ManTech International Corporation
Q4 2021 Earnings Call Transcript

Published: 23 Feb 2022

[Operator:]

Good day, ladies and gentlemen, and welcome to the ManTech Fourth Quarter Fiscal Year 2021 Earnings Conference Call. . As a reminder, this conference call is being recorded. I would now like to turn the conference over to Stephen Vather, Vice President, Corporate Development and Investor Relations.

[Stephen Vather:]

Welcome, everyone. Thanks for participating in ManTech's fourth quarter earnings call. Joining me today is Kevin Phillips, our Chairman, CEO and President; Judy Bjornaas, our CFO; and Matt Tait, our COO. 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 the 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. On today's call, we will discuss some non-GAAP financial measures, which we believe provide useful information for investors. These non-GAAP measures should not be evaluated in isolation or as a substitute for GAAP performance measures. You can find a reconciliation of the non-GAAP measures discussed on this call in our fourth quarter earnings release. With that, let me hand the call over to Kevin.

[Kevin Phillips:]

Thanks, Stephen. Good afternoon, everyone, and thank you for joining the call. We hope that you and your families remain safe and healthy. I'd like to start by emphasizing how proud I am of ManTech's business and people for their continued resilience during a dynamic year. Throughout 2021, we successfully navigated the complex and uneven market environment, driven by the ongoing pandemic and rapidly evolving political situations, among other factors. I personally want to express my sincere gratitude to our employees for their incredible commitment to the critical missions of our customers. Their unwavering support and agility to meet changing mission requirements is a testament to how they embody our mission-first, customer-focused culture. Before we discuss our financial results, I want to acknowledge the announcement we made today regarding George Pederson's retirement from the Board after 50 years of contributions to ManTech since he cofounded our company. As you know, in late 2017, we initiated a multiyear transition plan in which George transitioned his CEO responsibilities to me and subsequently his Chairman duties in late 2020. Today's announcement is the next step in this multiyear process. George has had an illustrious career and a profound impact on this company and the industry. On a personal note, he has been a true mentor to me and many others. He consistently instilled in us the core values of striving for excellence in all that we do, being a trusted partner to our customers, caring for our people, offering our expertise and solutions and continually innovating and pushing the boundaries to advance customer missions. George helped build a tremendous team here and played an important part in setting the strategy that will be the road map to guide us forward. On behalf of all of us at ManTech, I want to thank George for his immense contributions. And with that, I'll now turn to our results. ManTech's 2021 financial results were consistent with our previously communicated guidance. We achieved record backlog levels, grew our key profit metrics, expanded margins and sustained strong cash flow generation. Additionally, in the fourth quarter, we executed on our commitment to deploy capital for long-term growth and completed 2 strategic acquisitions. First, our acquisition of Griffin closed in mid-December. Subsequent to that, we announced our acquisition of TMAC, a small data engineering company providing services to the intelligence community. We welcome the talented employees of both Griffin Technologies and TMAC to the family and look forward to driving growth and success together. Our strong balance sheet continues to provide us with the financial flexibility to deploy capital to drive long-term shareholder value creation. Our medium to long term outlook remains solid. However, we acknowledge the continuing near-term uncertainties previously discussed with respect to the timing of contract awards, supply chain constraints and a more competitive labor market. Adding to that, lingering effects from an extended CR. With respect to COVID-specific impacts, let me offer a brief update. The most recent infectious variants and strains of the COVID-19 virus led to an uptick in absences, which somewhat constrained direct labor levels in Q4 as well as in the early part of this quarter. We continue to closely monitor and take appropriate measures to mitigate spread and prioritize the safety of our employees. Shifting to the market environment, we are pleased with assets of the FY '22 NDAA. However, the government is still operating under a CR through March 11. We are cautiously optimistic with the recent progress made in Congress to advance appropriations and are hopeful that we avoid another full year CR. It is evident that near-peer threats continue to receive sharp national attention and there is an overwhelming bipartisan support to countering these potential threats. As a result, we are anticipating renewed emphasis in the upcoming 2022 National Defense Strategy in the FY '23 budget request. ManTech's market positioning, strategy and investments are well aligned to the sustained focus. Secular drivers of our long-term growth remain intact, given the importance of advancing national cyber capabilities and the necessity of digital and systems modernization across the federal government, particularly within the DoD. We are delivering differentiated solutions at speed with the necessary innovation, flexibility and security to meet our customers' most challenging missions across our national and homeland security customers. Now Judy will walk through the details of our 2021 financial performance and 2022 outlook. Judy?

[Judy Bjornaas:]

Thanks, Kevin. Our strong financial results demonstrated the resilience of our business and our ability to leverage our differentiated position to drive long-term value creation. Quarterly revenue was $634 million, which was down 1% compared to Q4 of 2020. For the year, annual revenue was $2.55 billion, up 1% year-over-year. Q4 and full year revenues were touched lighter than our expectations, due to greater-than-expected PTO utilization largely driven by the unexpected increase in COVID cases from the Omicron variant in Q4. Thankfully, the cases impacting our team were mild, but nonetheless, drove lower involuntary utilization in late 2021 and in early 2022. Unfortunately, we and the industry no longer have the benefit of 3610 coverage to offset these or related impacts. Q4 EBITDA was $62 million, up 5% from Q4 of 2020. Full year EBITDA was $264 million, up 16% from last year. Both Q4 and full year EBITDA margins were robust. EBITDA margin for the quarter was 9.8% and 10.3% for the full year, up an exceptional 50 and 120 basis points over the comparable prior year period. This was largely due to continued lower indirect spending, stronger relative contribution of direct labor and a nonrecurring benefit related to a contract closeout for some international work. On the bottom line, both GAAP and adjusted net income and diluted EPS were impacted by significantly higher tax rate in the quarter compared to last year. Despite the higher tax rate in the fourth quarter, our adjusted net income and adjusted diluted EPS performance were towards the top end of our guidance range. Q4 net income was $30 million and diluted EPS was $0.73, down 6% and 8% year-over-year. Q4 adjusted net income was $34 million and adjusted diluted EPS was $0.83, both down 6% and 7% from last year. For the full year, net income was $137 million and diluted EPS was $3.35, up 14% and 13% compared to 2020. For the full year, adjusted net income was $152 million and adjusted diluted EPS was $3.71, up 11% and 10% compared to last year. Turning now to the balance sheet and cash flow statements. We generated robust cash flow from operations of $212 million for the year, which represents 1.5x net income. DFO was 68 days, a 12-day increase compared to last year. We expect to drive this back down in the near term as the uptick was largely due to the timing of our recent acquisitions. In 2021, we invested $371 million in acquisitions, which reflects a consistent priority on leveraging the balance sheet to drive shareholder value creation through strategic M&A. At quarter end, the balance sheet showed $53 million in cash and $300 million of debt, representing a net leverage ratio of 0.9x. Additionally, we distributed $62 million in dividends in 2021, maintaining our steady return of cash to shareholders. The Board has also authorized us to raise our quarterly dividend by $0.03 to $0.41 per share, an 8% increase from current levels. The dividend will be paid in March and equates to a new annualized dividend of $1.64 or a yield of 2%. We remain committed to executing on our capital deployment strategy, which continues to prioritize M&A and dividend distributions to our shareholders. Regarding M&A, our goal is to evaluate opportunities that could accelerate our strategy and enhance our positioning across the Federal market. Moving to our view on 2022. The guidance that we are providing this afternoon aligns well with our Q3 preview and reflects the less linear operating environment with respect to the timing of awards, supply chain constraints, a more competitive labor market and the CR. We anticipate 2022 revenue to be between $2.6 billion and $2.7 billion, representing 2% to 6% growth. At the midpoint of this guidance, we expect approximately 85% of revenue to come from backlog with the balance largely coming from add-on mods and recompetes as well as a smaller contribution from new business. To help you with your modeling, we are assuming revenue build incrementally in the second half as the supply chain normalizes and as contract expansions and new contract awards begin contributing to revenue. Our expectation is that Q1 will be the lightest quarter of the year and likely resemble the fourth quarter of 2022 as we work off the lower involuntary utilization resulting from COVID impacts and the snow days in January as well as the full impact from the reductions in Afghanistan operations support. Moving to margins and profitability. Our EBITDA margin is projected to be 9.6%, which accounts for the normalization of indirect spending and excludes nonrecurring tailwinds enjoyed in 2021. We expect adjusted net income between $141.3 million and $148.5 million and adjusted diluted EPS between $3.42 and $3.60. Underpinning these ranges is an effective tax rate assumption of 25.2% and an estimated fully diluted share count of approximately 41.3 million shares. We expect cash flow from operations to be at least $215 million for the year and assumes that the legislation requiring R&D capitalization over 5 years for tax purposes is deferred beyond 2022. Capital expenditures are expected to be around 1.5% of revenue, representing a market decline from 2021. Now I'll turn it over to Matt to cover the business development and operational highlights for the quarter.

[Matt Tait:]

Thank you, Judy. We booked $601 million in contract awards in Q4 and $2.7 billion for the full year, resulting in a book-to-bill of 0.9% in Q4 and 1.1x for the full year. New business comprised approximately 25% of awards for the year in line with previously discussed expectations of slower adjudications with intelligence customers. In Q4, we successfully secured recompetes with the Marine Corps war fighting labs and a pair of wins in the Navy for unmanned modernization and weapon system software work. These key wins help incrementally derisk our recompete exposure in 2022. As a result of these bookings, our backlog has now reached a record level of $10.6 billion, and our funded backlog was a respectable $1.6 billion providing us with good visibility and a solid foundation to execute from. We exited the year with a total qualified pipeline of over $30 billion with approximately $6 billion awaiting adjudication. Our steadfast priority is on converting the pipeline into revenue. We expect a healthy level of proposal activity in 2022 across our customers and capabilities for a mix of recompete and new work. We are pleased with our enhanced positioning resulting from our recent acquisitions. The acquisition of Griffin Technologies is already providing opportunities for growth in digital engineering with new customers in the Navy. Additionally, TMAC's data engineering presence within the intelligence community offers inroads to expand our analytics offering into new areas. The integration of both acquisitions is progressing smoothly, and the remaining integration should be complete by the end of the first quarter. I am delighted to see us already operating seamlessly as one. Now let me briefly touch upon an incredibly important topic for us, talent. ManTech's compelling employee value proposition endures amidst an extremely competitive market for highly skilled and highly cleared talent. We are rigorously optimizing our employee experience and are working to further empower our employees to drive desired outcomes for our customers and their careers. We are concentrating on accelerating the hiring of attractive candidates and maximizing the retention of our talented employees. Lastly, I want to congratulate Steve Dietz, who we promoted earlier this month to lead our federal civilian business. Steve has made significant contributions to the business over the last 10 years and I look forward to working with him in his new role. With that, let me hand the call over to Kevin for closing remarks.

[Kevin Phillips:]

Thanks, Matt. We take pride in our over 50-year legacy and reputation as a premier national security company with a mission-first and customer-focused philosophy. We look forward to building upon the trust we have earned with our customers by delivering best-of-breed solutions to meet their most challenging mission needs. Our strategic focus remains on driving long-term value for our customers, employees and shareholders. Before we open up the line for questions, I want to note that the purpose of today's call is to discuss our recent financial results and our 2022 outlook. We kindly ask that you keep focused on those questions and stay centered on these topics. With that, we are ready to take your questions.

[Operator:]

First question from Matt Akers with Wells Fargo.

[Matt Akers:]

Yes. Hi, good afternoon. Thanks for the question and congrats to George on the retirement. Could you talk about ODCs and how we sort of stand -- are those coming back and how that pacing will sort of run through the year? Just curious how to think about how EBITDA margins could -- how we should think about sort of once that's kind of reverted back to normal here?

[Judy Bjornaas:]

Yes. We definitely have built that into the full year guide. So we do have some seasonality in the margins just because of the timing of fringe expenses. So it's not a huge shift quarter-over-quarter, but definitely depending on the timing of the quarters those come in, it can impact the margins.

[Matt Akers:]

Okay. Great. And --

[Kevin Phillips:]

A higher level on the supply chain stuff, we do expect some pickup in the latter half of the year on that.

[Matt Akers:]

Yes. Okay. The elevated PTO that you talked about earlier, has that returned to kind of normal levels at this point?

[Judy Bjornaas:]

Yes. I think by the end of January, we were pretty much back to normal operations.

[Matt Akers:]

Yes. Okay. And I guess just last one. Are you able to say what the revenue run rate is from TMAC?

[Judy Bjornaas:]

It's a really small tuck-in acquisition. Immaterial.

[Matt Akers:]

Okay. Thank you.

[Operator:]

Our next question comes from Tobey Sommer with SunTrust Securities.

[Jasper Bibb:]

Hey, good afternoon. This is Jasper Bibb on for Tobey. I wanted to ask how you're thinking about ODCs in the guide? I know you had some moving pieces there last year and visibility might not be great, but just wanted to see how you were kind of contemplating that as you look out through the year?

[Judy Bjornaas:]

Yes, we -- in the first quarter, we're not projecting a lot. As we said, we're looking at Q1 being very similar to Q4. Then throughout the year, I think it's definitely back half loaded, but sometimes things accelerate forward. And -- but I think I would say second half is where we're currently projecting the majority of those to come in.

[Jasper Bibb:]

Thanks. And then I was hoping you could speak to increasing your Fed SIV presence. You highlighted the leadership change in the prepared remarks. Can you just talk about how you're prosecuting that opportunity and any early returns from that effort?

[Matt Tait:]

Yes. So that was a recent announcement by us in the month of February. So we're excited to have Steve Deitz who has been a proven winner of new work in the federal civilian arena. So we're excited to have him on board and starting to make a difference.

[Jasper Bibb:]

Okay. Got it. If I could add another one on acquisition contribution in the guide. Is about $20 million a month still kind of the right range to think about for Griffin for the full year? And is there any kind of additional seasonality in that business beyond that?

[Judy Bjornaas:]

No, there's no seasonality on that. And I think we said in the fourth quarter call, low to mid-20s per month and nothing changed from that.

[Jasper Bibb:]

Got it. Last question for me. Could you just contrast how the market and your customers are responding to the CR versus your recent experiences? I know we've had a lot of them in the last decade or so, but this one seems just to be a bit more disruptive than recent history?

[Kevin Phillips:]

Yes. I think ManTech and the market has got the custom to CRs, but this one does feel a little bit different in terms of the procurement activity. I think it's in part also with the COVID surge combined. But we think that the overall trend towards getting a federal budget in place is positive. The budget is going to be higher than prior year once it's in place, and that will kind of push more utilization of funds in the second half of the year as well.

[Jasper Bibb:]

All right. Thanks for taking the questions and I'll add my congratulations for George as well.

[Kevin Phillips:]

Thanks.

[Operator:]

Our next question is from Gautam Khanna with Cowen.

[Gautam Khanna:]

Hey, good afternoon guys. Hello. So first, congratulations to both George and Steve. We are going to miss George. He's quite a legend. So hope he enjoys retirement and good health. I wondered just, Judy, maybe could you be specific quantitatively on the ODCs that didn't happen in 2021 that you expect to recover in 2022? So sort of what is the arrears if you will, that aids the number? And then last quarter, we talked about a 5% growth number and that was not with TAMs, the new deal that you did. The midpoint implies under 4. Is the entire variance, the Q1 COVID impact? Or are there other things that are now kind of incremental to their statement? Thanks you.

[Judy Bjornaas:]

Yes. So on the ODCs, I think we're being much more moderated in our view in the guidance for 2022. So looking pretty flat to 2021. So while we think some of the ODCs that we were expecting in '21 roll into Q2, Q3 of '22, we haven't added on top of that. And then as far as the growth, I think it's similar and in line with what we expected that, as I just said, the TMAC is very nominal. And I think we're just building through the Afghanistan impact that we had in Q4 through the balance of the year and some other headwinds and just trying to be very thoughtful in our guidance ranges.

[Gautam Khanna:]

And maybe, Kevin, for you, just given the timing of the budget passage likely maybe calendar Q2, what do you think will happen with respect to bookings through the year? Do you think we're going to have an unusually large calendar Q3 fiscal year-end for the government? Do you think kind of a log jam starts to break in Q2? What's your perspective on the cadence of bookings through the year given the budget overhang right now?

[Kevin Phillips:]

Yes, I'll put it a couple of pieces. First, I think the intelligence community customers are getting back to work, and we'll start seeing some uptick throughout the year on their activity. There's a lot of catch up to do. I also believe that if you follow the federal budgets when they're placed, they have to obligate the money in here that can add to funding on existing programs or add to them moving quickly to new starts that have been outstanding. I think that the jury is out as to how quickly they'll get to the new starts, but they do have a focus and a pace within the DoD that I think will favor, I'd say, an in-line amount of proposal volume this year, and we'll see how quickly the awards start accelerating and to follow that.

[Gautam Khanna:]

Last one for me, Kevin, maybe can you opine -- I know it's -- we're not talking about '23 yet, but this year is a transition year on growth, clearly, given the Afghan headwinds and the other ones you've mentioned. What do you think kind of the long-term organic growth rate for ManTech? What is it entitled to, given kind of the pipeline, the customer concentration the efforts in pension alike? Do you think we're going to kind of rebound to 3% to 5%, 4% to 6%. Just what do you think a long-term kind of entitlement for the business is?

[Kevin Phillips:]

I don't know about entitlements on that. We have to earn our stripes every day. But that said, look, I think the market is generally moving towards our strategy. How quickly and how much funding moves in that direction, whether it's in '23 or '24. I think it's positive. I think that our approach over the last few years to position the business will prove out. We're very excited about it. because, as I think I've said before, we're entering a digitally dominant battlefield and all things that will come with that. So we're very excited about that as well. I defer to Judy on what she views as long-term organic growth. I think that we have to wait and see how the procurements play out within the backdrop of federal budgets in DoD and Intel, but I think are going to be up versus flat just based on the overall global environment, the threat environment.

[Judy Bjornaas:]

Yes. I would say, Gautam, kind of the ranges you were throwing out there and the in the mid-single digits, plus or minus is what strategically, we're hoping that we will get back into that growth range.

[Gautam Khanna:]

Thank you for the clarity. Appreciate you guys.

[Operator:]

Our next question comes from Mariana Mora with Bank of America.

[Mariana Mora:]

Hello, how are you?

[Judy Bjornaas:]

Fine.

[Kevin Phillips:]

Doing good.

[Mariana Mora:]

So first question is, I don't know if you can give us some color on why are you confident this award environment is like going to improve? What are your conversations with customers? And what has changed from last year?

[Matt Tait:]

So yes, so I'll take that. This is Matt. We are seeing activity in terms of the proposal activity with the opportunities within the Intel segment. Now we -- to your point, we've got to make sure that, that turns into adjudications, but we're seeing every indication that, that's where they're heading. So we've had conversations, but we're also seeing activity. And so that's what -- and we factor that into the guide and try to be measured about that.

[Mariana Mora:]

Okay. Make sense. And then I know you mentioned you just wanted to talk about the earnings that you announced, George stepping down from the Board. Could you help us understand how it's going to be the relationship and the influence of who is still the major shareholder and has a large voting power, but officially is not longer in the decision-making table. How should we think about that relationship going forward?

[Kevin Phillips:]

Sure. Look, George and the Board have all supported the strategy we have. We're very focused on that, remain focused. That is a guide for us all. And we're very excited about how we approach the market. The Board represents all shareholders, and we're focused on providing generation and returns to everybody equally. I think that George has confidence in our approach and when and where appropriate, as we would do with any investor of his size and scale, we'll reach out to him on those decisions that are afforded to him in his role versus the broader investor base.

[Mariana Mora:]

Okay. Thank you very much.

[Kevin Phillips:]

You are welcome.

[Operator:]

Our next question comes from Brian Kinstlinger with Alliance Global.

[Unidentified Analyst:]

Hi, good afternoon. This is Matt in for Brian. So you guys were talking about how new business was approximately 25% of awards. And I was wondering if any of that is expanded scope of work? Or is that separate? And what the metrics are on that?

[Judy Bjornaas:]

Yes. So the new business is true new starts. So the balance of the bookings were either for recompete wins or extensions or add-ons. So it's all within that number. We don't break those out separately.

[Unidentified Analyst:]

Okay. Thank you. And is there any more color you can provide on the talent shortage?

[Matt Tait:]

So yes, I'll pick -- I'll start there. I think that -- so yes, first off, it's real. We're seeing, especially in the classified spaces where people have an opportunity to maybe go still work -- still get a good pay in a place that maybe they can work from home. So that's -- that is definitely something we're seeing in the market. So it's -- again, not just a ManTech thing, but an industry thing that I think we're all working very hard to solve.

[Kevin Phillips:]

This is Kevin. I'll, of course -- that we have long supported and promoted the need to bring and groom the very best talent to meet national security needs, whether that's improving security clearance reform or creating internal certification and degree programs. We will be persistent about that because we think it's very much needed. And we're hopeful over time that the market will also start adapting to the opportunities that are reported within our segment of the economy.

[Unidentified Analyst:]

Great. Thanks so much.

[Operator:]

Our next question comes from Matt Sharpe from Morgan Stanley.

[Matt Sharpe:]

Kevi, Judy, Matt, good evening and thanks for taking my questions. Maybe for just starters here, Kevin and Matt, one for you. Historically, I think the intelligence exposure the company has had has been somewhere in the range of 40% to 50% of revenue. Obviously, there's been some downward pressure in that IC community. Where does the exposure stand today? And as you think about the company going forward, what is the right mix?

[Kevin Phillips:]

Yes. Look, it holds in that same range. It's more of a, I'd say, a delay on potential upside in terms of our approach to the market. We're well positioned. If you think about what the intelligence community does and what it has to do and how it does it from a use of technology or the application of cyber or just the intelligence analysts needed to do their role. We think there will be a persistent demand for that. So I suspect that we're going to see an increased amount of opportunity set. The question is how that set of opportunities, weighs against other opportunities that come in against the defense and federal surveillance sectors. Matt, do you want to add anything there?

[Matt Tait:]

Excellent. No, thank you. Nailed it.

[Matt Sharpe:]

Okay. And then just maybe a question on the revenue guide for Judy. With respect to the 2.6 to 2.7 range, can you give us some sense of what book-to-bill is needed either over the first half or the first or the full year to support that range? And maybe are there any sort of larger bookings within that? I think it was 15% of recompetes that you need to get across the goal line to make this happen?

[Judy Bjornaas:]

Yes. We don't really guide on bookings. As we said about 85% of that midpoint is in backlog. Most of the balance is recompetes or extensions or add-ons to those contracts with less than 5% coming from new. So that's kind of what we provide as far as guidance on growth and where it's coming from.

[Matt Sharpe:]

Got it. Fair enough. And then maybe just one on leverage in M&A. I think, Judy, you mentioned you're at 0.9x at the end of this past quarter. Can you remind us just where you're comfortable taking that? And then maybe some color on the M&A pipeline. Are you seeing increased activity and maybe comment on your peers' bidding behavior? Is it getting more aggressive, less aggressive?

[Judy Bjornaas:]

Yes. So from a leverage standpoint, I think we've been pretty consistent over the years that 2.5x to 3x is the range that we would feel comfortable assuming we can find the right properties. Luckily, we were very successful on Griffin, which is larger than our average M&A, and then I'll let Kevin talk about the market and what we're seeing.

[Kevin Phillips:]

So last year was a very heavy year. I think the first half of this year will be a little bit lighter for opportunity sets to come out. That said, from an acquisition standpoint and the use of capital outside of the dividend that we announced, we are very much focused on deploying capital for acquisitions, and we'll continue to be, I'd say, aggressive, but measured in how we approach the market and what we want to do and where we want to be from an acquisition standpoint.

[Matt Sharpe:]

Got it. Thanks. And that’s helpful. Before I get back in the queue wish George all the best, he’s quite a leader for both ManTech and in this industry.

[Kevin Phillips:]

Thank you.

[Matt Tait:]

Thank you very much.

[Operator:]

. Our next question comes from Brian Kinstlinger with Alliance Global.

[Brian Kinstlinger:]

Ho, just looking for a little more color on employee turnover. I forgot to mention that before, but has turnover increased? Or is there a talent shortage? Is that like increasing? Do you have metrics on that?

[Matt Tait:]

So for what we're really seeing in the macro is it is returning to more pre-pandemic levels as we don't give specifics around that, but that's essentially what we're seeing. But like what Kevin talked about is we do have -- and I won't bore you, I could talk for the next hour about all the programs that we have in place to drive and actually retain and improve the skills of our talent to meet the national security needs.

[Brian Kinstlinger:]

Okay, great. Thank you.

[Operator:]

It's from Gautam Khanna with Cowen.

[Gautam Khanna:]

Hey guys. Sorry, I wanted to requeue. I was -- Judy, in the past, you've talked about kind of mixing up the business to less cost plus I'm curious if you could talk about the big pipeline and how that compares to the current base of business in terms of cost plus versus T&M versus fixed price? And what that might inform us on margins longer term?

[Judy Bjornaas:]

Yes. I think it's our goal or it's our desire to see our customers start to move toward more solution-based contracting, which would give us the opportunity for higher margins. But frankly, right now, I mean we're about 68% cost-plus, which we've been over the last couple of years in that 68% to 70% range. And don't see a major shift in any of our customer base moving away from that.

[Gautam Khanna:]

Okay. And then just if you could talk a little bit about longer-term balance sheet deployment. You've talked -- obviously, the company has been focused on M&A for a long time. But I'm just curious, anything you would revisit with respect to the dividend given the new Board compensation -- sorry, composition with George not on the Board. Any change to capital deployment strategy that you could maybe talk about?

[Kevin Phillips:]

No change. we're confident with what we're doing and how we're deploying capital.

[Gautam Khanna:]

Thanks again guys.

[Operator:]

Our next question comes from Louie DiPalma with William Blair.

[Louie DiPalma:]

Good afternoon Kevin, Judy and Stephen. In the past, you have highlighted ManTech's cloud capabilities, and you touted how you have a partnership with Google. And you also mentioned on today's call how you acquired data analytics capabilities with your recent acquisitions. And I was just wondering how is ManTech positioned for like enterprise IT type opportunities because it seems that traditionally, ManTech has excelled at more engineering and cyber and operations type capabilities, but it seems more recently, you've tried to strengthen your enterprise IT. So I was just wondering how is ManTech positioned within enterprise IT?

[Matt Tait:]

So Louie, this is Matt. So for all of the areas that you talked about, yes, we are very well positioned in those. And when you think about the 5 technical focus areas that we've talked on prior calls, Mission and Enterprise IT is one of those 5. And we're very fortunate to have some unique relationships across the spectrum to -- for us to be attracting the right talent and then building that business. So we feel that business is continuing to grow in the right direction with the rest -- with an alignment with the opportunity set in alignment with our customer needs.

[Louie DiPalma:]

Great. Thanks. And I was wondering, is there any update to the wind down of the Afghanistan support contracts? And was there any like Afghanistan-related revenue that was recognized in the fourth quarter that's still going to go away?

[Kevin Phillips:]

Yes. I think Q4 had a bulk of Afghan-specific work drawdown in that quarter as combination of support for various military requirements as well as state department because of the embassy being shut down. Those are gone. There's some legacy sustainment activities supporting the military that is reducing at the same time going out of Q4 into Q1. But generally, that's out and we have a very low remaining presence in the Middle East as a company.

[Louie DiPalma:]

And Kevin, can you provide a high-level overview of any other types of like overseas exposure that ManTech has? And is there the potential that the contractors that you had like either in Afghanistan or were supporting Afghanistan from the United States that they could be deployed for other projects?

[Kevin Phillips:]

We have a 50-year history of supporting national security. We will go where our customers need us, and we'll tell you after the fact when we can. And we expect that the near-peer threats will reallocate needs across all of our industry and all of our sector for the long term.

[Louie DiPalma:]

That’s understandable. Thank you Kevin and Matt, Judy and Stephen. Our next question comes from Gautam Khanna with Cowen.

[Gautam Khanna:]

Yes, I just wanted to follow up on that last question. I'm curious, are there provisions within the existing contracts that address the Middle East that allow you to deploy that would allow the customer flexibility to deploy ManTech personnel to Eurocom or Poland, what have you, to deal with the emerging kind of Ukraine Russia conflict?

[Matt Tait:]

Gautam, this is Matt. I think Kevin covered it pretty succinctly, which is, yes, our contracts -- we're here to support national security missions, wherever -- and wherever that takes us will go. And then we'll brief you guys in after the fact as appropriate.

[Gautam Khanna:]

Okay. And then Kevin, can you also talk about the M&A pipeline? Are you seeing kind of more opportunities? And if you could characterize the size of those opportunities?

[Kevin Phillips:]

So as I mentioned earlier, the first half of this year is going to be lighter compared to the prior year. We remain disciplined on what we look at and expect from us more consistency on the level and range of businesses that we target.

[Gautam Khanna:]

Thank you guys.

[Kevin Phillips:]

Thanks Gautam.

[Stephen Vather:]

Kevin, it looks like that we have no further questions at this time. As usual, members of our senior team will be available for any follow-ups. Thank you all for your participation on today's call and your interest in ManTech.

[Operator:]

Ladies and gentlemen, that does conclude today's conference. Thank you for your participation, and have a wonderful day. You may now disconnect.