the year at about $1.5 billion run rate. The two acquisitions will provide this year around $55 million in revenue and the balance of the amount to get your $1.6 billion midpoint is basically consistent with new work or the timing of ramp up on some of the new awards that we have. So I would say there is about $35 million, maybe $45 million of number that we have to work through to get to the midpoint.

[Brian Ruttenbur:]

Okay. And then the revenue contribution from your acquisitions on an annualized basis? I think you said something about $80 million. Was that both of the acquisitions?

[George Pedersen:]

It will be over $80 million, some of it's on ODC contingent as to whether or not it will be closer to $90 million, but it will be over $80 million for the two acquisitions.

[Brian Ruttenbur:]

Okay. And then on the divestures side, I just want to understand how much revenue, I don't believe the revenue was de minimis that was contributing, but then how much was the total sale price? I didn't catch that.

[George Pedersen:]

So you asked me for the sale price or the revenues?

[Brian Ruttenbur:]

Both. I was asking for the sale price. How much did you sell it for? And then I believe that the revenues were, it was --

[George Pedersen:]

It's about a $5 million annual revenue that was divested and the purchase price is two components, about between $6 million and $7 million price for the assets and then ManTech added about $3.7 million, $3.8 million cash amounts to add to the investment that we were making into that combined business based on the potential of the market.

[Brian Ruttenbur:]

Okay. Thank you very much.

[Operator:]

Thank you. Our next question comes from Edward Caso of Wells Fargo. Your line is open.

[Tyler Scott:]

Hi guys. This is actually Tyler Scott, on for Ed. What was the organic revenue growth number in the quarter?

[George Pedersen:]

Organic was 20% down.

[Tyler Scott:]

Okay. And then at the midpoint of guidance, is it still assumed to be about 9%?

[George Pedersen:]

Organic midpoint on the $1.6 billion is about 14% down.

[Tyler Scott:]

14% down. Okay. And then just getting back to the awards, of the 58% that was new awards, how much of that was actually new work versus work that ManTech took away from competitors?

[George Pedersen:]

Majority of that is takeaway work that we will be expanding from, but very little new that didn't exist before.

[Tyler Scott:]

Okay.

[George Pedersen:]

The only one that stands out as new new is the CDM work that was won in the quarter. The large award that Bill talked about is clearly takeaway work.

[Tyler Scott:]

Okay. So it's safe to say that new new work awards are still hard to come by. It's mostly takeaways.

[George Pedersen:]

Yes. I mean a lot of activity, but it is still a lot of takeaway work.

[Tyler Scott:]

Okay. And just my other question on the awards, are there any awards that are under protest? I know you have talked about a number in the past, but I want to know if there is still anything out there under protest?

[George Pedersen:]

There is, but it's not that large. It's kind of leveled off to a number that really isn't holding up our growth.

[Tyler Scott:]

Okay. And then just one final one. Are there any major recompetes? I think in Q4, you mentioned there were 17% of revenue was up for recompete this year. I don't know if you have an update on that number? Any other large awards that are in the pipeline? Thanks.

[George Pedersen:]

So for the balance of this year, the amount of revenue that's up for recompete is less than 10%. It's closer to 7%. I think next year because of the push on everybody in the industry with extensions and the like, that's where we will start seeing trends moving up to in excess of 25%. And we will give you more flavor on that as we look towards 2016.

[Tyler Scott:]

Perfect. Thank you very much.

[Operator:]

Thank you. Our next question comes from Tobey Sommer of SunTrust. Your line is open.

[Tobey Sommer:]

Thanks so much. I wanted to ask, with the When that have with the divestiture or sale of HBGary, is that saying anything or change your view at all on these services, cyber security side, in terms of the growth rates or anything going on in that industry?

[Bill Varner:]

This is Bill. No, it doesn't change our view of the value and the size of that market which we still believe to be huge. What it does suggest is that we were looking for a faster way to achieve some of the growth opportunities that we had believed were out there and now we have an opportunity that's of scale. And as we said, we are a minority owner in CounterTack. So we are very motivated to see their growth continue in the products business and our own growth continue in the commercial and government services business in the cyber area. So ManTech, traditionally, as you probably are aware, is a services company and that's really where our strengths are. So this move, this divestiture allows us to focus much more of our time on our core strengths.

[Tobey Sommer:]

Okay. That's helpful. And then as we look at the pipeline, are you seeing any changes in the mix of contract type, whether it be cost-plus or materials?

[Kevin Phillips:]

It's Kevin. I would say that no, it's not a mix but there are larger procurements that in all of our business that we are going after. And some of the larger ones tend to be more solutions based. And that's why over the last year, you have seen we been very focused on improving, mainly getting solution architects in and within that G&A domain, trying to reapportion some of that towards more solutions for IT capabilities.

[Tobey Sommer:]

All right. Great. Thank you very much.

[Operator:]

Thank you. [Operator Instructions]. Our next question comes from Bill Loomis with Stifel. Your line is open.

[Bill Loomis:]

Hi. Thanks. Kevin, just on the acquisitions, just to clear up my confusion. So with KCG and Welkin or revenues in the back half of the year, was that the $55 million you talked about?

[Kevin Phillips:]

Yes.

[Bill Loomis:]

And the other number, about $90 million, what was that again?

[Kevin Phillips:]

So the annualized numbers in excess of AD and based on the timing of some ODC activities, it would be closer to $90 million rate.

[Bill Loomis:]

Okay. And does that include some of the contribution from seven delta earlier in the year? Is that all the acquisition contribution?

[Kevin Phillips:]

No. That's just the new. The acquisition delta only has one half of a quarter balance and that's another $12 million for the quarter.

[Bill Loomis:]

Okay. On top of that. Okay.

[Kevin Phillips:]

On top of that.

[Bill Loomis:]

And then on the guidance. So you lowered the guidance because awards were later in the quarter and you have some ODCs, I mean, some pass through but that of course adds to EPS, it's accretive to EPS. So I am still trying to understand why the guidance was lowered because the last call was a month into the quarter and you did have very good awards, even if it was later and even though the pas through business is going to have margin to add to EPS, was there some other type of business that you had that just didn't expand as well? Not new business, but stuff in the current portfolio? Were you just being more conservative on the second half?

[Kevin Phillips:]

It's $0.02 on the effective tax rate, but the primary issue is trying to make sure we understand the ramp-up of the labor component based on frankly is there any delay in clearances, what's happening when we have additional BMP expenses we are expecting to incur as well. So those are the primary drivers, those three components. But there is nothing else that's driving that.

[Bill Loomis:]

Okay. And are you seeing, obviously the September quarter is generally even stronger, based on the pipeline, do you fully expect to have even better awards in the September quarter than what you just did?

[Dan Keefe:]

This is Dan. We have certainly got a lot more activity in this quarter, with Q3 coming up already than we had in Q2. Now some of those awards might slip to Q4, but certainly and then your normal end to FY activity from the government. As I mentioned, VA certainly is picking up the activity.

[Bill Varner:]

And this is Bill. The same is true for me. We have a lot of activity in the third quarter and are expecting a fair share of those awards to come our way.

[Bill Loomis:]

Okay. And Bill, just final question for you on the DIA task order. You said there was going to be large IT equipment. How much of that components or the run rate on that program is going to be more equipment going through versus the higher-margin services?

[Bill Varner:]

You know, Bill, we have a plan from the customer of what the IT component is and it's maybe half or maybe even a little more of that value could be IT, but the reason I made the comment about it being a little lumpy is that we just do not know exactly when that will occur. The labor ramp up is a little bit easier to predict.

[Bill Loomis:]

Okay. Thank you.

[Bill Varner:]

Thank you.

[George Pedersen:]

Amanda, it appears that we don't have any more questions at this time. As usual, I am going to be here and members of our senior team are going to be available for any follow-up questions. And with that, we will turn it back over to you.

[Operator:]

Thank you. Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone have a great day.